We are increasingly seeing the need for a stable, controllable, and clean supply of power being pushed up the agenda by mining companies. This is particularly acute in regions such as sub-Saharan Africa, where there are fragile grid systems and a steady flow of electricity cannot be taken for granted, but where the success of capital-intensive mining expansion projects for critical minerals depends on the electricity required to run these projects being available. We are seeing mining companies actively build up technical and commercial teams focused on power supply and developing a portfolio approach to power supply. This portfolio may be through a combination of developing on-site renewable and battery projects within their concession area, investing in grid reinforcement and expansion, entering into power purchase agreements directly with developers of renewables projects, and entering into power supply arrangements with traders – who are themselves being established to respond to the massive need of mining companies for clean stable power supply.
Whilst mining companies are stretching beyond traditional mining territory, in the past decade the renewables industry has evolved fundamentally and can now address the needs of mining companies. Therefore, enabling mining companies to focus on their core business whilst complementing this with clean power. However, careful transacting is required to ensure long term partnerships between clean energy and mining.
The traditional position in Africa has been that a mining company would acquire its grid power supply from the incumbent state utility, under poorly documented terms, with state utilities very protective of mining companies as core creditworthy customers. This balance is tipping, with mining companies representing approximately 40% of power demand in Africa and rising, thereby increasingly challenging state utilities who are generally not increasing renewable power generation sources and grid improvements in step with this increase. Mining companies should now be alert as to the regulations governing private power supply to industrial consumers as they enter new jurisdictions and ensuring that they have responding entitlements in their concession arrangements, such as ensuring any approvals or exemptions are provided upfront as a condition of their investment in the jurisdiction and cementing the terms of any grid investment projects. Certainly, in Africa, there is a patchwork of approaches between jurisdictions taking differing approaches towards open grid access and multi-player markets, but there is an evolutionary trend flowing towards liberalisation and it is exacerbated by climate induced load shedding and consequential high costs of grid power supply which are in turn making the option of direct supply from renewables projects increasingly affordable.
In terms of contracting for renewable power, both with project developers and traders, the tension is between the take or pay structure that these counterparties require in order to finance their projects and enable their return, and the need for the firm and stable power supply that the mining company customer requires. The market for this is actively establishing itself, and risks need to be carefully allocated depending on the exact nature of the parties involved, the specifics of the mine and whether there is any alternative offtake or supply. Mining companies may be running tenders, requiring developers to design and provide a solution to their power needs – such as enabling a 24/7 renewable baseload supply through a hybrid combination of renewables and batteries, or by enabling a threshold renewable power fraction of total power supply. The performance parameters around this, and the consequence of the renewable system failing to achieve these parameters, must be carefully negotiated. Mining companies are additionally developing an interest in the role of renewable energy certificates and ensuring that these accompany the renewable power to satisfy necessary certifications required by the onward supply chain.
From an M&A perspective, we are seeing mining companies either acquiring operational renewable projects (seeing these as enhancing the value of their mine site in addition to the security of supply need) or entering into strategic investments and partnerships, such as with equipment manufacturers or clean energy start-ups.
Once mining companies have accomplished the immediate threshold of stable renewable power supply, we anticipate that electrifying the mining fleets and transport links which move the ore and processed metal from mining sites to ports, and from there into the supply chain, will be the next step, and that the scale up of renewable power to meet that
