Renewables at mining sites can generate considerable savings in fuel and total electricity costs
Renewables at mining sites can generate considerable savings in fuel and total electricity costs
Credit: Energy Wise Group

Renewable energy can be up to 70% less expensive than diesel power and can improve the stock price of mining companies, writes Dr Thomas Hillig

The past years have been very challenging for the mining industry. Many sectors have to deal with lower mineral and metal prices, falling share prices and growing energy costs, driven by increasing energy prices and higher power consumption.

Many high-yield mining locations are already exhausted: material extracted today is more difficult to access and requires more energy in reduction and purification. New mining sites are often remote and are not grid-connected; power is often produced by diesel gensets. Driven by high fuel transportation costs, the price for electricity generation is normally high. Renewable energy is often an optimal add-on to diesel gensets and can generate considerable fuel and total electricity cost savings.

Best business case: hybrid power plants

The best business case can be observed for hybrid power plants. In mining, these are solar or wind systems that are combined with or integrated into existing diesel power plants. Wind and solar energy are often up to 70% less expensive than electricity from diesel, especially in remote areas where transport makes up a large share of the total diesel cost. Hybrid power plants combine at least two different energy types. Rather common is the combination of diesel gensets and renewable energy systems with or without storage.

The actual configuration is very site- and company-specific. It depends on solar irradiation and wind characteristics, as well as on access to financing and the specifications of the existing gensets in case of a retrofit. Solar PV-diesel hybrid power plants without storage have rather low capital requirements. In the typical off-grid solution, the electricity from the solar power plant is used with priority. The diesel gensets generate the missing gap between the solar output and the load from the mine.

The hybrid off-grid power plant without storage requires rather low investment costs. As neither solar nor wind energy is a stable source of power and diesel gensets need a certain time for startup, this solution normally requires the gensets to run constantly at least at a minimum load. Hybrid power plants with storage additionally contain a battery that can store energy until additional diesel gensets start up, for example if a cloud deteriorates the solar output. The price for the additional battery components is quite substantial – so, obviously, this plant type is associated with higher investment costs.

Development of renewable energy

Solar and wind prices have reduced considerably in recent years. Solar module prices have come down by 30% during a period of just two years. Wind turbine towers have become taller, which allows for an efficient power generation in many locations where the wind is not strong enough at lower altitudes.

Wind and solar energy have a proven track record and the technology is considered reliable, which has attracted many institutional investors – for example, pension funds, which value secure investments and accept relatively low returns, have entered the market. Renewable energy has turned into a serious business and the industry has professionalised considerably.

The business case for renewable energy is normally positive for remote mining locations. Nevertheless, mining companies are a long way from applying solar and wind as a standard solution. For example, not a single mining company has made it into the US Environmental Protection Agency’s (EPA) National Top 100 list of US green power users in 2013. However, leading mining companies such as Barrick Gold, Rio Tinto and Glencore, as well as smaller players such as Shanta Gold, have realised that renewable energy has become an economically attractive solution for many mines and have built first pilots.

A recent THEnergy study shows that there are important benefits of renewable energy application beyond improvement of electricity prices. Mining companies that actively move towards renewable energy self-consumption show that they have realised that the world around them has changed, and that they must do something to limit their energy expenses. The usage of renewable energy is interpreted by the financial markets as a sign of a flexible and forward-looking decision-making process; mining companies that are first movers in actively integrating renewables into their energy mix are therefore considered progressive and better-managed. The study concludes that the stock prices of mining companies can be improved substantially with renewable energy solutions.

Bottlenecks

Due to current challenges in the mining industry, many companies do not have the capital to finance renewable energy projects. Solar and wind projects demand high capital investment and have only very limited operating costs, whereas electricity generation with diesel engines requires very low investment costs and high operating costs that are distributed over the project’s lifetime and thus can be paid later. In addition, there is a substantial market for rental diesel generators.

The cost of diesel power is, to a large extent, proportional to electricity consumption. The levelised cost of energy is normally lower for renewable energy; however, if mining companies invest in solar or wind power plants they have to pay for the majority of the energy bill beforehand. Another obstacle is that the payoff period for renewable energy is often longer than for traditional mining sites.

In mining, the perceived risk is normally higher than for renewable energy operations, which is reflected in chances for higher margins. The risk profile for investors in many mining companies is different from typical investors in renewable energy projects. Mining investors are taking, on the one hand, higher risk, but on the other hand they require higher margin expectations.

In addition, for some mines the remaining operating time is limited and too short for today’s renewable energy business cases. But a few companies have developed solutions that make renewables, particularly solar power plants, more mobile. These solar projects are financed through asset financing rather than project financing, which is much simpler. In addition, it allows for solutions such as the renting or leasing of solar power plants to mines, even if the expected remaining lifetime of the plant is only around seven to nine years.

There are solutions other than rental or leasing to avoid mining companies having to invest in renewable energy plants. Through power purchase agreements (PPAs), external investors act as independent power providers (IPPs) and sell the electricity to mining companies. In order to secure the investment the IPPs demand a pre-negotiated price for the electricity.

In comparison to grid-connected projects, the risk for external investors is higher given that it is more difficult for them to find alternative buyers if the mining company does not fulfill the PPA. In comparison to grid-connected projects, IPPs have to price in that risk and require higher prices per delivered kWh.

Another obstacle is that many mining companies believe renewable energy is more expensive than it actually is today. Other mining companies simply do not consider energy as a core competence and set a different focus for optimising their operational cost.

The platform for renewables and mining

THEnergy aims to accelerate the application of renewable energy in the mining sector by providing missing information. A key element of the platform ‘Renewables & Mining’ is a plant database for renewable energy systems near mines. It contains wind, solar PV, concentrated PV (CPV), concentrated solar power (CSP) and solar thermal plants. By using the platform, mining companies get to know which renewable energy players are already experienced in this field. For renewable energy companies, the platform is a good source to discover who the progressive first movers are in the mining industry.

Recommendations and outlook

Many current obstacles for the diffusion of renewable energy in the mining industry might be overcome soon as it matures, and as mining companies become more familiar with solutions for external financing such as rental or IPPs. Flexible rental solutions allow for renewable energy solutions for mines with a shorter remaining lifetime.

On the technical side, enhancements to diesel generators and hybrid controlling units will improve the penetration rate of renewable energy systems.

A recommendation for mining companies is to act quickly and to conceive a comprehensive renewable energy strategy. Beyond improvement of energy costs, ambitious targets and transparency offer first movers many advantages in communication. If substantial measures are taken and financial markets are targeted with a sustainability communication strategy, a positive effect on the market evaluation and stock prices of mining companies can be expected.

Similar developments for hybrid systems are forecast for other applications where large amounts of diesel or heavy fuel oil are used if there is no access to a stable grid.

Dr Thomas Hillig is CEO of THEnergy

To download the study, please visit: https://th-energy.net/english/platform-renewable-energy-and-mining/reports-and-white-papers/