South Africa’s Miners are Turning to Renewables to Escape Eskom’s Costly Grid

South African mining companies are accelerating investment in renewable energy to diversify power supplies, lower electricity costs and meet decarbonisation targets, reducing their reliance on state utility Eskom after decades of dependence on its coal-fired grid.

Companies including Anglo American (AAL.L) and Sibanye Stillwater (SSWJ.J) are investing in wind and solar projects or securing renewable power through supply agreements as Eskom’s ageing coal fleet struggles to meet demand.

Mining executives, however, expect Eskom to remain an important source of baseload power for years as renewable generation expands.

South Africa generates more than 80% of its electricity from coal, while renewables account for about 10%.

Anglo American has partnered with independent power producers to develop renewable energy for its operations.

In 2022, it established a 50-50 joint venture with EDF power solutions, a unit of France’s EDF, to supply renewable energy to its Kumba Iron Ore (KIOJ.J), De Beers and former subsidiary Valterra Platinum (VALJ.J).

The joint venture, Envusa Energy, currently generates 520 megawatts of power, comprising 280 MW of wind and 240 MW of solar. That represents about 30% of the energy consumption of Anglo’s mines.

Envusa has a project pipeline of 1,500 MW and aims to generate 3,000 MW by 2030 for Anglo’s operations and other industrial customers.

“You’re looking at somewhere between 20% and 30% cheaper on the renewable side if you’re just looking at wind and solar,” Envusa CEO Nicole Mason said.

“The next projects that we are focusing on are a couple of really strong wind projects as well as a number of behind-the-meter solar plus battery projects.”

Sibanye, which sourced about 99% of the electricity needed for its platinum group metals operations and 88% of its gold operations from Eskom last year, has chosen to secure renewable power through short- and long-term supply agreements rather than own generation assets.

The company has contracted 835 MW of renewable energy capacity, of which 164 MW is currently operational.

By the end of 2028, about 64% of total energy demand at Sibanye’s South African operations is expected to come from renewable sources, CEO Richard Stewart said, sharply reducing its reliance on Eskom.

“Our secured renewable energy portfolio is not only about reducing carbon emissions and enhancing energy security; it is also a business imperative that is expected to deliver meaningful cost benefits,” Stewart said.

Stewart said renewable electricity was expected to cost 20% to 30% less than forecast Eskom tariffs.

However, he said Eskom would remain important because of the limitations of renewable generation and battery storage.

“Renewables are intermittent by nature, battery storage technology is still developing, and Eskom supplies essential baseload power,” he said.

Coal producers are also increasing their use of renewable energy as they seek to lower emissions and diversify their businesses.

Exxaro Resources (EXXJ.J) is expanding its renewable energy subsidiary Cennergi, which currently operates 297 MW of capacity and has a near-term pipeline of 593 MW.

The company is targeting 1,600 MW of net installed capacity by 2030 as part of plans to cut Scope 1 and Scope 2 emissions by 40% by 2030 and 70% by 2040, and reach carbon neutrality by 2050.

Exxaro said a 68 MW solar plant had reduced its flagship Grootegeluk coal mine’s reliance on the national grid by 30%, saving about 100 million rand, or $6.25 million, a year in electricity costs and cutting Scope 2 emissions by 22%.

Cennergi also sells electricity to Eskom and other industrial customers.

“Our intention as part of decarbonization is that our mines could actually all go on to ⁠solar and wind energy, but obviously you still need a baseload of coal when you don’t have wind or solar,” CEO Ben Magara said.

Thungela Resources (TGAJ.J) is pursuing coal-bed methane as another way to diversify its energy supply.

Its Lephalale project is designed to extract methane from coal seams in the Waterberg coalfield in Limpopo province, with the longer-term goal of developing a commercial liquefied natural gas business.

About 19 wells have been drilled at Lephalale, and gas production has begun to fuel a generator at one of Thungela’s sites, Chief Financial Officer Deon Smith said.

“For the 19 holes we are able to save 30, 40 odd million rand on the Eskom utility bill per annum if those holes are fully functional,” Smith said, representing “around 6% to 7% of our total utility cost per year that we could reduce.”

The projected saving is equivalent to roughly $1.9 million to $2.5 million a year based on the exchange rate provided in the original report.

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