Australia’s industrial economy is at a crossroads: invest to improve international competitiveness or decline along with fossil fuels.
That is the message in a new report from the Institute for Energy Economics and Financial Analysis (IEEFA) that argues Australia has the potential to become a much more significant economic power in a decarbonised world.
“With abundant low-cost renewable energy sources, comparative advantage in the production of hydrogen, and huge deposits of minerals that form the basis of industrial production, Australia could lead the world in producing the components of low-carbon industrialisation: steel, aluminium, cement, silicon, lithium and rare earth minerals, ” author Clark Butler writes in the report, Why Aluminium Smelters are a Critical Component in Australian Decarbonisation.
The report focuses on New South Wales’ Hunter Valley as a microcosm of the challenges and opportunities facing Australia and its major industrial electricity users, with an emphasis on the Tomago Aluminium smelter, which produces 595,000 tonnes of aluminium a year — that’s 25% of Australia’s primary aluminium, 90% of which is exported to Asia-Pacific neighbours — and is the largest user of electricity in New South Wales.
“Australia’s aluminium sector is particularly interesting right now because it is failing,” says Butler. “All smelter operators are losing money and considering closure.
“Australia is one of the world’s most emissions-intensive aluminium producers. Deployment of renewable electricity is a path out of this quagmire, and the rapid fall in cost of renewables makes it more viable than ever before.”
Even though aluminium is known as “solid electricity” for its extremely heavy energy requirements, the metal has a long-term future. Butler cites several drivers of increased demand for aluminium, notably:
- Transport: Electric vehicles will increase demand as car makers offset the weight of batteries because consumers and state regulators will increasingly require low-carbon components.
- Construction: Low-emissions building standards (and regulatory focus on embedded emissions) will drive demand from producers of low-carbon aluminium.
- Consumer durables, especially electronics: companies such as Apple, Nespresso and Tetrapak are focusing on the emissions in their supply chains creating demand for low-emissions aluminium.
“To take full advantage of this future demand, Tomago Aluminium would need renewable energy at internationally competitive prices,” says Butler.
“Ideally this would come from wind and solar power, which would be “firmed” or supplemented by hydrogen, batteries, or stored-hydro power to provide the level of reliability a smelter needs.”
Butler notes the hydrogen used for firming variable supply, as well as a variety of industrial purposes, would ideally be produced by an electrolysis process driven by renewable energy. This would also create an opportunity for the Hunter region to lead in the production of green ammonia and green steel – Orica, Molycop and InfraBuild could all benefit from hydrogen.
Development like this would protect and generate jobs for the Hunter Valley, but it could also be an opportunity to improve electricity demand response in the grid system, using the Tomago smelter as a balancing tool. When demand and electricity prices are high, the smelter’s power consumption could be turned down, freeing power to the grid, and conversely when there is surplus power and prices are low, the smelter’s output could be increased.
“We’ve got a very large load that can come off in a very short space of time to avoid large-scale rolling blackouts, and that has value,” Butler quotes Tomago CEO Matt Howell as saying.
Such grid resilience would not be the only advantage from a major expansion of sustainable electricity supply in the region, Butler notes.
“This Hunter Valley plan is a template for expansion across the aluminium sector, in Victoria and Queensland,” says Butler.
“By focusing on large scale, low cost of capital, zero emissions, renewable investments tied to significant energy users with long-term growth prospects in a low carbon economy, there is a real chance to build momentum.
“If the aluminium sector could be reinvigorated and put on a globally competitive footing, Australia can get five years ahead on the decarbonisation path.
“However, if the smelters close and all that load is lost, building this kind of investment momentum will be far more difficult and Australia could fall five years or more behind more forward-looking countries.”