Renewable energy’s share of the electricity market is growing and that could be a good thing for miners
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Within the span of only a few years renewable power has grown from supplying a fraction of the electricity used by Australians on a day to day basis to more than 25% of the national grid.
In South Australia, where wind power’s share of the market has risen sharply over the past decade, around 60% of the State’s electricity needs were serviced by renewables in 2020.
The new head of the Australian Energy Market Operator, Dan Westerman, even used a speech this month to say the AEMO was working on how to prepare a national grid that could host 100% renewable penetration by 2025.
But supplying power for remote mine sites, heat intensive processes and heavy industries is more complicated.
Given the remote location of most mines, that poses some questions for the industry, especially as pressure grows on companies from investors to run their operations sustainably and reduce carbon emissions.
While proponents like Fortescue mining magnate Andrew Forrest are bullish about green hydrogen, exactly how and when that will happen at a cost competitive rate is still unclear.
While mining companies have dabbled for a few years in building their own small scale solar and wind farms onsite, some miners are able to source power from the grid or power purchase agreements with existing renewable developments.
As the penetration of large scale wind and solar increases, the idea a company connected to the grid could cut its emissions by capitalising on the investment already made in the energy transition is becoming more apparent.
It is the path that Australia’s third biggest gold miner Evolution Mining (ASX:EVN) is looking to take to get to its net zero by 2050 target, with half of its emissions generated by the 300,000ozpa Cowal mine in New South Wales.
Jake Klein told analysts on a conference call this month the increase in renewables penetration on the grid and construction of the nearby interconnector between Wagga Wagga and Robertstown in SA meant Evolution would focus on grid connection as its ticket to lowering its carbon footprint.
Iron ore developer Magnetite Mines (ASX:MGT) is aiming to leverage its location around 130km from Robertstown to draw on renewable power and reduce energy costs at its proposed Razorback magnetite project in South Australia.
A study on the project back in 2013 under different management put a US$1.5 billion price tag on the development.
The preferred option in the new PFS, which projects a capital cost for the Razorback project of US$429-$506M, would involve the installation by ElectraNet of a 132kV transmission line from the Robertstown substation.
While it would provide the company with an estimated 60% renewable power supplytoday, by 2024 when the mine is due to open, the renewables intensity of the South Australian grid will likely be considerably higher.
“This sort of level of renewables nine or 10 years ago would have been unheard of,” Magnetite Mines chief development officer Stephen Weir said.
“The trend has been significant towards renewables, and I have to confess to historically being a sceptic, but you can get reliable renewable supply at very competitive prices now.
“You’re almost driven to a renewable solution and not only is it good for the environment, it’s good economics at the moment.”
The other benefit of being connected to the grid, Weir said, would be access to market prices for energy, while the initial cost of the transmission line will be paid off via a long-term transmission charge through operating cash flow.
Weir also believes the aforementioned interconnector will reduce power and price volatility.
“The other thing we’ve got in our favour is because we’re connected into the grid it is a very low forecast energy price,” he said.
“Energy being supplied to us at Robertstown is in and around the 6c/kWh mark.
“Energy is a very large component of our operating costs and being able to obtain energy at those sorts of price levels is going to give us a real competitive advantage so we’re pretty happy about the way the energy plan is working out for the project.”
Magnetite Mines is not the only junior iron ore player looking to bring ESG credentials to the table.
Fellow SA iron ore hopeful Iron Road (ASX:IRD), for instance, is a partner in the “green manufacturing hub” proposal at Cape Hardy.
With banks and other finance providers themselves facing pressure over their support for high emissions industries, having a strong ESG platform and a plan to reduce emissions is becoming increasingly important.
“We take our ESG credentials very seriously and we will be definitely maximising the renewables content that we can for our site,” Magnetite’s Weir said.
“It looks like we’ll have a very high renewables content, which it seems we can achieve without any form of cost penalty; it feels like we’re going to get market pricing for power with a very high renewables content.
“That will just eliminate any potential roadblocks from financiers in relation to looking at renewable energy for our project.”
Other mining executives, like nickel miner Mincor Resources’ boss David Southam, believe there may even be a pricing split, where end users looking to reduce emissions in their supply chain will be willing to pay a premium for sustainably produced commodities.
At Stockhead, we tell it like it is. While Magnetite Mines is a Stockhead advertiser, it did not sponsor this article.