Evaluating the impact of energy management on deep-level mines during medium-term production stoppages

MBA, North-West University, Potchefstroom CampusDeep-level mining is a significant contributor to the South African gross domestic product and employs about 450 000 people. South African mining companies face profitability challenges due to high operating costs. Electricity consumption contributes to about 20% of the operating costs at deep-level mining operations and increasing electricity costs is a major concern. Some South African mining companies warn that marginal mines may become unprofitable due to the high electricity cost. This is a major concern since it affects shareholder returns, employment opportunities as well as the South African gross domestic product. High underground rock temperatures, as high as 64°C, require large cooling and ventilation systems to cool underground work areas. Integrated cooling and ventilation systems contribute to about 41% of the total electricity consumption of deep-level mines. This is one of the reasons why deep-level mines are about seven times more energy-intensive than surface operations. Research has shown that energy efficiency improvements have the potential of improving the financial performance of companies and even their share prices. Previous studies that investigated the impact of energy management interventions at South African deep-level mining companies proved energy savings worth R75 million per annum. This has significant implications for South African deep-level mining companies since dedicated energy management has the potential of reducing operating costs. These interventions are often implemented by energy services companies (Escos) that are paid based on proven savings. Savings are typically quantified by comparing the actual electricity usage with the baseline energy usage. Baseline models frequently use adjustment techniques to estimate what the electricity usage would have been in the absence of any saving interventions. A baseline is normally only valid within predefined operating conditions. The Covid-19 lockdown severely affected the profitability of many companies. A significant challenge for deep-level mines is the high baseload electricity usage that represents as much as 70% of their total electricity usage during full production. This leaves a very small margin for electricity cost reductions without a dedicated electricity cost-saving drive and is a major concern for a mine that is not able to generate any revenue. This has significant financial implications for deep-level mining companies that are already under pressure due to increasing operating costs. Escos often enter into performance contracts and are only paid if they realise electricity cost savings. The services of Escos can be used to assist mining operations to reduce baseload electricity usage during shutdown periods. A challenge with electricity baseline models is that they are developed for normal operating conditions. Additional electricity demand reductions occur during such medium-term production stoppages. Examples include the complete shutdown of processing plants and offices. The predefined baseline models are not always valid for events such as the Covid-19 lockdown period due to the long production shutdown. This creates a challenge if the impact of an Esco must be quantified during periods when there is no reference point to be used as a baseline. This increases the business risk for the Esco as well as the client. A need was identified to identify and evaluate a business case for energy management at deep-level mines during medium-term production stoppages. This study evaluated the financial feasibility of a mine entering into a performance-based contract with an Esco to assist with energy management services during a medium-term production stoppage. Focused energy management at a South African deep-level mine during the April 2020 Covid-19 lockdown was identified as a suitable case study. Seven evaluation strategies were investigated to determine the impact of an integrated energy management approach at deep-level mines during the Covid-19 lockdown period. A cost-saving of R7 million was proven in one month compared with an estimated Esco contracting fee of R2 million. The benefit of the energy management service outweighs the service at a ratio of 3.5:1. It can be concluded that it was beneficial for the mining company to use the services of an Esco during a medium-term production stoppage. This study proves that there is a business case for dedicated energy management at deep-level mines during medium-term production stoppages. It is suggested that baselines be agreed upon for both normal operating conditions as well as longer stoppages. More effort can then be applied towards a continuous improvement approach if such events occur in future. It is recommended that a high-level record must be kept of all interventions to ensure that all parties agree to the real benefit of the Esco.Master