Alcoa’s $77m carrot to stay put
The federal government has taken a key step to ensuring Alcoa’s Portland aluminium smelter stays open beyond the middle of 2021.
The federal government has taken a key step to ensuring Alcoa’s Portland aluminium smelter stays open beyond the middle of 2021, offering up a $76.8m package to guarantee the massive energy user continues to play its role in stabilising the east coast energy grid.
Although not enough in itself to ensure Portland will be saved, the deal offers renewed hope for the 450 workers employed at the smelter in the small western Victorian town, as well as for the thousands of others that rely on its continued operation.
Under the terms of the deal Alcoa would be required to dial down its Portland smelter if the Victorian power grid comes under pressure in the summer heat, a role it has often played when coal-fired power stations become erratic as temperatures soar.
In exchange the federal government will ensure it is paid for the load shedding, guaranteeing $76.8m worth of payments from the Australian Energy Market Operator’s so-called Reliability and Emergency Reserve Trade scheme over the next four years. Portland already has access to the scheme, but is not always compensated when ordered to temporarily slow its operations by AEMO.
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 mid-2021.
Details of the arrangement will still need to be finalised between Alcoa and the energy market operator, but Energy Minister Angus Taylor was at pains to note the federal government offer was not a subsidy, saying the guarantee was aimed at ensuring Portland’s role in stabilising the grid was financially recognised.
“The Portland aluminium smelter provides unique and valuable energy services and emergency reserves to the grid, particularly over summer,” he said.
“However, the government’s underwriting is not a silver bullet. We need more dispatchable generation in the system, and we need mechanisms to keep providers of valuable system services participating in the energy market.”
Portland makes up about 10 per cent of Victoria’s energy use each year, and produces almost 20 per cent of the nation’s aluminium. It can idle its smelters for up to three hours on short notice, freeing up about 440 megawatts at times of peak demand, with a demand response capacity about three times that of the 150MW big battery in South Australia.
Energy market analysts have said its closure could trigger the early closure of another of Victoria’s coal-fired power stations, putting more pressure on the grid.
The announcement from Mr Taylor will increase pressure on the Victorian government to step up the pace of its negotiations with Alcoa. No money was set aside in Victoria’s November state budget for a separate assistance package, however.
A spokeswoman for Alcoa said the aluminium giant was “encouraged” by the federal government’s proposal.
“We look forward to working with the federal government to establish an agreement that recognises the valuable contribution Portland Aluminium makes to grid security and helps to ensure the smelter’s continued operation” she said.
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