Renewables and mining
This post appeared in the October 2017 edition of PV Magazine and can be found in the archive – here.
The mining industry creates the raw materials that make up the renewable energy technologies powering the energy transition. For example, every 1 MW of solar PV requires four tons of copper. Increasingly, these renewables are powering the mining operations that create their source material. However, transitioning the mining industry off fossil fuels will require renewable developers to speak the language of miners and sell renewables on the value they provide miners beyond a lower cost of electricity.
[caption id="attachment_3701" align="alignnone" width="5568"]
The 10.6 MW solar and 6 MW storage system at the DeGrussa copper-gold mine in Western Australia is the largest off-grid solar and storage system powering a mining site. The system was developed by Neoen for the mine owner, Sandfire Resources. Source: Neoen[/caption]
Estimates for the mining industry’s energy use range from 1.25 to 11 percent of global energy consumption. The mining industry’s significance as an energy consumer makes it a critical part of any decarbonization strategy to limit climate change.
Global mining firms have begun to understand the value of renewable energy as 1 GW of renewables have already been built at mining sites across the world with another 1 GW in the pipeline. A recent report from the Rocky Mountain Institute estimates that 180 GW of renewables would be required to meet only the electricity needs of mining sites, 32% of total energy consumption. Fully decarbonizing the mining industry would require further electrification of mining operations and more renewables.
To accelerating renewable adoption to this level, mining industry stakeholders must see renewables as a strategic solution to key problems within their industry. Educating mining companies on the value of renewables will require renewable developers to speak the language of miners and make a concerted effort to tailor their marketing and service offerings to the needs of mining companies.
Value of Renewables
Energy has been fundamental to mining even before prospectors were blowing up rocks with dynamite. Today, energy makes up 15 percent of total production costs with that share rising to 20 to 40 percent in metal mines. This means that energy prices and price stability are key to long-term mine profitability.
Energy’s share of costs has increased in recent years and will continue to increase as demand for metal and minerals has pushed mining companies to more remote sites with lower-grade ore. The higher energy usage from processing lower-grade ore and powering remote locations is partly responsible for the stagnation in the energy productivity of the mining industry.
In their 2017 summary of mining industry trends, Deloitte, a global professional services company, reported that, “while many companies benefited from the 50 percent decline in global oil prices in the last two years, their actual energy efficiency on a [gigajoule per ton] basis has remained flat or even risen in some cases.”
Given the increasing energy usage, renewable energy, primarily wind and solar PV, have gained traction in the mining industry by offering lower-cost energy and long-term price stability. Deloitte reported in their 2015 summary that renewables can offer fuel savings between 10 percent to 40 percent.
In key mining markets, renewables are often competitive with grid prices, and Lazard’s LCOE Study 10.0 shows that solar PV is cheaper than diesel electricity across the globe, making solar a viable option for all off-grid mines running on diesel generators.
The prospect of carbon-pricing legislation has also compelled many mining companies to consider the additional costs from carbon-intensive energy sources. Carbon pricing legislation has been proposed or passed in key mining markets like Australia, South Africa, Ghana, Brazil, Argentina, Chile, Europe, Canada and parts of the US.
Reliability of Renewables
Beyond price considerations, renewables can offer a more reliable source of electricity. In many developing countries, the electrical utilities often lack reliable supplies of electricity leading to supply cuts to mining operations.
In 2013, ESKOM, South Africa’s main utility, met only 77 percent of electricity demand. This shortage put pressure on the mining industry, which makes up five percent of the country’s GDP.
Wärtsilä Energy Solutions, a global energy system integrator with a strong focus on the mining sector, told pv magazine about the reliability needs of mining operations. “Like other customers, mining sites are looking for reliable and affordable energy for their operations. What makes them special is that the loss of revenue generated by the shutdown of an energy source is tremendous. That is why they require the reliability percentage to be close to 99%. As they cannot fully rely on the grid of the country where they are operating to reach this level, they will require their own energy production facility.”
During supply cuts, mines have to either halt operations or rely on expensive backup generation. Electricity shortages are common in many developing countries, though natural and human events can put the electricity system in crisis as has happened in Zambia.
Drought in Zambia has curtailed hydropower generation leading to a severe shortage of electricity. In response, the government began rationing electricity to mining companies, which consume more than 50 percent of national electricity. Electricity prices have also doubled as the government resorted to expensive, imported electricity from neighboring countries.
The main medium-term hope for boosting the supply of electricity in Zambia is a 100MW solar tender by Zambia’s Industrial Development Corporation. The lowest energy price offering from the solar tender is $0.06/kWh, which is significantly lower than the current emergency power measures. Mining companies in the country have taken note of the government turning to solar to ease the power crisis.
Social License to Operate
Limited supplies of electricity not only strain day-to-day operations at mines, but they also jeopardize the mining companies social license to operate. In many developing countries with significant mining industries, the mines compete with the country’s citizens for limited electricity supplies. This competition puts mines at odds with the well-being of citizens, souring their view of mining companies.
On-site renewables can reduce mine’s demand for national electricity and provide a pathway to reframe the mine’s image in local communities from extractors to development partners.
Ned Harvey, Managing Director at the Rocky Mountain Institute, which has been working with mining companies to adopt renewables through their Sunshine for Mines program, told pv magazine that “maintaining mining companies’ social license to operate is a key strategic challenge. Renewables can help mining companies enhance their social position in local communities by competing less for limited electricity resources, reducing overall carbon emissions, and reducing strain on local infrastructure through the consistent transport of diesel fuel to off-grid mines.”
As large, creditworthy customers, mining companies can also partner with local utilities or private developers to build local microgrids in off-grid locations that electrify nearby communities. Though no such microgrids are in operation, this business model is being deployed with off-grid telecommunication towers in many countries will low electrification rates like India.
[caption id="attachment_3702" align="alignnone" width="4064"]
The Barrick gold mine in McCarren, Nevada has a 1.5 MW solar system in addition to the 116 MW gas power plant supplied by Wärtsilä. Source: Wärtsilä[/caption]
Challenges to Adoption
Despite the numerous economic and social reasons for transitioning to renewable power, adoption has been slowed by the conservative nature of the mining industry. Additionally, mining companies’ market valuations are based primarily on their reserves and future production targets. Optimizing existing operations is less of a priority making it difficult to justify productivity-enhancing investments like renewables.
Third-party financing of renewables systems allows mining companies to devote their capital to their core operations, though the uncertainty around a mine’s lifetime can prevent them from signing long-term agreements.
Renewable power purchase agreements (PPA) usually extend out at least 15 to 20 years; whereas, mine operations can be curtailed abruptly if commodity prices decline. If the mine is the sole off-taker of a PPA, the mine risks paying for electricity it doesn’t need while the renewable plant risks becoming a stranded asset. To manage this problem, renewable developers should target mines with more certain lifetimes.
Dr. Thomas Hillig, the founder of THEnergy, a consultancy focused on renewable integration into mining operations, told pv magazine, “in the commodity slump, management’s attention was on everything but renewables. It is no surprise that renewables were more successful in mining disciplines that were not affected by the crisis such as gold mines.”
Miners Know Best
As more renewable projects on mining sites have been developed, financiers have become more comfortable with mine lifetime risks providing opportunities for developers to tailor contracts to the mining industry’s needs.
In an interview with pv magazine, Harvey of RMI suggested that “renewable developers can innovate beyond conventional PPAs and consider a shorted PPA term of 10 years, or even link PPA durations to the lifetime of the mine.”
Another hang-up for mining companies in signing a renewable PPA is the need to pay several energy suppliers. To ease this concern, renewable developers can work with a mine’s existing energy supplier to ensure mining companies make payments to a single energy supplier.
Flexible PPA durations and partnering with existing energy suppliers are just two examples of how developers can tailor their services to meet miners’ needs. Ultimately, developers need to innovate beyond their conventional offerings to create solutions that solve problems unique to the mining industry. As Harvey puts it, “the miners know best.”
Hillig of THEnergy was more direct in stating, “Developers need to optimize their sales and marketing processes. Many are not doing more than just waiting to be addressed by the end-customers. The golden era of renewables in most countries is over. Today, they have to do more than just be there.”
Transitions
By tailoring their offering to meet the needs of mining companies, developers can accelerate the transition to a renewable-powered mining industry.
Miners, for their part, need to recognize the shift toward renewables underway in their industry and across the economy as a whole. In 2016, Deloitte cited the “inevitable move to alternative power sources” as one of the top 10 issues facing the mining industry.
When discussing innovation with stakeholders in the mining industry, Harvey likes to ask the question “if Elon Musk vertically integrated into lithium mining, what would his mine operations look like?”
You can be sure that Musk’s lithium mines would be renewable-powered.
The mining industry creates the raw materials that make up the renewable energy technologies powering the energy transition. For example, every 1 MW of solar PV requires four tons of copper. Increasingly, these renewables are powering the mining operations that create their source material. However, transitioning the mining industry off fossil fuels will require renewable developers to speak the language of miners and sell renewables on the value they provide miners beyond a lower cost of electricity.
[caption id="attachment_3701" align="alignnone" width="5568"]
The 10.6 MW solar and 6 MW storage system at the DeGrussa copper-gold mine in Western Australia is the largest off-grid solar and storage system powering a mining site. The system was developed by Neoen for the mine owner, Sandfire Resources. Source: Neoen[/caption]Estimates for the mining industry’s energy use range from 1.25 to 11 percent of global energy consumption. The mining industry’s significance as an energy consumer makes it a critical part of any decarbonization strategy to limit climate change.
Global mining firms have begun to understand the value of renewable energy as 1 GW of renewables have already been built at mining sites across the world with another 1 GW in the pipeline. A recent report from the Rocky Mountain Institute estimates that 180 GW of renewables would be required to meet only the electricity needs of mining sites, 32% of total energy consumption. Fully decarbonizing the mining industry would require further electrification of mining operations and more renewables.
To accelerating renewable adoption to this level, mining industry stakeholders must see renewables as a strategic solution to key problems within their industry. Educating mining companies on the value of renewables will require renewable developers to speak the language of miners and make a concerted effort to tailor their marketing and service offerings to the needs of mining companies.
Value of Renewables
Energy has been fundamental to mining even before prospectors were blowing up rocks with dynamite. Today, energy makes up 15 percent of total production costs with that share rising to 20 to 40 percent in metal mines. This means that energy prices and price stability are key to long-term mine profitability.
Energy’s share of costs has increased in recent years and will continue to increase as demand for metal and minerals has pushed mining companies to more remote sites with lower-grade ore. The higher energy usage from processing lower-grade ore and powering remote locations is partly responsible for the stagnation in the energy productivity of the mining industry.
In their 2017 summary of mining industry trends, Deloitte, a global professional services company, reported that, “while many companies benefited from the 50 percent decline in global oil prices in the last two years, their actual energy efficiency on a [gigajoule per ton] basis has remained flat or even risen in some cases.”
Given the increasing energy usage, renewable energy, primarily wind and solar PV, have gained traction in the mining industry by offering lower-cost energy and long-term price stability. Deloitte reported in their 2015 summary that renewables can offer fuel savings between 10 percent to 40 percent.
In key mining markets, renewables are often competitive with grid prices, and Lazard’s LCOE Study 10.0 shows that solar PV is cheaper than diesel electricity across the globe, making solar a viable option for all off-grid mines running on diesel generators.
The prospect of carbon-pricing legislation has also compelled many mining companies to consider the additional costs from carbon-intensive energy sources. Carbon pricing legislation has been proposed or passed in key mining markets like Australia, South Africa, Ghana, Brazil, Argentina, Chile, Europe, Canada and parts of the US.
Reliability of Renewables
Beyond price considerations, renewables can offer a more reliable source of electricity. In many developing countries, the electrical utilities often lack reliable supplies of electricity leading to supply cuts to mining operations.
In 2013, ESKOM, South Africa’s main utility, met only 77 percent of electricity demand. This shortage put pressure on the mining industry, which makes up five percent of the country’s GDP.
Wärtsilä Energy Solutions, a global energy system integrator with a strong focus on the mining sector, told pv magazine about the reliability needs of mining operations. “Like other customers, mining sites are looking for reliable and affordable energy for their operations. What makes them special is that the loss of revenue generated by the shutdown of an energy source is tremendous. That is why they require the reliability percentage to be close to 99%. As they cannot fully rely on the grid of the country where they are operating to reach this level, they will require their own energy production facility.”
During supply cuts, mines have to either halt operations or rely on expensive backup generation. Electricity shortages are common in many developing countries, though natural and human events can put the electricity system in crisis as has happened in Zambia.
Drought in Zambia has curtailed hydropower generation leading to a severe shortage of electricity. In response, the government began rationing electricity to mining companies, which consume more than 50 percent of national electricity. Electricity prices have also doubled as the government resorted to expensive, imported electricity from neighboring countries.
The main medium-term hope for boosting the supply of electricity in Zambia is a 100MW solar tender by Zambia’s Industrial Development Corporation. The lowest energy price offering from the solar tender is $0.06/kWh, which is significantly lower than the current emergency power measures. Mining companies in the country have taken note of the government turning to solar to ease the power crisis.
Social License to Operate
Limited supplies of electricity not only strain day-to-day operations at mines, but they also jeopardize the mining companies social license to operate. In many developing countries with significant mining industries, the mines compete with the country’s citizens for limited electricity supplies. This competition puts mines at odds with the well-being of citizens, souring their view of mining companies.
On-site renewables can reduce mine’s demand for national electricity and provide a pathway to reframe the mine’s image in local communities from extractors to development partners.
Ned Harvey, Managing Director at the Rocky Mountain Institute, which has been working with mining companies to adopt renewables through their Sunshine for Mines program, told pv magazine that “maintaining mining companies’ social license to operate is a key strategic challenge. Renewables can help mining companies enhance their social position in local communities by competing less for limited electricity resources, reducing overall carbon emissions, and reducing strain on local infrastructure through the consistent transport of diesel fuel to off-grid mines.”
As large, creditworthy customers, mining companies can also partner with local utilities or private developers to build local microgrids in off-grid locations that electrify nearby communities. Though no such microgrids are in operation, this business model is being deployed with off-grid telecommunication towers in many countries will low electrification rates like India.
[caption id="attachment_3702" align="alignnone" width="4064"]
The Barrick gold mine in McCarren, Nevada has a 1.5 MW solar system in addition to the 116 MW gas power plant supplied by Wärtsilä. Source: Wärtsilä[/caption]Challenges to Adoption
Despite the numerous economic and social reasons for transitioning to renewable power, adoption has been slowed by the conservative nature of the mining industry. Additionally, mining companies’ market valuations are based primarily on their reserves and future production targets. Optimizing existing operations is less of a priority making it difficult to justify productivity-enhancing investments like renewables.
Third-party financing of renewables systems allows mining companies to devote their capital to their core operations, though the uncertainty around a mine’s lifetime can prevent them from signing long-term agreements.
Renewable power purchase agreements (PPA) usually extend out at least 15 to 20 years; whereas, mine operations can be curtailed abruptly if commodity prices decline. If the mine is the sole off-taker of a PPA, the mine risks paying for electricity it doesn’t need while the renewable plant risks becoming a stranded asset. To manage this problem, renewable developers should target mines with more certain lifetimes.
Dr. Thomas Hillig, the founder of THEnergy, a consultancy focused on renewable integration into mining operations, told pv magazine, “in the commodity slump, management’s attention was on everything but renewables. It is no surprise that renewables were more successful in mining disciplines that were not affected by the crisis such as gold mines.”
Miners Know Best
As more renewable projects on mining sites have been developed, financiers have become more comfortable with mine lifetime risks providing opportunities for developers to tailor contracts to the mining industry’s needs.
In an interview with pv magazine, Harvey of RMI suggested that “renewable developers can innovate beyond conventional PPAs and consider a shorted PPA term of 10 years, or even link PPA durations to the lifetime of the mine.”
Another hang-up for mining companies in signing a renewable PPA is the need to pay several energy suppliers. To ease this concern, renewable developers can work with a mine’s existing energy supplier to ensure mining companies make payments to a single energy supplier.
Flexible PPA durations and partnering with existing energy suppliers are just two examples of how developers can tailor their services to meet miners’ needs. Ultimately, developers need to innovate beyond their conventional offerings to create solutions that solve problems unique to the mining industry. As Harvey puts it, “the miners know best.”
Hillig of THEnergy was more direct in stating, “Developers need to optimize their sales and marketing processes. Many are not doing more than just waiting to be addressed by the end-customers. The golden era of renewables in most countries is over. Today, they have to do more than just be there.”
Transitions
By tailoring their offering to meet the needs of mining companies, developers can accelerate the transition to a renewable-powered mining industry.
Miners, for their part, need to recognize the shift toward renewables underway in their industry and across the economy as a whole. In 2016, Deloitte cited the “inevitable move to alternative power sources” as one of the top 10 issues facing the mining industry.
When discussing innovation with stakeholders in the mining industry, Harvey likes to ask the question “if Elon Musk vertically integrated into lithium mining, what would his mine operations look like?”
You can be sure that Musk’s lithium mines would be renewable-powered.
