Solar Energy shall mean for Chilean Mining what the iPhone meant for Apple
"Innovation is what distinguishes a leader of others" ... STEVE JOBS
When I began this article I did not know whether to use the precedent header or this other one: Solar energy can transform the Chilean electricity companies, in the same way that the iPhone transformed Nokia or Blackberry.
In the last 12 years two people called «Steve» have shaped one of the biggest upsets in the history of business leadership. Analysis of this experience can be drawn lessons learned and apply them in the market for Chilean mining and energy. Jobs transformed Apple from being a company in danger of disappearing to be the largest market capitalization company in the world and have more cash than the U.S. government. The other, Microsoft, step of having the world’s greatest billionaire practically survive thanks to the inertia of a captive market and, due to its spectacular failures in the mobile Internet market, struggling to follow the innovator, the leader. It is for this lack of vision and leadership for the other Steve, Steve Ballmer, was been «invited» to leave recently the executive management. Should we see how the history has changed?
So what does all this with Chilean mining? The energy model is the most fertile area of innovation that can develop the Chilean mining. However, when solar energy is proposed in Chilean mining both wrong prejudices arise: two serious effects of market myopia:
- First: «The miners are to produce metal, no electricity,» lie!
- Second: «Solar energy is not 24/7»; lie!
«Microsoft Myopia«: «Chilean miners are to produce metals, no electricity»
It is quite normal to hear executives and engineers in the Chilean mining «we are to produce copper, not to generate energy.» Just like 10 years ago when Microsoft said «Microsoft is to computer software … not for nonsense music devices as iPod!».
Knowledge management in mining is crucial, even more so when ore grades decrease every year, environmental legislation hardens, the commodities are volatilized, the local taxes grow up and Peak Oil increase fossil fuels costs. Smarter mining exploration is needed as well as the development of an less expensive exploitation and environmentally model. The Chilean mining model must evolve from being simply operationally EFFECTIVE towards a more EFFICIENT cost model respecting the environment and social local communities. The introduction of mining companies in coopetition with power in the market for renewable energy is mandatory. We must remember that managers and engineers from Microsoft «were just to make computers …» and thus lost the direction of the core business. Chilean miners need to change their business model in order to overcome this myopia, redefining their «Core Business».
The upshot is a marked increase in mining costs that looks set to continue, which may explain why mining corporate equity valuations have slowly de-linked from commodity prices, implying that investors are now valuing firms based less on what minerals they unearth and more on how efficiently they do so (Deloitte, 2012)
For 15 years, energy costs were not at the «core business» because in mining, the effectiveness prevailed over efficiency. But today, the heart of the industry should need a clear sustainability and economic returns. Today the Chilean mining market has the solar PV in his heart because at the Chilean mining regions, solar energy meets the two major premises in the core mining business: (a) is more profitable during 12/7 and (b) it is environmentally sustainable during 24/7 using storage.
So the question arises … Are mining companies in Chile dominated by «decision makers» Steve Ballmer type? Myopic??
Where is the Steve Jobs of the Chilean MINING?
Chile, becoming the solar PV mining world leadership?
Here are some good examples where we could look for future mining leaders. «El Tesoro» and «Pampa Elvira» (Codelco) are world leaders in solar thermal mining experiences . In late 2013, the Chilean miner Collahuasi installed 25 MW solar photovoltaic, planning to expand to 60 MW, became the world mining leaders in solar PV.
CAP Chilean mining company, is about to finish a 100 MWp photovoltaic installation and will become not only the world’s leading iron ore mining in the use of solar energy, but also the largest solar installation in the world and mining largest photovoltaic installation in South America. Probably the mining expanded in the future to 200 or 300 MWp.
In the total of the next 25 years, the Far North Chilean mining cluster will produce 37% greater amount of electricity than the total electricity consumed in Argentina for a year.
«Nokia Myopia»: Power companies, we offer a 24/7 service, renewables can not do that!
Solar energy & energy storage (i.e.. lithium batteries) are 24/7. However, they are only competitive in price today in off-grid situations.
However, there are some exceptions to this rule, because certain solar energies meet 24/7 in mining tasks, for example, LED, photovoltaic lighting, water pumping, desalination and, of course, solar thermal energy storage. NCRE gradually conquer «competitive hours» until it reaches 24/7 (some experts estimate a period of 8 years for mining in northern Chile).
«Why do you need a cell phone being able to store 1,000 songs? What a nonsense»
This was the thought eight years ago for the leaders of the world’s largest mobile manufacturing corporation and one of the five most respected brands in the world that time, Nokia. They ignored the threat of the entry of the iPhone in the mobile market and they continued also criticizing the users of this new digital mobile platform. There are none so blind as those who will not see.
Today the Nokia managers become the fools and the «Smart» people are users of Apple and Samsung. Something similar happened with Blackberry, another myopic company, by not implementing touch screens and using an operating system like «Microsoft», feeling the mobile as a desktop computer.
Power companies in Chile should learn from the precedent business cases, be more proactive . A country as Chile without energy fuel fossil reserves (no coal , oil or gas), or «neighbors» never convinced to sell it cheaply and safely, requires innovative solutions. Chile has the highest levels of solar radiation in the world in the north ( the » Chilean energy iPhone» ), with thousands of kilometers of coastline with tidal power (the » IPod » Chilean energy ) and wind ( «iPad» Chilean energy ) significant with biomass resources ( » iWatch » Chilean energy ) and small hydro ( «Apple TV» Chilean Energy ) in the center and south of the country should have long ago opted for these new sources of electricity; and because of its elongated and multi-latitudinal geographic disposition is ideal for the development of NCRE smart grids ( «iTunes « Chilean energy ) balancing Solar PV & Thermal to the north/centre and biomass / small hydro to the south and wind coastline with geothermal resources the whole country.
In the same way that Apple did not try to tackle mobile against computers, in our example should not were a war between fossil fuels and renewable solar energy than it is to make the best of both. «Smart» Energy, synergy, look for the most appropriate energy mix in every moment and situation. In eight years become energy storage solar or wind energy 24/7. Some experts are betting on only five years for the Chilean mining.
Are power companies in Chile filled with «decision makers» Steve Ballmer type?
Where is the Steve Jobs of Chilean ENERGY?
Shall we going to the NCRE simulation lab?
Less theory and lets go to the «Garage», to the business lab. Silicon Valley has mythologized «garages» of those dreamers who think they can change the world. In the case of Chilean mining we could find some small minesOn a real case: A small mine located in the SING (large grid north Chile) 3,000 tons of annual production of copper concentrates to 30%. In the most conservative scenario based on energy expenditure report Cochilco 2012, it will consume 7,430 MWh in 2013 to about 10,620 MWh in 2022 with the same output. This production will cost in Power following the BAU Model 2013 (Business As Usual) a conservative average of $ 738,833.
However in 2022 the cost of electricity will more than double to $ 1,637,041!
Thus, it will be very difficult to continue and probably the mining company will default and the power company will run out its future revenues.
But if we will opt for a power matrix of 35% PV and 65% of fossil fuels, in these 10 years will save 17.08% (1.93 million USD) in the energy bill that would allow it to produce nearly 700 tons Extra concentrates «free form». If so , probably bet to increase production and … the power company will have a customer who check in the future. The photovoltaic energy cost will be almost constant during 25 years, which will mean paying a fee until 2032 without raising its price. Moreover if the simulation is made for the central Chilean power grid, known as SIC , the savings would be significantly higher.
Finally, other components of Solar PV for mining
We live in times of change, the latest data from the International Energy Agency that have come out this month reconfirm the good health of solar PV with expected growth of 40% year coming years. Photovoltaics have come here to stay, the energy storage is coming, We live in times of change, the latest data from the International Energy Agency that have come out this month reconfirm the good health of solar PV with expected growth of 40% year coming years. Photovoltaics have come here to stay, the energy storage is coming,
The mining and power management teams have to innovate and fit in the NCRE industry to better compete. Other components in using NCRE affects not only on operating costs, but also on the valuation of the company because it positively affects both the EBITDA and decreasing the weighted cost of capital (WACC) and, therefore, the valuation of the company. Above all, affects the image of the company, reducing the carbon footprint helps to export more comfortably and explore new locations with lower risk of legal disputes, etc..
I do not want to finish the article without the following quote:
Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?" STEVE JOBS
Sentence with which Steve Jobs convinced the Executive Vice President of Pepsico (and futurible President) John Sculley to Apple to go to work.
And I ask you:
"Do you want to spend a lifetime producing twentieth century copper or do you prefer to innovate to the most cost effective, efficient and sustainable copper for the XXI Century?