Tracking the trends with Deloitte 3 – Power Costs

Deloitte have released a list of the top ten industry trends we can expect in 2015. With a number of challenges faced by the sector this year, it’s important to stay a few steps ahead and pay attention to the indicators. As we all know, the mining industry is cyclical in nature, and despite the ongoing commodities downturn after the mining boom, the upswing is on its way; it’s simply a matter of when we will start to see this resurgence.

Australian Mining takes a look at each of these ten tips from Deloitte to see what’s in store through this ebbing year in the mining cycle.

 

Over the past decade, power consumption by the Australian mining industry has increased by 60 per cent.

On top of that, the price of diesel continues to rise: For the time being oil prices are at a low, but for how long? Until now the prices have been climbing at a rate of 10 to 15 per cent each year.

From the perspective of health and safety, diesel comes with a raft of hazards, from environmental risks associated with transport over long distances to remote locations.

The World Health organisation has also declared diesel exhaust particulates to be carcinogenic.

All of this means it is very likely there will be greater focus on trying to reduce the cost of power generation through alternative sources, and companies have looked towards renewables for new answers.

A great many individuals still delight in attempting to cut down the virtues of renewable energy and the need to reduce man-made carbon emissions, but climate change has been recognised by the major miners and industry groups for several years.

People have criticised the reliability, ability to generate base-load power, and expensive capital costs of building infrastructure, but as renewable technology improves these arguments are steadily being disproven in the face of decreasing costs, and better, more reliable power generation.

Capital costs have significantly decreased for renewable infrastructure, especially in the field of solar photovoltaic panels, which are now half the price they were ten years ago.

Deloitte says despite the higher up-front capital costs of renewable infrastructure, the all-in cost of energy factors in lower operating costs and fixed energy prices, resulting in fuel saving anywhere from 10 to 40 per cent.

Systems such as hybrid power generators, which combine renewable energy such as solar or wind with diesel power have become very attractive to miners in remote areas, where the problem of intermittent power is answered by a backup source: Systems like this are already being used with great success.

Another benefit of adopting renewables is to enhance the environmental ethics of mining companies, winning their detractors over with responsible policies which provide for movement towards more diverse power sources.

Barrick Gold have already built a wind farm in Chile, and Rio Tinto have built the same in Canada, while Codelco uses a solar plant in Chile.

As companies come to adopt new technologies and adapt them to their site specific needs, the quality of power generation through innovative research and development will only strengthen the uptake of sustainable practices.

The biggest swing we are already seeing is the move towards LNG power plants, and construction of pipelines to bring the gas directly to site.

As part of the APA Goldfields gas pipeline expansion, construction of 293km of pipeline will begin in March 2015.

The new pipeline will extend beyond Murrin Murrin’s lateral pipeline to Anglogold Ashanti’s Sunrise Dam and Tropicana gold mines, to be used to fire power generation facilities.

The power stations at both mines will be modified to run on 100 per cent natural gas, while retaining diesel back up capacity.

FMG have also been planning major transitions to gas-fired power, readying for construction of the 270km Fortescue River gas pipeline which will deliver gas from the existing Dampier to Bunbury Natural Gas Pipeline to Fortescue Metals Group’s 125MW Solomon Hub power station, a project worth $178 million.

All of this forms part of FMG wider strategy to cut energy costs and cut emissions across their operations.

Deloitte have recommended companies consider a range of issues in determining the cost saving measures to be implemented for reducing project power expenditure.

These include managing energy as a portfolio within the organisation, by tracking the micro-detail of demand.

A detailed view enables identification of opportunities to use different fuels or systems.

While wind and solar are well known (and much-maligned by those who have failed to keep up to date with emergent technologies), there are other renewable options such as biomass, hydroelectricity (limited capacity in Australia, but certainly has applications for Australian companies abroad) and geothermal energy.

LMG has also emerged as a viable and cheaper fuel than diesel, and can be used for power generation and all forms of mobile plant.

Gas pipelines also preclude the need for long-distance road or rail transport of fuel.

Another aspect of cost saving to consider is the kinds of investment available from the government, particularly through the Australian Renewable Energy Agency (ARENA), which assists with funding and development of power generation technologies in the private sector with a view to reducing carbon emissions.

Leaving a smaller carbon footprint makes projects of all sizes more acceptable to community and special interest groups, and attracts the attention of key industry stakeholders and investors, especially given the recent trend for ethical ESG (environment, social, governance) divestment.

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