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The extractive industry is sitting on a golden opportunity – and we’re not even talking about actual gold mines. Legacy or decommissioned mining sites, long treated as expensive liabilities for mining company balance sheets, are now ready for a second life as productive, even valuable, energy-producing assets. A recent report from the Rocky Mountain Institute’s (RMI’s) Sunshine for Mines program details new methodology for identifying and evaluating legacy sites’ potential for renewable energy development and, ultimately, a second shot at productivity.
To industry insiders, it’s a known fact that the challenge of managing decommissioned mines at the end of their productive life is generally expensive and time-consuming. Restoring the land and waterways to an acceptable state and managing long-term care and maintenance of closed or legacy sites in line with regulations is a process in and of itself, with relative little upside to the parent company.
Through careful planning and evaluation, however, recent growth in the renewable energy sector has enable opportunities for wind, solar and even pumped-hydro storage technologies to come in and create new value streams for mining companies with portfolios of undeveloped legacy sites.
Why aren’t these energy applications already in widespread use? And why should mining firms depart from their core competencies to get into the energy generation business? These are good questions, so here are three reasons why mining firms from site supervisor to c-suite executive should be looking at renewables:
The very first question that most mining companies will ask when these opportunities arise is: “how much money will this cost me?” When considering renewables, the good news is that the economics are well-aligned for legacy site applications. Installed wind and solar costs are down over 60 percent and 85 percent since 2009, respectively. Accordingly, the upfront costs of these projects are down significantly and the ability to leverage tax liability as a financing option means that capital expenditures are relatively low compared to other types of project development.
Furthermore, the process for assessing renewable energy project viability across a legacy site portfolio includes a rigorous financial analysis. Once regulatory considerations and technical feasibility have been assessed, a net present value (NPV) is calculated from synthesized estimates of capital cost, operating cost, levelized cost of energy (LCOE), social and environmental economic impacts, transmission costs, wheeling costs (if necessary), and market offtake value. This analysis gives a strong indication as to whether individual projects will be economically viable, and demonstrates the value of various development and contracting options to internal company stakeholders.
Renewables represent new value streams, both internally and externally, for mining companies looking to diversify their energy sources. It’s no surprise that mining of any kind will use a lot of energy. Today, the mining industry as a whole uses anywhere from 1.25 percent up to 11 percent of the world’s total energy consumption. Even on the lower end, those are big numbers that add up over short amounts of time. Today, approximately just 32 percent of energy use by U.S. mines is in the form of electricity. The rest comes from natural gas, coal and diesel – fuels that are either inherently expensive or subject to dangerous price volatility. By RMI’s estimate, an additional 30 percent of this energy could be electrified using today’s technologies – all of which can be met with low-cost renewables.
Returning to the opportunity at legacy sites, mining companies have a range of options when building or sponsoring generation projects. On-site power allows companies to reduce their topline energy procurement, lowering OpEx and allowing for flexibility around peak demand. On the other hand, renewables can also be sold into the grid to act as a hedge against rising fossil fuel costs, enabling further flexibility around long-term energy planning.
Simply put, the revenue stream from electricity sales can take different shapes depending on the contractual arrangements chosen. Whether it be via grid access at a power hub, or sales to the local utility (using known prices from the latest long-term contract as a proxy) if there is no market outlet.
Economics and flexibility on energy procurement might be most important to a CFO or COO, but increasingly the corner office is also concerned with how to set and meet business-friendly sustainability goals. As shareholders and customers increasingly demand sustainable business practices, renewables offer a one-stop-shop for dramatically cutting carbon and building goodwill amongst key stakeholder groups.
By making a public investment in sustainability, companies are often able to create additional jobs for local communities through installation, systems maintenance, and local procurement and skills development. While Investments in site-based sustainability have initial public relations value, demonstrating a company’s commitment to the community’s well-being, they also open the door to community integration of renewables and other technologies. For example, the community solar market —co-owned solar installations—is growing rapidly in the United States, with GTM Research predicting community solar will reach 400 MW of installed capacity by the end of 2017. Mining companies can offer a chance for local citizens to literally buy into sustainability efforts, generating clean power and additional revenues for the community.
By aligning business interests with community interests for energy development, mining firms have a new and powerful tool for building social license to operate, while ensuring a winning sustainability strategy to build longevity with shareholders and customers.
Turning legacy sites into productive assets doesn’t need to be an expensive or time-consuming process. With new tools and expertise available today to mining companies, a comprehensive review of legacy site portfolios can take a matter of weeks and provide a clear indication of the value and benefits to be gained from developing renewable energy projects.
Legacy mine sites are uniquely positioned for second lives through renewable energy development. And while it’s unlikely that every site can be a truly viable candidate, careful consideration and analysis of site prioritization, value capture and creative financing, can ensure that the best opportunities are attractive to investors, developers, and mining companies alike. From economics to flexible planning to winning sustainability strategies, mines of the future should start looking at renewable energy for legacy sites today.
By Kevin Haley, manager with the Rocky Mountain Institute’s Sunshine for Mines program. RMI is an independent nonprofit founded in 1982— working to transform global energy use to create a clean, prosperous, and secure low-carbon future.
