The Hon. Madeleine King MP, Australia’s new Minister for Resources, stated last week that mining will be a key part of Australia reaching net-zero carbon emissions by 2050. The Minister’s expressed view is that Australia’s wealth of rare earths will place Australia at the “forefront of the global energy transition” and that mining companies should not be seen as the pariah of the world’s efforts to reduce carbon.
The reason for this is essentially that technology assisting with the green revolution, is heavily reliant on minerals available in Australia in large volumes for:
- wind turbine generators for wind farms; which require the production of iron;
- the manufacture of solar panels for solar farms; which require the supply of cadmium, aluminium, copper and others; and
- Electric Vehicle technology and most forms of power plant infrastructure, most of which require copper and nickel sulphide.
Juxtaposed against this is that, with the urgency of the climate crisis becoming more apparent each day, net-zero emission targets (whether aimed for 2050 or earlier) occupy a large part of any company’s corporate ESG focus. Mining companies are no different and, if nothing else, the focus is possibly more central to mining companies due to the general perception of mining companies being environment-unfriendly and those same companies wanting to preserve or create a social licence. Investors and government institutions will likely not support mining companies that are not actively moving toward decarbonisation, and lenders may well require more extensive covenants in their loan documents surrounding the ESG undertakings and actions of their borrowers.
Directors increasingly have a duty to take active steps to reduce the environmentally damaging aspects of their businesses, in order to ensure they comply with their legislated obligations to act in the best interests of the mining companies on whose boards they sit. To ignore taking positive steps poses risks when viewed against those companies’ stated ESG commitments and continuous disclosure obligations.
With the supply of power being critical to any mining endeavour (with energy being one of the biggest overheads constituting approximately up to 40% of total cash operating costs), the Australian Renewable Energy Agency estimates that Australia’s mining sector accounts for over 10% of the total of Australia’s annual energy use across more than 400 mines, with increasing mining volumes driving that usage upward every year. Several mines operate 24 hours a day and require a consistent supply of electricity across the day.
With that in mind, how do mining companies, on the one hand, achieve the stated carbon-zero goals in an electricity-intensive industry whilst, on the other hand, grow output to ensure the minerals and metals needed to drive the achievement of the goals are extracted?
Reducing the energy input cost would seem to be a low-hanging fruit in aiming for carbon-neutrality, and a large proportion of Australia’s mining companies have already made significant inroads into this challenge. But transitioning the mining industry to a true net-zero system will be a complex undertaking that will require a systems-based approach with an assessment of infrastructure requirements, how that infrastructure utilises energy across the mines, and how energy used on the mines is ultimately generated and utilised.
Designing any power system for a mine (whether a new or existing mine) requires designing around the load profile of the specific mine. Given the variability of wind and solar resources, hybrid microgrids are de jour and the number of innovative projects being developed by and for mining companies is increasing exponentially. This does come with a price-tag.
Capital and operating expenditure attributed to the production of power for any mine are, relatively speaking, lower than the costs of the actual electricity consumption for a mine. This is not limited to any specific type of mining, although if a mine requires power for mineral processing (which requires heat), or is a deep mine, the electricity overhead cost is typically significantly higher. There is, though, a need to have sufficient life of mine to net off the upfront cost.
With renewable power plants, much of the cost is spent up-front on the development of those plants, and the ongoing operating cost is much lower (recognising that renewables have largely already achieved parity with fossil-fuels electricity). Traditional power solutions comprise lower up-front costs but high ongoing operating costs and increasingly volatile power prices. Costs will also be affected by the type of development structure selected by the project proponents; whether that be a single EPC for both the development of the mine and the development of the power plant (if for a new mine), or a split EPC that separates the two projects (albeit typically with a tripartite deed linking the two).
What’s clear is that mining companies have an opportunity to use renewables to potentially lower costs and definitely improve sustainability. While accepting that there are several ways for mining companies to utilise clean energy in reaching their net-zero goals, what are some of the options available to mining companies looking to reduce their Scope 1 and 2 emissions?
Although not the focus of this article, grid power has its obvious limitations, including when considering the remote locations of several mining operations and the impossibility of connecting to electricity grids. More than 50% of Australian mines that undertake mineral processing on site are not connected to primary electricity markets such as the NEM or SWIS. This requires self-sufficiency in power generation. Diesel and gas have traditionally solved the conundrum.
In Western Australia almost half of all electricity generated in the state is used outside of power grids. The harsh environmental conditions lend themselves perfectly to renewable energy generation.
Renewables constitute a compelling part of the business case for intelligent energy management for any mining company. Apart from ameliorating the carbon footprint, converting to renewable energy can have significant cost savings by:
- Reducing reliance on fossil fuels that are vulnerable to market price fluctuations;
- Improving investor confidence and consequential increased access to funding;
- Stabilising the price of electricity across the mine;
- Utilising carbon savings;
- Increasing post mine-closure options to use the power plant in the local communities; and
- Utilising tax and government funding incentives made available through ARENA and the Clean Energy Finance Corporation.
Mining titans including Gold Fields, Rio Tinto, BHP, Glencore, AngloGold Ashanti and Woodside have respectively identified opportunities and have announced plans to spend on renewable energy creation as they seek to go green in an effort to decarbonise. Many projects have already commenced, and others already completed.
Dependability of the power supply is, however, critical and has caused certain corners of the mining industry to lag in the adoption of clean energy goals. Renewable energy sources are by nature intermittent and less reliable than electricity from fossil fuels. Given the need for a consistent baseload, fossil fuels used in heavy generators may still be needed until greener technology catches up in order to smooth over the intermittency issues to a certain extent.
Renewable energy, meanwhile, is not constrained to the grid system as the plants that harness wind or solar energy are rarely located where traditional fossil-fuel based power plants have been located – generally closer to areas of higher demand. For renewables, historic networks of pipelines and heavy transport is replaced by the trading of clean energy on demand, and this requires a different approach to infrastructure.
Technology is enabling the smoothing of intermittency risks for renewables, and many consulting engineering companies are benefiting from the demand for creative hybrid power generation systems that utilise power storage options such as battery technology, pumped storage hydroelectricity and fuel storage solutions such as ammonia.
The price of batteries is expected to halve over the next decade, making large scale battery energy storage systems (BESS) a sensible way to reduce the risks of inconsistent supply risks related to renewable sources. Those costs are generally not overwhelming, and more and more hybrid renewable projects are being adopted by mining companies to ensure a 100% renewable power supply to the mines.
There is also a symbiosis when looking at hybrid systems as renewables developers seek customers who can offer utility-scale opportunities and are prepared to share the value cost.
Technological collaboration is key to success in this area, and ARENA has already supported several ground-breaking projects to develop hybrid grids. An example of this is Sandfire’s DeGrussa copper mine which transitioned early with a 7MW solar power project plus BESS.
Hybrid projects also allow the operator to control the power output more efficiently. Good examples of hybrid systems have been adopted by, amongst others:
- Gold Fields at its Agnew mine in conjunction with EDL;
- Rio Tinto at its Weipa Operations (a 4 MW solar and 4 MWh BESS) and its Gudai-Darri iron ore mine in Western Australia (where it relies on a 34MW solar plant with 12MWh BESS);
- BHP at its Northern Goldfields Solar Project (being a 27.4 MW solar farm at Mt Keith and a 10.7MW solar farm and 10.1MW BESS at Leinster; and
- Syrah Resources at its Balama graphite operation in Mozambique (a 11.23MWp PV 8.5MWh solar photovoltaic and storage power hybrid system to be operated alongside a diesel-fired power generation plant).
Accepting that it may well not be viable for all mines to construct their own power plants, an alternative option is for mining companies to conclude power purchase agreements (PPAs) to purchase electricity directly from an independent renewable energy generator at an agreed price.
Concluding PPAs in this way can overcome numerous issues that may dissuade mining companies from developing sole-use renewable power projects, including regulatory obligations relating to the supply of electricity that needs to be carefully managed.
Examples of large mining companies that have opted for significant PPAs to power their mining operations in Australia are Newcrest, BHP and AngloGold Ashanti.
Of course, as demand for clean energy increases, so will overall demand for Large-Scale Generation certificates (LGCs) and the need for companies to be able to account for their efforts at decarbonising. Some renewable sources will create LGCs in vast quantities and it will be interesting to see how the market price of LGCs varies up until the legislated cut-off in 2030.
Operations and Supply Chains
It is not only energy use across the mines that affects a mine’s carbon footprint; the wider business has a large carbon footprint and needs to be carefully looked at if a mining company wishes to reduce its Scope 3 emissions as well. Adopting carbon storage technologies would also be a key action that mining companies will need to adopt.
The CEO of Fortescue Metals Group, Elizabeth Gaines, recently stated that “Decarbonising our mining fleet is one of the biggest challenges facing our industry”. Fortescue has recently announced its partnership with Liebherr Group to transition Fortescue’s diesel mining fleet to a green mining fleet before 2030 and is powering toward its 2030 carbon neutrality goal of using hydrogen-powered rail freight, electric haul trucks and green iron ore.
Fortunately, the opportunities for mining companies to integrate renewable energy supply into their greenfield and brownfield operations are becoming clearer. There is not, however, a one-size-fits-all solution. What is clear though is that mines need renewable energy to drive their ESG targets and remain relevant and attractive to investors; energy needs mines to produce the metals and minerals needed to further the achievement of carbon-neutral goals. Miners may well be our “net-heroes”.
Authors: Lloyd Chater, Ilona Millar and Alexander Danne