Energy and Mines Issue 12

JUNE 17, ISSUE 12

THE ECONOMICS AND ROADMAP FOR HYDROGEN FOR MINES IN AUSTRALIA

HYDROGEN FOR MINES COLLABORATION IS KEY

20 POTENTIAL HYBRID PROJECTS IN THE PIPELINE INTERVIEW WITH AGGREKO’S DEAN TUEL

EDL ON COOBER PEDY AND HYBRIDISATION

GEOFF HOBLEY PROVIDES INSIGHT AND OPERATIONAL UPDATES ON THEIR HYBRID POWER PROJECTS

Hydrogen

for Mining

ECONOMICS AND ROADMAP

by Melodie Michel, Energy and Mines

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A strong focus on hydrogen by the Australian government is growing awareness and investment around applications for the mining sector.

Melodie Michel sets out the reasons why now is the best time for Australian miners to bet on hydrogen.

In 2018, the Australian government set a clear target to position the country as a major global hydrogen player by 2030. This means twelve years of research and development, investment and experimentations in order to build a resilient hydrogen economy. The government sees particular potential in hydrogen exports to Japan, South Korea, China and Singapore, where governments have committed to renewable strategies that include hydrogen. In fact, Queensland sent its first green hydrogen shipment to Japan - part of a pilot project with JTXG - at the end of March.

But in the process of developing Australia’s hydrogen supply for export, the government is also creating opportunities for domestic applications.

In the mining sector, these revolve around transportation, fuel to power operations, and energy storage. Some tier-one mines have already started to invest in the technology: Fortescue Metals Group, for example, has a partnership with the Commonwealth Scientific and Industrial Research Organization (CSIRO) to fund hydrogen research.

“Once started, I see a path to growing the renewable generation at the site to align with the hydrogen production and consumption in an organic and sustainable way where part of the savings made gets reinvested into further hydrogen production capacity and consumption,” Dominic Rodwell, Manager Gas, Citic Pacific Mining

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Smaller Australian mining operators are following hydrogen developments closely. Dominic Rodwell, Manager Gas at Citic Pacific Mining, explains that while his company isn’t yet in a position to invest, he personally foresees a sound future for renewably-produced hydrogen in the mining industry.

Rocky Mountain Institute. “Hydrogen is a dynamic resource: you could use it to power your trucks, you could use it in some aspects of industrial processing, etc. Consequently, the resource itself is adding to the overall resilience of the system.”

“We can run a 10% hydrogen blend with our natural gas to fuel our power station without modifying anything,” he observes. “That would be a start, then we can progress toward producing enough to also start buying a hydrogen-powered mining fleet, gradually.”

Rodwell believes these projects may be eligible for funding through ARENA [the Australian Renewables Agency] and NAIF [the Northern Australia Infrastructure Facility]. “Once started, I see a path to growing the renewable generation at the site to align with the hydrogen production and consumption in an organic and sustainable way where part of the savings made gets reinvested into further hydrogen production capacity and consumption,” he adds.

For all the enthusiasm there is around the potential of hydrogen to improve mining operations, concerns remain, mostly related to safety and cost. But according to experts, hydrogen developers are solving both issues at a fast pace, and the industry could soon reach a turning point.

MAKING MINING MORE RESILIENT What makes hydrogen such an attractive investment opportunity in mining is its versatility: from powering a haul truck or train to producing ammonia for industrial applications. “We think that there’s a reasonable potential to use varying hydrogen applications on site in a way that adds dynamism, resiliency and doesn’t undermine the structural function of the mine,” comments Patrick Mulloy, Associate at the

“We think that there’s a reasonable potential to use varying hydrogen applications on site in a way that adds dynamism, resiliency and doesn’t undermine the structural function of the mine.”

Patrick Mulloy, Associate, Rocky Mountain Institute

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The fact that it can be produced from a variety of feedstocks, including natural gas, coal, biomass and renewables, adds to this versatility - and could explain why coal miners in particular are showing such strong interest. In April this year, the mining industry’s COAL21 initiative advocated for the production of hydrogen from coal - a much cheaper process than from renewable sources. With so many jurisdictions moving away from coal as a power source, the argument is likely part of an effort to find ways to repurpose coal resources. But the process to make coal-based hydrogen is a polluting one, going against the philosophy behind the development of hydrogen as a clean energy source.

“Both the LNG industry and the coal mining industry have this asset that, through a chemical process, can generate hydrogen. The byproduct of that process is carbon, but they have the ability to identify the source of that carbon and capture it at the source,” says James Arnott, a partner in KPMG’s energy and natural resources management consulting team, adding that “there is still a way to go”.

but it’s hard to see where that coal plays in the trajectory we’re talking about and the benefits of zero-carbon hydrogen production,” adds Rocky Mountain Institute’s Mulloy.

FAST-IMPROVING ECONOMICS Many still see hydrogen as an extremely expensive energy source, and there is indeed a broad price variation depending on the base material used to make it, and where it is made.

But hydrogen costs are on a downward trajectory that could be compared to that of solar energy - now cheaper than most other energy sources in Australia.

Attilio Pigneri, CEO of H2U, the Hydrogen Utility and President of the Australian Association for Hydrogen Energy, says: “We’re now at a point where we can produce hydrogen significantly cheaper than diesel on an energy-equivalent basis. Diesel retails for AUD$1.5 per litre, and in Australia we can now produce hydrogen from renewables below AUDS$1 per litre diesel equivalent.”

Given that Australia is the fourth-largest global coal producer, it’s understandable that miners would make this argument in government consultations around hydrogen, and a significant portion of investment is betting on this development. In February, a pilot project to turn coal from Victoria’s Latrobe Valley into hydrogen was green-lighted by the Environmental Protection Agency.

But it’s unlikely that these efforts will lead to the wide adoption of coal-based hydrogen in the long term. “The major emphasis and focus has been on producing green hydrogen using zero-carbon resources, in particular, renewable energy in an electrolyzer. In the transition towards that, there is talk of attaching carbon capture resources to existing chemical plants,

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Attilio Pigneri, CEO, H2U, President. Australian Association for Hydrogen

In California, the price currently stands at US$12-13 per kg (approximately a gallon or 3.75 litres), but this price is expected to drop as low as US$3.5 per kg, according to Mulloy at the Rocky Mountain Institute.

“When you take into account energy density, you get to parity with diesel around US$6-8 per kg,” he adds.

Research firm Markets and Markets estimates that the hydrogen generation market will grow by 8% per year in the next four years, reaching US$199.1bn by 2023, driven by the growing demand to decarbonize energy end-use, government regulation for desulphurization of refinery activities, and increased demand for hydrogen in the transportation sector. With more demand and more generation, prices are likely to reach a viable level sooner than we think.

The rapidly declining costs of wind and solar are building the momentum for green hydrogen, and this is also putting downward pressure on electrolyzer prices. A great example of how quickly the cost landscape is changing is H2U’s 30MW hydrogen power plant project in Port Lincoln, South Australia.

“The industrialization of the electrolyzer supply chain of the supply chain, with automation and saturation of production capacity, has the potential to push the cost of electrolyzers down more than 50% of their price today,” add Pigneri. “As an example for our Port Lincoln project we’re going to deliver a project that’s almost three times larger than the capacity of the project that we had announced in late 2017, pretty much within the

“We’re now at a point where we can produce hydrogen significantly cheaper than diesel on an energy-equivalent basis. Diesel retails for AUD$1.5 per litre, and in Australia we can now produce hydrogen from renewables below AUDS$1 per litre diesel equivalent.”

Attilio Pigneri, CEO, H2U, and President, Australian Association for Hydrogen Energy

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same budget envelope.” H2U’s project also includes two 16MW 100% hydrogen-fired gas turbines - the first two units of what could become a commercial product line.

HYDROGEN FOR MINING ROADMAP While progress is undeniably accelerating, many improvements are still needed in terms of infrastructure, scaling, and end-use. Many initiatives are hoping to tackle these: Toyota Australia recently announced a A$7.4mn hydrogen centre in Victoria, which includes an electrolyzer and a commercial-grade hydrogen refueling station - a necessary but missing part of the hydrogen for transportation puzzle.

Safety research is ongoing, particularly around venting requirements for hydrogen-powered underground equipment, and hydrogen is already considered safer than most battery chemistries. Organizations like HySafe and Standards Australia are constantly working on the developing production and safety standards, as well as educating stakeholders. But large-scale commercialization won’t happen overnight.

Matthew Walden, Investment Director at ARENA, is working with mining companies and other industry participants to test and understand the

Matthew Walden, Investment Director, ARENA

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technology and believes that the commercialization journey has commenced. “In the mining sector, in particular, there’s an evolution needed in hydrogen technologies, the way it happened with solar and wind: we need to understand how these various technology elements work at a small scale to de-risk them before it then supports large-scale deployment opportunities,” he says.

In this de-risking phase, public development entities like ARENA are needed to support the evolution, by facilitating the knowledge-sharing and the commercialization of the technology, but also by providing financial support, since commercial lending is still very hard to get for hydrogen projects.

“It is early days, so the key to bankability is the alignment between the lifetime of the asset, the offtake of the product, and the input cost,” points out Pigneri. It’s also important to identify sites that could become a stepping stone to a commercial demonstration site. The technologies are there but they need to be phased in, in such a way that they deliver operational capability, comfort and confidence for commercial projects.” Then again, less than 20 years ago, solar projects were highly dependent on subsidies, yet they are now a highly bankable asset class.

The reasons why Australian miners are interested in hydrogen are clear: not only can they leverage it as an energy source to reduce emissions and costs, but the emergence of the hydrogen economy is also likely to create demand for products the sector can provide. They are now in a prime position to benefit from the country’s push towards the development of a hydrogen industry, ready to benefit from numerous pilot projects and investment schemes. And with such a strong focus on exports, mining companies could even find a new revenue source in hydrogen production.

The first Hydrogen and Mines conference will take place as part of Energy and Mines at the Westin Perth, WA on June 18th, 2019.

For full details visit https://australia.energyandmines.com/ 9

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KEY HYDROGEN AND MINING ISSUES ADDRESSED INCLUDE: • HYDROGEN’S POTENTIAL IN ADDRESSING MINING’S ENERGY CHALLENGES • AUSTRALIA’S HYDROGEN ECONOMY AND MINING SECTOR OPPORTUNITIES • TESTING HYDROGEN TRANSPORTATION SOLUTIONS • KEY DEVELOPMENTS IN HYDROGEN FOR HEAVY-DUTY FLEETS • CHALLENGES OF INTEGRATING HYDROGEN INTO MINING POWER SYSTEMS • THE ECONOMICS AND BUSINESS FUNDAMENTALS OF HYDROGEN FOR MINES • HYDROGEN PROCESSING APPLICATIONS IN MINING • INDUSTRY RESPONSE AND NEXT STEPS FOR HYDROGEN AND MINES

SPONSORS:

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Hydrogen for Mines COLLABORATION IS KEY

Koen Langie HEAD OF MINING PROGRAM, ENGIE, BUSINESS UNIT HYDROGEN

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Photo: Engie zero emissions microgrid solution with hydrogen in Chile

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Energy and Mines: What recent hydrogen market developments are most relevant for mining operators?

Koen Langie: Probably the fact that important industrial players have started to join forces to accelerate the scale-up of the Hydrogen economy. The creation of the Hydrogen Council seems to have been a good initiative and platform for such collaborations to occur. For the mining operators, this means that Hydrogen applications will reach the scale and price that they require, a lot faster than originally estimated. And thus providing a valid alternative solution within their decarbonization plans.

E&M: What are some of the common questions you receive from mines interested in exploring hydrogen options?

KL: When would it be available at scale and at a competitive price? Is it safe? What about local regulation? How does it impact my operations on site?

E&M: What opportunities are opening up for Australian miners to take the lead on hydrogen projects given the current enthusiasm for building Australia’s hydrogen economy?

KL: Australia has a huge growth capacity for renewables which today is not yet fully explored, mainly because they are limiting its use to the grid. Once renewables can be used to supply H2 as a fuel to the mines, economies of scale will trigger an optimization of energy costs, fuel and electricity. This will help the Australian miners to have an increased competitiveness, and in addition they will get positive returns for their CSR and environmental programs. It’s a win-win situation.

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E&M: In your view, which application (power, transport or processing) will gain the most traction with resource companies in the near-term and why?

KL: Difficult to say. Actually, all three could grow rapidly in the near-term, but it will depend on the willingness of the local governments to enable and promote the use of such clean technologies, as well as the OEMs proactivity to make the technology transition at their side.

The technology is ready, we just need to bring the pieces together at scale.

E&M: Can you share some examples of mining companies currently evaluating hydrogen projects.

KL: An example could be the Chilean government who is promoting the use of H2 technologies within the mining sector via two technolo-

E&M: What key barriers need to be overcome before hydrogen becomes “business as usual� for mines, as we are starting to see with renewables?

KL: Awareness and collaboration, both the mines and OEMs need to become aware, at all levels of their organization, that the switch to Hydrogen based fuels is feasible and a lot sooner than they imagine. On the other side, they need to be open to collaborate with a multidisciplinary team, being mines, OEMs, utilities, authorities and technology providers.

Engie transforms operators fleet to H2

gy programs, and soon they will launch a new initiative, a Clean Technology Institute, which is a 10-year development program for new renewable applications within the mining sector, including H2.

E&M: What fundamentals are required to support the business case for a mine to consider hydrogen - mine life, energy as a portion of operating costs, transport costs, carbon targets, etc.?

KL: Each mine is different and has specific energy requirements, the combination of hydrogen and renewables allows us to provide tailor-made and flexible solutions. So a long lifetime is off course helpful, but not a musthave. Actually, we just need the willingness from the mine to really take the time and the effort to evaluate the business case at a total cost of operation level.

Zero emissions mine from Engie

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“ 20 POTENTIAL HYBRID PROJECTS IN THE PIPELINE

“

Interview with Aggreko’s Dean Tuel Energy and Mines caught up with Aggreko’s Energy and Mines: Global Vice President Sales - Microgrids and Can you give us an update on your most recent Storage Solutions, Dean Tuel on the microgrid hybrid projects for global mining clients? market in Australia.

Energy and Mines:

How would you describe the current energy landscape and challenges for Australian mining operators?

Dean Tuel:

Dean Tuel:

We currently have over 20 potential hybrid projects in the pipeline that are in various levels of maturity, not including early development projects. There is a high level of interest within the mining sector and this sector makes up approximately 50% of the 20 projects. The Gold Fields’ Granny Smith 8MW solar and 2MW energy storage project is expected to begin construction onsite in early June and is a major milestone for the company in showcasing our hybrid offerings.

The primary goal for mining operators has evolved from not only ensuring the reliability of energy but to also lowering the overall cost of energy that is more environmentally friendly which in turn reduces the dependence on infrastructure. In addition, we are seeing mining operators prefer a single contracting entity Energy and Mines: that can fully wrap a hybrid solution and do so What is significant about these recent projects with shorter terms.

- how is the approach to hybrids changing for mining?

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supplied over the life of the mine. If we then incorporate solar, the savings can drastically increase to up to 30% for fuel savings depending on the underlying fuel cost.

Energy and Mines:

What are the main drivers for these recent projects?

Dean Tuel:

The main drivers for the recent hybrid projects is definitely the cost of energy.

Energy and Mines:

More broadly speaking, what sort of feedback are you having from other mining clients on their interest and assessment for investing in hybrid solutions?

Dean Tuel:

Almost all of the mining clients we speak to are Dean Tuel: moving as fast as the process allows them to The appetite for hybrid power solutions within fully assess hybrids as an alternative to tradithe mining industry is increasing due to: tional power solutions.

1) T he reduced risk for these off-grid locations i.e. the logistical requirements to support Energy and Mines: the transportation of fuel etc.; How do renewable energy hybrids fit with other 2) T he reduced risk to volatility of fuel prices key energy initiatives for mines including elecover long term operations trification and decarbonization?

3) Decreasing emissions 4) Decreasing the cost of energy Dean Tuel: Primarily we are seeing internal mandates All these factors can now be achieved on a or goals set by mining companies and their cost competitive basis and with Aggreko we boards to hit a % of energy supplied by renewcan provide this as a fully packaged solution ables target. This can typically be up to 25% with little to no CAPEX at risk. over the next 5 to 10 years and varies firm by firm.

Energy and Mines:

What type of fuel savings are mines now realiz- Energy and Mines: ing from integrating these technologies?

Where do you see the best business opportunities for renewable microgrids for mines?

Dean Tuel:

The level of saving is highly dependent on the fuel cost. But we see anywhere from 2% to 15% p.a. When looking at 2%, which is at the lower end, we can still realise significant savings depending on the size of the load being

Dean Tuel:

The best opportunities for renewable microgrids for mines exist in Australia, Canada, Argentina, Africa and certain parts of Mexico with high fuel prices.

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ON COOBER PEDY AND HYBRIDISATION GEOFF HOBLEY, EDL’S GENERAL MANAGER FOR REMOTE ENERGY, PROVIDES INSIGHT ON HYBRID PROJECTS IN AUSTRALIA AND SPECIFIC DETAILS OF THE UNIQUE AND INNOVATIVE COOBER PEDY RENEWABLE HYBRID PROJECT

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ENERGY POLICY LESS RELEVANT

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What do you see as the key drivers behind recent hybrid projects for miners and other industrial energy users?

In the past two years, there’s been increasing momentum towards the hybridisation of energy sources for mines and operations in remote, off-grid locations. The key reasons for this are the reducing cost of renewable technologies and the desire of companies to improve their social responsibility profile in a decarbonising economy as part of global climate change action.

Renewable energy enables miners to reduce exposure to price volatility of traditional fuel sources such as diesel or gas and increase cost savings, while at the same time curtail emissions and achieve sustainability targets.

However, a switch to renewables can be costly and if not managed carefully can have serious impacts on reliability.

Hybrid technologies help bridge the gap between existing fuel sources and renewable energy, effectively managing the reliability risk and facilitating much higher penetration of renewable energy sources.

ronmentally sustainable, least-cost supply. A stable policy framework will improve business confidence and enable the investment needed in new energy choices. An absence of clear policy benefits and aging, inefficient incumbent generators can result in increased costs to consumers.

Can you provide some examples of recent projects that push the envelope in terms of the amount of renewables penetration realized?

Our Coober Pedy Renewable Hybrid Project went operational in mid-2017, and has exceeded all expectations.

The targeted renewable energy contribution was 70%, however, the project has averaged 73% over the past 18 months. We had also estimated that 50% of the time, the remote mining town of Coober Pedy would be supplied with 100% renewable power (using zero diesel). This has been marginally exceeded at around 51%.

Now, around 73% of the diesel fuel supply to the site has been replaced by renewable energy sources.

How do you see climate strategy and goals driving new energy choices for mines?

Australia is targeting a reduction in emissions to 26–28% on 2005 levels by 2030 as part of our commitment to the Paris Agreement.

The mining sector is a significant contributor to Australia’s carbon emissions and miners have been taking steps to cut their emissions, even without a clear federal policy on climate change and energy.

We hope this will change after the recent Australian federal election. It is essential we get agreement on a policy that effectively and efficiently addresses all three limbs of the “energy trilemma”—that is, a secure and reliable, envi22

“Renewable energy enables miners to reduce exposure to price volatility of traditional fuel sources such as diesel or gas and increase cost savings...”

ENERGY POLICY LESS RELEVANT

Photo: courtesy of EDL

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What are the key takeaways for miners from the operational results from EDL’s Coober Pedy Renewable Hybrid Project?

The success of the Coober Pedy Renewable Hybrid Project demonstrates that renewables can provide high levels of stability and penetration without compromising power quality and reliability.

We focused our efforts on integrating all the generating technologies and maintaining a reliable supply of generation for the town’s dynamic demand. This paid off with an improvement in power quality and reliability, with fewer supply outages from generation issues compared to before hybridisation.

This project has provided invaluable learnings for EDL’s other two renewable hybrid projects—the Cannington project and a new power project at a mine in Western Australia consisting of 22MW gas and diesel generation, 4MW solar PV and 17MW of wind generation , and a 13MW battery.

What milestones have been met with this hybrid in terms of average renewable energy penetration and system reliability?

The Coober Pedy Renewable Hybrid Project has demonstrated that renewable generation can supply power with high reliability for extended periods of time.

In addition to the average 73% renewable energy contribution, in September 2017, shortly after the Coober Pedy Renewable Hybrid Project went online, it achieved a significant milestone through supplying 100% renewables to the town for an uninterrupted 35 hours.

The project achieved a site record in December 2018, with a 100% renewable energy sup-

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Photo: courtesy of EDL

“The Coober Pedy Renewable Hybrid Project has demonstrated that renewable generation can supply power with high reliability for extended periods of time.” ply for more than 81 continuous hours. There is strong potential for this record to be extended with the right combination of wind, sun, and load.

What are the next steps for this leading example of renewables integration?

EDL is working to fine-tune the controls of the Coober Pedy Renewable Hybrid Project to reduce costs and improve performance.

This could include smarter management of customer loads to match the available renewable energy and a larger battery to store excess renewable generation for later use.

We will leverage these learnings in future distributed renewable energy solutions for other remote, off-grid customers.

What do you see as the next steps in terms of renewables integration and decarbonization of mining’s energy supply?

Renewable energy solutions are increasingly

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Photo: courtesy of EDL

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forming part of mining’s energy management and their use will continue to grow.

As the cost of enabling technologies reduces, how they are adopted and used will change.

More and more, batteries are part of the hybrid solutions, serving many purposes such as virtual spinning reserve; energy storage to enable the use of renewables for a longer period; and assisting with load steps.

These rapid advancements in technology create a dynamic environment. To maximise the benefits, we energy suppliers and our customers need to collaborate. We are starting to work with our mining development customers a lot earlier in the planning phase so that their mine processes suit the inherent differences of a high penetration renewable energy solution.

For example, mining processes could be designed to follow the renewable load (more load during the day or when the wind is blowing).

“More and more, batteries are part of the hybrid solutions, serving many purposes such as virtual spinning reserve; energy storage to enable the use of renewables for a longer period; and assisting with load steps.�

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