Harnessing Renewable Energy to Drive Sustainability, Efficiency and Self-Sufficiency in the Mining Industry

The mining industry plays a crucial role in the energy transition. It is often overlooked that the mining industry supplies the critical minerals for green technologies, such as lithium batteries used in electrical vehicles or copper used in wind turbines. Decarbonizing mining operations will not only advance environmental stewardship but can also reduce operating costs. As the United States continues to decarbonize across industries, it is important to increase the domestic supply of critical minerals, as well as processing and refining capabilities.

Mining companies are ideally positioned to benefit from renewable energy efforts thanks to their large available land, substantial energy loads and tax incentive eligibility. These factors make renewable projects attractive for the mining sector as owners and operators look to meet corporate sustainability targets, electrify their fleets and hedge against rising energy costs.

When considering projects for sustainability, mining companies should evaluate such factors differently. Here are some key items to consider when evaluating renewable energy projects on mining sites:

  • Demand Charge: Mining operations experience high energy usage 24/7, leading to two primary types of charges on the electricity bill: demand charge and energy charge. It is important to understand that deploying photovoltaic solar generation on a mine site will lower the energy charge because you are receiving less power from the utility, but it will not impact the demand charge, which is based on the high demand for electricity during a monthly period. In fact, up to 40% of the utility bill mining customers receive is demand charge. So, installing renewable technology, like solar — which reduces energy consumption from the electric utility during sunlight hours — does not reduce the demand charge. Mining companies could consider oversizing solar energy production combined with battery energy storage systems (BESS) to reduce the demand charge, but this would come with a significant capital cost. Demand charge is a component that is critical to the financial analysis for mining companies as they consider solar generation, and often overlooked in the initial financial considerations.
  • Strategic Financial Planning and Investment: Sustainability projects such as solar often get added to a lengthy list of capital projects the mine is considering for the year. Such lists typically go through a rigorous evaluation process that boils down to a target internal rate of return (IRR), often 10%-20%, using a discount rate applied to all projects being considered, often 8%-10%. Mining companies also often assume 100% equity financing. These considerations for core business capital projects allow the mining company to objectively compare projects to decide where to deploy capital. For a project like a solar facility, an approach that applies value to the sustainability outcomes of the project could be recommended, such as a reduction in the target internal rate of return (IRR) or discount rate. Additionally, for the financial analysis of a sustainability project, matching a financing strategy that aligns with the life and cashflow of the asset would help in the long run. A solar field has a useful life of 25-30 years and would be expected to reduce the mine’s utility cost over that period. Applying debt financing for the solar field compared to 100% equity financing could have a significant impact on the IRR of the project.
  • Maintenance Simplicity and Operational Integration: Renewable systems require much less upkeep, compared to traditional methods of power generation. The combination of low maintenance needs of photovoltaic panels and the automation of solar energy systems means that operations can continue with minimal oversight. This allows operators to focus their resources on core mining activities rather than energy management.

As mining companies look to decarbonize their operations and lead the energy transition by example, the evaluation and capital planning for these efforts may need to be looked at through a fresh lens. With comprehensive support, financial planning, project management, design and implementation, mining companies can see that their renewable energy projects are executed efficiently, on schedule and under budget.

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David McLane

Department Manager General