Alcoa's Portland Smelter Gets New Lease of Life with Power Deals, Government Aid

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Summary

  • Portland Aluminium Smelter has reached power agreements with AGL, Origin Energy and Alinta Energy for the supply of uninterrupted electricity for the next five years.
  • The terms of the agreements are conditional and depend on many factors.
  • Alcoa plans to increase the smelter’s consumed electricity derived from renewable sources to 50% by 2030 from 30% currently.

Global leader in bauxite and aluminium products, Alcoa Corporation (NYSE:AA) has executed power supply agreements for its production facility in Victoria with multiple power generators.

The agreements with multiple companies including AGL, Alinta Energy and Origin Energy (ASX:ORG) come as a relief to the local community, as they rely heavily on Alcoa’s Australian smelting unit, Portland Aluminium Smelter for their employment.

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The existing contract with AGL Energy (ASX:AGL) is due to expire this year on 31 July. The new agreements, effective from 1 August 2021, are for the next five-year period.

Alcoa and the companies involved in the agreements have not disclosed the financial terms, which are also conditional, depending on various matters, including finalisation of the government agreements.

Read More: Alcoa's Portland aluminium smelter receives $76.8 m Federal Government support

Aluminium smelting is a power-centric operation, and energy accounts for around 30% to 40% of the total cost base. So, sourcing cheap and reliable electricity supply becomes a vital part of the plant operations.  

The deal is also significant in the purview of Alcoa’s recent move to sell assets worldwide to focus on its bottom line and reduce the carbon footprint.

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The Morrison government, under the Reliability and Emergency Reserve Trader (RERT) scheme, has committed a yearly package of up to A$19.2 million to the smelter for the next four years. Under the scheme, the smelter would power down to shed the load on the power grid. This will save the grid from overloads and will ensure power supply to the communities during peak hours of consumption.

The production loss occurring due to powering down the load will be covered under the scheme.

Since the smelting unit has become an integral part of the Victorian economy, the State Government has also agreed to a funding package matching the Federal Government’s commitment.

Mr Michael Gollschewski, President, Alcoa Australia, seemed elated with the new agreements and shared his views on the occasion.

        

Over 30% of the power consumption of the smelting unit comes from renewable sources. The Company is planning to increase the share of renewable to up to 50% by the year 2030 in a bid to cut carbon emissions.

Portland Aluminium Smelter is a joint venture project of Alcoa of Australia Limited (55%), CITIC Nominees Pty Ltd (22.5%) and Marubeni Aluminium Australia Pty Ltd (22.5%). The Alcoa of Australia Limited is jointly held by Alcoa Corporation (60%) and ASX-listed Alumina Limited (40%). 


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