Miners turn to face the sun
As the cost of clean energy hybrid power plants falls miners around the world are shaking off their reliance on fossil fuels, writes Sarah Wang.
The mining industry has traditionally been a big energy consumer, estimated to account for about 11% of the global energy consumption. Energy costs comprise a significant proportion of operating costs in a mining operation. Most global mining operations rely on traditional power sources: fossil fuel-based grid power or off-grid gas/diesel-generated power.
The mining sector is continually pursuing lower and more reliable energy sources and has been seeking ways to soften its controversial image by reducing its carbon emissions. Regulatory imperatives are pushing the industry in the same direction.
Due to their often remote locations, it is a challenge for mining companies to secure reliable and cost-effective energy, either sourced externally from girds or generated through private on-site arrangements. Unexpected power supply interruptions can be exceedingly costly. The development of increasingly efficient and sophisticated renewable power generation systems – including solar, wind and battery storage – is seen as providing answers to this challenge both in economics and supply stability.
With its technology maturing, the levelised cost of energy (LCOE) of renewables has fallen to a level that AEMO and CSIRO in early 2019 predicted would be the cheapest method of power generation in 2020. Furthermore, it provides an answer to the pressures from community, investors and government on mining companies to improve their environmental footprints by reducing carbon emissions.
The way has been led by a series of projects in Western Australia, where smaller projects (up to 5MW) tend to be used to power non-operational electricity consumption, while larger facilities are mostly used for operational activities. The first large project at the DeGrussa copper-gold mine site of Sandfire Resources was followed by a smaller project at the Nova Nickel Operation in Fraser Range. With the recent commencement of the hybrid (gas, solar, wind, battery) project at Gold Fields’ Agnew Gold Mine the trend has continued to another level, with a total installed capacity of 54MW. More projects have been planned from companies including Fortescue, OzMinerals, Rio Tinto and Northern Minerals, with a total capacity of about 250MW.
Economics is the primary factor in evaluating projects. When the price of lithium batteries dropping 87% in real terms from $US1,100/kWh in 2010 to $US156/kWh in 2019, battery storage has been increasingly used as a hedge against rising fossil fuel costs. A further price drop to below $US100/kWh is anticipated when installed storage capacity reaches 2TWh in 2024.
Wind energy so far has a LCOE at about $50-65/MW in 2020 and is expected to reduce to $50 by 2030. The success and leadership of the Agnew project in incorporating wind power has encouraged more projects in the pipeline to investigate the option of including wind, including OZ Minerals’ 50MW hybrid project at West Musgrave.
Most of the existing and announced projects adopt a leasing or PPA model, which removes the challenge of securing upfront capital investment and the onerous tasks of maintenance and operation of the generation infrastructure. Most mining companies recognize that power generation is not their core strength and arrangements can be left to the experts who compete hard in that space.
Every energy project decision has to accommodate its own internal and external constraints. The fundamental aim is generally to create a project that has the right combination of competitive economics, reliable supply and has a minimum carbon footprint compared to alternatives power supply.
Despite the technological and economic viability of renewable energy power there remain challenges in project decisions:
Life of mine: A renewable energy project typically has a lifecycle of at least 15 years. When a mine life is shorter than this, it becomes not economically feasible to go ahead. As a result, renewable energy power generation has mainly been adopted by large mining companies with large deposits, or, as at Agnew, by companies that have sufficient confidence in the continuation of their operations.
Business model: While leasing or PPA has been used most often, this approach carries the costs attributable to the leasing/operating partner and the potential for disputes during the lifecycle of the agreement.
Integration: Most mines are brownfield projects that have existing power supply arrangements, either through grid or proprietary power generation facilities. Switching to renewable energy can involve complex commissioning, including some trial and error that risk interruptions.
Successful projects appear to have been achieved by mining companies and EPCs working together in tackling the technological, operating and business challenges.
The success of renewable energy power generation and the enthusiasm for it that this success has driven in the mining industry has also been an inspiration to other remote industries in Australia, which consume 1.2GW of power from diesel fuel alone. The momentum in the mining sector has established a critical technological, environmental and business case for these industries to investigate the option.
With the growing technological and financial success of recent projects, we can expect to see a still stronger interest in and greater willingness to adopt renewable energy in the mining industry in Australia and globally, as success breeds success.
The current oil price drop and the covid-19 crisis may temporarily dampen enthusiasm, but the longer term commercial view and the growing desire for gaining ecological credits should continue to drive the industry to investigate the option. The current oil price is not sustainable, particularly over the often decades-long life of a mining operation.
It’s also worth noting that while covid-19 has shaken up the global economy when it was nearing a peak of the economic cycle, the application of renewable energy in mining could be an exception, given the current robust prices for some commodities, including gold, silver and iron ore.
Sarah Wang is a business consultant with 15 years’ experience in Shanghai and Sydney working for companies including Toshiba, Siemens, Hitachi and Eaton Power. Sarah has been covering the Australian renewable energy industry from the mid-2000s.