By Jason Deign

How can CSP profit from the mining and natural resource extraction industries? This is the question being asked by a growing number of developers as support for CSP drops away in established markets such as Spain and the USA.

This falling support is forcing a shift in focus to new markets such as Africa, Latin America and the Middle East. These have significant mineral resources extraction industries, which offer a potentially attractive alternative to grid generation.

And mining concerns are waking up to the benefits of renewable energy. “A lot of mines tend to have diesel generation, either as backup or as a primary [energy source],” says Barry O’Flyn, director of environmental finance at Ernst & Young.

“The cost of diesel generation is huge, something like USD$50 per megawatt-hour.”

Historically, O’Flyn says, extraction companies were happy to foot the bill because of the profits generated by continued strong pricing for the commodities they produced. But recently commodity prices have dropped while energy prices have continued to rise.

At the same time, the generous power subsidies offered to extraction companies are now coming to an end in many markets. This is putting a squeeze on margins and focusing attention on alternative power sources.

The Compañía Minera Doña Inés de Collahuasi mining company in Chile, for example, has installed a 25MW PV plant to reduce its power bill. It expects to save USD$20m over the life of the solar installation.

With resource-rich markets including Australia, Chile, the Middle East and South Africa all located in high direct normal irradiance (DNI) regions, this looks like a great opportunity for CSP. The problem is other renewable options, such as wind or PV, are courting the same customers.

These alternatives are more established, more bankable and, most importantly, cheaper. So why would extraction companies choose CSP? Experts believe there could be three main reasons.

Base-load power

Perhaps the most obvious one is that, when combined with thermal energy storage (TES), CSP can provide base-load power while alternative renewable technologies, such as wind and PV, are highly intermittent.

“Renewable developers in general need to provide a product that the mining industry needs, which essentially is base-load, fixed price, available electricity at all times,” claims O’Flyn.

The cheapest way to achieve this in many locations is by combining PV and/or wind with fossil fuel generation and/or grid connection.

However, adding large amounts of intermittent renewable energy is a problem for fossil-fuel based generation systems because it forces them to ramp up and down quickly to compensate for the changing input from wind or PV. This quickly wears down the generating equipment.

As a result, says Dr Luis Crespo, president of the European Solar Thermal Electricity Association, ESTELA, CSP with TES can beat other renewable energy sources in regions where traditional generation and grid connections are very expensive.

Currently, the most obvious place where this is the case is in Northern Chile.

Because Chile’s northern grid infrastructure is poorly connected to the country’s hydro reserves in the south, and because fossil fuels have to be imported then transported long-distance, energy prices in the Atacama Desert are as high as $0.15 per kilowatt-hour, Crespo says.

This makes it viable to build a CSP plant with TES and fund it through direct power-purchase agreements (PPAs) with mining companies, without having to rely on subsidies or feed-in tariffs.

Abengoa, which is pioneering the use of CSP for mining with its Minera El Tesoro plant in Chile, is said to be studying this direct PPA model in the region.

And mining companies are aware of the potential: Diego Lizana Rojas, energy efficiency superintendent at Collahuasi, confirmed in an interview last year that his company was pondering bids for CSP in addition to its existing PV plant.

Process heat

While providing base-load power is a viable option in Northern Chile, in other resource-rich markets it is more of a challenge. Australia and South Africa, for example, both have ample coal reserves, so energy prices are lower.

But some CSP operators have sidestepped the issue of energy pricing altogether, by offering to supply process heat instead. This is something other renewable energy sources cannot do so well, and it gives extraction companies a big incentive to consider CSP in high DNI zones.

GlassPoint, for example, has built its entire business around delivering process heat for enhanced oil recovery (EOR), with a 7MW CSP plant operational in Oman.

“CSP makes the cost of solar steam competitive in a number of places in the world with the cost of steam provided by fossil fuels, natural gas in particular,” says GlassPoint’s vice president of business development, John O’Donnell.

Abengoa and BrightSource Energy are among the other players serving the EOR market, but a growing number of CSP developers are aware of the potential for process heat in the extractive industries more generally.

For example, Ludvig Bellehumeur, director of business development at Rackam, a Canadian CSP developer focusing on process heat deliver, says his company is currently holding talks with a number of off-grid mining concerns.

“These clients have to deal with particularly high energy costs as they have to transport their own fuel over long distances for on-site heating and electricity generation,” he notes.

The benefit of approaching extraction companies with process heat proposals is that it avoids comparisons of CSP with other electricity generation sources.

As such, it could help further establish CSP in countries such as South Africa, which has relatively good grid connections to mining operations.

Kadri Nassiep, chief executive at the South African National Energy Development Institute says: “There is no doubt that CSP can and will play a vital role in supporting the reduction of coal consumption in South Africa, through the use of steam augmentation or solar boosting.”

ISCC plants

The third opportunity for CSP lies in the fact that, unlike wind or PV, it can be integrated directly into fossil-fuel generation in the form of an integrated solar combined cycle (ISCC) plant.

This makes CSP an attractive option for extraction companies that intend to rely primarily on gas generation but want to have a way of reducing fuel costs, hedging against increases or reducing a carbon footprint.

ISCC is a proven technology thanks to pioneering plants such as Hassi-R’Mel in Algeria.

And because the bulk of generation comes from a traditional combined cycle plant, it represents a suitable compromise for power off-takers that are keen to experiment with solar but not confident enough to rely heavily on renewable energy.

However, says Crespo, the solar field can only account for up to about 10 to 15% of overall generation in an ISCC plant and only a few combined cycle sites worldwide are likely to have the room nearby for a parabolic trough setup.

Nevertheless, for the right mining customer it might still be an enticing way of buying into CSP.

Finding the customers

Finding that customer is still not an easy task for CSP developers, however. Despite the current buzz around renewable energy in the extraction industries, says O’Flyn: “One of the challenges is trying to get the mining sector to mobilise.

“There are so many spinning plates, and renewable energy is so far down the agenda, that nobody actually owns the problem.”

Another challenge, he says, is that energy purchasing is often dealt with by mine managers rather than centrally. This can make it difficult to get corporate buy-in for major investments such as CSP plants. CSP developers should not be discouraged, though.

As discussed above, CSP can offer extraction companies a number of things that other renewable generation sources cannot provide, and the need for them is very real. A study by CSP Today and Groupe Reaction estimates there could be at least 16.6GW of CSP in mining by 2035.

The starting point is to understand the needs of given extraction site, and think critically about whether CSP can be the most cost-effective way of achieving those objectives.

The location of mines globally tends to coincide with DNI rich areas of the world like Australia, Chile, North Africa and South Africa.

Figure 1: Mineral Map of the World.

source: http://www.mapsofworld.com/world-mineral-map.htm

Figure 2: DNI World Map.

Source: SolarGis © 2013 GeoModel Solar
 

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