Energy and Mines Issue 4

NOVEMBER 7 - ISSUE 4

IFC

TALK BANKABILITY

THE 5 STEPS

FOR INTEGRATING RENEWABLES IN MINES

POWER SECURITY AND PAYBACKS ADVISIAN ON HYBRIDS

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FINANCING FRENEWABLES FOR MINES

FINANCING RENEWABLES FOR MINES IFC PROVIDES INSIGHT ON DELIVERING BANKABLE PROJECTS

By Melodie Michel, Energy and Mines

Sean Whittaker, Senior Renewable Industry Specialist at the International Finance Corporation (IFC), explains why bankability is a challenge for renewables for mines projects, and would help ensure project financeability.

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FINANCING FRENEWABLES FOR MINES

“There’s a bit of a culture clash between the world of mines and the world of independent power producers [IPPs]; it’s hard for each to understand the other’s needs and requirements,” Whittaker tells Energy & Mines. According to him, this lack of understanding often results in the poor structuring of tender processes, and low bankability of projects.

“The main barrier is actually unfamiliarity: renewable energy is not necessarily part of the core business for a mine,” he comments.

“They are aware of the opportunity that renewables represent, but they’re not necessarily familiar with how IPPs work; how power contracting works. They don’t know the major

players and developers of renewable energy projects, the equipment suppliers, the contractual norms, and what constitutes a bankable offtake agreement.”

EFFICIENT STRUCTURING There are two ways that mines can achieve renewables integration: the first is to enter into a Power Purchase Agreement with an IPP who finances, builds and maintains the renewable power plant. The second is for the mine to finance the plant themselves and have it built by a third party. Both present challenges: in the first instance, the mining company needs to structure the deal in a

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bankable way, so that the IPP can receive the financing to build the project. In the second case, the miner needs to know a lot more about renewables contracts, sizing, operation and maintenance.

“IFC has been investing in both power and mining since our creation in 1956 so we’re very familiar with both options, and that provides us with a niche capacity,” comments Whittaker. “If a mine is interested in contracting an IPP, we can help to structure the tender and provide financing that comes out of that tender. If they want to build [the power facility] themselves, we can finance the mine at corporate level or at mine level, and then we can assist with the procurement.”

The World Bank Group’s Scaling Solar program is a great example of what can be achieved with the right expertise. Launched in 2015, the initiative brings together a suite of World Bank Group services to make privately-funded solar projects across Africa viable and competitively-priced.

Under this program, the World Bank engages with governments, runs tenders, and provides document and finance support. Through Scaling Solar, solar energy projects were awarded at 4.3 US cents per kWh in Senegal, and 4.8 US cents per kWh in Zambia. In comparison, notes Whittaker, many off-grid mines spend well over 15 cents per kWh on their power, with energy representing up to one-third of operating costs, according to Whittaker.

“These are very cheap prices that we were able to get because we worked with governments and utilities to develop bankable documents and a bankable process, and there’s no reason that we can’t do the same thing with mines,” he says. “This shows that you can get cheap reliable electricity if you understand what is bankable in the world of power.”

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ECONOMIES OF SCALE IFC is engaged with a number of mining majors to provide support either at a corporate or at the mine level, and one of its strategies to achieve bankability is to expand the scale of the power projects. “By providing financing at corporate level, that then flows down to a series of smaller mines,” says Whittaker. “In larger mines it’s easier, as you have the size you need in order to get the economies of scale to drive down the price. With a smaller power demand, it can be a bit of challenge getting a cheap price, unless you aggregate a number of mines together.”

FINANCING FRENEWABLES FOR MINES

“In larger mines it’s easier, as you have the size you need in order to get the economies of scale to drive down the price. With a smaller power demand, it can be a bit of challenge getting a cheap price, unless you aggregate a number of mines together.”

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A lot of the organization’s focus has been on Sub-Saharan Africa and Latin America, where off-grid - and sometimes even on-grid power is expensive and often unreliable. “In those cases, the economics immediately make sense,” he adds.

With the successes of Scaling Solar, IFC is hoping to set an example that can be replicated to offset the estimated 6 GW of off-grid diesel consumed in mines around the world.

“It’s a matter of setting up your procurement and running the process so that you attract leading players to the market, which in turn leads to competitive prices. If you structure it properly, you get a very good result, but if you structure it poorly and companies perceive a lot of risk, they will not necessarily bring their best prices,” Whittaker says.

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It’s also important to bring governments to the table, as both the mining and the power sector are heavily regulated. Furthermore, there is often government interest in power development for mines, as it can result in the electrification of surrounding communities. “It’s critical to bring everyone to the table,” he adds.

“It’s a matter of setting that first example that others can follow in the realm of renewables and mines, showing what can be done on large-scale,” adds Whittaker. “If perceived risks are fewer, the momentum will pick up this is what we’re excited about.”

“The economics make sense, it makes sense from a sustainability perspective, and it’s such an obvious opportunity for mines to reduce their power costs and reduce their emissions,” Whittaker concludes.

FINANCING FRENEWABLES FOR MINES

“It’s a matter of setting up your procurement and running the process so that you attract leading players to the market, which in turn leads to competitive prices.”

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300 +

50 +

Attendees

Speakers

20 +

100 +

Exhibitors

Mines

SPONSORS

HTTP://WORLDCONGRESS.ENERGYANDMINES.COM EMAIL: ANDREW.SLAVIN@ENERGYANDMINES.COM CALL: +1 613 627 2787

DEFINITELY A GREAT CONFERENCE WITH A MATCHUP OF BOTH RENEWABLE DEVELOPERS AND STORAGE OPTIONS FOR MINING COMPANIES TO REVIEW. A PREMIUM EVENT TO SEE THE LATEST INNOVATIONS IN BOTH THE ON GRID AND OFF GRID OPPORTUNITIES. GOLDQUEST MINING

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STEPS FOR INTEGRATING RENEWABLE POWER IN YOUR MINE ENERGY MIX

Jon Lyons, Vice President, Regulatory Affairs and Strategy, Erdene Resource Development Corporation.

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5 STEPS FOR INTEGRATING RENEWABLE

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DETERMINE MINE ENERGY COSTS

Energy is an important cost component of any mine, and its security and reliability are critical to future mine profitability (see ARENA handbook ). During exploration, limited information about power is available, such as distance to grid and cost per kilowatt-hour.

As potentially economic mineral resources get defined, a preliminary grid viability analysis should be undertaken, including peer mine energy mix review, helping understand whether a potential future mine is most likely on-grid or off. Renewables may offer potential benefits in both settings.

Why don’t more mine plans use renewable power as a base case? While there may be technical hurdles, developers can seize the upside of renewables by asking the right questions early in the mine life cycle.

These five simple steps help new mines increase the likelihood of successfully financing renewable power starting from first ore production.

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Determine mine energy costs Assess the mine’s risks Walk the talk Build relationships Attract investors

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ASSESS THE MINE’S RISKS

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WALK THE TALK

Renewable power supply directly influences the project’s risk profile, from financial considerations to permitting and environmental impacts. A diversified generation mix is often more secure and resilient vis-à-vis volatile grid or diesel generation options. Fossil fuel energy systems are also subject to spills, environmental liabilities, and even future carbon pricing – all of which impact the mine’s footprint and greenhouse gas emissions.

Renewable power can boost the mine’s environmental compliance and ensure timely permitting, while contributing to national climate change policy goals and generating benefits for local communities.

Companies are under growing pressure to demonstrate their benefits to society, not just shareholders. Reputations can make or break a new mine. Since mines will provide the materials needed for a greener future, mines can become part of the solution by using renewable energy in their operations.

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BUILD RELATIONSHIPS

For an environmentalist or elected representative predisposed against any new mines, what if the mine could help them to generate clean energy, make energy cheaper, or spark innovation in local industry? Renewable power can bring benefits to local communities and national energy grids alike – such as better grid stability and lower cost electricity. Realizing these benefits often requires long lead times for consultation, policy support, and public investment decisions that extend the benefits of clean energy from mine site to local village and even the nation.

New mines must lead by example, paving the way for diversified, low-cost, hybrid energy mixes in their host communities.

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ATTRACT INVESTORS

Investors and financial institutions consider environmental and social impacts as part of their investment evaluation. Equity and project financing require early, ongoing assessment and regular communication around key issues – especially the environment, climate change, and social impacts. Renewables not only boost a future mine’s profitability, they help drive its operation’s environmental management and social acceptance. Green-focused investors can be sources of some of the highest quality, lowest cost capital for your project’s execution.

In its most urgent call to action to date, the UN’s climate panel asserted last month that global carbon emissions must peak by 2030, if the catastrophic predictions on climate change are to be averted (IPCC 2018). Mining consumes an estimated 6-7% of global energy, often from carbon intensive sources, such as coal (IEA 2017). In addition to providing the raw materials to support the green energy transition, the industry has a role to play in reducing its environmental footprint.

Integrating renewables into the mine power supply mix will go a long way to increasing the benefits of mining and positioning mining as a part of the solution.

Jon Lyons is Vice President, Regulatory Affairs and Strategy of Erdene Resource Development Corporation (TSX: ERD, MSE: ERDN). Follow ERD on Twitter.

Mongolian Landscape. Picture courtesy of Erdene Resource Development Company 15

Source: Synergy 16

THE VALUE OF POWER SECURITY

THE VALUE OF POWER

SECURITY CAN SHORTEN PAYBACKS FOR MINING HYBRIDS

By Melodie Michel, Energy and Mines

As the cost and performance of Distributed Energy Resources (DER) keep improving, it’s no longer a matter of whether mines should integrate DER, but what type and in what configuration. To determine that, Tristan Jackson, Director, Smart & Distributed Energy at Advisian, explains that location is a key consideration - and that specialized software can solve the problem of determining the optimal energy system, for any given location, while achieving an attractive payback period.

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100% RENEWABLES

One challenge with mines, says Jackson, is that they tend to have a shorter time horizon for the energy investment they’re willing to make, as compared to other infrastructure.

This is because mining in general ramps up and down quite quickly with changes in the commodity markets, and mine sites may have uncertain reserves. In contrast, facilities like hospitals, university campuses, or even military bases plan to stay in place for a long time, and can more easily accept longer payback periods for energy infrastructure. In contrast, mines tend to not look beyond five years.

“Due to the volatility of the industry and uncertainty of reserves at a given site, mining companies usually look for very short payback periods from onsite energy systems, while renewables or systems like microgrids typically have payback periods of more than five years, when considering only the market value of electricity,” he adds.

Even with the dramatic price drops achieved by the renewable energy and DER sectors in recent years – such as cost reductions for batteries of about 80% over the past seven years – and the performance improvements in various energy storage and microgrid technologies, the payback period, looking only at energy, may remain longer than five years.

However, as Jackson notes, this simplified calculation often omits crucial information that can significantly change the Levelized Cost Of Energy (LCOE): that is, the value of reliability.

DETERMINING RELIABILITY COSTS Jackson gives the example of a recent project Advisian completed which involved assessing energy storage for a mine. Located at the end of a long transmission line, in a lighting-prone area, the site suffers regular power interruptions. “What we’ve shown in our study is that 18

the frequency and duration of outages they were experiencing over the year was costing them in the millions of dollars of lost production,” Jackson reports. “So when you account for the value of improved reliability provided by onsite energy assets, and being able to operate without interruptions, that can shorten the payback period to under two years.”

Depending on where they are located, mines using conventional, fuel-only power generation can also face high fuel transportation costs and fuel supply reliability issues. Jackson explains that some mines in Canada, which rely on trucking in diesel, have recently experienced such a freeze-out in the winter that roads become impassable, and they had to turn to bringing the diesel in helicopters, at an extremely high cost. Factoring in the risk of fuel supply insecurity, costs incurred when roads are impassable, or lost production when transmission lines get struck by lightning ,can dramatically shorten the payback period of an on-site renewable plus storage system, he notes.

When it comes to choosing the right system, location again plays an important part. “We have done energy systems involving wind energy, storage, and conventional engine backup in places as harsh as Antartica,” comments Jackson. “The temperatures going down and the sun being unavailable for part of the year doesn’t mean you can’t do a hybrid energy system with a significant portion of the generation coming from renewable, locally available resources. It just changes the mix of technologies.”

Another issue to consider, adds Jackson, is the way extreme temperatures affect conventional battery storage. Most lithium-ion chemistries and lead-acid batteries do not do well at temperatures far below 0°C or far above 40°C. In those cases, other energy storage technologies, including flywheel or compressed air energy storage, or other battery

THE VALUE OF POWER SECURITY

“Due to the volatility of the industry and uncertainty of reserves at a given site, mining companies usually look for very short payback periods from onsite energy systems, while renewables or systems like microgrids typically have payback periods of more than five years, when considering only the market value of electricity.�

Source: Verve Energy 19

chemistries, may be a better option.

“In extreme environments, it can be more expensive or more technically difficult to achieve locally self-supporting power supplies, but that doesn’t mean it can’t be done,” adds Jackson. “But more important than going 100% renewable, including a portion of renewable generation and energy storage technologies along with conventional generators almost always presents cost advantages over a straight fuel-based power system, even in harsh conditions.”

TECHNOLOGY FOR ACCURACY In the process of choosing the right system for a mine, certain software applications can make all the difference, notes Jackson. In August this year, Advisian signed an exclu-

Source: Synergy 20

sive partnership with XENDEE, a technology company that developed an advanced toolkit for microgrid and distributed energy system design and optimization. As Jackson notes, the software makes it possible to achieve a 90% reduction in time and costs for energy system feasibility studies and design.

“We can take a load profile [that is, the energy use data of a mine], the amount and type of energy demanded by any facility, and based on that and where it is on the map, we can very quickly assemble the optimal set of technologies. Typically, the pre-engineering studies for this could take weeks to months, and we’re able to do them in hours to days,” explains Jackson. “This is the world’s most advanced end-to-end integrated platform for the technical and economic optimization of distributed energy systems.”

THE VALUE OF POWER SECURITY

“The temperatures going down and the sun being unavailable for part of the year doesn’t mean you can’t do a hybrid energy system with a significant portion of the generation coming from renewable, locally available resources. It just changes the mix of technologies.”

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For example, adds Jackson, a mining client in Latin America was recently looking to assess the efficiency and cost-effectiveness of different energy systems. Specifically, building a transmission line versus investing in a 5 MW hydro dam; or integrating solar panels with with gas engines and energy storage.

As Jackson reports, considering factors like reliability, the value of lost production in the event of interruption, and weather conditions, Advisian - with the help of the XENDEE software - was able to quickly determine that solar combined with gas engines and storage was the right option, reports Jackson. Additionally, Jackson adds, Advisian were able to identify the optimal type and sizing of each of these three technologies, and gave a projection of upfront and lifetime aggregated costs.

In 2017, the XENDEE software was used to design a remote standalone system that would be installed over a five-mile radius, comparing solar, storage, and two types of

Source: Synergy 22

diesel generators, Jackson adds. In part, the study aimed to determine how best to mitigate the effects of weather conditions such as fast-moving clouds, which can affect the power output from PV panels.

“Going in, we thought by placing the solar centrally and putting batteries near by, we could achieve the best overall costs and efficiencies, but that turned out not to be the case,” he says. “What we found instead was that distributing the solar installations into several different arrays spread over the fivemile radius helped mitigate the weather conditions more cost-effectively.”

The study also revealed that batteries were uneconomical for this site, given the costs of the batteries at that time. “The results of the optimization study were somewhat surprising, not something we would have guessed without XENDEE to support decision-making,” concludes.

THE VALUE OF POWER SECURITY

“But more important than going 100% renewable, including a portion of renewable generation and energy storage technologies along with conventional generators almost always presents cost advantages over a straight fuel-based power system, even in harsh conditions.”

THERMAL REQUIREMENTS: THE FIRST SOURCE OF EFFICIENCY GAINS Another key point to consider when choosing an energy system for a mine is thermal requirements. In most cases, fuel is unavoidable to meet this thermal load. This is why Tristan Jackson, Director, Smart & Distributed Energy at Advisian, believes standalone systems using 100% renewables are nowhere close to happening in extreme environments. “We may well see more of these being built over the next decade closer to the equator, especially in Africa and Latin America,” he predicts.

But the efficiency of the fuel used for heating or cooling can be greatly improved by adding co-generation. “If you’re looking at fuel to thermal only, you’ve got fuel efficiency of perhaps 60%,” Jackson points. “If you add electricity generation, you can get fuel efficiencies above 90%, so right there you can provide some electrical power for the mine by taking advantage of the fuel that has to be consumed anyway for thermal purposes.”

According to Jackson, “This is one of the first places that we look for efficiency gains, and then, with that, conditions-depending, we would make the right choice of renewable and storage technologies to complete a hybrid system fit to purpose for a given mine site – optimized, of course, with the help of the XENDEE platform.”

“So when you account for the value of improved reliability provided by onsite energy assets, and being able to operate without interruptions, that can shorten the payback period to under two years.”

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