Business & Finance

Australia proposes revenue top-up scheme to keep Alcoa Portland smelter open

  • It receives payments from Australia's energy market operator whenever it is asked to curb its power use, to compensate for lost production. The size of payments varies from year to year.
Published December 14, 2020

MELBOURNE/BENGALURU: In a push to keep Alcoa Corp's Portland aluminium smelter open, Australia's government has offered to ensure the smelter earns at least A$76.8 million ($57.9 million) through June 2025 for reducing its power usage and helping to prevent blackouts.

The offer comes as Alcoa, federal and state governments and power firms discuss the future of the smelter, which has stayed open since 2017 due to government subsidies and a cheap power contract expiring next year.

Alcoa has long said the smelter needs cheaper, more reliable power to stay open beyond 2021.

The smelter in the city of Portland is the biggest single power consumer in Victoria, accounting for about 10% of state consumption. It plays a major role in balancing power supply and demand during heatwaves and other disruptive events.

It receives payments from Australia's energy market operator whenever it is asked to curb its power use, to compensate for lost production. The size of payments varies from year to year.

Under the offer announced on Monday, the government will provide revenue certainty by topping up the sum the smelter receives in so-called grid security payments, to ensure it earns at least A$76.8 million in such payments over four years from July 2021 to June 2025.

Alcoa welcomed the proposal and said it was working to finalise an agreement "that recognises the valuable contribution Portland Aluminium makes to grid security and helps to ensure the smelter's continued operation.

"Meanwhile we continue to work constructively with other industry stakeholders in order to ensure the smelter is globally competitive," an Alcoa spokeswoman said in emailed comments.

The smelter has suffered from power disruption in recent years as the grid struggled with transmission problems and the unreliability of ageing coal-fired plants as well as weather-dependent wind and solar power generation, especially during heatwaves.

Still, such is its demand that its closure could have knock-on effects across the power generation industry.

"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," Education Minister Dan Tehan, who represents the region where the smelter is located, said in a statement.

The smelter is co-owned by Alcoa World Alumina and Chemicals (AWAC) - a joint venture of Alcoa and Alumina Ltd - alongside CITIC Ltd and Marubeni Corp.

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