Mining companies that embrace clean energy could use renewables as leverage when negotiating with utilities and diesel suppliers, according to a new study from Germany-based consultancy THEnergy.
The study is based on 32 interviews with experts from the mining, financial and renewable energy sectors. It shows that many mining companies are not satisfied with their energy supplier for several reasons.
For example, the report says oil prices and coal prices have fallen to a six-year low, but many mining companies do not see this on their energy bill, as the lower costs are very often not fully passed on to industrial off-takers.
Furthermore, the report says that mainly in Africa, parts of Asia and South America, the energy supply is not very reliable. In these regions, grid-connected mines have to deal with frequent load shedding or power outages, which are critical for many mining processes.
Other reasons some mining companies are unhappy include long waiting periods for grid connection and missing customer orientation of many electrical utilities and diesel suppliers.
In many countries, the market structure – above all, in the utility sector – is rather monopolistic and characterized by a low degree of competition. In this context, the report continues, renewable energy providers break up the market and can offer interesting alternatives.
The study says two major announcements in February triggered huge interest in the topic of renewable energy and mining: Sandfire Resources declared its intention to build a 10.6 MW solar project at its DeGrussa copper mine in Western Australia, and South African-focused Sibanye Gold announced plans to build a 150 MW solar plant to gain control over its energy expenses, which make up 20% of the company's total costs.
The report also says that mining companies can improve their negotiating position considerably by backing renewable energy projects.
It is estimated that mining groups can improve their electricity costs by up to 20% and their diesel costs by up to 15% after they have built their first wind and solar pilot projects. They do not necessarily have to finance the plants by themselves, the report notes. In general, a number of external investors are in a position to offer power purchase agreements based on renewable energy to mining companies, as well as to finance solar or wind installations directly at off-grid mining sites.
‘Wind and solar energy have not only become cost competitive with conventional sources of energy, but at the same time, they boost the negotiating position of mining companies toward their current energy suppliers,’ says Thomas Hillig, founder of THEnergy. ‘Mining companies who understand this potential will not wait very long with building their first wind and solar pilot plants.’
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