Issue
24
September
2020
AUSTRALIA VIRTUAL SUMMIT
Pandemic highlights mining’s energy transition momentum
GREEN HYDROGEN:
A key element in Australian miners’ decarbonization strategy HOW CARBON IS TAKING CENTRE STAGE IN MINERS’ ENERGY STRATEGY
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Australia Virtual Summit:
Pandemic highlights mining’s energy transition momentum MELODIE MICHEL Reporter, Energy and Mines
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BITE-SIZED PRESENTATIONS The Energy and Mines Australia Virtual Summit was also an opportunity to hear about sponsors’ latest observations and developments: no fewer than 18 shortform Exhibitor Track presentations were held over the course of the three days. Here, we have condensed the top bits of information you may have missed into a single sentence per presentation.
Appropriate planning and risk mitigation at the feasibility stage, including commercial, community and permitting considerations and appropriate solution engineering, can both mitigate technical risks and optimize the overall solution to realize a great commercial outcome.
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e can all agree that the coronavirus has made 2020 a particularly difficult year for everyone, not least the conference sector. The Energy and Mines Australia Summit was meant to take place in Perth in June, but due to flight and gathering restrictions, we decided to make it virtual. This was a first for us, and it took a lot of work, but we are proud of what we achieved: between August 4 and 6, eight live panels, six case studies and 23 presentations were held on our interactive platform. The Energy and Mines Australia Virtual Summit was attended by 575 people, and we were thrilled to see that networking did not suffer from the move to a digital format: 2,400 contacts were made and 4,700 messages were exchanged. “This is a fantastic platform and really well-structured event considering the difficult times we’re working in,” said Dave Manning, Global Head of Hybrid at juwi Renewable Energies, one of the conference’s Lead Sponsors, along with Aggreko. What became evident at the conference is that the business case for integrating renewable energy into mine sites is now undoubtable, given that renewable energy is often more economical than traditional energy sources, particularly in Australia. According to Sophie Lu, Head of Metals and Mining at Bloomberg NEF, new bulk solar generation will be cheaper than existing coal generation by 2025 in Australia. Additionally, BNEF expects solar-storage and wind-storage solutions, where the battery pack is sized to hold about 25% of the overall renewable generation load, to be competitive with both coal and gas generation by 2030. This market is maturing, and the proportion of renewables being integrated into mines’ energy loads is higher and higher, helped by the integration of wind. “If you have a mine with eight years or more mine life, wind can substantially lower your cash operating costs and carbon emissions,” said Amiram Roth-Deblon, Global Head of Business Initiatives at juwi Renewable Energies. According to the company’s modelling of typical electricity costs at a remote mine in Western Australia, a wind-solar-battery solution can bring 23% to 38% savings, as opposed to 6% with just solar and 13% with solar and battery storage. Gold Fields’ Agnew project, which was recentENERGY AND MINES MAGAZINE
TrinaPro’s pre-engineered standardized solution can streamline the solar integration process and compress construction schedules, bringing benefits to EPCs and avoiding finger pointing through single-point accountability.
ly commissioned, is set to increase the mining sector’s confidence in hybrid solutions leveraging wind, solar, storage and gas or diesel as a cost-effective way to reach at least 50%, and up to 80% of renewable penetration.
How Covid-19 bolstered miners’ interest in renewables
It may seem counterintuitive, considering the commercial hit taken by the mining industry throughout this crisis, but Covid-19 actually seems to have accelerated the sector’s energy transition. During the keynote panel moderated by Jo Garland, Partner at HFW, representatives of BHP, Rio Tinto, Newmont Mining and Strandline Resources all agreed that the pandemic has not had any negative impact on their energy strategy. “Covid-19 has impacted our suppliers, employees and communities, so our immediate focus has been on maintaining the health
Five programs have been launched by the university to help industry make the electrification transition, and they are focused on: analyzing the energy needs of mine sites; defining optimal design of charging and discharging infrastructure on electric machinery; backbone infrastructure for safe and continuous EV fleet operation; a microgrid and storage pilot study; and training the workforce needed for the electrified mine.
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Whilst the cost of renewables makes green more and more attractive, the number of players and their different levels of understanding is creating gaps and associated risks, whether technical, economic or contractual so it is crucial for mines to have an overarching understanding of the integration challenge upfront.
Having in-house engineering and finance teams allows Zenith to develop cost-effective high-efficiency power solutions taking advantage of multiple forms of generation — thermal and renewable, such as the Nova Hybrid Power Station, one of the first fully commercially funded renewables for mining project.
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and safety of our employees and keeping the business operating,” said Rio Tinto’s Senior Manager of Energy and Climate Change, Michael Scotton. “But when it comes to our energy and decarbonization strategy, these have been largely unaffected over the last few months. In fact, compared to previous years, we’ve seen a greater business-wide engagement, and earlier this year, in the midst of Covid-19, we announced our 2030 emission reduction targets [15%].” And as many governments around the world look for a green post-pandemic recovery, miners even see the integration of renewables as a way to increase their resilience, particularly as mining economics become more challenging with the decline in ore grades and increasing mining intensity. “Renewable energy is offering a platform to increase resilience in a low-carbon world, so if we’re able to access low-price reliable renewable electricity, it provides us with an opportunity to strengthen our position on the cost curve in the transition post pandemic,” noted Jessica Harman, Principal, Portfolio Strategy and Development at BHP. At the same time, the tendency for climate-conscious investors and stakeholders to put pressure on mining companies to decarbonize has also intensified, perhaps partly due to the crisis. “The most discernible difference we have seen in the last 12 months is the pressure coming to senior management and boards from large investors and shareholders, wanting to know what they are doing in the shorter term to have confidence in the long-term emissions targets,” explained Peter Mann, Senior Advisor at Partners in Performance, adding that a concrete decarbonization plan is also key to attracting a younger workforce.
PPAs for the win
Power purchase agreements (PPAs) remain the most popular option for integrating clean electricity into mine sites. In time, as both independent power producers (IPPs) and miners became more familiar and comfortable with the risks associated with them, these contract structures have improved and matured.
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THEnergy As mining energy demand increases in Peru, a German research team is investigating the utilisation and integration of the sector’s untapped hydro potential, including process waters, mine waters and nearby natural surface waters, and looking for mining partners to join the initiative.
“You don’t want to spend US$100mn in capital costs, so we needed PPAs that could come down from 20 to 15 or even 10 years, and we’re there now: you can get an economical 10-year PPA,” said Mike Aire, Corporate Director, Environment at Newmont Mining. At Rio Tinto, Scotton added that due to the pace at which renewable technology is improving, it is now important to discuss the flexibility of integrating new equipment within the timeframe of the PPA. For most miners, the ideal solution would be a turnkey, fully financed PPA with the option to upgrade technologies. “We all know how fast technology changes, and in the case of Aggreko new technologies can be brought and replace existing equipment under the same contract, as and when it’s available, which means you’re not stuck with the same capital equipment on site for 10 years as it ages,” explained Rod Saffy, Global Head of Mining at Aggreko. Increasingly, PPAs also include clauses around the end of the mine life, which can be a great way to lower tariffs for the miner and max-
Payback times for energy storage can now be as low as two to four years, but the key to a successful and optimized microgrid operation is to have an energy management system crunching constraints such as renewables load forecasting and energy consumption forecast, to deliver stable frequency and maximize renewable penetration.
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Variable mining, whereby production increases when renewable resources are available in excess, and decreases when wind and/or solar are not present, can help mines achieve 100% renewable penetration without compromising on annual production, so this is where future mines are heading.
The much needed good news for 2020 is that this has been a watershed year for renewable energy; the first year when clean energy became cheaper to produce than fossil fuel energy, on average.
Wind resource monitoring must be carried out during the development phase and for at least one full year before implementing a solution, as there’s a variability across the year that is critical to know. 8
imize the installation investment for the IPP. This was mentioned during a panel on mid-tier miners’ energy priorities, moderated by Richard Stanford, Technical Director at Crossboundary Energy, where speakers discussed ways to work renewable integration around a shorter mine life. “It’s starting to head towards a hybrid solution, whereby we have access to low-price power during our life of mine, then it turns into a renewable generation site after our operations end for the third party,” said Neal Foster, Group Sustainability Manager at Iluka Resources. “We are somewhat reliant on third parties for their expertise and tech, but we can bring in the land.” For all PPAs, speakers recommended that miners start engaging with potential IPP partners as early as possible and do extensive due diligence to ensure smooth integration. “On the supply side, you need to understand your power requirements, what is critical and what tolerances you have, as this will flow into design for batteries, control systems, etc. Do your due diligence on system modelling, and truly understand OEMs’ capabilities,” advised Ray Massie, Specialist, Hybrid Energy Solutions at Entura. Some miners may still choose to own their renewable assets, which are likely to become more and more lucrative as trends such as fleet electrification and hydrogen production intensify over time. “Simply looking at levelized cost of energy (LCOE) is only part of the equation, and can ignore important value drivers. Electrification technologies are not commercial today, but by investing in renewables you are also creating opportunities for yourself in the future, increasing your ability to attract green finance, and potentially to benefit from a green premium on sustainably sourced materials,” pointed out Zoe Von Batenburg, Manager, Business Development & Transactions at the Australian Renewable Energy Agency (ARENA). And while government agencies such as ARENA and the Northern Australia Infrastructure Facility (NAIF) have become experts at assessing risk to support these types of investments, many renewables projects are now commercially viable without them, as proven by the evolution of ARENA’s funding pattern. In 2014, it provided 53% of grant funding to the DeGrussa project; yet in 2019, its grant ENERGY AND MINES MAGAZINE
To achieve the highest penetration of renewables, two products are needed: battery inverters that can do voltage and frequency control, microgrid control system that handle different resources in real time and utilize storage as needed.
funding for both Agnew and the Chichester Hub stood at just 12% of the projects’ overall cost, signaling much greater availability of commercial funding. It is also worth noting that the percentage of renewables delivered by these three projects is proof of the increasing viability of high-penetration renewables in mining: from only 20% for Degrussa, it went up to 50-60% at Agnew and up to 100% for Alinta’s Chichester Hub.
Benefits for grid-connected mines
Due to growing uncertainty in the market, capital is harder to come by, and minimizing capital expenditure while giving new expansion to projects can be a challenge, but turnkey solutions can provide miners with the fuel savings and low-cost renewable power they want without having to invest their own CAPEX.
Many speakers highlighted the benefits of integrating renewables, even for grid-connected mines. Grant Cox, CFO at GMA Garnet, spoke of the company’s recent experience negotiating a 15-year renewable PPA with AER for its mine in Port Gregory, Australia. “Decoupling the plant and renewables from the network increases the quality of the electricity supply and ensures continued operations even during network power failures,” he said. Additionally, the agree9
Those within the industry still clinging on to the status quo face some serious questions: why would any new mine operation not consider outsourcing their energy requirements to experts in this field? Which mine owner-operator would not want its team focused on core processes instead of energy generation?
With gold prices going up and the number of gold mines in Africa that benefit from very high irradiation, there is a real opportunity for solar power and energy storage to increase mine profitability and mitigate risks associated with power lines on the continent.
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ment is expected to reduce energy costs by 40-50% over life of project and save 100,000 tonnes of CO2 from entering the atmosphere. At BHP, Low-Emissions Technology Specialist Aidon Thomas spoke of the financial and risk advantages in being connected to the grid when sourcing renewable energy. “The thin copper wire that connects you to the grid is your access to the market as well, and you can access the best value renewable energy projects at potentially the lowest risk, so there is a distinctive benefit to being grid-connected for a mine site accessing renewable energy.” However, he warned that return on investment (ROI) may not be the right metric to look at in these types of initiatives. “There are savings to be achieved but you might have an energy forecast and an LGC [large-scale generation certificate] forecast and that might be different from your traditional business scenario,” he said. Additionally, negotiating a private PPA with a renewable IPP involves complexities that miners and financiers used to dealing with utilities may not be familiar with. Among them, Renewable Energy Industry Expert Raj Aggarwal listed the difficulty of including a banking guarantee against any renewable power interruption, and issues around electricity offtake during mine shutdowns for maintenance. Luckily, the market seems to be moving towards standardized solutions for counterparties to manage these risks. The Renewable Energy Hub is building Australia’s first software platform to deal with some of this complexity. “It is meant to give people access to standardized contracts whereby if an energy user wishes to go into a bilateral contract directly with a generator, you can manage that directly as if you were a portfolio manager and access contracts and solutions to de-risk that arrangement in a financial sense,” said Chris Halliwell, APAC Manager, Energy and Environmental Markets, at the corporate energy consultancy.
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In this unprecedented global environment, the Australia Virtual Summit highlighted the maturity of the renewables for mining sector. Speakers moved away from obvious decarbonization drivers and delved into the nitty-gritty of commercial negotiations and cost benefits. There is still a lot to learn and various technologies to develop further before we reach 100% renewable energy in the mining sector, but it is now clear that nothing — not even a global pandemic — can halt the industry’s efforts to reach that target.
HFW’S TOP FIVE TIPS FOR NEGOTIATING RENEWABLE PPAS Here are HFW Partner Jo Garland’s top tips for a successful PPA, as presented at the conference. Start with the correct structure: in the case of multiple contractors, a microgrid structure with an appointed microgrid manager can reduce complexity. Align commercial drivers with mine life: you could be looking at higher tariffs in the earlier phases to recover the cost in case mine life doesn’t go on. Understand performance guarantees and exclusions: performance may be guaranteed under normal conditions, but what if there are issues: what are the liabilities? Choose the party responsible for integration: integration can be complicated, especially for a brownfield operation, but having one party who is tasked with solving integration issues reduces complexity. Assign new technology risks: what is the party’s approach to new technology risks; is it a real partnership, sharing the risk, or are they only prepared to do this if you take all the risk? This can influence the structure and price of the contract.
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Mature integration technology now allows seamless and vendor-independent renewable integration into brownfield sites, and incremental integration can create the best unsubsidized business cases by reducing project risks.
Latin America holds 76% of the global renewable capacity used in mining, and while Chile is the current leader, the increasing electricity demand from Peruvian mines is creating enormous renewable opportunities in the country, with many projects started in 2019.
Seamless integration requires trusting a partner to deliver expert knowledge, integrated and guaranteed hybrid solutions, and in-territory service support, and saving a few percent on the CAPEX can be a false economy in the long term. 11
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Green hydrogen: A KEY ELEMENT IN AUSTRALIAN MINERS’ DECARBONIZATION STRATEGY MELODIE MICHEL Reporter, Energy and Mines
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owhere in the world is a government as committed to supporting the green hydrogen industry as in Australia. The country’s wide availability of solar and wind energy, and its proximity to potential hydrogen importers make it well-positioned to capitalize on the world’s energy transition — and it is not afraid of the investment needed to reap the full benefits. In late 2019, Australia published its National Hydrogen Strategy, an extensive document outlining the different ways the government plans to support the development of a green hydrogen supply chain. A key part of this strategy is to support research, pilots, trials and demonstrations along the supply chain, including for remote applications, such as in microgrids for mining and remote communities. Part of this initiative involves financial backing from the Australian Renewable Energy Agency (ARENA) for such projects.
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We have an ambition to use hydrogen to support our decarbonization efforts, and to develop a global scale green hydrogen business to help meet targets and to become a leading energy company BETHWYN COWCHER Manager Energy and Power (Strategy and Legal) Fortescue Metals Group
The goal of the projects must be to demonstrate electrolysis at scale, provide a basis for price discovery, and facilitate pathways to technical and commercial viability MATTHEW WALDEN Australian Renewable Energy Agency 15
Speaking at the Energy and Mines Australia Virtual Summit, ARENA’s Investment Director Matthew Walden presented the agency’s Hydrogen Funding Round: up to A$70mn to be allocated to two or more large-scale hydrogen production projects. “The goal of the projects must be to demonstrate electrolysis at scale, provide a basis for price discovery, and facilitate pathway to technical and commercial viability,” he said. In mid-July, ARENA disclosed the names of the seven companies shortlisted for the funding: APT Management Services, ATCP Australia, Australian Gas Networks, BHP Billiton Nickel West, Engie Renewables Australia, Macquarie Corporate Holdings and Woodside Energy. The final funding decision will be announced in early 2021.
Miners explore applications
The only miner in the shortlist, BHP, is focusing particularly on using green hydrogen to displace fossil fuels in mining processes. “Hydrogen provides an exciting opportunity with a diverse range of applications to our own operational requirements. It might provide a feedstock, heat source, energy storage medium or transportation fuel to satisfy the demands of our operations, “said Steve McGill, BHP Specialist Innovation, Sustainable Operations at the conference. The company is currently studying the potential to supplement the existing hydrogen and oxygen demand with green hydrogen at its Nickel West Kwinana Refinery in Western Australia — the project shortlisted by ARENA. “We are exploring sizing configurations and optimizing the pairing of our electrolyzer load with variable renewable energy options both behind the Nowhere in meter and front of meter. This helps the world is a us on our journey toward sustainable government as nickel for the lithium-ion battery marcommitted to ket,” McGill added.
supporting the green hydrogen industry as in Australia. 16
Various other Australian miners have invested time and/or money in green hydrogen in recent years. At FortesENERGY AND MINES MAGAZINE
If production is king, you will still need thermal backup for your power supply, unless you have 24-hour storage. Thermal production fuelled with renewable fuel is a way to get to 100% renewables. LOÏC CHAMOILLE Business Development Manager Wärtsilä Energy Solutions
We feel that the cost trajectory is going to follow solar, wind and batteries. Hydrogen would be the ultimate solution to power fleets. MIKE AIRE Corporate Director of Environment Newmont Resources 17
cue Mining Group, the focus is more on using hydrogen to displace diesel in material movement, though the other applications are also seen as beneficial. “We have an ambition to use hydrogen to support our decarbonization efforts, and to develop a global scale green hydrogen business to help meet targets and to become a leading energy company,” explained Bethwyn Cowcher, Manager, Energy and Power (Strategy and Legal) at Fortescue Metals Group, during the Virtual Summit. “The use of hydrogen within our operations is focused on reducing reliance on diesel as a fuel, but we are also hoping to support the domestic industry and global supply chain.” Fortescue’s recently announced partnerships with the Commonwealth Scientific and Industrial Research Organization (CSIRO) and ATCO Australia both build on that ambition. Both BHP and Fortescue, along with Anglo American and Hatch, are members of the recently announced Green Hydrogen Consortium, which plans to share learnings from the miners’ variety of projects to accelerate green hydrogen’s commercial adoption.
OEMs adjust equipment
On the OEM side, there is a clear perception that demand from miners is there, and an urgent need to prepare for the day that green hydrogen is widely available at a commercially attractive price. For instance, in partnership with Fortescue, ATCO Australia is developing a combined hydrogen production and refuelling facility at its Jandakot Clean Energy Innovation But even those not Hub near Perth (also shortlisted by directly involved in ARENA), with the possibility of wider the development of deployment across the state.
Australia’s green hydrogen industry are watching it unfold with excitement — and expect to leverage this technology in the future. 18
At Wärtsilä Energy Solutions, there is no denying that hydrogen is part of the company’s future. “R&D for hydrogen combustion is clearly on our roadmap,” explained Loïc Chamoille, Business DevelopENERGY AND MINES MAGAZINE
Green hydrogen requires very low cost renewable power to realize Australia’s A$2/ kg hydrogen target. If these renewable power prices are realized, it significantly improves the economics of MVR. RAY CHATFIELD Global Technical Manager Refining Energy Alcoa
Hydrogen provides an exciting opportunity with a diverse range of applications to our own operational requirements. It might provide a feedstock, heat source, energy storage medium or transportation fuel to satisfy the demands of our operations STEVE McGILL BHP Specialist Innovation 19
ment Manager, Wärtsilä Energy Solutions. “If production is king, you will still need thermal backup for your power supply, unless you have 24-hour storage. Thermal production fuelled with renewable fuel is a way to get to 100% renewables. The question is when will the market be ready for it, as the production of green hydrogen is still very far from viable. The massive efforts done in Australia are a great way to fast-track these developments.” He added that combustion engine efficiency is not expected to decrease with the use of hydrogen. But even those not directly involved in the development of Australia’s green hydrogen industry are watching it unfold with excitement — and expect to leverage this technology in the future. Presenting on the potential of electrified Mechanical Vapour Recompression (MVR) to decarbonize aluminium refining (which is responsible for 27% of Australia’s manufacturing emissions), Ray Chatfield, Global Technical Manager, Refining Energy at Alcoa pointed out that affordable green hydrogen would be a catalyst for its adoption in the industry. “Green hydrogen requires very low cost renewable power to realize Australia’s A$2/kg hydrogen target. If these renewable power prices are realized, it significantly improves the economics of MVR,” he said. Others, like Mike Aire, Corporate Director of Environment at Newmont Resources, are closely watching the developments. “We feel that the cost trajectory is going to folOn the OEM side, low solar, wind and batteries. Hydrothere is a clear gen would be the ultimate solution to perception that power fleets,” he said.
demand from miners is there, and an urgent need to prepare for the day that green hydrogen is widely available at a commercially attractive price. 20
Whether it be for fleet decarbonization, fossil fuel replacement in thermal power generation, or cleaner processing, all miners have something to gain from green hydrogen. Australian miners in particular can count on government support to help them make this magic fuel a reality. ENERGY AND MINES MAGAZINE
The Hydrogen and Fuel Cell Digital Event
September 9+10, 2020
This year‘s intriguing and dynamic program brings together the Canadian and international Hydrogen and Fuel Cell Community to create further projects and connections.
Streaming Live from Vancouver
At the Refinery and Mining Session, hear the latest developments in material handling, processing and heating with low-carbon hydrogen.
Register now at hyfcell.com!
Conference Trade Fair Workshops Topic Tables
hyfcell.com #fcellhfc Hosts
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How carbon is taking centre stage in miners’ energy strategy MELODIE MICHEL Reporter, Energy and Mines
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ntil recently, decarbonisation was not much more than a bonus for mining firms in adopting more efficient and cost-effective equipment for their sites. But the industry is realising that in order to stay relevant in a world where the largest proportion consumers, voters and legislators are climate-conscious millennials and generation Z, they cannot afford to keep carbon as an afterthought.
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In the past couple of years, most large miners announced extremely ambitious net-zero emissions targets, most by 2050, some even earlier. But targets are no longer enough: stakeholders now want to see the concrete steps that companies plan to take in order to meet those targets. Speaking at the Energy and Mines Australia Virtual Summit in August, Rio Tinto’s Senior Manager, Energy and Climate Change, Michael Scotton, explained: “Stakeholders want to go beyond long-term goals and understand how we’re implementing our strategy, what are the concrete actions taken to deliver those targets. Customers are also looking to understand the embedded emissions in our products and want to decarbonise their supply chains to provide low-carbon products themselves.” Rio Tinto has committed to cut its absolute emissions by 15% and its carbon intensity by 30% by 2030 — an expected reduction of 4.8 million tonnes of carbon emissions per year. With only 30 years to fully decarbonise their operations, there is no time to waste: technological advances may still be necessary to abate emissions from some of the most intensive processes, but what miners should already be doing is include carbon considerations in all of their strategic decision making. Fortunately, based on what was said at the Summit, this is the direction most of them are taking.
The economics of carbon
Across the world, 25 countries currently have a carbon tax in place, including Canada, Singapore, Japan and Argentina. This type of mechanism, whilst far from perfect, tend to increase the viability of decarbonisation projects — with tangible results. A number of research studies have shown that the introduction of a carbon tax tends to reduce a country’s overall emissions by anywhere from 5% to 25%, with a negligible impact on its economy. Not to mention the extra revenue that such a tax generates, which tends to be redistributed in clean energy investments and incentives: Canada is set to collect C$2.81bn from its federal carbon pricing in 2019/20. Where there is no price on carbon, there often is another form of government incentive to reduce emissions: that is the case of Aus24
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tralia. Jane Wardlaw, General Manager of Australia’s Clean Energy Regulator, presented the country’s carbon policy at the conference, which consists mostly of the Safeguard Mechanism, a scheme introduced in 2017, but that has gone through a number of changes in recent years. “It has been in a state of flux, with miners trying to get their heads around the requirements and changes. But the basic framework is fairly settled now, which should make it easier for businesses,” she said. Under the Safeguard Mechanism, large emitters work with baselines. These were previously set using a high point of historically reported emissions, but these reported baselines are being phased out. Now, corporates calculate them by selecting production variables predefined by the government, with corresponding default 25
emission intensity values. Companies that exceed the baselines have to offset their emissions with carbon credits, which come at a price. Recently, the government’s King Review identified further opportunities to reduce emissions, including something very similar to a carbon credit trading scheme. “The proposal was that this would leverage the existing safeguard structure. It is envisaged that it would work as a low emissions technology incentive scheme directed at reducing emissions from safeguard facilities,” said Wardlaw. But for all its good intentions, the Safeguard Mechanism has come under fire for being too lenient on Australia’s largest polluters, whose emissions increased to 144 million tonnes in 2018/19. So why are Australian miners being so proactive in reducing their carbon footprint? 26
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It turns out it isn’t just governments that can put a price on carbon. “When you look at some of the implied hurdles rate of returns from projects that have been sanctioned in the renewable space in recent years compared to large integrated oil and gas projects, there is clearly a stronger appetite for greener projects,” said Lachlan Shaw, Head of Commodity Research at National Australia Bank, during the summit. “Internal rates of return have been as low as 3-5% for renewable projects and as high as 15 to 17% for traditional oil and gas projects. There’s already a shadow carbon price almost being built into how those projects are financed and the returns required, and these things are progressing quite quickly now.” Another example of non-governmental carbon pricing is the fact that low-carbon aluminium is now trading at a premium in the European metals market which, according to Shaw, proves that, “the market is now starting to value the reduction of carbon footprint by suppliers”.
The decarbonisation equation
In order to meet their net zero carbon targets, mines have to solve a three-part equation involving baseline power, material movement, and processing. On the power side, Energy and Mines regularly covers small and large-scale renewable energy integration projects for mine sites, but these can only offset parts of the emissions from mining activities. To reach net zero, miners will have to go further than that. Among the options they are looking at for power generation, wind has become very attractive: according to juwi’s Head of Global Business Initiatives Amiram Roth-Deblon, the addition of wind generation can double the carbon savings from a hybrid power plant on a mine — and double or even triple cash operating cost reductions. One of the biggest stumbling blocks for mining decarbonisation is material movement. For instance, 43% of BHP’s emissions come from diesel, primarily used in fleets. This explains why electrification is one of the company’s highest priorities. “Our purpose is to re27
duce reliance on fossil fuels, which may also offer financial and other co-benefits, and create the future mining and identify opportunities to electrify our operations, which can enhance the way we produce resources from extraction through to mining and processing,” said Jessica Harman, Principal, Portfolio Strategy and Development at BHP, at the conference. The company has trialled a number of electric vehicles at its mines, and sent a clear signal to the market that there is a need for an electric heavy-duty haul truck — which OEMs appear to be working on, albeit slowly. Newmont Goldcorp has also been active on the electrification front: the company’s Borden site in Canada is the world’s first 100% electric mine. But according to its Corporate Director, Environment, the economics of electrifications are not quite there yet. “Fleet decarbonisation is a challenge and I don’t think we’re close despite hybrid vehicles being tested. We’re a long way from commercialisation. At the Borden mine, the savings in ventilation drove the economics, but without that, it wouldn’t have been economical. I’m hoping to get there in the next five years,” Aire pointed out at the Australia Summit. Hydrogen is another technology where miners see a lot of potential, but again, it is still early on its development journey. In the meantime, several miners are exploring the use of existing renewable fuels such as biogas. Newmont Goldcorop, for instance, is “looking at biodiesel seriously for the next two to five years,” according to Aire. The company has engaged with Caterpillar on the topic, and noticed a change of tone. “Two years ago, if you wanted to run more than 20% biodiesel on a haul truck they would say you voided your warranty, but they’ve done research and realised that their engines can run on 100% biodiesel and therefore by doing that you do not void the warranty anymore,” he said. Processing is another area where it may be difficult to reduce carbon intensity, but a number of initiatives are showing promise. One of them is Mechanical Vapour Recompression for bauxite refining, which would create the heat needed to produce aluminium from re28
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newable electricity. “Mechanical Vapour Recompression offers many benefits: it has a zero carbon potential with renewable power, no need for back-up infrastructure, the economics for new facilities appear good, and plausible for retrofit on existing facilities,” explained Ray Chatfield, Global Technical Manager, Refining Energy at Alcoa, in a presentation during the summit.
Opportunities in a low-carbon world
It may be a steep learning curve, but decarbonising their operations is set to bring substantial commercial benefits to miners. Now that green aluminium is sold at a premium compared to its traditionally produced version, metal markets have spotted an opportunity. In June 2020, the London Metals Exchange announced plans to create a platform specifically for low-carbon aluminium trade. According to the Financial Times, this is the first time in the LME’s 143 years of existence that a metal will be traded based on its environmental footprint. This type of market signals will pressure metal producers into disclosing exactly how much carbon is embedded into their products. With increased environmental transparency, this trend is set to snowball into more and more opportunities for green materials. Justin Brown, Managing Director of Element25, a high-purity manganese producer looking at adjusting its production schedule to renewable generation, noted the importance of large-scale decarbonisation for future business development at the Australia Summit. “Lowering the carbon intensity of the supply chain is becoming more and more important if you want to supply modern companies,” he said. “It’s also driving capital flows: investors don’t want to invest in coal and I think over time that will spread to other fossil fuels. And finally, there are carbon price considerations.” The triple-whammy of carbon price (whether set by governments or by markets themselves), customer demand and investor appetite is set to be an efficient propeller for miners on their 30-year race to decarbonisation. 29
