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Investing in the future of mining with renewable energy

Investing in the future of mining with renewable energy


Speech to the International Mining and Resources Conference at the Melbourne Convention & Exhibition Centre by Ivor Frischknecht, CEO, Australian Renewable Energy Agency. Just over two years ago I was up in Darwin at the launch of the Northern Territory solar energy transformation program. Power and Water Corporation (PWC) – the main energy company up there – is putting solar into many off-grid communities.

It displaces diesel.

Not all diesel, but during the day, when it’s sunny, the solar takes over some or all the work of the diesel power station. It can save money and make the price of energy predictable. It makes it predictable because once you’ve paid to put in solar, you know exactly what it’s going to cost you—the cost of the capital invested and not much more. You also don’t need to worry quite so much about fuel delivery risk or diesel storage tanks, because less of the stuff is being trucked around. However, the main value in a project like this is to change the operations and logistics of PWC.

To give you some idea of the scale, PWC:

owns and operates more than 50 mini-grids across 1.3 million square kilometres
employs more than 890 staff.
9 MW of solar PV is being integrated with existing diesel power stations in about 30 remote locations in the NT.Most installations will achieve 15 per cent diesel fuel displacement.Every one of these will need to learn how to clean and maintain solar panels—pretty easy actually—and how to run a reliable system that includes solar.

The system is designed so that more solar panels and batteries can be plugged into each system as costs fall.

One community system is designed for learning.

It is a high penetration system at Daly River, which will achieve approximately 50 per cent diesel fuel displacement using technologies such as energy storage, flexible diesel technology and cloud forecasting.

For this part the NT received a significant subsidy from ARENA.

What’s this got to do with mining?

There are the obvious parallels of operating in the most remote parts of the world with extreme and often unpredictable weather.

But the NT project is instructive for reasons other than geography and climate.

It is a measured response to the question confronting all miners – can I add renewables cost-effectively and without impacting my business? If I can, should I?

It is a great example of an organisation building a platform. It introduces renewables in a low risk way. It gives it the option to ramp up renewables further down the track – simply plug more in.

And PWC did this – in a first step that positions it to take advantage of changing global energy conditions.

Global energy trends are driven by climate change and new technologies.

Those new technologies will keep getting cheaper and better.

Burying your head in the sand and hoping these issues will go away is simply not an option.

I’m not the only one to say this.

Former technology chief at BHP, former head of CSIRO and now a Director of Rio Tinto Dr Megan Clark said just last month:

The energy sector is poised for a revolution driven by the strong strategic forces of demand, technology development, social expectations and geopolitics.

I know that many miners today are using a shadow carbon price to understand how future carbon constraints would impact their investment decisions.

And some of the biggest corporates in the world are taking action.

Companies like Google, Facebook and Amazon are signing up to corporate renewable energy power purchase agreements or PPAs.

Corporate renewable PPAs are surging around the world. In the US, almost 1.6 GW of renewables capacity was contracted through these PPAs in 2015.

That’s the equivalent of the entire energy capacity of 50 mid-size mining operations in Australia.

This is happening against the backdrop of the climate agreement in Paris last year – COP21, which came into effect on 4 November.

In the corporate world, giant multi-nationals like Nestle, have signed up to the RE100 initiative – committing to 100 per cent renewable electricity.

General Motors is committed to 100 per cent renewable electricity by 2050 – across its 350 sites in 59 countries.

Closer to home, last week New South Wales (Australia’s largest economy) set a goal of net zero carbon emissions by 2050.

That’s a much more ambitious target than aiming for renewable electricity, given electricity accounts for just 33 per cent of Australia’s total emissions.

And it’s not just coming from geo politics and policy

Customers and investors are paying close attention to the carbon credentials of companies. They’re voting with their feet if they don’t like what they see.

I have heard from an aluminium company that is feeling pressure from its customers to offer a lower carbon product. They’re selling metal to huge corporate and industrial customers. Those customers care about carbon.

The legal implications of COP21 are also important.

Senior management from some of Australia’s biggest companies recently got together to discuss advice on the legal liability of directors.

This is from Noel Hutley SC, a senior barrister who provided the legal opinion that Australian company directors “who fail to consider ‘climate change risks’ now could be found liable for breaching their duty of care and diligence in the future”.

So clearly there are some sticks. But there are also carrots. The business case is increasingly compelling.

The cost of solar has dropped at around the same rate as the cost of off-grid diesel power over the last four years.

While the cost of diesel power has fallen and always fluctuates, the price of solar continues to fall at a steady rate.

The latest large-scale solar projects in Australia show that the projects are bankable. The cost of equity has dropped into single digits.

In terms of nuts and bolts, here’s what to think about when you consider renewables:

Cost: solar or wind should be cheaper than diesel. For gas, it depends on gas prices at the location. Battery storage is still expensive but coming down.
Renewable energy costs are known in advance, stable and locked in. They don’t move around.
Solar PV integrates with existing diesel generators and inverters can provide reactive power support, even at night. Batteries stabilize frequency. So there are some power quality benefits.
Fuel delivery and storage risk is reduced to the extent you can reduce the volume of liquid fuels.
Standing here today, I can hear the murmurs:

What about mine life, can a solar system give me a five year payback?
What about integration and reliability? I don’t want any risk to the operation of my mine.
If the cost of renewables is falling why wouldn’t I just wait another few years until I can really “bank some savings”?
In response I say to you these concerns are reasonable. But here is my answer.

If you haven’t already been thinking about it, it will take a good part of two years before you are ready to execute, so start now so you have the option to push the go button.
Start with a low penetration system today. That should save money now and can be scaled up over time. Not only can you learn from it, but everything you need will be in place to increase renewables when the proposition become unassailable. The equation could improve because of policy, customer pressure or falling technology cost. Likely all three.
As the market is starting to mature, more flexible structures are being put in place to manage mine life risk. ARENA is continuing to support technology developments such a Laing O’Rourke’s redeployable solar.
Six weeks ago I was at the remote DeGrussa copper-gold mine, owned by Sandfire Resources NL – 900 kilometres north east of Perth.

When Sandfire decided to transition to a mix of renewables and diesel through a 10.6 MW solar PV installation plus storage, ARENA supported the $40 million project with $20.9 million in recoupable grant funding.

More than 34,000 solar photovoltaic (PV) panels are integrated into the existing 19 MW diesel generator facility alongside 6 MW (1.8 MWh) of new battery storage.

It’s notched up some impressive achievements:

it’s the largest off grid solar PV system in the world
its lithium-ion batteries store solar power and sun-tracking solar PV panels maximise plant output
smart control systems link these components to the existing diesel plant.
The result?

Renewables will offset approximately five million litres of diesel fuel annually – more than 20 per cent of the mine’s total diesel consumption.
It’s delivered and managed by an independent power producer, just like a standard diesel system.
It was constructed in 10 months and delivered on budget, despite its incredibly remote location.
And there has been some great learning that all involved are happy to share.
On the west coast of Cape York at Rio Tinto’s Weipa bauxite mine, a solar plant generates electricity for the mine, processing facilities, the port and town.

To minimise risk, Rio has staged this project.

Stage One is complete. A 1.7 megawatt solar plant generating up to 20 per cent of the daytime electricity needs. Fully integrated with existing diesel.

Stage Two will be much higher penetration. It will incorporate the learning from Stage One.

At Lakeland in North Queensland a world first project will combine large-scale solar and battery storage into a single fringe-of- grid location. BHP is a partner in this project to learn from the experience.

So, what are the next steps you can take?

Start monitoring your solar/wind resource and load profiles – I cannot emphasise enough the value of a strong dataset to feed into your modelling.
Start thinking internally about the right commercial model for your operation. Commitments you make now to your independent power producer may make it much easier or harder to include renewable energy in future.
Talk to someone in this space: ARENA, the CEFC, Sunshine for Mines (US), TH Energy (Europe), your existing IPP etc.
The great news is this not uncharted territory. We at ARENA have learnt a lot in the last four years. And sharing that knowledge is our core business.

We’re collating operations performance data to build a robust evidence base.

We’re also running small workshops for those who want to learn.

We have also partnered with CATS Projects, to develop a handbook for miners.

We want to know what you want to know. It would be great if you would complete a brief survey to tell us that. http://tinyurl.com/z6lgu8o

Please take the time to complete it and get in touch.

The take-out message is: call us, email us, seek us out at this conference.

Going back to the highly-regarded Dr Megan Clark who recently asked:

What will the mining industry need to do to be partners and helpers in building a fascinating, exciting and more equal and sustainable world?

It’s a thought-provoking call to arms.

But in my experience miners are a tough, pragmatic and ingenious bunch who are more than up to the task.

Of course it would be at best naive and at worst disingenuous of me to downplay the challenges ahead:

the mining sector has been a challenging operating environment
the price of diesel could remain low, and who knows what will happen to gas prices
energy procurement is not your core business
regulatory and policy environments and power requirements add further complexity.
These challenges are real, but not insurmountable.

And I suspect that for many of you in this room the numbers stack up right now.

Anand Gupta Editor - EQ Int'l Media Network


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