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5 Reasons Your Mine Should Invest in On-Site Renewables in 2018: Key Lessons Learned from the First 1 GW Installed
As of 2016, approximately 1 gigawatt of renewable energy capacity has been installed on mine sites globally, and current projections show that number reaching more than 1.4 GW in the next five years. What’s causing this shift in the mining industry? And does your company risk getting left behind? What can you do now to keep pace in a modern market?
The Sunshine for Mines team at Rocky Mountain Institute (RMI) surveyed a number of global mining firms that collectively have renewables projects in North America, South America, Africa, and Australia to learn more about the current trends and best practices from leaders in the sector. We asked representatives from copper, gold, chrome, and bauxite mines—both on- and off-grid—why they decided to invest in renewables, how that investment is panning out, and whether they would recommend others follow in their footsteps. Although the companies, locations, and technologies varied, the answer from each was a resounding “yes!” So if your company has not yet invested in renewables, here are the top five reasons you should get started in 2018:
The price is right.
The number one reason the leaders of the mining industry say they’ve decided to invest in renewables isn’t sustainability concerns—it’s their bottom line. While it is a win-win opportunity for companies to incorporate clean energy into their operations, the deals that have gone through to date have been about the potential savings at stake.
Energy is typically one of the largest operating expenses incurred by mines, so fluctuations in the price of electricity or diesel can have a direct impact on profitability. Renewables allow mines to both lower and control their energy costs.
It’s no secret that the installed cost of solar photovoltaics (PV) and other renewable energy technologies is decreasing steadily. That trend is expected to continue, with solar PV generation on track to become the cheapest power source available globally by 2025. Fuel for PV and wind generators is free, and maintenance costs are negligible compared to conventional generation. This structure means that the per-unit cost of renewable energy remains constant over the asset’s lifetime, and the levelized costs of PV and wind energy are now lower than thermal generation and utility tariffs in many regions. Therefore, renewable-based hybrid power systems provide clear economic benefits compared to reliance solely on diesel fuel or expensive, sometimes unreliable grid power (both of which are subject to less-predictable price volatility). In fact, all of the companies we spoke with said that they are indeed saving money compared to their previous energy source, and those who used to rely solely on diesel are now also saving on the transport cost of that fuel.
And if you’re considering a project in the U.S., there’s no time like the present to act while the investment tax credit (ITC) for solar and production tax credit (PTC) for wind are still available, making the economics of projects potentially even better. Considering uncertainty over the renewal of these incentive schemes upon expiration, it’s best to take advantage of them while they’re still around.
Creative financing solutions exist.
Mines need financing solutions catered to their unique needs, such as high hurdle rates, matching life-of-project with life-of-mine constraints, and long-term preference for fixed energy costs as opposed to market risk. But based on what we heard from the industry leaders we spoke with, those solutions are here. Whether your company prefers an ownership or power purchase agreement (PPA) model, there are developers and financiers out there willing to work with you to find a solution.
For mines looking to own renewable assets, securing debt financing for the initial investment in infrastructure is commonplace, with some mines choosing to use their parent company to secure low interest rates. For those who don’t want to rely on a self-generation model, options for minimizing risk have also come a long way—developers can offer innovative solutions like redeployable solar assets and flexible PPAs that fit with life-of-mine challenges. And CRONIMET, a resource trading house and renewable energy IPP developer, described an interesting mechanism called a “swap agreement,” in which electricity is distributed to the client in exchange for the delivery of metal ore. This type of approach has the advantage of taking local currencies out of the equation entirely, thereby further helping clients hedge against risk.
Finally, while quick paybacks are still important to mines (one mine we talked to had their project achieve payback in less than four years), life-of-mine concerns tend to not be as big of an issue as some might think, especially when you consider that electricity is often needed beyond the operating life of the mine for remediation activities. Assets can also be used to support local communities after the mine is shut down—something that can benefit companies looking to maintain their social license to operate in a country.
The technology is ready.
We often hear from companies that they need to wait until the price of battery storage comes down before they invest in renewables. But battery storage isn’t necessary to make a project technologically or economically attractive. In fact, none of the companies we spoke with have incorporated battery storage into their projects, yet all are seeing savings without sacrificing productivity.
It’s also worth mentioning that technology need not be limited to solar PV, wind, and storage. For example, one of the companies we spoke with is now using solar thermal in place of diesel fuel heaters in its copper electrowinning process. Not only has this switch saved it money, but it has also improved its operations by providing more precise control and stabilization of the electrolyte and cathode washing-system temperatures, thereby producing better quality copper cathodes and cost improvements.
And the renewable assets don’t just have to power operating mines; they can also produce power on legacy sites, thereby turning liabilities into assets by generating power for local communities and/or businesses.
Your employees want it.
Sure, no one likes change—at first. But the companies who said they were most worried about their employees pushing back against the technology found that with proper education and training even the most skeptical staff came to love it. One company shared a story of how the operators on-site were originally very hesitant and eager to blame anything that went wrong on the new solar plant, but once they saw how it worked and how it made their jobs easier, they requested more solar be added on site. The key, of course, is communication and training—something that many developers now offer as part of their services. So not only can renewables save money, but they can also help keep employees satisfied and engaged, thereby helping with operator performance and retention.
You can use renewables to hedge against risk and diversify your business.
Because the costs associated with renewable technologies like solar and wind are predictable, investing in renewables offers an opportunity to hedge against the volatility of fossil fuels. For example, the price of diesel fuel, often the single largest operating expense for off-grid mines, has been known to increase dramatically. And its risks are amplified when one considers potential transportation challenges, supply-chain disruptions, and other costs such as carbon pricing. This contrasts with renewable power generation, which has virtually no input costs once built and PPA prices that are typically locked in for 15–25 years.
Furthermore, on-site renewables developments can hedge against risk by providing an additional revenue stream if connected to the local grid. And if storage options are pursued, costs may be able to be shifted away from peak hours, thereby generating additional savings.
Similarly, developing internal expertise around renewables deployment can help diversify mining firms’ revenue streams even further. For example, in 2012, CRONIMET Mining AG, a vertically integrated German mining house, contracted the German-South African IPP developer and EPC contractor Solea Renewables to develop the first off-grid utility-scale PV/diesel hybrid power plant. The system was engineered and commissioned to power CRONIMET’s remote off-grid chrome mine and platinum group-metals processing infrastructure. Upon completion, the German mining company deemed the project and the overall utility-scale diesel abatement strategy for off-grid infrastructure to be so successful that it acquired Solea, injected growth capital made available from diesel savings, and renamed the company Cronimet Mining Power Solutions. A half a decade later, Cronimet Mining Power Solutions is a leading PV/diesel hybrid IPP developer that consults mining and public utilities across Africa on how to reduce their diesel dependency and associated costs by incorporating renewables and energy storage systems into their captive diesel power systems.
Get Started Now
Some companies still question whether renewables make sense for them, yet the demonstrated savings, financing and technology options, and embracement from the field provide compelling reasons to get started in 2018. Your competitors already have.
Download the infographic 5 Reasons Your Mine Should Invest in Renewables.
Thank you to the industry leaders who shared their experiences with us, including CODELCO, Cronimet Mining AG, IAMGOLD Corporation, Rio Tinto, and Sandfire Resources.