Power systems in mining and other industries are seeing a major structural transformation as renewables and energy storage costs continue to decline and global pressure to mitigate CO2 remains strong. For off-grid mining in particular, renewable and storage technologies present an ideal opportunity not only to improve the mine’s environmental footprint, but also to reduce energy costs while improving power quality.
For off-grid mines operating in remote locations, the cost of electricity can reach US$300/MWh and consume up to 15% of mining revenues. Lowering energy costs will not only increase viability of mining operations today but also help future proof them against rising fuel costs. To test the viability of storage plus renewables for brown field mining sites, we consider four scenarios that are optimised using Homer Pro microgrid modelling software.
The benefits compared include:
The results (Fig. 2) showed that the highest investment IRR of 36% was possible by installing a battery energy storage system (BESS) where the main benefit comes from improved generator operational efficiency that results in a reduction in maintenance costs.
Alternatively, by combining this with solar PV generation we can additionally substitute expensive diesel fuel with cost competitive solar PV thereby delivering the largest reduction in fuel consumption (28%) and LCOE (11%), while maintaining a healthy IRR (16%).
Additional power quality benefits provided by a BESS such as reduced stress on the electrical installations across the mine site and associated reduction in maintenance cost and down-time have not been modelled in this study.
Finally, our analysis shows that the most important factor impacting system design is the price of delivered diesel followed by the cost of the installed solar PV system.
Two conclusions can be drawn from the business case:
Benefits of storage and renewables in off-grid mining
To date, diesel generation has a good track record in providing reliable power to off-grid mines. This traditional approach, however, also creates some well understood challenges:
Renewables and energy storage systems have already proven themselves as an effective solution for generating high quality electricity. Fig. 3 gives a global view of selected solar PV-diesel and wind-diesel microgrids, also known as hybrid plants, for powering off-grid mines.
Following the successful completion of numerous such projects, the focus is now on developing unsubsidised, profitable business cases that effectively reduce fuel dependency. Here a modular approach allows the hybridisation process to be started with a smaller investment in either renewable energy or storage that can later by extended, for example, as framework conditions such as diesel fuel prices change.
The typical stakeholders in the path to hybridisation include the mining company itself, the project developer (internal or external), the financing company (debt vs. equity), the engineering, procurement, and construction (EPC), the technology suppliers and the operation and maintenance (O&M) provider.
Various business models among these players are possible, however an essential element across all models is the involvement of technology suppliers at an early stage of the
design. Additionally, stakeholder management and commercial integration remains key in delivering a successful hybridisation project.
Background of simulated scenarios: Four scenarios analysed
The following scenarios consider various options for upgrading an off-grid mining operation with an energy storage system and/or a solar PV power plant. In total, four different scenarios are simulated and optimised to provide the lowest LCOE while achieving a minimum 10% IRR.
As presented in Fig. 4, these include:
For all four scenarios, we assume a mine with an average load of 5 MW with hourly (but no seasonal) variation. The peak load can reach a maximum of 6,3 MW. In addition to the load requirements, the minimum operating reserve of the power system is 1,2 MW – an entire generator’s capacity. The generators are all a standard model benchmarked on a leading manufacturer. Each generator has a capacity of 1,2 MW and operates on diesel fuel. The minimum load ratio for the generator is 30% and the minimum run-time is two hours.
This case study only considers new investment costs for the hybrid system as the generators are already installed on-site. For comparing each scenario an all-in fuel price of US$1/ℓ is used, which is inclusive of transport, taxes etc. The total capex of the installed solar PV system, including inverter, is $2/Wp. In the simulation, the assumption for the solar irradiation is 5 kWh/m2.
To account for cloud cover 75% of the PV’s power output must be covered in the operating reserve by the diesel generators or the BESS. The BESS uses Li-ion batteries and the roundtrip efficiency is assumed to be 90%. The assumptions are rather conservative in that they reflect, for example, higher construction costs at remote locations.
To assess LCOE and annualised costs, a 10% nominal discount rate is applied and project lifetime is assumed to be ten years, after which the solar PV modules, BESS and inverter are assumed to have a salvage value worth a third of the original purchase price.
The simulation tool combines the operating requirements (e.g. electrical and thermal demand, reserve requirements), to the physical assets (existing and additional) and key financial inputs (including investment, maintenance and replacement costs).
Based on this, the simulator runs generation dispatch analysis for a range of scenarios, and determines the most economic system to meet the operating requirements.
Base case: diesel
The base case refers to the mine continuing to run the existing diesel generators as before. Six diesel generators with a 1,2 MW nominal rating are required to serve the load with one additional generator always online as an operating reserve in case any one of the six generators unexpectedly fails.
All generators operate in proportional load sharing which means each generator has the same capacity factor. The sum of spinning reserve carried by all generators allows one generator to trip or the load to instantly increase without the need for load shedding. This operation leads to additional O&M costs from additional generator runtime as well as lower fuel efficiency due to a lower capacity factor.
At a diesel price of US$1/ℓ, the base case has annual fuel costs of $11,6-million and maintenance costs of $1,7-million which results in an average annual operating cost of $13,3-million and a LCOE of $304/MWh.
The following scenarios are benchmarked to the base case.
Diesel plus BESS
A BESS is able to replace the diesel generator which serves the 1,2 MW operating reserve requirement as well as to smooth out certain demand peaks with battery storage (an additional 0,9 MW) thereby delaying or avoiding the start of a generator. Total investment costs for a BESS solution meeting the modelled size requirements of 2,1 MWh/1,7 MW are estimated to be $1,5-million. The simulation output shows a fuel reduction of 100 kℓ and an annual cost savings of $0,4-million, resulting in a payback period of 2,7 years and an IRR of
37%. The LCOE is reduced from $304-million to $295-million/MW, mainly due to a reduction of generator maintenance costs.
Diesel plus solar PV
This scenario pursues an alternative path to hybridisation initiated by a PV-only upgrade without energy storage. Here we replace diesel fuel by cost competitive solar PV. In this configuration, the integrated solar PV system is limited by the minimum loading of the diesel generators in combination with their step load capabilities.
As the ideal solar PV generation capacity exceeds the step capability of the generators, the PV capacity is limited to 4,5 MW. Installing this PV system requires a capex of $9-million. As a result, the LCOE is reduced from $304 to $289-million/MWh with fuel savings the primary value-driver for this system at ten times the level of the diesel plus BESS scenario. The payback time is 5,2 years and the IRR is 16%, somewhat lower than the diesel plus BESS scenario which had an IRR of 36%.
Diesel plus BESS and solar PV (maximum savings)
In this scenario, the two technologies are combined. An investment of $19,4-million is required to add a solar PV system of 8,1 MW AC and a BESS of 4,4 MWh/4 MW. The solar PV plus BESS system reduces annualised costs from $13,3-million down to $12-million, a saving of $1,3-million annually, primarily due to 3,2 Mℓ of fuel reduction.
The solution offers maximum value stacking from the storage component as it substitutes the diesel generator as operating reserve, smoothing demand peaks, and also allowing maximum solar PV integration. The investment returns an IRR of 16% with a payback period of 5,2 years and is easily the best option from the perspective of lowering LCOE. In this case, an advanced BESS has the additional benefit of effectively managing the fluctuations caused by renewable energies, e.g. cloud cover, while continuing to deliver high-quality power.
The transformation to a solar PV plus BESS microgrid can be achieved through incremental hybridisation investments thereby lowering investment risk and effectively responding to changing market conditions such as increased delivered fuel price or decreased solar PV price.
Depending on the business objectives, it is possible to either maximise investment IRR by adding only a BESS, or alternatively reduce diesel consumption and associated carbon emissions and delivery risks by investing in a solar PV plus BESS solution.
To better understand the drivers of LCOE savings, the full hybridisation scenario, diesel plus solar PV and BESS, is analysed for a range of input factors. This sensitivity analysis includes diesel fuel price, installed solar PV price, battery price (excl. converter) as well as solar irradiation.
As shown in Fig. 6, diesel costs are found to have the highest impact on LCOE savings with an increase in fuel price from $1,0 to $1,5/ℓ leading to an increase in savings of 6,5 percentage points versus the base case. To further assess the impact of diesel and solar PV prices, Fig. 7 shows the recommended microgrid system configuration, resulting fuel saving and LCOE saving as diesel and PV prices vary.
Under the majority of the conditions evaluated, a mine would achieve an IRR in excess of 10% for the upgraded systems adding both BESS and solar PV. As diesel prices increase, or PV prices decrease, the size of the optimised solar PV and BESS becomes larger. In some scenarios, where diesel fuel is very cheap and PV is very expensive, it no longer makes sense to install PV purely from an economic perspective. Under these conditions, it may be best to first install a BESS and add solar PV as their price decreases, or the price of diesel fuel increases.
Powering remote mines with diesel generators provides a proven and reliable energy source, but leaves the mine operator vulnerable to diesel price fluctuations, fuel supply risk as well as uncertainty around future carbon taxes. It also fails to capitalise on the economic and operating benefits that BESS and solar PV offers today and potential cost savings from carbon taxes in the future.
Fig. 8 presents an overview of the economic benefits and capital requirements of the four scenarios tested. In some cases, mine operators may prefer the incremental hybridisation route as it allows more gradual changes to the operating system and strategy.
This analysis shows that it makes sense to consider BESS in the first step without additional renewable energy capacity as this offers the highest IRR. Ideally, the use of a flexible BESS, such as the ABB PowerStore would allow the storage capacity to be increased if renewable energy systems are later added.
In terms of renewable options, wind has also proven itself to be effective in the mining sector, particularly in those areas with high wind resource and low solar resource. Due to historically lower costs, high scalability and relative ease to gain approvals in remote locations, wind has accounted for 59% of installed renewables in mining to date. Where mine lives are shorter than ten years new business models allowing for relocatable solar PV to be installed could be considered. Once you have found the right renewable choice for your location, combining with a BESS can provide additional cost-savings that mining operators can benefit from today.
Contact Shivani Chetram, ABB, Tel 010 202-5090, firstname.lastname@example.org
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