By: Sakthi Prasad --
14 December, 2014
In collaboration with Nishant Jain, Senior Research Analyst - Energy & Sustainability
African continent is rich in mineral and energy deposits and has attracted lot of investments in the mining sector.
One of the prime inputs in the mining sector is electricity: and countries across the continent are facing shortages on that front as they suffer from supply deficit and poor grid infrastructure.
In absence of reliable, round-the-clock power supply, mine owners largely opt for diesel and Heavy Fuel Oil (HFO) generators, which jack up the power cost to as much as 15% of the total cost of operations.
Category managers are always on the lookout for alternative options to reduce overall electricity costs. Of course this cannot come at the expense of secure and stable supply.
One viable option that holds more promise is tapping solar power, especially for those mining companies that don't want to fully depend on grid electricity.
And the continent is also playing catch up on the renewable energy front. For example, Bloomberg News reported in December that South Africa plans to triple electricity production from renewable-energy sources to help alleviate power shortages that caused rolling blackouts throughout the country for several weeks. Reuters also reported in December that four foreign and domestic firms would build two solar power plants in Uganda, with a total capacity of 20 megawatts (MW) as the country seeks to develop its renewable energy potential. Also, a 500 MW solar complex project is coming up at Ouarzazate in Morocco. The complex is being built on an area of 3,000 hectares.
African countries are investing in solar energy owing to the following reasons:
Favorable Environment - Because of its proximity to the Equator, Africa gets more sunlight than other countries like Germany and China, which makes solar power more affordable. Closer proximity to desert allows power plants to be built without occupying fertile, agricultural lands. Greater Accountability - With African countries topping the charts of corruption perception index, international agencies, such as the World Bank and IMF, are more willing to finance solar projects when compared to oil and gas drilling, as solar energy projects have greater transparency. Less Infrastructure - There is fresh water scarcity and lack of grid infrastructure in Africa, which makes solar energy a perfect option, as solar panels do not require water or an adequate grid to produce electricity
In the recent years, miners have also shown interest in building solar power as is evident from the below mentioned investments:
Anglo American - 240 kW solar power plant in South Africa Sibanye Gold - Considering a 10MW solar power plant in South Africa Rio Tinto - $23.4 million solar power station at the bauxite mine in Australia BHP Billiton - Commissioned a 1 MW solar power plant in Chile Harmony Gold Mining Co - 18 MW Solar plant in South Africa
As can be seen from below chart, solar PV panel prices have been falling over the years - thanks to production boom brought about by the Chinese companies, which is also partly driving solar power adoption.
With a fall in the average prices of PV panels, the total cost of ownership has generally gone down for buyers. Even though the TCO has gone down, there are still challenges of high maintenance cost and integration with existing grid. However, overall solar PV systems offer an attractive proposition of overall reducing energy costs.
Africa is a huge continent and if you are a category manager in charge of energy procurement for a miner in Africa then there exists no "one size fits all" type solution.
The region in which one operates will broadly determine the type of energy mix that one has to adopt.
Option 1: Grid Power with an option of Solar PV as a backup instead of diesel generators
If your mine is located in Southern Africa, then it means that you can mostly rely on grid electricity - though it makes sense to invest in a power back-up system as the region has been witnessing rolling power cuts. Grid electricity is generally low priced and secure. However, power demand is growing at fast pace which may lead to deficit situations in future. South Africa, for example, has been experiencing rolling power cuts every now and then. Hence, it would be better if category managers go for Solar PV as a back-up in case of emergencies.
Option 2: Hybrid - Grid power and Solar PV
In North Africa, one can't rely fully on grid power though per unit price for electricity is low. If a company's mine is located in this region then it would make sense for category managers to opt for a combination of grid electricity and Solar PV. This would not only ensure supply security but also attractive return on investments in the long run.
Option 3: Hybrid - Solar PV and Diesel Generators
In East Africa, the grid electricity in general is expensive; besides high cost the region also experiences frequent blackouts. A miner in East Africa can go for diesel generators coupled with Solar PV for stable power supply. No point in depending on grid alone here.
Option 4: Hybrid - Grid Power, Diesel generators and Solar PV
In West Africa, grid electricity, in general, is expensive and the region also experiences blackouts. For miners in this region, it would be good if they can go for a multiple combination of grid power (since the grid is stable), Solar PV and diesel generators.
Beroe's study has found that the diesel-solar PV hybrid with share of solar PV of around 10% in the overall power basket proves to be financially viable with an NPV ranging from $1.2-$3 million and payback period of 4-5 years for a 10 MW installation.
To conclude: irrespective of the region, other things remaining constant, if you throw in at least 10 percent of solar power in your electricity mix then it certainly proves to be beneficial from both cost as well as supply security point of view.