Opportunity Assessment

At a Glance

  • Where grid access is not available, extractive companies have little choice but to generate their own power, creating opportunities to supply power to surrounding areas.

  • Off-grid renewable energy solutions are becoming increasingly popular among extractive companies and can be more sustainable than diesel-based solutions in terms of operational costs and health or environmental impacts.

  • Where extractive have opted to generate their own power, they can be incentivized to produce extra power capacity to be sold back to the grid.

  • Given their large power needs, extractive projects can also be used as anchor customers for independent power producers (IPPs).

  • An appropriate commercial framework can lead to cost savings for extractive industries and simultaneously allow for the development of a country’s power infrastructure.



Case Studies

Key Resources

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Topic Briefing

Leveraging the extractive  industry’s power demand and its capital investments in power infrastructure can contribute to a national power system. Several opportunities for synergy exist.

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  1. Leveraging extractives projects for rural electrification.Where there is no grid, or the grid is too far from the project area, companies will have little choice but to self-generate. In this case, opportunities exist for projects to supply power to surrounding areas.

One option is to utilize off-grid renewable energy solutions, which are becoming increasingly popular among extractive companies and can be more sustainable—in terms of operational costs, human health, or environmental impacts—as compared to diesel-based solutions. Another option is the development of a mini-grid that could also be based on renewable energy. Such an arrangement could involve extractive companies partnering with donors, nongovernmental organizations, and utilities. For example, an extractive company could establish the mini-grid and the public utility could oversee operations, management, tariff collection, and any additional policy initiatives.

Case study - Sharing solar energy: The Weipa Mine in Australia is Rio Tinto’s largest bauxite mine. Rio Tinto constructed the nearby Weipa township in the 1960s for its miners. Today the town has become a regional hub for business and government..[1] The mine’s diesel generators—with a capacity of 36 MW—power the Weipa mine, the Weipa township, and the nearby Napranum community through a mini- grid.[2] A solar energy project has been integrated to reduce diesel costs. At peak time, the solar plant covers 20% of the township’s daytime demand.[3].

2. Increasing overall power generation. Where local conditions have led extractive companies to generate their own power, there may be situations in which companies can be incentivized to produce extra power capacity to be sold back to the grid. In the context of petroleum projects, this could include excess power capacity generated as a result of converting natural gas that would otherwise be flared. Given the capital expenditure involved in building self-generation and the large potential economies of scale in power investments, there may be a business case for projects to coordinate a joint investment.

Case study - Gas for power generation in Nigeria: As part of Eni’s 2008 “Zero Gas Flaring” policy, the Eni Okpai Power Plant uses associated petroleum gas to generate 480 MW of power, 450 MW of which is transferred for consumption to Nigeria’s Eastern Region, while 30 MW are used by ENI. Similarly, the high-efficiency Shell Afam Power Plant generates grid electricity and has some capacity to use associated petroleum gas to produce power. In 2015, the power plant contributed 14% of Nigeria’s grid-connected power generating capacity.

Case study - Unlocking APG use for power in Iraq: BGC, a joint venture set up in 2011 among South Gas Company (51%), Shell (44%), and Mitsubishi (5%), processes associated petroleum gas produced by three huge oilfields in southern Iraq—Rumaila, Zubair, and West Qurna 1. The associated petroleum gas is turned into dry gas primarily for power generation, liquid petroleum gas for domestic use, and condensate for road fuel. It is estimated that around 70% of the electricity generated in the Basra Governorate in 2015 and 60% to 70% of all the liquid petroleum gas consumed in Iraq was provided by the gas produced from the project.

3. Supporting Independent Power Producers (IPPs). Given their large power needs, extractive projects can also be used as anchor customers for IPP generation investments. If the proposed generation investment promises cheaper power than a project’s current self-generation arrangements on a reliable basis, companies could be incentivized to buy power from IPPs under an offtaker agreement, which provides demand guarantees to increase the bankability of the power investment. The structure of this type of arrangement can take a number of forms. For example, the company could simply be the offtaker in an IPP project, or it could play a more active role in the IPP investment as part of a joint venture.

Case study - Mine as an offtaker in Sierra Leone: In Sierra Leone, the government signed an agreement with Joule Africa, an IPP, to develop Bumbuna II and the extension of Bumbuna I. It completed a prefeasibility study that revealed that the project could generate up to 372 MW with a firm capacity of 112 MW in the dry season. Interviews with London Mining indicate that it has expressed interest in being an offtaker for some of this power, under the right circumstances.

Case study -  Mines in joint venture power investment in Mauritania: Under a public- private partnership (PPP) agreement, Mauritania’s national power utility (40%), the state-owned mining company SNIM (26%), and Kinross Gold Corp. (34%) will develop a 350 MW gas power plant using the Banda offshore gas field. The arrangement involves PPAs between the users and the shareholders. The goal is to make a minimum return on investment and keep costs down (12 cts/kwh). Shareholders (such as Kinross) will still have to pay a user fee. The electricity will be used for mining activities, domestic consumption and could eventually be exported to neighboring countries.

4. Enhancing generation and transmission infrastructure.Where there is sufficient and inexpensive power available through the national grid to supply extractive projects, it is important that the projects’ power demand not overburden the grid and that supply to projects not be prioritized over residential demand. However, with the prospect of inexpensive access to electricity, such as in the case of gas-based or hydro-based grids, extractive companies will generally be willing to work with utilities and sometimes competitors under commercial arrangements to set up or upgrade generation, transmission, and distribution capacity to meet their demand. It is important to find commercial frameworks that lead to cost savings for the extractive industry and allow for the development of the country’s power infrastructure.

Case study - Transmission investments: In October 2011 the Canadian-based mining company Semafo signed an agreement with the Burkina Faso government to share electricity supply with its Mana mine through a transmission line estimated to cost $19 million, reducing the mine’s power costs by $40/oz. Sonabel, the national power utility, would receive half of the money from Semafo and repay it over eight years following commissioning. As a result of the investment, energy costs for the mine were to drop from $0.31/kWh to $0.18/kWh.

Case study – Mine priority access: In Ghana , the 2006­–07 energy crisis led a consortium of four mining companies (Newmont Ghana Gold Ltd, AngloGold Ashanti, Goldfields Ghana, Golden Star Resources) to build an 80 MW dual-fuel thermal plant in Tema, which was completed in 2007. As part of the agreement, ownership was transferred to the public utility, the Volta River Authority, and the plant now serves as a back-up for the mines in case of another energy crisis.

Case study - Generator to grid transition: In Zimbabwe, New Dawn Mining Corp.’s Turk-Angelus Mine is connected to the national power grid through an 88 KVA line and has three generators that are used as a standby during any faults that can supply 3 MW of power. However, the Zimbabwe Electricity Supply Authority (ZESA) proposed the introduction of an uninterrupted electrical supply arrangement with power charged at a premium rate, which is still lower than the cost of operating the generators. Given that a suitable power line was available, the mine opted to enter into an agreement with ZESA and moved its generators to another location.

Case study - End to load shedding: In India, the city of Pune in the state of Maharashtra experienced load shedding for two to three hours per day due to an estimated shortfall of 90 MW of generating capacity in 2006. At the same time, the top 30 industrial operators in Pune had unutilized captive capacity of 100 MW. In this context, the Confederation of Indian Industries (CII) proposed to the Maharashtra Electricity Regulatory Commission that the operators utilize more of their idle capacity and less of the grid power to meet the shortfall in exchange for compensation based on the difference between the grid’s high-transmission tariff and its generating cost. The compensation costs were to be borne by consumers in Pune in return for an end to load shedding.[4]

Case study - Paying higher tariffs to fund power sector investment: Copper industry growth in Zambia has been constrained by available electricity supply. Yet electricity tariffs for Zambian copper mines were the lowest in Africa and protected by a stabilization agreement between 2008 and 2011. to reflect actual costs and support new investments in power generation. In 2011, with the tariff stabilization coming to an end and under approval of the regulator, the public utility increased its bulk supply tariff to Copperbelt Energy Corporation by 30%.[5]

View footnotes

[1] Mining Global, “Mine Spotlight: Weipa Bauxite Mine,” Mining Global, December 8, 2015.

[2] Australian Renewable Energy Agency (ARENA), “Weipa 6.7MW Solar Photovoltaic (PV) Solar Farm,” ARENA.

[3] First Solar Inc., Rio Tinto, and ARENA, “Australia’s First Commercial Diesel Displacement Solar Plant Starts Operation” (news release, September 29, 2015).

[4] IDFC, “Innovative Partnership Approach to Mitigating Load Shedding: The ‘Pune Model’ and Beyond,” Policy Group Quarterly No 2, IDFC, December 2008.

[5] Banerjee et al., The Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa (Washington, DC: World Bank Group, 2015), 93.