Mitigation of social, ethical and environmental conflicts

regarding open-pit lignite power generation projects

Michał DUDEK, Wroclaw University of Science and Technology, Wybrzeze Wyspianskiego 27, 50-370 Wroclaw, Poland e-mail: michal.dudek@pwr.edu.pl
INTRODUCTION
Openpit lignite power generation projects or other mineral industry mining activities have direct multilevel impact on Earth surface. Question can be raised whether it is geoethical to design a mine in a dense urban area and perform
buyout or so-called mining induced displacement and resettlement. It is a subject of not only legal and economic studies but also it involves social and environmental interaction. While enabling mining activities we propose to
strengthen real estate ownership rights by ensuring that the local communities will fully participate in prefeasibility studies and land will be bought for the fair market value (or replacement cost) and special energy company profit
sharing policy will be applied as certain percentage from company‘s profit to land owners that comes from selling product - energy.
5. SENSITIVITY ANALYSIS AND MONTE CARLO SIMULATION
ENVIRONMENTAL CHALLENGES AND IMPACT OF MINING-ENERGY PROJECTS
MINING – ENERGY PROJECT OPTIMIZATION In simulation and sensitivity analysis total number of 596 optimum pits were calculated with variable project parameters.
CARBON CAPTURE AND STORAGE CCS ENVIRONMENTAL AND OTHER EFFECTS OF MINING AND
Table: Lignite project parameters and ranges for sensitivity analyses and simulations (OVERCOMING BARRIERS TO CARBON CAPTURE AND STORAGE THROUGH TRANSPORT, DR L L SLOSS, IEA CLEAN COAL CENTRE,
1. JOINT OPERATION OF LIGNITE MINE AND LIGNITE FIRED POWER STATION Base Parameter distribution used in INTERNATIONAL COLLABORATION, TOBY LOCKWOOD, IEA CLEAN COAL CENTRE, REPORT CCC/281 December 2017
Parameter Sensitivity analysis parameters changes project simulation PARTS FROM REPORT CCC/284 March 2018 )
parameters Distribution µ α
Lignite reserves represent a subset of resources which could be mined economically with regard to realistic mining and Socio-economic impacts and public attitude to mining
0.37 0.41 0.42 0.43 0.44
economic conditions at the time of reporting. In order to identify lignite reserves at least the ultimate pit shell has to be Power plant efficiency, %
0.46 0.47 0.48 0.49 0.50
0.45 Gaussian 0.45 0.05
In 2018, only seventeen projects are recorded as operational and four under
designed. Assuming that a digital, economic block model of a lignite deposit has been built (based on a quality model as 9.78 10.23 10.69 11.14 11.60
Lignite processing cost, €/MWh 12.00 Gaussian 12.05 1.14 construction (equivalent to around 38 MtCO2 /y)
well as economic parameters), it can be processed with the use of open pit optimization algorithms. The total amount of 12.51 12.96 13.42 13.87 14.33
electric energy that can be obtained from the lignite depends on the ultimate pit reserves as well as power station efficiency 45.48 50.03 54.57 59.12 63.67
Energy price (product price), €/MWh 68.22 Gaussian 68.22 11.37
that prevents from product loss. Therefore, the ’coal-by-wire’ approach has been applied to model the integrated power 72.76 77.31 81.86 86.41 90.95 CHALLENGES
0.00 2.73 5.23 7.73 10.23 Min. 0.00
generation company consisting of a surface lignite mine and a power station that produces electric energy. Following this
Emission allowances cost, €/CO2 0.70 Triangular 12.73
• high upfront costs and investment risks,
assumption, the economic block model of a lignite deposit contains the price of electric energy that is produced from the 15.23 17.74 20.24 22.74 25.24 Max. 50.93 • new infrastructure requirements,
lignite. In thanks to formula used for lignite quality equivalent individual block of deposit may be converted into deposit of 0.9190 0.9352 0.9514 0.9676 0.9838 • uncertain public and political support
Resource risk, [-] 1.00 Gaussian 1.00 0.081
energy. Costs of producing energy from coal in a power station are modelled as processing costs, necessary to obtain the 1.0162 1.0324 1.0486 1.0648 1.0810
product - electric energy. Additional costs of the energy market (carbon emission costs) are treated as selling costs of the 1.65 1.70 1.74 1.79 1.84 • Public opposition to CCS, cancellation of a small number of projects in Europe.
Unit mining cost, €/m3 1.88 Gaussian 1.88 0.11
final product. Lignite pit is usually mined with a surface mining technology which occupies vast area on the terrain. Surface 1.93 1.97 2.02 2.06 2.11
costs are therefore vital while considering feasibility of any lignite mine. Such barriers may be overcomed by enabling and encouraging CCS technology
6. RESULTS providers to invest in new regions; sharing experience from operating projects; and
2. TEST MODEL DEVELOPMENT building mutual trust on collective climate action and commitment to CCS.
Figure: Ultimate pit phases (a) with 95th percentile of surface cost Table: Data table for tornado diagrams, sensitivity analysis project parameters ranges
Estimation of the minable lignite reserves should be applied in (b)
based on the spatial model of the lignite deposit and unit min base max FEARS OF A HAZARDOUS RELEASE OF CO2, LEAKAGE
value
defined pit limits. To create lignite deposit economic The risk of CO 2 escaping from a suitable geological store is considered highly unlikely, and if it were
1 Energy price (product price) EUR/MWh 45.48 68.22 90.95
block model quality parameters were investigated. to occur, would be at low flow rates and represent a small fraction of the overall store. However, this
Under intrinsic stationarity assumption kriging
2
3
Emission allowances cost CO2
Power plant efficiency
EUR/CO2
%
0.00
37
12.73
45
25.24
50
Environmental effects of mining projects
4 Resources risk [-] 0.919 1 1.081
slight risk has been identified as potentially problematic in scenarios where it represents an
estimation was performed. Kriging as estimation
5 Lignite processing cost EUR/MWh 9.78 12.05 14.33 unquantifiable cost to the plant. This is especially the case in countries under the EU ETS or other
procedure gives the best linear unbiased prediction 6 Unit mining cost EUR/m3 1.65 1.88 2.11
of the values and by assigning kriging weights,
carbon markets, where the price of CO2 is variable and of uncertain future value, but it may also be
kriging variance (kriging error) is minimized. present under fixed price regimes which are expected to rise in future. If a CCS facility were obliged to
Figure: Boreholes location, avg. spacing 400 m (left) and histogram
of calorific value (kJ/kg) at moisture 50% (1 m composites) (right)
pay back the cost of lost CO2 in the event of a leak, this unknown cost could represent an
uninsurable risk for the insurance industry.
For quality parameters estimation purposes a block model with panels of 400 × 400 × 3 meters was used that
reflects average drillhole spacing and vertical range of semivariograms. After performing estimation block model was
adjusted to mining technology abilities that is bench height of 12 m and 50 × 50 m block cell dimensions that
represents average pit advance.
MINING - ENERGY PROJECT RISK MITIGATION
BUILDING SOCIAL ACCEPTANCE
3. LIGNITE QUALITY INDEX ADJUSTED TO ENERGY Figure: Tornado diagrams of contained energy in ultimate pit, TWh. Left
with no surface cost, middle with 50th percentile of surface cost (47
Figure: Tornado diagrams of project net value, milion EUR. Left with no
surface cost, middle with 50th percentile of surface cost (47 million EUR) INCREASED LIKELIHOOD OF SUCCESSFUL MINING PROJECT RISK MITIGATION
In order to estimate lignite deposit value, quality index is introduced as part of lignite price formula (multiplication of million EUR) and right with 95th percentile of surface cost (374 million and right with 95th percentile of surface cost (374 million EUR). Bar
quality index and base price) that was used by Polish lignite mine ”KWB” Konin to estimate the price of lignite - product EUR). Bar number corresponds to data table number corresponds to data table
sold to power plant. Quality index enable to differentiate lignite
through deposit. List of variables, abbreviations: CO2P - CO2 price, EP - energy price (PLN/MWh),
QA AA  AB S A  SB ENERGY - product - quality index adjusted to energy. Energy that can be generated
Qindex = F (QA , AA , S A ) =   from tonne of lignite (MWh), Energy recovery formula, Energy Lignite PP Recovery -
QB 200 10 power plant efficiency, Energy Lignite PP additional cost - cost of processing one Figure 2: Brown spread for average energy price and
where: QA, QB - actual and base lignite calorific value (kJ/kg), AA , AB - actual and base lignite ash content (%), SA , SB - tonne of lignite by power plant, ME - quality index function error based upon
fixed cost of lignite production
estimated lignite quality parameters. ME is assigned to Energy (product) and is used
actual and base lignite total sulfur content (%) (base lignite parameters: QB = 8850 kJ/kg, AB = 12%, SB = 0,6%). as geological uncertainty in product.
As next step quality index was multiplied by factor that converts base tonne of lignite to energy that may be generated Figure 3: CDS and CBS after reduction of energy price by 25%
As observed in fig. (right side) Project is most
fromwhere:
it.
sensitive to energy (product) price, changes in power
- lignite quality index, ENERGY  Qindex  c
Qindex plant efficiency have third most important impact on
c - factor 2.458 MWh/Mg for base lignite with calorific value of 8850 kJ/kg
lignite mining project. In 95th scenario of surface cost
bottom row figure it can be seen that 1% change in
energy price generates 2.5 % change in project net
As a result lignite deposit is converted into deposit of energy with assigned uncertainty given by function error mF Q index
value. Similar to power plant efficiency where 1%
based upon kriging errors of lignite deposit quality parameters estimation. Q index function error calculated in block
change in power plant efficiency generates about
model cell may be expressed by following formula:
1.5% change in project net value in analysed ranges.
2 2 2
 F  2  F  2  F  2 RELATIONSHIPS BETWEEN STAKEHOLDERS WITHIN AN AREA
2 2 2
 1  2  1  2 1 2
mFQ =   mQ    m A    mS =            K ,S A
  
K ,Q A K , AA
 A  A  A      10 
Q A S 8850 200
OF A LIGNITE DEPOSIT
index A A A

Table: Simulation results for Surface cost, Net value and Total energy contained in deposit. Calculated from 200 ultimate pits with 95%
percentile of surface cost applied. Due to performed simulations each calculation of optimum pit was calculated from unique set of project REAL ESTATE OWNERS
parameters given by their distributions. It can be observed that project gives 95% probability to obtain net value of 1.28 billion EUR (in 95th 10% PROFIT SHARE PROPOSAL FROM MINING OPERATION
4. SURFACE COST MODEL percentile of surface cost scenario). Also there are only 5% chance to obtain net value of 5.52 billion EUR (in 95th percentile of surface
25
FOR REAL ESTATE OWNERS 5.50
cost scenario).
As greenfield project is considered to prepare joint optimization of lignite mine and power plant it is important to locate 5.24
5.00
investment in existing cadastral land scheme. Analysed map include about 6 000 land parcels that were grouped into two 4.69
Surface cost, million EUR Net value, million EUR Total energy, TWh 4.50
main categories as for urban and rural area. Within each category, there are 5 types of land use: residential, agricultural, 20
LAND ABOVE
Min 188.1 503 191.4
build-up agricultural, forests and shrubs, and other (roads, infrastructure etc.). For each of 10 land uses gamma 3.82 4.00
Max 395 6747 285.1 3.84 DEPOSIT
million EUR

3.75
probability density function of real estate free market transactions prices were plotted. For simulations and sensitivity 3.54

EUR/m2
3.53 3.50
Mean 379.9 3380 278.8 15 3.28
analyses 4 surface cost scenarios were used which include the no surface cost scenario for comparison purposes and 3.14 2.91
3.02 3.00
SD 16.7 1330 8.5 2.71
also 50th , 60th and 95th percentile of surface cost scenarios. Range 206.9 6243 93.7 2.57
2.39 2.48 2.50
Median 380.3 3372 280 10 2.00
Figure: Example of cumulative gamma SE 1.2 94 0.6
1.65 1.69 DEPOSIT
probability function of residential lands prices Probability, percentile 1.50
1.20
within urban area, EUR/m2 (left), cumulative 95% 368.3 1277 269.9 5 1.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
gamma probability function of agricultural lands Figure: Outlines of ultimate pit extents for 0th (green) and 95th (red) 75% 372.3 2369 276.4
prices within rural area, EUR/m2 (right). percentiles of Surface cost scenarios with variable product price (left 50% 380.3 3372 280 Total payments for property owners in a given year as a 10% share in profits from the CONCESSION FOR EXPLOITATION MINE –
25% 388.3 4429 283.6 operation of a deposit located within the horizontal boundaries of real estate, million EUR GOVERNMENT
- 45.48 EUR/MWh, middle - 68.22 EUR/MWh, right - 90.95 MINING OPERATION FEES AND TAXES ENERGY
EUR/MWh) 5% 393.3 5524 284.8 10% of shared profit calculated for m2 of acquired property in a given year, EUR/m2 AS THE DEPOSIT
COMPANY
OWNER