TOMAGO Aluminium chief executive Matt Howell calls it “the $100 million decision” – shutting down part of the plant to protect the state’s power supply during extreme conditions while running the real risk of not being able to fire it up again.
Worse still is the risk to employees’ lives doing the “horrendously dangerous” work of re-starting the smelter, he said.
While the Turnbull Government and Tomago Aluminium’s power supplier, AGL, engage in a very public battle over Australia’s energy future, prompted by AGL’s planned closure of Muswellbrook’s Liddell power station in 2022, Tomago Aluminium’s nearly 1000 staff are doing emergency training for the summer ahead.
The company is the single biggest user of NSW power. On a blindingly hot day in February it faced the unthinkable – a request from AGL to shut down one of its three potlines and take 300MWH of demand from the grid, followed by a call from the Australian Energy Market Operator (AEMO) to shut down a second potline because the state was facing a complete blackout.
“If a potline is shut down for longer than an hour it can quickly turn to custard, literally,” Mr Howell said.
If a potline is shut down for longer than an hour it can quickly turn to custard, literally.Tomago Aluminium chief executive Matt Howell
After 75 minutes without power an aluminium smelter’s potlines start to “freeze”. After three hours without power they are damaged beyond repair. The replacement bill is $100 million per potline, and the risk of shutting even one down is a “$100 million decision”.
Australia’s energy “crisis” – brought to a head by the sudden closure of ageing coal-fired power stations and a decade of energy policy inertia – is an existential threat to the state’s biggest power user, with February’s shutdown a warning of what could lie ahead.
“Of course we’re concerned,” Mr Howell said.
If Tomago Aluminium has an “uncontrolled potline freeze” of its three units caused by energy unreliability this summer, “In an environment of low prices you’d walk away. You’d take the insurance money and walk away,” Mr Howell said.
He argues strongly for coal and gas power into the future, despite AGL’s public statement that it is moving away from coal, and an AEMO report last week backing the need for an upgraded national energy market design because the existing market “is unlikely to incentivise the development of new flexible dispatchable resources (energy on demand) at the level required”.
Mr Howell acknowledged “the need and desirability of renewables”, but after February’s shock, and an earlier shock in January, 2016 when AGL requested a potline to be shut for 40 minutes, he prioritises reliability in the short term to keep the smelter operating.
In the January, 2016 incident there were four failed attempts to re-start the potline. The 40-minute shutdown stretched to two hours and 35 minutes offline, with 11 frozen cells within the potline.
If Tomago Aluminium had ignored AGL’s request for a potline shutdown in February, the company would have been forced to pay the wholesale price applying at the time, at the cap of $14,000 per megawatt hour because of the extreme conditions, with a final bill of $5.25 million for 75 minutes of energy.
If it had ignored AEMO’s request to remove another 300 megawatts of demand from the grid that day there would have been a probable state-wide blackout, with the likelihood of irreversible damage to three potlines, Mr Howell said.
“Our concern is about the reliability of the national energy market. The closure of Liddell in 2022 has just brought the issue into focus. We have a long-term contract with AGL until 2028. We’re obligated to buy and they’re obligated to supply. It’s the reliability of supply and how that affects us that is the issue,” he said.
“We can’t afford to be exposed to the wholesale power price when the sun isn’t shining and the wind isn’t blowing. I get asked why I don’t support batteries but it’s a nonsense and it needs to be called out for what it is. The batteries exist, but you can’t afford the costs.”
Mr Howell is critical of AGL, and said interruptions initiated by AGL were “longer and they’re more frequent”.
He strongly supports proposed changes to bidding intervals in the national energy market after clear evidence of late “rebidding” by generators leading to significantly higher prices achieved for power.
“The current system is a bit like playing a hand of poker where the dealer knows the cards to come in advance,” Mr Howell said.
Grattan Institute energy fellow David Blowers described events in February as a “massive warning shot across the bow for everyone in the energy system”, prompting “every point in the market pulling together to make sure they have appropriate responses”.
AEMO’s responses had included finding other high energy users that could potentially shut down in extreme conditions so that Tomago Aluminium is not put at risk, Mr Blowers said. AEMO had also increased emergency capability.
“We’ve got a lot more tools in the toolbox to be able to deal with it, but things can happen. It’s understandable that people are nervous,” he said.
Australian National University Energy Change Institute director, Professor Ken Baldwin said Australia was “only now realising the implications of a decade of energy policy paralysis by governments, and we’re being forced to address this on a very short time frame”.
“Dysfunctionality” could only be addressed by energy policy certainty, he said.