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Renewables in | Though Leadership Series | Vol. 2

Renewables in Mining: Rethink, Reconsider, Replay More than just a cost play, renewables offer a distinct competitive advantage Thought leadership series | Vol. 2 1 Renewables in Mining | ThoughtThough Leadership leadership Seriesseries | Vol. 2 RenewablesRenewables in Mining in Mining| Though | ThoughtLeadership leadership Series | seriesVol. 2

In September 2016, off the back of a major storm, the state of South experienced an extensive blackout in which residential and commercial properties were left without for days.

The financial implications of Subsequently, this event provided this blackout were felt strongly a catalyst for Australian , by many of the state’s miners, both those with and without including BHP, who lost in excess assets in the state of South of US$100 million in the forced Australia, to take a hard look at shutdown at their Olympic their mine. The long-held assumptions requirements in the short around the reliability of grid- and long term, and in many connected electricity over off-grid cases to rethink the place of or ‘behind-the-meter’ solutions renewables going forward. were called into question.

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Realising the full benefits from renewables involves more than installing a solar array or turbines, it requires a willingness to rethink operational processes and to reconsider the way is done.

Introduction With fast- The initial article in this becoming a mainstream energy series explored how miners source, mining companies have can drive value through energy a material opportunity to use management across the social, renewables to lower costs, environmental and financial improve safety, reliability and triple bottom-line. As a sustainability, and mitigate risks follow-on, this piece takes a to ultimately gain a competitive deep dive into renewables advantage. Realising the full as a compelling part of the benefits from renewables involves energy management more than installing a solar array case. or wind turbines, it requires a willingness to rethink operational processes and to reconsider the way work is done.

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The changing of renewables

Energy is one of the biggest The renewables landscape has A recent report by Finkel 20172 expenses for mining companies, evolved dramatically in the past LEVELISED COST OF ELECTRICITY (LCOE) helps dispel this misperception constituting approximately couple of years. Today, major The levelised cost of electricity is the net cost to by detailing the levelised cost 30 percent of total cash operating mining companies – ironically, install, operate and maintain an electricity system, of energy (LCOE) for different costs, therefore the rewards of even some of the world’s largest divided by its expected -time electricity . forms of shaving off even a fraction of suppliers of fossil – seek to It is commonly measured in $/MWh. expressed in the average AUD energy usage can be considerable. use more renewable energy in per megawatt hour (MWh): Mining companies understand an effort to drive down costs and the criticality of energy to enable curtail emissions1. This is due, > Large scale Solar PV - production and many realise the at least in part, to shifts in the AU$91/MWh (US$69/MWh) in benefits that come from managing levelised cost of renewable 2020 decreasing to AU$61/MWh energy efficiently through as compared to traditional fossil (US$46/MWh) in 2030 operational that don’t fuels, with renewables having > Large scale Solar PV with rely solely on grid or renewable already achieved parity in battery storage - AU$138/MWh sources. However, while energy some instances, and fast- (US$105/MWh) in 2020 decreasing to management practices are approaching it in others. AU$87/MWh (US$66/MWh) in 2030 becoming more prevalent in the Nevertheless, perceptions sector, some have yet to integrate about the cost of solar and wind > Gas CCGT – AU$83/MWh renewable energy sources and power have largely not kept pace (US$63/MWh) in 2020 increasing to enabling , such as with this new reality, with many AU$93/MWh (US$71/MWh) in 2030 solar and and smart miners still thinking of renewables > Gas OCGT - AU$123/MWh storage, into their energy by default as the higher cost (US$93/MWh) in 2020 management programs. This may option for mines operating increasing to AU$135/MWh be due to lagging perceptions both on and off the grid. (US$102/MWh) in 2030 about where renewables stand today in terms of complexity, > Wind - AU$92/MWh (US$69/MWh) cost, reliability, and performance. in 2020 decreasing to AU$79/ MWh (US$60/MWh) in 2030.

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The changing landscape of renewables (Cont.)

Far from slowing, this trend In 2014, total power generation Again, perceptions around mine closes around 202311. In in the declining costs of from diesel, hydraulic and wind reliability appear to lag the order to withstand the harsh renewables appears to be sources at the mine reached evolution of renewable climate, the wind gaining momentum globally. 42.24 GWh at a total cost of . The viability of turbines have been specially The International Renewable US$6.3M6. Of that, the combining solar or wind with designed and demonstrated to Energy Agency (IRENA) projects generated 3.4 GWh of power at fossil- power sources has operate in temperatures as low as the cost of electricity from solar an of US$21.6/MWh, been demonstrated by various -40 Celsius, exceeding the and wind power technologies contributing 8.1% of total onsite prototypes, some of which have standard of -30 Celsius and could fall by at least 26% and power generation7. This compared proven to be technically reliable on Canadian expertise in as much as 59% between to an average cost of US$254.5/ even in extreme conditions, cold-climate wind technology12. 2015 and 20253. MWh for diesel generation8. such as the Arctic. The Diavik Wind Farm offers a case in point. Other developments are also One doesn’t have to dig deep In addition to cost, reliability is Located on an island in a remote helping to put concerns about to find an example of how another often-cited reason for subarctic lake in Northern , technical reliability to rest. Big renewables can play a role not considering renewables, the 9.2 megawatt (MW) farm is the name players in conventional in lowering operating costs. but here too these concerns world’s northern large-scale energy solutions, such as Consider the El Toqui Wind have largely been addressed. wind-diesel hybrid power system9. Caterpillar, Cummins, , Farm in , now owned by When speaking about renewables, The project was developed and is Wärtsilä and ABB are active in the Australian company, Laguna there are two facets to reliability. owned and operated by Diavik hybrid diesel-renewable markets, Limited4. Like many mines, The first relates to the efficacy of Mines Inc. (a joint and their brand reputations are the El Toqui operation, which the technology itself, while the venture between and enhancing trust in renewable produces , , , and second relates to intermittency, Harry Winston Diamond) to help installations – not to mention that gold, is isolated from the regional and the age-old question of, ‘What diversify , reduce new modeling and simulation grid system. Due to the high costs happens when the wind doesn’t fuel costs, curb carbon emissions, capabilities can greatly reduce the associated with operating its five blow or the sun doesn’t shine?’ and potentially contribute to the risk associated with implementing diesel gensets, the previous owner company’s social license to company-specific solutions13. invested in a small wind farm as operate10. The latter objective an additional power source, which could possibly be achieved by was built and commissioned in donating the farm to a Northwest less than a year5. Territories after the

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An eye on battery

Until recently, the other type of > Co-location of renewables with > Tesla, in with the > Shifting high energy-intensity reliability concern, which relates or diesel generation French battery company Neoen, work to coincide with peak solar to intermittency, was harder to – for example, the 115MW El is building the world’s largest and wind – for instance, the address. But that too has proven Arrayán wind power is ion battery in South Cronimet ‘Zimbi’ mine in South to be more manageable than the largest wind energy facility Australia – a region with Africa was facing a scenario some anticipated, especially since in Chile14. The project was significant mining activity – to where it would have to rely on the viability of battery storage has developed through a joint help the state address energy 1.6 MW of diesel generation been demonstrated and the cost venture between reliability issues17. The capacity to meet its annual of -scale batteries is starting and Antofagasta . Via a PowerPack battery farm will power needs20. Diesel is often to decline. With battery storage , store energy from the third the single largest operating becoming an increasingly Minera Los Pelambres, a stage of the Hornsdale Wind expense for off-grid mines, and important, but not the only, subsidiary of Antofagasta Farm18. When complete, it will unpredictable price spikes can part of the equation, mining Minerals and one of the world’s top 100 MW of capacity and erase profits. To help curb diesel companies around the world have biggest mines, sources provide 129 MWh of and mitigate demonstrated that intermittency about 20% of its power needs generation to the region for fuel-price risks, the company can be managed through a range from the plant, which reduces its balancing load and supplying built a 1MW solar photovoltaic of techniques, including: reliance on diesel generators15. emergency back-up power19. plant as part of a solar-diesel Under the arrangement, the hybrid system, which reduced its remaining power is sold into the annual diesel consumption by Chilean spot market16. about 24%21. And, to maximize its return on investment, the company shifts its flexible load from peak periods during the evening to the daytime when solar are abundant22.

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The size Based on our expertise, miners have the of the prize opportunity to drive down energy costs by up to The companies in these examples appear to 25% in existing operations and 50% in new mines understand the size of the prize. Based on our expertise, miners have the opportunity to drive down energy costs by up to 25% in existing operations and 50% in new mines through an effective energy management program, of which renewables are a major component. In addition to cost savings, the ability to reduce emissions and preserve the mine’s social license to operate increases the size of the prize even more. In the context of the , carbon reduction points are a question of how – not if – with renewables positioned to do much of the heavy lifting in the global decarbonisation journey. In unison with the energy sector, mining organisations can play an important and advantageous role in accelerating grid transition around the world, reaping the carbon benefits as they go.

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Renewables “The clean-energy movement is global, it warrant is industry-agnostic, and it is irreversible.” MARLENE MOTYKA consideration Deloitte Global Renewable Energy Lead Partner

With the traditional barriers of advantage and creating As Marlene Motyka, Deloitte’s US they go about it, companies cost and reliability diminishing, shareholder value from and Global Renewable Energy seeking to address the triple the landscape for renewables renewables. That is because leader, points out, the commercial bottom-line of social, has changed enough for solar and the industry is moving forward at and industrial segment is spurring environmental and financial wind power, and perhaps even rapid pace Several large mining development of renewables value owe it to their stakeholders geothermal, , and other companies have been integrating around the world, even surpassing to consider integrating renewables less publicised renewable options, renewables at progressively higher policy as a driver in some regions. into their energy management to be considered when evaluating ratios, and all four of the world’s Rapidly falling costs of solar and strategies,” said Ms. Motyka. “The operational strategies, particularly biggest miners plan to source wind power are one reason for clean-energy movement is global, for new mines. Yet, many remain more of their energy from this trend, but the growing it is industry-agnostic, and it is reluctant to consider renewables. renewables, mainly to manage number of companies with irreversible,” she added. This hesitancy is often related to costs, obtain of supply sustainability goals is also a major a mindset, where and to curb emissions intensity23. factor. In response to increasing Following current trend lines, miners want to have a one-to-one These developments in the mining corporate demand for clean everyone will eventually substitute for their electricity sector are part of a larger, global energy, a host of associations and incorporate renewables. If miners sources, only cheaper. trend toward greater procurement industry coalitions have sprung up delay in pursuing this course, they But, companies that wait for that of renewables by corporations. to make it easier for companies to may find themselves on a higher type of direct comparability forgo enter into power purchase cost curve than their competitors, any chance of gaining a competitive agreements with developers and putting themselves in the or to self-generate their unenviable position of being a own electricity by implementing high cost producer trying to on-site solutions. Either way, preserve its margins. miners who ignore renewables, do so at their peril. “No matter how

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Renewables also offer important social, health and safety, and environmental benefits that create shareholder value, but are harder to quantify financially. > Hedging against future fuel-price volatility, since solar and wind Building facilities have a front-loaded cost curve, i.e. high upfront costs to the case build, but input costs drop to near-zero when operational The business case for renewables > Lowering operations and can be complex, which is both maintenance costs a blessing and a curse. The complexity makes it more > Generating revenue from difficult for leaders to do their due selling excess generation diligence, but it also suggests that capacity and providing ancillary the benefits can be far-reaching. services, such as synchronised In terms of the war on talent, a reserve and frequency focus on renewables is imperative regulation, to grid operators to the attraction and retention of > Shifting work, i.e. synchronising a future workforce firmly focused peak load with cheaper on the technology and renewable energy sources, space. Renewables also offer thus bringing down the overall important social, health and safety, cost of mining operations and environmental benefits that create shareholder value, but are > Preventing penalties by harder to quantify financially. facilitating compliance While the cost per MWh is still the > Increasing primary factor, it is only part of the financial equation for renewables, > Reducing carbon liabilities which can potentially include: by avoiding emissions.

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Renewables also offer important social, health and safety, and environmental benefits that create shareholder value, but are harder to quantify financially.

Digital intelligent grid

It is important to consider the critically needed, thus making the role of the digital intelligent grid business case more compelling. inside the mine environment as In addition, these intelligent as the load and demand controls are also needed to better characteristics of the entire mine synchronise peak shifting and when configuring the most coordinate work storage which optimal system, either in off-grid further reduce the need for or on-grid conditions. Intelligent investment in . controls at the grid edge can High penetration of renewables enable sophisticated real-time without solely relying on that storage to ensure uninterrupted could go a long way to balance supply of electricity is not possible the grid dynamically in response without the digital intelligent grid. to fluctuating renewable supply. This intelligent grid will eventually The result is fewer batteries will incorporate learning be needed to guarantee and artificial intelligence in order uninterrupted power where it is to create a dynamical, optimised .

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Much of this activity is > Availability of funding and concentrated in off-grid mines tax incentives for where is very expensive renewable projects – a scenario that offers the most > The cost of carbon and savings obvious opportunity for from emissions avoidance integrating renewables. But, Opportunities calculating the return on such > Greater insight and control, projects by simply comparing the including the opportunity to shift levelised cost of renewables with work to peak power-producing become today’s fuel price can be deceptive. periods, by matching renewables It can even produce a ‘no go’ with digital/smart energy clearer decision because it doesn’t management systems consider the full risk/reward ratio > Post-closure benefits – consider and it leaves out some significant While the business case for The unique the ROI over the life of the value drivers. In building the renewables is strong, mining characteristics of a given location, energy systems rather than the business case for integrating companies frequently face the demand profile of the mine, life of the mine. Since renewable renewable solutions into mining organisational and cultural and the distinct electricity and solutions often outlive the mines operations, decision-makers barriers that make it difficult pricing in a particular themselves, the asset could be should additionally consider: to move ahead. Responsibility region means there is no ‘one-size given back to the community as for energy procurement and fits all’ solution. Nonetheless, an aspect of corporate > Future fossil-fuel price volatility consumption is often fragmented finding a solution that works for responsibility; the value of this based on 10-year price forecasts across the organisation, and a particular situation is getting contribution in terms of brand from reputable analysts frequently no individual or group easier. As the data and body of enhancement and social license is looking at energy management knowledge concerning renewables > The value of price predictability to operate (which could facilitate from a broader integrated increases, financing becomes since renewables provide easier permitting and regulatory perspective. This to a lack more readily available, and electricity at a steady price over approvals) should also be of awareness of the full range of developers offer more flexibility a set period of time factored in renewables solutions and value- in installation and creation opportunities now configuration. It also helps that > The risk profiles of different > Greater access to capital available, as well as the inability certain areas are emerging as energy options where the mine – investors are increasingly to articulate and evaluate solar and wind ‘hot spots’ for is located. i.e. What’s the risk pressuring miners to what needs to be done to mining, with robust ecosystems of supply disruption? If demonstrate sustainability take advantage of them. around them. At present, grid-tied, how frequently do and social license to operate. Fortunately, the opportunities Africa and Australia lead in power outages occur? How Particularly for mid-caps, adding for mining companies to developing solar, while Canada does this compare to the a renewable component to integrate renewables into and lead in uptime of the proposed plans for building a new mine their new or existing practices developing wind-diesel hybrids24. renewable energy solution? or expanding an existing one are becoming clearer. could unlock barriers in securing project financing.

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Flexible solutions emerge

Understandably, many mining For example, the Sandfire On the technical side, developers communities29. The company companies do not want to invest Resources’ DeGrussa copper are also offering miners greater is in the midst of proving out the their own capital to cover the mine in Western Australia went flexibility. For instance, some concept at scale (1MW) in large upfront costs or to commit live in 2016 with the largest solar are prototyping mobile renewable Australia, with support from the to long-term power purchase and battery storage project to solutions that can be dismantled Australian Renewable Energy agreements (PPAs) that match the date25. The $40 million project and moved to other sites after Association30. In many instances, physical lifetime of the renewable was financed by the Clean Energy the mine closes. For example, developers are also willing to assets, which can be 20-30 years. Finance Corporation and partly the Australian arm of UK-based work with commercial and Investors, developers, industry through a grant from the builder Laing O’Rourke originally industrial customers, such as associations, and governments Australian Renewable Energy developed a modular solar array mining companies, to create are responding to this concern Agency26. The French renewable to diesel fuel costs at the innovative, customised solutions, by offering customised financing energy firm Neoen owns the solar company’s own remote like the solar solutions and shorter-term PPAs. array and also put equity toward sites28. Based on system commissioned by Perth- Furthermore, an attractive feature it27. The project will allow the its initial success, the company based Agrimin Limited for its of some of these options is that mine to run fully on formed a subsidiary called mining project in Western they allow renewable to during the daytime if coupled SunSHIFT to target the large-scale, Australia31. The plant will be be financed off the balance sheet. with battery storage. short-term power market, used to , which is a including mining projects, off- key part of fertiliser processing32. meter applications and remote

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How to get started Conclusion Here are a few suggestions for how to get in the Renewables have reached a Renewables developers are position where they should be in seeking industrial customers who – even if your company faces cost or the consideration set, at least for can offer utility-scale opportunities, cultural constraints: new mines. But, in analysing new ecosystems are developing, energy options, it is short-sighted and business models exist for to evaluate renewables purely as defraying the upfront costs and a cost play; instead, they should sharing the value opportunity. > Experiment on a small scale: > While it’s practical to start small be examined as part of a broader this is a low-risk, low-cost way in the short term, it’s prudent to social and environmental agenda While it’s good to experiment and to allow people within the think big in the long run. As a in addition to their financial to perform due diligence, there is company to become familiar ‘stretch exercise’, consider where proposition as a replacement a danger in waiting too long. with the concept of renewables your organisation could go with for traditional fuel sources. There’s an optimal point in any and to shift into an energy 100% renewables. Consider the proposed project where a decision management mindset and away cost savings, health and safety To realise the fullness of these needs to be made to integrate from the common sentiment benefits through greater opportunities, mining companies renewables, or else the mine life that miners ‘aren’t in the , and how it could will need to challenge their capital will expire before the full benefits business of energy.’ A key focus further your company’s projects groups and their design of renewables can be realised. of the trial should consider the sustainability goals. teams to take a hard look at Similarly, on a broader scale, capability and integration of > Explore the ecosystem around renewable technologies, not just miners must soon decide whether the energy system. you and the help that’s available: as a pure substitute for existing to push forward in the direction > Move beyond seeing government organisations, energy sources, but also as a of renewables or else they risk renewables as more than a way industry associations, think tanks, means of doing things differently. becoming the high-cost producers to solve a supply problem – it’s developers, operators, investors, In wading into these , in their respective as an opportunity to add value to and environmental groups are mining companies do not renewables increasingly become diverse stakeholders, including all active in this space. Through have to go it alone. table stakes for competitiveness. customers, suppliers, investors this ecosystem, regional data is and the community. readily available on solar and wind resources, electricity output, storage, capital costs, operating costs, approval times, etc. Some of these groups also offer financing options.

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Authors Endnotes 1 Barbara Lewis, Miners increase green energy 19 Ibid. use to power their pits, Reuters, May 16, 2017, 20 Sunshine for Mines: Implementing Renewable http://www.reuters.com/article/us-miners-climat- Energy for Off-grid Operations, Carbon War Room echange-renewables-idUSKCN18C28B, accessed Research Report – 2014, http://www.crm-ps.com/ AUSTRALIA August 8, 2017. upload/files/CWR14_MinesReport_singles. 2 https://www.environment.gov.au/system/files/ 21 Ibid. resources/1d6b0464-6162-4223-ac08-3395a6b1c- 22 Solar projects, energy efficiency and load shifting 7fa/files/electricity-market-review-final-report.pdf for an optimized energy management in the 3 Average Costs for Solar and Wind Electricity Could mining industry, Croniment/THEnergy Study, Fall 59% by 2025, IRENA Press Release, June 15, September 2015, http://www.crm-ps.com/upload/ 2016, http://www.irena.org/News/Description. files/2015SEPT_Study_EnergyEfficiency.pdf aspx?NType=A&mnu=cat&PriMenuID=16&- 23 Barbara Lewis, Miners increase green energy use CatID=84&News_ID=1452, accessed August 2, 2017. to power their pits, Reuters, May 16, 2017, http:// 4 NYRSTAR: Laguna Gold Buys Chile Project for $25M, www.reuters.com/article/us-miners-climat- Mining Business Media, June 27, 2016, http://www. echange-renewables-idUSKCN18C28B, accessed miningbusiness.net/content/nyrstar-laguna-gold- August 8, 2017. buys-chile-project-25m, accessed, August 2, 2017. 24 THEnergy Analysis: Solar-diesel and Wind-diesel David Cormack Michael 5 El Toqui Wind Farm, Chile, South America, VERGNET for Off-grid Mines Gain Momentum— Partner Director Groupe , http://www.vergnet.com/project/ New Projects Expected, May 15, 2017, https://www. Consulting Services Risk Advisory chile-el-toqui/, accessed August 2, 2017. th-energy.net/2017/05/15/thenergy-analysis-solar- 6 Ibid. diesel-and-wind-diesel-microgrids-for-off-grid- +61 423 861 116 +61 417 919 916 7 Ibid. mines-gain-momentum-new-projects-expected, [email protected] [email protected] 8 Ibid. accessed August 2, 2017. 9 Davik Wind Farm: Wind Energy Helps Reduce Carbon 25 Pablo Crespo, Australia’s largest offgrid array Footprint, Canadian Wind Energy Association reaches full operation, Energy and Mines, June 9, (CanWEA), Case Study, https://canwea.ca/ 2016, http://energyandmines.com/2016/06/ wp-content/uploads/2013/12/canwea-casestudy-Dia- -largest-offgrid-array-reaches-full-opera- vikMine-e-web2.pdf, accessed August 8, 2017. tion/, accessed September 5, 2017. CANADA 10 Ibid. 26 Ibid. 11 Ibid. 27 w Finances Major Solar Storage Project at Remote 12 Ibid. Mine, Clean Energy Finance Corp., July 15, 2015, 13 THEnergy Analysis: Solar-diesel and Wind-diesel http://www.cefc.com.au/media/files/cefc-finances- Microgrids for Off-grid Mines Gain Momentum – major-solar-storage-project-at-remote-mine.aspx, New Projects Expected, May 15, 2017, https://www. accessed August 7, 2017. th-energy.net/2017/05/15/thenergy-analysis-solar- 28 Sophie Vorrath, Mobile Solar Plants to Challenge diesel-and-wind-diesel-microgrids-for-off-grid- Diesel for Use in Mines, Construction Sites, One mines-gain-momentum-new-projects-expected, Step Off the Grid, April 20, 2017, https:// accessed August 2, 2017. onestepoffthegrid.com.au/mobile-solar-plants- 14 El Arrayan Wind Project, Chile, http://www. challenge-diesel-use-mines-construction-sites/, renewable-technology.com/projects/el-arrayn- accessed August 7, 2017. wind-project/, accessed August 3, 2017 29 Ibid. 15 Jan Dodd. Remote Mines Add Wind, WindPower 30 Ibid. Andrew Swart Adriaan Davidse Monthly, January 30, 2015, http://www. 31 Bridget Fitzgerald. to power Partner Director windpowermonthly.com/article/1330527/ remote potash mine in western Australia, ABC Consulting Services Consulting Services remote-mines-add-wind, accessed August 8, 2017. News, March 29, 2017, http://www.abc.net.au/ 16 Ibid. news/rural/2017-03-28/agrimin-potash-mine- + 1 416 813 2335 +1 416 417 3967 17 Campbell Simpson, All the details on Tesla’s giant aims-for-70-per-cent-solar/8391136, accessed [email protected] [email protected] Australian battery, GIZMODO AU, July 9, 2017, August 7, 2107. https://www.gizmodo.com.au/2017/07/ 32 Ibid. all-the-details-on-teslas-giant-australian-batteryt/, accessed September 4, 2017. 18 Ibid. 26 27 Renewables in Mining | Though Leadership Series | Vol. 2

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