Navigant Research Blog

As Commodity Prices Slide, Big Miners Seek a Sustainable Strategy

— August 22, 2014

Navigant Research’s report, Renewable Energy in the Mining Industry, summed up the state of the global mining business: “In the last decade, increased demand from countries such as China and other emerging economies pushed the price of many metals and minerals upward, which stimulated investment in the mining industry. More recently, the global economic downturn and the collapse in a number of metal and mined commodity prices forced the mining industry to scale back investment into new mine sites, reduce operating mine lives, and scale back their investment into more capital expenditure-heavy renewable energy.”

Since that report was published in the fourth quarter of last year, commodity prices have stumbled further, and the pressures on mining giants like Rio Tinto, BHP Billiton, and Vale Brazil have intensified.

On the surface, so to speak, it’s a great time to be an extractive company with worldwide operations in iron, copper, coal, and other minerals that are essential to the functioning of the modern industrialized economy.  The rise of China and India has created a seemingly bottomless well of demand, particularly for iron ore for steelmaking; technological advancements have cut the costs of large-scale mining operations (while eliminating thousands of well-paying jobs); and governments in places desperate for economic growth, such as Mongolia and sub-Saharan Africa, have proven pliant to the demands of multinational mining corporations.

The Bottom of the Well

Rio Tinto’s profits in the first half of 2014 doubled from the same period a year before.  BHP Billiton made $13.4 billion in profits in the 12 months leading up to June 2014.  Brazil’s Vale, the world’s largest producer of iron ore, reported second quarter profits of $1.43 billion – slightly below Wall Street estimates but still a healthy increase over the year before.

A closer look, though, shows that big miners are playing a risky and ultimately unsustainable game.  The term of fashion in the mining industry today is “de-diversification,” as mining companies sell off low-margin mines that they invested in during the commodities boom of 2002-2008, before the global financial systems crashed and growth in China ground almost to a halt.  To keep profits up, the companies are slashing costs and adding new production – a short-term strategy that could spell long-term disaster.

Rio Tinto’s results “showed that the strategy of carving into costs while ramping up volumes that are being pursued by the major miners has worked to offset commodity price declines,” wrote Stephen Bartholomeusz in the Australian business publication, Business Spectator.  “The key question – worth billions of dollars – is whether it will continue to work.”

Twilight In the Mines

Ultimately the dilemma facing miners of low-margin commodities like iron and coal is that as economies like China’s and India’s develop, they need less basic stuff.  It takes less iron to make an iPhone than it does to assemble an airliner.  Despite slowing demand, Vale plans to double its exports of iron ore to China over the next 5 years.  Pumping more iron and coal into markets that need less of them is not a winning strategy over the long run.  Goldman Sachs analysts have estimated that the rate of growth in the supply of iron ore is 3 times the rate of growth in demand.  That’s a recipe for a glut and a price crash.  Already, iron prices are on a downward slide.

Asian iron ore spot prices have fallen 31% this year, according to Reuters, and “the consensus is that they will remain below $100 for the foreseeable future as big miners such as BHP, Anglo-Australian rival Rio Tinto and Brazil’s Vale ramp up output even as Chinese demand growth weakens.”

As with coal, iron ore could be entering a downward spiral that could overwhelm the major miners as they narrow their focuses:  “Iron ore risks becoming another coal,” remarked Reuters’ commodities columnist Clyde Russell, “where miners pursue output gains in order to lower costs, but in the end the resulting supply surplus just depresses prices even more, resulting in a no-win situation for producers.”

Like the coal era, the age of iron and steel is nearing its twilight.  That’s not good if you’re a multinational mining outfit.

 

Power-to-Gas Comes to North America

— August 14, 2014

Ontario has emerged as hub of clean energy innovation.  The province has rapidly changed its energy mix from coal to renewables in the past 10 years, and Ontario’s latest Long-Term Energy Plan, finalized in 2013, calls for 50 MW of energy storage to be procured in 2014.  Ontario is also home to several innovative storage companies, including Electrovaya, Temporal Power, Hydrostor, and Hydrogenics.

In addition to the 50 MW storage plan – split between 35 MW announced earlier this year and 15 MW slated for the second half of 2014 – Ontario also has a number of storage demonstrations underway.  A 250 kWh/500 kW lithium ion community storage system is being tested by Toronto Hydro, and Temporal Power has two projects: one for wind integration with Hydro One and one for frequency regulation developed by NRStor.  Hydrostor is testing a 4 MWh/1 MW demonstration facility to showcase the firm’s underwater compressed air system, 80 meters underwater.

First the Old World

In addition to batteries, compressed air energy storage, and flywheels, Ontario is adding hydrogen energy storage.  Hydrogenics has announced a 2 MW power-to-gas project in Ontario as a part of the 35 MW procurement.  Power-to-gas systems use surplus electricity and an electrolyzer to generate hydrogen for direct injection into the natural gas grid, or to generate hydrogen and then syngas for direct injection into the natural gas grid.  Ancillary benefits include using the electrolyzer for demand response (including frequency regulation).

In Navigant Research’s recent white paper, The Fuel Cell and Hydrogen Industries: 10 Trends to Watch, one of the trends examined is power-to-gas.  Specifically, the white paper suggests that the power-to-gas concept will be proven in Europe.  In the near term, Navigant Research estimates a $100 million market for power-to-gas in Europe in 2015.  The European power-to-gas market is expected to grow to as much as 665 MW in 2018, representing $850 million in revenue, according to Navigant Research estimates.  This base scenario equates to 4% of the wind capacity to be installed in Europe that same year, with a total installed capacity by 2018 equivalent to 1.9% of the installed capacity of wind from 2014 to 2018.

Although North America has a smaller grid system and the advantage of cheap natural gas – which makes it difficult to make a business case for any alternative technology to gas turbines – there is clearly room for power-to-gas.  Hydrogenics intends to find out how much.

 

An Energy Cure for Hospitals

— August 12, 2014

When it comes to energy reduction in buildings, friendly competition is a strategy that gains a lot of visibility.  In recent blogs, here and here, we’ve discussed how the U.S. Department of Energy has set up competitions for financial institutions and office buildings to become as efficient as possible.  Companies like Opower rely on peer pressure to help communities lower their residential energy bills.  The latest to join in the fray are U.S. hospitals.

The Energy to Care program, run by the American Hospital Association, takes a slightly more advanced route to creating an energy reduction competition between buildings.  The Better Buildings Challenge relies on buildings uploading their ENERGY STAR Portfolio Manager data (either automatically or by hand) into the system and then submitting the results to be a part of the competition.  In Energy to Care, the ENERGY STAR benchmarking data is only the first part of the competition, and the approach used can be adapted as a real building energy management system (BEMS) to aid in ongoing energy savings.

Cost Reductions

The latest Energy to Care program is built on top of Lucid Design’s BuildingOS platform, a BEMS solution that makes integrating data from building energy systems easy and fast.  Lucid Design made its name by engaging through the development of their dashboards, commonly found in universities and government buildings.  BuildingOS offers tools to integrate data from multiple sources, including building automation systems, plug-load monitors, and renewable power generators.  Along with the data integration are visuals and analytics that can aid facility managers and sustainability professionals in their efforts to improve building performance and reach sustainability goals.

Hospitals are in need of this kind of care.  As the second-highest user of energy among all building types in terms of energy intensity and the consumers of 4% of all U.S. energy, hospitals need to leverage these tools to reduce the $8.8 billion a year in energy costs the industry shoulders.  Given the competiveness in the healthcare market, every dollar saved on operations is welcome.

In Energy to Care, the Portfolio Manager data is incorporated in BuildingOS.  Depending on the richness of the data uploaded, the hospital then has access to analytics and graphics that can quickly identify problems associated with energy use in the building.  Hospital energy managers can understand which systems are consuming more power and when power use varies beyond expected levels over the course of a day or week.  The ease of integration of these tools will make energy conservation measures easy to identify and their effectiveness measurable in the long run.  While Lucid Design will benefit from the widespread deployment of its product, the hospitals, and in turn the public, will benefit from reduced costs.

 

Li-Fi Turns Light into a Data Stream

— July 13, 2014

Since Harald Haas demonstrated the ability of light-emitting diode (LED) lights to transmit data during a TED Talk in 2011, the promise of Li-Fi (short for light fidelity) has received a lot of attention.  As researchers develop faster and faster communication speeds, the application of the technology to the building space appears both realistic and attractive.  Commercially, General Electric (GE) has demonstrated the viability of the technology through its launch of LED-based communication for retail environments.  Li-Fi could be cheaper and consume less energy than existing wireless communication technologies that rely on radio frequencies (RF).  Smart buildings, which require a dense and flexible control network, present an interesting application for a Li-Fi deployment, particularly with the increased adoption of LED lighting.

Non-Interfering

Li-Fi seems to be a compelling alternative to the RF technologies that are currently in use today.  First, the RF available to building automation is crowded.  Moreover, as the Internet of Things becomes more pervasive, more and more communication nodes will further saturate the environment.  RF travels through walls.  So, a node in an adjacent room will be competing for detection.  But Li-Fi is impervious to this problem.  Since the range of any individual Li-Fi node extends only to the nearest wall, the communication in one room will never interfere with other communication in a different room.  In other words, the inherent limitations on Li-Fi range are an ideal solution for saturated networks.  Moreover, more than just crowding, interference from microwaves and other devices can be a problem, particularly in medical environments.  Li-Fi is immune to RF interference.

Security is another area of concern for wireless communication.  It’s relatively easy to hack a Wi-Fi network.  Li-Fi, on the other hand, has a shorter range and requires line-of-sight.  As a result, it is inherently more secure.  You have to be within the range of the transmitter and receiver, shifting the threat of IT security to more manageable physical security.

The Bad News

The technology faces some serious technical challenges before widespread adoption, though.  In addition to enhancing security, the line-of-sight requirement also presents challenges.  Though Li-Fi is immune to RF interference, it is susceptible to interference from a more ubiquitous source: the sun.  Receivers placed close to windows could be rendered ineffective.  Additionally, lighting in buildings is typically designed to be unidirectional, from the light source to the space to be illuminated.  But communication networks must be bidirectional to both send and receive data.   In order to create a Li-Fi network, lights would need to be installed to point at each other, which is at odds with their intended functionality.

Despite these drawbacks, Li-Fi could overcome several of the barriers facing wireless.  Though most of the current buzz focuses on visible light communication, using infrared light could solve many of the hurdles.  Windows can be designed to block infrared light but allow visible light to pass, eliminating problems of solar interference.  Infrared also has greater potential throughput of up to 5 to 10 gigabits per second.  Overall, the challenges facing Li-Fi are no greater that the challenges facing RF.  The technology appears to be several years away from successful deployment in building automation.  But it’s coming.

 

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