UON warns mining industry of rush to decarbonise

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UON founder and executive chairman Mark Keogh’s seemingly benign use of the phrase “diesel displacement” seriously downplays the level of disruption it could cause to the mining industry.

Billions of dollars a year in diesel rebates is designed to be a form of compensation for industries like mining and agriculture, which consume high volumes of diesel in remote locations; the theory being that they are not using public roads so it would be unfair to pay “full-freight” for expensive maintenance.

The policy conundrum is that the rebates encourage fuel consumption but don’t consider the benefits of diesel displacement and electrification, which is where Mr Keogh comes in.

UON, founded in 1998 and owned by Mr Keogh, Macquarie Group and with Japanese conglomerate Itochu last year acquiring a minority interest, designs, builds and maintains remote energy and water infrastructure solutions for the mining and resources sector.

Bluntly, it wants to make diesel redundant by helping to integrate operationally cheaper, more efficient and much cleaner decarbonising technologies to off-grid mining sites.

So what’s the problem, you might think. Well, it’s not so much a problem as a challenge: penetration of company bureaucracies to convince key decision-makers that it’s time to overturn decades of industry practice.

“It’s almost like people have become ambivalent about diesel,” Mr Keogh said.

“The reality is: ‘I just drive up my truck, fill it up and then go away. And magically, every time I want to fill it up, the diesel’s there.’ It’s like diesel’s free so there’s no other option to consider.

“We get most of our success when the (procurement process) is driven from the ground up, but if we come in at the mid-level, we get very little success because it’s cost-driven and there’s no engagement other than the company saying: ‘Here’s what we want’.”

Mr Keogh agreed that, in some ways, the mining industry’s public commentary about sharing the burden of the nation’s decarbonisation challenge was still a work in progress.

In 2022, the Clean Energy Finance Corp said the industry was a large emitter of greenhouse gas emissions, accounting for 9.5 per cent of national Scope 1 and Scope 2 emissions, with downstream emissions higher depending on the commodity.

Also, the Australia Institute think-tank said the $9.6bn fuel tax credit was one of the biggest expenditure items in the 2023-24 federal Budget and was expected to cost $41.1bn over the next four years.

Successful mining and renewables entrepreneur Andrew Forrest weighed into the debate in 2021, proposing a phaseout of the diesel fuel rebate for the biggest mining and energy companies between 2025 and 2030.

“I am acutely aware that farmers and other small businesses rely upon this rebate, and I have never suggested that they should have it taken away,” Dr Forrest said.

“Australia has the opportunity to create all its own energy and export its sun and its wind to global markets, but only if our government acts quickly to create an environment where renewables can prosper and where the odds are not stacked against them by outdated fossil fuel subsidies.

“Phasing out the diesel rebate will give the government the choice of using the money saved to retool Australia to utilise green agriculture, green hydrogen, green ammonia and green electricity.”

In the recent share-sale to Itochu, UON was pitched as a way of playing the energy transition from fossil fuels to renewables.

It also has a history of technical innovation, having developed hybrid and renewable solutions for its clients, and with some capital investment could build a hybrid and renewable equipment fleet for leasing.

The enduring proposition, however, is that UON’s solutions are locally manufactured and tailored for local conditions, which are typically off-grid, subject to cyclones and dust, and punishing temperatures often exceeding 50oC.

While some other solutions were cheaper, Mr Keogh said UON’s (SMART) scaleable, modular and temperature-controlled facilities made them more resilient in extreme conditions and appropriate for off-grid applications.

“We win the work replacing all the gear that was supplied in the first place, but some of (the customers) still keep doing it,” he said.

“So we’re shaking our heads and we say: ‘OK, we’ll wait for all the equipment to fail in 12 months’, and our colleagues will say after a year has passed: ‘Can we have some of your stuff?’ and off we go again.

“One of the things we have to look at from a strategy perspective is that we know there’s a business case there (for the customer to engage UON) and it’s not just on the basis of renewables; it’s that your balance sheet is going to look better by a certain amount after a certain period of time.

“Some of the figures show that we can displace 80 per cent of the diesel business within three years by displacing all of the customer’s assets and replace them with UON SMART solutions. And on top of that there’s the decarbonisation benefit.”

Mr Keogh predicted that demand for UON’s solutions would inevitably start to accelerate once mining companies felt the sharp edge of pressure to decarbonise from their debt and equity providers, which themselves had to slash their financed emissions to meet interim and 2050 net-zero targets.

“In our view, it’s going to be absolute chaos in 2027 when they start realising what they have to do, and everybody’s going to want to do it at the same time,” he said.

“It won’t be just Australia; it will be global, and our supply chains and lead times are going to start blowing out from six months to 12 months.

“Prices are going to escalate and it’s going to be out of control.”

 

The information contained in this article is based upon sources believed to be reliable but which have not been independently verified. Opinions or ideas expressed may not necessarily be those of National Australia Bank Limited (NAB) nor may they necessarily reflect NAB’s views or endorsement. This article is for informational purposes only.

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