Cleaner air at mine sites! The rise of solar power and the demise of diesel generators: Corporate Policy or Economics?

Photo : Rio Tinto’s Weipa Solar Plant (2015)

THE GLOBAL PICTURE

Over the last couple of years in Australia Projects RH (see www.projectsrh.com.au), and in Asia and Latin America, Singapore based Tabatinga (see www.tabatingasg.com.au), have been working with parties to supply mine based or mine focused generation. In each case it had made economic sense. To make sense it has often required intervention in the market place by government.  

Tabatinga is currently working with an IPP (independent power producer) in Argentina who has been offered a 15 year offtake agreement by a mine, operated by an international mining group. The mine has a JORC measured resource which will at current production rates exceed 15 years of production. The power will be generated by a mix of solar and wind with battery storage.

Today the mining company generated power by burning diesel is sourced on the Eastern ports of Argentina and roaded to site in the Andes. Diesel in rising in price in USD, the freight is increasing in real terms in ARS (Argentine Pesos) but in and there are both financial and local environmental issues associated with burning more diesel than is necessary.

THE AUSTRALIAN CASE STUDY

This is a story we are also hearing in Australia at Projects RH (see www.projectsrh.com.au). These projects are often financed by of an offtake given by government. In 2014 Sandfire Resources achieved a 10.6MW plant built by Neoen of France but funded by a loan from the Australian Renewable Energy Agency[1]. The plant was

1)      34,000 panels

2)      20 ha of dedicate land

3)      6MW of lithium battery storage

4)      Loan AUD 21m with a return of about 5.5%[2]

Rio Tinto is receiving praise and criticism for is recently announced decision to expand its use of solar power to supplement / replace diesel generation. [3]

IT WORKS GLOBALLY TOO

Last year, we were in Cyprus, a team from Tabatinga were reviewing a copper project when we noted that the smelting operation was substantially relying on solar power. We asked the CFO why? His response was simple – we pay €140 a GWh for power. We only take what we cannot produce ourselves.

Rio Tinto has been a leader in the adoption of new technologies and working smarter – most of us remember the adoption of autonomous vehicles in the iron ore mines of Western Australia. It is important to remember that in 2015 Rio Tinto partnered with First Solar Inc ((NASDAQ: FSLR) and the Australian Renewable Energy Agency (ARENA) to build the Weipa Solar Plant – this reduced the diesel burn by 600,000 litres pa and reducing CO₂.by 1600 tonnes pa. [4] Rio Tinto’s contribution was a long term PPA (purchase power agreement).

What tips the scale for Rio Tinto in so many deals is it has an internal price of carbon (i.e.; an emissions charge).[5]  This model has been in place since 1998. This rate is not generally disclosed and like other assumptions changes with time.

The big news is Rio Tinto is now looking at applying this at twenty (20) locations.

WHY IS WORKING FOR RIO TINTO AND GLOBALLY

For Rio Tinto what have been the sound commercial drivers

1)      Falling cost and rising efficiencies of solar technology

2)      Many of their operations have excellent levels of sun for solar technology.

3)      It costs them little capital and the PPA reflects a loan investment cost of less than 6%. The loans are sourced from policy dollars including export credits. They give a PPA but not on Balance Sheet.

4)      An internal cost of carbon, which reflects the company’s views, but does go to the bottom line.

5)      Rising price of clean low sulphur diesel and its cartage cost to site.

6)      Litigation fears for not doing so.[6]

But as Emily Alford said to The Weekend Australian: “… solar generation cost about $200 a megawatt hour (installed capacity) five years ago, and had now dropped to about $70-80 now.”[7]

When all else fails Economic 101 wins!

By Paul Raftery (see www.paulraftery.com.au)

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[1]  These loans are generally made via the Clean Energy Finance Corporation. See CEFC Investment Policies, February, 2019, at www.cefc.com.au/media/402017/cefc-investment-policies-feb-2019.pdf

[2] ARENA via CEFC is required to seek a benchmark return of “…at least the five-year Australian Government bond rate +3 to +4 per cent per annum over the medium to long term. Performance against this benchmark will be measured before operating expenses.”(Source: www.finance.gov.au/australian-government-investment-funds/clean-energy-finance-corporation and the Australian Government 5 year bond rate is trading at 2.75%. (see: https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia accessed 21-04-19.

[3]  See Evans, Nick; “Renewables pushing silencing miners’ diesel generators”, The Weekend Australian, 20-21 April, 2019, pp. 23 & 27. (also at: www.theaustralian.com.au%2Fbusiness%2Fmining-energy%2Frenewables-push-silencing-miners-diesel-generators%2Fnews-story%2F35e6fef2b4ada89a955939830c947b03)

[4] Australia’s first commercial diesel displacement solar plant starts operation”, 29 Sept, 2015, (sourced: http://www.riotinto.com/media/media-releases-237_15777.aspx)

[5]  See https://www.riotinto.com/ourcommitment/downloads-24768.aspx Climate Change Report 2018, p. 23.

[6] Within Rio Tinto this concern is deeply practical and is based on experience with the US legal system.

[7] See Evans, Nick; “Renewables pushing silencing miners’ diesel generators”, The Weekend Australian, 20-21 April, 2019, p. 27

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