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Leveraging renewable electricity in capital projects to reduce costs and emissions

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With the lifetime costs of renewable hybrids now lower than fossil fuels, and with far superior variable operating costs, organisations are now actively building renewables into their capital project design. 

This enables them to:

  • Reduce lifetime cost of energy, improving project returns
  • Augment existing emission reduction strategies
  • Build-in flexibility to adopt more electrification technologies in the future
  • Re-position themselves with key stakeholders and strengthen their license to operate 
  • Create new opportunities for their asset base

Introduction

Focus on emissions reduction continues to increase, remaining a high profile social and environmental concern, which is affecting licence to operate for many industrial organisations.

Recent developments present an opportunity for organisations to remove carbon from their capital projects, often bringing them close to carbon-neutral, while capturing the benefit of lower costs and emissions. 

  • Renewables are cheaper than fossil fuels: The variable cost of renewable electricity is now lower than that of fossil fuels, and, in many regions, the lifetime cost is also cheaper.
  • Technology is improving: Technology is rapidly advancing for both the hardware and the control systems, while the track record for renewables projects improving markedly.
  • Attractive financing terms available: The cost of finance is typically lower for projects that are powered by renewable energies, as operating costs are lower, while projects are perceived to be lower risk than those which only use fossil fuels.

Australia region example

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Levelised cost of electricity – on-grid comparison ($AUD/MWh)

Levelised cost of electricity – off-grid comparison ($AUD/MWh)

New capital projects can take advantage of these changes by:

  • Considering energy requirements during the design phase and adapting processes to leverage renewable energy sources and enable load balancing within the operation
  • Incorporating newer technologies and building in flexibility to leverage emerging technological advances when they become viable

Embed energy decisions during the design phase

Traditional capital approaches usually design the desired solution and its supporting operational processes, then consider what energy is needed to run those processes.

If potential energy sources and their natural variability are considered during earlier design phases, energy availability can be determined and the likely impact on operational processes assessed. This makes it possible to reduce process constraints, cut emissions and lower energy costs by:

  • Developing a mix of energy sources (e.g. solar, wind, battery, gas) to reliably deliver energy
  • Adapting operational processes to minimise energy usage and use energy when it is most available and cheap. 

Developing a mix of energy sources 

Reliability of energy for safety and production is paramount for operations. While renewables arecheaper than fossil fuels, they cannot solely meet demand for the continuous operations of large industrial sites. However, this can be overcome by using a mix of sources – typically, a minimum of 60% renewables (from a mix of wind, solar, batteries, or other renewable storage solutions) augmented by diesel and/or gas is sufficient to ensure supply and reliability.

Energy by source (MW)

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If the organisation is able to make more energy than they can use (i.e. a net energy producer) and sell it to satisfy external demands, usage of renewables can be increased. This could mean supplying to the grid, another collocated large industrial energy consumer or a local community seeking to supplement its energy supply. This will increase the utilisation of renewables, bringing associated cost and emissions benefits, as well as added revenue – potentially further improving the economics of the project. 

Adapting operational processes to minimise energy usage and use energy when it is most available and cheap 

Processes can be adapted during the design phase to reduce the energy needed to power them, reducing capital investment and ongoing operating costs. This can include simple changes to reduce the power drawn (e.g. installing smaller motors) or a more comprehensive redesign of processes, so they can operate with the intermittent energy supplied by wind or solar sources. 

During project design, we recently helped a mining and metals processing business develop a new, dynamic electrowinning process. This made it possible to power the process with intermittent renewable energy sources (like wind and solar which aren’t always available) while maintaining the integrity and quality of the electrowinning process, enabling them to move away from existing conventional processes which require a consistent, uninterrupted energy source. 

By making this change, they were able to power their operation with a mix of wind- and gas-powered sources, improving the project’s NPV by $200m and reducing greenhouse gas emissions by over 60%.

Incorporating newer technologies and building in flexibility to leverage emerging technological advances when they become viable

Electrifying industrial assets (instead of using diesel) offers another way to reduce emissions. This brings added benefits of reducing diesel particulate matter and improving employee health, while productivity is increased with lower maintenance and less time spent refuelling. When powered by cheaper renewable sources, it also reduces energy costs.

For example, during Volvo’s recent trial of electrification at the Shanska electric mining site:

  • Emissions were reduced by 98%
  • Conditions for employees improved with inhalation risks eliminated, lower noise levels and reduced vibration
  • Less ventilation was required (as no diesel was being burnt), so energy costs dropped by 70%
  • Maintenance costs fell and machine life extended, while flexible in-pit battery changes reduced time spent idling, reducing operating costs by 40%

Innovation is accelerating in this space and technology is expected to become both cheaper and more readily available. It makes commercial sense to assess new options besides traditional alternatives when designing new projects.

Companies are already capturing benefits by changing how they think about renewables in capital projects

Reduced costs by 10% while reducing emissions by 30-40% by shifting to renewables

One of our clients wanted to shift away from grid electricity to renewable energy.

We helped them to design and develop a robust technical solution for a gas-based hybrid solution (with a mix of gas, wind and solar) to ensure reliability of energy supply and support production levels. This included rigorously testing the commercial case to demonstrate it was more attractive than gas alone. Within the procurement phase, risks were accurately allocated and effectively managed to maximise project value.  

By adopting a mix of renewables and traditional energy sources, they reduced their costs by 10% and emissions by >30%. The lower energy operating costs also extended the life and value of the resource, increasing the project’s NPV.

Moving to 80% renewables to satisfy energy requirements and produce ‘‘green copper’

One of our clients wanted to become a leader in sustainable “green copper” by reducing greenhouse gas emissions across all their operations.

We helped them create dynamic models to demonstrate that a combined generation portfolio of diesel, wind and solar was the most feasible option to deliver their objectives on cost, reliability and emissions. This included bringing together vendors with technical and financing capability to develop a third-party power solution and supporting financial model.

This work ultimately reduced emissions by 80% and reduced their energy price by 40%.

Developed a viable behind-the-meter solution for an African diamond mine expansion to displace fossil fuels

An African diamond miner needed to develop an energy solution that reduced their greenhouse gas emissions and could power their operations for the next 30+ years.

By testing various scenarios and sensitivities with a detailed financial model, we assisted them in developing a robust business case for a hybrid renewable solution and engaging their stakeholders to build commitment.

This solution displaced fossil fuels and allowed them to export excess energy to the grid, decreasing their electricity cost by 36%, improving their project NPV by $260m and removing over 60% of their emissions. Beyond the immediate financial benefits, they anticipate significant benefit from having a more stable energy supply, and the potential to market their diamonds as being sourced with ‘100% renewable’ energy.

How can you reduce the carbon footprint and energy usage of your project?

Traditional project optimisation challenges are an ideal forum to consider energy usage and carbon emissions. It is common to challenge projects to maximise throughput and product margin, as well as reduce capital investment, construction timelines and operating costs – project outcomes can be further improved by considering energy sources and emissions at this stage. 

To inform these challenges, it is useful to understand the expected energy and emissions profile of the operation and its drivers. Keep in mind also that external factors like regulatory changes and changing energy costs might also influence future operations. This forms a fact base for informed discussion between key stakeholders on how usage patterns can be modified, and how energy can be sourced to reduce emissions improve project financials.  

Proposed adjustments and improvements can then be assessed against typical financial metrics (e.g. capital cost, NPV, IRR), as well as operating metrics (e.g. emissions reduction, productivity impact) to identify priorities. Once ideas are assessed and agreed upon, the project scope should be adjusted to ensure planned modifications are incorporated.

Develop energy and emissions profile baseline

GHG emissions at an underground gold mine

Optimise project metrics

(upfront capital cost, NPV, energy and emissions profile)

Marginal abatement cost curve at an underground gold mine

Conclusion

Projects in development are in a unique position to incorporate renewables and new technologies – if energy and emissions are considered early in the project, greenhouse concerns can be addressed and ongoing operating costs reduced, improving project returns.

By understanding expected energy requirements, developing a mix of energy sources, considering newer technologies and adapting processes, new projects will position themselves competitively relative to other assets.

About the author

Peter Mann is an experienced strategic advisor who facilitates alignment among stakeholders with complex, competing and conflicting objectives. He regularly conducts energy and greenhouse gas strategy reviews for oil and gas majors, power utilities, large miners and renewable energy companies.