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EDGE Finance Advisory Q2 / 2015
GLOBAL TRENDS IN THE DISTRIBUTED ENERGY TRANSITION The worldwide transition towards distributed energy continues to accelerate. A number of recent announcements and developments signal further rapid transformation ahead.
The role for utilities E.ON, Europe’s largest energy utility, is spinning off its conven-
utilities are now considering similar strategies. The dynamic is
tional energy assets. E.ON will be building its business around
taking hold in the U.S. as well, as certain utilities such as NRG
clean energy and distributed generation going forward. Ger-
Energy, Inc. are building their business around renewables and
many has passed the point where renewables are the single
distributed generation, and states such as New York are actively
largest source of electricity generation. E.ON concluded that
moving towards new utility business models focused on distri-
its future business opportunities are in renewables, distributed
bution. Can the stodgy utility sector be agents for change? Mar-
resources, energy efficiency and information services technolo-
ket forces may leave them no choice.
gies. This move is likely to be a harbinger as other European
Mining sector and distributed generation Global mining operations are energy intensive. For example,
in South Africa. In Brazil, the largest single energy consumer is
South Africa’s Department of Minerals and Energy estimates
mining giant Vale, which accounts for around 4% of all energy
that the mining industry uses 6% of all the energy consumed
used in the country.
Switching to distributed generation offers major potential economic benefits for mines, including: Lower aggregate long term fuel and electricity costs for operations and minerals processing. Reduced price volatility as compared to diesel fuel. Greater reliability and/or enhanced grid integration. Reduction in carbon emissions and resulting access to carbon reduction credits and government incentives. Reduced risk of power loss from supply disruptions. A key to unlocking these benefits is finance. Historically mining
stitutions and NGOs such as the Carbon War Room are work-
companies have viewed energy cost as an operating expense,
ing to develop innovative financial mechanisms including third-
and have hesitated to make capital expenditures for long term
party ownership models. Given the upsides, expect to see major
generation. Now, mining executives, international financial in-
developments in this area over the next few years.