SolarIndustry | December 10th, 2014 — A study from Germany-based THEnergy reports that remote mining operations are often well-suited solar-diesel hybrid power plants because they possess the necessary land, have a high load during the day and face high electricity prices from diesel generators.
Solar power is up to 70% less expensive than electricity from diesel generators, the report says. However, mining as an industry has suffered from the global recession, and many mining companies are faced with problems of financing solar projects. Investments for solar facilities typically are made up front – before any electricity is produced – while the fuel for diesel generators is payed for as it is consumed, which spreads the burden out over time.
According to THEnergy, feed-in tariffs or long-term power purchase agreements (PPAs) may serve to mitigate the upfront costs of solar power. On the other hand, even if there is a long-term PPA in place, the risk for the solar project owner is substantial due to the fact that under typical operating conditions, the mine is the only possible off-taker of the electricity in remote locations, the study says. If the mine does not fulfill the contract, e.g., if it has to file for insolvency, the generated electricity cannot be sold easily.
The study points out several solutions for mitigating the risk the external investors may face. One is the possibility of building the solar facility in a modular way to make disassembly and transport cost-effective if the host mine defaults. Another possible solution is for the owner to charge a higher rental rate or electricity price during the first years of operation. A third possibility is to require the mining company to co-invest in the solar power plant and assume more liability for the market risks.
“A growing number of solar companies and investors see the mining industry as a reliable partner for rental or PPA models,” says Thomas Hillig, founder of THEnergy. “This development is considerably likely to accelerate the extension of solar applications at mines.”
The report can be downloaded here.