Owing to a reduction in renewable energy costs, the prospect of a more reliable power supply and an increasingly favourable regulatory environment in key mining markets, renewable energy is anticipated to play an increasingly important role in powering mining operations worldwide over the coming years.
Fitch Solutions Macro Research’s ‘Outlook for Renewable Energy Use in the Mining Sector’ report, published on September 7, stated that price will be the main motive for mining companies to shift to renewable energy sources in the short term.
Research shows that the current energy costs make up an estimated 30% of miners’ balance sheets, and are expected to increase progressively as ore reserves become ever more depleted.
Companies will, therefore, be forced to adopt more energy-intensive mining methods, and with minimising costs remaining a key focus, will opt for renewables, which offers significant cost-reduction potential and comparatively negligible maintenance costs.
Renewables also offer grid-tied miners the opportunity to mitigate the risks that come with volatile power supply in countries of operation.
Therefore, investing in self-supplied renewable power that is independent of national grids will become an increasingly attractive proposition for miners over the coming years.
Spurred by the Climate Change Pact adopted by 195 countries at the COP21 United Nations conference in Paris in December 2015, important mining hubs have implemented significant measures to reduce their emissions progressively. Subsequently, mining companies have been incentivised to shift towards renewables.
Mining markets with more favourable regulations and policies towards renewables will be ahead of the curve in the adoption of renewables in mining.
Some countries in the Americas aid the mining sector through carbon pricing measures and an already significant integration of renewables in key operations. For example, Chile is a global outperformer for the number of mines adopting renewables and the total installed wind or solar capacity; and the country’s Association for Renewable Energy has projected that 100% of the national grid could be powered by renewables by 2050.
For other major mining markets, government policy support will be instrumental in boosting renewables in the mining industries going forward. India and China are projected to implement renewable energy growth targets, and curb carbon use respectively, which will induce changes in the mining industry.
Argentina and South Africa are expected to follow China’s lead of pursuing a carbon trading scheme.
In contrast, less regulated markets in Africa are set to lose out – posing challenges to the adoption of renewables in mining operations there.
Solar photovoltaic and wind capacity are anticipated as the dominant renewables favoured by miners moving forward, owing to their rapidly falling costs and prevalence as an energy source across the globe.
Environmental, social and governance considerations will be the secondary driver after costs of renewable energy consumption.
To meet growing demand while adhering to environmental sustainability and social accountability, Fitch anticipates that mining companies will intensify investment into renewable energy battery storage, energy efficiency and carbon capture and storage.
This has already seen an uptake, with key deals being struck between metal producers and electric vehicle or consumer electronics firms this year.
This shift to renewables will see mining operations moving away from the present standard of traditional fuel sources - mainly fossil fuel-based grid power or off-grid diesel-generated power.