Energy and Mines Issue 11

MAY, 2019 - ISSUE 11

CLIMATE STRATEGY:

A TOP PRIORITY FOR MINING INVESTORS

RENEWABLES ECONOMICS IN AUSTRALIA ARE MAKING ENERGY POLICY LESS RELEVANT

LOWEST COST OF ENERGY MINING

Q&A INTERVIEW WITH JEFF NITSCH, ACCIONA

AUSTRALIA SUMMIT EXHIBITOR PROFILE:PENSKE POWER SYSTEMS

CLIMATE STRATEGY: A TOP PRIORITY FOR MINING INVESTORS

BY MELODIE MICHEL, ENERGY AND MINES

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Climate change strategy has moved from a supporting to a lead role in mining companies’ pitch to investors and shareholders.

contribute to the achievement of the UN Sustainable Development Goals. The result was a refreshed approach that ensures that sustainability considerations are integrated into all of In April 2019, Rio Tinto put green credentials our operational and strategic decisions.” at the forefront of its pitch to shareholders at its annual meeting in London. The decision Since the Paris Agreement and the drafting of made headlines, since it was the first time the the United Nations’ Sustainable Development company - or any other mining company - led Goals (SDGs), mining investors are much more a shareholder meeting with its environmental focused on climate strategy. Rio Tinto alone focus instead of returns and dividends. has reduced its emissions intensity footprint by almost 30% since 2008, as well as decid“Our history and experience tell us that we will ing to exit coal. According to its 2019 Climate not be able to create long-term, sustainable, Change Report, renewable energy is now used value for our shareholders unless we also to produce nearly three-quarters of the elecdeliver lasting benefits for the communities tricity used by the miner. in which we operate,” said chairman Simon Thompson. “These beliefs are the founda- It is clear that climate and low-carbon enertion of our views on sustainability. This year, gy strategies are now critical for mines to rewe took stock of our activities, and how we tain and attract investment. Leonidas Howden,

“Within the next five years, you’re going to really struggle to raise money for any type of mine if the environmental credentials aren’t there,”

Geoffrey de Mowbray, Chief Executive and Founder, Dints International

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Partner at Medea Capital Partners, a boutique merchant bank advising and investing in mining companies, explains: “Fundamentally, people who are making investments into mining companies, or lenders interested in providing debt capital, want to see that the projects themselves are being done in the least environmentally impactful way, from landscaping and planning all the way to the energy used to produce the raw materials.”

place on organizations with regards to the role they play in climate change. We’re also seeing elements of superannuation funds or large investment funds effectively looking at carbon as a key consideration in their investments, so organizations as a whole want to make sure they are attractive to investors,” says James Arnott, a Partner at KPMG Australia.

“Within the next five years, you’re going to really struggle to raise money for any type of mine if the environmental credentials aren’t there,” points Geoffrey de Mowbray, Chief Executive and Founder of Dints International, a company offering supply chain solutions for mines in Africa, as well as helping them access financing.

There is also strong momentum building to regulate and guide how mining and other energy-intensive industries disclose the financial impact of climate change. The most relevant for mines being the Task Force on Climate-Related Financial Disclosure (TCFD) which has issued recommendations about how companies should disclose the potential impact of climate change on assets.

SHAREHOLDER ACTIVISM Over the past few years, investment funds have flexed their muscles to force energy-intensive companies to define their climate strategies.

Launched at the end of 2017, Climate Action 100+ is a coalition of over 320 investors with more than US$33tn in assets collectively under management, lobbying the world’s largest emitters to take action. Its engagement resulted in green commitments by oil and gas firms such as Shell and Equinor, and, importantly, the February 2019 decision by Glencore to freeze coal production, in line with the Paris Agreement.

CLIMATE-RELATED DISCLOSURES

“If you are a mining company with a business process dependent on water, for instance, then water scarcity may be an issue, and as the world gets hotter it might increase, therefore the underlying ability of the asset to perform might be at risk,” explains Arnott.

Currently, 14 metals and mining companies endorse the TCFD and plan to include such disclosures in their processes. Among them are Anglo American, ArcelorMittal, Barrick Gold Corporation, BHP, BlueScope, Glencore, Gold Fields, Norsk Hydro ASA, Rio Tinto, Tata Steel, and Vale. While these guidelines are currently Climate Action 100+ has an initial target of just recommendations adopted on a voluntary convincing 100 systemically important green- basis, TCFD is expected to become the stanhouse gas emitters to make the transition to dard in climate-related disclosures. clean energy. It’s a big task, but the work accomplished so far by the organization proves In its 2018 annual report, BHP, whose vice-presthat activism is very effective when led by ident of sustainability and climate change, Fioshareholders. na Wild, is a member of the TCFD Task Force, made it clear that broader adoption is neces“We see increasing demands from shareholder sary in the sector: “We believe the TCFD recactivists in terms of the value they are going to ommendations represent an important step to-

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wards establishing a widely accepted framework for climate-related financial risk disclosure and we have been a firm supporter of this work. We are committed to continuing to work with the TCFD and our peers in the resources sector to support the wider adoption of the TCFD recommendations and the development of more effective disclosure practices within the sector.”

REPUTATIONAL RISK On the lending side, the move to adopt TCFD recommendations is also being driven by the banking sector’s need to repair its reputation following the financial crisis.

Since 2008, “reputational risk” is a top concern for banks and its influencing disclosure and investment strategies.

“More stringent environmental aspects are being driven by pressure on banks not to be seen to be lending to industries with a negative environmental impact, ”points Medea Capital Partners’ Howden. “On the mining finance side, lenders are not focusing on individual mining operations, for example. They are preferring to provide capital to companies that will be used on a broader basis, so there’s no real connection between the lending and a particular project if there was an environmental incident.”

Reputational risk is what drove about 20 banks worldwide, including BNP Paribas, Crédit Agricole and Santander, to stop financing new coal developments, for example. It’s also leading financial institutions to avoid jurisdictions considered risky and focus on countries where mining is transparent and regulated, and there is a base of environmental standards they can use for their assessment.

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“We see increasing demands from shareholder activists in terms of the value they are going to place on organizations with regards to the role they play in climate change. We’re also seeing elements of superannuation funds or large investment funds effectively looking at carbon as a key consideration in their investments, so organizations as a whole want to make sure they are attractive to investors.”

James Arnott, Partner, KPMG Australia

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Renewables economics in Australia are making energy policy less relevant Q&A WITH DAVE MANNING, GLOBAL HEAD OF HYBRID, JUWI RENEWABLE ENERGY

Photo: DeGrussa Mine courtesy juwi Renewable Energy

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ENERGY POLICY LESS RELEVANT

Australia’s lack of energy policy, and the uncertainty surrounding it are seen as slowing down investment in renewables. But even in this context, the sector has achieved a level of economic viability that makes it less reliant on subsidies and other green initiatives from the government. “As the cost of renewables is likely to decrease further, energy policy becomes less relevant as renewables can compete head to head with other forms of generation,” says Dave Manning, Global Head of Hybrid at juwi Renewable Energy.

Overall, the company has now installed over 4.8GW of renewable energy projects around the world including off-grid, on-grid and behind-the-meter.

We spoke to Manning ahead of the Energy and Mines Australia Summit to find out how the economics of green energy are changing for mining projects in the country.

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Energy and Mines: Can you please provide us with an update on new projects with mining clients in Australia -- and globally?

E&M: Do renewables projects for Australian mines still require subsidies and support to get off the ground?

Dave Manning: In the APAC region, juwi is currently constructing a 4MW solar project in The Northern Goldfields of Western Australia (WA) for a tier 1 mining company. We are also well underway with a 500kW solar/vanadium/diesel project on a remote island on the great barrier reef in Queensland. We have also been able to further increase fuel savings at the 10MW Degrussa Project in WA with our next level of hybrid optimization.

DM: We are very thankful for the funding support received for the Degrussa Solar Project. But today funding is not necessarily required for these projects. Renewables for mines is on a similar trajectory as on-grid PV projects over the last 5 years in that support will be unnecessary soon.

On the African front we recently signed an LOI to construct a 6MW PV project in Senegal with a tier 1 mining company. In South Africa, we are undertaking a detailed Study for a 50-60 MW Project with Orion Minerals.

Overall, juwi has now installed over 4.8 GW of renewable energy projects around the world including off-grid, on-grid and behind the meter projects.

E&M: What is changing in terms of the way the resource sector is approaching renewables integration?

DM: Renewable energy is now achievable at a lower cost than traditional thermal generation.

Mining companies are looking at renewables as a way to reduce operating costs, whilst still being able to achieve 99.8% reliability.

E&M: Australia has seen a number of new projects by mines and industrial energy users using both remote and grid-connected renewable energy. What are the main drivers for industry to go for self-generation in this market?

DM: The key drivers are lower exposure to electricity price volatility, operating cost reductions, water savings, enhancement to their social license to operate and an overall trend to decarbonize operations.

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E&M: How is regulatory uncertainty in terms of energy policy in Australia impacting mining energy choices and renewables opportunities?

DM: Energy policy at a state-based level in some areas such as Queensland, the Northern Territory and Victoria with respective 50% renewable tar-gets by 2030 is quite strong. From a Federal Gov-ernment perspective, this will be dictated by the outcome of the upcoming election in May 2019, with the opposition government also seeking to implement strong national targets together with emissions reductions, though it is not clear at this stage how those goals will be achieved.

From a mining perspective, there is a generally held view that there will be a price applied to carbon at some point in the future though the timing is uncertain. In addition, as the cost of renewables is likely to decrease further, energy policy becomes less relevant as renewables can compete head to head with other forms of generation.

E&M: How has the drop in pricing for large-scale generation certificates affected the economics for renewables for mines in Australia?

DM: Current projects assume zero value for large-scale generation certificates, i.e. the incentive to use renewable energy rather than alternatives. This makes the project economics more difficult when competing with coal, gas or diesel. How-ever, the dramatic fall in the cost of renewables means that we are able to compete against these conventional technologies without subsidies on

ENERGY POLICY LESS RELEVANT

Photo: DeGrussa Mine courtesy juwi Renewable Energy

Photo: Orion Minerals mine shaft courtesy juwi Renewable Energy

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certain projects.

E&M: Are all mines now incorporating renewables as an option for greenfield sites?

DM: We are seeing a significant increase in the number of RFI/RFQs being released that have a renewable energy component. In some instances, where there is access to cheap gas, or the life of mine is very short, renewables are not a viable solution, however the cutoff point for economic viability is reducing every year.

E&M: How is it different, from an IPP perspective, developing greenfield projects vs. integrating renewables for an existing mine site?

DM: Existing mines often have PPAs already in place with asset owners for thermal generation that have a tariff in place that is structured around the existing assets. Structuring a new tariff and contract regime can be more challenging than with greenfield developments but it’s absolutely possible, as we demonstrated at our Degrussa project.

E&M: What about behind-the-meter renewables for mine offtakers in Australia, how do you see this market potential developing? Are there current projects for other industrial users that provide good models for mines?

DM: Yes, we see significant potential for behind-the-meter projects. We have been in discussion with grid-connected mines to supply wind or solar power and there has been one sizeable project by Sunmetals in Queensland. One important aspect is a complete power supply arrangement that combines renewable energy with on-grid energy. Another topic is contract tenor. This is less about mine life but about the duration of electricity supply contracts. The current structure for larger on-grid consumers is that they go into electricity supply tenders every two to five years, while a renewable energy project becomes significantly cheaper with longer contract durations.

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Photo: Courtesy juwi Renewable Energy

E&M: Have there been any significant changes to the contract models/offtake agreements for these projects that make it more feasible for broader uptake by resource companies?

DM: In the past, it was viable only for large energy consumers to negotiate and sign power purchase agreements for renewable energy projects. Now there are examples where multiple medium-sized commercial offtakers have bundled their electricity demands. This reduces individual transaction costs, provides more power procurement options for more companies and does not require each and every offtaker to build specialized power contracting or trading expertise.

E&M: What do you see as the remaining barriers for miners to invest in renewables generation in Australia?

DM: In my view, carbon pricing and topics like the national energy guarantee and the overall energy strategy of Australia remain the most uncertain variables. More clarity would provide investment security to mining companies and their service providers and grow a world-class Australian export industry. The barriers for miners investing in renewables are getting smaller and smaller as the technology, cost reductions and reliability have now been proven. The Federal Government putting a price on carbon in some form would help reduce investment uncertainty. Mining engineering companies also have a role to play in ensuring that renewables are incorporated into project mining plans rather than retrofitted as an afterthought.

Editors note: juwi Renewable Energy is a supporting sponsor of the Energy and Mines Australia Summit, June 18-20, 2019. To arrange an appointment to meet them at the event contact andrew.slavin@energyandmines.com.

Photo: Courtesy juwi Renewable Energy

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Acciona’s Director for South America, Jose Ignacio Escobar (right) Escobar and ENAMI’s (right) former and ENAMI’s Executive former Director, Executive Jaime Perez de Arce.

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LOWEST COST OF ENERGY MINING

LOWEST COST

OF ENERGY MINING

Q&A interview

with Jeff Nitsch, Senior Manager, Sales & Policy, Acciona Energy

By Energy and Mines

Energy and Mines caught up with Jeff Nitsch, Senior Manager, Sales and Policy from Acciona to get his informed views on opportunities for remote and grid-connected Australian mining operations to invest in renewables as well as lessons learned from utilityscale power purchase agreements with Chilean and Australian industrials.

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Energy and Mines: How do you view the current contract opportunities for mines with Australian operations?

Jeff Nitsch: Miners are focused on mining. They don’t want to deploy capital unnecessarily into energy assets but they do want the lowest cost of energy. The lowest cost of energy, particularly in remote mines, is renewables given the ability to replace both diesel and gas. The market for renewables supporting mine sites is growing, because it makes rational economic sense.

E&M: Are you focusing on grid-tied or remote mines in this market?

JN: The largest benefits are available for remote mines given the ability to offset diesel fuel consumption, however, Acciona Energy also has a “front-of-meter” offering for grid-tied mines, metals, and other industrials which offer long-term savings hedges against rising electricity costs.

E&M: How has Acciona adapted its IPP-model to suit the business needs and demands of mining customers?

JN: Miners want reliability at the least cost, but they also need flexibility. Acciona Energy seeks to match its IPP offering to its customers’ requirements, which may include the ability to terminate contracts early under changing conditions and looking at ways to benefit from future innovations.

E&M: Acciona recently signed a deal with the National Mining Company (ENAMI) in Chile: Can you tell us about the drivers behind this power purchase agreement?

JN: The National Mining Company (ENAMI) is a state-owned company that processes the copper mineral produced by medium and smallsized mining companies. ENAMI’s goal was to become the first mining company to operate with 100% renewable supply at a competitive price, under a 24/7 supply scheme and to un18

Photo source: Acciona

LOWEST COST OF ENERGY MINING

Jeff Nitsch, Senior Manager, Sales & Policy, Acciona Energy

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lock the development of new renewable proj- ing to hedge their electricity costs. In an off-grid ects in the Atacama region of Chile. environment, there are even more opportunities to hegde energy costs, lower logistical costs (from The solution provided by Acciona consists of a fuel transportation and storage), and manage comlong-term PPA (over 10 years) supplying ENAMI’s modity volatility while also reducing emissions and facilities in Chile, including future expansions. To the risk of environmental hazards. match the 24/7 demand profile, Acciona is developing a portfolio of assets that are both techno- E&M: What are some other examples of recent logically and geographically diversified (wind + projects for mines or other industrial users? solar).

JN: Other than in Chile, Acciona Energy has reE&M: What lessons from Chile can be applied to cently entered into a long-term agreement with the development of Australia’s corporate PPA and Viva Energy that delivers 100GWh to the Geelong behind-the-meter renewables markets?

Refinery. We are currently working on a number of mining opportunities in Australia and overseas. We JN: Renewable PPAs and behind the meter solu- are very proud of our relationships in the mining tions make sense for miners and industrials look- and industrial sector.

Photo source: Acciona

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LOWEST COST OF ENERGY MINING

Acciona Energy Australia Managing Director Brett Wickham (left) and Geelong Refinery General Manager Thys Heyns

Acciona’s Director for South America, Jose Ignacio Escobar (left) and ENAMI’s former Executive Director, Jaime Perez de Arce.

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EXHIBITOR PROFILE:

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EXHIBITOR PROFILE: PENSKE

In the run-up to Energy and Mines Australia, June 18-20, we are interviewing a number of exhibiting companies on their views of the mining power market and how their products and services can meet the changing demands of miners.

In this Q&A interview, Robert Adams, Sales Manager – Power Generation at Penske Power Systems, outlines how market demands are driving changing product offerings towards energy storage and lower emission fuels.

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Energy and Mines: What do you see changing in terms of the energy and transport priorities of your mining customers in Australia?

Robert Adams: Mining customers are increasingly looking for ways to lower their operating costs and make mining sustainable. At Penske Power Systems (PPS), we see a gradual move to on-site large scale renewable energy as key to both of these aims. PPS provides high-efficien­ cy gas reciprocating generator sets, as well as energy storage systems manufactured by OEMs, therefore making us well placed to serve our cus­ tomers’ needs.

E&M: How often are you having conversations about decarbonization of mining power and transport with mining customers - and what are the key aims of these customers?

RA: For the past 3-5 years, an increasing number of mining customers are looking to explore more environmentally friendly ways of operating. In Western Australia, there has been a trend of moving away from diesel-fuelled power generation to providing power via less emission-intensive gas fuel. Gas fuelled power generation offers far less emissions than most other fossil fuels.

This is thanks in part to the development of new technologies in gas engines making them more suitable for island mode applications, a growing gas pipeline infrastructure and LNG virtual pipelines suppliers providing fixed-discount on LNG supply versus diesel.

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systems will allow for site load demands to potentially be met with less installed generator sets, and offer an alternative option to meet site redundancy requirements with a smaller footprint, less moving parts, and less ongoing maintenance.

E&M: How does your solution fit with renewables, and storage technologies for remote mines?

E&M: How are you evolving your power systems and transport services to address the changing needs and priorities of the mining sector?

RA: PPS is embracing the general shift in the market to renewable technology and hybrid power stationsfor remote sites by actively promoting:

RA: The MTU and Rolls Royce Bergen gas and diesel reciprocating generator sets distributed

by PPS are increasingly being advanced by OEM R&D departments to maximise both fuel efficiency and transient load performance. Our new line of MTU-manufactured battery energy storage

I. High efficiency and low emission producing gas generator sets manufactured by Rolls Royce Bergen and MTU. II. MTU’s new range of containerised “plug and play” battery energy storage systems.

EXHIBITOR PROFILE: PENSKE

Penske Power Systems is exhibiting at Energy and Mines Australia, June 18-20, Westin Perth.

E&M: What do you see as the key next steps in the evolution of sustainable and affordable energy for mines?

RA: We are confident that gas-fuelled power generation offers the ideal next step as the industry moves away from burning millions of litres of diesel to power mine sites. There is evidence of a growing demand for system integrators and third-party control system suppliers to further develop master control technology which would provide over-arching control of a power station/ microgrid so the power generating and energy storage components (reciprocating engines, solar, battery and wind power for example) are automated and utilised daily in the most cost-effective way for the miner.

Penske Power Systems is the exclusive distributor of Rolls-Royce’ Power Systems’ range of high (MTU) and medium medium speed speed (Rolls (Bergen Royce Engines) gas Bergen Engine) and diesel gas and reciprocating diesel reciprocatengines.

These ing engines. engines,These manufactured engines,in manufactured Germany and Norway in Germany respectively, and Norway offer respectively, class-leading offer fuel efficiency with fuel class-leading minimum efficiency performance with minimum de-rate due to high ambient performance de-ratetemperatures. due to high ambient temperatures.

Penske Power Systems provides unparalleled aftersales Penske Power service Systems and provides support unparalleled through our 700+ strong aftersales service workforce and support across our through network our of 15 strong 700+ strategically-located workforce across branches, our network two of which of 15 are strategically-located in Western Australia. branches, In addition two to of this, weare which have in Western field support Australia. hubs, including In additionfour to in Western this, we have Australia. field support All this hubs, is backed including by four our factory-trained in Western Australia. technicians All thisand is backed 24/7 national by our service footprint, factory-trained technicians ensuring and maximum 24/7 national uptime for customers service footprint, ensuring maximum uptime for customers 25

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