February 2018

The future of mining and renewables

  • By Terence Jeyaretnam, Partner, Climate Change and Sustainability, EY

Examining the emerging landscape of renewables and how the Australian resources industry is set to transition towards sustainability

The mining sector currently contributes around eight per cent to Australia’s Gross Domestic Product (GDP), and employs around two per cent of the workforce. It is also Australia’s largest export sector, representing over 50 per cent of Australia’s total export earnings with iron ore, coal and liquefied natural gas representing the largest exports by value. Given the local and export income dependency on coal, there has been for the past decade a disagreement of views between the mining and renewables lobby groups in Australia. This culminated most recently with BHP announcing that it is reviewing its memberships of the Minerals Council of Australia, the World Coal Association, as well as the US Chamber of Commerce on the basis of policy conflicts primarily relating to emissions. That notwithstanding, the renewables and mining sectors may be finding themselves strange bedfellows with falling costs of renewables, growth in rare earths needed in renewables production and a more defined and tightening climate policy post the Paris Climate Agreement.

Growth in renewables

The Clean Energy Council’s Clean Energy Australia Report 2016 said that in 2016, 17.3 per cent of Australia’s electricity came from renewable energy, the highest rate recorded this century. Internationally, the International Energy Agency’s (IEA) Renewables 2017 report noted that in 2016, around 165 gigawatts (GW) of renewables came online – accounting for almost two-thirds of net new power capacity around the world. The IEA also notes that by 2022 the growth in renewable generation will be twice as large as that of gas and coal combined. By then the gap between coal and renewables will have halved to 17 per cent, with renewables expected to continue their march to being the leading energy source globally.

A new report from the IEA, titled Renewable Energy for Industry, finds that the business case for substituting grid electricity with self-generated renewable power for major industrial energy users is proving more and more palatable. The report notes that in Australia ‘the cost of hydro, solar and wind power can fall below $US30/MWh ($A39/MWh) and supply an electricity load with high load factors, particularly when combined.’ The cost of solar has plunged 90 per cent in the last five years, and the cost of battery storage is following a similar trajectory. The cost of grid power, on the other hand, has more than doubled. Indeed, the steelmaker Liberty OneSteel (formerly called OneSteel, which was recently acquired by GFG Alliance) is set to build 1 GW of large-scale solar, battery storage, pumped hydro and demand management for the Whyalla steel works. Benefits of increased renewables in industrial and mining sites include hedging against fuel and grid price volatility, increased productivity, improved reliability and additional revenue opportunities through sales of excess energy to the grid or to others.

Furthermore, the potential for renewables in Australia is extensive. A recent Climate Council Report based on research by EY, titled Renewable Energy Jobs: Future Growth in Australia, cites that Australia’s potential to become a renewable energy ‘superpower’ is high, as it is ranked in the top three nations globally for wind and solar energy resources. The report also found that a 50 per cent renewable electricity scenario in 2030 in Australia will lead to over 28 000 new jobs, nearly 50 per cent more employment than a ‘business as usual’ scenario.

The world after the Paris Agreement

The international community has recognised the need to limit global warming to <2°C above preindustrial levels after the Paris Agreement. Australia has set a target of 26-28 per cent reduction on 2005 emission levels by 2030. The mining sector contributed around 19 per cent of Australia’s emissions, which is significant given the sector’s contribution of two per cent to GDP. Many of the world’s largest economies have set similar or more stringent decarbonisation trajectories. Given this transition is underway, there are two key implications for the mining sector in Australia resulting from global climate policy: 1. the Australian mining sector needs to reduce its own emissions in line with Australian climate policy and targets 2. the increased deployment of renewables globally has significant opportunities for Australian minerals that are needed in the production of renewable energy, and there is even the potential to export renewable energy into Asia via subsea cables.

Decarbonisation

The amount of renewables in the mining sector’s electricity mix is low at approximately 2.5 per cent of the renewable energy used globally. The mining sector accounts for roughly ten per cent of Australia’s total energy use. Its energy is mainly supplied by diesel (41 per cent), natural gas (33 per cent) and grid electricity (21 per cent). Energy is primarily consumed as electricity for operations and as diesel for vehicles and machinery. Yet renewable resources have the potential to provide a large portion of the energy consumed by the mining sector at or below the cost of traditional diesel generators or grid power. This represents an opportunity to both reduce costs and reduce the carbon footprint of the sector. A white paper by the Australian Renewable Energy Agency (ARENA) released in 2017, titled Renewable Energy in the Australian Mining Sector, suggests that renewable energy can greatly benefit the mining industry and should help to shape the future of the mining sector in Australia. Some of ARENA’s early work was in remote area renewables. One such example is Sandfire’s DeGrussa mine, 900 km north of Perth, which installed a hybrid solar/battery system that is the largest of its kind in the world.

Tech metals

A third consecutive year of falling coal consumption and a renewable energy spending spree is accelerating China’s climate transition. Figures from China’s National Bureau of Statistics revealed a 4.7 per cent fall in coal consumption in 2016. The country has also embarked on a A$474 billion renewable energy program. Similarly, India is now starting to turn to renewables as the costs drop significantly. Accordingly, the Australian mining industry is following a global boom in so-called ‘tech metals’. Tech metals are rare earth and other minerals and metals that are used in what is referred to as the ‘new economy’ – essential to making high technology componentry such as mobile phones, solar cells, autonomous vehicles, batteries needed to store power from renewable sources and lightweight engines replacing traditional combustion engines. The Australian CleanTech Index has outperformed the ASX200 by 46 per cent, giving weight to the argument of a new mining boom. Companies in the CleanTech Index include lithium, cobalt and graphite explorers and miners.

Conclusion

Global climate policy and markets are changing the way Australian mining companies view and use renewable energy technologies. Although there are challenges ahead in a world with a new energy mix, there are also significant opportunities for Australia and its mining sector to make the most of its extensive natural resources.

 

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.  

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