Structured investment is the solution for Tomago

By Oliver Yates, Chair of the Expert Advisory Board of the GES Project.

Australia is undertaking an energy transition that all countries will need to complete. The idea that you can transform an energy system dominated by massive, ailing coal clunkers to diverse renewables and storage without any growing pains or power price volatility is naive.

Successive governments have had the choice: to use policy tools to drive renewables into the energy system faster, which would have resulted in oversupply but cheaper energy, or to wait while old clunkers start to fail, resulting in a shortage of energy leading to higher prices.

Unfortunately, we have found ourselves more in the second scenario. Thus, the foreseeable result: calls for support from large energy users.

Faced with this, there is no solution where the government can sit on its hands and do nothing. The market cannot “solve” this problem alone.

Take the Tomago aluminium smelter in NSW. It’s one of the biggest power users in the country and supports more than 3000 direct and indirect jobs, plus around $3 billion in annual aluminium exports. Right now, this policy-driven volatility is causing it to be under pressure. Without assistance, the smelter could shut down, wiping $6 billion from the Hunter economy over the next decade and erasing a sovereign industrial capability we will never rebuild.

We could invest using a scheme finance vehicle – a tried and tested idea that works.

For the full article see Australian Financial Review here.