Alcoa has received a lifeline from the Australian Government to keep its Portland aluminium smelter in Victoria open beyond mid-2021.
The federal government will underwrite revenue earned by Alcoa at the facility when the during peak periods of energy usage.
In this way, it is reducing Alcoa’s load, via an emergency reserve revenue of up to $76.8 million over four years to 2024-2025.
Alcoa president Roy Harvey said earlier this year that the company was faced with stock overhang and the COVID-19 crisis, putting 1.5 million tonnes in its smelting portfolio under revision.
However, there was a high cost to bringing down smelting capacity, and even higher to bringing it back up, he said.
Alcoa’s Portland aluminium smelter delivers emergency power reserves to the market but represents around 10 per cent of Victoria’s electricity consumption.
Alcoa purchases power from the National Electricity Market (NEM) variable spot market for the Portland smelter. It also has fixed for floating swap contracts with AGL Energy to manage its exposure to the NEM variable energy rates.
According to Australia’s Minister for Energy and Emissions Reduction Angus Taylor, the government underwriting will last to 2025, and cease once electricity market reforms are in place.
“The Portland aluminium smelter provides unique and valuable energy services and emergency reserves to the grid, particularly over summer,” Minister Taylor said.
“It is three times larger than the largest battery in Australia and has been vital to avoiding black outs in previous summers.
“The government will ensure Portland continues to play that important role and is appropriately compensated for the grid services it provides.”
Member for Wannon Dan Tehan said the government’s underwriting came at a time when Victoria had been hard hit by the COVID-19 pandemic.
“If Portland were to close it would risk the reliability and security of the grid, and may lead to the early closure of one of the coal-fired generators the state relies on for much of its power,” he said.
“If another coal-fired generator closes early, it would mean higher electricity prices for all Victorian consumers as it did when the Hazelwood power plant closed in 2017, which saw prices skyrocket by up to 85 per cent.”