Home Environment Energy Energy Transforming natural resources into prosperity and development comes with a huge energy demand. In order to meet this demand, we keep a portfolio of power supply contracts and self-generation, consisting mainly of renewable energy sources. In 2019, almost 60% of the energy consumed by Vale was self-generated. KPIs Report Cost of electricity in the international industry (USD/MWh) As Vale is one of the five largest electricity consumers in Brazil, an important performance indicator is the cost of electrical power. Vale Global's electricity cost is US$ 5 billion/year. We are currently ranked among the- industries with the lowest electricity cost in the world. Performance Evolution Share of renewable sources (In thousand TJ) The share of renewable sources in Vale Global's energy matrix grew from 25% to 28% between 2016 and 2018. The reduction in consumption by non-renewable sources is mostly due to the reduction of diesel consumption, which is mainly used as fuel for haul trucks and locomotives. By means of Powershift's global initiative, which aims at the electrification of diesel machines and equipment, the diesel consumption in Brazil will be reduced. Competitiveness and increase in self-generation By increasing our self-production and reducing demand during peak hours, the electricity costs become more competitive. For Canada and Brazil, between 2018 and 2023, these initiatives represent a reduction of around 25%, between the projected cost and after the initiatives. Goals and Deadlines Our goals for 2030 are: Achieve 100% of self-production from renewable sources in Brazil by 2025 and globally by 2030. The three pillars of energy initiatives are: Self-sufficiency Replacing conventional energy sources in the market with renewable generation. Energy efficiency High energetic performance throughout Vale's production chain, supported by a systematized management model and multidisciplinary teams. Powershift Energy matrix transformation: replacement of fossil fuels with renewable energy through electrification of machines and equipment. Our Management For us, the efficient management and supply of energy in Brazil are priorities, given the uncertainties associated with changes in the regulatory environment and the risks of tariff increases. In this sense, we operate across the entire electricity chain from supply to final consumption management, to ensure that the most secure, renewable and competitive energy will be available to our operations. Energy Supply Management: Our installed capacity in Brazil is 1.8 GW, coming from directly and indirectly controlled plants, through our subsidiaries. We use the electricity produced by these plants to meet our internal consumption needs. Currently, about 60% of the electricity consumed by our operations in Brazil comes from self-production. By 2030, Vale is committed to achieving electricity self-sufficiency in Brazil. Energy Demand Management: Energy Matrix: Energy Efficiency: Energy Efficiency is a key factor for cost optimization while ensuring reductions in the emission of Greenhouse Gases. Vale is implementing in its operations a modern Energy Management System, called SmartEnergy, which will allow the automatic monitoring of energy consumption, thus facilitating and providing transparency to the management works of the company's global energy matrix. Impact Management Sustainable development is a priority to our affiliated power generation companies. In this sense, actions focused on biodiversity protection, pollution prevention and mitigation of impacts resulting from operations are examples of this commitment towards sustainability. Fish Transposition Systems (FTS): Structures - ladders or elevators - built around dams that allow the continuity of the fishes’ migration process during the “piracema” period - when the fishes go up the river for breeding. In Aliança Geração, the Funil plant was the first in Brazil to install the FTS (January 2004) and has already transported over 1,000 tons of fish in Rio Grande (MG). In Belo Monte, the FTS consists of a 1,200-meter long canal with bulkheads that provide areas of low water velocity and allow the fish to rest. For more information about Impact Management on energy, see our position on the resettlement of Belo Monte. Policies and Standards Vale is developing an Electrical Energy Commercialization procedure with the purpose of establishing guidelines for the processes of energy Purchase and Sale, seeking alignment with internal Standards and maximization of results. Main Guidelines: Apply all internal procedures and processes related to the energy purchase and sale process, as well as the applicable delegation standards. Monitor and analyze the regulatory environment, working with regulatory entities and bodies to preserve the interests of Vale S.A.'s. In the commercialization operations, seek to maximize Vale S.A.'s results while minimizing the costs of operations. Promote auctions or calls with other agents of the industry for energy purchase and sale operations, on a priority basis, aimed at keeping auditable records. Minimize risks in the commercialization operations, by means of: (i) requirements and resources management; (ii) energy ballast management and contracting; (iii) application of risk analysis methodology; (iv) definition of commercialization strategy incorporating available resources and self-sufficiency strategy. Risks Overview Power shortage Higher energy costs or energy shortages may adversely affect our business. Fuel oil, gas and electricity costs are a significant component of our production cost, representing 11.1% of our total cost of products sold in 2018. To meet our energy demand, we rely on the following resources: oil products, which accounted for 31% of the total energetic needs in 2018, electricity (31%), natural gas (17%), coal (17%) and other energy sources (4%). Natural Disasters Natural disasters, such as gales, droughts, floods, earthquakes and tsunamis, may adversely affect our operations and projects in the countries in which we operate, and may lead to a contraction in sales to affected countries, among other factors, due to interruption of energy supply and destruction of industrial facilities and infrastructure. Suppliers Major parts of our iron ore, pelletizing, nickel, coal, copper, energy and other business segments are operated through joint ventures. This may reduce our level of control, as well as our ability to identify and manage risks. Our projections and plans for these joint ventures and consortia assume that our partners will fulfill their obligations to make contributions to capital, purchase products and, in some cases, provide qualified and competent management personnel. If any of our partners fail to meet their undertakings, the affected joint venture or consortium may not be able to operate in accordance with its business plans, or we may need to increase the level of our investment to implement these plans. Perspectives We continue with the purpose of achieving electricity self-sufficiency in Brazil. We have been seeking to continuously invest in self-production from renewable sources, such as hydroelectric, wind and solar plants, based on the quality and safety of the supply, cost competitiveness and sustainability. The way to self-sufficiency and cost reduction: In addition, we entered into another renewable energy supply contract from the Folha Larga Sul wind project, which is expected to start operating in the first half of 2020. This contract also includes the option of Vale acquiring the farm, which would add up to 151.2 MW to our generation capacity. Business Case Folha Larga Wind Project Wind project with innovative business structure, which serves as a reference to other developments. Benefits: 151.2 MW installed power Long-term PPA with energy at a competitive price Call option for Vale of up to 100% of the project Increase of 200% (from 3% to 9%) of the share of wind energy in Vale’s electrical matrix in Brazil Increased thermal efficiency of pelletizing furnaces in Brazil Purpose: To use the Lean Six Sigma methodology to act directly in reducing deviations and in the specific consumption of thermal energy applied in the pelletizing furnaces for pellet processing, seeking operational excellence in order to achieve the individual benchmark of production units in an integrated manner. Tubarão thermal energy consumption (Mcal/t) 4.3% reduction in the thermal energy consumption of Tubarão pelletizing plants. Reduction in specific natural gas consumption from 10.64 to 9.65 Nm³/t, representing a reduction of 9.3%.