By Patrick Molloy, Caitlyn Bonney and Jessie Lund
It is no secret that the mine of the future must be vastly different from the mine of the past. With increasing fuel prices and social pressures, decreasing ore grades (PDF) and more complex energy challenges, mining companies must learn to navigate new terrain if they are to thrive in an ever-changing world.
A necessary major change is for mining companies to start thinking more strategically about the operations and inputs they historically have overlooked or taken for granted — things previously dubbed to be “noncore business.” Energy is at the forefront of these strategic shifts, as it is vital to all operations.
Energy procurement and consumption are areas that have a lot of opportunities for improvement as staggering inefficiencies have been common practice for decades. It is increasingly clear that mining operations cannot continue to burden nascent grids in developing countries or simply plop down climate and air-polluting diesel generators in order to power their extractive processes.
Simply put, the level of energy usage in mines is unsustainable. Societal pressures aside, mining organisations are struggling to overcome pervasive challenges to the industry, such as declining ore grades and increased stranded assets. These challenges underscore the need to make operations throughout the value chain much more efficient.
And luckily, there is plenty of room for improvement. According to a 2011 paper by Clareo Partners (PDF), “In the case of diesel power, which accounts for close to half of energy consumption, 30 to 40 percent of actual energy is converted to a productive output. This means that when accounting for mechanical losses and friction, only 12 percent of the energy is actually being converted to measurable work.”
Benefits for mining companies
Obviously, these extreme inefficiencies are a major threat to companies that wish to remain in business in an increasingly competitive industry. Seizing the opportunity to strategically address the inefficiencies can go a long way toward setting companies apart with regard to both climate and financial resilience. Increases in energy efficiency can lead to tremendous financial savings as energy costs can account for up to 30 percent of total expenditures.
Renewable energy, such as solar and wind, also presents an opportunity for mines to procure power that is not only cleaner but also increasingly less expensive than diesel-powered electricity, particularly for projects operating in remote locations.
Using renewable energy also presents an opportunity to contribute toward sustainable development goals such as the Global Goals for Sustainable Development, which include ensuring “access to affordable, reliable, sustainable and modern energy for all.” This goal is particularly relevant for mining companies, which tend to operate in remote locations and in developing countries, where energy access is quite limited. In fact, over 60 percent of global mining production (PDF) takes place in developing countries. And according to the International Energy Agency, as recently as 2014, 625 million people in sub-Saharan Africa (PDF) alone — over two-thirds of the population — do not have access to energy. Meanwhile, according to the World Bank, mining’s demand for power in Sub-Saharan Africa is expected to triple by 2020 from 2000, reaching over 23,000 megawatts (MW) (PDF).
The need to develop new power sources in developing countries, especially in remote regions, presents an opportunity to work with the communities in which the mines are operating to develop win-win solutions that supply the power necessary for mining operations while also creating long-term prosperity for communities.
Local community benefits
Not only does this shared purpose give mines a financial advantage, but it also helps them satisfy community demands in order to secure the essential “social license to operate.” Clean energy projects are able to increase energy access while also creating jobs and freeing up capital that mining companies can use to invest in community development projects that support regional education, public health, infrastructure and economic development priorities.
This type of community partnership is far from theoretical; indeed, multiple case studies exist that highlight the benefit of these projects. For example, Rio Tinto signed a power purchase agreement (PPA) for a new solar plant in Cape York, Australia, to help power its Weipa bauxite mine and associated township.
Rio Tinto general manager Gareth Manderson told The Australian, “At peak output, the 1.7 MW capacity solar plant has the capacity to generate sufficient electricity to support up to 20 percent of the township’s daytime electricity demand.” This solar plant is expected to save up to 600,000 liters of diesel each year, thereby reducing Weipa’s greenhouse gas emissions by around 1,600 tonnes per year.
Similarly, Canadian-based Windiga Energy signed a PPA with the National Electricity Company of Burkina Faso (SONABEL) for a 20 MW solar power plant near its Mana mine. The electrons generated from the solar array will go directly into the local grid in order to service the local community and also will be available for purchase for use in the nearby mine.
The need for business model innovation
While these developments are indeed promising, it is unreasonable to assume they will multiply at the scale needed without external support. This is primarily because negotiating such projects is exceedingly complicated, especially considering the myriad stakeholders, including mining companies, communities, multilaterals and development organisations, who all have their own interests to consider.
With this in mind, there is a clear need for business model innovation that cuts across these stakeholders, addressing each of their interests and concerns. Both mining and community stakeholders need strong business models that will fulfil their energy requirements in ways that are sustainable and supportive of both parties’ needs. By co-creating these business models, mines and the communities in which they operate are more likely to realize synergies, develop opportunities and innovative solutions, and achieve necessary buy-in from all parties.
Recognizing this need, Rocky Mountain Institute and the Development Partner Institute have joined forces to act as an unbiased, third-party facilitator to bring stakeholders together and develop a framework for these sorts of business models. Together, we are confident that the mining industry can transition from having an extractive presence to being a development partner with the surrounding communities in order to ensure the long-term prosperity of both.