What is the main scope of your work at Energetics and how does this relate to the mining sector?
Energetics is a specialist management consultancy that assists companies to transition to a carbon-constrained environment. I run the carbon markets and strategy practice area. IN the mining industry we assist clients in understanding obligations under greenhouse reporting and carbon mitigation policies such as the Renewable Energy Target and other regulatory schemes. In addition we help them with forward planning to manage risk. We also look at the business opportunities for them under existing or planned schemes.
Our mining and minerals processing clients are primarily focused on energy and process efficiency, whether it be providing advice on optimizing energy efficiency opportunities in the design of a new mine to working with clients on an established site so that they are making the savings that they can.
You have previously made a case for wind power as a cost effective source of electricity for remote mines (eg at the MCA Sustainable Development Conference). Why do you think this is the case?
Remote mines often face high energy costs in relation to other businesses. Mines at the end of a very long grid – for example Olympic Dam or mines in North West Queensland, often pay a fairly substantial network infrastructure charge notwithstanding 10 per cent losses along the grid. Meanwhile mines which are off the grid and generate power from diesel that is trucked in can face particularly high electricity costs, which can run to the order of $200/MWh. There is a compelling business case for installing some wind generation capacity at remote mines which face these kinds of ongoing expenses.
What percentage of electricity generation needs can wind energy provide?
Mines usually have a high and constant baseload requirement due to lighting, ventilation and the grinding circuit. The objective would be to design a wind farm that would displace nearly all of the baseload requirement when the turbines were operating at full capacity. This means that wind can displace approximately a third of baseload electricity requirements.
What makes a good on-site wind project?
In order to be cost effective, the mine should have consistent baseload energy requirements of greater than two megawatts and be subject to energy prices in excess of $100/MWh. The location should have a good wind resource (eg >6.5m/s). There must also be ease of integration with either existing site infrastructure or grid, which basically means that the other electricity input sources must be able to be varied fairly easily to enable optimization of the wind resource.
Also there needs to be an adequate mine life anticipated to make payback worthwhile. For a mine paying $100/MWh, installing 2 x 2MW wind turbines at around $10M, placed in a location where there is a good wind resource (eg >6.5m/s) will generate more than 12GWh per year.
The payback period purely in terms of avoided energy costs is about 8 years. From that point onwards there are zero fuel costs in relation to the electricity sourced from the turbine as wind is free. This is not even taking into account potential carbon costs, the revenue stream from RECs or the reputational benefits.
How can a mine generate a revenue stream by generating on-site wind power?
Mines that generate wind energy will also produce Renewable Energy Certificates (RECs) which they can sell to parties that have obligations under the Renewable Energy Target. Each MWh of renewable electricity generated equals one REC.
Under the Australian Government’s Renewable Energy Target (RET) there is now a legal liability on wholesale purchases of electricity and certain other producers to proportionally contribute to 45 000 gigawatt hours (GWh) of renewable energy per year by 2020. This is more than four times the previous target of renewable generation.
In the previous example, at a price of $40 per REC, the revenue stream from a mine which had installed 2 x 2MW wind turbines would be $480 000, or close to half a million per annum.
Why has the option of wind power not been taken up at remote mine sites to date?
The major inhibitor is lack of familiarity with the option. Reliance on diesel generators for off grid mines has become the norm and no one wants to go first. However in terms of the technology, wind is well proven and used on-site for a number of other industries in Europe, such as water sewage plants and ports – generally where there is a need for continuous power supply.
In Australia there is familiarity with wind farms that are owned and operated by major retailers and fed into a grid. There have also been recent commitments to generate power for desalination plants from wind energy.
Energetics haws been talking to a number of clients who are interested however, wind energy offers a distinct advantage as it is proven, it is low maintenance and it is modular.
Are there any additional skills needs for mine operators ari-sing from the installation of a turbine?
In principal, no. It is just another electricity feed. All the maintenance and diagnostics are all managed by the contractor off-site, so there is no requirement for additional mechanical or other operational knowledge. However, there will almost certainly be integration issues with an intermittent power source such as wind which will require coordination with existing plant.
How do you see broader policy and economic factors affecting the attractiveness of wind energy in the future?
We see the main driver of this type of technology being rising costs of traditional fossil fuel energy. At Energetics we are quite bearish about the forecast in increase energy prices due to rising demand for fossil fuels such as black coal and natural gas, particularly from China. Moreover in liquification plant built on the eastern seaboard allowing for export of LNG to other countries willing to pay a higher price, so we expect LNG prices to increase substantially over the next few years.
Some form of carbon impost – be it a tax, permits or direct regulation – is also inevitable notwithstanding the lack of progress in Copenhagen, and this is also anticipated to increase prices.