Partner London
"There has been a lot of progress made with decarbonising corporates and site operations in recent years, as demonstrated by the surge over the last decade in corporate PPAs and onsite generation facilities."
In this article we explore the different options for mining going green, the specific challenges for mining operations and innovative solutions.
There has been a lot of progress made with decarbonising corporates and site operations in recent years, as demonstrated by the surge over the last decade in corporate PPAs and onsite generation facilities. This has resulted in the decarbonisation of site operations and transportation activities.
Transition options
The main options for mining operations going green are:
- procuring renewable electricity supplies from the grid network. Not all mining operations are connected to the grid network and in some jurisdictions there may not be renewable electricity supplies available on the public grid network;
- renewable energy onsite supplies from technologies such as solar and wind. There are also opportunities in relation to biomass technologies if there is local feedstock available and SMR. These require a heavy capital expenditure;
- decarbonisation of vehicles, replacing existing vehicles with EV, hydrogen, biogas or biofuel vehicles. There is a technology challenge for some of the larger vehicles. The challenge is for the mining company to transition their fleet vehicles, albeit we are aware of this starting, particularly certain jurisdictions such as Brazil. This is often done on a staggered fleet-wide basis rather than vehicle by vehicle as they will require associated infrastructure/training/support and there are economies of scale considerations;
- hybrid models, such as including existing diesel gen sets and/or batteries with the renewable energy technologies – these will involve more complicated microgrid solutions. There is the question as to whether a third-party developer would take over the management of existing gen sets and how this is dealt with under the associated payment mechanisms; and
- the purchasing of carbon offsets. Where permitted by local regulations and the relevant mining company’s governing accounting practices, a mining company can purchase carbon offsets to offset its carbon footprint, albeit this will only cover the mining company’s carbon footprint and not that of its customers. See below on the Greenhouse Gas Protocol.
Mining green particularities
The mining sector remains an area where the green transition is challenging. This is tied to the nature of mining operations, particularly in terms of the:
- nature of the land rights – conventional corporates have freehold or leasehold title (or other forms of registered land rights), whereas mining companies often operate under a concession whereby their land rights are essentially by way of a licence. There is also the question of whether a mining company’s concession includes land sufficient for renewable technologies, such as wind and solar;
- consumption profile – the sizing of any onsite generation and the type of onsite generation (with particular electricity supply profiles) will be governed by the site’s consumption profile, with any generator requiring the mining company to offtake 100% of the output in the case of renewable energy technologies. Alternatively, the mine may offtake a lower percentage of the total power output, with the remainder being made available for a local or the national grid network, to enable a more efficient size of generating facility. Mining companies’ consumption profiles may also vary over time, depending on the nature and type of mine and its reserves and resources. Modelling work will be required for each mine to determine the best solution, albeit with a number of variables;
- duration of site operations – the duration of mining operations at a particular site may not be known at the outset as it will depend on the mine life and the extent to which that can be increased over time. Existing mine operations may not have sufficient time left before their concession expires and so new mines will be easier to transition. Most renewable technologies will require a fixed duration of at least 10 to 15 years (depending on weather conditions and/or capital outlay);
- remoteness of site operations – most mining operations are in remote areas with potentially harsh conditions which, on the one hand, means that off-grid power supply is essential or more cost effective but, on the other hand, means that transport and the associated construction/installation of the renewable energy facility is more difficult and expensive. Also, there may be shortages of local qualified workforces and there may be difficult operating conditions where there are extreme weather conditions;
- jurisdictional challenges – some mining operations are in emerging markets where there may be unstable regimes and security issues. Some countries also restrict who can supply power, either at all, even if off grid – or to the grid; and
- technology challenges, for example, in terms of the heavy vehicles (such as ultraclass haul trucks) there may not be viable zero-emission vehicles.
"There are an increasing number of incentives for the decarbonisation of mining activities."
Incentives
There are an increasing number of incentives for the decarbonisation of mining activities. These include:
1. corporates setting decarbonisation targets. The Greenhouse Gas Protocol sets out greenhouse gas accounting standards for corporates for such purposes. These are broken down as follows:
Scope 1 emissions cover direct emissions from owned/controlled sources, for example, a mining company’s onsite diesel gen sets and the mining company’s vehicles.
Scope 2 emissions cover indirect emissions from purchased electricity, heat or steam, for example, electricity supplied to the mining site.
Scope 3 emissions:
(i) include all other indirect emissions in the value chain. This covers both the mining company’s operations, such as emissions from vehicles owned by its staff, and the emissions of products and services used by the mining operations; and
(ii) are also relevant to the mining companies’ end user of the minerals i.e. the ultimate purchaser, including the associated intermediate supply chain;
2. green mineral premium. Last year, London Metals Exchange (“LME”) launched the Sustainable Metals Premia Roadmap to discover if more sustainable minerals will command a premium. LME is setting sustainability thresholds with an associated passport of data and such sustainable minerals are to be traded on the Metalshub platform;
3. under EU battery regulations, EV batteries and certain industrial batteries will be:
(a) required to include a carbon footprint declaration (including raw material extraction);
(b) subject to carbon footprint thresholds and mandatory minimum levels of recycled content as regards certain minerals; and
(c) obliged to include a battery passport (being a digital record containing information on aspects such as carbon footprint and minerals);
4. the US Bipartisan Infrastructure Law, the Energy Act 2020 and the Inflation Reduction Act (amongst others) authorised the funding of critical mineral activities necessitating the deployment of low carbon infrastructure; and
5. the EU and UK Carbon Border Adjustment Mechanisms are schemes that place a price on carbon emitted during the production of certain carbon-intensive goods (including aluminium) entering into the EU and is being gradually introduced in line with the phase out of allowances under UK and EU ETS.
Data and transparency
There are increased pressures to provide transparency as regards not only the green credentials of the minerals but also the environmental, social and governance (“ESG”) credentials, for example, ethical sourcing, protection of the local biodiversity, deforestation, water and waste management and workforce wellbeing.
In particular, as shown by the above section, there are an increasing number of regulations requiring data as regards the provenance and the carbon footprint of minerals. We are seeing this accelerate in other sectors and believe this will be a future requirement for the supply of any minerals.
Innovative green solutions
As detailed earlier, there are a number of specific aspects relating to mining operations which result in higher prices for mining companies going green thereby making the business case for going green more difficult for mining companies.
As the incentives for going green are increasing day by day, mining operations will demand greater flexibility and innovation from renewable energy developers and their funders.
A mining company may finance the green transition solution itself on balance sheet or procure third party funding, which would commonly require:
- for renewable energy projects, the mining company to enter into a power purchase agreement/equipment lease with the renewable energy developer and the renewable energy developer funding the renewable energy project, most likely through project finance; and
- for low carbon vehicles, the mining company to enter into an equipment lease with the vehicle owner and the vehicle owner installing any associated fuelling depot or charging infrastructure.
Full utility outsourcing
Given a mining company may have existing diesel gen sets for redundancy and security purposes, the renewable energy developer may be requested to take over the existing gen sets also and install, operate and manage not only renewable energy generation and batteries but also the diesel gen sets, i.e. the whole site’s electricity supply, to make such supplies more efficient and coordinated.
"Instead of a long-term power purchase agreement for a bespoke renewable energy solution, there are pre-assembled and containerised solutions, combined with a financial leasing model."
Flexible leasing model
Instead of a long-term power purchase agreement for a bespoke renewable energy solution, there are pre-assembled and containerised solutions, combined with a financial leasing model. These are commonly in the form of solar plant with battery options. This provides flexibility on contract length and has the advantage of a shorter installation time.
Community collaboration
To alleviate challenges regarding term, volume and profile, it may be possible to also supply electricity to neighbouring communities, which may both assist in terms of the economics and profiling, as well as be advantageous in terms of benefitting the local community and making permitting easier.
Local government or PPP green infrastructure projects
There is the potential for the relevant governmental authorities to encourage and support the development of green infrastructure for key industries, such as mining, for example, the Lobito corridor stretching from Angola through DRC to Zambia.
DFI support schemes
As well as supporting on green infrastructure projects, we are seeing DFIs supporting on power-to-mine projects. Recently, Voltalia S.A. and International Finance Corporation (“IFC”) entered into an agreement under which IFC will support the development of a pipeline of new power-to-mine opportunities in selected countries, including Botswana, Cote d’Ivoire, DRC, Ghana, Guinea, Madagascar, Mauritania, South Africa and Zambia.
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