Issue
Assessing Rio Tinto’s Renewable Resources in the Pilbara On the Importance of Modelling How to Manage Risk in Renewable Power Contracts
20 April
2020
story
Assessing Rio Tinto’s Renewable Resources in the Pilbara MELODIE MICHEL Reporter, Energy and Mines
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uch like other Tier 1 miners, Rio Tinto has committed its business to a goal of net zero emissions by 2050 — along with targets for a 15% reduction in absolute emissions and a 30% emissions intensity reduction. In 2019, the company struck a deal with its biggest Chinese iron ore customer, China Baowu Steel Group, to find ways to reduce the carbon emissions associated with the steelmaking process. This was one of the first direct actions by a miner to try to reduce its scope 3 emissions. In February 2020, Rio Tinto announced its first large-scale foray into renewable energy, having approved a US$98mn investment in the Pilbara (Western Australia) to build a 34 MW solar plant at its Koodaideri mine and a 12MWh battery located in Tom Price to improve spinning reserve on the network “That’s our first moderate step in our pathway,” says Kieran Birch, Study Lead at Rio Tinto, adding that the tendering process for these two projects will begin early in 2020. Birch has been working in the company’s environmental operations since 2008, but today, his job in Studies and Technology is to examine applications for renewable and alternative energies in the Pilbara. “We’ve set targets towards net zero emissions in the Pilbara, so the team and I are looking at the emissions reduction pathways to get us there,” he says. In the region, Rio Tinto’s operations are running on gas power, which is already lower in emissions than diesel. But the company wants to drive value through low-cost, low-emissions technologies, and the Pilbara is blessed with an abundance of solar and wind resources. “We have a world-class solar resource in the Pilbara, and an opportunity to leverage the power network we own and operate there by integrating renewables into it to start displacing that gas,” Birch explains. Around the world, Rio Tinto is lucky to have access to a lot of hydro power, which means that 76% of the energy it uses is already sourced
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from renewable sources. Still, at the scale of a global miner, 24% non-renewable energy means significant amounts of gas and diesel. The company is not unfamiliar with wind and solar integration: in 2012, under a build, own, operate model it installed a wind and diesel hybrid plant at the Diavik diamond mine in Canada, and in 2015 through an IPP it introduced a solar hybrid installation at the Weipa bauxite mine in Queensland, Australia. Rio Tinto has been able to learn from the management and engineering challenges from these projects to support its newly announced projects in WA. For its second owned and operated renewable project, the company is in a fortunate position in the Pilbara: on top of the abundant solar resource, Rio Tinto already has a robust interconnected grid between all of its mines in the area, allowing it to inject renewables at a risk-savvy pace. “It’s important that we maintain the power network to provide for 24-hour production and support the great teams we have to do so,” says Birch. “The risks are around technical integration management, as maintaining security of supply and network stability and reliability are absolutely paramount to the business.”
Understanding the patterns Key to any effort to integrate renewables into an existing power supply is to understand the patterns of solar and wind resources. Rio Tinto thoroughly assessed its access to solar energy before announcing the Koodaideri solar farm, and plans to use predictive technologies in order to respond quickly, should clouds approach. Birch explains that supporting technology like batteries will also allow the company to increase the amount of solar into the network. “And we will be working with our utilities team, who are effectively our end users, to ensure that they have the knowledge and the skills to manage the assets once they come online. It’s about understanding what’s required to manage those technologies, understanding the risks and working with all the key stakeholders,” he adds. Now, Rio Tinto is starting to assess its wind resources in the Pilbara, too. Working with Fulcrum 3D, it has installed a number of SODAR (sonic detection and ranging) instruments, used for wind profil6
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ing, at its sites. “We’re at the beginning of the journey, assessing the wind resources available to determine where the investments might be best suited in the Pilbara for renewable wind energy. We are continually assessing the data and progressing studies based on the results of that data,” notes Birch.
Finding the business case As opposed to the East Coast, where displacing expensive gas or diesel with cheap renewables is a no-brainer, the business case in WA is not as competitive, due to widely available and lower cost gas resources. For that reason, miners in the region must be smart when integrating clean energy into their power mix: adding these resources at a reasonable pace and optimizing their use to the maximum. “The Pilbara and more broadly WA is very fortunate in having lower-cost gas, so the business case for renewables is more difficult, despite the world-class renewable resource there. The reason for integrating renewables there is not solely financial though we are encouraged by the financially positive business case approved. Rio Tinto produces materials that play a key part in the transition to a low-carbon economy. We want to be part of driving the momentum for solutions, so the first step is understanding the simple, no-regrets solutions that we can employ now and that will assist our knowledge and comfort with these sorts of projects in the future,” notes Birch. “Companies are focusing more and more on their sustainability strategy and will always tackle these sorts of projects in a measured and well considered way,” Birch explains. “It’s critical if we are to succeed in getting to Net Zero Emissions by 2050 we start the journey now to understand how to integrate and work with these technologies. There’s a learning curve that needs to take place.” In the near future, Rio Tinto will start tendering its solar and battery project in the Pilbara, continue to collect data on the wind resources in the region, and progress activities to achieve their reduction targets. “More of the same, with an exciting pathway to do a lot more in emissions reduction,” concludes Birch. 8
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Q&A
PAUL COPESTAKE Head of International Markets, Fulcrum3D
Renewable resource monitoring with Fulcrum3D Fulcrum3D provides wind and solar resource measuring devices and data capture for resource management. The company has seen the mining sector’s interest in these technologies grow exponentially in the past few years — in fact, the mining segment was a primary avenue of growth for Fulcrum3D in the last 18 months. In the past year, the company has deployed monitoring stations to over 10 mining sites in Western Australia (WA) alone, and expect growth to accelerate further in 2020. “In the past decade we’ve performed monitoring campaigns for mining companies and ultimately witnessed these stall, so it’s excel9
lent to see what’s going on right now with renewables in mining and the projects being followed through,” says Paul Copestake, Head of International Markets. “I personally love working closely with these guys from pre-deployment to gathering the data and seeing the projects move forward.” Fulcrum3D is currently working with Rio Tinto in WA, assessing wind resources available to the miner’s operations in the Pilbara. Fulcrum3D SODARs (sonic detection and ranging) have been deployed to record wind speed and direction data up to 150m at multiple locations. “Our SODAR is quick and easy to deploy with most installations taking little over an hour — having installed it a few hundred times, any niggling difficulties have been ironed out! With inbuilt power and comms kits the trailer-mounted design is easily moved around in order to gain a more detailed understanding of the wind regime across the site,” explains Our internal Copestake, adding that Fulcrum3D is supporting Rio Tinto and their consultexpertise ants in understanding the wind data and in-depth being recorded.
knowledge of the instrumentation and applicable standards allows us to provide great advice on monitoring practices and explain why these become important during the operation of renewable projects 10
Energy and Mines: What are some of the differences you find in working with mining clients as opposed to IPPs on renewables resource monitoring? Paul Copestake: We also work with the leading wind and solar farm developers in Australia and overseas and whether it’s these guys or mining companies, we love the variety of projects and different demands of those. Ultimately whilst we might be a bit more hands-on with our mining clients, everyone wants good data to analyze and progress their projects, and that’s what we’re in the game of providing. ENERGY AND MINES MAGAZINE
E&M: How does Fulcrum3D differ from other types of renewables resource monitoring services?
Everyone wants good data to analyze and progress their projects, and that’s what we’re in the game of providing
PC: Whilst Fulcrum3D has and continues to experience exciting company growth, we maintain a tight-knit team of engineers, physicists and technicians, who genuinely take an interest in our client’s needs. We retain a strong focus on R&D, demonstrated through our work in wind and solar forecasting for operational renewable energy projects –- the Fulcrum3D SODAR is being trialled at operational wind farms in order to provide shortterm power forecasts. Our monitoring stations are widely used for resource monitoring during project development and also performance monitoring throughout plant operation. This, coupled with our internal expertise and in-depth knowledge of the instrumentation and applicable standards allows us to provide great advice on monitoring practices and explain why these become important during the operation of renewable projects. Another key difference is the robustness of our hardware, software and communications in some of the world’s harshest environments. Our stuff just works and our unique capabilities around data insight allow our clients to understand the resource and how that resource will interact with their proposed (or existing) power plant. E&M: What are some of the key considerations for mines when trying to identify the right combination of renewable energy technologies for a site? PC: Understanding the resources available by carrying out on the ground measurements are critical to first-rate project development. Properly understanding your renewable resource will allow you to better model future project operation and in turn understand how the combination of power sources can best work together. 11
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On the Importance of Modelling
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MELODIE MICHEL Reporter, Energy and Mines
ntegrating renewables into a mine’s power system, whether brownfield or greenfield, can bring many economic and environmental benefits. But the complexity of the endeavour should not be underestimated.
Otjikoto Mine
Cameron Sharp, Electric Power, Global Mining & Utilities Segment Manager at Caterpillar, explains that every project is different, and one technically feasible solution can deeply differ to another. “The potential of renewable energy penetration in the mining market is very high. In terms of Total Cost of Ownership (TCO) and Levelized Cost Of Electricity (LCOE), renewable sources can deliver better numbers compared 4
to both diesel and gas generator sets alone. But, although wind and solar are fantastic resources, they are by nature intermittent and can create at times, intricacies in the operation of an off-grid site.” In the mining sector, Caterpillar’s renewable power equipment was most recently installed at B2Gold’s Otjikoto Mine in Namibia — a 7 MW solar plant that became operational in 2018. The hybrid project was expected to reduce Otjikoto’s heavy fuel oil consumption by approximately 2.3 million litres and cut power costs by approximately 10% in 2018 alone. The system met and exceeded expectations and Sharp will present results at the Energy and Mines Australia Summit this November. He will also outline the Kibali Energy Storage pro-
HYBRID ENERGY SOLUTIONS
Caterpillar: Confidential Green
Graph 1: Hybrid energy solutions 5
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ject in the DRC, Africa which is a very exciting BESS project for the mining industry. If a project is sized correctly in all the system components, it is modelled with realistic and accurate inputs, mines that adopt a hybrid solution can see returns in a period of three to five years. “To assess the technical and, more importantly, the economic feasibility of a hybrid solution, miners should model their site, starting from the load profile, to identify the possible options and to take into consideration all the key elements of each one of the system components (wind, solar, controller, gensets and battery energy storage systems — BESS) both technically and economically,” he explains. But while correctly modelled renewable hybrids can bring fast returns, it is worth noting that not all sites can benefit from being integrated with renewables: “Site conditions, life of mine and load profile are the key aspects in assessing the real feasibility of a hybrid application,” points out Sharp.
Greenfield vs brownfield When it comes to renewable integration, there are significant differences between greenfield and brownfield sites. A new mine can design the hybrid solution with specific requirements, such as best TCO or minimum renewable penetration, and size correctly all the system components to deliver the required outcome. “In brownfield systems, there are still multiple benefits in hybridizing the site, but the integration between the various system components can be very complex, especially with the genset sizing. Once again, the site modelling exercise is a key step in identifying correctly the best hybrid energy solution,” he adds. Through his time at Caterpillar and in previous roles, Sharp is aware that reliability is a critical aspect for miners looking to hybridize their power systems, along with the economic returns on the invest6
Caterpillar and Cat dealers have a very healthy pipeline of hybrid projects globally and a very exciting product roadmap
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ment required. Of course, reliability and power quality are already a big issue for any off-grid power system installed at remote mine sites, but the addition of renewables can add some complexity. He explains: “When introducing renewable power sources, the situation can become tricky, due to the fact traditionally photovoltaic and BESS inverters do not offer high transient response rates or high fault current contribution.” “Power grid stabilization services offered from BESS and a microgrid master controller are the key elements to improve the site operation conditions and to integrate efficiently the system components. BESS units designed for high transient off-grid applications such as Caterpillar’s solutions can, in fact, improve the reliability and power quality of the existing infrastructure,” he adds.
Complexity and costs While it may be tempting, when trying to get investment approved for a hybrid power project, to find the lowest price for each element, Sharp warns that integrating pieces of equipment provided by a variety of suppliers may increase the financial burden on the project. “My personal advice would be to not underestimate the complexity and the integration challenges of hybrid energy solutions. If a hybrid system does not operate as expected a finger pointing exercise can ensue between the different parties if the project has been split up and the system aspects commoditized. This risk can be mitigated by having one overarching responsible party taking control and handling the integration aspects,” he says. Once again, the project modelling exercise and the support of a fully integrated hybrid solution partner could simplify the assessment and allow the mine to get the highest benefit from the hybrid energy solution. For Caterpillar’s hybrid power segment, the future is bright: “Caterpillar and Cat dealers have a very healthy pipeline of hybrid projects globally and a very exciting product roadmap, watch this space,” says Cameron.
“Integrating pieces of equipment provided by a variety of suppliers may increase the financial burden on the project.” CAMERON SHARP Electric Power, Global Mining & Utilities Segment Manager at Caterpillar 8
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How to Manage Risk in Renewable Power Projects MELODIE MICHEL Reporter, Energy and Mines
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espite the flurry of renewable projects announced in the past few years in the global mining sector, integrating clean sources of energy into a mine’s power grid is still a fairly new practice. As a result, understanding the risks involved, and making sure they are appropriately allocated and managed between the miner and the independent power producer (IPP) can be a tricky exercise. Law firm HFW advises both miners and renewable IPPs in drafting solid contracts for clean energy integration. Amongst others, HFW Australia Partner Jo Garland guided clients through the first hybrid power system for a remote mine site with the DeGrussa Solar Project. She believes that the time for renewables and the mining sector is now. “There is a very high level of interest in renewables and hybrid power stations for mines in Western Australia (WA), both from the mid-tier miners and the larger miners. Cost, technology certainty and green thinking are all combining,” she says. According to her, managing risk in a hybrid renewable power project starts with a clear understanding of what the likely risks are, and then agreeing which party bears the risk, or agreeing to share risk. Then, the parties must decide how this will be done both commercially and in the contracts. “With a very new technology, not all of the risk is always known at the outset. It can be a challenge when parties are negotiating terms, when a technology has not been widely used in practice and risks or the level of risk is not well understood,” she explains. However, she finds that what was new technology only a few years ago is now more commonplace and understood. “Parties are more willing to accept any resulting risk, and as technologies are tested, risk decreases as time goes on too,” she adds. It’s also important to understand the link between risk and price: “Often if all the risk is pushed onto a developer then this can come through in the form of a higher energy price,” she notes.
For IPPs, covering costs is key If you are a renewable IPP looking to play a role in the mining sector’s 11
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DeGrussa Solar Panels - 12 Courtesy juwi Renewable Energies
energy transition, Garland has some advice for you. “Understand the technology you intend to use; understand any risks you need to manage; understand the renewable resource at the site. Aim to get a guaranteed minimum return to cover costs, for example a minimum offtake amount or a fixed charge component.” She notes that given difficulties many miners are facing in getting funding, there may be a clause in the contract that makes the power agreement conditional on the miner making a final investment decision, which could be a big risk for the IPP. “Often smaller/mid-tier miners tender for power providers but are not at the point that they’ve got finance for their mining projects. The IPP will start to get ready for work under the (conditional) contract, including ordering some equipment so they can make all the deadlines. However, the miner may never get the financing (and therefore the contract falls over). IPPs need to think carefully about how to manage this risk in their contracts or commercially (and potentially get advice),” Garland warns.
Regional differences in corporate PPAs Many IPPs are interested in offering large-scale, behind-the-meter renewables to grid-tied mines, often through corporate power purchase agreements (PPAs). Since 2017, the Australian Renewable Energy Agency (ARENA) estimates that there has been a total of 58 Corporate PPAs negotiated for 2.3 GW of capacity. But few of these were in the mining sector, and most of the deals were concentrated on the East Coast of the country. Garland explains that the legal environment differs between the two coasts. “In WA, there are very few corporate PPAs,” she points out. “There is a common belief that as WA’s electricity market is different to the National Electricity Market (NEM) — which operates on the East Coast — corporate PPAs do not work as well in WA. While there is certainly some basis to this, it would be possible to structure a type of corporate PPA.” She adds that in the NEM, corporate PPAs are evolving and are now not always what you would typically think of as a corporate PPA. For example, electricity retailers can hold the contract with the renewable 13
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power plant and then on-sell the renewable energy to the corporate PPA holder. There are also hybrid corporate PPAs where the retailer ‘sleeves’ the corporate PPA into a retail agreement. “With proper structuring, it should be possible to achieve something similar in WA,” Garland explains.
No more excuses The variety of renewable technologies and contracts, coupled with recently increased public pressure to take action on climate change — in part due to the bushfire crisis in Australia — means that it is now harder than ever to justify the continued use of fossil fuels as the primary power source for mines. HFW is currently advising a number of IPPs on more traditional renewable solar and battery projects that are at the bidding phase, and is also starting to see more and more novel technology-based systems. “A good example we have worked on recently includes virtual and shared large-scale grid-tied batteries often tied with peer-to-peer trading. The advantage is the battery cost is shared and there is greater scope to set and manage your own energy prices through trading. While this is still in the early stages and more at a community level, there is also potential to use the same principles in an area with a number of grid-connected miners or processing plants,” Garland comments. According to her, the main change from the bushfire crisis is that it has increased the public pressure on the government to have a proper climate change strategy in place. There is now talk of setting a 2050 net-zero carbon target for the country, which is getting a lot of attention and has been backed widely by industry — though exactly how the target would be met is unclear, and there is still no carbon trading scheme or firm measure on the horizon. “There’s a bit more direct connection to the public now, who are saying: sure, we might lose some jobs and there is a chance some industry may move offshore, but we’ve all been affected by the bushfires, so maybe government should do something about climate change. The public isn’t really buying excuses anymore,” Garland adds.
“Often if all the risk is pushed onto a developer then this can come through in the form of a higher energy price” JO GARLAND Partner HFW Australia 14
