Latin America’s embrace of solar energy is enabling mining companies to procure more cost-competitive energy.

Energy Intensive Mining in Latin America

It is estimated that the global mining industry consumes 400 terawatt-hours of energy per year1, the equivalent of France’s yearly energy demand. A large portion of that energy is consumed in Latin America, home to the world’s largest deposits of copper, silver, lithium, and gold. The mining sector in this part of the world is a multi-billion-dollar industry and has increasingly been turning to renewable energy2 to help meet its energy demand3.

The final consumer mining product requires high energy intensive processes4 to meet the world’s growing demand. Currently, energy use from mining products accounts for over a third of mining operational costs5. However, as the easily accessible ore deposits become exhausted, operational costs are likely to increase and lead to more complex mining techniques, which in turn require greater energy.

Incorporating Renewable Energy into the Mining Process

To alleviate these issues, mining companies are increasingly turning to cheaper solar PV and wind power to meet requirements, reduce greenhouse gas emissions, and lower operating costs. Renewable energy from non-conventional sources in Latin America has been gaining momentum and proving to be a viable alternative energy solution. For example, over the last five years, Chile has increased renewable energy shares from 5% to 18% of total usage. Power generated by solar plants has become increasingly competitive compared to traditional forms of power – especially in Latin America, a region that benefits from excellent levels of untapped solar irradiation. Solar PV technology has seen dramatic cost reductions over the past decade, which combined with efficiency innovations, has led to pricing levels lower than 50% of conventional power costs (e.g. coal and gas). Also, solar PV and wind generation are reaching cost levels at half the cost of conventional hydro power. These changes lead to increased solar energy investment and displace conventional power.

It is estimated the global mining industry consumes 400 terawatt-hours of energy per year1, the equivalent of the yearly energy demand of France. A large portion of that energy is consumed in the mineral-rich Latin America.  Home to the world’s largest deposits of copper, silver, lithium, and gold, the mining sector in this part of the world is a multi-billion-dollar industry and has increasingly been turning to renewable energy2 to help meet its energy demand3.

The mining end product required to meet the world’s growing need of these elements consists of highly energy intensive processes4. Currently this energy use can account for over one third of the cost5 of a mining operation and is likely to increase as the low-hanging-fruit ore deposits become exhausted, leading to more complex mining techniques that have greater energy requirements.

Incorporating Renewable Energy into the Mining Process

In order to alleviate these issues, mining companies are increasingly turning to ever cheaper solar PV and wind power to meet their power requirements, reduce their greenhouse gas emissions, and lower their operating costs.

Renewable energy from non-conventional sources in Latin America has been gaining momentum and proving to be a viable alternative energy solution. For example, over the last five years alone, Chile has increased their renewable energy share from 5% to 18% of their total usage. Power generated by solar plants has become very competitive compared to traditional forms of power – especially in Latin America, a region that benefits from excellent levels of untapped solar irradiation. Solar PV technology has seen dramatic cost reductions over the past decade combined with efficiency innovations, leading to pricing levels that have reached even less than 50% of conventional power costs (e.g. coal and gas). Furthermore, solar PV (and Wind in certain regions) is also reaching cost levels that are half the cost of conventional hydro power.  These changes are leading to increasing investment in solar energy to displace conventional power.

Atlas Renewable Energy’s Javiera’ solar plant  in the Antofagasta region of northern Chile reflects a prime example of this trend towards renewable energy in mining. The 69 MW PV plant powers the Minera Los Pelambres copper mine, owned by Antofagasta Minerals, the largest private mining company in Chile. This project serves nearly 15% of the mine’s power requirements6.

Mining industries in Brazil, Colombia, Mexico, and Peru are also adopting a strategy of incorporating non-conventional renewable energy into their processes. By doing so, they source power at half the cost of conventional power, enhance their environmental credentials and enable business opportunities with organizations that value environmentally sustainable footprints. For example, technology companies relying on the region’s minerals, are increasingly demanding the implementation of carbon reduction measures2 from suppliers.

Future Outlook

By 2022, renewable sources will account for 5% to 8% of the global mining industries’ power consumption, with more ambitious targets aimed at 15%1. This drive towards renewable sources will lead to triple the global capacity by 20277.

Incorporating solar energy offers a unique opportunity for Latin American mining companies to meet their energy needs in a sustainable, reliable, and cost-effective way. Solar is no longer just about being sustainable, it’s a way for mining companies to stay competitive in an industry where cost reductions are critical.


Sources

  1. Slavin, Andrew. “Mining Industry Starts to Dig Renewables.” Energy and Mines, 7 June 2016, www.energyandmines.com/2016/06/mining-industry-starts-to-dig-renewables/.
  2. Bhattar, Payal. “Latin American Mining: Switching to Renewables.” Latin American Mining Switching to Renewables, 25 July 2018, www.wartsila.com/twentyfour7/energy/latin-american-mining-switching-to-renewables.
  3. Sanderson, Henry. “Miners Turn to Green Power Options.” Financial Times, Financial Times, 3 Oct. 2018, www.ft.com/content/b3b7fe4a-a5fc-11e8-a1b6-f368d365bf0e.
  4. Dickerson, Kelly. “How Gold Is Destroying Peru’s Rainforests.” Business Insider, Business Insider, 1 Nov. 2013, www.businessinsider.com/gold-mining-destroying-peruvian-amazon-2013-10.
  5. Gleeson, Daniel. “Miners Moving towards the Renewable Energy Path, Says Fitch Solutions.” International Mining, 11 Sept. 2018, www.im-mining.com/2018/09/11/miners-moving-towards-renewable-energy-path-says-fitch-solutions.
  6. Bellini, Emiliano. “Antofagasta Minerals Sells Stake in 69.5 MW PV Plant in Chile.” Pv Magazine International, 31 May 2017, www.pv-magazine.com/2017/05/31/antofagasta-minerals-sells-stake-in-69-5-mw-pv-plant-in-chile/
  7. Funicello-Paul, Lindsay. “Press Release | Renewable Energy in the Mining Industry.” Press Release | Renewable Energy in the Mining Industry, 27 Feb. 2019, www.navigantresearch.com/news-and-views/annual-revenue-for-renewables-and-energy-storage-in-the-mining-sector-is-expected-to-generate-roughl.

Like technology, renewables continuously benefit from systemic advances. Even so, not all breakthroughs arrive in the form of more efficient solar panels. Some come from breaking ground in financial innovation.

The financing of projects in the renewables sector performs the essential role of enabling the industry to progress. In other words, without viable financing providing funding for projects, the industry comes to a halt. New and improved methods of funding create novel opportunities for investors and, with better financial structuring come lower energy prices for consumers. Further, backing large-scale renewables projects in this way that reduces the cost of energy prices, enables further deployment of clean energy and economic growth in the region.

Atlas Renewable Energy Breaks Ground

Atlas Renewable Energy’s expansion is focused on Latin America’s emerging market economies. With ongoing technological and financial innovations, we have been able to offer clean energy in the region leveraging a deep track record in development, financing and execution. We believe tailored financial structuring can enable more accurate risk allocations resulting in lower prices to end consumers. This can be advancement that can be as consequential as solar technology enhancements.

Throughout the region we have developed several solar plants with different financing structures. One such project  is located in Uruguay, where our client for the energy produced is a state-owned company, UTE, that required a power purchase agreement (PPA) that lasted over 25 years. This posed an interesting challenge and opportunity because most banks that can fund these types of projects can only provide funding for 10 to 15 years, and a very additional few can provide up to some 18 years. We solved this by pioneering a new financing structure where two long-term private placements (i.e. bonds) were issued in the United States that allowed multiple investors around the world to participate in differing risk allocations – these bond investors are accustomed to longer tenor horizons.

The deal was specifically composed of an investment-grade senior bond totaling $103 million and the remainder came via a subordinated debt bond totaling $11.5 million, of which IDB-Invest funded a proportional share. (DNB Markets Inc. acted as co-arranger and placement agent of the senior and sub B tranches.)

The senior and subordinated bonds have a duration of 24 years and 15 years, respectively, after which the investors exit their investments and Atlas Renewable Energy continues to operate and supply the energy requirements for the remainder of the PPA. The deal was backed by IDB-Invest as the lender of record (of the Inter-American Development Bank Group, an affiliate of the World Bank) and was arranged as an A/B Bond structure that included both senior and subordinated note tranches. This collaboration was a completely novel arrangement in the context of Renewable projects in Latin America and allowed Atlas Renewable Energy to be presented with the Structured Bond Deal of the Year by Bonds & Loans Latin America Awards.

Award Ceremony in Bogotá, Carlos Barrera – CEO of Atlas Renewable Energy & Michael Shea – Head of Structured Finance receive the award.

What was particularly interesting about the deal is that it shows that international investors can and want to participate in the region’s energy development, that long-term tenors at very good rates can be secured and that this new financing structure can serve as a new model to help solve the long-term capital needs of the region. This is also testament to the proven-nature and stability of Renewable technologies; which investors are recognizing as low-risk and reliable over a truly long-term horizon.

Benefits of the B-Bond

Financing with the structure of B bonds allows for the expansion of substitute funding sources through capital markets for private investors under a multi-lateral umbrella, providing a strong and suitable alternative to bank funding or traditional capital markets funding. This type of financing aids in bringing additional liquidity and potential value to a given transaction, under the implicit political risk insurance structure from the IDB through its role as ‘lender of record’.

Capital Markets Innovation for Solar PV

The parameters required to achieve an investment-grade rating for a solar PV green bond remain quite onerous and conservative in nature. From a cash flows perspective, an investment-grade bond will require a relatively low percentage of the plant’s revenues to repay the associated debt (as compared to long-term bank loans, for example). Given the track-record of the PV technology as an asset class, there is ample investor appetite for risk exposure to additional cash flows at a competitive rate-of-return (up to 80% in the case of long-term bank loans); especially when there is a limited merchant component. For this reason, the incorporation of a subordinated or “mezzanine” tranche provides an interesting solution to achieve more robust leverage ratios, ultimately resulting in lower power prices for end consumers. Financial innovation can play a key role in the growth of renewables in Latam. When done right it can offer new possibilities for investors, attractive rates of return and energy savings for consumers. These strong wins for all parties involved, underscore the potential and bright future renewables have in Latin America and is one of the reasons for optimism in this industry.