AGL has high hopes for Alcoa’s Portland aluminium smelter

AGL Energy is “very hopeful” Alcoa’s Portland aluminium smelter in Victoria will continue to operate after its current power deal runs out.

The Portland aluminium smelter has been under threat of closure for more than a year.

AGL Energy is “very hopeful” Alcoa’s Portland aluminium smelter in Victoria will continue to operate after its current power deal runs out in the middle of the year.

Portland has been under threat of closure for more than a year, after majority owner Alcoa flagged a review of its future if a new, cheaper energy contract could not be negotiated ahead of the expiry of the current deal — and a four-year subsidy agreement with the Victorian government — in July.

AGL holds the current electricity contract with the smelter and remains in talks with Alcoa over a new power deal. Alcoa has also asked AGL’s rivals to consider bidding for the contract.

“We view Portland as one of our biggest and most important customers. We’re also very mindful of the importance of the smelter in the context of the energy market and the Victorian economy. So we are bending over backwards to keep them on and get the right energy deal that they need to keep going,” AGL chief executive Brett Redman told The Australian.

“We’re putting our absolute best foot forward there and having good conversations with them. I’m aware they’re talking actively to others including state and federal governments. I’m very hopeful for that plant and that site and it’s something we view is very important to keep them going.”

In December the federal government offered up a $76.8m package to help guarantee the massive energy user continues to play its role in stabilising the east coast energy grid. Alcoa says a key point in negotiations over a new deal is whether Portland will be compensated if it is forced to shut down during power outages.

Under the deal Alcoa would be required to dial down its Portland smelter if the Victorian power grid came under pressure in the summer heat, a role it often plays when coal-fired power stations become erratic as temperatures soar.

Portland’s future has also been bolstered by steady improvement in the price of aluminium since the depths of the pandemic.

Average electricity spot prices have halved from a year ago to between $40 to $45 a megawatt hour in most states as a flood of cheap renewables lower daytime prices along with cheaper gas and coal and softer demand amid COVID-19.

Electricity futures point to subdued conditions this year and next with prices in the early $50 MwH range.