Energy 15 December, 2021 12:00 pm   

Żydok: KGHM wants to move closer to complete self-sufficiency in the energy sector (INTERVIEW)

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We want to become a financial partner of an entity that has offshore technology. We’re considering participating in the next round of license awarding. If we also manage to launch small modular reactors (SMRs), we will come close to meeting one hundred percent of our demand on our own, said Radosław Żydok, Director of the Regulatory Analysis Department at KGHM Polska Miedź, in an interview with How was KGHM’s recently published climate policy formed?

Radosław Żydok: The team that prepared KGHM’s climate policy was created at the turn of February and March. I had the pleasure of leading it. It consisted of a hundred experts from every field of activity of our company, from headquarters and production branches. They were economists, lawyers, auditors, investment risk analysts, miners, metallurgists and power engineers. We also received the support of an advisor, EY Poland, which had the know-how, as it had implemented similar decarbonization projects across the world. We have combined these forces and together developed a transformation plan for KGHM, that responds to business forecasts, competition plans and customer expectations. It was important for us to balance our policy, so that its objectives do not harm our business and at the same time are ambitious. The market and the board welcomed it. This is the first step on the long road to decarbonisation, where the challenge will be to use new technologies and launch pilot programs, which will then be applied to our activities.

What are the conclusions of this policy?

We started by looking at how the prices of energy and CO2 emission allowances would be changing over the coming decades. We have also taken into account the changing expectations of our partners and shareholders, particularly with regard to reporting the environmental impact of our activities. Thus, we were able to present a vision of changing the business environment in the future, allowing us to plan investments for several years ahead. Our main conclusion is that there are certain European and global trends, which impact not just us, but also our competition, and we are incapable of changing them, which means we have to adapt to them, so that we don’t find ourselves outside of the game at some point. We must therefore pursue the climate objectives by following a path that will allow us to avoid the costs that we would incur if we did not pursue them. Our customers also expect this from us. Therefore, the central goal of our climate policy is to achieve climate neutrality by 2050, and the intermediate goal is to reduce CO2 emissions by 30 percent by 2030.

How does KGHM want to achieve these goals?

We need to get rid of direct and indirect CO2 emissions, so that we can achieve full decarbonisation. We are reducing indirect emissions in the energy and heat sectors in connection with the Scope 2 objective. They account for about 60 percent of KGHM’s current emissions. We will achieve full decarbonization in this area by generating all of the power that we use from renewables and nuclear sources. We are also considering various types of energy storage to stabilize the renewables. For this reason, we want to invest in hydrogen produced from the surplus of energy from emission-free sources. We want to build our own production capacity, and we do not rule out acquisitions.

To date, we have used and are using natural gas and other fossil fuels in various processes. Some of these sources can be replaced with zero-emission electricity. Of course, we will not be able to implement such a solution everywhere. Where gas furnaces will still be needed, in the future we will move from natural gas to hydrogen.

Green power generation alone cannot eliminate direct emissions, it’s impossible. Emissions are also produced during chemical processes, in the pyrometallurgical and hydrometallurgical areas of our business. Foundries are the biggest issue, as they use a certain chemical process for processing copper. Our ore contains organic carbon, which oxidizes during combustion to carbon dioxide. The solution to this challenge is CO2 capture and storage technology, or CCS. We are considering storing this chemical in depleted natural gas deposits in the vicinity of our plants. The emissions that we won’t be able to remove mechanically (at most 1-2 percent of current emissions), will be offset by the purchase of afforestation certificates and other substitute solutions accepted under the European Union’s climate policy. We’re considering electrifying the mining industry. We still use combustion-powered mining machines, which in the future could be replaced by electric vehicles or ones that run on alternative fuels.

In this context, does KGHM maintain its interest in offshore wind energy?

Absolutely. We want to become a financial partner of an entity with offshore technology. We’re considering participating in the next round of license awarding. If we also manage to launch small modular reactors (SMRs), we will come close to meeting one hundred percent of our demand on our own. If it turns out that our energy production exceeds the demand, then we will start selling it, and we will develop another business pillar, independent of copper prices in the markets.

Have you already calculated how much these investments will cost?

At this point it is difficult to precisely estimate the cost of these investments. Some of the technologies that we want to use have not yet entered commercial use. We will present a detailed decarbonisation plan next year. It will include specific investments and costs, which will surely reach billions of zlotys. However, these investments are necessary because we have already estimated the alternative costs that we would incur by not pursuing climate policy, including the Fit for 55 package that is now entering into force. The purchase of energy and CO2 emissions alone would cost us four billion zlotys more in 2030 than today.

How will these investments be funded?

It all depends on the price of copper. Currently our results are good and so is the cash flow, so we don’t need to borrow. However, the commodity market is cyclical. Commodity prices rarely remain high for a long time. On the other hand, KGHM has significant market funding opportunities and will use them if necessary. However, if commodity prices are favorable, we will stick to our own resources, but we will also use EU funds to support the energy transition. I am convinced that KGHM’s projects will have no problem obtaining funds from these sources.

Interview by Mariusz Marszałkowski