Energy and Mines Australia Summit€¦ · Energy and Mines Australia Summit 9 Run-of river Solar+...

Energy and Mines Australia Summit

Christian ClaveríaEnergy Manager, BHP Minerals AmericasPerth, 27 June 2018

Disclaimer

Forward-looking statements This presentation contains forward looking statements, which may include statements regarding plans, strategies and objectives of management, future performance and future opportunities. These forward looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this presentation. BHP’s Annual Report on Form 20-F filed with the US Securities and Exchange Commission identifies, under the heading Risk Factors, specific factors that may cause actual results to differ from the forward-looking statements in this presentation. BHP does not undertake any obligation to update or review any forward-looking statements.

No offer of securities

Nothing in this presentation should be construed as either an offer to sell or a solicitation of an offer to buy or sell BHP securities in any jurisdiction, or be treated or relied upon as a recommendation or advice by BHP.

Energy and Mines Australia Summit227 June 2018

About BHP

We are a leading global resources company • Our purpose is to create long-term shareholder value through the

discovery, acquisition, development and marketing of natural resources.

• Our strategy is to own and operate large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market.

• At BHP, we have a unique perspective on the extraordinary potential of natural resources and the role our products contribute to advance the essential building blocks of progress.

• We are among the world’s top producers of major commodities, including iron ore, metallurgical coal and copper. We also have substantial interests in oil, gas and energy coal.

• We have a global footprint with 11 core operated assets.

27 June 2018Energy and Mines Australia Summit

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Leading diversified global mining company


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Operated Non-operated Non-core

Petr

oleu

m

Onshore USShenzi PyreneesMacedon Angostura Mad DogAtlantis Bass Strait North West Shelf

Min

eral

s A

mer

icas

SamarcoJansenEscondida Pampa Norte Antamina Cerrejón

Min

eral

s A

ustr

alia

Nickel WestWestern Australia IO

Olympic Dam

Queensland Coal

NSW Energy Coal

BHP Minerals Americas

Escondida is the largest copper open-cut pit in the world


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1. Notes:Antamina: 33,75% BHP Share.Samarco: 50% BHP Share.Cerrejón: 33,3% BHP Share.

Chilean assets – power consumption

70486%

11614%

Peak Demand 820 MW

Escondida Pampa Norte

6Energy and Mines Australia Summit

34090

364

26

Escondida Pampa Norte

Power Purchase Agreements (MW)

Angamos (Coal) Tamakaya (Gas + Spot)

18%6%

Of Chilean Cu Production 2017

Of World’s Cu Production 2017

7%

Of Chilean Power Consumption 2017

Angamos: PPA based in a coal-fired generation.

Tamakaya (100% owned by BHP): PPA based in a gas-fired generation and Spot.

Sour

ce:

Woo

d M

acke

nzie

0.0

5.0

10.0

15.0

20.0

25.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2030

2035

Cu

Mt

Years

World’s Copper Production

Rest of the World BHP Chilean Assets

27 June 2018

The largest non-regulated client of the Chilean market

BHP transmission facilities

A strategic asset to enable renewable power sources


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³220 kV <220 kV Total (km)

BHP Assets 1,179 353 1,532

Escondida 905 292 1,197

Pampa Norte 67 61 128

Kelti (*) 207 - 207(*) Transmission company 100% owned by Escondida.

Chilean grid overview

Energy and Mines Australia Summit8

Fuel15%

Coal21%

Gas19%

Hydro30%

Solar9% Wind

6%

SEN (SIC + SING) Installed Capacity

Thermal, solar and wind

Thermal, small-medium hydro, biomass and wind

Peak demand• 10 GWAnnual consumption• 72 TWh

Potential large and small hydro developments

27 June 2018

One national electrical system

Power market overview

The Chilean power market is deregulatedThe market considers three segments• Generation: open and competitive. New capacity mainly is driven

by long term contracts with discos or big users.• Transmission: natural regulated monopoly. New capacity defined

by the regulator periodically. New projects get auctioned by the regulator and remunerated by the demand as a result of it.

• Distribution: natural monopoly. Regulated tariffs.Wholesale power market for generators only• Generators dispatch is performed centrally coordinated by the

system operator (Coordinador Eléctrico Nacional – former CDEC), in order of merit with the goal of minimising the system total cost.

• The marginal cost of the system or the spot price, is equal to the variable cost of the last unit required to provide one additional kWh of electricity to the system.

• The capacity is remunerated to generators at a regulated price. Capacity charge paid by users is equivalent to ~8.3 US$/kW-month.


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Run-ofriver

Solar+Wind

Biomass Coal

Diesel Turbinesand Motors

Natural Gas

Fuel Oil/Diesel

Reservoir

Generation SupplyDemand

Available Capacity [MW]

Varia

ble

Cost

[USD

/MW

h]

Demand Variations

Energy DemandMarketEnergy Supply

GenerationCompanies

New projects

Existingcapacity

Private contracts

Public auctions Residential Consumers

Industrial & MiningCompanies

> 500kW

Supply and demand curves

Law to promote NCRE

Initial regulation was not enough to trigger massivedevelopments2004 – Tolling exemption• Power plant < 20 MW have exempted to pay partial or total trunk

transmission tolls.

• Initially focused on run-of-river hydro generation. Today used by small PV solar generation.

2005 – Distribution auction new rules• Annual blocks pre-defined (24 hours supply), the term of the

contract: 15 years, maximum price.

2008 and 2013 – % of consumption supplied by NCRE• An annual percentage of energy sales must be produced by

Renewable Energy sources like small hydropower, Geothermal, Solar, Biomass or Wind.


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0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2012 2016 2020 2024

% of final consumption supplied by NCRE

Law 20.257 Law 20/25

Law to promote NCRE

Main changes occurred after Distribution Auctionsopened hourly blocks to bid2014 – Modifications to distribution auctions:• Extend the term of the contracts to 20 years.

• Adapt contract conditions to allow Project Financing.

• Design hourly blocks to compete in technologies:− Block A: 23:00 – 07:59 hours;− Block B: 08:00 - 17:59 hours;− Block C: 18:00 – 22:59 hours.

2014 – Emission taxes• Charge emission of CO2 and PM, SO2 and NOx in emitter plants

over 50 MW thermal.

• 5 US$/ton of CO2 emission.


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0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Energy plus Capacity component in (US$/MWh)

Argentinian NG Diesel Coal/LNG Renewables

Market prices evolution 2000-2017

Price driven by the development technology


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Since 2016-2018

Since 2021

Since 2024

NG outages• Energy component represents ~50% of end power cost.

• Other 50% of power cost is composed of:

− Capacity charge, tolls, ancillary services, emission taxes.

Distribution companies auctions

Electrical grid require to become in a more flexible grid

The system will face a challenge due to accelerating renewable capacity coming to the gridIncreasing flexible capacity appears as a key issue due to:• Plants ramp-up and ramp-down overstress.

• Reduce unsteadiness of the system.

• Deal with system costs increases such as overruns.

• Ancillary services needs are increasing, e.g. regulation of voltage and frequency, rotation reserve, etc.

• Storage systems must be studied à batteries and pumping/reservoir are required.

Addition of new products appears as a solution:• Flexible ramping to the real-time energy market.

• Ensure that resources are available and can rapidly change their output to respond to changes in forecasted net load.

• Ramping capability to meet the forecasted net load ramp (forecasted movement).

• An additional amount of ramping capability to cover uncertainty in forecasted net load (uncertainty requirement).


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124 128 367572

1305

1908

2674

3728

0

500

1000

1500

2000

2500

3000

3500

4000

2010 2011 2012 2013 2014 2015 2016 2017

NCRE Capacity Growth (MW)

Solar + Wind + Biomass + Mini Hydro

Kelar/Tamakaya business model

Providing flexibility to purchase power and reliability to the gridTamakaya: a generation company 100% owned by BHP• Kelar is a Combined Cycle Gas Turbine with 517 MW located in

Mejillones.

• Kelar provides a price cap for BHP Assets, allowing to have a higher exposure to the wholesale market through Tamakaya.

• Kelar provides flexibility and reliability to the grid reducing power supply interruptions to the operations.

• Tamakaya participates in the wholesale market selling and purchasing power at marginal cost of system production.

• Tamakaya has visibility of all charges that are part of the final power bill, as ancillary services, tolls, public services charges.

• Through the BOOM contract with Kelar, Tamakaya buys power and capacity to supply BHP assets.


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12 MW/min

Kelar daily operation

Kelar operation results in GHG emissions reduction

Choosing gas over coal saves ~57% of GHG emissions per generated unit• Kelar measured CO2 emission rate has resulted in 0.40

tCO2/MWh since the start of the operation.

• In comparison with Kelar ’s original alternative that was coal, the emissions in 2017 were 554 kton CO2 fewer (considering coal emissions rate of 1 tCO2/MWh).

• This represents ~ MUS$ 2,8 per year less of emission taxes cost.

• The above calculation does not include the CO2 equivalent emissions that have been avoided as a result of the higher renewable penetration due to Kelar operation.


1.00.5

Coal Gas

GHG emissions[tCO2/MWh]

554 kton

27 June 2018

Enabling higher renewable penetration

Kelar provides higher flexibility to the system operationBefore Kelar• In CY12 the Coordinator estimated a range between 150-750 MW

as the penetration limit of intermittent renewable.

With Kelar• In CY15 the same Coordinator estimated the range of renewable

penetration would be up to 900-1,500 MW as Kelar entered into operation. So far this penetration has reached 888 MW.

• SING-SIC link evacuates northern SIC renewable surplus into the SING (currently up to 300 MW).

• Total penetration of renewable in the SING is expected to reach ~1,400 MW by the end of first semester CY18.

• Higher renewable penetration will result in much lower spot prices and less CO2 emissions.


2015 2017 2018 2019Conventional 3,859 4,995 5,318 5,318Renewable 230 888 1,102 1,212

Total 4,090 5,888 6,421 6,531Renewable/Total 6% 18% 21% 23%

Northern grid installed capacity (MW)

27 June 2018

Solar penetration impacts on grid reliabilityKelar has greatly contributed to mitigate increased system cycling effects


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Higher solar penetration

• Renewable penetration has increased dramatically over the last two years and is expected to continue increasing.

• Kelar flexibility has been helping its fast growth.

Drives increased cycling operation by conventional plants

• Current daily ramp-down and ramp-up needs are ~800 MW.

• By the end of CY18 is expected it will go up to ~1,400 MW.

• Kelar contributes to the system stability with one of the faster thermal ramp.

Drives increased failure rate of conventional plants

• The number of coal-fired powerplant failures has increased in lasttwo years.

• One of the maincauses of Kelaroperation is thecoal-fired powerplant failures.

Results in increased power costs and outage rate

• Out of merit costs decreased due to Kelar.

• The number of MEL power outages in CY17 have been reduced.

• Kelar has replaced diesel generation and contributed to reduce outages by frequency.

Solar effect on conventional generation COAL power capacity interruptions [MW]

Tamakaya model allows purchase of renewable energy

• Tamakaya purchase ~ 53% of BHP Chile power consumption from the spot market.

• ~18% of Tamakaya power purchases come from renewable power sources.


35%

47%

18%

Tamakaya sources50% of total Assets power consumption

Spot Other Conventional Kelar (gas) Spot Renewable

27 June 2018

~ 10% of BHP Chilean assets consumption comes from renewable sources

11%16%

19%

28%

32%

49%

44%45%

0%

10%

20%

30%

40%

50%

60%

0

20

40

60

80

100

120

140

160

180

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

[GW

h]

MONTH

2017 Tamakaya spot purchases

(A) TMKY renewable spot purchases (B) TMKY spot purchases (A) / (B)

18%

38%13%

31%

BHP GHG emissions FY17

Petroleum and Potash Copper Iron Ore Coal

GHG BHP future goals

Long term goals GHG• Maintain FY22 GHG emissions at or below FY17 levels.

• BHP aims to achieve net-zero operational GHG emissions in the second half of this century.

• Levers:

1. cleaner power sources (PPAs);2. fuel replacement;3. energy efficiency, and 4. offsets.


FY1716.3 Mt CO2-e

27 June 2018

Electricity represents > 70% of total Minerals Americas GHG emissions and are the key focus in the short term to reduce that total footprint

Cost of new-build capacity

Renewables are already cost competitiveWind and solar are the cheapest sources of new power – new coal plants have a high risk premium

• The cost advantage of renewables will be further increased through any implementation of a low-carbon mechanism such as a Clean Energy Target.

• Current market conditions indicate that an actual levelised cost are already higher than renewables and above A$80/MWh. Assuming that the coal plant will run less than expected – at 60% capacity factor – in order to accommodate renewables.

• Equipping coal or gas plants with CCS, either through a new plant or via retrofitting, pushes the levelised cost above $100/MWh – making them unlikely without much tighter carbon regulations (even then, they may be outcompeted by batteries or other energy storage).

• Development of batteries seems to be the most likely solution to complement renewables intermittency.

• In the meantime, flexible power plants like Kelar are required to increase the renewable generation maintaining system reliability/security.

27 June 2018 20Energy and Mines Australia Summit

Cross-learnings: Chile and Australia

Power Supply Strategy for Minerals Australia• Address ‘trilemma’ of cost, emissions and

reliability/security.

• Renewables are now the cheapest form of new power generation.

• Growth in solar will depress daytime prices but leave ‘shoulder’ prices higher – this could make firming solar more expensive in the future.

• As in Chile, the role of gas in the electricity market important and changing.

• Purchasing renewable energy could have a material impact on GHG emissions, however much more is required to meet our targets.

Learning from Chile for Australia• Demonstrated experience in the role of gas in stabilizing

the grid and allowing greater renewables penetration.

• The importance of business model decisions to ensure price competitiveness and emissions reductions.

• How a grid-connected mining company can accelerate a decarbonizing grid.

• How fast the market landscape can change.


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