Analysing financing models for energy efficiency projects in the South African mining sector

Abstract

South African mining companies face mounting pressure to reduce energy costs and lower greenhouse gas emissions. However, the adoption of mine-site energy efficiency projects (EEPs) remains constrained by financial barriers and competing capital demands (Burger et al., 2024; Chavalala & Nhamo, 2014; Minerals Council South Africa, 2023). This study evaluated the impact of alternative financing models and capital structures on the bankability of EEPs in the South African mining sector, considering realistic tariff, incentive and risk conditions. A systematic literature review was conducted to map available financing sources - including internal funding, commercial and concessional debt, leasing and energy services company (ESCO)/performancecontracting structures - and to identify gaps in project-level financial analysis. Based on these insights, a lender-grade quantitative modelling framework was developed that integrates Megaflex tariffs, Eskom demand-side management incentives, Section 12L income tax allowances, corporate tax, and company-specific weighted average costs of capital. The framework was applied to three representative EEPs (a heat-pump water-heating retrofit, a compressed-air valve-optimisation project and a battery energy storage arbitrage project) across five mining companies and twelve financing models, generating 180 simulations. The results indicate that for projects with strong technical and economic foundations, concessional energy efficiency loans combined with optimised debt-equity mixes generally deliver the highest net present values and strong discounted internal rates of return. In contrast, relying solely on internal funding and prime rate debt remains feasible, but it is less value-efficient. For the compressedair valve-optimisation project, leasing is particularly appealing as it transforms large, stable savings into immediate net cash surpluses while spreading capital costs as operating charges, whereas leasing and ESCO models tend to erode value for more marginal projects. The battery energy storage system arbitrage case is only weakly viable under current assumptions, indicating the need for additional value streams or stronger incentives. The study concluded with decisionoriented recommendations for mines, financiers and policymakers on structuring EEP finance to overcome capital constraints, enhance project bankability and support a more sustainable, energy-efficient mining industry.