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Red tape holds up South African mines' power generation plans


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Red tape holds up South African mines' power generation plans

Red tape has been preventing South Africa-based mining companies from generating their own power, leaving them dependent on state utility Eskom Holdings SOC Ltd. as applications pile up at the offices of the National Energy Regulator, according to a May 4 panel held by Mining Review Africa, a digital platform and monthly publication.

The online panel titled "Self-generation: Are mining companies prepared to generate their own energy?" was led by project finance and energy specialists and included Tsakani Mthombeni. Mthombeni is group head of carbon and energy with South Africa-based gold producer Gold Fields Ltd., which is developing Australia's first high-penetration renewable microgrid at its Agnew/Lawlers gold mine.

In South Africa, rolling blackouts in 2019 resulted in lost production, and Mineral Resources and Energy Minister Gwede Mantashe released a revised Schedule 2 of the Electricity Regulation Act on March 26, allowing mining companies to generate their own power.

Asked why there had not been much uptake by South African mining companies to generate their own power, Mthombeni said the industry was built on the old Eskom model of cheap coal-generated power.

"Over the years, that model has come under challenge from technologies that have advanced so much; unfortunately, regulations have not caught up as fast as they need to," Mthombeni said. "Until recently, regulations were very prohibitive of any self-generation."

"When you are particularly looking for an [independent power producer] or over-the-fence solution, someone else is going to put in money and they want guaranteed returns over a defined period. This is conflict one with the mining sector, where you may not have the life of mine, or certainty into the life of mine they are looking for," Mthombeni said. "What we do know for mining is that 15 years ago, there were mines left with two years, and today, you are left with two years," Mthombeni said, attributing the discrepancy to exploration spending.

A licence is required from the National Energy Regulator of South Africa, or NERSA, for projects with capacity exceeding 1 MW, even for the customer's own use. Projects with less than 1 MW of capacity only require NERSA be notified, according to Alexandra Felekis, who focuses on project and infrastructure finance for law firm Webber Wentzel.

The biggest issue facing mines and IPPs is how long it might take to get a license to provide power to the off-taker, Felekis said. "NERSA has on its desk applications equal to 2,000 MW."

Anglo American PLC spokesperson Sibusiso Tshabalala welcomed the new regulations, saying the mining sector could be instrumental in helping Eskom make up the power shortfall. Tshabalala told S&P Global Market Intelligence that Anglo American has several pilot projects in the pipeline, including the large-scale solar photovoltaic project at its Mogalakwena platinum group metals mine.

The Minerals Council South Africa estimated in late 2019 that mining companies could add about 869 MW of solar power and up to another 800 MW of conventional power could be added to the national grid within three to four years, with more available from other energy-intensive sectors.

Mantashe on May 5 gazetted for public input draft amendments to electricity regulations on the new generation capacity, which allows municipalities of "sound financial standing" to develop or procure their own power generation.

Felekis told Market Intelligence that this would allow municipalities to procure their electricity needs directly from IPPs or develop and own their own power stations to on-supply electricity to consumers. Felekis said this could benefit the mining sector, giving them three options to choose from: Eskom, IPPs or municipalities.