Reaching the Tipping Point: Why Investing in Hybrids Makes Economic Sense for Mines Today

Vishwanathan Iyer, Head of Business Development, Hybrid and Energy Storage at Sterling and Wilson, shares his views about the evolving economics of renewables in mines, and makes the argument that the storage price curve has reached its most attractive point yet.

According to Iyer, while price is one of the key drivers to integrate renewables in mines, solar alone is no more the lone influencer. “While solar plays a major role in decreasing costs for mines, storage is what enables the maximum savings, by interacting with both the solar and the diesel generation,” he says. In the short term, storage manages the reserve requirement to allow for greater instantaneous solar penetration and increases the diesel fleet’s efficiency.

If the fundamental value proposition allows, storage can also shift solar energy to the evening hours to offset even more diesel. And while solar prices have already dropped significantly, Iyer believes the best economics are yet to come with the addition of storage which will allow mines to further offset diesel without sacrificing power reliability.

“We have seen the cost of storage decline in the past 18 months to levels where this is now a strong value proposition,” Iyer notes. The cost decline is now slowing down to the point where the savings derived from deferring investment no longer outweigh the benefits of the solution, Iyer adds.

“The common wisdom four to five years ago, when the price of storage was declining rapidly, was that the decline in costs would outweigh the deferral of the benefits, and rightly so,” he explains. “However, the present-day scenario suggests that the expected savings from these declines are not sufficient to outweigh the benefits. If you are consuming diesel to power your facility, the time to deploy a new solution is now.”

Additionally, solar and storage can be used as a hedge to protect mining operators from the uncertainty of diesel pricing and transportation costs. As Iyer points, “Solar and storage allow these costs to be both fixed and at a rate lower than diesel which gives these mines a competitive advantage in their respective offtake market.”

CAPEX VS OPEX

Beyond the typical fossil fuel-based energy supply, the factors influencing renewables integration can be split into technical and commercial, with the structure of the latter typically driving the economics to a larger degree, Iyer explains. On the technical side, the types of load, number of large loads and how these loads are used and dispatched have an impact on the system’s sizing and utilization. However, in the case of mines, the future yield and life of the mine is not certain, and neither is the future load growth.

“Conventional mine power solutions are CAPEX light and OPEX heavy, whereas greener and less expensive solar and storage alternatives are CAPEX heavy and OPEX light – just the opposite,” Iyer observes. “Finding the right balance between ownership of assets and contract life is absolutely essential because its impact on the economics of energy far outweighs the technical considerations.”

Another issue is that mines are typically placed in remote areas with harsh climates and have incredibly demanding load profiles. As a result, mines require the most advanced solutions wherein the reliability of the system is paramount. “Either renewable energy or fossil fuel as a silo asset without taking into consideration their operation in conjunction with other assets including batteries is just not enough for mining facilities,” Iyer notes.

TAILORING THE SOLUTION

Sterling and Wilson typically works closely with clients to tailor their hybrid solutions to suit the underlying need of each mine. The aim is to achieve optimum asset utilization and maximum renewable energy penetration without compromising on reliability and a credible operation strategy for various assets within the hybrid system.

As Iyer notes, they offer solutions in line with clients’ needs by analyzing the load requirements and future load forecasts, and considering energy and financial models to find the best solution.

Being a $1.5 bn strong business group allows them to bring a lucrative commercial offering to the table, which makes all the difference for a mining project. They also have the ability to offer flexible integration aided financing solutions.

“Unlike either renewable energy or fossil fuel players addressing the mining sector, our approach to hybrid solutions stems from our holistic mindset backed by combined global expertise of having delivered on turnkey basis close to 10 GW of solar, diesel and gas assets, which are a great mix of both fossil and non-fossil fuel-based assets,” Iyer says.

As Iyer points, the company’s range of hybrid and energy storage solutions for mining operators meet the industry’s requirements across the various stages of development including structuring needs to proving feasibility, then onto concept design and project development support, to implementing the solution.

PHASING IN RENEWABLES FOR MINES

To avoid impacting operations, Iyer advocates for a phased construction and gradual integration of renewables for operating mines. “The biggest piece of learning from potential clients is that if you don’t understand their current fossil fuel-based generation and its current and future asset operation strategy (if any already planned), there is no way they will be comfortable with your renewable solution,” he says. “The good news for us at Sterling and Wilson is that as a diversified solutions provider with expertise in heavy fuel oil and diesel, we fully understand these concerns.” Geographically, the company has identified parts of Latin America, Canada, Australia and Africa as focal markets. Africa is a particular area of interest, since Sterling and Wilson has over four decades of experience and a strong local presence that allows it to notice opportunities that might otherwise be extremely difficult to track.

“In other geographies such as Western Australia, and parts of Latin America and Canada, our strength of balance sheet plus our market approach and divisional focuses enable us to more than just match up to our capabilities in Africa,” Iyer says.

In Australia, the company is supporting miners in Western Australia and Queensland to solidify their approach towards adoption of hybrids, as well as helping them develop a similar approach for their foreign mining assets. In Latin America and Canada, Sterling and Wilson is currently focusing on renewable integration or fossil asset hybridisation for various mid-tier precious metals mining leaders