Exclusive Opinion Piece
South Africa’s mining sector faces increased risk on the energy front as electricity has in recent years become a scarce commodity subject to supply interruptions and rising prices; and the larger the scale of production, the more critical this risk becomes. While the industry needs Eskom to plan and implement new capacity more quickly, mines themselves also need to minimise their energy demands through better project design.
As a fundamental ingredient to the success of any mining venture energy transforms the raw mineral into wealth that is then distributed through the South African economy. However, like any consumable commodity, energy needs to be of a set quality, at a fair market price and the supply needs to be continuous.
As mining is becoming increasingly mechanised, there will be a greater reliance on and increased consumption of energy – exposing more readily the issues and constraints in the supply . In South Africa, the fossil fuel and electrical energy is subject to national oversight of the supply chain because of its strategic importance, so the growth and security of energy supply will depend largely upon the performance of the oversight function.
The South African mining industry currently consumes approximately 15% of the South African supply of electricity and 10% of the diesel consumption. The electricity consumption is weighted towards the hard-rock, deep-level mines and the diesel towards the coal and iron ore producers. This is due to the greater number of opencast or open pit mines in coal and iron ore which use diesel earthmoving equipment as the prime means of moving the ore. In terms of electricity, the supply is currently constrained and there have also been issues in the continuity of the existing supply and the availability of future supply.
The impact has been twofold: a restriction on mining growth at a time when the global commodity prices have peaked; and a loss of production when the unpredictable supply failures have occurred at the power stations. The response from the mining industry to this risk has been to employ energy reduction measures in the operations through better planning and maintenance of equipment to limit the energy intensity and waste of energy. This has typically assisted with the requested 10% reduction of energy called for by Eskom by the large consumers and has had some financial benefit to the mines themselves; but it is not the silver bullet for solving the problem.
The step change in energy intensity in mining will have to come from new projects where innovative designs incorporate energy minimization as a design criterion and set the new benchmarks. There will be some retrofitting of energy saving projects into existing mines but this will be a slow, gradual process. The solution to the continuity of supply problem is to provide diversified energy sources to cope with the short term outages. However, this tactic has limited effect in South Africa as there are no energy alternatives of large enough scale at competitive prices.
The substitution by diesel generators in a large mine is more to ensure safety and easy restart conditions rather than to replace production. In remote areas where there is no power, the use of diesel generators is an alternative but this restricts the size, processing capacity and general competitiveness of mining operations. During the last year or so, the constraint on the power supply has been eased by the mining strikes in the platinum sector and the scaling back of the aluminium smelters in Richards Bay due to less favourable commodity prices. This has ensured minimal interruption at the mining operations but, should the commodity prices recover and the labour issues be resolved, the constraints in the system will be very quickly exposed.
At present, the diesel supply for mining consumption in South Africa is well managed through the private distribution companies and has the advantage that it can be stockpiled to minimise disruptions. However, the current overall refining capacity of fossil fuels in South Africa is at its limits and the future oversight role will determine how surplus capacity will be introduced and priced to maintain the security of supply. At the mining level, there is a constant trade-off between electrical energy and diesel energy for loading and haulage, which is a balance of cost and flexibility. This trade-off will be a continuing feature of energy planning on mines as the growth of the South African energy options are priced.
To this end, the rise in electricity prices over the past few years has exceeded inflation and the current forecasts are that it will continue to do so. This is caused by mining cost inflation and the need to induce capital expenditure to develop new mines. To combat this trend, there needs to be some competition in the supply of bulk electricity via coal or gas independent power producers. While competition will not immediately reduce prices, the simple presence of choice in the market will induce efficiency across the spectrum of energy suppliers and encourage the accelerated development of alternative energy technologies.
The diesel price is driven by a different set of parameters that is largely uncontrollable but, as mentioned before, the oversight function will also dictate the future prices through the refining plant strategy adopted.
The road ahead
When one looks at the South African energy picture, there is an abundance of coal in the ground as well as a developed nuclear power plant. In addition, there are potential shale gas prospects as well as natural gas in surrounding countries. There are numerous options for renewable energy as well as cogeneration options that have not yet been fully developed. In comparison to many countries, we are considered energy-rich; but, like mineral beneficiation, energy in the ground needs transformation before it becomes a usable commodity. What is important is the development of the energy sources in time to meet the market demands without compromising the strategic nature of energy supply in the South African economy.
The energy debate in South Africa is often polarised into extreme camps with threats, accusations and finger-pointing about which energy source is the biggest villain in terms of pollution, cost, safety and other factors. Often this debate excludes the trade-offs being made in energy policy, environmental concerns and social requirements and there needs to be more informed reporting in the media of the national priorities without the extremism that is the current trend.
The role of the energy regulator and the government are the oil and grease that will make this process successful and ensure that the national priorities are managed in an informed manner. The current electricity supply and continuity issues are a symptom of delayed planning and accountability in the energy market – and the symptoms will ease as new capacity currently planned comes online. There is a monopoly in electricity supply and more competition in the market would be healthy. The potential mining policy of declaring coal a strategic mineral will also have to be managed with informed understanding on the trade-offs as that could also disrupt the future energy supply options.
There will similarly have to be greater regional cooperation with regard to energy contracts and infrastructure developments to facilitate the diversification of energy requirements for South Africa. These projects often are long-term and beyond the horizon of elected governments, so the decisions made will need to be sustainable.
The South African Coal Roadmap analysis indicated that a future electricity price of approximately double the current average Eskom price would be necessary to induce investment in coal mining. This would have a significant effect on mine costs and subsequent investment choices, creating a forward-looking risk that needs attention. It is important that South Africa does not repeat its recent historical performance in the next phase of energy supply expansion, as it works toward regaining its spot as a premier mining investment location supported by a dependable energy supply.
To achieve a step change in energy intensity, there will need to be a greater focus on energy minimisation during project design. This will lead to lower operating costs so there is an incentive to chase the energy minimisation objective during the design process. This objective is achieved through increased control and scheduling of a mine or plant and its constituent parts. This will require an increased level of skills in the workforce to manage the more complex equipment and procedures.
South Africa fortunately already has a wealth of ability in its research organisations, educational institutions and consultants to facilitate this improved process in mine design. It is important that this is part of a trend in mine design that drives energy objectives together with safety, productivity and environmental issues. Mining needs to be more sustainable and better integrated into society; it is the very foundation and future of our economic progress.
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