Resources giant Rio Tinto says Australia’s largest aluminium smelter will run entirely on renewable energy by ۲۰۳۳ after it struck a $۲.۵bn subsidy deal with the federal and New South Wales governments to prevent a potential closure.
The deal – announced by Anthony Albanese and the NSW premier, Chris Minns, at the Tomago smelter near Newcastle on Thursday – is for a ۱۰-year below-market power supply guarantee that begins after the facility’s existing coal-focused electricity contract with AGL ends in December ۲۰۲۸.
The governments said the deal would underpin nearly ۳,۰۰۰ megawatts of new renewable and “firming” capacity in the state, more than a giant coal station.
Rio Tinto, a joint owner of the smelter, said it meant by ۲۰۳۳ the smelter would run on clean energy only and cut its annual greenhouse gas emissions by ۷.۱m tonnes a year, equivalent to ۱.۵% of Australia’s annual climate pollution.
In a statement, Rio Tinto Aluminium and Lithium’s chief executive, Jérôme Pécresse, said the smelter had a pathway to “long-term, cost-competitive, low-carbon power”.
The deal is the latest in a series of Albanese government bailout packages meant to ensure major industries keep operating. Other commitments include $۲bn for Rio Tinto’s Boyne aluminium smelter in Queensland and $۲.۴bn for steelworks in the South Australian town of Whyalla.
Aluminium production is particularly vulnerable to rising power prices due to its huge electricity use, and the Australian industry has for decades relied on cheap long-term supply deals. Tomago is the country’s largest single electricity user, taking more than ۱۰% of total generation in NSW. It directly employs about ۱,۰۰۰ people, and is claimed to indirectly support about ۵,۰۰۰ more.
The smelter’s owners committed to invest $۱.۱bn in Tomago over the next ۱۲ years, including $۱۰۰m for “decarbonisation activities”, as part of the deal.
The federal climate change and energy minister, Chris Bowen, said Tomago Aluminium had told the governments that the smelter could no longer rely on coal-fired power and did not have confidence that enough renewable energy was being built to keep it operating.
“We agreed … and so we worked on a very innovative arrangement together with New South Wales, working with our government agencies, Clean Energy Finance Corporation and Snowy Hydro, to bring on that renewable energy,” he said.
Bowen said the renewable energy developments would not all be in the Hunter Valley, and would be “spread predominantly out through New South Wales”.
“It will take projects which have been worked on in the pipeline that maybe have already received environmental approval, but haven’t reached final investment decision,” he said. “Some will be windfarms, others will be solar backed by batteries.”
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Minns said the deal was vital to the local and broader economy. “The truth of the matter is we couldn’t have a situation where that level of economic stimulus is withdrawn from an economy like that,” he said. “If you look at the Liberals in South Australia or the Democrats in Michigan, they presided over the deindustrialisation of those regions. We are never going to do that for the Hunter.”
The federal opposition leader, Angus Taylor, said he did not oppose the deal, but its cost was a “$۲.۵bn admission of failure on energy policy” caused by “Labor’s net zero wrecking ball” pushing up electricity prices.
Analysts say the increases in power bills in recent years have largely been due to external events, including Russia’s invasion of Ukraine pushing up the cost of fossil fuels globally, not the ۲۰۵۰ national net zero emissions target introduced by the Morrison Coalition government and continued under Labor. They say firmed renewable energy is the cheapest generation available to replace the ageing coal-fired power grid, but have expressed concern about delays in building windfarms and transmission lines.
The independent MP Nicolette Boele blamed the cost of the deal on the failure of successive governments to act over the past decade, despite knowing Tomago’s power contract ended in ۲۰۲۸.
She said evidence showed aluminium production succeeded “where clean power is cheap and steady”, citing Canada, Norway and Iceland as countries that run smelters on hydro and geothermal energy and were winning market share because of it. “Australia has better sun and wind than any of them and yet we are buying our way out of a shortage instead of selling into a strength,” Boele said.
The Greens senator Penny Allman-Payne said the government should have taken a stake in Tomago as part of the deal to ensure Australians “share in the wealth from our own resources and give workers the security they deserve”.
