Mining giant Glencore is putting Australia’s grid problems under the spotlight -- prompting other businesses to threaten plant closures and explore renewable energy procurement.
Aristotelis Mistakidis, the director of Glencore's copper business, last month wrote to state and federal lawmakers in Australia complaining about a 100 percent hike in power prices over the last three years.
Glencore may close copper mining operations at one of its subsidiaries, Mount Isa Mines, because of energy costs. Up to 2,000 jobs could be affected.
“We are beyond the tipping point in terms of industrial demand destruction,” Peter Freyberg, head of global coal assets at Glencore, told the Australian Financial Review.
Chemical giant BASF and the Tomago Aluminium Company are also eyeing production cuts in the wake of what Tomago’s chief executive Matt Howell called “ridiculously high” wholesale electricity costs.
Another mining firm, Rio Tinto, reportedly cut production at its Boyne Island aluminum smelter by 14 percent in March because of soaring electricity spot market prices. The action caused annual production to drop by more than 88,000 tons and led to the loss of 100 jobs.
Now there are growing calls for mining companies to embrace renewable energy as a way of securing cheaper, more stable supplies. Over the last couple of years, the government has pumped millions of dollars into solar-plus-storage projects in order to prove the business case for the mining sector.
Dr. Arnoldus Mateo van den Hurk Mir, general manager of the Renewable Energy and Mining International Observatory, said renewables use in the mining industry is “lower than in other industrial sectors.”
This “seems [like] nonsense,” he said. "Usually mining doesn’t have one of the big problems for renewables: lack of space.”
The mining industry has been slow to adopt renewable energy because of low commodity prices over the last five years. It is also hard to find renewable energy know-how in the sector, said van den Hurk Mir.
Nevertheless, there are signs that the situation is changing.
According to figures released at the Energy and Mines World Congress last November, global mining companies have installed around 943 megawatts of renewable energy, including 552 megawatts of wind power and 352 megawatts of PV.
Much of this capacity has been built in Latin America, where, for example, Chile’s Antofagasta Minerals has almost 192 megawatts of solar power and Mexico’s Industrias Penoles relies on 180 megawatts of wind capacity.
In Australia, Sandfire Resources has 10.6 megawatts of solar PV and Rio Tinto has 9.2 megawatts of wind power, according to the Energy and Mines Global Rankings 2016 report. There is plenty of room for growth, van den Hurk Mir noted.
Every year, Australia’s mining industry consumes enough electricity to power the whole of Portugal, he said. If transportation fuel is added into the equation, the energy use is equivalent to Spain.
Switching more of that consumption to renewables could have a significant impact on the industry beyond simply reducing energy costs.
“There is a ‘hidden’ mining valuation increase, in the view of many analysts,” van den Hurk Mir said. “When an activity reduces opex and uncertainty and risks, this provokes a double increase of business valuation, both for the mine and for the mining company."
“This increase in corporate valuation has not yet been recorded in most mining balance sheets, due to lack of adequate key performance indicators and financial education," he said.
Van den Hurk Mir said such valuations would become more widely recognized “once analysts learn how to convert renewable kilowatt-hours into dollars per ton and dollars per share of value.”
There is some evidence that mining companies are already gaining a more holistic appreciation of clean energy.
Last month, for example, Glencore released a report on climate change considerations, which looked at the financial opportunities from low-carbon energy.
These include, for example, increasing demand for metals. “The growth of renewable energy in the form of wind and solar is a positive opportunity for our business, given both technologies require significant amounts of copper and aluminum for construction,” it said.