Mining Alert: Pumped Hydro – Adding Value to Mining Operations – Legal Issues and Solutions

28 November 2018

Publications

This article considers the trend of mine operators converting voids into pumped hydro power generation facilities, and its legal issues and solutions

Introduction – pumped hydro in mining operations and final rehabilitation

Mine operators are always looking for ways to reduce capital and operating costs and final rehabilitation costs.  Pumped Hydro is an easy to implement and viable mechanism.

Whilst Technology changes, such as fully automated trucks and mining machinery, are providing a method of cost cutting, history shows that the early mover advantage is soon lost and technology quickly brings down the capital and operating costs of all mines.

A goal is to find a unique or rare cost advantage that can push your operations down the competitive cost curve. One opportunity is for a mining operations to find unique ways of reducing energy costs for mine operations, or economically producing energy for sale into the National Electricity Market (NEM).

Most notably with Tesla’s 100MW lithium-ion battery in South Australia, energy storage is becoming an essential element of Australia’s plan to provide our much needed energy security and reliability and could create an opportunity for miners.  Pumped hydro is usually cheaper to operate than batteries and does not require expensive chemicals or rare earths.  While all batteries have a useable shelf life, pumped hydro facilities can last indefinitely.

And pushing out your rehabilitation obligations by using your final void for pumped hydro power production, is becoming a viable alternative.

Next, we identify the main legal issues that arise for pumped hydro stations established on mining leases:

Legal Issue 1 – The Right to Convert Your Mine to a Power Station

If the pumped hydro operation is to be used only for production of power for mining operations, your mining lease will usually allow the construction and operation of the pimped hydro facility.

However, mining leases only permit the carrying out of mining operations and activities that are incidental to mining.  Power production that is not for consumption in mining operations to be conducted on the mining lease, is not “mining operations or activities that are incidental to mining“. It will likely be possible to construct the pumped hydro operation as part of final mine rehabilitation, but not permissible to commercially operate the pumped hydro facility based on the mining lease rights.  In that case, you will need to own or lease the underlying land title to be able to carry out the pumped hydro operations.

If you own the underlying land title but the title is not freehold, you will need to check to make sure it enables you to operate a pumped hydro facility.  If not, then native title clearance may be needed.

There are a number of ways to solve land title issues, and a brief examination may be enough to determine how best to deal with this issue.

Legal Issue 2 – Environment and Planing Approvals

Pumped hydro projects require environment and planning approvals. Depending on the site, significant issues may include proximity to towns or residences and possible amenity impacts (such as visual impact, and traffic), environmental issues (such as light, noise, dust and vibration), Aboriginal cultural heritage issues, and possible social and economic impacts.

Mine site based pumped hydro projects will need to address pre-existing contamination as well as site remediation obligations.

All pumped hydro projects will need to consider surface and underground water impacts.

Even if all of the power produced is to be consumed in mining operations on the mining lease, it will most likely not be possible to rely on the environmental approvals given for your mining project for operation of a pumped hydro facility  Therefore, new environmental/planning approvals will be required to operate (and perhaps construct) the pumped hydro facility.

Where the pumped hydro facility is to be used to supply power off the mining lease, application can be commenced under the relevant town planning scheme, to seek planning and environmental approvals.

Once the purpose of the pumped hydro facility is clearly determined, the appropriate approval process will be evident.

Legal Issue 3 – Electricity Generator and Connection Approvals

Any facility that is designed to supply electricity into NEM will require generator licence and connection approvals. These are relatively easy processes, where the likelihood of grant is high as long as your facility meets OH&S and Australian Standards requirements.

Legal Issue 4 – Critical Infrastructure Centre (CIC) Approval

With the development of the Federal Government’s Critical Infrastructure Centre, there is a focus on ownership and operation of electricity assets. However, CIC guidelines confirm that at present, only electricity generation stations that are most critical to ensuring the security and reliability of the system or network in a state or territory are to be subject to CIC control. CIC oversight applies to electricity generation stations if they meet one or both of the following two criteria

a. Synchronous electricity generation stations (which includes all the generating units in the station) that generate electricity above the jurisdictional megawatt (MW) thresholds:

  1. New South Wales – 1400MW;
  2. Victoria – 1200MW;
  3. Queensland – 1300MW;
  4. Western Australia – 600MW;
  5. South Australia – 600MW;
  6. Tasmania – 700MW;
  7. Northern Territory – 300MW; or

b. Electricity generation stations that are contracted to provide a system restart service.

It is unlikely that pumped hydro facilities will be caught be either of the above criteria and will therefore not be directly caught by CIC oversight.  However, as a cautionary measure we usually suggest that clients still meet with CIC personnel to make sure CIC is aware of their generation facility and to show they are willing to work cooperatively with the CIC.

Legal Issue 5 – FIRB Approval

Many of Australia’s mines are at least partly overseas owned and therefore the extension of their existing business into market supplied electricity can trigger a new application for FIRB approval.

However, FIRB actively promotes foreign investment and early consultation with FIRB will gain the assistance of FIRB to overcome issues that could arise for development of pumped hydro facilities.

Examples of Government Support for Pumped Hydro at Mines

In 2016, ARENA provided A$4 million support to Genex towards a feasibility study into the construction of a pumped hydro power plant at the disused Kidston Gold Mine in North Queensland.  The Northern Australian Infrastructure Facility (NAIF) has recently given conditional approval to provide an A$516 million loan for the Kidston solar and pumped hydro project to construct a pumped hydro facility as well as expand the existing solar farm.

Genex recently stated it has identified a further nine sites with similar characteristics to Kidston that could be potential future candidates1.

Conclusion

Whilst there are thousands of sites in Australia that could be used for pumped hydro, many of the most promising are on mine sites and those mines that can defer final void rehabilitation through development of pumped hydro, can gain uncommon advantage in pushing its operations down the cost curve.

For further details, please contact:

Darren Fooks | Partner | +61 7 3338 7523 | dfooks@tglaw.com.au

Josh Marchant | Partner | +61 7 9641 8863 | jmarchant@tglaw.com.au

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References

1 https://utilitymagazine.com.au/pumped-hydro-storage-the-future-for-old-mines/