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Renewable energy: threat or opportunity?

Published by
World Coal,

Dr Thomas Hillig, THEnergy.

At first glance, coal is the antithesis of renewable energy; however, some coal companies are starting to embrace the opportunities offered by solar and wind energy. In India Neyveli Lignite Corp. has said it will invest US$82 million to build 25 MW of solar photovoltaic (PV) and 55 MW of wind capacity, while Coal India Ltd has announced that it will invest US$1.2 billion in solar projects. Meanwhile in South Africa, Exxaro Resources and Tata Power have formed Cennergi, a joint-venture backing two major wind projects.

Mining companies face strong opposition, which is facilitated by internet communication: ‘Move Your Money UK’ is a national campaign that calls on depositors to move their savings away from five UK banks that support assets in oil, gas and coal extraction. On the investment side, the Rockefeller Brothers Fund has recently joined the divestment movement that has pledged not to invest assets worth US$50 billion into fossil fuels. The direct effect of such divestment is normally limited, but it brings along a significant threat of further stigmatisation of certain segments of the mining sector, making it more difficult to receive credit, reducing the demand for shares, triggering new legislation and complicating permits.

Furthermore, in leading renewable energy markets, such as Germany, solar and wind power cause a severe threat to coal-fired plants. Solar and wind energy are characterised by a high CAPEX and a very low direct costs. In most electricity market designs, this gives renewable energy priority at periods with strong wind or sun. As the share of renewable energy in the energy mix is constantly growing, it will become more difficult to operate baseload power plants profitably. The German utility E.ON has been the first to announce that it will spin off its coal and nuclear activities to focus on renewable energy; other German utilities are also in a much worse economic position than only a few years ago.

Even though developing countries create a constant appetite for coal, in the medium term, many coal mining companies could lose some of their most important and reliable markets in mature economies. It stands to reason that they are preparing for these tremendous industry changes and reconsidering the definition of their business activities. Does it have to be narrowed down to coal mining or can it be expanded to energy? We see this downstream expansion of the value chain in many other industries.

In other mining disciplines, we already see solar and pilot plants that contribute to power mines. At the beginning of this year, two major announcements triggered huge interest in the topic of renewable energy and mining. Sandfire Resources declared its intention to build a 10.6 MW PV plant at its DeGrussa copper mine in Western Australia. The project would be approximately ten times as big as the largest existing solar-diesel hybrid power plant in the mining sector. Just a week later, South African-focused Sibanye Gold announced plans to build a 150 MW solar plant to gain control of its energy costs, which make up 20% of total costs. It can be expected that this is only one step in a major shift toward renewable energy application in the mining sector.

Renewable energy is indeed a chance for many coal mining companies. It might be for investing into renewable energy or for consuming renewable energy onsite. However, coal mines are normally easily accessible, given that huge volumes have to be transported to their final destination. In the case of lignite, electricity is usually produced onsite. Both factors affect the business case for onsite power generation by renewable energy in a rather negative way. In comparison to other mining disciplines, the relative consumption of diesel is rather low – or the diesel is rather inexpensive – as transportation costs tend to be low. Nevertheless, coal mining companies can regularly identify interesting business cases for renewable energy pilot projects. Pilot projects are probably the best way to gain knowledge about new energy development, as well as limiting risks.

A recent THEnergy study found that mining companies that actively move towards renewable energy show an awareness that the world around them has changed and that there are threats regarding energy costs and environmental movements. The financial markets reward companies that do not remain captive to the past but instead actively seek new solutions. In this regard it does not matter whether this is about renewable energy investment or solar or wind self-consumption. The use of renewable energy is interpreted by the financial markets as a sign of a flexible and forward-looking decision-making process; mining companies that are first movers in actively integrating renewables into their energy mix are therefore considered as progressive and better managed.

In the medium term, aspiring management can make use of the changed framework conditions if it acts quickly, comes up with greenhouse gas mitigation and renewable energy targets, sets other non-financial performance indicators regarding energy and conceives a comprehensive renewable energy strategy. Ambitious targets and transparency grant first movers many advantages in communication. If substantial measures are taken and financial markets are targeted with the sustainability communication strategy, a positive effect on the market evaluation and stock prices can be expected.

Written by Dr Thomas Hillig. Edited by .

About the author: Dr Thomas Hillig is the founder of THEnergy.

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