Sub-Saharan Africa’s suboptimal power situation exists amid vast energy resources. But African mines, with their substantial and growing need for power, could be the critical “anchor consumers”—high-volume customers that provide a captive source of demand and consistent revenues—that harness these energy resources.
Mines are greedy for power, and in Sub-Saharan Africa’s (SSA) power sector, this may be the sort of greed that is actually good. Because mining activities require large amounts of power to run their systems—power is rarely less than 10 percent of the operating costs of mining and often rises above 25 percent—these mines present themselves naturally as “anchor consumers” that can stabilize the sector. Leveraging mining’s power demand and its capital investments in power infrastructure—also known as “power-mining integration”—is an opportunity to develop the power sector of Africa’s mineral-rich economies and expand electrification.
Demand expected to triple
The future demand from mining for power is substantial and could reach up to 23,443 megawatts (MW) in 2020. While South Africa is projected to add sizable mining demand for power and grow at 3.5 percent annually, the growth in other SSA countries, projected to be 9.2 percent, is more impressive. Demand will come overwhelmingly from the Southern Africa region, dominated by South Africa. Even without South Africa, Southern Africa will have the highest power demand from mining, largely due to the large requirements in Mozambique and Zambia, followed by Central Africa and Western Africa. Mining demand in Guinea, Liberia, and Mozambique is expected to represent more than total non-mining demand by 2020. This growing demand will create even higher pressures to close the supply gap. Compared with grid-supply in 2012, mining demand in 2020 could be as much as 35 percent.
Intermediate options between grid-supply and self-supply
Mines traditionally source power from the grid. However, in cases of high tariff, poor power adequacy and reliability from the grid, or the high cost of extending transmission and distribution networks to the mining site, some mines generate their own power (self-supply). Still more mines combine some form of both grid-supply and self-supply (intermediate options). There are about six intermediate arrangements reported by the mines.
Although it still remains a minority among power-sourcing arrangements, projects reporting self-supply rose the fastest at 11.5 percent. In fact, the mines envisage spending between $1.1 to $1.3 billion between 2013 and 2020 in self-supply based arrangements. Intermediate options grew at 5.8 percent and grid-supply grew at 4.7 percent. However, annual average electricity consumption rose only for intermediate arrangements, suggesting that self-supply is primarily chosen by relatively smaller projects.
Power-Mining integration can be a win-win
Harnessing economies of scale can produce cost savings for both the mines and the population. This is especially true in Guinea, Mauritania, and Tanzania, where there is substantial potential for mines to be used as anchor consumers for local electrification. In these cases, mines that are contiguous to each other and are considering self-supply could jointly form or else contract with an independent power producer (IPP) and effectively form a mini-grid or sell excess power to the grid. This could occur through hydropower projects, as in Guinea; through gas projects, as in Mauritania; or through coal, hydro, or gas projects, as in Tanzania.
There are physical and financial constraints to growth in the concept of power-mining integration. The most common physical barrier is the lack of a national transmission grid capable of catering to additional flows as the mining sector and the rest of the economy expands. The other dominant constraint is the weak financial situation of the utilities.
Several different kinds of risks can also help explain why the power-mining integration has been limited. These include:
- Planned investments in mining may not materialize because of price swings, difficulties in raising capital, overly optimistic geological assessments, and political instability. Prices in international commodity markets fluctuate, sometimes wildly. The period since 2003 has seen the biggest sustained upswing historically, though prices have moderated since 2012.
- Mines and smelters may cut their output when prices fall, and thus their power needs fall as well.
- Mines have finite lives, usually shorter than those of large power facilities, so power investments will eventually need other customers who may not materialize.
- Mining interests can be (or may become) a powerful lobby to extract subsidies or special privileges from the power sector, particularly if overall demand for electricity grows and the mining operations are no longer needed as anchor customers. If that happens, mining demand may crowd out medium-size firms and residential consumers, reducing the possibilities for extending access to electricity.
Though many institutional roadblocks have threatened to derail the power-mining nexus, the integration of mining and power can be a win-win for Africa’s next generation. Its potential is as rich as the minerals nestled underneath our feet, and the promise is well within the reach of those committed to transforming the landscape.
Forthcoming “Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa” World Bank, 2014.