SOUTH AFRICA’S ENERGY CRISIS

Embracing Simon & Garfunkel’s haunting lyrics of “Hello darkness, my old friend,” South Africa is trapped in a disheartening reality. These words resonate deeply as the nation grapples with its most severe energy crisis. Each passing day brings forth a relentless series of blackouts, known as load shedding, plunging the country into an uncharted realm of uncertainty. The mining sector, a vital pillar of South Africa’s economy, bears witness to the profound impact of this ongoing struggle.

Statistics compiled by independent energy analyst Pieter Jordaan showed that during the first five months of 2023, load-shedding had been in effect for the entire year with only one day of full suspension and only a handful of days with partial rest.

According to Jordaan’s data, the impact of load shedding on South Africa is alarmingly severe. On average, the country endured 23 hours of blackouts daily, with approximately 16.7 hours spent in a state of anticipation known as “rotation time.”

Astonishingly, this means that South Africans have collectively spent over 758 hours without electricity in 2023

Region: Africa

Problem: Planned blackouts to stop the national grid from collapsing are threatening South Africa’s mining sector

Solution: Mines are turning to development of renewable energy projects to keep the lights on alone, equivalent to a whole month of darkness. These distressing statistics, covering data until April, account for a quarter of the year thus far. To put this into perspective, Jordaan highlighted that it took nearly an entire year for the country to reach a similar level of blackouts in the past.

To make matters worse, South Africans have had it drummed and beaten into them that load shedding will likely worsen in the winter months ahead. The worst, they are told, is yet to come.

The mining industry in South Africa finds itself navigating uncharted territory due to the escalating severity of load shedding, said Henk

Langenhoven, chief economist for the Minerals Council South Africa. Currently averaging at stage 6, these power outages disrupt mining and mineral processing operations, marking a critical point of concern.

Stage 8 load shedding is the highest ever experienced in South Africa. It requires the country’s power utility, Eskom, to shed about 8,000 MW. Practically it means power must be shed up to six times a day, or having power for only 50 percent of the time with the power off for 12 hours a day, depending on the schedule. Stage 6 and 7 requires 5,000 MW to 6,000 MW of power be shed in order to prevent the national grid from collapsing. Stage 6 load shedding means power cuts are scheduled over a 4-day window to take place twice a day at 4 hours a time.

Langenhoven explained that load curtailment agreements are in place between the mining industry and Eskom and are activated during stage 6 load shedding to maintain grid balance. Under these agreements, the mining industry curtails its electricity consumption by 20 percent of the contracted supply for 10 hours, from 1400 hrs to 0000 hrs.

With the mining and smelting sector accounting for about 10,000MW or 30 percent of Eskom’s supply, this curtailment equates to surrendering 2,000 MW of electricity. However, Langenhoven warned that should Eskom escalate to stage 8 load shedding more regularly - a fastapproaching reality - the mining industry would face curtailment of 2,666 MW over the same timeframe. Such a scenario would result in further production losses, with some operations forced to halt to comply with the required load reduction. “If power constraints worsen, essential loads would be implemented, limiting the mining industry to only 20 percent of its contracted electricity supply. In this scenario, only critical services like fans and pumping would operate, leading to a complete halt in mining, mineral processing, smelting, and refining until normal electricity supply is restored,” he told Breakbulk

Langenhoven emphasized a direct correlation between Eskom’s energy availability factor (EAF) and mining production, with a 7 percent decline observed in mining production in 2022 compared with the previous year, mirroring the decrease in Eskom’s EAF. Considering this, it is estimated that the mining industry suffered a loss of approximately R100 billion (US$5.36 billion) in production in 2022. In contrast, the South African Reserve Bank forecasts that load shedding and curtailment cost the country nearly one percentage point of GDP growth, with an expected cost of 2 percentage points in 2023. These figures underscore the profound economic impact and urgency to address the energy crisis plaguing South Africa’s mining sector.

As South Africa plunges into unprecedented darkness, mines nationwide must reassess their energy strategies. With the duration of power outages surpassing previous records, what was once a long-term consideration has now become an urgent priority. Mines are compelled to swiftly reevaluate their energy plans, adapting to the immediate challenges of the energy crisis.

Mining companies are proactively pursuing alternative energy sources to mitigate the supply shortfalls caused by Eskom and maintain uninterrupted operations. With a growing global focus on green and sustainable energy and concerns about climate change, the mining industry is actively aligning itself to achieve net-zero greenhouse gas emissions by 2050. Additionally, the industry faces increased scrutiny and compliance with Economic, Environmental, Social, and Governance (EESG) standards.

Mining companies are implementing, planning, and exploring various solutions such as solar, wind, hydrogen, and battery technologies to address these imperatives to fulfil their electricity requirements, Langenhoven said.

“This strategic shift toward renewable energy sources reflects the industry’s commitment to reducing its environmental impact while ensuring operational continuity. By embracing these innovative energy solutions, mining companies aim to supplement the current energy shortfalls and contribute to a sustainable future in line with global sustainability objectives,” he said.

According to Langenhoven, the mining industry accounts for an impressive 7,500 MW of the extensive pipeline of public sector energy projects, which collectively exceed 9 GW in capacity and are valued at over R150 billion (US$8.04 billion). “These energy projects represent a significant investment in the sector, underscoring the commitment to meeting the growing energy demands of mining operations. With such substantial potential, these projects can transform the energy landscape, ensuring a reliable and sustainable power supply for the mining industry while fostering economic growth and development in the public sector. The substantial scale and value of these projects reflect the crucial role that mining plays in driving energy infrastructure advancements in the region.”

It also actively allows the mining sector to reduce its exposure to Eskom’s fossil fuel-based electricity as critical markets like Europe move towards carbon border taxes. South Africa is also implementing carbon taxes, which will add to the general cost of mining.

“Eskom’s prices for industrial clients have increased more than sixfold since 2008, making electricity the second most expensive input cost for mines after labor. The mining industry supports the net zero greenhouse gas emission target by 2050. However, Eskom will remain a source of baseload electricity because the industry operates around the clock and the existing sources of renewable energy and technologies cannot provide steady, cost-competitive sources of energy 24 hours a day,” Langenhoven said.

Andrew Wallace, managing director of Paccon Logistics, highlighted the escalating demand for project cargo in the renewable energy sector, reflecting the urgency and gravity of South Africa’s energy crisis. “The severity of the situation cannot be overstated, pushing businesses across various industries, not just mining, to seek sustainable solutions and invest significantly in renewable energy projects. The critical need to maintain operations and ensure a continuous power supply has prompted large-scale investments in renewable energy throughout South Africa.”

Given the substantial electricity requirements of the mining industry, this industry is particularly compelled to find alternative solutions to sustain their production capabilities, Wallace said.

This, in turn, has presented favorable opportunities for the breakbulk and project cargo sector. As the demand for renewable energy plants grows, the industry has witnessed a steady increase in volumes as businesses actively pursue the installation of these plants as a viable solution to combat the energy crisis.

Chris Gerber, head of commercial – Africa projects, mining and energy at C.Steinweg Bridge, agreed, saying the lack of electricity in the country has created an opportunity, particularly for the logistics industry.

“The movement of solar panels, inverters, lithium batteries, wind turbines, and associated cargo has witnessed a substantial boom. The mining industry is making significant investments in renewable energy solutions, necessitating the importation and transportation of project cargo to remote mining locations.”

The logistics sector plays a crucial role in facilitating the delivery of these vital components, ensuring that mining operations in remote areas can access the renewable energy infrastructure they require.

Gerber emphasized that the benefits of the energy transition extend beyond the transportation of project cargo for renewable energy plants. The shift towards renewable energy has resulted in a significant surge in demand for battery minerals, leading to the expansion of mining operations in sectors such as copper, lithium, and platinum.

Importantly, this positive development has also had a favorable impact on the logistics landscape. Gerber highlighted that there has been a marked improvement in the two-way flow of cargo between various mines in South Africa. This bi-directional flow proves to be more cost-effective, as logistics providers are not solely retrieving minerals from the mines but also delivering the necessary equipment for renewable energy plants to ensure their continuous operation.

The symbiotic relationship between the mining industry’s demand for renewable energy infrastructure and cargo transportation signifies a mutually beneficial arrangement, he said. As the mining sector embraces renewable energy solutions, it enhances its environmental sustainability. It drives economic growth and logistics efficiencies, leading to an overall positive impact on industry and the nation.

While the decision by the Seriti coal mine to build a 155 MW wind farm in the Mpumalanga province is a good indication of how far mines are willing to go to find new sources of power, there are a variety of other developments across South Africa that bode well for the project cargo sector, Gerber said.

“It is not only an increase in the movement of wind turbines and the like. We have witnessed a significant volume increase for secondary renewable energy sources, such as solar farms. These solar farms are a substitute power source when the main grid fails. However, considering the substantial energy demands of mining operations, relying solely on solar power may not be feasible with current technology. Hence, alternative solutions are being explored.”

He said the company continues to collaborate with several engineering, procurement, and construction companies and original equipment manufacturers, conducting feasibility studies for various other ways of generating electricity for mines that will require efficient and reliable logistics solutions.

One such study involves using iron ore smelters in a renewable manner. By recovering and utilizing the heat to drive turbines, generating electricity that can be fed back into the grid becomes possible. Companies like Anglo-American are already implementing this approach, and others are considering similar initiatives. This innovative approach allows for simultaneous heat recovery, waste reduction, and renewable energy generation. It presents a promising avenue to supplement the energy requirements of mining operations and contribute clean electricity to the overall power supply.

The biggest challenge to realizing renewable energy solutions, however, remains the time it takes to secure regulatory approvals and the timeconsuming and costly agreements with Eskom to tie into the national grid.

“There is a turning point in mining metrics, especially from an upper turning point in commodity prices, which will influence export performance. Apart from uncertainty about world commodity prices, domestic structural constraints like energy, transport and water must be urgently addressed,” Langenhoven said.

“Perceptions about the mining environment in South Africa have declined for some time. The Fraser Institute Survey ranked the country in the bottom ten global mining jurisdictions for two consecutive years. Although the minerals potential is deemed to have improved (due to better commodity prices over the last 18 months and the good mix of minerals), perceptions about policy have deteriorated further.” South Africans, Wallace said, prove their resilience time and time again. “This is not the first crisis the country has faced and will not be the last. It’s a well-known fact that when the going gets tough, South Africans make a plan. It is a relevant observation: when crisis erupts, we put our heads down, make a plan, get stuck in and make it work.”