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An initiative of the Resources and Energy Sector Infrastructure Council For further details please contact: Joe Mastrangelo Director, Resources and Energy Sectors Infrastructure Council (RESIC) Department of Primary Industries and Resources SA Level 16, 25 Grenfell Street GPO Box 1671 Adelaide 5001 DX 667 P: +61 8 8226 5059 Mob: +61(0) 417 812 148 Email: [email protected] Dr Nigel Long Director, Environment and Sustainability South Australian Chamber of Mines and Energy 290 Glen Osmond Road, Fullarton SA 5063 P: +61 8 8202 9999 Mob: 0448 848 038 Email: [email protected]

2 Future Electricity Demand South Australia’s Resources Industry FUTURE ELECTRICITY DEMAND SOUTH AUSTRALIA’S RESOURCES INDUSTRY

DISCLAIMER

This document has been prepared for the South Australian Chamber of Mines and Energy (SACOME) and the Resources & Energy Sector Infrastructure Council (RESIC) hereafter referred to as the “Parties”, as an instrument to support the identification of infrastructure issues as they relate to South Australia’s future mining activity. This document is not intended to be relied upon or used for other purposes, such as investment decisions related to further electricity generation, transmission or distribution capacity. It has been developed using information and reports prepared by a number of third parties, which are neither endorsed nor supported by the Parties. Any individual proposing to use the information presented in this document should independently verify the accuracy, completeness, reliability and suitability of the information provided, as well as the reports and other information used by the Parties in its preparation. The Parties, its servants and officers, make no warranty as to the accuracy, currency, reliability, completeness or suitability for particular purposes of the information in this document. The Parties, its servants and officers accept no liability (including liability to any person by reason of negligence) for any use of the information in this document or for any loss, damage, cost or expense incurred or arising by reason of any error, negligent act, omission or misrepresentation in the information in this document or otherwise.

Future Electricity Demand South Australia’s Resources Industry 3 4 Future Electricity Demand South Australia’s Resources Industry TABLE OF CONTENTS

Executive summary...... 7 Introduction...... 8 The purpose of this report...... 9 Electricity demand survey...... 10 Overall electricity demand...... 15 Future electricity infrastructure requirements of South Australia’s resources industry...... 19 Conclusion...... 19 Recommendations...... 20 Appendix A Realising the potential - South Australia’s strategic plan...... 21 Appendix B SA mineral resources overview...... 22 Appendix C National electricity market fundamentals...... 24 Appendix D Planning for the future...... 25 Appendix E South Australia’s mining pipeline...... 26

Future Electricity Demand South Australia’s Resources Industry 5 6 Future Electricity Demand South Australia’s Resources Industry EXECUTIVE SUMMARY

South Australia has a world class geological environment. The state’s endowment in key mineral resources, especially within the Gawler Craton geological region, (Fig 1) is now being realised and developed. The recent growth in mining has been extraordinary; growing from four operating mines in 2000 to eleven mines in full production in 2009. A further five mines are expected to commence in 2010 taking the state’s total to sixteen. To support this level of expansion significant planning by industry and government is essential, and not least of these is the future demand for electricity supply and infrastructure. This paper provides a picture of the anticipated increase in electricity demand by South Australia’s resources industry to 2020 and beyond. It forms part of a collaborative project between RESIC, SACOME and ElectraNet to quantify the potential increase in electricity demand and to stimulate scenario solutions. RESIC commissioned Aurecon to facilitate an online survey targeting significant resource and infrastructure companies to gauge their perceived infrastructure demand. The data has not been interpreted or modified and has been used as supplied by the survey recipients. The data indicated that the best case electricity demand for the South Australian resources sector is projected to grow seven-fold over the next 20 years. The significant rise in this demand is influenced by BHP Billiton’s Olympic Dam expansion. Whilst current resource projects may or may not be realised for a variety of reasons, it is prudent to consider the potential demands arising from the growth of the resource sector, and plan for the infrastructure required to support it. Equally the commerciality of projects could also be determined by the availability, or otherwise, of key infrastructure. Identification of ‘clusters’ of large projected demand may present opportunities to leverage progressive solutions through economies of scale. Government implementation of climate change policies to create economic drivers to change the dynamics of energy generation from fossil fuels towards low or zero-emission technologies will have a significant impact on business. Inevitably such changes will alter the dynamics of infrastructure investment in the National Energy Market (NEM) from the general market benefits test, which dictates current decisions in the NEM, to encapsulate broader economic, environmental and social benefits. Appropriately both government and industry have an important role in meeting these challenges. Renewable energy will continue to play an increasing role in the generation of electricity. It is therefore important to understand how these technologies may offer a solution to the future electricity demands. SA is rich with potential, yet largely undeveloped renewable energy sources (wind, solar, geothermal, wave) and is well positioned to capitalise on this advantage in a carbon constrained economy. However the remoteness of these resources means deployment is also conditional on strategic infrastructure planning and investment. Fundamentally potential solutions need to be considered early, and strategies developed to ensure secure, adequate, reliable and economically efficient energy is supplied to support the growth of the sector and the State.

Future Electricity Demand South Australia’s Resources Industry 7 INTRODUCTION

The South Australian Government is committed to supporting the continued growth of the resources sector. This support has been set out within the framework of the South Australian Strategic Plan 2007 – (relevant excerpt in Appendix A), the Economic Development Board’s Economic Statement 2009 and the South Australian Infrastructure Plan (2005-2009). Over the next two decades, mining investment and the number of operating mines are expected to grow substantially across the state. (Appendix B). In mid-2009, RESIC and SACOME initiated an infrastructure demand study through Aurecon. Data was sought on the perceived demands for water, gas, road, rail and telecommunications. A priority of the study was to examine and determine the future electricity generation, transmission and distribution infrastructure requirements for the resources and energy sectors in South Australia. The outcome presented in this report is based on the estimated electricity usage and source over four time periods extending to 2020 and beyond from the 29 participating resource companies. The data has not been interpreted or modified and has been used as supplied by the survey recipients. South Australia’s electricity infrastructure is located along its populated coast-line having limited coverage of mining clusters. South Australia is also integrated into the national electricity and gas market operated by Australian Energy Market Operator (AEMO). A brief explanation of the National Electricity Market (NEM) is outlined in Appendix C. The main drivers of investment in electricity generation and infrastructure are: ●● Demand growth, ●● Asset replacement and refurbishment, ●● Need to meet regulated service standards, and ●● Climate change policies. Electricity is one of the largest input costs of mine operation expenditure, accounting at times for up to 40% of operational costs. The supply of competitive, adequate, secure and reliable electricity is therefore an essential enabler for the future growth and sustainability of the sector. The remoteness of most mines from the national grid and the high cost of infrastructure can make electricity connection via the grid uneconomic limiting power supply options to distributed generators. Each individual project will select the best electricity supply solution having regard to a range of factors including installation and operating costs, and the financial risk of unproven, alternate technologies. General and current economic commentary indicates that Australia’s economy will continue to grow for the foreseeable future. Much of this will be due to the continued strong demand for resources from China as well as future mineral demand from countries such as India and South Korea. The strong foundation and growth potential of the resources industry in South Australia requires careful consideration of infrastructure needs if the state’s potential is to be realised and new electricity generation, whether it be renewable, distributed or connected to the electricity grid, will be required to supply future mining projects. Quantifying this demand and determining the time frame of response is the first step in identifying potential solutions and priorities.

1 RESIC is responsible for providing advice to the South Australian Government on matters relating to complex infrastructure issues that contribute to the sustained growth of the resources and energy sector.

2 SACOME is the peak industry association for the minerals and energy sectors in South Australia promoting the social and economic development of the state through the Resources Sector.

8 Future Electricity Demand South Australia’s Resources Industry THE PURPOSE OF THIS REPORT

Through the identification and analysis of resources sector ‘clusters’ within the State it may be possible to ascertain the common electricity infrastructure required by the companies within the precinct, rather than individual users.. By amortising costs across a number of mines located within identified clusters, the commercial viability of mining projects could be improved through lower operating and capital costs than would otherwise be achieved. This could potentially open up opportunities for new electricity generators and transmission infrastructure providers to service “nearby” mines in a radial type arrangement, which may or may not be connected to the grid This work does not challenge the existing regulatory framework which is modelled on the deregulated “user pays” system. Renewable energy may play an increasing role in the generation of electricity, fuelled by policy mechanisms designed to transition Australia’s economy to a low carbon base. It is therefore important to understand how these technologies may offer a solution to future electricity demands of the resources sector. The demand analysis presented in this report may help to answer the following key challenges: ●● Projects that have not yet identified their source of future power supply. ●● Solutions to convert diesel/gas generation on existing on new or existing mine operations to the grid; and ●● Emerging trends in electricity transmission technology that may change the forecasted profile of grid connection verses on-site generation by 2020. RESIC and SACOME provided ElectraNet with the infrastructure demand study for their analysis of future supply scenarios with respect to generation and transmission infrastructure solutions. ElectraNet’s study was to highlight risks to the resources sector and to provide information on economic, technical and regulatory issues that may impede development of the required supply infrastructure. National energy planning is now the responsibility of the Australian Energy Market Operator (AEMO). State planning, which was previously performed by the Electricity Supply Industry Planning Council (ESIPC), is now the responsibility of ElectraNet as the new jurisdictional planner. Both the infrastructure demand study and ElectraNet’s supply information paper, Future Electricity Infrastructure Requirements of South Australia’s Resources Industry, will inform the 2009/10 planning processes of: ●● SACOME, and its industry members; ●● Relevant Government departments such as DPC (Renewable SA), PIRSA, DTED and DTEI; ●● RESIC; ●● AEMO and ●● Infrastructure providers such as ElectraNet. Given the anticipated increased demand for electricity by the resources sector, the long lead times for establishing mine operations and the development of the required infrastructure, it is important that holistic planning solutions are considered and progressed. (Appendix D). The results of this planning will provide a common understanding of the issues and therefore will assist to facilitate the necessary collaboration between key stakeholders. This report, and ElectraNet’s response, are important elements in contributing to the work of the Energy Policy Working Group of SACOME and in influencing industry policy on electricity security and reliability in South Australia in the context of Australia’s climate change policy as the economy transitions to a low carbon base.

Future Electricity Demand South Australia’s Resources Industry 9 ELECTRICITY DEMAND SURVEY

In August, 2009, RESIC commissioned Aurecon to conduct an online survey of targeted resource and infrastructure companies. Companies were selected on the basis of being either mining projects or operating mines. Companies currently undertaking exploration or indicating prospects were not contacted. (Appendix E). The survey sought to collect data on seven forms of infrastructure (power, gas, water, rail, road, ports, telecommunications) over four time periods (1-2 years (2010-2011), 3-5 years (2012-2014), 6-10 years

Figure 1 Geological Provinces of South Australia.

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10 Future Electricity Demand South Australia’s Resources Industry 2015-219) and beyond 10 years (>2020)). Data from the survey was used to produce GIS maps detailing where the essential infrastructure demand is indicated for the resources and energy sectors in the state. Twenty three of the twenty nine resources companies surveyed responded (79 %), while sixteen of the 18 infrastructure companies responded (86%). Refer Table 1 – Survey Data of Resources Companies. The projects were grouped under recognised geological regions as defined by the Department of Primary Industries and Resources SA (PIRSA) Division of Minerals and Energy Resources. They are the Gawler Craton, Adelaide Geosyncline, Curnamona Province, Murray Basin and Eucla Basin, The following information was extracted from the Infrastructure Demand Study. Included with other data, the survey provided an overview of predicted electricity demand by region, and is the focus of this report. Gawler Craton The survey responses indicated that power demands for the region over the next 1 to 2 years (2010-2011) is anticipated to be approximately 200 MW. Over the period 2012-2014 the consolidation of resource projects including Altona Energy, Stellar Resources, Ironclad Mining, Centrex Metals, and BHP Billiton’s Olympic Dam expansion, will increase power demand in the region to 709 MW. Demand will then continue to increase to 1,291 MW for 6 to 10 years (2015-2019) and further to 1,896 MW looking beyond 10 years (>2020). Approximately 50% of the projects’ power demand has been identified as an unknown source with the other 50% sourced mainly by onsite generators with only Ironclad Mining, OneSteel and Lincoln Minerals utilising the grid network. BHP Billiton has indicated that its current power demand is approximately 100 MW, which is reflected in the survey. However, they have indicated that subject to government approvals and the expansion of Olympic Dam they will require an additional 450 MW by 2015. Altona Energy indicated that its Arckaringa Coal to Liquids and Power Project will be self sufficient in power and fuel, generating a total of 1120 MW p.a. when the project is fully developed. The survey results reflect 560MW pa of demand which will be met by its project and hence it is anticipated that the remaining 560MW will be available for the grid. A decision to proceed with the project is dependent on the conclusion of the feasibility study in 2011.

Figure 2 Gawler Craton – power demand and source.

2000

1500 Source Unknown Grid Power Demand 1000 Generators (MW)

500

0 2010-11 2012-14 2015-19 > 2020 Time Period

Future Electricity Demand South Australia’s Resources Industry 11 Table 1 Survey data of resources companies.

Annual Power Company Name Mining Region Project Title Mine Location Power Source Consumption (Mw) 2010-11 2012-14 2015-19 > 2020 Centrex Metals Ltd Gawler Craton Sheep Hill Port Sheep Hill 0 5 5 5 Generator (onsite) - 100 % Centrex Metals Ltd Bungalow Magnetite NE 9km 0 0 50 50 Generator (onsite) - NNW and 16km N of Cowell 100 % Centrex Metals Ltd Charleton Gully Charleton Gully Generator (onsite) - 0 0 50 50 Magnetite Deposit 100 % Centrex Metals Ltd Carrow Magnetite Carrow Generator (onsite) - 0 0 50 50 Deposit 100 % Ironclad Mining Ltd Wilcherry Hill 40 kms North of Kimba 0.1 2 50 150 Grid - 100 % OneSteel Ltd Whyalla Whyalla 25 15 15 5 Grid - 100 % Lincoln Minerals Ltd Gum Flat 20km W of Port Lincoln 5 5 27 27 Grid - 80 % / Generator (onsite) - 20 % Centrex Metals Ltd Wilgerup 30kms SE of Lock on Generator (onsite) - 2.5 2.5 2.5 0 Eyre Peninsula 100 % Dominion Mining Ltd Challenger Gold Mine 150KM SW from Generator (onsite) - 2.5 2.5 0 0 Coober Pedy 100 % Western Plains Peculiar Knob 90km Southeast of Generator (onsite) - 2.5 3.5 3.5 0 Resources Ltd Coober Pedy 100 % IMX Resources Ltd Cairn Hill 50KM SE Coober Pedy Generator (onsite) - 2 8 12 12 100 % Stellar Resources Tarcoola Iron Ore Tarcoola Ltd Project 0 0 80 150 Not Provided Minotaur Exploration Tunkillia Sth of Tarcoola Generator (onsite) - 0 5 50 50 Ltd 100 % OZ Minerals Ltd Prominent Hill Coober Pedy 35 40 45 45 Not Provided Nyrstar Ltd Port Pirie Port Pirie - mining from Broken Hill 0 0 0 0 Not Provided Altona Energy Plc Arckaringa CTL and 100 km north of Coober Generator (onsite) - 0 45 276 552 Power Project Pdedy 100 % BHP Billiton Ltd Olympic Dam 16 km north of Roxby Operation Downs 125 575 575 750 Not Provided

Total 200 709 1291 1896

Perilya Freehold Adelaide Flinders Leigh Creek Grid - 50 % / Mining Ltd Geosyncline 100 100 0 0 Generator (onsite) - 50 % Total 100 100 0 0

Petratherm Ltd Curnamona Paralana Geothermal 45 km Northeast of Generator (onsite) - Province Project Arkaroola, 12 km East of 0 14 120 240 Beverley Uranium mine 100 % Heathgate Beverley Four Mile about 200km east of Generator (onsite) - 4 4 4 4 Resources Project Leigh Creek 100 % Perilya Ltd Broken Hill Broken Hill 0 0 0 0 Not Provided Havilah Ltd Kalkaroo Kalkaroo 0 0 0 0 Not Provided Exco resources Ltd White Dam Gold Olary Generator (onsite) - 0.75 0 0 0 Project 100 % Total 4.75 18 124 244

Hillgrove Copper Murray Basin Kanmantoo Kanmantoo (Mine site ~ Grid - 90 % / Ltd 3km SW) 6 6 6 0 Generator (onsite) - 10 % Australian Zircon Mindarie 50 km SW Loxton NL Ltd 3 3 3 3 Grid - 100 % Terramin Australia Angas Zinc Mine Strathalbyn 2 2 0 0 Grid - 100 % Ltd Total 11 11 9 3

Energy Exploration Eucla Basin Lock Energy Project 10 kms west of Lock, Ltd central Eyre Peninsula 0 0 0 0 Not Provided Minotaur Exploration Poochera Kaolin 10km SW from Poochera Ltd Project 0 5 20 30 Grid - 100 % Iluka Resources Ltd Jacinth - Ambrosia 200 km N-W of Ceduna Generator (onsite) - 8 8 8 8 100 % Total 8 13 28 38

12 Future Electricity Demand South Australia’s Resources Industry Adelaide Geosyncline Total power demand reported for the region was within the minimal range of 0 to 200 MW p.a. with a mid point demand of 100 MW over 2010-2014. Perilya provided this power demand for their Flinders Project. Perilya Freehold Mining’s Leigh Creek Project has a mine life of 3 to 5 years.

Figure 3 Adelaide Geosyncline – power demand and source.

100

80 Grid 60 Power Demand Generators (MW) 40

20

0 2010-11 2012-14 2015-19 > 2020 Time Period

Curnamona Province The power demands forecasted for the region over 2010-2011 is approximately 5 MW increasing to 18 MW for 2012-2014 and to approximately 124 MW for 2015-2019 before increasing further to 244 MW as reflected in Figure 4.

Figure 4 Curnamona Province – power demand and source.

250

200 Generators 150 Power Demand (MW) 100

50

0 2010-11 2012-14 2015-19 > 2020 Time Period

Future Electricity Demand South Australia’s Resources Industry 13 Power Supply A number of the companies within the Curnamona Province provided additional information in relation to the potential future supply of power. This information has been detailed to provide some understanding of the companies’ planned infrastructure and potential supply for the region. Petratherm Limited and Heathgate Resources have indicated that they will be sourcing their power from onsite generators while they establish their operations. Petratherm Limited indicated they will then become self dependent as they become geothermal power producers. The amount of 240MW in time zone >2020 is shown as a demand in Figure 4. Petratherm provided detail of potential developments that may assist with facilitating the power demand over the four time periods. These developments are: The initial generation of 3.75 MW and 7.5 MW of power for the Beverly Uranium Mine. This is to increase to approximately 30 MW by 2014 – 15. By 2018-19 Petratherm expects to be generating 260 MW into the national grid via a new line from Innamincka to Port Augusta. Petratherm Limited anticipates a new 275kV line will be built from Innamincka to Port Augusta via Paralana. The date for this is unknown Geodynamics did not indicate any power demand, as it saw itself as a power provider of 500MW by approximately 2015. This is not shown in Figure 4. Geodynamics plans also include construction of a transmission Line (size not provided) from the Cooper Basin to the national grid by no later than 2015. Eucla Basin This region is forecasting power demands (installed Load) of 8 MW for 2010-2011 then increasing to 13 MW for 2012-2014, 28 MW for 2015-2019 and 38 MW beyond 2020 (Figure 5). Energy Exploration Limited did not provide clarification of data. The power demands for the region will be sourced via the grid network and generators onsite

Figure 5 Eucla Basin – power demand and source.

40 35 30 Grid 25 Generators Power Demand 20 (MW) 15 10 5 0 2010-11 2012-14 2015-19 > 2020 Time Period

14 Future Electricity Demand South Australia’s Resources Industry Murray Basin The power demands for the region is forecasted at 11 MW for 2010-2014 before decreasing to 9 MW for 2015-2019 and 3 MW looking beyond 2020 due to the operations of Hillgrove Copper and Terramin Australia ceasing (Figure 6). The most utilised source of power for the region is the grid network supplying approximately 95% of the power demands with the remaining 5% supplied by onsite generators

Figure 6 Murray Basin – power demand and source.

12

10

8 Grid Power Demand 6 Generators (MW) 4

2

0 2010-11 2012-14 2015-19 > 2020 Time Period

OVERALL ELECTRICITY DEMAND

Based on the survey responses, the anticipated demand for electricity is estimated to increase substantially by a factor of seven over the next 10 years increasing from approximately 323MW to 2181MW (Figure 7). Figure 8 (Forecasted Peak Power Demand for the SA Resources Sector) illustrates the company survey responses for electricity demand over the four time periods. It is considered that both the quantity and rate of demand growth shown in Figure 7 is not representative of what will be required. The demand appears to be rather optimistic when compared to historical growth trends. Further analysis is required to validate and assess the accuracy of the data to determine the validity of the stated demand. The significant level of demand where no source of supply has been identified is an issue that also requires further investigation by RESIC and key stakeholders. Of particular relevance will be the need to identify possible solutions for the 615MW of electricity required by 2012-14. While grid connection is currently one source of electricity supply to mining operations, the forecast electricity requirements in 2020 is anticipated to remain largely from distributed generation (Table 2). To appropriately interpret the data presented in Figure 7 and Table 2 the following clarifications should be noted on the basis of the response provided by the survey participants: ●● The forecasted demand for electricity over the 2010-11 period includes the existing demand of BHP Billiton’s Olympic Dam operation which is currently supplied through the national electricity grid. After 2011 the increase in load from the expansion of Olympic Dam will place new demands on the system requiring additional generation and network infrastructure to maintain a stable system.

Future Electricity Demand South Australia’s Resources Industry 15 ●● From 2012 both Altona Energy and Petratherm submitted projected increases in electricity demand with the development of their respective projects (Table 1). The demand from Altona Energy’s Arckaringa project will be fully met by on-site generation fuelled by syngas produced as part of the CTL process. As already discussed, this on-site generation will provide excess electricity to the projects’ own requirements enabling 560MW to be exported into the national electricity market. This opportunity will depend on the feasibility of deploying transmission infrastructure between the Arckaringa operation and the electricity grid, and the market frameworks established with in the NEM to facilitate network extensions to remote locations. ●● The demand figures provided by Petratherm for their Paralana geothermal project reflect the increase in total generating capacity of the project to 2020. The operation will be self sufficient for all on-site electricity demand.

Table 2 Forecast of future electricity demand of South Australia’s resources industry.

SOURCE (MW) 2010-11 2012-14 2015-19 >2020

Generator used on site 73.85 149.1 637 1026.4

Grid Connection 89.5 86.4 115 209.6

Electricity Supply Source – Not provided 160 615 700 945

Total SA Demand 323.35 850.5 1452 2181

Figure 7 Forecasted peak power demand for the SA resource sector.

2500

2000 Source Not Provided

1500 Grid Power Demand Generators (MW) 1000

500

0 2010 - 11 2012 - 14 2015 - 19 beyond 2020 Time Period

16 Future Electricity Demand South Australia’s Resources Industry Fig. 8 GIS Forecasted Peak Power Demand for SA Resources Sector.

Future Electricity Demand South Australia’s Resources Industry 17 18 Future Electricity Demand South Australia’s Resources Industry FUTURE ELECTRICITY INFRASTRUCTURE REQUIREMENTS OF SOUTH AUSTRALIA’S RESOURCES INDUSTRY

The anticipated increase in demand for electricity to support new mining operations coincides with climate change policy at both the State and Federal levels. These initiatives will define the way electricity is generated to meet low emission and renewable energy targets. The South Australian Government has renewable energy and carbon reduction targets outlined the South Australian Strategic Plan (SASP) set to be achieved at 33% by 2020. These objectives exceed those of the Federal Government’s 20% Renewable Energy Target. In addressing the demands for power in the resources sector, the opportunities for the deployment of renewable energy to match the demand should be considered. In doing so, the supply of reliable and secure electricity and economic efficiency will determine whether they represent a feasible option. ElectraNet’s information paper ‘Future Electricity Infrastructure Requirements of South Australia’s Resources Industry’ has raised the following issues: ●● Least-cost augmentation, taking into account levels of potential demand, distance from grid and mine life ●● Opportunities for Scalable Efficient Network Extension (SENE) to leverage network connection for users. ●● Identification of where renewable energy generation could meet mining electricity demand ●● Identification of where grid and renewable energy solutions are uneconomic and the only option is distributed generation ●● Highlight futuristic (beyond the 2030 timeframe) technologies for electricity supply (generation or transmission)

CONCLUSION

The forecast growth in mining projects and the promising future economic benefit to the state is significant. Planning for this growth over the next 10-20 years is critical. One of the significant cost drivers to mining operations is electricity costs. In order to capitalise on this opportunity and reduce where possible the potential risks to investors, mining project costs need to be minimised and this initiative aims to facilitate creative and innovative solutions. A significant number of project proponents were unable to specify the likely source of electricity and a key outcome will be to assist industry to identify potential sources. Innovative thinking and planning will assist the South Australian Government and Industry to meet the Minerals Industry SASP Targets: T1.17, T1.18, T1.19 and state export target T1.14, consolidating South Australia’s position in the top ten of the Fraser Institute Mineral Potential ranking. The infrastructure demand study has indicated that the demand for electricity from the resources industry has the potential to increase seven-fold within the next decade. The concentration of this demand is in the Gawler Craton region. The next 20 years may see a major shift from fossil fuels to renewable energy generation. This transition presents some significant challenges and opportunities for South Australia. The promotion and development of partnerships resulting from future electricity demand from the expansion in the resources sector and renewable sources of electricity should be explored and encouraged.

Future Electricity Demand South Australia’s Resources Industry 19 RECOMMENDATIONS

1. Continued consultation with ElectraNet to ascertain their outlook on the potential generation and transmission infrastructure options in response to the identified electricity demands, and also to consider the economic, financial and technological barriers that may require further work.

The remoteness of most operating mines and developing projects from the national electricity grid necessarily means any network solution would require high voltage connections over long distances. ElectraNet is the transmission network service provider (TNSP) for South Australia. In the context of identifying and planning potential network solutions to future electricity demand of the resources sector, the company’s expertise and regulated function as the TNSP makes this consultation appropriate and necessary. 2. Inform study participants and other key stakeholders of the findings and future directions arising from the electricity demand profile for the resource industry contained in the infrastructure demand study. 3. To engage, identify and support collaborative opportunities for future action with key stakeholders who will be provided with ElectraNet’s response to this report.

20 Future Electricity Demand South Australia’s Resources Industry APPENDIX A REALISING THE POTENTIAL - SOUTH AUSTRALIA’S STRATEGIC PLAN

A strategic goal for the South Australian Government is to facilitate the continued development and investment in the resource and energy sectors, facilitating employment creation, increase in export income and the broader economic benefit for South Australia. The Minerals Industry has four specific SASP targets to achieve within the next five years with the purpose of achieving and expanding industry: 1. Mineral exploration (T1.17) — Mineral exploration expenditure in South Australia to be maintain in excess of $100m per annum until 2010. Progress: Mineral Exploration expenditure totalled $220.7m for 2007-08, more than doubling the target. It is acknowledged that the previous exploration cycle (2005-2009) will reduce considerably (from a high of $355m in 2007/08) over the next few years, before stabilising over the medium term, as expectations for global growth improve. Nevertheless, given the current uncertainties, a balanced, yet optimistic target of maintaining an exploration spend above $200m per annum over 2010-2015 will be targeted. 2. Mineral production (T1.18) — Increase the value of minerals production to $3b by 2014. Progress: Mineral production for 2008-09 totalled $2.87 billion and is therefore well on the way to meeting the target. 3. Mineral processing (T1.19) — Increase the value of minerals processing to $1b by 2014 Progress: Mineral refinement value was $1.2b for 2007–08 exceeding the T1.19 target. In addition the Minerals Industry is expected to contribute significantly to state exports: 4. Total state exports (T1.14.) — treble the value of South Australia’s export income to $25b by 2014. Progress: The total export figure for Minerals in 2008-09 was $2.74 billion. Minerals have become an increasingly significant contributor to state exports comprising almost one third (29%) of total state exports compared with just 13% only 5 years ago. Private mineral exploration activity is a key lead indicator and driver of future production. Since 2000 the level of investment and development in exploration and mining has grown rapidly, facilitated by government promotion and support, the inherent prospectivity of the state and fuelled by high commodity prices. This has led to the current expansionary phase of mining in SA, with over thirty new or expanding mining projects in scoping, approval or development stage. The SASP targets discussed here will be reviewed within the next year and new targets to 2020 are expected to be developed. Work has commenced on modelling mineral production data for the 2020 targets. Gross mineral production is widely used as a key measure of output for the minerals sector. The value of mineral production is measured at the mine gate and covers both raw and processed commodities. The growth in SA Mineral Production Value is estimated to treble over the next 10 years to ~ $10 billion (PIRSA study in progress). However, given that electricity costs make up roughly 40% of the operating costs of a mining project, the forecasted mineral production growth will only be made possible if South Australia can offer investors low electricity costs.

Future Electricity Demand South Australia’s Resources Industry 21 APPENDIX B SA MINERAL RESOURCES OVERVIEW4

South Australia is a world class geological environment and is highly regarded internationally as a mineral province with excellent exploration potential. At 2009, South Australia has 11 operating mines producing copper, gold, uranium, iron ore, coal, heavy mineral sands, zinc, lead and silver. The Moomba gas fields which began production in the 1960’s continue to supply significant volumes of gas, crude oil and gas liquids. The state remains highly prospective for these minerals, as well as oil and gas, and geothermal energy. Notably, South Australia is a major producer of uranium and hosts approximately 40% of the world’s known recoverable uranium reserves. The uranium potential of South Australia and the growing concern over global energy security positions the state to gain strategic significance, and the enormous economic opportunities it presents, as the world enters a period of energy transition. The government continues to progress mineral project approvals and South Australia has developed a reputation amongst miners as one of the best jurisdictions in the world for exploring, developing and mining. The Fraser Institute continues to confirm the performance of South Australia’s mining sector as amongst the best in the world. According to the respected Canadian institution’s annual survey of mining companies (footnote with web address), South Australia has consistently ranked in the top ten jurisdictions in the world in terms of mineral potential. The 2008 KPMG report on the costs of doing business in cities across the world shows Adelaide has maintained its number one position within Australia, having the lowest business cost (compared to Sydney, Melbourne and Brisbane). Again highlighting the confidence investors have to invest in South Australia. South Australia is strategically placed at the junction of Australia’s road, rail and air corridors. This geographic advantage is now enhanced by the Adelaide to Darwin railway, which has created trade links to Asia. This excellent access to transport infrastructure contributes directly to the improved export performance of the state. The South Australian Government is committed to supporting the continued growth of the Resources Sector, particularly in the highly prospective Gawler Craton. Over the next two decades, mining investment and outputs are expected to grow substantially across the state. The success of the South Australian Government’s Plan for Accelerating Exploration (PACE) initiative which commenced in 2004 has seen expenditure on mineral exploration in the State rise from $30.9 million in 2004 to $355.2 million at its peak in 2007-08. The Resources Industry in South Australia has become the cornerstone of the state’s social and economic growth. This has been founded on strong employment opportunities and the value to total exports. The sector also contributes $84.8 million (2008-09) to the state economy in the form of royalties to government. The outlook for the South Australian resources sector remains positive as the known resources are extensive and very competitive. The diversity of our resource base, the number of recent discoveries of world class ore bodies, and South Australia’s global reputation as a good place for investment in mining all bode well for a durable resources sector in our State. However, given the strong foundation and growth potential of the South Australian resources sector careful consideration of infrastructure needs is necessary if the potential is to be realised. Electricity supply and infrastructure to meet the increasing demand for energy is one strategic element, and the focus of this paper. In addition to achieving Mineral Production targets, it is also a stated goal of government to remain among the top 10 global mining locations according to the Fraser Institute’s Mineral Potential Ranking. Lower electricity costs and reliable supply will improve that ranking, drawing more investment to the state of South Australia as a result.

4 Department of Primary Industries and Resources SA

22 Future Electricity Demand South Australia’s Resources Industry Geothermal exploration The South Australian Government is leading Australia with expeditious and effective processing of activity approvals for geothermal energy, and the last few years have seen a rush for licences to explore a variety of geothermal energy plays. In August 2004 a change in policy enabled over-the-counter applications for geothermal exploration licences (GELs) to be accepted on lands anywhere in the entire state, except over current GELs or lands excluded from exploration (e.g. certain parks). This triggered enormous growth in the number of GELs and GEL applications (GELAs) in South Australia, from 3 in August 2004 to 273 on 31 December 2008, covering 127,683 km2. Whilst not all may eventuate, the aggregate investment for guaranteed and non-guaranteed research (exploration), proof of concept (appraisal) and demonstration (pilot development) in these 273 GELs and GELAs is estimated to be in excess of $870m for the 12-year term 2002–13, and that tally excludes deployment projects. Geothermal has the potential to generate significant base load electricity for the resources sector and Australian market.

Future Electricity Demand South Australia’s Resources Industry 23 APPENDIX C NATIONAL ELECTRICITY MARKET FUNDAMENTALS5

De-regulation of energy markets in the 1990’s and privatisation of the South Australian energy supply industry has fundamentally changed the role of industry and government in the provision of energy to consumers. Where once government was responsible for planning and funding energy infrastructure developments, it is now private investment guided by the market opportunities which determine delivery of essential energy assets. The National Electricity Market (NEM), established in 1998, is the wholesale market for the supply of electricity to the eastern states of Australia, Tasmania and South Australia. The NEM is operated by the Australian Energy Market Operator (AEMO) which also has responsibility for long-term planning through demand and supply constraint forecasting, grid system capability and scenario analysis. The Electricity Statement of Opportunity (ESOO) published by AEMO provides information to the market on future need for generating capacity, demand side capacity and augmentation to the network to support the operation of the NEM, and is the basis for existing and potential market participants to develop capital investment plans. AEMO and ElectraNet planning considers confirmed contracted demand as well as known potential future demand and supply projections. For example, BHP Billiton’s Olympic Dam expansion is not contracted, but potential future demand for the project is quantifiable and therefore included in planning. In its role as the National Transmission planner, AEMO will also publish the National Transmission Network Development Plan which outlines the long-term, efficient development of the electricity system, including future and current capability of the national transmission network and development options. AEMO operates within a broader market governance structure alongside the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER). The AEMC determines the policy environment and governance structures that shape the development of Australia’s energy markets and which set the operating requirements and obligations of market participants (National Electricity Law and Rules). The AER oversees economic regulation and compliance with the National Electricity Law and Rules. The AEMC is responsible to the Council of Australian Governments (COAG) through the MCE, while the AER is accountable to the Commonwealth Government as a constituent entity of the Australian Competition and Consumer Commission (ACCC). A grid solution to the potential future demands of the resources sector in South Australia would need to fit within the NEM regulatory framework.

5 This explanation is only brief and very high level. For those interested, a fuller description is available in the Electricity Supply Industry Planning Council Annual Planning Report for 2009.

24 Future Electricity Demand South Australia’s Resources Industry APPENDIX D PLANNING FOR THE FUTURE

The Government of South Australia has actively prepared and supported the development of various strategic plans to guide the growth and prosperity of the State. South Australia’s Strategic Plan, the Economic Development Board (EDB) – Economic Statement and the South Australian Infrastructure Plan provide the high level strategic objectives to deliver the states economic, social and environmental priorities. The goal of the EDB Economic Statement is “to capture the emerging economic opportunities, make South Australia the most competitive place in which to invest and operate a business in Australasia and secure a genuine social dividend, while ensuring that the State is ever more environmentally sustainable”. The need for maintaining a robust program of infrastructure planning and investment is a common theme and consensus. Infrastructure development, including energy infrastructure, will be critical to realising and sustaining the growth of South Australia’s mineral and energy resource endowment. Solutions to meet the increased electricity demand of the resources sector will be influenced by variables such as mine life, distance from grid, electricity requirements, and budget profile. Not all mining projects can be or need to be connected to the national electricity grid. For example a project distant to the grid that can only bare low capital expenditure but is able to sustain a higher operating expenditure once production commences may be best served by distributed generation. In contrast, where a project business case allows a higher capital expenditure on electricity and therefore connection to the grid, the project would naturally attract lower operating cost. The changing dynamics of electricity generation and supply, inevitable with a transformation to a carbon constrained economy, makes South Australia well placed to capitalise on its unique natural advantages in solar, wind, wave and geothermal energy, and to establish itself as Australia’s leading clean energy state.

Future Electricity Demand South Australia’s Resources Industry 25 APPENDIX E

South Australia’s Mining Pipeline February 2010

MAJOR MINES #Olympic Dam (Cu-U-Au-Ag) #*Prominent Hill (Cu-Au) #Middleback Ranges (Iron Ore) #*Challenger (Au) Jacinth-Ambrosia (HM)

Beverley (U3O8) Leigh Creek (Coal Mine) *Angas (Pb-Zn) Beltana (Zn)

*Honeymoon (U3O8) Cairn Hill (Fe3O4) White Dam (Au)

* PACE CO-FUNDED # MINE EXPANSION

PROJECTS Arckaringa (CLT) *Menninnie Dam (Pb-Zn-Ag)

Beverley North/South (U3O8) Mt Gee (U3O8) *Bird-in-Hand (Au) Mutooroo (Cu-Co)

*Bramfield (Fe3O4) Mullaquana (U3O8) *Carrapateena(Cu-Au) Oban (U3O8) Crocker Well (U3O8) Peculiar Knob (Fe2O3) Flinders Zinc (Zn) Poochera (Kaolin)

*Four-Mile (U3O8) Port Wakefield (CTL) FuturGas (CTL) *Portia (Au)

Gum Flat (Fe2O3) Tripitaka (HM) Hawks Nest (Fe2O3) *Tunkillia (HM) Hillside (Cu) Warramboo (Fe3O4) *Kalkaroo (Cu-Au-Mo) Wilcherry Hill (Fe3O4) *Kanmantoo (Cu-Au-Ag) Wilgerup (Fe2O3) * PACE CO-FUNDED

PROSPECTS *Alvey (Pt, Pd) Eurelia (diamonds) *Marathon South (Cu, Au) Sturt/Nardoo (Ni, Cr) *Alford East (Cu, Au) *Faugh a Ballagh (Cu, Au) Mongalata (Au) *Titan (Cu, Au)

Aristarchus (Ni) Garford (U3O8) Monsoon (Au) Torrens South JV (Cu, Au) *Baggy Green (Au) Giffen Well (Fe2O3) *Moonta (Cu) Typhoon (HM) *Barns (Au) *Glensea (Cu, Au, Ag, U3O8) *Mt Caroline (Ni, Cu, Pt, Pd) Typhoon (Au) Black Hills (Au) Golf Bore (Au) Mt Christie Siding (Cr2O3) Waddikee (Mn) Blinman (Cu) Goulds Dam (U3O8) *Mulyungarie (U3O8) Watson (U3O8) *Blue Rose (Cu, Au) *Gullivers (HM) Narlaby (U3O8) Warrior (U3O8) Bungalow (Fe3O4) Hunters Dam (Pb, Zn) *Netley Hill (Cu, Mo) Wheal Ellen (Zn, Pb, Ag) Burra (Cu) Junction Dam (U3O8) North Mulga (U3O8) *White Hill (Ni, Cu, PGE’s) *Chianti (Cu, Au) Kalabity (Cu, Zn, Ag) Oak Dam (Cu, Au) Weednanna (Pb, Zn, Ag, Cu, Au)

*Charlinga (Cu, U3O8) Kalabity (U3O8) *Oakdale (VHM, Zn, Cu) Wirrda (Cu, Au) *Churchill Dam (Cu, Au) *Kangaroo Dam (Pt, Pd, Au) Parndana (Pb, Zn) *Wynbring (U3O8) *Claude Hills (Ni) Kapunda (Cu) *Parkinson Dam (Ag, Zn, Cu, Au) Yalpoudnie (Cu, U3O8) *Coolybring (Fe3O4) Lock (Coal) Princess Royal (Cu) Yaninee (U3O8) Cultana (Cu, Au, U3O8) Lorenzo (Au, As, Bi) *Prospect Hill (Sn) *Yarramba (U3O8) *Dromedary (HM) Mainwood (Au) Punt Hill (Cu, Au) Yarranna (U3O8) Emmie Bluff (Cu) *Malache (Zn, Pb, Ag) *Stony Hill (Fe2O3) * PACE CO-FUNDED

PROSPECTS PROJECTS MAJOR MINES Anomalous drillhole intersections, and/or JORC Resource. Possibly undertaking or have Operating or under construction. geochemistry and geophysics. completed feasibility studies. Possibly progressing through final mine approvals stage.

203878

26 Future Electricity Demand South Australia’s Resources Industry