In a bid to secure the future of Australia’s largest aluminium smelter, the Australian and New South Wales governments have announced strategic interventions. This initiative is set to support the Tomago aluminium smelter through the development of electricity infrastructure and a fixed-price, long-term power purchase agreement, ensuring its competitiveness on the global stage.
Tomago, a major employer and energy consumer in New South Wales, is responsible for over a third of Australia’s primary aluminium production and provides jobs to more than 1,000 individuals. It represents the largest electricity demand in Australia, accounting for 12% of the state’s electricity usage. With its electricity contract due to expire in 2028, Tomago has been vocal about its transition goals, aiming for 50% renewable energy by 2030 and 100% by 2035, as part of its strategy to secure long-term success in an evolving energy landscape.
The smelter, however, announced last October that it struggled to find affordable electricity sources, both from coal-fired and renewable options. With electricity expenses making up over 40% of its operational costs, the smelter was contemplating closure post-2028.
Government Strategy to Lower Electricity Costs
Reports indicate that Snowy Hydro might supply power to Tomago beginning in 2028, potentially involving new projects designed to cater to the smelter’s needs. The government’s strategy involves reducing the cost of capital for these projects through methods like government credit support and concessional debt. This approach allows renewable project developers to access more affordable financing by having a public entity, such as Snowy Hydro, act as an intermediary in energy contracting.
According to Professor Roy Green from the University of Technology Sydney, “It’s a proven financial structure, effectively used by [then NSW premier] Neville Wran in the 1980s to secure coal-fired power for industry, and it can be applied just as effectively today for the new era of clean energy transition.” The cost of capital significantly impacts the expense of electricity generation. Oxford Economics estimates the cost of capital for large-scale solar and wind projects in Australia ranges between 5.5% and 11%, influenced by the perceived risk and reliability of offtake agreements.
Scalable Decarbonisation Model
The model of reducing capital costs for renewable projects offers a sustainable way to aid industrial facilities in transitioning to greener energy sources. This approach doesn’t rely on continuous financial subsidies but rather uses the government’s credit rating to minimize the infrastructure costs of renewable projects. Any initial government financial aid could potentially be reimbursed through profits from aluminium pricing and battery trading.
This framework could extend to other industries, lowering costs for green export markets, such as green iron production, where electricity infrastructure comprises a significant portion of capital costs. By addressing electricity system demands and enhancing reliability, the model not only supports Australia’s industrial decarbonisation but could also have global implications, helping industries worldwide transition to renewable energy while maintaining competitive edges.
For further insights, visit the official announcement and explore more details about the Tomago smelter’s role in Australia’s energy landscape here.
Original Story at ieefa.org