Australian miners’ refreshing approach to renewables

Matt Bowen, partner at Jackson McDonald

Considering the lack of carbon policy in Australia, the mining sector’s drive to integrate renewables into its power mix is refreshing proof that going green is now simply smart business.

In 2018 alone, 35 large-scale renewable projects were completed in Australia. The large majority are owned by renewables developers or independent power producers (IPP), with the exception of Sun Metals’ 125-megawatt solar farm in Queensland.

And although Australia still lags behind the United States in terms of corporate power purchase agreements (PPAs), the green electricity generated by these projects largely ends up in heavy industry’s operations, via a utility or grid provider.

In mining specifically, there’s been a flurry of renewables activity: just last month, Gold Fields announced a partnership with Aggreko to install a hybrid solar and battery generation system on its Granny Smith gold mine in Western Australia. In 2018, miners like Image Resources, South32, OZ Minerals and New Century Resources all invested in renewable projects or signed PPAs with solar or wind IPPs.

And the green buzz is not limited to mining: oil and gas company Santos announced in December that it will roll out 100 per cent renewable energy to power its oil well operations in the Cooper Basin, by converting beam pumps on oil wells to solar and batteries at 56 sites. Food manufacturer Mars Australia has signed a PPA with Total Eren for the purchase of solar energy from the Kiamal project, currently in construction. And steel conglomerate GFG Alliance is making headlines with its $US1 billion ($1.39 billion) plan to transform the Western Australian town of Whyalla into a gigantic green industrial hub powered by a 280-megawatt solar farm and the world’s largest lithium-ion battery (120 megawatts).

“I don’t think there would be any developer considering a substantial new building, subdivision or industrial estate in Australia who is not thinking about putting some renewable energy into their site, running it as a microgrid, taking the whole site behind the meter and doing the various things that lets them do,” says Matt Bowen, partner in the energy and regulation practice of Jackson McDonald.

Economic drivers

Many factors have led Australia to this turning point. First, the country’s skyrocketing energy prices, partly due to rising commodity costs for natural gas and black coal, and partly blamed on poor management of its energy transition towards cleaner power, have undermined the competitiveness of its industry. The green transformation started with small-to-medium production sites in remote areas that had to truck diesel over hundreds of miles to power their operations, but it is now spreading to grid-connected facilities, which are benefiting from the renewable market’s relative maturity.

At the same time, solar and wind prices are the lowest they’ve ever been — cheaper than grid electricity. “The price of these resources has come down so much that we’re now at a point where the resources industry can not only viably look at using large-scale renewables for mining, but even for processing,” says Simon Currie, founder and principal at Energy Estate.

According to Dermot Costello, regional advisor, Western Australia, at the Clean Energy Council, the maturity of Australian IPPs is a key factor in de-risking renewable investment for miners and other industrial users. “IPPs are coming in with fundamentally low costs of electricity, which happens to be from green sources. It’s not the miners who are mandating the IPPs to integrate renewables, it’s the IPPs themselves that have been very forward-thinking in this space,” he explains.

For miners, procuring a renewable source of power simply makes good business sense, and carbon reduction is a nice bonus, or as Vincent Algar, managing director at Australian Vanadium Limited puts it, “a very helpful side effect”.

“If you were going to propose that to an engineer or designer, there’s the extra benefit of carbon footprint reduction and road transportation; those two things are critical,” he adds.

“If you reduce the diesel requirement by 30 per cent, then obviously you are reducing the road traffic to supply that energy by 30 per cent because all of that diesel is brought in by road.”

Recent developments in the energy storage space should make for an even better business case for renewables. Investments in batteries and other technologies by utilities and renewable developers are abundant — think about Aggreko’s acquisition of battery firm Younecos, or Alinta’s installation of a 30-megawatt battery at the Newman power station. And while lithium-ion still appears to be the preferred choice, many other options are likely to become more affordable in the near future. Sydney-based Gelion, for example, is revisiting the zinc-bromine chemistry and combining it with gel technology, to make batteries non-flammable and more versatile.

Alternative storage methods are also being actively explored: Toronto-based Hydrostor has just received approval to repurpose the Angas zinc mine outside Adelaide, where operations stopped in 2013, as a 5-megawatt advanced compressed air energy storage facility. And in New South Wales, the government has an ambitious pumped hydro roadmap of 24 projects totalling seven gigawatts of storage to back the rising level of renewables in the energy mix.

“Australia is an incredibly exciting place around the storage potential, and miners will be beneficiaries. Look at how quickly the electric vehicle market is developing: it encourages companies to set up new mines, but is also making better, cheaper batteries available to the them. There’s a very interesting circular economy going on here,” says Currie.

Elections and expectations

What is so unique about Australian industry’s tremendous investment in renewables is that it had nothing to do with regulatory requirements — in fact, Australia is surprisingly behind other developed economies when it comes to legislating for climate change.

“Australia’s climate and energy policy at a federal level has been the subject of terrible political controversy for the last decade — it’s caused the demise of five prime ministers — and we’ve been unable to get a coherent national policy; there’s a complete vacuum at the federal level,” explains Bowen at Jackson MacDonald.

Because Australia is such a huge coal producer, the idea of removing coal from the energy mix, or of doing anything to deter power providers from using it, has been seen as posing a potential threat to the country’s economic future. As a result, a small group of high-profile conservative politicians have successfully blocked the numerous climate measures suggested by successive governments over the years.

Now, with federal elections for a new parliament happening in May and November, and climate policies as a central campaign debate, many are hoping to see Australia finally taking a stand on environmental regulations.

“It’s going to be fascinating to see what comes out of the election: one side are promising a 50 per cent renewable energy target, and the other side is practically denying that climate change is happening,” says Costello.

The Australian Labor Party, the current opposition, is largely leading in the polls, and plans to establish a new Australian Environment Act and create a federal Environmental Protection Agency in its first term.

“We’re going to see a radical change in terms of the way Australia looks at renewables and incentivises them, should the current opposition win the election,” explains Algar at Australian Vanadium. “But even if the current government was dealt a blow but didn’t lose, the message would still be clear that they need to switch to a low-carbon economy and encourage the use of renewable energy more than they currently do.”

The push for green regulations is not just coming from communities: even industry associations in the resources sector, such as the Minerals Council of Australia, are calling upon government to come up with a climate policy.

“The fact that BHP has called for there to be a carbon mechanism — when it mines coal, produces oil and is a massive consumer of industrial electricity, all businesses you might expect to resist a carbon price — is an illustration of the strength of the support for a climate policy,” points out Bowen.

But if there was parliamentary resistance until now, there will likely still be some after the elections, especially as the result of the Senate poll in November is still unclear. Certainly, companies will continue to be able to enjoy financial support from the Australian Renewables Agency (ARENA), which has been a decisive factor in getting many existing projects off the ground in recent years.

Meanwhile, state governments have taken it into their own hands to legislate on the issue. Tasmania and the Australian Capital Territory have a 100 per cent renewable energy target set for 2022 and 2020 respectively.

Queensland and the Northern Territory have fixed an objective of 50 per cent renewables by 2030, while Victoria aims to reach 40 per cent by 2025. South Australia doesn’t have an official energy target, but is on track to reach 73 per cent renewables by 2020.

New South Wales and Western Australia are lagging behind in terms of targets, but both are seeing a strong pipeline of renewable projects, and Western Australia has come up with an ambitious roadmap for renewable hydrogen development.

What does the future hold?

Regardless of the election result and future policy developments, Australia is set to continue its transformation into a clean energy economy.

“There’s a sort of cross-pollination between mining and remote energy on one hand and distributed energy more generally on the other. The reason that’s relevant is that there is now a lot of technology sharing: they’re using the same technology, it’s modular, it’s scalable, and the coming together of the two sectors means that we get critical mass faster,” says Bowen.

This transition is likely to open up new opportunities for national industries: in a world where people are ever more concerned about the environmental impact of their purchases, putting a green certificate on minerals sourced in Australia will become a selling point — Apple’s decision to procure “green metals” for its equipment is a case in point. And while the country’s manufacturing base is currently small, it could grow significantly once powered by cheap green energy.

“When we started on this journey around small-scale mines to take them off diesel, it was just the very beginning of what I believe will rival what’s going on in Norway, where we’ve seen the large energy users swap to wind, or Iceland, where people bring their manufacturing because of hydro and geothermal resources — that’s what I think is the future,” says Currie.

Judging by mining giants BHP and Fortescue Metals’ forays into hydrogen technology, as well as the Labor opposition’s campaign promise to dedicate $1 billion to its development, it seems obvious that hydrogen will play a key role in Australia’s green future.

In fact, the groundbreaking coal-to-hydrogen pilot project that just received green light from the Environmental Protection Agency in the Latrobe Valley signals a willingness to move past the R&D phase. The project aims to transform 160 tonnes of brown coal into three tonnes of hydrogen over the course of a year, to then ship it to Japan via a specially designed boat. This kind of innovation may well reconcile Australia’s coal interests and environmental future for good.

Mining leaders are now preparing to meet with energy, finance, hydrogen and government experts this June 18-20 in Perth for the third annual Energy and Mines Australia Summit. This event will showcase the latest renewables and storage projects by mining leaders and includes a full day on hydrogen applications for mines.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.