Owing to mining clients’ negotiation positions for renewable-energy power purchase agreements (PPAs) having improved considerably as renewables can be used with diesel generators in hybrid systems, the opportune time is now for them to pursue renewable sources of energy, says Germany-based sustainable energy consultancy THEnergy.
This is according to analysis conducted by THEnergy, which lays out the case for intensive energy users, such as mining operations, to pursue renewable-energy solutions, such as solar photovoltaic (PV) and wind, to power their operations.
THEnergy founder Dr Thomas Hillig bases this sentiment on the decreasing price of crude oil, which is soon to be followed by the price of diesel. “This development is triggered partly by the demand side, as China’s economy is not growing as quickly as expected.”
He adds that an “interesting development” on the supply side is becoming evident with the Organisation of the Petroleum Exporting Countries (Opec) being the major driver of the recent oil price tumble. “The price of the Opec basket of 12 crudes recently fell below $28.50/bl,” says Hillig, adding that a “dumping-like” strategy by Opec seems to be aimed at preventing long-term investment by other oil producing nations.
An oil price in the $20 range, he adds, means barely a dozen nations can produce oil economically.
In terms of solar PV- and wind-diesel hybrid applications, Hillig explains that the business case consists of partly replacing the expensive energy derived from diesel-based power generation technology with inexpensive solar- or wind-energy technology. “As diesel prices are falling, the equation seems to be no longer valid,” he says. However, upon closer examination, “we see that mining companies that typically have huge energy needs for their production processes can actually take advantage of the situation”.
Hillig says an increasing number of investors are willing to finance large solar- and wind-power plants at remote mine sites, and sell diesel reductions or electricity back to miners in so-called PPAs.
Further, Hillig notes that during periods when the oil price was high, investors were looking at much higher electricity prices in long-term PPAs. “High diesel prices gave the appearance that there was a large piece of cake to share between the mining company and the investor.”
In the case of PPAs, the electricity price is often fixed over a period of 20 years or more.
However, he states that many energy experts expect the oil price to recover quickly, because among other reasons, Opec leaders, such as Saudi Arabia, need the revenue from oil for their national budgets. In this regard, Hillig says it is clearly in the interest of intensive energy users, such as mining companies, to lock in low electricity prices over a long period.
Moreover, he says the business case for renewables at mine sites is often still advantageous. “Long-term investment decisions must take into consideration expectations about long-term developments.”
In reality, more and more renewable projects are now being developed at mine sites, but simultaneously, the falling oil price appears to be slowing project implementation.
Hillig states that mining companies want to experience considerable cost savings immediately. “With the current oil price development, it would make sense to commit to long-term PPAs even if renewable-energy prices can only match diesel prices. The cost savings will come in later, as soon as the oil price recovers.
“If mining companies wait to make their decision, it is likely that they [will] have to pay more for electricity from renewable resources – for the whole contract duration,” he concludes.