AGL drops Portland rescue plan

AGL Energy has dumped a plan to share the burden of a new discounted power contract for Victoria’s Portland aluminium smelter.

AGL Energy has dumped a plan to share the burden of a new discounted power contract for Victoria’s Portland aluminium smelter.

AGL Energy has dumped a plan to share the burden of a new discounted power contract for Victoria’s Portland aluminium smelter, raising fresh concern over the future of the facility amid fears owner Alcoa could be forced to shut its doors as early as next year.

The electricity giant opened talks with the national competition regulator in May over whether it would allow a consortium of the state’s major electricity companies to collectively offer an agreed price for power to Portland at discounted rates, in order to keep the smelter operating. The move was prompted by the looming expiry of the smelter’s supply deal with AGL, which is set to end in August 2021.

Portland’s operator, US aluminium giant Alcoa, has also flagged a portfolio review aimed at shutting loss-making parts of its global operations.

Both AGL and the Australian Competition & Consumer Commission confirmed the proposed rescue plan to safeguard the future of the smelter and its 500-strong workforce had been shelved.

AGL “sought to assist Portland in establishing electricity supply arrangements that would assist its ongoing viability following the expiry of its current contract. The assistance provided by AGL included seeking to establish a supply consortium, comprised of industry participants, with the purpose of developing a market-led response to supply Alcoa,” AGL said in a statement to The Australian.

“Despite the efforts of AGL and some other market participants, and a constructive engagement with the ACCC, we did not proceed with the original plan. The reasons for this included lack of industry participation and the conditions required for a successful consortium.”

A decision to shut down Portland would remove the state’s single biggest power user and pile pressure on the coal plant that supplies 22 per cent of Victoria’s electricity but is the next facility earmarked to exit the state‘s power grid.

AGL is also facing a test in NSW after Australia’s biggest aluminium smelter, Tomago, reopened negotiations to strike a cheaper electricity contract amid concern an existing deal set to run until 2028 and a tough market backdrop may cripple the future of the giant manufacturing site.

The ACCC has already allowed wholesale and retail energy businesses to work together during the COVID-19 pandemic to help provide relief to at-risk customers. ACCC chairman Rod Sims said it was open to AGL’s approach but had laid out a series of issues the electricity provider would have needed to address as part of its authorisation process that allows competitors to work together.

One sticking point was the ACCC’s expectation that AGL spell out how providing a potentially lower-cost contract for Portland might affect other power users in the national electricity market.

“You can approach this one of two ways: you can say ‘this is about saving the Portland smelter and this is a good thing full stop, so authorise it’,” Mr Sims told The Australian. “Or you can say ‘hang on, let’s try and understand the effect on energy prices and what the impact would be’. Obviously we’re interested in affordability, so allowing competitors who supply energy to get together to supply Portland needs to also be looked at more generally for the market. Does that mean other people will pay a high price? We weren’t saying it would but we wanted it addressed.”

AGL said it remain focused on a solution for Portland. “AGL is continuing to work with Alcoa on a bilateral basis and trusts that other market participants are doing the same in order to provide sufficient supply to the smelter to enable its continued operations,” the company said.

Portland has been kept alive over the past decade by a succession of rolling subsidy deals from the Victorian government, worth $200m over four years when last signed in 2017.

Both Alcoa and Australian-listed Alumina — which jointly own 55 per cent of the smelter on Victoria’s southwest coast, with China’s Citic and Japan’s Marubeni owning the rest — have said a new power deal is the key to keeping Portland open.

Alcoa said it hoped to strike a power deal for the facility.

“Our ability to secure reliable, cost-competitive power supply is central to the future viability of the Portland Aluminium smelter. We appreciate the continued positive engagement by a range of industry stakeholders, including several power generators, which we hope will result in the continued operation of the smelter beyond July 2021,” an Alcoa spokeswoman said.

Rival operator EnergyAustralia in July said it would consider joining a rescue plan for Portland in a move that may have eased pressure on its own Yallourn coal station.

AGL in May hinted governments will be reluctant to let the Portland and Tomago aluminium smelters collapse in a post-COVID-19 environment but considerations by each facility’s owners may also play a part.

Rio is racing to sharply curb its carbon footprint, potentially impacting Tomago, while Portland’s future under Alcoa’s ownership rests on the negotiation of a new and cheaper power contract.