Renewables for Mining in Africa
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Renewables for Mining in Africa © 2020 Bird & Bird All Rights Reserved | 1 A few figures Report resulting from the conference held on 29 January 2020 at Bird & Bird in Paris Introduction by Boris Martor, Partner Africa currently accounts for 15% of global mining expenditure, which remains low in relation to the continent’s resources. Mining is therefore set to expand in the coming years. Africa’s power generation capacity is 80 GW, of which 40GW is in South Africa and 23 GW is allocated to mining projects, mainly in Sub-Saharan Africa. Thus, about 50% of the electricity production in Sub-Saharan Africa is generated by the mining sector. In addition, the cost of electricity generation in a mining project is between 10 and 35% of the project cost. Thus, the weight of the mining industry in the African energy landscape is very important and the needs are growing as mining exploitation increases. Moreover, in the mining sector, there is a permanent risk of energy blackouts. Indeed, mining industries have an increased dependency on energy. A temporary or more longer term loss of power would have strong financial implications. Renewable energy infrastructures, such as mini-grids, are now being considered as an answer to all this. What is a mini-grid? An integrated energy systems consisting of a group interconnected Distribution Energy Ressources (like Production sources, PV, Genset, along with energy Storage to control some Controllable Loads) with clearly defined electrical Boundaries. • To increase resiliency • To manage Site energy Consumption and Demand • To Integrate Renewable Cost effective energy sources. 2 | © 2020 Bird & Bird All Rights Reserved © 2020 Bird & Bird All Rights Reserved | 3 Challenges & opportunities of using renewable energy in the African mining sector Opportunities of renewable energies related to Moreover, the cost of renewable energy is constantly » Develop energy agility across seasons or multi- Pooling the needs of the mining sector and local the cost and reliability of these projects falling and is less important than that of fossil fuels year cost cycle ; populations would then be an advantage. On the one by Paul François CATTIER, Energy Access Ventures, (coal, oil, etc.), which also leads to an increased interest » Measure performance and generate alternative hand, it would allow the mini-grids to benefit from the Former VP Economic Developement Africa & Middle East at in renewable energy on the part of the mining sector. scenarios that are easily achievable ; legal protections granted to the mining sector. On the Indeed, the cost of wind and solar electricity is expected other hand, it would make it easier to obtain funds from Schneider Electric » Obtain a flexible energy network; and to fall by 26-59% by 2025, and it is estimated that energy international donors. costs in new mines will be reduced by 25-50% through » Delaying certain investments which are necessary The interest in using renewable energies in the mining the hybrid energy management program. as part of a “Pay as Grow” approach. industry stems first of all from the observation of the This approach could then become a territorial master increase in energy demand in the mining sector: plan, or in other words, a new way of managing the It should be noted, however, that this energy is not Projects related to the CSR policy of mining decentralisation of electrification, which to date is still flawless. One of the particularities of renewable energy companies very fragmented and whose political governance could • The mining industry now accounts for 6.2% of the is that it is an alternative energy source. Therefore, a By Pierre-Samuel GUEDJ, Chairman of Affectio Mutandi be improved. world’s energy consumption; mining industry cannot base its entire activity on such • 32% of the energy consumed by mines is in the form energy (risk of blackout etc.), hence the interest in using Could the construction of mini-grids for the mining Challenges related to applicable legislation of electricity; the hybridisation system (mixed power supply). industry benefit local populations and thus enable • Mining reports an increased dependence on energy. mining projects to pursue a CSR policy & manage SDO The regulatory Environnent A blackout can cost an industry as much as $100 Similarly, this particularity can generate the need to store issues? By Stan Andreassen, Counsel at Bird & Bird million. energy, which in turn generates a cost. The creation of mining mini-grids is inevitably an Is the regulatory environment in Africa conducive to the At the same time, these mining industries are paying Generally speaking, the interests of these projects are as opportunity in terms of local content. Indeed, the development of renewable energy projects in the mining more and more attention to the clean energy that follows: mining sector often has laws on local content, as well as sector? underpins their operations. Indeed, the Social Licence laws on infrastructure tenders, or in other words a legal to Operate, or in other words, public approval to operate • The energy cost; arsenal aimed at guaranteeing the country’s interests, The legal and regulatory framework applicable to in mines has become the primary concern of mining particularly in terms of skills transfer and job creation. • The brand image: renewable energy projects renewable energy cannot be analysed as a uniform set executives, leading to the electrification of mines with improve the image of the mining industry, which is across the African continent and often varies greatly renewable energy. This is even more of an issue in Africa often categorized as highly polluting; The operation of these mini-grids will therefore from one country to another. In particular, there is a given the figures previously outlined (23 GW/40 of energy necessarily require the use of local and qualified wide regulatory gap between countries with high energy • Reliability: Multiple energy sources reduce the consumption attributed to the mining sector). manpower, which, in addition to creating jobs, will production and others, including Morocco and South likelihood of mine shutdowns; necessarily involve the creation of technical training Africa, acting as pioneering reformers in this area. In addition, there is an interest related to the quality of • Sustainability: reduced CO2 production; centres. the electricity received when mining sites are connected • Social license to operate: benefits local populations For all the countries of the African continent, it should be to the national grid. As already pointed out, mines are (as will be discussed by Pierre-Samuel GUEDJ); In addition, the creation of mining mini-grids could recalled that where a specific regime exists for renewable generally located far from urban areas and therefore far • Flexibility: possibility to manage more easily the make possible to channel a certain volume of electricity energies, it is not an autonomous legal framework. It from the national grid. The quality of electricity received, global cost of ownership of the installations; production to the local population. Indeed, most of is always part of a broader legal framework applicable which is often very poor, endangers equipment and can • The micro-grid is also the best tool to optimize the the time, mining operations are located in rural areas, to the energy and electricity market. However, the cause interruptions in the operation of the mines etc. TCO of mining energy. Indeed, it allows to : generally off the national electricity grid. energy market, in terms of both the production and distribution of electricity, has historically been a highly » Optimize global investments, with a complete Decentralised energy will therefore make it possible to A solution often evoked to electrify these areas is the use regulated market, often under a state monopoly or power distribution strategy, by minimizing lines, compensate for this by having autonomy of generation of the mini-grid, but the question of the reliable legal quasi-monopoly. The resulting legal regime is therefore stations and power generators ; and distribution on these remote sites. framework and the financing of these projects is a brake historically very restrictive and constraining. » Reallocate or retire certain assets as required ; on investments (too expensive, not profitable etc.). 4 | © 2020 Bird & Bird All Rights Reserved © 2020 Bird & Bird All Rights Reserved | 5 Challenges & opportunities of using renewable energy in the African mining sector In this respect, Morocco and South Africa, cited as conceivable projects ; uncertainty for investors regarding the legal stability providing a wide range of benefits, from priority access precursors in the reform of the national legal frameworks • The types of contracts used (concession, essential to the development of long-term projects. and priority dispatching to subsidies to production applicable to energy and electricity production and management, PPP, leasing), the procurement Although no common general framework, even a little (e.g. feed-in tariffs) to compensate the (initial) higher distribution, are also the continent’s leading countries procedures (public procurement, PSD, PPP) and the restrictive, exists to date for electricity production or technological costs. Moreover, in some countries IPPs in terms of electricity production based on renewable exceptions to competitive tendering in the context of distribution and renewable energies, we can cite in where supplemented with long-term PPAs. energies. In many other countries on the continent, state projects are not clearly specified or detailed; particular the UEMOA draft directive on renewable regulations are either frozen in their historical energies and the Master Plan drawn up by the CEREEC • The capacity thresholds for installations below which While subsidies to renewables and PPA allow to pursue monopolistic framework or reformed in timid or within ECOWAS. public authorisation regimes are simplified are often public policies (e.g. development of national industry and incomplete ways, creating legal uncertainty for private too low to be useful in practice ; job creation) and the introduction of market competition, investors.