A recent discussion on the Africa Mining Forum Digital Event on investment in power projects by the mining industry, explored why mines were increasingly using renewable energy, following a global trend where in 76% in the global economy, renewable energy is now the cheapest to generate bulk electricity.
The discussion titled “Reshaping energy capital flows to drive positive investment into mining” explored the appetite of mining companies for alternative sources of energy and looked at the different models that were available, especially at the exploration stage.
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Taking part in this session were:
- Moderator: Claire Volkwyn, Editor-at-large, Smart Energy International
- Panelist: Kwasi Ampofo, Metals Analyst at BloombergNEF
- Panelist: Solomon Asamoah, CEO of the Ghana Infrastructure Investment Fund and former Vice President for Infrastructure, Private Sector and Regional Integration at the African Development Bank.
Now also covering transport, industry and buildings in addition to its traditional focus on the power sector, a major finding of the BloombergNEF’s annual New Energy Outlook (NEO), which was published just prior to this Africa Mining Forum’s energy discussion, was the growth in clean energy technology.
Effect of COVID on power sector
“Based on our modelling,” said Ampofo: “the COVID-19 pandemic has brought what we call a triple peak in the power sector. Despite the post-crisis recovery, coal and emissions will both peak in 2018 and gas in 2019 and these peak emissions would not return to the pre-COVID output levels.”
According to the Bloomberg report, while energy emissions were down approximately 8% in 2020 as a result of the pandemic, they will rise again with economic recovery, but never again will they reach 2019 levels. From 2027 on, they fall at a rate of 0.7% per year to 2050.
The BloombergNEF expert added that by mid-century, 56% of electricity that will be generated globally will come from wind and PV by mid-century. A trend that is mirrored in the mining industry.
Demand growing in quantum
There are four things in the mining industry that are driving this demand according to Ampofo. “First is the fact that electricity demand from the mining sector in itself is growing in quantum. For example, Rio Tinto’s electricity demand along last year was 71.3 terawatt hours. Collectively, if you look at the top ten mining companies by revenue, they consumed about 175 terawatt hours of electricity in 2019 alone. To help put that in context, that is the entire electricity consumption of Vietnam which has a population of 95 million.”
The second factor is the increase in appetite among mining companies for reliability. “What I mean by that is you almost always find mines in very remote places around the world. Places where, if you’re lucky, you get a grid and if you are not lucky you’ll be off grid.
The third factor is the reduction in emissions. Our model is telling us that mining companies can reduce up to 50% of their emissions if they move to renewable sources.
And finally, in terms of appetite is that the economics of renewable energy now make business sense. Every year we develop this model and look at the least cost of electricity generation for almost every country in the world, and what we are seeing is that 76% of the global economy the cost of generating bulk electricity, renewable energy is now the cheapest,”Ampofo explains.
Oil companies joining renewable space
Solomon Asamoah of the Ghana Infrastructure Investment Fund added that an additional factor that was also pushing the drive towards the adoption of renewables was the way that “DFIs (development finance institutions) are making renewables and climate financing key parts of their criteria before they will provide financing to companies and many private lenders have also followed those routes with the Equator Principles etc.”
“I think the next big step you’re going to see is that the oil companies themselves are going to play an increasingly large role in the renewable space and I suspect they will also provide very attractive financing. It might seem counterintuitive but I think they’ve got the message that their future is not as an oil company but as an energy company.”
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Oil and gas
Infrastructure investment in Ghana
Asamoah further explained that the Ghana Infrastructure Investment Fund is a government-owned investment vehicle that was established to invest in infrastructure assets all across Ghana.
“It was initially capitalised at $325-million and in the past four years we’ve done investments in over 12 infrastructure sectors all across Ghana. For every one dollar that we put in our investments, we get $10 from other sources to finance our investment infrastructure assets in Ghana. So I think we have a good sense of what private sector investors need to see before they invest in Ghana in particular.”
Responding to a question on how governments can attract more private sector investment into infrastructure, Asamoah said the infrastructure deficit in Africa is well known and needs about $100 billion dollars a year’s investment for ten consecutive years. “Governments acknowledge they don’t have that kind of capital and they also acknowledge the role of the private sector.”
The Ghana Infrastructure Investment Fund has been involved in projects such as the new international airport in Accra, a new port facility, the roads and ICT sectors, including the laying of terrestrial fibre across a thousand kilometres in Ghana.
“We actually recently closed our first investment in the mining sector, a gold mining transaction, because we need to make sure that there’s more local participation in the mining sector.”
Energy storage for mines
Various financial models that mining companies adopt to secure and stabilise their energy supply were also discussed during the Africa Mining Forum session, including where a mine builds its own off-grid, renewable power project as well as IPPs and PPAs.
BloombergNEF’s Kwasi Ampofo noted that that currently, incorporating energy storage in the power projects from the outset does not yet make a significant difference in the bottom line for mining companies, but explained that “storage costs year on year are dropping significantly. About 85% over the last ten years, so probably in the next five, ten years, we might see a cost parity where the upfront costs will be lower and we will see more integration.”
Lack of consistency in terms of policy by African governments was cited as a main challenge to private investments in the energy sector.
The discussion also focused on what questions junior miners should ask in the early stages before they commit to projects that could last for decades.
This session was broadcast during the Africa Mining Forum Digital Event in November 2020. To watch the full discussion on demand, click here: https://www.africaminingforum.com/register