1.1 The business case

Traditionally, energy management has been approached in a reactive way. For example, new legislation or a change in energy prices has motivated short-term action. While this has led to some improvements, energy management is most effective when it is approached in a sustained and integrated way. To justify ongoing resourcing of energy management initiatives, however, the business case must be clearly articulated and updated regularly to reflect market and legislative changes.

There are clear economic, environmental and social reasons for improved energy management. However, the case for energy management will vary from one site to the next. To present a compelling case, it is important to understand the full range of business drivers as well as the benefits that an improved approach to energy management can deliver.

Strategic drivers

A number of broad business drivers highlight the importance of improved energy management in mining operations. They include:

  • the decline of energy productivity in the mining industry
  • fluctuating energy prices
  • changes in government legislation and programs
  • social expectations, including the ‘social licence to operate’.

Energy productivity in the mining sector is declining

The mining industry has contributed the largest annual increases in net energy consumption of any industry in Australia over the past 10 years. The average annual growth rate of 5.7% over the 10 years to 2012-13 Footnote 1 is not surprising, given the significant increase in production that occurred over that time. However, over the same period, (the energy needed to produce each unit of output) has declined.

There are a number of important reasons for this decline in energy productivity. Specifically:

  • the quality of ore bodies is decreasing, which means that more energy is required for processing
  • ore bodies are becoming less accessible as pits get deeper, and more energy is required to access them.

Figure 3 illustrates the extent to which the physical amount of energy per unit of mining output has constantly increased over the past decade. Declining energy productivity means that most mining operations will need to increase their energy consumption per unit of product. Improved energy management can help minimise the decline in energy productivity.

Figure 3: Index of mining value added, energy use and energy productivity, 1986 to 2010

Figure 3: Index of mining value added, energy use and energy productivity, 1986 to 2010

Source: A Syed, Q Grafton, K Kalirajan, Productivity in the Australian mining sector, BREE, Canberra, 2013, p. 34, www.industry.gov.au/.../australian-mining-productivity-paper.docx.

Fluctuations in energy prices

Energy prices have fluctuated considerably over the past 10 years. Real electricity prices increased by about 60% between 2003 and 2016 (Figure 4). Gas prices are projected to increase significantly on the eastern seaboard of Australia as it is exposed to the international market. Oil prices have fluctuated significantly, from a peak of US$147 a barrel in July 2008 to much lower prices today.

Predicting the price of energy is complex. However, it is clear that improved energy management can minimise the impact of price fluctuations on mining operations.

Figure 4: Real electricity and gas increases, 2003 to 2013

Figure 4: Real electricity and gas increases, 2003 to 2013

Source: Australian Bureau of Statistics, in Kai Swoboda, Energy prices—the story behind rising costs, Australian Parliament House, Canberra, n.d., http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/EnergyPrices.

Changes in government legislation and programs

The Australian legislative environment relating to energy management has seen a number of changes at state and national levels over the past decade. The policy objectives vary from one jurisdiction to another. Policy priorities related to energy consumption in the mining sector can include:

  • improving industrial productivity
  • reducing pressure on existing energy infrastructure by reducing demand through energy efficiency
  • reducing greenhouse gas emissions
  • improving the extent to which communities and investors can assess the energy and greenhouse gas performance of companies.

The mechanisms have varied from mandatory energy audits through to providing funding for energy-efficiency projects that can demonstrate reductions in greenhouse gas emissions.

Legislation should not just act as a driver for businesses as it is introduced. Rather, by establishing a rigorous approach to energy management, businesses can reduce their costs of compliance with existing and potential future legislation. Mining businesses may also be able to access funding to support the implementation of energy-efficiency projects. It is advisable to assess the full range of opportunities to improve energy performance before seeking government funding. As eligibility criteria may be restrictive, projects that are eligible for funding support might not offer the best financial returns, or might not align with business improvement or asset management strategies.

Social expectations and social licence to operate

Environmental responsibility can protect and enhance a company’s reputation and social licence to operate. Within the mining sector, a poor reputation can make it more difficult for companies to gain approval for new mines or expansions. It can also attract more attention from regulators. In some cases, greenhouse gas and energy-efficiency projections and proposed reduction initiatives may be required as part of the project approval process.

Stakeholders within government, local communities and investors are increasingly looking for information on environmental performance. Public reporting on greenhouse gas emissions and energy efficiency is increasing through company sustainability reports and investor reports such as CDP (formerly known as the Carbon Disclosure Project Footnote 2 ). The actions taken by a company to reduce greenhouse gas emissions can also be of interest to employees and can affect a company’s ability to attract and retain staff.

Energy efficiency is only one of the factors that influence stakeholders’ perceptions of mining companies. However, it can support a company’s reputation by providing a very visible and practical example of the company’s commitment to reducing greenhouse gas emissions. In doing so, it can help mining businesses to demonstrate commitments to international benchmarks such as the Equator Principles. Footnote 3

Operational benefits

The most obvious operational benefit from improved energy management is a reduction in energy costs. However, effective energy management can deliver a range of other business benefits.

Reducing energy costs

A number of different factors influence energy prices. Energy efficiency reduces energy costs by achieving more production output with a lower energy input.

Improving productivity

Often, energy waste is a sign of other problems, so energy-efficiency improvements can reduce maintenance costs, increase plant output, improve product quality, or any combination of such benefits. It can also improve working conditions for staff, for example by reducing heat from processes or reducing noise.

Avoiding or deferring capital investment

Energy efficiency can reduce capital expenditure on plant by improving the efficiency of existing equipment or by reducing capacity requirements.

Energy contracts and pricing

Energy efficiency can significantly reduce costs if opportunities are examined with a good understanding of energy contracts and the way that energy is billed. For example, contracts may include penalties for reducing energy demand, or annual pricing linked to periods of peak demand. Additionally, more frequent and careful reviews of invoices may reveal errors that have led to overpayments.

Work health and safety

Looking at the way that energy is used can highlight work health and safety risks in the workplace related to factors such as temperature and steam.

Employee involvement and motivation

involving staff in programs to identify energy-efficiency opportunities can make them feel more involved in decision-making and contribute to improved levels of job satisfaction.

Improving profit margin

Profits are usually a small proportion of total turnover or input costs, so the cost reductions from energy efficiency may look small relative to turnover. Since they are often a significant proportion of the profit margin, however, the results can be more visible to managers when presented in this way.

Achievement of greenhouse gas reduction objectives

Where energy-efficiency improvements avoid the use of fossil fuels or electricity generated from fossil fuels, they may contribute directly to a firm’s greenhouse gas reduction performance.

Reducing maintenance costs

Achieving greater production output with less energy can also reduce maintenance costs (for example, running one pump and pipeline system instead of two systems).

Contributing to a culture of continuous improvement

The environmental benefits of energy efficiency may provide additional motivation for employees to identify and implement business improvement initiatives. The thinking and collaboration applied to energy-efficiency improvements can flow over to other continuous improvement initiatives.

Examples of the multiple benefits that energy efficiency projects can deliver are described through the project examples presented in boxes in Part 3 of this handbook.

Footnotes

Footnote 1
Bureau of Resources and Energy Economics (BREE), 2014 Australian energy update, BREE, Canberra, http://www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publications/Documents/aes/2014-australian-energy-statistics.pdf.

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Footnote 2
CDP: driving sustainable economies, https://www.cdp.net/en-US/Pages/HomePage.aspx.

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Footnote 3
The Equator Principles June 2013, http://www.equator-principles.com/resources/equator_principlesJII.pdf.

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