Tomago seeks power grid lifeline
Tomago is looking for a payment to recognise the role it plays in stabilising the east coast energy grid.
Australia’s biggest aluminium smelter, NSW’s Tomago plant, hopes to strike an energy deal with the Morrison government to ensure it remains competitive, recognising the role it plays in stabilising the east coast power grid.
Canberra offered a $78m deal to the Alcoa-owned Portland smelter in Victoria in December which ensured it would be required to dial down its electricity use if the Victorian power grid buckled in the summer heat, a role it has often played when coal-fired power stations become erratic as temperatures soar.
The federal deal played an important role in Alcoa’s March decision to keep the smelter open and one of Tomago’s owners, CSR, said a similar pact could help ensure Tomago remained resilient amid high electricity prices which have hobbled its performance.
“As the older generation assets transition out and we move in to the new renewable generators, Tomago can play a key role in stability through that period and it’s trying to receive value for that service through the transition,” CSR chief financial officer David Fallu told The Australian after delivering a rebound in annual profit.
“Ensuring that we have a forecastable number — and more of a clear reward for service — means we can make investment decisions for the longer term.”
Tomago, which uses 10 per cent of NSW demand, has already opened talks with the Australian Energy Market Operator to investigate different payment models to recognise the role it plays in the electricity grid, where it can power down to help the state avoid potential blackouts.
The smelter has also reopened negotiations with electricity supplier AGL Energy to strike a cheaper power contract amid concern an existing deal set to run until 2028 and a tough market backdrop for the metal may cripple the future of the giant manufacturing site. Tomago continues to hold talks and “work through the process” with AGL to try and rework a cheaper agreement, Mr Fallu said.
Rio Tinto, one of Tomago’s owners, gave a lukewarm assessment of its Australian aluminium smelters a year ago identifying their carbon footprint and high power prices as an additional barrier to keeping them open.
However, the mining giant now appears more upbeat on its fleet of Pacific Aluminium facilities which include Tomago as it seeks to tap into renewable options to help lower their carbon footprint.
“They are intrinsically good assets. We have an extremely skilled workforce. They are located in industrial towns with suppliers, customers, infrastructure, ports, railways and there is an opportunity here if we work together with other stakeholders — state government and federal government — to repower those assets and actually to create a low carbon industrial hub in Australia’s east coast,” Rio chairman Simon Thompson said at its annual general meeting on May 6.
“That is going to involve a lot of discussion and collaboration with multiple stakeholders, but we are certainly very focused on trying to achieve that outcome for our PacAl assets.”
Rio holds a 52 per cent stake in Tomago, but is not the operator of the facility. It would need the support of CSR, the other major shareholder, to make any decisions about Tomago’s future. Tomago employs 950 staff as well as 190 contractors.
CSR chief executive Julie Coates said its aluminium unit earnings in the 2020 financial year slumped by 60 per cent to $23m, in line with previous guidance, and reflecting a sharp fall in aluminium prices at the start of the financial year.
It expects aluminium earnings for the 2022 financial year in a $32-40m range.