Marginal NSW coal-fired generators could take a hit if Victoria’s Portland aluminium is closed down, analysts have warned, while tipping a power deal to save the smelter is within reach at current market pricing.
The comments come as a third energy supplier confirmed it was prepared to join discussions over a joint power-supply deal to the loss-making smelter if the Australian Competition & Consumer Commission signs off on an AGL-led push to waive anti-collusion rules to keep the smelter alive.
Pacific Hydro, which operates a 179MW wind farm at Portland, said it would consider involvement in a jointly priced power contract if the ACCC approves such an arrangement.
Along with Energy Australia, Pacific Hydro is one of a number of companies believed to have been approached by AGL in its bid to save the smelter. “As an innovative solution to a local challenge, we would consider teaming up with other participants within the boundaries of market rules,” a spokesperson said.
That bid could be within reach as energy futures across Victoria and NSW fall, with Morgan Stanley utilities analyst Rob Koh saying in a client note this week he believed that, despite steep falls in the price of aluminium, input costs had fallen at the smelter to the point where it would break even at an energy price of $54 a kilowatt hour, well below the estimated $65 to $70/kWh the smelter pays under its current power deal with AGL.
That break-even price is largely dependent on tumbling prices for alumina, the smelter’s primary raw material input, which has fallen from about $US290 a tonne at the start of the year to about $US240/tonne in late May. But it suggests the $45/kWh power price believed to be the target of AGL’s new supply bid could offer a long-term future to Portland, even if prices for raw materials return to normal as the coronavirus crisis recedes in Europe and other major industrialised markets for the lightweight metal.
The Portland smelter uses about 4.4 terawatt hours of electricity a year, or about 10 per cent of Victoria’s total power demand. Its current contract with AGL expires in mid-2021, as do existing Victorian government subsidies worth $200m over four years.
Its operator, aluminium giant Alcoa, launched a review of its low-margin global operations last year and has warned that winning a cheaper energy deal will be a critical factor in any decision to keep the plant open.
Mr Koh warned that the failure of a deal to rescue Portland could put more marginal coal-fired power plants in NSW under pressure in the short term, as Victoria generators look to export excess power to NSW.
“In the event that the Portland Smelter is closed — if sufficient subsidy cannot be agreed — then we anticipate the resultant electricity oversupply will mostly impact on NSW coal-fired plants, eg Vales Point or Mt Piper via the Vic-NSW interconnector, ahead of the planned Liddell closure in 2023,” he said.
Although the early closure of Energy Australia’s Yallourn power plant in Victoria has long been tipped as a likely consequence of the closure of Portland, energy market sources say it could suit the company’s interest to keep it open and export excess power to NSW, where its ownership of the Mt Piper coal-fired plant would allow it a strategic advantage in bidding prices into the National Energy Market.
In the short term that could put pressure on the Vales Point plant operated by Trevor St Baker’s Sunset Power, they say.
Mr St Baker said he did not believe Portland would be allowed to close, given its importance in stabilising the Victorian grid. He was unconcerned about Vales Point if it did, saying the plant had the flexibility to run at one-third load and was an important part of the NSW energy supply.
“I don’t have any concerns about Vales Point — it has a very reliable operating regime, and a reliable supply of coal,” he said.
“We can operate very adequately on a one-third load. We believe that, even if Portland closes, you still need all generators to operate on a paid reserve basis.”
Portland’s position as Victoria’s biggest energy consumer is likely to leave the ACCC in a tricky position as it considers whether it should allow generators to collude to offer a discounted power deal to the facility.
Source: Financial Review
Marginal NSW coal-fired generators could take a hit if Victoria's Portland aluminium is closed down, analysts have warned, while tipping a power deal to save the smelter is within reach at current market pricing.