Renewables Economics in Australia is Making Energy Policy Less Relevant

DeGrussa Mine courtesy of juwi Renewable Energy

Australia’s lack of energy policy, and the uncertainty surrounding it are seen as slowing down investment in renewables. But even in this context, the sector has achieved a level of economic viability that makes it less reliant on subsidies and other green initiatives from the government. “As the cost of renewables is likely to decrease further, energy policy becomes less relevant as renewables can compete head to head with other forms of generation,” says Dave Manning, Global Head of Hybrid at juwi Renewable Energy. Overall, the company has now installed over 4.8GW of renewable energy projects around the world including off-grid, on-grid and behind-the-meter. We spoke to Manning ahead of the Energy and Mines Australia Summit to find out how the economics of green energy are changing for mining projects in the country.

Energy and Mines: Can you please provide us with an update on new projects with mining clients in Australia -- and globally?

Dave Manning: In the APAC region, juwi is currently constructing a 4MW solar project in The Northern Goldfields of Western Australia (WA) for a tier 1 mining company. We are also well underway with a 500kW solar/vanadium/diesel project on a remote island on the great barrier reef in Queensland. We have also been able to further increase fuel savings at the 10MW Degrussa Project in WA with our next level of hybrid optimization.

On the African front we recently signed an LOI to construct a 6MW PV project in Senegal with a tier 1 mining company. In South Africa, we are undertaking a detailed Study for a 50-60 MW Project with Orion Minerals.

Overall, juwi has now installed over 4.8 GW of renewable energy projects around the world including off-grid, on-grid and behind the meter projects.

E&M: What is changing in terms of the way the resource sector is approaching renewables integration?

DM: Renewable energy is now achievable at a lower cost than traditional thermal generation. Mining companies are looking at renewables as a way to reduce operating costs, whilst still being able to achieve 99.8% reliability.

E&M: Australia has seen a number of new projects by mines and industrial energy users using both remote and grid-connected renewable energy. What are the main drivers for industry to go for self-generation in this market?

DM: The key drivers are lower exposure to electricity price volatility, operating cost reductions, water savings, enhancement to their social license to operate and an overall trend to decarbonize operations.

E&M: Do renewables projects for Australian mines still require subsidies and support to get off the ground?

DM: We are very thankful for the funding support received for the Degrussa Solar Project. But today funding is not necessarily required for these projects. Renewables for mines is on a similar trajectory as on-grid PV projects over the last 5 years in that support will be unnecessary soon.

E&M: How is regulatory uncertainty in terms of energy policy in Australia impacting mining energy choices and renewables opportunities?

DM: Energy policy at a state-based level in some areas such as Queensland, the Northern Territory and Victoria with respective 50% renewable targets by 2030 is quite strong. From a Federal Government perspective, this will be dictated by the outcome of the upcoming election in May 2019, with the opposition government also seeking to implement strong national targets together with emissions reductions, though it is not clear at this stage how those goals will be achieved.

From a mining perspective, there is a generally held view that there will be a price applied to carbon at some point in the future though the timing is uncertain. In addition, as the cost of renewables is likely to decrease further, energy policy becomes less relevant as renewables can compete head to head with other forms of generation.

E&M: How has the drop in pricing for large-scale generation certificates affected the economics for renewables for mines in Australia?

Orion Minerals mine shaft courtesy juwi Renewable Energy

DM: Current projects assume zero value for large-scale generation certificates, i.e. the incentive to use renewable energy rather than alternatives. This makes the project economics more difficult when competing with coal, gas or diesel. However, the dramatic fall in the cost of renewables means that we are able to compete against these conventional technologies without subsidies on certain projects.

E&M: Are all mines now incorporating renewables as an option for greenfield sites?

DM: We are seeing a significant increase in the number of RFI/RFQs being released that have a renewable energy component. In some instances, where there is access to cheap gas, or the life of mine is very short, renewables are not a viable solution, however the cutoff point for economic viability is reducing every year.

E&M: How is it different, from an IPP perspective, developing greenfield projects vs. integrating renewables for an existing mine site?

DM: Existing mines often have PPAs already in place with asset owners for thermal generation that have a tariff in place that is structured around the existing assets. Structuring a new tariff and contract regime can be more challenging than with greenfield developments but it’s absolutely possible, as we demonstrated at our Degrussa project.

E&M: What about behind-the-meter renewables for mine offtakers in Australia, how do you see this market potential developing? Are there current projects for other industrial users that provide good models for mines?

DM: Yes, we see significant potential for behind-the-meter projects. We have been in discussion with grid-connected mines to supply wind or solar power and there has been one sizeable project by Sunmetals in Queensland. One important aspect is a complete power supply arrangement that combines renewable energy with on-grid energy. Another topic is contract tenor. This is less about mine life but about the duration of electricity supply contracts. The current structure for larger on-grid consumers is that they go into electricity supply tenders every two to five years, while a renewable energy project becomes significantly cheaper with longer contract durations.

E&M: Have there been any significant changes to the contract models/offtake agreements for these projects that make it more feasible for broader uptake by resource companies?

DM: In the past, it was viable only for large energy consumers to negotiate and sign power purchase agreements for renewable energy projects. Now there are examples where multiple medium-sized commercial offtakers have bundled their electricity demands. This reduces individual transaction costs, provides more power procurement options for more companies and does not require each and every offtaker to build specialized power contracting or trading expertise.

E&M: What do you see as the remaining barriers for miners to invest in renewables generation in Australia?

DM: In my view, carbon pricing and topics like the national energy guarantee and the overall energy strategy of Australia remain the most uncertain variables. More clarity would provide investment security to mining companies and their service providers and grow a world-class Australian export industry. The barriers for miners investing in renewables are getting smaller and smaller as the technology, cost reductions and reliability have now been proven. The Federal Government putting a price on carbon in some form would help reduce investment uncertainty. Mining engineering companies also have a role to play in ensuring that renewables are incorporated into project mining plans rather than retrofitted as an afterthought.