FOOD FOR THOUGHT

The Minerals Council South Africa has expressed its dismay at the latest Eskom price hikes and the effect it will have on the mining industry. The increases, which are above the inflation rate, could lead to a number of negative consequences on both employment and the economy.

The hikes are estimated to cost the mining industry around R52 billion by the end of 2024. This means that the cost of electricity will have increased by 46% between 2021 and the end of next year. This will see a raise in electricity costs in mining from 9% to 12% by December 2024.

“These increases the National Energy Regulator of South Africa (Nersa) granted Eskom fundamentally shift the intermediary cost structures in mining. Due to the different electricity consumption densities of various mining commodities, the impact is not the same across the sector, but this is deeply concerning,” says Henk Langenhoven, Minerals Council Chief Economist.

The Minerals Council estimates mining production declined by 6% during 2022. “The adverse operating environment of unreliable and expensive electricity, and a crisis in transport logistics for bulk mineral exports erode the mining sector’s global competitiveness and may very well culminate in job losses in mining,” says Langenhoven.

Over the medium to longer term, these uncertainties are not a good sign for  starting new mines and extending the lives of older, marginal assets. For mining companies building mines that have lives of decades, the ability to accurately estimate long-term electricity prices and supply as well as confidence in securing reliable and cost-efficient transport and export channels are critical factors in deciding whether to start new projects.

The private sector in South Africa has a total pipeline of 9GW (gigawatts) of energy projects in solar, wind and gas, and in battery storage. By expediting these projects and reducing industry’s reliance on Eskom, the power utility will secure the time and space it needs to undertake critical maintenance and refurbishment of its power plants.

The mining industry alone accounts for about 7.5GW of these projects at a cost of more than R150 billion. The Minerals Council estimates 3GW of the 9GW of private sector electricity generation will be completed by the end of 2024. The mining sector consumes about 14% of Eskom’s electricity. Adding smelters and refineries, the mineral sector consumes about 30% of Eskom’s output. Eskom will remain a source of baseload electricity supply for the mining industry because solar and wind energy are intermittent.