Australian governments are far more effective at killing the aluminium industry than Donald Trump

I have a post in the Spectator, a shortened version of which is as follows

It seemed too good to be true: Snowy being bought by the Commonwealth from state governments in what appeared as a money creation process – the Commonwealth had no apparent increase in debt or other costs, while Victoria and New South Wales got $6 billion for their Snowy shares.  The reason behind the acquisition was to simplify the political process whereby the Snowy 2 pump storage project is pursued.

The credibility of innovative balance sheet practices aside, what we also now have is a major electricity generator owned by the government operating as a rival to other businesses in a market which is highly competitive. The Minister for Energy is responsible for the government’s energy policy and is also the shareholding minister of the major entity.

The suggestion that the Commonwealth acquisition might foreshadow bestowing favours on a particular technology and entity is more compelling in the context of Minister Frydenberg’s boss, Malcolm Turnbull.  As a rusted-on supporter of carbon-light electricity generation, Turnbull has clearly been the driver of the Snowy 2 project. He also insisted on locking-in Australian greenhouse gas abatement policy by ratifying the Paris Agreement the day after Donald Trump was elected President on a platform that promised to torpedo it.  In addition, Mr Turnbull has made key green energy supporting appointments, including his Departmental head, Martin Parkinson, and Chief Scientist, Alan Finkel.

Snowy Hydro Chief Operating Officer, Roger Whitby said “Snowy 2 is a project assuming the world that most players accept, where coal-fired generation is ageing and retiring and there’s increasing penetration of intermittent renewable energy. Clearly, if we have a reversion, essentially, to the past then of course under that scenario Snowy 2 is not viable.”

There is therefore a strong likelihood that the government’s interests as a shareholder of Snowy will operate to forestall new plant that might adversely affect the project’s economics even if such new plant would reduce electricity prices.

All of this assumes a new topicality in light of the threats of President Trump to place tariffs on Australian aluminium and steel.

Tomago, the giant NSW aluminium smelter, like all other Australian aluminium smelters (and a chunk of steel production) will need to close if the present renewable subsidy continues to operate and to destroy the low cost power industry Australia enjoyed just three years ago.  Portland in Victoria is already on life-support following the closure of Hazelwood.

We do not know what price the Snowy board is factoring-in to allow Snowy 2 pump storage to proceed but it would be at least $80 per MWh and likely over $100 per MWh.

The irony of the Trump threats of dumping tariffs is that such measures may not be necessary – Australian politicians are far more capable of destroying our own industry than anyone in Washington.

See the full piece here.

The Snowy scam, the Donald and death of Australian industry

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38 Responses to Australian governments are far more effective at killing the aluminium industry than Donald Trump

  1. Tony Pearce

    Alan,
    Do we actually have waste energy to pump water uphill? I thought that the original Snowy Scheme used excess energy at night from fixed output coal fired generators to pump the water uphill rather than dissipate it. With the Eastern Grid now supported by coal, gas and wind surely the system is more flexible and not producing nearly as much waste energy.
    Tony

  2. Pyrmonter

    It’s not of course remotely possible that there is an undesirable, uncompensated harm associated with the burning of the coal that fires these hot house industries. Not even the faintest chance …

  3. RobK

    As I understand it, there were previous feasibility studies done on snowy 2.0. If that the case, it stands to reason that it would only become feasible at a higher price.
    Compounding this is the fact that baseload and storage is more cost effective than renewables and storage. This is shown in Germany where pumped hydro which had been operating for almost 100 years is now struggling unless prices increase significantly. This is because baseload and storage cycle predictably on a daily basis. Renewables cycle on a noisy regime of varying, sporadic inputs that can cycle over many days, weeks, months and seasons. Storage will need to be comparatively very large in storage and power capacity. The amount of installed renewables will need to be many times the nameplate capacity of baseload in order to have any show of keeping up. Prepare yourself to be incentivized for load management in Orwellian speak. The prognosis is not good.

  4. bollux

    W#ell said Alan. Must have hit the spot as the warming loonies are straight on to it. I hope one day that someone invents a time machine so we can send these snowflakes back to the Middle Ages.

  5. RobK

     Not even the faintest chance …
    None that can be measured with any degree of competency.

  6. IainC

    No doubt Jermey Corbyn will be trumpeting this as the Australians leading the way in the renationalization of utilities.

  7. Not even the faintest chance
    Absolutely
    Anyone sufficiently gullible that they can not realise that dogma including global warming, climate change, sea level rise, anthropogenic warming, CO2 pollution etc. is superstitious nonsense should not have the opportunity to exercise power or make decisions in a rational society.

  8. manalive

    During the drought of the late ‘90s – early ‘00s Snowy Hydro ran out of water and was using gas generators, one a plant using “old aircraft jet engines to drive turbines”.
    My God it’s shitting me what the Turnbulls are doing to this country, it’s not incompetence it’s wilful destruction.

  9. Ubique

    Not even the faintest chance …

    Steel and aluminium are a necessity and are going to be smelted in increasing quantities whether we are stupid enough to kill off our energy-intensive industries or not. The certainty is that any capacity we force to close will be picked by countries with far lower pollution controls and other environmental safeguards than exist here. The end result is simply more pollution and loss of Australian jobs and living standards.

  10. Entropy

    Quite so, Ubique.

    We would be a very good example, although perhaps not in the way our political lords and masters think.

  11. Wal of Ipswich

    I favour cutting our exports of aluminum to the U.S., at least until they learn to pronounce it correctly.

  12. H B Bear

    Aluminium smelters have had a pretty sweet deal in Australia for a very long time. It would be interesting to see how some of those long term power purchase agreements compared to the cost of production over time. Aluminium is basically solid electricity and is just plonked anywhere in the world where it is the cheapest. No surprise that it is no longer Australia.

  13. John Constantine

    As their abc and their friends progressively agree, the future is services.

    We can be just such a wealthy country, once we deindustrialise and give everybody good nice clean jobs doing good nice clean things.

    Import enough mass tens of millions of clients and customers and Sydney can be as wealthy as Shanghai, and Melbourne as wealthy as Calcutta.

    At least for the correct sort of people.

    Comrades.

  14. Irreversible

    Portland was a joke from the start. The power price was negotiated by politicians over the objection of Treasury. The location (in the Minister’s electorate) was as far from the power generator as possible causing a huge cost in transmission investment and line loss. When it was reviewed in public finally by Stockdale the “remaining” subsidy to Alcoa was estimated at billions.
    Tomago was a deal done by Wran with a guy named Xavier Nosten of Pechiney. Another boondoggle.
    Gladstone was Joh’s deal with Comalco, which came with a bundle of Comalco shares.
    As HBB says, these guys are carpet baggers.

  15. mh

    It’s not of course remotely possible that there is an undesirable, uncompensated harm associated with the burning of the coal that fires these hot house industries. Not even the faintest chance

    If you can think of something then let us know, Pyrmonter.

  16. duncanm

    Aluminium is basically solid electricity and is just plonked anywhere in the world where it is the cheapest.

    right – but you need a source of bauxite.

    Australia has the largest reserves of any non-shithole ( ™ Trump) country

    That we don’t have a huge Nuclear power plant driven Aluminium smelter near one of our deep-water ports exporting Aluminium ingots around the world 24/7 is a damning indictment on successive governments from both sides of the fence.

  17. duncanm

    btw – I’m not sure Tomago is mentioned. Its about an order of magnitude smaller than three of four other smelters in Aus (WA, NT and Qld).

  18. Beachcomber

    manalive #2653775, posted on March 6, 2018 at 5:17 pm
    My God it’s shitting me what the Turnbulls are doing to this country, it’s not incompetence it’s wilful destruction.

    It is truly depressing to see Australia’s Green-Marxist ruling elites doing to Australia’s economy what Maoism and ‘the Great Leap Forward’ did to China’s economy and what Stalinism and the ‘5 year Plans’ did to the Russian economy. As you say, it’s not just incompetence, it is wilful destruction of our prosperity and freedom.

  19. duncanm

    Why has the Snowy re-nationalisation not drawn more criticism ?

    I feel like I’m entering 1930’s Italy

  20. H B Bear

    right – but you need a source of bauxite.

    WA alumina industry is largely powered by NW Shelf gas and the original purchase agreements, alongside the government owned electricity generators, allowed the project to get off the ground in the first place. Alumina can be shipped anywhere in the world.

  21. H B Bear

    Why has the Snowy re-nationalisation not drawn more criticism ?

    Good question. Hopefully Peanut Head or his replacement will kill it off anyway and the only sunk costs will be tens of millions to Big Consulting and Big Accounting.

  22. herodotus

    Baristas will be among the first to be replaced by walking, talking robots, and also the last.
    Because that’s all we’ll have left to replace at the end of this cycle of lunacy.

  23. Neenee

    NSW in possession of $6Billion from the sale, should immediately commit those funds to establish two new HELE coal-fired power stations to ensure baseload stability and lower prices.

  24. nemkat

    Gladstone was the best fishing spot on the East Coast in 1963, and a pretty town, as well.
    Latest word on fish in Gladstone Harbour is that they’re covered in ulcers and you can’t eat them.
    Wouldn’t be anything to do with the poxy Industries poisoning the place for the last 50 years?
    Surely not.

  25. Rob MW

    Tomago, the giant NSW aluminium smelter, like all other Australian aluminium smelters (and a chunk of steel production)………………..

    Alan – my understanding is that there is no “…..chunk of steel production……” because it has already, more or less, been shut down anyway. Reports that Kembla has only 1 operational furnace out of the 5 at Bluescope already decommissioned with no plans to recommission because of refit costs and Whyalla needing a microscope to see if it still breathing.

  26. IRFM

    The government giveth the subsidy (for cheap power for aluminium) and the government taketh away.

    If we consider direct reduction as a new process then we do not need high energy inputs thus obviating the need for subsidised power. So the dilemma becomes what if there is a new process for refining bauxite that is vastly cheaper than the current method. The what if for the tariff wall of lad Trump?.

  27. right – but you need a source of bauxite.

    WA alumina industry is largely powered by NW Shelf gas and the original purchase agreements, alongside the government owned electricity generators, allowed the project to get off the ground in the first place. Alumina can be shipped anywhere in the world.

    Correct, Bear, you can probably refine alumina from bauxite anywhere, although you do still need electricity, plus feasible/cost effective transport of the bauxite inbound and the alumina outbound. Alumina is only the product of refining the bauxite, not the end product of aluminium.

    It’s the transforming of the alumina powder into aluminium metal – the smelting process – that takes the greater, massive amounts of electricity.

  28. Neenee
    #2653922, posted on March 6, 2018 at 8:24 pm
    NSW in possession of $6Billion from the sale, should immediately commit those funds to establish two new HELE coal-fired power stations to ensure baseload stability and lower prices.

    Nah, they’ll probably build a couple more football stadiums.

  29. David Brewer

    From here:

    The Federal Government’s announcement it will buy New South Wales’s share of the Snowy Hydro scheme for $4.1 billion will lead to a windfall for the bush.

    NSW Premier Gladys Berejiklian said her Government would spend the cash outside Sydney.

    The Commonwealth has one condition — the money must be spent on infrastructure.

    Ms Berejiklian described the Snowy Hydro as an “iconic national building project”.

    “This is a win-win. It allows the Commonwealth and the Prime Minister to pursue his Snowy Hydro 2.0 scheme.

    “It also allows our state, as part of our asset recycling scheme, to make sure we’re investing in our regions.”

    The NSW Opposition said promising to spend the money in regional areas was a ploy to distract voters from the Berejiklian Government’s $2 billion stadium plans for Sydney.

    Federal Energy Minister Josh Frydenberg said it was a good deal.

    “This is fair value for this important asset,” he said.

    “It unlocks $6 billion for the people of New South Wales and Victoria to invest in the infrastructure they need.”

    What rubbish. The deal is one level of government buying something from another level of government. No savings are being made, and no new revenue is being generated. To use this mere paper transfer of an asset from state to federal level as an excuse for yet more government spending is a disgrace.

  30. RobK

    “It also allows our state, as part of our asset recycling scheme, to make sure we’re investing in our regions.”
    Wow. Speechless.

  31. d. mckenzie

    Existing pumped storage hydro schemes such as the major one in Qld, Wivenhoe Power Station, were conceived to work in tandem with thermal power stations. This was a neat fit, as overnight pumping gave load demand to the coal-fired thermals, avoiding costly shutdowns due to lack of demand. Morning and evening peak loading was then assisted by releasing pumped water to the hydro generator.
    To attempt to use the same system for solar and wind, will simply annull the benefits of pumped storage hydro power, due to a massive mismatch of resources.
    I fear the Snowy Scheme 2 will be a massive financial blunder, on a par with the NBN.

  32. Rob

    Let’s imagine a Victorian government mandating that by 2025 the state must be generating 25% of its electricity with “renewables”.
    Let’s also imagine that Victoria’s highly professional and competent community serving State Electricity Commission had survived Kennett’s wrecking ball and was working toward meeting that renewables target.
    It’s highly likely that Victoria would now be on the most cost effective trajectory for meeting that goal without the incredible angst, unreliability of supply, and horrendous profit gouging that consumers and industry are undeniably suffering.
    No need for any form of subsidy, hidden and otherwise, and a unit cost per kWh of electricity consumed that takes into account the cost of incorporating the mandated renewable component.
    In the absence of honest modelling of the above proposition, we can only assume that electricity tariffs would be rising to cover the cost of incorporating those pesky renewables. That’s an outcome that Victorian voters would be taking into account at subsequent elections.

    There are two undeniable realities:
    1./ Politicians are absolutely incapable of designing and operating a sturdy cheap and reliable electricity supply system and private operators are only chasing the dollars.
    2./ As the huge flood of piddling “renewable” toys drags our electricity system to its ultimate ruin – when wind turbines with their bearings blades and generators, and rooftop solar together with its control units and panels, all start “life expiring” (less than 25 years?) – honest and competent electrical and mechanical engineers will need to step up and show the current mob of fools and carpetbaggers how the nation’s electricity system should have been designed and operated.
    Oh yes, and the SEC might have managed to have an emissions free nuclear power station in the mix.

  33. H B Bear

    It’s highly likely that Victoria would now be on the most cost effective trajectory for meeting that goal without the incredible angst, unreliability of supply, and horrendous profit gouging that consumers and industry are undeniably suffering.

    Ummm … how? Renewables are a function of the technologies available to them and all are uneconomic at a cost multiple of existing coal and gas fired generators. You can’t legislate against the laws of economics.

  34. testpattern

    Australian governments are far more effective at killing the aluminium industry

    Rot Alan. You couldn’t give a stuff about the North and West, fixated on southern cities and cheap political point scoring.

    Alcoa manages to keep operating Aluminium refineries in WA because of the Stat’s bipartisan gas reservation policy and in Gove –

    Gove closure no surprise to investors

    ‘The diesel-fed plant is expensive to run and the strong Australian dollar and low world price for alumina have meant the refinery is losing an estimated $US30 million each month and has been running at a loss for years…He said for the Gove refinery to again look attractive from a business sense the Australian dollar would probably have to dive to around 80 US cents and the price of alumina would have to rise to at least $US2,200 per tonne, up from where it currently sits at $US1754 per tonne.

    Because there was a worldwide glut of Aluminium that is not on the cards, he said.’

    http://www.abc.net.au/local/stories/2013/11/29/3901779.htm

  35. RobK

    TP,
    Your article is 5 years old. Gove isn’t on the national grid. It could have done with a small nuclear plant but that’s another matter. Today’s Aussie dollar is 0.78 USD and Al is USD$2145.oo. What’s your point?

  36. John Constantine

    Because our quisling elite Class have sold us out to ruinables so fast, and in such a huge pulse of corruption, we have a massive liability locked in.

    We are ticking down to decommission and disposal costs as our rortmills and rortpanels all collapse in one sudden oops, and the front end loaded profits have long fled the country.

    Won’t be able to deal with the trash, let alone build replacements.

    For fifty million imported voters.

    Cairo without pyramids here we come, Comrades.

  37. Nerdy

    Suggest a few of you learn the difference between bauxite refineries and aluminium smelters. Bauxuite uses a lot of gas to make alumina. Aluminium is essentially electricity in a metal brick. These days the latter is mostly dominated by Russia and China because of corrupt electricity pricing.

  38. Nerblnob

    Victoria’s highly professional and competent community serving State Electricity Commission

    Hahaha.
    Haha.
    Ha.

    Parts of it, maybe.

    Not the bits I worked in.

    You bludged during the week and worked a bit on weekends for overtime rates.

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