3.1 Energy supply and procurement

While the main focus of this handbook is on improving the efficiency with which energy is used, it is also important to consider the supply side of energy management. This includes examining the way energy is procured, as well as opportunities to develop and use cogeneration and renewable energy.

Energy supply options

Determining the most appropriate energy supply options is a critical aspect of mine planning Considerations include:

  • cost
  • onsite generation versus options to import energy
  • safety and security of supply (for example, transporting fuel long distances can be dangerous, and supply may be affected by severe weather and other disruptions)
  • environmental impacts and benefits
  • the availability of existing infrastructure, including gas pipelines and electricity grids
  • the availability and cost of emerging technology options, such as solar photovoltaic (PV) cells and other renewable energy sources, and confidence in those sources.


As fuel prices change over time and new technologies become available, it is important to periodically review the energy supply options that are available and cost-effective. While an examination of the full range of options is beyond the scope of this handbook, one important onsite option that can deliver cost savings, energy security and environmental benefits is cogeneration. Box 7 outlines the benefits that have been achieved at Alcoa’s Pinjarra Alumina Refinery.

Box 7: Cogeneration at the Alcoa Pinjarra alumina refinery

The Alcoa Pinjarra alumina refinery is about an hour’s drive south of Perth in Western Australia. In 2005, Alcoa partnered with Alinta to build cogeneration power plants at the refinery. Cogeneration is around 75% energy efficient, compared with 30-50% for other power plants operating in Western Australia.

These plants produce both electricity and heat from gas. The heat is used to generate steam, which Alcoa uses in the refining process. A year’s electricity from each cogeneration unit saves around 450,000 tonnes of greenhouse gas emissions each year compared to a similar sized coal-fired plant. In addition, the cogeneration plants reduce Alcoa’s refinery emissions by 270,000 tonnes per year through more efficient steam generation—equivalent to preventing the emissions from around 67,000 cars.

Source: Alcoa, Energy use in Western Australia, http://www.alcoa.com/australia/en/info_page/Energy_WA.asp.

Renewable energy

The mining industry has traditionally relied on fossil fuel based energy sources such as coal, oil and gas to meet energy demands. As renewable energy technologies improve and become more cost-effective, renewable energy can present a viable and cost-effective option to power a component of mining operations. Renewable energy plants can be developed in-house or developed, funded and built by third parties, as described in Box 8.

Box 8: Solar photovoltaic Installation at Weipa

Developing renewable energy at remote sites is not easy, even where it is replacing expensive diesel generation. Until economic energy storage is available, renewable energy can replace the use of diesel but the diesel generation capacity has to be retained as back-up. And the cost of building and maintaining renewable generation in remote locations is much greater than in urban locations.

Rio Tinto Alcan faced these challenges in developing renewable generation at its Weipa bauxite mine in northern Australia. In 2014, Rio Tinto Alcan, First Solar and the Australian Government renewable energy agency, ARENA, reached a joint agreement to develop a 1.7 MW solar photovoltaic (PV) facility at Weipa.

The plan was for First Solar to construct and operate the facility, which uses 18,000 solar panels employing First Solar’s thin-film technology. ARENA made an initial commitment of $3.5 million, and Rio Tinto Alcan is buying the electricity under a 15-year purchasing agreement.

The designed output of the system is an average of 2,620 MWh per year, saving up to 600,000 litres of diesel. In the middle of the day, electricity generated by the solar farm offsets up to 20% of existing diesel-generated electricity.

Source: Rio Tinto, Remote mine using the power of the sun: solar power at Weipa saves up to 600,000 litres of diesel each year, http://www.riotinto.com/sd2014/casestudies/remote-mine-using-the-power-of-the-sun.html.

Energy procurement

Energy procurement is a specialised area that requires a good understanding of energy markets, energy requirements and opportunities to reduce energy costs through demand management. While most mining businesses have specialised staff involved in energy procurement, it is useful to examine the procurement process during the energy-efficiency assessment to identify areas for improvement. Start by asking the following questions:

  • What are the main energy sources?
  • How frequently are invoices received?
  • What is the tariff structure? For example:
    • is energy (electricity or gas) charged at different rates depending on when it is used?
    • is there a peak demand charge?
    • are there ‘take-or-pay’ clauses in the energy contract that mean your operation is obliged to purchase a certain minimum amount of energy?
    • what is the capacity or demand charge, and is it levied as a fixed charge on the energy bill?

Understanding the way energy is charged is essential when establishing the costs and benefits of a particular energy-efficiency improvement. When contracts are being negotiated, understanding current and projected energy consumption can lead to a more cost-effective energy supply arrangement.

It is also important to examine whether the bills are accurate and to ensure that the appropriate tariffs are being changed. For organisations that do not have strong review practices, identifying billing errors as part of an effort to improve energy management can provide an important ‘early win’ if it leads to a refund from the energy provider.

Electricity demand-side management

The price you pay for energy is influenced by when and how you access the network.

The energy that end users require from the system is called ‘demand’ or ‘load’. Demand profiles are an important determinant of both short-term wholesale prices and longer term network prices. When overall demand is high or capacity is constrained, the underlying wholesale price of energy can be very high Peaky’ demand requires more responsive and expensive generation to be brought online. It also requires network service providers to construct more network capacity in parts of the network that are likely to become heavily loaded.

Retailers use the demand characteristics of end users to plan their purchases from wholesale markets. Typically, they charge end users more if the end user has a more volatile or less predictable demand profile. This compensates the retailer for risks, such as users requiring significant volumes of energy at peak times or requiring different levels of energy from those forecast. It is possible to reduce your costs through agreeing to a certain demand profile and then ensuring that your business complies with the profile.

Demand profiles are also used by network service providers to configure your connection to their network and determine which network tariff is most appropriate for each site. The maximum demand, or peak load, for end users drives the cost of supply incurred by your network service provider, particularly where the peak load occurs at the same time as for other users connected to the same part of the network. End users are typically charged at a rate that is directly related to their maximum demand, levied in $/kW or $/kVA1. They may also be charged a penalty if they exceed the maximum demand agreed to in their contract—their contract maximum demand.

Understanding your energy demand profile is essential to managing demand cost-effectively. This requires detailed data from your retailer and an analysis of how energy is used in your key processes and equipment. You need to be able to forecast, with reasonable accuracy, your maximum consumption in any single day (for gas) and in any single half-hour period (for electricity). Being armed with detailed usage data helps you to negotiate the best possible deal from energy retailers, energy management service providers or other intermediaries. Usage data will also help to identify what opportunities exist to gain benefits from demand-side responses. Retailers can provide you with your usage data or demand profile, but you need to ask for it. Ideally, the data should cover a minimum of a year, but may be confined to winter or summer periods, depending on the load profile. Alternatively, you can use the services of a registered meter service provider who is authorised to read your meter and provide the data to your retailer.

It is essential that you engage with representatives at the significant energy-using sites in your organisation to develop a better understanding of current and future requirements. Energy assessments can also give you a detailed understanding of how energy is used within your site, key energy-using processes and pieces of equipment. This knowledge is critical when making decisions on how to manage your demand profile and the effect it may have on production outputs or service quality.

In analysing this data, some companies look at optimising maximum demand settings. This involves modelling the previous year’s load and looking for a demand setting for the following year that achieves the lowest cost. This means setting a maximum demand that may incur penalties on a number of occasions but ensures that the total cost is lower than setting a demand that meets the highest peak load.

Different options to lower costs include:

  • reducing demand charges by changing the levels or mix of business activities to flatten your demand profile and reduce your peak demand
  • reducing the volatility in your load, enabling you to negotiate a lower premium for managing wholesale price volatility
  • shifting energy consumption so a greater percentage takes place during off-peak rather than peak periods, enabling you to negotiate a lower energy price
  • improving energy efficiency through investment in new equipment, changing production processes or introducing more energy-efficient practices, which reduces your overall consumption
  • understanding future needs (such as plans for expansion) and considering whether it is better to enter a one-year energy contract and revisit negotiations when you have a clearer picture of future requirements.
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