Opportunity Assessment

At a Glance
  • In situations where grid access is not available, companies will have little choice but to generate their own power, creating opportunities for projects to supply power to surrounding areas.
  • Off-grid renewable energy solutions are becoming increasingly popular among extractive industry companies and can be more sustainable in terms of operational costs, health, or environmental impacts, as compared to diesel-based solutions. 
  • Where extractive industry companies 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 industry projects can also be used as anchor customers for Independent Power Producers (IPPs).
  • It is important to find commercial frameworks that lead to cost savings for the extractives industry and allow for the development of a country’s power infrastructure.

Leveraging the extractive industry’s power demand and its’ capital investments in power infrastructure can contribute to a national power system. An opportunity exists where mines or oil and gas projects must self-generate due to a lack of, or unreliability, of national generation and transmission infrastructure. Below is a list of various opportunies that may exist:

  1. Extractives Projects and Communities: Leveraging extractives projects for rural Electrification. In the situation where there is no grid, or the grid is too remote 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 more popular among extractive industry companies and can be more sustainable in terms of operational costs, 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 industry companies partnering with donors, NGOs, 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. 

Example: Weipa Mine - Weipa 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 36 MW of diesel generators 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].

  1. Extractives Projects and Excess Supply: Leveraging extractives projects for increased power generation. Where local conditions have led extractive industry 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, 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.

Example - Use of Associated Petroleum 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 480MW of power, 450MW of which is transferred for consumption by Nigeria’s Eastern region, while 30MW are used by ENI. Similarly, the Shell Afam Power Plant generates grid electricity from a high efficiency power plant that 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.

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

  1. Extractives Projects as an Anchor for Independent Power Producers (IPPs): Leveraging projects for increased generation. Given their large power needs, extractive industry projects can also be used as anchor customers for IPP generation investments. If the proposed generation investment promises cheaper power than their current self-generation arrangements on a reliable basis, companies could be incentivized to buy power from such projects under an offtake 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.

Example - Mine as an Offtaker in Sierra Leone: In Sierra Leone, the government has signed a Heads of Terms with Joule Africa, an Independent Power Producer, to develop Bumbuna II and the extension of Bumbuna I. They have completed a pre-feasibility study which reveals that the project could generate power of up to 372MW with a firm capacity of 112MW in the dry season. Interviews with London Mining indicate that they have expressed interest in being an offtaker for some of this power, under the right circumstances.

Example - Mines in Joint Venture Power Investment in Mauritania: Under a public-private partnership (PPP) agreement, the national power utility (40%), the state-owned mining company SNIM (26%), and Kinross Gold Corp. (34%) will develop a 350MW gas power plant using the Banda offshore gas field in Mauritania. The arrangement is to set up a club of auto-producers with PPAs between the users and the shareholders. The goal is to make a minimum return out of the investment and keep the costs down (12 cts/kwh). Shareholder-users (such as Kinross) will still have to pay a user fee. As a result, the electricity will be used for mining activities, domestic Mauritanian consumption, and could eventually be exported to neighboring countries.

  1. Extractives Projects Sourcing from the Grid: Leveraging extractives projects for increased generation and transmission infrastructure. Where there is sufficient and inexpensive power available through the national grid to supply extractive industry projects, it is important that the projects’ power demand does not overburden the grid and that supply to extractive industry projects is not 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 industry 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 extractives industry and allow the development of the country’s power infrastructure.

Example - Transmission Investments in Burkina Faso and the Democratic Republic of Congo (DRC): In October 2011 the Canadian-based mining company Semafo signed an agreement with the Burkina Faso Government for the electricity supply to its Mana mine through a transmission line estimated to cost US$19 million and reduce the mine power costs by US$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 will drop from $0.31/kWh to $0.18/kWh.

 Example - Mines Get Priority access: In Ghana, the 2006-2007 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, the 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.

Example - In Zimbabwe, New Dawn Mining Corp.’s Turk-Angelus Mine is connected to the national power grid through an 88KVA line and has three generators that are used as a standby during any faults that can supply 3MW 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.

Example - 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 90MW of generating capacity in 2006. At the same time, the top 30 industrial operators in Pune had unutilized captive capacity of 100MW. 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 high-transmission tariff and its generating cost. The compensation costs were to be borne by consumers in Pune in return for no load-shedding.[4]

Example - Mines Pay Higher Tariffs to Fund Power Sector Investment in Zambia: Copper industry growth in Zambia has been constrained by available electricity supply. At the same time, the electricity tariffs for the mines were the lowest in Africa and protected by a stabilization agreement between 2008 and 2011. Copperbelt Energy Corporation Plc warned that industrial electricity tariffs would need to increase by 20-30% per year 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 CEC, by 30%.[5]

View footnotes

[1] “Mine spotlight: Weipa bauxite mine‘’, Mining Global, December 8, 2015

[2] Austrailian Renewable Energy Agency “Weipa 6.7MW solar photovoltaic (PV) solar farm”, ARENA.

[3] First Solar Inc. and Rio Tinto and the Australian Renewable Energy Agency, 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

Key Resources