Boyne Smelters Ltd general manager Joe Rea.
Boyne Smelters Ltd general manager Joe Rea. Mike Richards GLA201014BASMLT

Smelter’s power struggles set to continue

MASSIVE increases in electricity costs are putting jobs on the line at Boyne Smelter.

General manager Joe Rea fears for the future of the smelter as the company continues to negotiate a new electricity supply agreement with state owned generators.

The smelter's current contract for supply of electricity, over and above the 810 megawatts it receives from the Gladstone Power Station, is due to expire on October 1. The extra electricity requirement amounts to 17% of the smelter's usage.

The smelter became a part owner of the power station in 1994 when it was transferred from state ownership and at that time the 810 megawatts annual usage was agreed. Negotiations are continuing with the power station in an effort to increase the annual usage.

While the company has been negotiating with generators since May, there has been no resolution to an impasse which could see the smelter having to resort to cutting production for a period of time, as it was forced to do in 2014.

"I just can't see how anyone can justify Queensland's power prices," Mr Rea said.

"Queensland electricity costs are 60% higher than in Victoria and 30% higher than in New South Wales. It just doesn't stack up."

Mr Rea said he was worried about the security of jobs at the smelter, and that he and his staff were doing everything they could to keep workers employed.

He said a $25 million reduction in costs for the smelter would be wiped out - and more - unless electricity producers change their attitudes to pricing.

"When the renewable energy target (RET) was signed recently we were looking at a cost saving of $25 million a year, but a massive increase in the cost in electricity which we are currently facing will wipe all of that out - and more," he said.

"Already two smelters have closed in Australia because of the reduced value of aluminium. The last thing I want to see is our smelter put under threat," he said.

The price of aluminium globally has plummeted over the past seven years. The average price between 1995 and 2008 was $3420US a tonne. On Monday the price was $1616 - a figure which Mr Rea said was very close to the cost of production.

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The severe fall aluminium has come about because of an over-supply in the global market, mainly driven by massive volumes being produced in China. Australia produces 2.1 million tonnes each year, while China produces in excess of 30 million tonnes.

"While the price of aluminium has been reducing, our costs, especially in electricity, are increasing," Mr Rea said.

"I want to try not to cut production - in fact I haven't contemplated going down that line at the moment. I want to explore all other opportunities. It would be a sad day if we do have to cut production."

He said energy minister Mark Bailey was expected to visit the smelter this week, and he would be explaining the company's vulnerable position to him.

Mr Rea's concerns with electricity costs have been echoed by the Energy Users Association of Australia.

Association chief executive Phil Barresi said the prices were being driven up by the bidding behaviour between state government-owned power generators CS Energy and Stanwell Corporation.

"The market is not working properly because there is inadequate competition to maintain competitive bids for generators in their sale of electricity," he said

He said the generators are earning inflated revenue "despite a large excess of supply in the power system" and did not represent supply and demand.


How electricty prices work

Wholesale trading in electricity is conducted as a spot market where supply and demand are instantaneously matched in real-time through a centrally coordinated dispatch process.

Generators offer to supply the market with specific amounts of electricity at particular prices.

Offers are submitted every five minutes of every day.

From all offer submitted, Australian Energy Market Operator determines the generators required to produce electricity based on the principle of meeting prevailing demand in the most cost-efficient way.

AEMO the dispatch these generators into production.

AEMO manages the market in-line with National Electricity Law and National Electricity Rules.