Levelized Savings of Solar PV in Chilean Mining
In this article we will discuss the potential gains due to energy savings which will mean migrating a portion of the power consumption of mining from fossil to solar PV. We will also see how these savings are transformed in increased profits and subsequently higher valuation for the mining companies.
Heading figure of current article presents key data on benefits and costs of solar PV in 67 projects analyzed by our team. These data illustrates the average savings produced by the the substitution of about 5,000 MW of power generation capacity through coal and diesel (BAU – Business As Usual Model) in production capacity of PV in the four regions of Norte Grande (Chile).
The total production of this 187 TWh in 25 years has been dealt with in a previous paper achieving 27.11 billion dollars in 25 years. As an average cost (LCoE) were also above for the two business models analyzed (Turnkey and PPA models) and explained in a previous post.
Levelized Savings of Energy Definition (LSoE)
So far we have used a widely accepted term in the energy sector, the levelized cost of energy (LCoE), in USD/MWh. In this paper we propose a new side to this previous term, the Levelized Savings of Energy (LSoE).
What are LSoE? They are the savings (or reverse income) produced by the use of NCRE, in our case Solar PV, compared to the levelized cost of current and future energy models of fossil fuels (BAU Model). The future cost for the BAU model is based on the analysis of the International Energy Agency.
Then,
PPA LSoE = BAU LCoE – PPA PV LCoE
And,
Turnkey LSoE = BAU LCoE – Turnkey LCoE
Then we studied both models at the four mining regions of Norte Grande (Arica, Tarapacá, Antofagasta and Atacama regions).
PPA Model: Levelized Savings of Electricity (LSoE)
The Norte Grande LSoE for the PPA Model means 93.3 USD/MWh. Then total savings arrives to th 43.2% over the LCoE BAU model during 25 years.
- Arica region LSoE: 79.1 USD/MWh which means the 36.7% of savings compared to the LCoE BAU model
- Tarapacá region LSoE: 91.7 USD/MWh which means the 42.5% of savings compared to the LCoE BAU model
- Antofagasta region LSoE: 98.7 USD/MWh which means the 45.6% of savings compared to the LCoE BAU model
- Atacama region LSoE: 78.8 USD/MWh which means the 36.5% of savings compared to the LCoE BAU model
Highest savings in Antofagasta is due to bigger size of PV plants which implies a more comfortable finance.
Lowest savings are done in Arica and Atacama due to smaller PV plants size and poorer finance conditions
Turnkey Model: Levelized Savings of Electricity (LSoE)
The Norte Grande LSoE for the Turnkey Model means 123.6 USD/MWh. Then total savings arrives to the 66.7% over the LCoE BAU model during 25 years.
- Arica LSoE Turnkey Model: 117.5 USD/MWh which means the 62.6% of savings compared to the LCoE BAU model
- Tarapacá LSoE Turnkey Model: 125.1 USD/MWh which means the 67% of savings compared to the LCoE BAU model
- Antofagasta LSoE Turnkey Model: 125.3 USD/MWh which means the 68.1% of savings compared to the LCoE BAU model
- Atacama LSoE Turnkey Model: 117.0 USD/MWh which means the 62.3% of savings compared to the LCoE BAU model
The margin between Tarapacá and Antofagasta lower than the PPA Model. Why? Antofagasta region is more profitable because its photovoltaic plants exploit the economies of scale thanks to its bigger size. Even when Tarapacá has greater solar resource than Antofagasta.
Arica has the highest solar resource but smaller solar plants and Atacama has the lower solar resource at Norte Grande. However the Atacama’s PV plants are bigger than Arica’s ones. For all the above Arica and Atacama compensate these pros and cons presenting very similar level of savings. This trend repites in both models, Turnkey and PPA.
What Next?
Savings means less costs meaning an increase of EBITDA. Higher EBITDA which means higher mining valuation. Then we are talking about higher shareholder valuation an lower debt risks thanks to the solar PV in mining that derivate into a decrease of WACC. All this Sounds good!
We’ll see all these implications in next posts. To be continued …
