Unbelievable but true: the Chilean mining industry is increasingly run on renewable energy, which will soon be bigger than conventional power sector in Chile, and cost-competitive. The Chileans ought to thank the Chinese for this, writes Australian professor John Mathews, whose new book, The Greening of Capitalism, has just been published by Stanford University Press. Mathews adds that Australian miners should take a cue from their Chilean colleagues.

Mining is the fourth-largest energy consumer in Australia, using roughly 10% of Australia’s total. Some of this comes from the electricity grid — but much is supplied offgrid in the form of diesel and other fossil fuels.

Could some of this be replaced by renewable sources? Recently I participated in the Australia Chile: Asia Pacific Economic Forum in Santiago, Chile. I was surprised to learn that Chile is now emerging as the southern hemisphere’s renewable energy giant, particularly in the mining sector. Falling costs, driven by increasing renewable investment in China, are driving the trend.

The Australian mining sector has been slow to take advantage. So, what could we learn from our Pacific neighbours?

Chile: the renewable energy giant

In the Pacific Century Chile and Australia are natural partners across the ocean. A free trade agreement signed five years ago has strengthened trade and investment between the two countries. Both are major exporters of mineral commodities to China as well as India.

One important difference is in the field of energy. As the Chilean Energy Minister Maximo Pacheco pointed out at the economic forum, Australia exports 70% of its energy (oil, natural gas and coal), while Chile imports 70% of its energy needs. The country has abundant minerals (including the world’s largest copper producer, the Escondida mine, operated by BHP-Billiton) but not abundant oil or gas.

But now this could work to the advantage of the Chilean minerals producers, who are meeting the challenge of soaring energy costs by developing their own renewable power supplies.

Miners in Chile are building independent solar, solar thermal, wind and geothermal power plants that produce power at costs competitive with or lower than conventional fuel supplies or grid-connected electric power.

Consider these facts.

The Cerro Dominador concentrated solar power (CSP) plant (seehere for an explanation of the different solar technologies), rated at 110 megawatts, will supply regular uninterrupted power to the Antofagasta Minerals complex in the dry north of Chile, in the Atacama desert. Construction began in 2014. This is one of the largest CSP plants in the world, utilising an array of mirrors and lenses to concentrate the sun’s rays onto a power tower, and utilising thermal storage in the form of molten salts, perfected by Spanish company Abengoa. It will supply steady, dispatchable power, day and night.

The El Arrayán wind power project, rated at 115 megawatts, now supplies power to the Los Pelambres mine of Antofagasta Minerals, using Pattern Energy (US) as technology partner. Antofagasta Minerals has also contracted with US solar company SunEdison to build solar panel arrays at the Los Pelambres mine, with a power plant rated at 70 megawatts; while the related plant operated by Amenecer Solar CAP is rated at 100 megawatts, the largest such array in Latin America when it came online in 2014.

There are many more such projects under review or in the pipeline. The Chilean Renewable Energy Center reported in 2014 that the pipeline of renewable power projects in Chile added up to 18,000 megawatts (or 18 gigawatts), which is more than the country’s entire current electric power grid.

Australia falling behind

The one Australian company involved in this proliferation of renewables projects is Origin Energy, with its joint venture Energía Andina, in partnership with AMSA, to develop geothermal projects for the Chilean minerals sector.

Origin can offer technology based on its extensive geothermal operations in New Zealand; it reported plans to upscale these activities in Chile at the recent economic forum.

You can’t say the same about the wider minerals sector in Australia. Big miners like BHP-Billiton, or Rio Tinto continue to operate mines using expensive diesel supplies and in some cases grid-connected electric power — ignoring their capacity to generate their own energy in abundant and reliable manner by turning towards renewables.

Contractors such as Leighton Holdings and Ausenco have some modest renewables operations like stand-alone wind farms, not yet integrated into their primary service activities. By embracing renewables there would be the added bonus of exporting the technology involved, to free trade partners such as Chile.

China leading the charge

Why are the costs of generating renewable power in remote mining sites coming down, to becoming competitive with conventional fossil fuelled generation? The answer, in a word, is China.

Alongside its well-recognised “black” power system based on coal and gas (supplied to a large extent from Australia) China has been building by far the world’s largest renewable power sector, based on hydro, wind and solar.

In 2014 this complementary “green” system was rated at 378 gigawatts – by far the largest in the world – and it is set to grow to a staggering 1,000 gigawatts of zero-carbon power by 2030, under the terms of the recent US-China climate deal.

As the scale of China’s renewable power expands, so the unit costs decline. This is the iron law of the learning curve. It is advantageous for China, of course, but it also means that the same lower costs can be enjoyed by other countries — in this case, Chilean power producers supplying renewable power to the minerals sector. The underlying technology is diffused around the world, and competition ensures that the lower costs are shared by all.

Chile has been astute in taking advantage of these cost trends to build its renewables sector. It is ensuring that costs come down through competition by staging a series of auctions for renewable power licenses — the latest just this past week, coinciding with the Chile-Australia Business Forum. No fewer than 17 projects were solicited, with costs coming down to US$80 per megawatt hour (a bid by Santiago Solar). In contrast new coal-fired power plants are estimated by the US Energy Information Administration to cost on average US$95.

So Chile might have fewer deposits of oil, coal and gas than Australia — but it is now “mining” its substantial supplies of renewable energy to produce cost-effective power for its minerals industry, in a way that would have been unthinkable just 10 years ago, before the arrival of China and its marked influence in driving down renewables costs.

Australian heavyweights such as BHP-Billiton are late to note and take advantage of these trends. Perhaps they are afraid of offending the Abbott government with its ideological opposition to renewables.

But economic rationality cannot be resisted forever; in the end the sheer cost competitiveness of renewables as sources of power both for grid applications and for remote mining operations can be expected to assert itself.

Editor’s Note 

John Mathews is Professor of Strategic Management, Macquarie Graduate School of Management.

He has just published a new book: The Greening of Capitalism: How Asia is Driving the Next Great Transformation (Stanford University Press). In this book Mathews argues that “a new approach to environmentally conscious development is emerging in the East, with China leading the way”. He charts this transformation and sketches out a framework for more sustainable capitalism.

According to Mathews, state-mandated changes in energy use (as opposed to carbon taxes), a circular flow of resources (as opposed to emissions standards), and the introduction of new financial instruments that support green growth are cornerstones of China’s framework. He argues that “these tenets will be emulated around the world—first in India and Brazil.” In light of this emerging shift, Mathews considers “core debates over national security, international relations, and economic policy, ultimately addressing the question of whether these measures will be far-reaching or timely enough to prevent further damage.”

This article was first published by The Conversation and is republished here under a Creative Commons licence.

See here, here and here for other articles by John Mathews on Energy Post.