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Risks and Rewards: Energy and Power in Sub-Saharan African Mining

As was noted in the annual meetings of COP27 and COP28, in order for there to be a true global energy transition, billions of dollars will need to be invested into Sub-Saharan Africa’s transition to renewable energy and into the strengthening of infrastructure across the region.
A young Black African mining construction worker with a digital tablet in an open pit quarry

Energy security poses significant challenges for mining companies in Sub-Saharan Africa. Fluctuating electricity costs, unreliable supply, and governmental emission reduction initiatives present obstacles. South Africa, a prominent mining hub and energy supplier to neighboring nations like Zimbabwe and Namibia, faces these issues acutely.

The transition to a green economy presents opportunities for the region. However, it may lead to the emergence of new mining hubs as the demand for clean energy surges.

Although Mining companies are not exposed to Load Shedding, and rather have Load curtailment, Load shedding and grid failures have heightened concerns in the insurance industry. Disruptions increase risk and financial losses. Insurers are incorporating "grid failure exclusions" to manage risk. This emphasizes the need for businesses to proactively mitigate the impacts of energy shortages on their operations. Energy security remains a paramount concern for Sub-Saharan African mining companies, requiring collaborative efforts to address challenges and capitalize on emerging green economy opportunities.

Increasing Resilience with Renewables

Energy security and homegrown renewables are a challenge for the future and top the agenda of the recently released Global Risk Report. Driven by the pursuit of energy security, mining companies are embracing renewable energy sources, primarily solar power, to generate their own electricity. Namibia, an emerging mining hub, stands to gain from its abundant land and extensive coastline, as companies there bolster their energy security with solar and wind power.

Previously, regulations in South Africa hindered mining companies from generating their own power. However, revised laws now permit this for their operations.

While augmenting power supply offers benefits, it also introduces new risks, such as construction considerations, operational challenges, and maintenance issues. Collaborating with third parties for support poses contractual hazards.

As mining companies transition to renewable energy and seek to reduce reliance on the grid, their adoption of alternative power may alter their risk profiles. Ensuring adequate risk transfer and adjusting insurance programs to reflect these changes is critical.

Africa’s critical minerals

As well as introducing renewable energy sources for their own operations, Mining companies in Sub-Saharan Africa play a vital role in the green economy by supplying metals crucial for the global energy transition. Countries like the Democratic Republic of Congo (DRC), Namibia, and South Africa possess substantial reserves of copper, cobalt, uranium, lithium, and iron ore.

The transition to low-carbon energy sources depends on critical minerals that are economically essential, particularly for green technologies. As such, global and continental demand for such minerals is rapidly increasing.

One significant driver is the increased uptake of electric vehicles, the batteries of which contain lithium, alongside nickel and cobalt. The expansion of electricity networks means that copper demand for grid lines is also expected to more than double in the next 20 years. Producing the supply needed to meet demand is not easy. To capitalize on opportunities, mining companies are procuring renewable energy to power their operations, enhancing electricity generation, energy security, and emission reduction.

Moreover, the complexities of mining demand a comprehensive understanding of risk management. Marsh's industry expertise and robust capabilities deliver strategies to mitigate risk and enhance business resilience.

Speak to a Marsh expert about how to build resilience within mining