The Australian government is considering a bold move to save the Tomago aluminium smelter, a crucial industry player, by intervening in the electricity market and accelerating the transition to renewables. This intervention comes as a response to the looming threat of job losses and the potential closure of the smelter due to rising electricity costs and the expiration of its coal-fired power contract.
Tomago's owner, Rio Tinto, has issued a stark warning that the smelter's future is at stake. The company's statement highlights the significant increase in the cost of both coal-fired and renewable energy options from January 2029, which would render the smelter unviable. This scenario poses a dire threat to the livelihoods of 1,000 workers and the nation's largest aluminium smelter.
In response, the Labor government has pledged to find a solution, engaging in negotiations with Rio Tinto, the New South Wales government, and unions. One potential solution involves a deal with Snowy Hydro, a government-owned entity, to provide clean energy at competitive prices. Another proposal suggests the government becoming a 'middle-man' in the market, signing long-term supply contracts with renewable energy developers, and reselling the energy to heavy industrial users like Tomago at a stable price.
This plan, supported by Oliver Yates, former CEO of the Clean Energy Finance Corporation, aims to reduce risks for renewable energy developers and ensure a stable buyer for their energy production. However, Australia's current renewable energy trajectory is concerning, with the government's target of 82% renewables by 2030 facing obstacles like community opposition, rising costs, and approval delays. The Clean Energy Council's report reveals a lack of new wind farm commitments in 2025.
Yates argues that this intervention is not just about saving one smelter but about securing cheaper, cleaner, and more reliable power for NSW industries, fostering job creation, and boosting state revenue. He believes this model can be applied to various sectors, emphasizing the long-term benefits of clean energy.
The government's proposed intervention signals a shift towards a more sustainable energy market, moving away from taxpayer-funded bailouts. Since January, the federal government has invested $2.4 billion in the Whyalla steelworks, $600 million in Queensland for Glencore's copper smelter, and $135 million in South Australia and Tasmania for Nyrstar's zinc and lead smelters. Tomago, being Australia's largest single energy user, is particularly vulnerable to rising power prices, which account for 40% of its costs.
The potential closure of Tomago highlights the challenges of the clean energy transition and its potential impact on the government's 'Future Made in Australia' agenda. Prime Minister Anthony Albanese's visit to the smelter in January, where he announced production credits for green aluminium, underscores the importance of this industry in the nation's future.
As negotiations continue, sources close to the discussions express optimism about the smelter's future, a stark contrast to the dire predictions made in October. The government's intervention is a crucial step towards a more sustainable and resilient energy sector, but it also raises questions about the balance between short-term bailouts and long-term market stability.
