The oil price slump presents opportunities for mining companies to strike favourable renewable energy contracts. Image: SMA Solar.
The ongoing oil price crash presents the mining industry with opportunities to strike favourable long-term renewable energy contracts, according to consultancy THEnergy.
As diesel follows the current downward price of oil, the main business case for using solar and wind at off-grid mining sites – to offset the rising costs of diesel generation – would seem to grow weaker.
But analysis from THEnergy CEO Thomas Hillig argues that the opposite is the case, and that with the price of oil likely to recover at some stage, now is an “excellent” time for mining companies to turn to hybrid solar or wind systems to power their operations in the long term.
“Mining companies that typically have huge energy needs for their production processes can actually take advantage of the situation [of falling oil prices]”, said Hillig. “More and more investors are willing to finance large solar and wind power plants at remote mine sites and sell diesel reductions or electricity back to miners in so-called power purchase agreements (PPAs).
“When the oil prices were high, the investors were looking at much higher electricity prices in these long-term PPAs. High diesel prices gave the appearance that there was a large piece of cake to share between the mining company and the investor. In PPAs, the electricity price is often fixed over a period of 20 years or more.”
Because of the oil price crash Hillig argues that intensive energy users, such as mines, are now in a good position to lock in low electricity prices over the duration of a long-term PPA. He said their negotiation positions for renewable energy PPAs had “improved considerably” because of the oil price drop.
“Clever anti-cyclical decision-making often allows for high profits in the long term,” Hillig said.
Hillig said it would often make sense to commit to long-term PPAs even if renewable energy prices can only match diesel prices. The cost savings will be realised later when oil prices recover.