The Australian Energy Crisis, Its Impact on Domestic Aluminium Smelting and Potential Solutions

Abstract

Australia is facing an ongoing energy crisis, driven by a combination of reduced ‘base-load’ capacity and reliability from an ageing coal-fired power station fleet, as well as the rapid uptake of variable wind and solar generation that has yet to be fully buffered by energy storage. Furthermore, investment in new generating capacity and interstate grid connectivity has not kept pace with thermal power retirements. This is due to policy uncertainty around the future of high CO2 power generation, rising fuel prices, the unviability of nuclear power, and the plummeting cost of clean but variable renewable generation. The resulting national grid is proving to be susceptible to unexpected shocks and high peak spot-pricing, and is only predicted to become more volatile. Unsurprisingly, Australia’s aluminium (Al) smelters are facing immense challenges operating in this environment. As well as potline outages occurring, smelters face an uncertain future when it comes to negotiating base-load contracts at below the cost-of-generation they have historically relied on, as the economics of base-load demand is constantly eroding and being replaced with the need to value flexible electricity consumption. This article examines some of the impacts and explores some of the pathways and opportunities that smelters can use to survive and even prosper, including power modulation and the provision of ‘demand-side response’ services to the national energy grid.