Business Model Overview for Extractives and Renewables

There are a significant number of business models which Independent Power Producers (IPPs) in the renewable energy space have developed and adopted. Generally, renewable energy developers are innovative and happy to disrupt the status quo. So, its hardly surprising that there are a number of ways in which renewable and extractives can fit together which benefits both parties. Some of these models don’t even have the renewable energy assets feeding into the mining operations itself.

I’ve shown these in the basic figure below:

There are a number of key issues to be examined and resolved in detail when looking at options for renewable energy at operational mining sites. These can be seen in the column on the left and will be the subject of several articles in the future. From these issues falls the decision around renewable energy asset type. Although this simple diagram shows solar and wind as the two dominant types, other options such as hybridised diesel exist. The interface between renewable energy and the mining operation is the domain of the business model adopted by the mine.

If you were to pin me down to one key factor which determines the likeliest avenue of success around this business model, I would have to say that it’s the second bottom item on the left-hand list – the mining company core competency. Does the organisation have the experts and experienced development specialists within it to drive the project forward? Some of the larger company’s may have them – or feel comfortable to set up a department and employ staff to do this. However, the majority of mining company’s are better served by hiring independent development experts with deep knowledge and the track record of success to deliver.

Whichever route the mining company goes down, there are a range of basic business models which exist. Very briefly, these are:

·        Self Consume. The mining company builds, operates and consumes energy from the renewable energy asset. Excess power is sold to adjacent users or into the grid – assuming grid availability. Increasingly, storage is used to flatten out the demand side of renewables and to provide power when it is needed. Also, hybrid systems are used involving diesel generation;

·        Power Purchase Agreement (PPA). An IPP develops and funds the assets off of the terms of the PPA where the mine agrees to buy power at a certain volume for a specific price. Beyond this, there is no connection between the mine and the IPP;

·        Co-ownership or Joint Venture. The mining company enters into a JV arrangement with an IPP where the asset is developed and financed off of the balance sheet of the mining company and also using project finance. The operational asset sells power to the mine via a PPA. Excess power is stored and also sold to adjacent users or into the grid. All profits are split as per the terms of the JV agreement;

·        Leasing. Unused or restored land is leased to an IPP for the development of renewable energy assets either while a mine is operational or once a mining site is restored. Power is sold to adjacent users or onto the gird. All income goes to the mining company;

·        Energy for metals swap. Instead of purchasing power for money, the PPA has the mining company swapping power for metals. This is often linked t power and commodity spot prices;

This list is by no means exhaustive. We are an innovative lot in renewable energy and every business model will have to suit both parties. The above is a broad overview of some of the options available.

By | 2017-11-14T16:04:20+00:00 November 14th, 2017|Uncategorised|0 Comments

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