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If Glencore wants cheap energy for Mt Isa, it should go solar

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mt isa

International mining giant Glencore is apparently threatening to close its huge copper operations in Mt Isa – with the loss of at least 2,000 jobs – because of the soaring cost of energy, amongst other things.

According to an article in the Australian Financial Review on Tuesday , Glencore’s copper chief Aristotelis Mistakidis has written a letter to the state and federal governments complaining that the price of power has risen 100 per cent in three years and will continue to escalate.

But it only has itself to blame.

Glencore is the biggest miner of coal in the world following its merger with Xstrata, and the biggest mineral commodities trading business.

Back in 2011, Xstrata had a choice of which energy it should choose for the future supply of Mt Isa – between the Copperstring transmission line from Townsville that would deliver wind, solar, biomass and maybe geothermal, or a gas plant supplied by AGL.

It went for the latter, and it has turned out to be be a mighty stupid decision. Gas prices have soared, as many predicted, and the cost of gas generation has likely more than doubled.

The cost of solar and wind, meanwhile, has halved, as many predicted. Glencore would likely be paying half of what it is now had it chosen the renewable energy option.

And it wasn’t as though it wasn’t warned. As I wrote at the time, Windlab, the developer of the giant Kennedy wind and solar park, and a supporter of the Copperstring project, had advised that wind and solar would reduce the cost of energy significantly, even without the scope of the cost falls that have occurred.

BIS Shrapnel said the Copperstring project was a better and “compelling” bet; Deutsche Bank analysts questioned the choice of gas over renewables, and even the then Queensland Labor government of Anna Bligh agreed, noting that Copperstring was a “once in a generation opportunity”.

But like so much about Australia’s energy policy over the last decade or two, the decision was outsourced to the fossil fuel industry.

The Queensland government allowed Xstrata to make the call, which it did, relying on a report from current ACCC boss Rod Sims, the then head of advisory firm Port Jackson Partners, and it went with a new 242MW gas fired generator, siding with a local monopoly rather than being connected to the national market.

gas forecasts Mt Isa(Interestingly, Sims was quite equivocal but suggested that the consumer might go for the short term savings. i.e. gas. His report is still online, and relied on forecasts from the likes of ACIL Tasman and MMA that gas prices “might” rise to just above $6/GJ by 2026, but would still be below $5/GJ now.

It is not known what Glencore pays AGL for its gas supply, which is transported along the 840km Carpentaria gas line, but the Australian Energy Regulator reports that in March, AGL was quoting industrial customers $20/GJ. (see here, page 84).)

It any case, the decision has proved a disastrous decision on so many fronts. Apart from bringing an end to hopes of opening up a major province of new renewable energy projects, and providing power to numerous other mining projects, the gas plant brought construction group Forge to its knees because of cost over-runs.

Now the gas plant, and the near doubling of gas prices, threatens to end the long history of mining and smelting at Mt Isa, with the possible loss of 2,000 jobs, and likely the economic future of a major regional centre.

If Glencore is really serious about the operations at Mt Isa and reducing energy costs, it would have no hesitation in building a large solar plant to meet at least some of its energy needs. That can be easily incorporated into the gas plant, particularly with the help of storage and smart controls.

Mt Isa has excellent solar resources. It would likely deliver electricity at a cost of $70-$80/MWh, perhaps even less. If it had acted quickly enough, Glencore could have cashed in on the high price of renewable energy certificates.

That would have meant that the cost of electricity would have been free for at least a few years (LGC prices have been trading around $80/MWh).

At the very least, a large portion of its energy costs would be largely hedged for 25 years. It would have guaranteed its earnings and the jobs of 2,000 people, and the future of a major regional city.

South Korea zinc producer Sun Metals is doing just that near Townsville, building a 116MW solar plant so it can control costs and justify the expansion of its zinc refinery. It acted on its own because it was sick of the high prices and market manipulation of the state fossil fuel generators.

Now Telstra is doing the same thing, announcing on Wednesday that it will contract a new 70MW solar farm also in north Queensland to reduce and control its electricity costs.

Monash University, which has tendered for a 40MW wind or solar plant, has followed suit.

Ironically, Glencore already boasts that 19 per cent of its energy needs across the globe is sourced from renewable energy. Now is the time to put a big effort into securing a similar amount in Australia. It is so obvious, it is stunning that these big mining companies have not already jumped to it.

But, as Marc Hudson notes in his fantastic report into the recent history Australia’s energy policy: “Why were we so stupid, so unrelentingly shortsighted?”

   

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  • Marathon-Youth

    No matter how cheap solar energy gets no man should pay another for electricity formed from solar energy.

    We have the technology and the money to make each person energy independent as we were before the energy companies came into being.

    • solarguy

      It’s a wonder that you can blink and breath at the same time, but then maybe you can’t.

    • Vox

      I’m a bit confused. Why shouldn’t a man pay for another for electricity from solar energy?
      Doesn’t it require capital expenditure to extract the electricity from the sun? Aren’t there operating costs to cover?

    • FeFiFoFum

      LOL!
      So who pays for the hardware to convert the solar energy into electrical energy ??
      You have a choice on how you pay for that energy,, either you pay the capital cost for the equipment, or someone else installs and pays for the capital cost in which case you pay for the use of that equipment, or the electricity that equipment generates.
      Its not like you don’t have a choice,, but getting it all for FREE is probably not an option..

  • john

    I remember the points raised when the decision was made to go gas with the view that gas would be at least $12/GJ in a few years from 2011.
    It seems those predictions have been surpassed and even at $12 they were derided as fantasy.
    Short sighted bad decision making by myopic people without a world view result in consequences that cause social and economic disruption to those effected.
    How to fix this mess?
    No doubt the much touted ultra critical coal generator will be on the table and the cost outcome will still not match the glaring obvious choices available which include the RE options.

  • Ray Miller

    What a difference to Sunmetals, they work on solutions and build 116MW solar farm, Glencore complains and does nothing.

  • Radbug

    In Mt Isa, the ore body is still there. It’s not going anywhere. This means that someone is going to pick up Mount Isa for pennies in the pound, and then they’ll go solar. Someone is going to make a monster loss on this deal. As for asinine stupidity, recall Rio’s acquisition of Alcan at the height of the mineral boom.

  • Chris Fraser

    Glencore was probably biased in its choice. By choosing gas, at least there was less risk of conflict with the Minerals Council. Wonder how Glencore now feels about Sun Metals ?

  • Hendo
  • David Osmond

    Not only did the cost of gas rise dramatically, but the cost of the gas power station also blew out, leading to the bankruptcy of the constructor in 2014: http://www.abc.net.au/news/rural/2014-02-13/diamantina-power-hopes-forge-workers-will-lkeep-jobs/5257458

    • FeFiFoFum

      Forge Group went on a buying spree and operated on hubris.
      Dimantina was one of four power station projects where they suffered cost overruns ( read under quoted projects in the first instance).

      The whole show was a circus run by clowns.
      We got burnt on one of the projects in WA so no sympathy to those clowns.

  • Les Johnston

    Interesting reflection on the woes of making a bad decision. Companies go broke and the Government ie taxpayers should not be the source of funds to prop up bad decisions. Companies need management focused on the future not looking back at the past.

  • Malcolm M

    Interesting comment on the Townsville Bulletin website “Another day, another story about how “Businesses” are being crippled by uncertain price hikes, yet daily I am talking to businesses to provide them an alternative option (On-site solar and battery under a fixed price long term electricity power purchase agreement PPA) and being told that “were ok for now”

    “I’ve spoken to large industrial smelters, offered up PPA’s well below wholesale pricing, and been snubbed so let the whiners whine…options are available.”

    So there are lots of large energy users who are whiners, not many who take proactive action. What is it about Australian business culture?

    http://www.townsvillebulletin.com.au/news/editorial-states-spin-cannot-mask-power-crisis/news-story/b43776ee109e6ab7d3a27cef9075b7d8