Energy and Mines - Issue 5

NOVEMBER 23 - ISSUE 5

POWER ISSUES OF MID-TIER MINERS

SEE WHO’S ATTENDING PREVIEW OF ENERGY AND MINES WORLD CONGRESS 2018

Istock photo

AI AND FLEXIBLE FINANCE ENEL X ON ENERGY STORAGE

MID-TIER MINING LEADERS EVOLVING ENERGY STRATEGIES FOR

In the mid-tier mining segment, the pace of adoption of renewable power alternatives is far from uniform. Melodie Michel looks at the drivers and factors influencing the transition.

2

POWER ISSUES OF MID-TIER MINERS

Bissa: Nordgold is also considering hybrids for its Bissa mine in Burkina Faso 3

“Burning millions of litres of fuel every month for energy is becoming a non-acceptable solution.” Benoit Lasalle, CEO of Montreal-headquartered gold developer Algold, puts it simply: there are no more excuses for not considering green alternatives in the development of a mine. This realization is slowly reaching all layers of the sector, including mid-tier leaders.

Some are clearly taking the lead: B2Gold’s 7MW solar plant, inaugurated in June 2018 at the Otjikoto mine in Namibia, was one of the first largescale projects in this segment. Now, the company is looking at adding storage to the plant, to cover for dips in power generation as a result of clouds. Mark Dawe, Namibia country manager for B2Gold, tells Energy & Mines: “We started talking about this in 2016. By May 2018 the plant was fully commissioned, producing at better than expected rates, and in the end, the payback period will be shorter than the expected 4.5 years.”

This better-than-expected performance may be due to the fact that the company made conservative calculations in its feasibility study, leaving out expected savings from reduced maintenance, the lower cost per hour of running the engines, carbon pricing, and factoring in fuel savings only - an approach that Dawe recommends to other miners. Based on the success of the Namibia plant, the company is now looking at reproducing the model for its Mali facility.

4

POWER ISSUES OF MID-TIER MINERS

“Burning millions of litres of fuel every month for energy is becoming a non-acceptable solution. There are no more excuses for not considering green alternatives in the development of a mine.�

5

TIMING IS EVERYTHING Solar technology was already efficient enough when the Otjikoto mine started commercial production in 2015, but Dawe believes including the solar plant in the initial feasibility study would have had a significant impact on start-up costs. “For mining companies, the intention is normally to try and keep capital costs as low as possible. You’re looking at all sorts of market forces including the stock exchange, investors and analysts to calculate the total capitalisation for the construction of the mine. For us, it was a great option to build [the solar plant] a couple of years into production,” he adds.

But one shouldn’t wait too long, as life of mine is another crucial factor in a company’s ability to transition to a cleaner energy strategy. Nordgold, for example, operates mines in Guinea and Burkina Faso, that have already been producing for 10 years or more, which means that a green energy investment might be difficult to justify. “Once the mine is already there, operating, with full equipment already amortised, it could be a challenge to go from one solution to another. Life of mine can be a challenge if your mine has only five years left,” says Igor Klimanov, development project director at the company.

Even if your mine hasn’t started production yet, the length of environmental approval processes needs to be taken into consideration.

Hudbay Minerals has a property in Arizona that has been in environmental assessment for about 10 years. At the time the process started, green energy wasn’t included in the plans, and now, including it would result in significant delays. “If you change your energy plans, you interrupt your approval process, and you need to prove that the inclusion of renewables isn’t going to create a different environmental impact. The process is somewhat

6

inflexible, which is unfortunate,” explains Shirley Neault, environment and systems manager at the company.

PRICING AND FEASIBILITY Solar-diesel and solar-natural gas hybrids have garnered a high level of interest recently, due to the dramatic drop in solar prices in the past few years (see Lazard chart).

Prices are now reported to reach as low as US$0.05/kWh in countries with good irradiation rates. “In our case, we were looking at around €0.17/kWh, and right now with solar, we’re down to about €0.14. That is significant enough to affect the feasibility of the operation, so my recommendation for mining companies, especially in parts of the world that have high irradiation rates, would be to consider solar as part of feasibility to improve the viability of the operation,” says Dawe.

“There is some regulatory pressure to consider a renewable alternative and prove that what we are proposing is viable not just from a financial and technical point of view, but also from the point of view of climate change”

POWER ISSUES OF MID-TIER MINERS

Lazard LCOE wind and solar 2018 (graph showing the price drop in wind and solar since 2009

In fact, adding solar or another type of renewable energy to initial feasibility studies could soon become a determining factor in getting approval for the construction of a site, as more and more countries start to incentivize sustainable production. For example, since 2015, France has heavily favoured projects that include low or no-emissions energy sources, including in its overseas territories. This is leading Nordgold to develop its French Guiana site with a strong focus on renewables.

“They’re very cautious about giving authorization for non-renewable energy projects, even in social sectors. There is some regulatory pressure to consider a renewable alternative and prove that what we are proposing is viable not just from a financial and technical

point of view, but also from the point of view of climate change. In the near future, this type of regulatory approach may start spreading to other countries outside of France, which would accelerate the transition,” explains Klimanov.

PPAS WIN THE DAY So what’s the best business model for renewables integration into new or existing mines? Dawe makes the argument for 100% ownership of the power plant - a significant upfront investment, but better longterm benefits. “If you enter a power purchase agreement (PPA) with a contractor, you’re only going to benefit from a fraction of the solar energy you’re generating. I would suggest to any company consider-

7

ing to put a solar plant in to spend the capital themselves. Even if it’s on balance sheet but you take a loan, you own the plant 100% and the benefit is all yours,” he says.

But this doesn’t seem to be the preferred solution in the mid-tier segment, where most plants are achieved through PPAs. “We wouldn’t need to invest the capital upfront, and the power cost would still be in the ballpark of what we get from fuel generation. It’s an easy decision to make. We would consider both solutions but the PPA is more attractive,” Klimanov says about the hybrid transition being considered at Nordgold’s West African mines.

It’s about capital allocation low-return asset: 6-8%, ma mining companies want fo is more 50% or up.

PPAs also seem like an obvious choice for Algold’s Lasalle, who argues that investing mining capital into a renewable energy plant doesn’t make sense in most cases. “It’s about capital allocation: a power plant is a low-return asset: 6-8%, maybe 10%. The return mining companies want for their investments is 50% or up. It would be very bad allocation of capital to own your power plant if you’re looking for 50% and up,” he says.

But there could be a viable compromise between these two models: B2Gold is currently negotiating to get a contractor to cover 100% of its battery installation costs, which would be repaid gradually with the savings achieved. The company would give the contractor between 50% and 100% of these benefits until such time as the batteries have been paid off completely, after which the asset would belong to B2Gold.

PLAYING IT SAFE Despite the technical progress and financial viability of solar, mid-tier miners continue to play it safe: where grid power is available, it remains the preferred option, even factor-

8

Lefa: Nordgold’s Lefa mine in Guinea could soon be powered by a hybrid solar plant

n: a power plant is a aybe 10%. The return or their investments

POWER ISSUES OF MID-TIER MINERS

ing in price variations. “If the grid is reliable, 90% of the time it will be less expensive than self-generated power. Peak and off-peak have to be negotiated in an off-take agreement with the government, and in developing countries they want you to buy grid power because [mines] are a good paying clients that create profitability for the state utility,” says Lasalle.

For B2Gold, the optimal solution would be a grid-hybrid-storage combination, whereby batteries would be filled during the day and used as a cheap alternative to grid power during peak periods.

Solar and storage technology is considered risky to some. Klimanov, who admits Nordgold is not at the forefront of power innovation, points out concerns about the overall environmental footprint of batteries and panels, especially when it comes to their production and disposal processes. “What happens if we install batteries and a few years from now environmentalists tell us there is cleaner technology out there?” he asks.

But while solar and wind may be difficult to install on existing mines, it is worth pointing out that many of them already use clean energy in the form of hydropower. These include, for example, most of Nordgold’s Russian sites, as well as Hudbay Minerals’ Manitoba operations.

At the end of the day, what matters most is the geography of the site, its power needs and the energy project’s feasibility - regardless of the size of the mining company.

Do you want to contribute to the Energy and Mines magazine? Story suggestions and contributions welcome. Contact andrew.slavin@energyandmines.com

9

10

SEE WHO’S ATTENDING

WHO IS

ATTENDING THE 6TH 11

Global mining and renewable energy experts are preparing to meet at the Energy and Mines World Congress taking place December 10-11 at the Hilton Toronto. The 6th annual event is set to be the largest gathering of senior mining energy decision-makers and renewable energy experts with 300+ attendees expected.

energy sector view the Congress as the key networking and business development opportunity with the global mining sector.

“If you’re involved in any aspect of power for mines, it’s hard not to be excited about the Energy & Mines World Congress in Toronto,” reported Rob Schueffner, Microgrids and Renewables Commercial Manager, Caterpillar.

“Rising energy costs for mines and increased “You get a chance to talk with all the people pressure to reduce carbon emissions has in the industry about the real challenges and led to the highest number of new renewables opportunities they’re facing, and then develop projects for mines over the last year with real solutions for the project. It’s exciting.” around a dozen announced and several more advancing,” commented Adrienne Baker, Current Congress sponsors include 20 global Director, Energy and Mines. “This is a very leaders in renewables development, hybrids, exciting time in the mining and renewable en- consulting, engineering, and energy storage ergy space and we’re looking forward to more including Thought-Leader Sponsors Caterpildevelopments at the Congress.” lar, Sterling & Wilson and the Canadian Trade Commissioner Service; and Lead Sponsors The Congress showcases mines leading the BBA, Juwi, Advisian, and Wartsila. Hatch, G+ transition to renewable energy and low-carPlastics, Convergent, NRStor, Tulloch, Enel X, bon solutions and provides a timely and esTotal Eren, Saturn Power, Rioglass, ESS, Ensential networking platform for mining and gie, SunGrid, Peak Power and Ontario Power energy experts to discuss project opportuniGeneration are also sponsors and exhibitors. ties. This year’s agenda features senior representatives from Agnico Eagle, De Beers, New- “We look forward to engaging with as many mont Mining, Teranga Gold, IAMGOLD, Gold potential mining clients as possible at the Fields, Rio Tinto, Barrick Gold, Goldcorp, Congress, hoping to seek their appreciation Kinross Gold, Kirkland Lake Gold, Glencore, of the need for an increasingly decarbonised Algold, B2Gold, Tahoe Canada, Vale, Hudbay mining landscape globally, and our potential Minerals, Nordgold, and Erdene Resource role to help them achieve it,” said VishwanaDevelopment. than Iyer, Head of Business Development, Hybrid & Energy Storage, Sterling & Wilson, a Sponsors and attendees from the renewable global hybrid solutions provider.

12

SEE WHO’S ATTENDING

“Knowing that there are very key industry players at the event, I always enjoy meeting with them at both the formal and informal settings,” added Jean-Philippe Castonguay, Director of Off-Grid Hybrid Power and Partner at BBA. “The cocktail reception and dinner last year were fantastic opportunities to connect in an informal setting, and our network built significantly following those events.”

“I am very excited about this year’s World Congress because it enables us to share our recent project and technology developments as well as the real-life experience of operating the world’s largest PV battery hybrid at DeGrussa in Australia for more than 2 years,” commented Amiram Roth-Deblon, Head of Global Business Initiatives, juwi Renewable Energies. “It is equally important to our team to listen to mining energy leaders, learn about their projects and their energy outlook. The great lineup of speakers and participants enables me to meet existing and, hopefully, many future clients.”

Tristan Jackson, Director, Smart & Distributed Energy, Advisian is also looking forward to hearing from mines and other experts at the Congress. “Most of all, I’m looking forward to the questions the mining companies still have, hearing from them what they are seeing, expecting, and what they consider to be the main challenges so we can learn better how to help them meet them,” said Jackson.

HOW TO GET I N V O LV E D T O R E G I S T E R C O N TA C T olivia.mendoza@energyandmines.com

TO DISCUSS

an enhanced profile at the event through the last remaining exhibit or branding spots contact: john.hodgkins@energyandmines.com Click Here to View the Website

13

ABB ABO Wind Canada Ltd.

AESI AEMP Aggreko Agnico Eagle Mines Limited Akuo Energy USA, Inc. Algold Resources Altus Group ArcelorMittal ArcelorMittal Mining Arundo Analytics Associated Engineering ATCO Storage & Líquids Avalon Advanced Materials B2Gold Barr Engineering Barrick Gold

BESTECH Bloomberg NEF Boralex Borden Ladner Gervais LLP Canada Clean Fuels Inc. Canadian Solar Inc. CAP S.A. CarbonFree Technology Inc.

14

CEM Engineering Centerra Gold CIM Magazine Clark Builders CLEAResult Columbia Center on Sustainable Investment Conduit Process Excellence

Coralis Canada COREM De Beers Canada GIZ EDF Renewables

ENGIE Hydrogen International Environment, Climate Change Canada Erdene Resource Development Corporation

Excellon Resources Inc. Financial Post First Quantum Minerals Ltd Fitch Solutions Freeport-McMoRan

GAL Power Systems GE Jenbacher Giyani Metals Corp.

GlassPoint Solar Glencore Glencore Canada Global Affairs Canada Gold Fields Gold Fields Australia Goldcorp - Red Lake Gold Mines Goldcorp Canada Golder Associates Goldwedge Mines Inc

HudBay Minerals Inc IAMGOLD IESO IFC IMII Imperial Oil Innergex IGF Invenergy Isla Power J.L. Richards JA DELMAS Jaguar Mining Inc JCM Power

SEE WHO’S ATTENDING

KGHM Kinross Gold Kirkland Lake Gold Knight Piesold Ltd. LGL Limited Maclean Engineering Magna Mining Corp.

MAN Energy Solutions USA Inc. McEwen Mining Inc McLean & Associates Minegenco Ltd Mineros Minnova Corp.

Munich Re Murphy Project Management MVC GROUP PTY LTD Newmont Mining NextEra Energy Canada Noront Resources Ltd Norton Rose Fulbright Canada

OCP Research

PCL Constructors

Peter’s Expediting Ltd. Phoventus Platinex Inc. PNE AG PowerGas

Tahoe Resources Teck Resources Telson Mining Corporation Teranga Gold The World Bank Toromont Cat

Praetorian Construction Red Pine Exploration Remote Medical International Rio Tinto

Rocky Mountain Institute Roxgold RWTH Aachen University

S&C Electric Canada Ltd. Scatec Solar Siemens Canada SMT AFRICA SNC Lavalin Inc Solar Flow-Through Fund

University of California, Merced Valard Construction Vale Vale Canada Vestas Wind Systems Victaulic Vivo Energy Voltalia

Wesdome Gold Mines Ltd WorleyParsons WSP Yamana

15

16

SOFTWARE AND INNOVATIVE FINANCE MAKES ACCESS TO STORAGE EASIER THAN EVER Jeff Damron, Vice President Sales, Enel X North America, believes energy storage has never been more accessible and affordable for mines, with a dramatic reduction in cost and the emergence of a number of financing options. Ahead of the Energy & Mines World Congress in Toronto, on December 10 and 11, he shares his insights on recent advances in the sector.

17

“Energy storage is already affordable. We have seen the cost of batteries decline dramatically over the past several years. In fact, the cost of lithium ion battery modules has declined more than 70% since 2012, driving increasing energy storage deployment,” Damron says.

According to IHS Markit, residential solar and electric battery storage could become cost-competitive with grid electricity by 2020.

This increased competitiveness, coupled with new financing products and offerings has made access to battery storage technologies easier than ever, including for mines. “Today, more than 60% of electricity in the United States is consumed by the commercial and industrial market segment, making this sector one of the fastest-growing and main strategic pillars of the Enel X portfolio,” he points out.

He takes the example of Ontario, Canada, where energy costs for large consumers of electricity such as mines are high. “There is a big opportunity to use energy storage to reduce the Global Adjustment (GA) charges that can account for up 90% of monthly electricity bill,” he adds.

AI IN ENERGY STORAGE The most pronounced advancements observed by Damron are in the software systems used to control energy storage technology.

“Artificial intelligence allows software such as Enel X’s Optimization Engine to control a diverse set of generation and load by continually seeking the greatest value,” he explains.

This means that changes in fuel cost, operations, or even a desire to lower carbon emissions can be used to dynamically manage the site and lower the operating costs.

The benefits of energy storage can be further maximized through enrolment in programs like demand response - an activity Enel X is

18

very active in. Damron says the company’s distributed energy resources (DER) Optimization Software, for example, can facilitate ongrid/off-grid hybrids that automatically deploy DERs to maximize economic value by providing off-grid power at the right times to reduce demand charges and participate in demand response.

“Our DER Optimization Software is the key to our value proposition. It learns the customer facility’s operational behavior and analyzes it alongside external data, such as energy market prices, tariffs, demand charges, demand response and other available incentive programs. Based on an optimization algorithm, the software is designed to transition the facility’s load onto the energy storage system at the times when it will create the most value for the customer. For a standalone energy storage system, our DER Optimization Software

AI AND FLEXIBLE FINANCE

automatically charges the batteries when energy prices are at their lowest, then deploys that energy at times when it would most benefit the customer to reduce demand on the grid — when electricity prices spike, demand charges are being calculated, or a demand response dispatch has been called,” he explains.

While energy storage and on-site power generation technology are a critical solution for more efficient and cost-effective electricity management, other products and services, such as demand response or utility bill management are also important tools to help maximize savings.

“The ultimate goal is to develop a strategy that taps into one or many solutions to achieve the customer’s energy goals while aligning with their financial and operational needs. Enel X is unique in that we can offer customers a suite of energy services to address specific challenges,” Damron adds.

Enel Green Power North America’s Stillwater Plant, Nevada

FINANCING FLEXIBILITY Enel X is the advanced energy services business division of the Enel Group, a global electricity provider with a strong focus on sustainability, serving more than 72 million customers in over 30 countries. While Enel makes significant investments in researching and developing next-generation energy technology, Enel X helps customers to integrate energy storage into their strategy. Through the backing of Enel, Enel X is able to offer a number of financing solutions for customers, including some with no upfront capital costs or annual operating costs. “The operational, technology, and energy market risk can all be borne by Enel X. This is also one of the added benefits of having the backing of a global energy company like Enel,” Damron adds.

Among financing options, he mentions: cash deals, whereby the customer purchases DERs

Distributed energy resources (DER) optimization software can facilitate on-grid/ off-grid hybrids that automatically deploy DERs to maximize economic value by providing off-grid power at the right times to reduce demand charges and participate in demand response 19

“In order to find the best technology and financing options for customers’ energy storage needs, the most important thing to do is take the time to assess priorities and energy data.”

The Marcus Garvey microgrid project in Brooklyn – this is the city’s first installation of a lithium ion battery.

20

AI AND FLEXIBLE FINANCE

Among financing options, he mentions: cash deals, whereby the customer purchases DERs out of their own pocket, and Enel X installs its software for a fee to efficiently operate the assets, or shared savings (or “Storageas-a-Service”), whereby Enel X purchases DERs and pays for installation services on behalf of the customer, but then keeps a percentage of the total financial benefit (via cost reductions and demand response/incentive earnings). “Here the customer receives long-term value without committing to upfront investment or risk,” Damron says.

Other solutions include leases, with Enel X purchasing DERs and paying for installation services on behalf of the customer, who pays the company a flat amount to lease the equipment for the life of the agreement; and hybrid power purchase agreements (PPAs). In the latter, Enel X purchases solar and the storage system and pays for installation services, and the customer receives a flat rate for all energy created via the solar PV system. Enel X also utilizes the battery to lower demand and participate in programs like demand response. “Both Enel X and the customer share the value created via the energy storage system,” he explains.

But in order to find the best technology and financing options for customers’ energy storage needs, the most important thing to do is take the time to assess priorities and energy data. “From this initial understanding, Enel X then designs the optimal energy storage system for their facilities, offers financing options to accommodate needs, purchases and coordinates the installation of the system, and integrates a software application designed to deploy the system for optimal economic output automatically, seamlessly, and in real time,” Damron concludes.

21

Join us in the world’s most active renewables in mining market.

Organized by

For agenda input contact adrienne.baker@energyandmines.com For sponsorship or exhibit opportunities contact john.hodgkins@energyandmines.com

22