Aluminium smelter feels the heat of uncertain electricity supply

Monday, Feb 13, 2017

The Tomago aluminium smelter in NSW has avoided a potentially damaging second shutdown after a tumultuous 48 hours that highlighted its susceptibility to electricity supply shocks.

Tomago had braced for a crisis at the weekend after learning that AGL Energy, which feeds electricity into the smelter, was planning to withdraw its electricity.

The utility had already cut its supply to Tomago on Friday afternoon as spot prices for electricity soared amid the state’s heatwave.

But while demand on Saturday soared to levels similar to those seen on Friday afternoon, spot prices failed to spike to the same level.

Whereas the spot price surged to $14,000 per megawatt hour during peak demand on Friday, prices briefly slumped to just $88 per megawatt hour on Saturday afternoon and went no higher than $449.80 per megawatt hour when demand was at its highest.

The lack of a similar price move appeared to reprieve Tomago, with AGL opting not to go through with its planned curtailment of supply.

The Tomago smelter ?represents about 10 per cent of NSW’s electricity consumption.

Australian Workers’ Union national secretary Daniel Walton said AGL’s ability to withdraw its supply had created significant uncertainty for the smelter, located just outside Newcastle.

“The company and the union are working together to minimise disruption and loss, but it is increasingly difficult to predict what AGL will do next,” Mr Walton said.

Electricity outages can be crippling for aluminium smelters if their potlines cool and freeze, with a major power outage at Alcoa’s Portland smelter in Victoria causing serious problems late last year.

The Portland outage initially forced the closure of more than half of its manufacturing ?capacity, prompting fears the smelter may be forced to close.

Alcoa eventually agreed to keep Portland operating until 2021 after the state government committed more than $200 million towards subsidising the smelter’s power agreement with AGL.

The move came as 18 business and community groups banded together calling for a fix to the nation’s rising energy strains.

“The status quo of policy uncertainty, lack of co-ordination and unreformed markets is ?increasing costs, undermining investment and worsening ?reliability risks. This impacts all Australians, including vulnerable low-income households, workers, regional communities and trade-exposed industries,” they said in a statement that includes backing from members of the Business Council of Australia, the Australian Aluminium Council and The Australian ?Industry Group.

At Tomago, employees and managers worked through extreme heat on Saturday to prepare the smelter’s potlines for the shutdown. “On Saturday, management and AWU members at the smelter were expecting an outage and made preparations for it but it never happened,” Mr Walton said.

“This is extremely disruptive for a company and a workforce trying to navigate difficult economic circumstances.”

A spokeswoman for AGL declined to comment further, but a statement from AGL on Saturday said the company had provided “significant notice” to Tomago to allow them to prepare for the outage as required under its agreement with the smelter. AGL said the smelter had been able to go through such situations in the past without adverse effect.

“The commercial agreement has been in place with the smelter since 1991 and exists to give flexibility to AGL to manage its customer load during plant ?outages,” the statement from AGL said.

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