Mining can be a transformative opportunity for Sub-Saharan Africa
The mining industry can be a tremendous opportunity for sub-Saharan Africa, but this requires measures and regulation to strengthen the financial strength of power companies and to ensure a less uncertain and more secure operating environment. The integration of the power sector and the mining industry can lead to a win-win scenario for both local economies and the private sector. In this paper, the authors discuss how the demand from the mining sector can be used to bring about more environmentally and socially friendly energy supply solutions through concrete measures that can be effectively implemented by policy makers.
See also: Mining Jobs in Africa
The mining industry, a key sector for Sub-Saharan Africa
Electricity typically accounts for 10-25% of a mine’s operating costs, which varies depending on the methods used and whether the mine generates its own electricity or uses the national grid. The integration of the electricity and mining sectors can create a win-win situation: mining companies become stable and credible reference customers1 for the utilities, allowing them to finance investments that benefit all consumers. Grid power2 is generally cheaper for a mining operation than generating its own electricity, and it allows the mine to focus on its core business. Such schemes therefore contribute to increasing the GDP of the host country, through better development of mining resources and boosting local employment. They also improve the competitiveness of the mines by reducing their energy costs.
A much larger energy sector would be needed to support economic growth in sub-Saharan Africa. Currently, installed power generation capacity is only 80 gigawatts (GW). It has only increased by an average of 1.7% per year over the past 20 years and, if this trend continues, the region will soon be home to 70% of the world’s population without access to electricity. To keep pace with economic development, installed capacity is expected to reach 700 GW by 2040 (Eberhard et al., 2011).
In its November 2013 edition, PROPARCO’s Private Sector & Development magazine examined how independent power producers (IPPs)3 can help solve Africa’s energy problems. In particular, it looked at a flagship project in the Democratic Republic of Congo that draws on the energy needs of the mining sector. A World Bank report was also used to show how the potential of the mining industry could be used to improve access to electricity in otherwise mineral-rich African economies (Banerjee et al. 2014).4 The energy demand of the mining sector is expected to increase by about 2.5 percent in the next decade.
Energy demand from the mining sector is expected to triple by 2020
Energy demand from mining activities is projected to reach 23,443 MW by 2020, an increase of 155% over the 2012 figure. In Sub-Saharan Africa, energy consumption by the mining sector was 15,124 MW in 2012, up from 7,995 MW in 2000, with 90% of this electricity being supplied through distribution networks. By 2020, the sector’s annual energy demand is expected to grow by 3.5% in South Africa, compared to an average of no less than 9.2% in other sub-Saharan African countries.
South Africa’s mining energy demand, which accounted for 70% of total SSA in 2000 and 66% in 2012, is therefore expected to account for only 56% of this total by 2020. In addition, demand has so far been concentrated on a small number of metals – in this case mainly aluminum, followed by copper, platinum group metals (PGMs), chromium and gold – but aluminum activity has grown only slightly since 2000. Copper and platinum are therefore expected to account for the largest increases (2,150 MW and 2,010 MW, respectively). Refining processes account for about two-thirds of total energy demand.
In some countries, energy demand from the mining sector is huge compared to other sectors of the economy: in 2012, it accounted for 24% of domestic demand in Sub-Saharan Africa, and this proportion is expected to reach 30% by 2020. In Guinea, Liberia, and Mozambique, mining demand is expected to exceed all other sectors by 2020. Given that mining demand could reach 35% of total demand by 2020, if grid capacity is maintained at 2012 levels, then mining companies will be forced to either generate their own electricity or find innovative alternative solutions.