02 June, 2017

Ben Potter

Courtesy of the AFR

Metal smelting is sunk without the cheap, subsidised coal power that state electricity bodies used to lure the industry to Australia TO underwrite development from the 1960s to the 1980s, experts said.

Bruce Mountain, principal of CME, said policymakers should concentrate on easing smelter communities and employees through the transition rather than trying to prop up smelter owners.

Mining giant Glencore wrote to federal and state leaders this week to say soaring electricity prices had made its Mt Isa and Townsville copper processing plants marginal, in March Rio Tinto’s Boyne Smelters laid off about 100 workers and Tomago Smelter is considering cut backs.

In January the Victorian and federal governments gave Alcoa $230 million to keep the Portland aluminium smelter – which has $2 billion in subsidies – alive for four years.

Australia competed with South Africa, Iceland and France’s nuclear power for smelting plants from the 1960s to the 1980s by offering subsidised energy, but could no longer do so.

Mr Mountain said we could no longer compete in this way because smelter investors are wary of carbon risk on long-lived plants and are gravitating towards low-cost geothermal and hydro electricity sources around the world while our coal-fired power is high carbon.

Industry pleas

Despite pleas from industry to sort out problems that have doubled electricity prices, Mr Mountain said there was “no realistic prospect of expansion” of coal without enormous government assistance.

“Without substantial wind and solar development along with substantial storage we can not provide high volumes of low emission electricity needed around the clock to smelt ore,” he said.

“The economics of such renewable energy plus storage in this application are not yet competitive with low emission electricity in other countries. So I think the future for smelting in Australia is negative.”

He said the public interest now is to “make the most of sunk costs, and where sensible support jobs and local industry and transition to new industries rather than propping up smelter owners”.

Ross Garnaut, economics professor at Melbourne University and chairman of battery installer ZEN Energy, said the cheap coal power prices of the past would not come back, but Australia could become competitive again as the developed world’s low cost operator of renewable energy and storage if it got policy right.

“Australia has the lowest cost renewable energy resources in the developed world, and will be the developed country with the lowest energy costs in the low carbon world economy unless we muck it up,” Professor Garnaut said.

Cheaper than new coal

“The costs of efficient combinations of wind, solar and storage are already lower than new build thermal energy in Australia. There’s a sense in which we are there now, as the existing global fleet of old energy generators depreciates.”

“Energy is not available to smelters anywhere at the sorts of prices that it used to be. We might have stayed competitive through this energy transition had we not made such a mess of energy policy.”

He said a recent deal in which Origin Energy sold the 500 megawatt Stockyard Hill wind farm to China’s Goldwind with an agreement to buy all the power for less than $55/MWh – about half the average wholesale price in May – showed how rapidly renewable energy costs were falling.

“Solar is cheaper than that in the right locations. You have got to bring together a number of things – really large volumes of solar and the best pumped hydro. For grid stability you combine that with the batteries, and get all the combinations of those things right and you can be competitive now.”

Paul McArdle, head of energy software company Global-Roam, said the Queensland energy users faced a perfect storm from the 3-into-2 merger of government owned generators which has led to market power issues at times of tight supply/demand balance, and huge increases in electricity and gas demand from the liquefied natural gas industry.