Australia's mission to reach 2020 renewable energy target wreaks havoc on aluminium smelters

Australia's recent shift away from thermal power to alternative energy sources to meet a national 20 per cent renewable energy target by 2020 has put aluminium smelters and mineral refining businesses of the country in a complicated situation. The supply uncertainty of electricity is making it difficult for the smelters, which have till date benefited from cheap, long-term electricity agreements with state-owned power companies, to operate profitably.

"There is no bigger factor for a smelter than disruption to power supply," said Miles Prosser, executive director of the Australian Aluminium Council. "A disruption for even just a few hours can be almost catastrophic," he said.

Australia produces coal more than almost any other country, and that makes it one of the cheapest thermal power producing nations in the whole world. But in a bid to reach 20 percent renewable energy target by 2020, it is curbing production at the coal-fired power plants an the brunt is being borne by the aluminium smelters that happen to be one of the largest power consuming sectors of the country.

"There is no bigger factor for a smelter than disruption to power supply," said Miles Prosser, executive director of the Australian Aluminium Council. "A disruption for even just a few hours can be almost catastrophic," he said.

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There are news of mining giant Rio Tinto shedding jobs and reducing output by 45,000 tonnes from its 35-year-old Boyne Island aluminium smelter because of soaring electricity prices and potential supply interruptions. The company's Tomago aluminium smelter also had to curtail operations so power could be diverted to residents in Sydney where the plant is located.

"We should have the cheapest, most reliable energy in the world and yet it's the most expensive and least reliable," said Matt Howell, Tomago aluminium smelter chief executive.

Faced with high costs and tough competition from new, and more efficient Chinese smelters, Alcoa has already shut one 185,000 tonne a year aluminium smelter in Australia. In January, the U.S. aluminium producer came close to shutting down a second smelter near Melbourne after power outages cut operations by two-thirds. Production was restored only after the government bowed to a request by Alcoa for a $182 million aid package to defray power costs.

The power fiasco is likely to coninue until smelters come up with alternative energy arrangements for their operations.