The Economics and Practicialities of Renewables on Mine Sites

Dornier Suntrace have developed market expertise in renewables on mine sites with their landmark off-grid project with B2Gold in Mali. In this interview, Director of Engineering & Projects (COO), Martin Schlecht discusses the business case and operational realities of decarbonizing mines with renewable energy

ENERGY AND MINES: What are the main challenges mines encounter when trying to maximize carbon savings with renewable energy?

MARTIN SCHLECHT: Implementing solar and wind in a size matching the mine load at its peak generation is a straightforward task, it simply substitutes the current energy supply. The challenges for this size of renewable power plant have been resolved for several cases already, both off-grid and grid connected.

For an off-grid mine, it involves the identification of the technical details regarding location of the renewable plant, obtaining permissions, developing the appropriate sizing to match the existing engine capacity and the mine load profile, integrating on the electrical and control side with the mining operations and the existing power generation. The business case for investing in renewable power generation is profitable and allows a pay-back period usually between 4-6 years of fuel savings, depending on the cost of fossil fuel. There are a number of projects that have successfully achieved this.

For a grid connected mine, the challenges are more to organize the renewables with the existing energy supply contracts, both contractually and commercially: the cost of electricity for grid connected mines is usually lower compared to off-grid mines, making the case for renewables somewhat less attractive. If a behind-the-meter generation is considered, this may in some cases be restricted by the grid operator’s regulations. In other cases, an IPP model, means selling the power across the fence or by wheeling through the public grid, may not be easily allowed by the regulator in the country. Depending on the country’s own renewable targets, the grid power itself may include larger shares of renewable energy in the future. It has to be assessed if this would be a reliable contribution to the mines CO2 reduction.

Maximizing carbon savings will require a higher share of renewables, which requires oversizing the renewable generation capacity and implementing energy storage for shifting the excess energy to times of low renewable generation. The energy storage is still the most expensive element, and thus large storage reduces the profitability of the business case.

Eventually, the case for renewables will be different for each mine, as each location has different solar and wind resources, different existing power generation costs and availability of land. Further, the remaining life of mine will play an important role when assessing the renewable energy business case.

E+M: Which are the top technologies and strategies mines can use to maximize renewable energy?

MS: Solar is usually the first choice, as it provides the lowest cost of electricity and is easiest to implement. Wind can provide the second lowest cost of electricity, however the implementation is less simple: permitting requires more effort and suitable locations may not be close to the mining site, thus additional land and a transmission line may be required.

Solar and wind each can reach renewable shares of 25-35% in most locations. The occurrence of solar (during day) and wind (during evening-night-morning) can complement each other well, and it may also have a seasonal benefit of more wind blowing during winter season. Accordingly the assessment of both makes a lot of sense.

Using both technologies together will limit the size of energy storage to those hours when both solar and wind are not generating sufficient energy. This storage will be much smaller compared to a solar + battery plant. It can thus achieve higher shares of renewable energy at affordable cost.

In all cases, a detailed assessment of the solar and wind generation profiles is important to understand the generation of both during each hour of a typical representative year. Linking this generation to the mine energy consumption profile will allow an optimized sizing of the energy storage. An additional aspect will be a possible supply of renewable electricity to supply electric vehicles or on-site hydrogen production. Some of this consumption can be aligned for example with proper EV charging logistics and benefit as well from an excess renewable power.

E+M: What are the key considerations in identifying which mine sites should integrate renewables ?

MS: The key parameters influencing the business case for renewables are the following:

1. RENEWABLE ENERGY POTENTIAL – both in terms of resource and available land and accessibility for the renewable technology

2. THE EXISTING COST OF POWER - at an existing mine, the renewable power plant would essentially amortize its investment based on the savings against the current power cost. Alternatively, the power would be provided from a third party at a lower cost under a power purchase agreement (PPA).

3. LIFE OF MINE – the remaining life of mine at start of generation from the renewable power plant usually also determines the life of the renewable power plant. A short life of mine thus reduces the profitability of the business case. However, if there is a reasonable projection of an extended life of mine based on new resources, even though not yet formally confirmed, it makes sense to look at the additional years of operating the renewable power plant within the business case.

4. OPERATIONAL RESTRICTIONS – depending on the mining operations, some restrictions on the size of renewables that can be integrated at the mine may apply (limitations on engine operation or embedded generation regulations)

5. FUTURE COST OF ENERGY – renewable energy provides a hedge against fossil fuel price increase, and also against increased grid power cost. The commercial benefit of the renewable power accordingly increases with higher cost of fossil energy.

From our view, the stability of power supply for mines can be secured with renewables and batteries. When properly planned, the battery can provide spinning reserve to the mine instead of engines. First operational results with solar and battery hybrid plants at off-grid mines are demonstrating the reliability of the renewable energy.

E+M: Phasing-in renewable energy vs. high-penetration from the start - what are the pros and cons?

MS: High renewable penetration from the start means that a reduction of CO2 emissions is maximized.

The level of renewable energy implemented at the first stage is basically a commercial and operations driven decision. From my perspective, there usually is a commercial cap on the “high-penetration”, as the cost of energy shall surely not increase with renewables, but rather decrease and thus create a profitable investment case. This is limiting the high penetration to what is affordable at today’s cost.

Very high penetration renewable power will also require large energy storage to be integrated, which will make the renewable energy more expensive. Accordingly there will be a limit specifically on the storage capacity that can fit into the commercial business case. Energy storage prices are expected to come down in the next years, given the large expansion of manufacturing capacity, however subject as well to availability of sufficient raw material for the batteries, specifically lithium.

Lower cost of batteries will expand the business case for larger renewable energy shares, so that an expansion of the initial project can be done as soon as the cost for this project reaches target levels. Another aspect is the cost of fossil energy: the prediction of the fossil fuel price development of the next years, and also the potential for a carbon tax will impact the fossil-based energy cost. This can improve the business case for renewable significantly.

From my perspective, it is therefore beneficial to maximize the renewable share within the commercial criteria of the initial phase, and “pushing the envelope” going for a reasonable profitability rather than making the highest IRR the decisive criteria.

Phasing in more renewables going towards higher renewable generation makes sense for mines with sufficient life of mine and/or reliable prospects of expanding the operations with new resources.

E+M: What are the key takeaways from mining hybrid solutions in operation?

MS: The Dornier Suntrace experience is related to our off-grid project at B2Gold in Mali. Our takeaways from the mining hybrid solution in operation are, that the solar & battery deliver to expectations and the predicted performance has been achieved over a full year of operation. The operations have quickly mastered the switching off of engines during solar hours and getting them back online again, and if the solar project would be larger, even more engines would have been switched off. The battery provides a reliable spinning reserve and stabilizes the island grid at the mine, so it has additional benefits of just smoothing the solar fluctuations. It covers for engine trips and mill trips, and also supports the grid for starting up the mill without requiring an additional engine just to handle the inrush current.

And from the commercial aspects, it has been an excellent hedge against the steep increase of fossil fuel cost, and the fuel savings have increased leading to a faster pay back of the investment. The solar project saves roughly 20% of the fuel in annual average. This case proves that such a size of hybrid works, and it also shows that larger renewable shares are feasible from an operational perspective, not only in theory.

E+M: What are some of the considerations for mining companies when looking to integrate higher penetration renewable energy and storage systems for their sites (i.e. up to 80%)?

MS: Power consumption for the mining operations constitutes only 30-60% of the mine’s CO2 emissions, the balance relates to the vehicles operating in the mine, depending on the specific mine set-up. Accordingly a large component of decarbonizing mining operations will have to focus on the vehicles. This is a more complex aspect, as the solutions, be it electric or hydrogen driven vehicles, are both not in serial production. Thus it is not clear which of them will prevail, and how much additional green electricity these would require on top of the mine operations.

It seems likely that the deployment of electric vehicles may be faster compared to green hydrogen solutions, as these can be integrated with on-site renewable power generation and have a better renewable-to-wheel efficiency. Implementing a green hydrogen infrastructure will be more complex and may also be more costly.

Even though the cost for solar and for battery storage have increased since 2020 levels, due to Covid and energy crisis, the cost benefit of renewables has grown further. Specifically, because fossil fuel cost has gone up even more. Compared to 2020 levels, implementing a solar project and thus hedging part of the fossil fuel cost has proven a very successful strategy.

In addition to the cost benefits, renewable energy delivers carbon reduction targets. And for mines where the carbon emissions are very high, specifically on off-grid mining operations, the economic benefits of renewables are very high, thus enabling a larger renewable share and a greater profit margin.

The 80% objective is however only within commercial reach in the near term, if using wind energy is an option. Combining wind and solar can allow 50-80% renewable energy share at competitive rates, depending on the solar and wind resources, and best for a longer life of mine.

E+M: What are the biggest challenges in trying to realize 100% renewable energy mining on the road to net-zero?

MS: Let me respond by assuming that 100% renewable energy is defined as the physical achievement of renewable energy supplying 100% of the consumption in real time, which can include the use of energy storage. But not balancing the fossil generated power with renewable generation at another time or another location.

This 100% renewable objective requires the alignment of all energy consumption on site to be based on renewable energy. This refers to power consumption, vehicles and other energy uses, even process heat, where applicable. It will also involve demand side management and energy efficiency improvements.

It might be easy to achieve when you can have your electricity supplied from a hydro power station that covers all demand. However, if this is not the case and you have to build or contract the renewable generation, it will be quite challenging to achieve this at competitive rates.

Technically 100% renewable energy supply is possible, but for example in an island grid, the last 20% of consumption will be at times with low renewable generation, will need a huge oversizing of generation capacity and storage capacity to fill these gaps. This will come also with a big additional cost and will affect the cost of renewable power overall.

With cost of renewables reducing, the commercially competitive share of renewable energy will grow. So I am confident that a cost competitive 100% renewable generation will be a solution we will see in some years, but not at today’s cost range.

Martin Schlecht is presenting Costs, Technologies, and Trade-Offs of High Penetration Renewables, at the Energy and Mines Toronto Summit, Nov 1, 2022

THE ECONOMICS AND PRACTICALITIES OF RENEWABLES ON MINES SITES