A Renewable-Powered Future for Tomago

Australia is choosing renewables to rejuvenate its sovereign industrial capability. 

The Tomago aluminium smelter in NSW is one of the nation’s biggest electricity users, consuming around 10 percent of the state’s supply. It supports thousands of direct and indirect jobs with around 3 billion in annual aluminium exports. Yet policy driven instability combined with rising electricity costs led to the very real prospect of closure.

For years, members of the GES team have proposed and advocated a Scheme Finance Vehicle (SFV) solution for Tomago. Rather than relying on expensive short-term subsidies or tax concessions, the proposal called for government to use its balance sheet strategically: providing the long-term contracting certainty needed to deliver affordable, renewable energy to one of the country’s largest industrial users.

Last week, a deal was announced that puts much of this into practice. Under the ten-year plan, the federal and NSW governments will help reduce Tomago’s power costs by covering the gap between the smelter’s affordable electricity price and the cost of new renewable energy supply. Snowy Hydro will manage the long-term electricity contracts supplying Tomago, while the smelter’s owners will commit at least $1.1 billion to the facility, including $100 million for further decarbonisation efforts.

The significance of this announcement goes well beyond keeping one smelter open. Tomago will provide renewable energy projects something invaluable: a very large and long-term customer. And by anchoring new demand on this scale, the arrangement could help unlock and accelerate investment in new green energy generation capacity. This is no ordinary bailout, as some critics have claimed, it is the result of tireless advocacy and negotiation.

GES Advisory Board Member, Roy Green, pointed out that the deal has “a return to the taxpayer, the workforce, the shareholders and the planet”. Since the government could recoup its investment through a combination of aluminium revenues and Tomago’s contribution to stabilising the grid “there is every chance this arrangement will be cost-neutral over the decade, while at the same time turbocharging the energy transition and economic diversification of Australia’s most prominent industrial region”.

GES Advisory Board Member, Oliver Yates, also underscored that aluminium is one of the most commonly used materials in the world ranging from foils, beer kegs, buildings and aircraft parts “that is why the entire global aluminium industry has been built on structural subsidies and does not operate as a free market”. He noted that “If we want to be competitive – we need to recognise and see what China, Québec, and the Middle East are doing to actively back their industrial bases”.

This is green energy statecraft in practice. The green energy transition is not simply a decarbonisation of the economy. It is an opportunity to reinvigorate Australia’s productive capabilities and build the new green industries of the future.

By Christopher Khatouki.