Eskom is not pulling its punches against one of South Africa’s biggest employers

The decreasing reliability of Eskom’s energy supply and recent consistent load shedding has significantly impacted mining costs and operations – and companies are now being forced to look for an alternative, says financial services firm PwC.

In its latest report on the mining sector in South Africa, PwC noted that the national power utility shed 2,276 Gwh of electricity during the first six months of this year – more than the entire previous year.

Popular load shedding notification app EskomSePush showed that as of Wednesday (5 October), the country had experienced over 2,008 hours (84 days) of national load shedding in 2022 – with no end in sight.

PwC said that Eskom tariffs for energy had increased approximately 356% over the last decade against inflation, which has only risen by 74% in comparison.

“This trend of above inflationary escalations is projected to continue for the foreseeable future, considering Eskom’s recent National Energy Regulator of South Africa (Nersa) application which seeks to increase tariffs by 32.66% in 2023/24 and a further 9.63% in 2024/25.”

This poses a significant risk to the operating cost base of many mines, with electricity estimated to be the second-largest cost component for deep-level and electricity-intensive mines in South Africa.

Statistics South Africa (StatsSA) reported at the end of September 2022 that the mining industry employed 462,000 people.

Mining and labour analyst Mamokgethi Molopyane said earlier this year that mining companies would likely be forced to restructure their operations in response to the power crisis, and this could impact job security for mineworkers and other people who rely on servicing the mines.

The shift to renewables

Despite short-term increases in some renewable energy components, the overall trend towards alternative power generation has become a financially viable and attractive solution for mines in South Africa, says PwC.

Shifting to renewables will also enable a more stable energy supply and tax reductions down the line. According to PwC, Sasol estimated that if carbon prices were set at $30 a ton, an annual carbon tax bill of R20 billion would be incurred.

PwC said that for companies to transition to a new energy system, it is best done through the diversification of their energy supply. Choosing the right combination of renewable energy (RE) technologies will also depend on the remaining life of the mine and its carbon reduction goals.

So far, as of 2020, roughly 5% of the total energy consumed by the mining sector was sourced from renewables – this indicates the need for more significant investment.

Some companies have taken it upon themselves to secure an independent power supply. South African mining giant Anglo American has partnered with EDF Renewables to form a new company Envusa Energy which aims to develop domestic renewable energy plants in South Africa.

This move is to meet Anglo American’s operational power requirements in South Africa as well as support local electricity supply systems, said the company.

Under Envusa Energy, more than 600 MW of wind and solar projects in South Africa is planned to be launched – a major first step towards the development of an ecosystem that is expected to generate 3-5 GW of renewable energy by 2030, said Anglo American.

Read: The biggest problem facing South Africa’s economy right now – that isn’t load shedding