Talk is cheap, green aluminium is not (yet)

Australia’s largest electricity user, the Tomago aluminium smelter in NSW, says it won’t be renewing its coal fired electricity contract with AGL after 2028 because it will be switching to renewables to power the smelter.

This is the same Tomago smelter that had been leaning on AGL and the Federal Government to extend the life of the coal fired power station at Liddell in the Hunter Valley, warning of rolling blackouts, price spikes, and the smelter closing, if coal generators closed. It resulted in the delivery of the benign Liddell Task force report last year.

Tomago CEO Matt Howell told The Australian Financial Review last year that it was technically possible to run a smelter using wind, solar and batteries “but you’d be bankrupt, you can’t make money from it”. Apparently, he’s changed his mind.

It’s a aluminium smelter sized flip. Tomago has changed teams, from fighting to retain big incumbent generators, to fighting for deals to accelerate the uptake of big renewables and their supporting entourage of technologies.

It’s a big call even though 2028 is seven years away. To date globally there are no aluminium smelters using predomiantly wind or solar electricity. That’s because aluminium smelters require large and continuous supplies of electricity around the clock. This has found most of them attached to large and continuous supplies of electricity from coal, nuclear or hydro generators around the world.

The Grattan Institute recently talked up a big game in a 2020 report on using green hydrogen to back up intermittent renewables for green aluminium production. It makes sense in the vague, non-commercial world of “the future”, but it is predicated on very cheap hydrogen, which is a while away yet. Siemens CEO Christian Bruch warned in March that the large-scale commercial green hydrogen needed for this is unlikely to be viable before the end of the decade.

Earlier this year the United Arab Emirates created a lot of marketing hype around its state owned utility supplying its state owned smelter with large scale solar so it could produce a new green aluminium product. Of course the solar doesn’t generate at night, and then the UAE grid suppliers will switch to gas fired electricity. 

While this relatively obvious technical glitch in the branding is glossed over, it appears EGA (the Emirati smelter) is claiming renewable credits from over production of solar PV to meet its green claims. That’s all possible in a wholly state owned set up like the UAE, but we’re still clinging to the notion of commercial markets here in Australia.

Tomago requires around 960 megawatts of constant supply to run its smelting operations, which in turn will require around 3000 megawatts of dedicated wind and solar, backed by at least a few hundred megawatts of large scale batteries and access to around 900 megawatts of firm gas generation.

While the wind and solar are now cheap, the batteries and gas fired electricity are not. Tomago is currently pitching around for providers of these services, but even if Snowy 2.0 is on line by 2028 there is no guarantee they will be sufficiently cheaper to make such a switch commercially viable. Aluminium smelters need cheap, long term electricity contacts to remain internationally competitive.

This generation switch would also flip Tomago from being a grid balancer – able to switch off loads at times of peak demand – to a grid stressor, because at times of low wind and solar generation it would be competing for the same battery and firming capacity as everyone else. It can still switch off at times of extreme demand, but these will become more frequent as more firm generation exits. It is unlikely to be cost effective for the smelter to switch off every time renewables dials down. Because that could could be every few days.

What it probably reflects is that Tomago has a narrowing range of options for its commercial survival. Maybe CEO Matt Howell thinks he might as well roll the dice on a renewables switch and see if there is enough political cash and backing to get a workable new deal done. If you don’t move, you’re dead.