Energy & Utilities / Mining & Resources

Power source in off-grid remote areas – Which ones will be more competitive?

We recently posed the question about the outlook for future power supply in remote areas, fast forwarded ten years.

Here are some views and projections from key industry experts and analysts, who are also on the speaker faculty at the 3rd Annual Remote Area Power Supply Conference next March in Melbourne.

True or False: Remote micro-grids will compete with centralised grids in terms of cost of power?

 FALSE: John Eccles, Director, Global Hybrid Generation, First Solar

Remote microgrids will always be penalized by their smaller economies of scale (impacting the unit costs associated with Project Development, EPC and O&M).  Even if/when PV becomes the cheapest form of power for centralized grids, smaller more remote applications will not be able to complete on a unit cost basis against the larger centralized plant. This is the case, without even considering the microgrid’s need for additional installed capacity (3-5X) and energy storage infrastructure to provide 24/7 power.

 TRUE: Shane Bannister, Sales Engineer NSW/VIC, Comap

Remote micro-grids will be able to compete with centralised grids in terms of cost of power. I see a few key drivers that will contribute to this outcome. The first is an increase in smart management and operation of existing remote micro-grid assets (i.e. diesel generators) combined with the reduction in price of renewable technologies, which will allow the cost per kWh in these micro-grids to be dramatically reduced. The second is the falling energy demand from the grid, due in-part to increased energy efficiency, greater awareness of energy usage and in part the increase in PV installations, which are combining to reduce revenue for network providers, forcing the cost of centralised grid energy to increase in order to maintain an operational grid capable of supplying those connected during peak periods, especially during times of low renewable generation.

 TRUE BUT…. Daniel Gilbert, Technical Manager, Epuron Solar

Centralised grids provide more than power at a particular price, they also contribute high reliability and provide interconnected support to other regions with supply/demand imbalances. It makes sense to use the networks we have as long as they are contributing to the cost/emissions/reliability solution and not burdening the customer to support fossil fuel generation.  As the contribution of renewables continues to increase, the grid operators will see a strong future role and do as much as possible to connect renewables without burdening solar PV households.

 True or False: Diesel generators will still be the main source of electric power in off-grid areas? 

TRUE: John Eccles, Director, Global Hybrid Generation, First Solar

For a ‘hybrid’ plant to become a ‘PV with diesel back-up’ plant, diesel generation will need to become more expensive than a PV plant that has 3–5X installed capacity and is coupled with sufficient energy storage infrastructure. This is not to negate the fact that the continued decline in PV and energy storage costs will make this more plausible in locations with high landed costs of fuel, vulnerable supply routes, strong solar resource and encouraging investment conditions. However, given there seems to be an abundance of unconventional oil deposits globally, with ever more competitive methods of extracting and refining it, closing this gap is not promising in the foreseeable future (i.e. next 3 years)

PARTLY TRUE: Steve Lambert, Executive General Manager, Global Capital Markets, NAB

The intermittent nature of solar and other renewable sources presents a major challenge for mining companies looking to transition away from diesel generation. Mines can operate 24hrs/day for most days of the year with high peak loads and limited tolerances for outages and shortfalls. The lack of competitive storage solutions will likely limit the application of solar in remote mines in the short term.

However progress is being made on hybrid diesel/solar solutions and we’ve already seen some companies (such as Rio Tinto at Weipa and Sandfire at Degrussa) successfully integrate solar with traditional diesel generation to reduce energy costs and bring down their carbon footprint. As these hybrid solutions continue to advance solar will likely be an increasing part of the generation mix for mining companies. The rate and extent of solar’s penetration at remote mines will obviously depend on a number of factors including:

  • Improvements in the efficiency/cost of solar panels and battery technologies
  • Level of funding/support provided by the government to help improve the development of hybrid solutions
  • The cost of diesel (i.e. higher diesel costs will improve the relative economics of hybrid solutions)
  • Other incentives to encourage abatement of carbon (i.e. carbon tax, Emissions trading Scheme etc)
  • The levelised cost (Opex and Capex) of Solar PV generation (on a utility scale) – currently at AUD$120-180/MWh. The price has been in sharp decline over recent years and should continue to fall as production increases.
  • The levelised cost of Diesel powered generation – currently AUD$200-300/MWh, bearing in mind oil prices are currently low and may rise over the 10 year horizon (moving in the opposite direction to solar PV generation pricing and further widening the gap in cost).

In summary, over the next decade we expect solar penetration to increase through deployment of hybrid solutions but given an off-grid mine has no backup from an interconnected system it is likely that diesel generation will still remain a part of the overall energy mix (at the very least to provide backup redundancy).

TRUE: Shane Bannister, Sales Engineer NSW/VIC, Comap

Diesel generators (or gas, for argument sake, as gas is actually the main source of electric power in off-grid areas currently) will still be the main source of electric power in off-grid areas. Sure, the writing is on the wall that there is going to be a shift in generation (in remote areas specifically) towards PV and wind combined with battery storage, although considering the amount of off-grid energy production in Australia alone is somewhere in the range of 15GWh (as of 2012, according to AECOM, AEMO, IMO, Department of Climate Change and BREE) with roughly 74% gas, 25% diesel and 1% renewables spread across thousands (perhaps tens of thousands) of locations, it seems highly unlikely that there will be enough of a shift in 10 years to change this. Add to this the capital and/or funding required to essentially replace 7.5GWh of existing gas/diesel production with renewable technology and you are faced with an extremely tall order.

The short term focus should be on enabling the transition from this heavy reliance on diesel and gas with smart control of these assets, which will enable the introduction of renewable technologies over the long term as they become more and more economically viable for both industry and community. This method of incremental improvements will allow a greater take up of renewables followed by the reduction in demand on gas and diesel assets.

FALSE: Glen Conway, Principle Consultant Renewable Energy, AECOM

Diesel generators may still be an integral part of the power supply in off grid situations but reduced cost and risk associated with energy storage and reduced cost and risk associated with renewables deployment will lead to increased penetration of renewables in off grid areas.

FALSE: Daniel Gilbert, Technical Manager, Epuron Solar

In ten years time diesel will be used like batteries in remote communities and as diesel gensets reach the end of their working lives they will not be replaced.  The main reason is that battery technology, augmented by innovations like CloudCAM, will be reliable, predictable, cost effective, use earth abundant elements and the regulatory environment for emissions will drive diesel to minimal if not emergency-only use.

These issues will be amongst the many topics and discussions to be addressed at the Remote Area Power Supply Conference on the 22-23 March 2016, at the Rendezvous Grand Hotel in Melbourne.


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