Mining industry has an energy problem and it is betting on renewables to tide over the situation. In our four-part series, starting today, we dissect the issue to find out how grave it is and what needs to be done to bring the industry back on track.
It’s said that every year, Australia’s mining industry consumes as much electricity as all of Portugal. With transportation costs included, this sector consumes as much energy as all of Spain! Little wonder then that power is a matter of great debate and contention for the mining industry in the region.
According to reports, last June, Australian mining goliath, Glencore sounded the alarm bells on what it called ‘ridiculously high’ energy prices, which had risen 100% over the past three years. Glencore was reportedly talking of shutting the copper mining operations at one of its subsidiaries, Mount Isa Mines. Ditto with BASF, the Tomago Aluminium Company and Rio Tinto.
To make matters worse, in September 2017, South Australia, witnessed an extensive blackout. The region’s grid-related issues coupled with a major storm left residential and commercial consumers totally crippled without electricity for days together.
Events like these, alongside a desire to lower their carbon footprint, is making Australia’s mining sector, which was so far largely thermal energy-dependent, consider renewables as a serious part of their energy mix.
Australia is not alone. The global mining industry, which consumes nearly 11% of the world’s power is making small but significant strides in tapping renewable energy for a variety of reasons.
The heart of the matter
‘In emerging and frontier countries, the need for alternative energy sources is further amplified as mining and metal companies have to compete with both governments and communities for these scarce resources. Rarely does the economic value created with energy use come into allocation decisions. This has a direct impact on the industry’s all-too-important social license to operate. The role that renewables will play is not as remote or futuristic as you may think. The arguments for large investments in renewable energy go beyond sustainability and social responsibility, and have now become a solid economic reason for miners,’ says a report by EY.
The good news for miners is that while thermal energy costs have been on the rise these past few years, the cost of renewables have been falling.
“It is time now for renewables to enter this sector because economically, it makes sense. You have reached a point where the levelled cost of electricity (LCOE) is lower than ever and is better than what you get from thermal generation. So renewables are becoming more cost effective. Now mining companies are like everyone else. They want to get benefits from this reduction in cost of renewables sector. That’s clear.”
Indeed. Apart from falling costs, the mining sector is uniquely positioned to harness the benefits of renewable energy. Traditionally, availability of land has been one of the biggest deterrent for renewable energy. Fortunately for the mining sector, there is ample amount of instantly available ‘free land’ that can be used for installation of renewables particularly in the case of open-pit mining. Financing renewable projects is the second big hurdle. Here too, it is relatively easier for most mining companies to raise finance as they are fairly large in size and have relatively easy access to capital including finance for off-the-balance-sheet projects.
Experts say that as the challenges of including renewables in mining reduce, companies will have to gear up and gradually change their business models. They will have to work on finding an optimal energy mix so that their power plants run at maximum capacity while having lower reserve requirements, shortages and break-downs. Since renewable energy is known to be intermittent in nature, miners may also have to invest in power storage systems like batteries and build hybrid systems that can provide them the best of both the worlds.
“If you have a life of say 10 years or 20 years you may have different solutions. But ultimately it’s going to be hybrid solutions. You will have some renewables, some storage and some engines because it’s the best combination that gives you the best LCOE. If you go all renewables, then your investment cost is too much. If you go only thermal, then the operational cost is too much. So for any specific mine you need to make the evaluation and simulation of what solution is the best fit for the particular mine,” explains Jouaville.
As miners strive to find the best energy-combination for themselves, one thing is certain. The landscape of world of mining will never be the same again. Mining companies will have to take more responsibility for social and environment-related consequences of their businesses. This means that the use of green energy by the sector is no longer a matter of choice but a necessity.
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