Mandatory RET the Nail in the Coffin for Aluminium Processors

port henry smelter

Victims of the mandatory RET.


When it comes to rock scratching Australia is one of the world’s biggest: bauxite is no exception. Australia currently has 5 bauxite mines in operation: Boddington (Western Australia) – BHP Billiton – Worsley Alumina; Gove (Northern Territory) – Pacific Aluminium; Huntly (Western Australia) – Alcoa of Australia; Willowdale (Western Australia) – Alcoa of Australia; and Weipa (Queensland) – Rio Tinto Alcan.

Over the last 50 years, Australia has become the world’s top producer of bauxite ore and a major producer and exporter of alumina and aluminium.

Bauxite is, of course, not much good unless and until it’s turned into aluminium: you won’t cover your roast in the red, dusty stuff, but the shiny foil is just the trick to corral those tasty juices in a well basted roasting pan. Mmmm, roast lamb. Sorry, it’s winter here and Aussies love their lamb.


Aluminium won’t foil your chances of pulling off the perfect roast.


Aluminium is an incredibly light, strong, corrosion resistant and versatile material, used in everything from beverage cans to aircraft: our journeys to the Moon and beyond wouldn’t have got off the ground without the stuff.

Australia currently has 7 alumina refineries operating in Australia: Gove (Northern Territory) – Pacific Aluminium; Yarwun (Queensland) – Rio Tinto Alcan; Kwinana (Western Australia) – Alcoa of Australia; Pinjarra (Western Australia) – Alcoa of Australia; Queensland Alumina Ltd (QAL) (Queensland) – Rio Tinto Alcan, Rusal; Wagerup (Western Australia) – Alcoa of Australia; and Worsley (Western Australia) – BHP Billiton – Worsley Alumina.


From this (bauxite) …


These operations produce mostly smelter grade alumina for both the domestic and export markets; and, together, make Australia the world’s second largest producer and exporter of alumina, with 22 per cent of global production. In 2011 Australia produced 19.1 million tonnes of metallurgical (smelter grade) alumina and around 0.5Mt of chemical grade alumina.

These refineries do only part of the job: they turn bauxite into alumina which then needs smelting to make aluminium.


to this (alumina)…


Australia currently has 5 aluminium smelters (still) operating: Bell Bay (Tasmania) – Pacific Aluminium; Boyne Island (Queensland) – Pacific Aluminium; Point Henry (Victoria) – Alcoa of Australia; Portland (Victoria) – Alcoa of Australia; and Tomago (NSW) – Rio Tinto Alcan, CSR, Hydro Aluminium. Together these operations employ over 4,500 directly and more than 3 times that number, indirectly.

And they export most of what they produce: of the 1.96 million tonnes of primary aluminium produced in 2011, approximately 1.68Mt was exported; the balance is consumed locally – think aluminium windows and doors; beverage cans, etc, etc.

In addition, there are 12 extrusion mills and 2 rolling plants.


to this (aluminium) … and a million-and-one uses beyond.


Australia’s alumina and aluminium industries are Australia’s highest value add processors of resources and the largest processed export earner. Together they have a replacement value of over $50 billion and annually produce more than $14 billion worth of product. The industry as a whole directly employs around 17,000 people, many in (otherwise depressed) regional areas.

Minerals extraction and processing is a competitive caper – the Australian aluminium industry is under serious threat.

The South Americans and Africans are developing their mineral resources as fast as you can say: “here’s goodbye to poverty” – and will become huge players in the bauxite and alumina markets.

At the other end of the chain, the Chinese have swung into the smelting business in a big way, hoping to dominate the global market for aluminium. China’s energy policy is geared towards that end. There are currently 20 large scale nuclear reactors in China, with a further 28 under construction. And it’s cheap, reliable sparks upon which aluminum smelting depends: in an economic sense, aluminium is best described as “congealed electricity”.

Which brings us to the debacle that is the mandatory Renewable Energy Target.

Thanks to the mandatory RET, retailers with Power Purchase Agreements with wind power outfits are paying up to $120 per MW/h for power that would otherwise cost $30-40, on average. One big retailer, AGL, is regretting the fact it signed up to PPAs for 25 years at $112 per MW/h. In a recent company report, AGL complains (based on a REC price of between $30-35) that it’s paying $32 per MW/h more for wind power than it needs to.

This “complaint” is based on the fact that the wind industry (and retailers) expected the REC price to be equal to, or greater than, the $65 per MW/h shortfall charge by now. AGL anticipated being able to cash in the RECs received from the generator under its PPA for at least $50, if not $60 plus (instead of the $30-35 it based its report on). That’s why it says it’s paying $32 per MW/h more than it should. With the REC price plummeting to $24 (and falling) the margin for AGL’s “complaint” is more like $43 per MW/h.

Retailers don’t have to take wind power and, therefore, need not enter PPAs. However, they face the $65 per MW/h fine (the “shortfall charge”) for every MW they fall below the 41,000 GW/h annual target – the shortfall starts to bite in 2017 and will add something like $15 billion to Australian power bills over the life of the RET (see our post here).

Retailers can “choose” between a PPA (and, like AGL, end up paying $30-40 per MW/h more than they have to) or cop the $65 per MW/h fine. In either event, the cost will be passed directly to their customers; plus a healthy 7-10% margin on top of that.  Between PPAs (set at 3-4 times the cost of conventional power) and the shortfall charge of $65 per MW/h there is only one way for retail prices to go and that’s North.

For aluminium smelters, spiralling power prices caused by the mandatory RET are something like the straw that broke the camel’s back; if not, the last nail in the coffin.

Back in February, Alcoa announced it was shutting its Point Henry smelter (in Victoria) with the loss of 980 jobs. Alcoa made no bones about it: the mandatory RET is having a “disproportionate” impact on the Aluminium industry and is (unnecessarily) adding to the competitive pressures faced (see our post here).

Pacific Aluminium – which runs smelters at Bell Bay (Tasmania) and Boyne Island (Queensland) – says that the industry is facing “unprecedented challenges to its immediate viability” and sees the RET as an additional, unnecessary and avoidable threat to thousands of jobs (see our post here).

With the mandatory RET threatening to kill thousands of jobs in the aluminium industry, the Coalition are just waking up to the ticking political time bomb created by the most pointless and costly policy ever devised. Here’s The Australian reporting on yet another reason why the RET must be scrapped in its entirety now.

Backbenchers push for RET changes
The Australian
Sid Maher
17 June 2014

COALITION backbench pressure is growing for sweeping changes to the renewable energy target that would see major ­electricity-using industries completely exempted from the scheme.

A backbench ginger group comprising up to 18 Coalition MPs with major aluminium-­producing operations in their electorates, or concern for the industry, met last night to endorse a call for aluminium production to be totally exempted from the scheme from July next year in a move that would save it up to $80 million a year.

The Australian understands the MPs will write to Environment Minister Greg Hunt and Industry Minister Ian Macfarlane endorsing the scaling back of the scheme to allow energy-intensive industries, such as aluminium, to be exempted from the RET.

The RET would see 20 per cent of electricity generated by renewable sources such as wind and solar by 2020. But falling electricity demand means the current target of 41,000 GwH of large-scale renewable energy generation by 2020 will dramatically exceed the target, with some estimates putting it as high as 27 per cent. A “true’’ 20 per cent target could see the RET reduced to 26,000 GwH or lower.

The MPs’ push comes as the government awaits a review of the RET headed by businessman Dick Warburton, which is expected to report in August. Australian Aluminium Council executive director Miles Prosser argues that scaling the target back to a “true’’ 20 per cent would allow exemptions from the RET, which would dramatically reduce the costs of the scheme in a time of tight operating margins.

Under the scheme large energy users can take on direct responsibility for their renewable energy target liabilities, which is the case with aluminium smelters. The Australian Aluminium Council estimates that the RET, under its existing structure, is costing the industry $70 million-$80m a year, with the liabilities for individual smelters put at between $10m and $25m a year.

The costs apply even after existing partial exemptions from the scheme for the industry.

When Kevin Rudd expanded the scheme to 41,000GW/h from John Howard’s mandatory renewable energy target of 9500GW/h, Labor granted aluminium a 90 per cent exemption on the portion above 9500GW/h. When the unexempted base of 9500GW/h is taken into account, the industry currently receives a 70 per cent exemption for its total RET liabilities.

Mr Prosser said electricity made up about 30-40 per cent of aluminium smelter costs. While the long-term outlook for the aluminium industry is considered positive, with double the current levels of production required by 2020, the Australian industry is currently struggling with low prices, a high dollar and rising input costs, the council says.

The Kurri Kurri smelter in NSW was mothballed in 2012 and the Point Henry smelter in Victoria will close in August.

The chair of the Coalition friends of aluminium group, Queensland MP Ken O’Dowd, said the meeting was called to discuss the way ahead for the RET and the industry. “We’d like to see a 100 per cent credit (from the RET) for the aluminium industry,’’ Mr O’Dowd said.

He said the group was planning to write to Mr Hunt and Mr Macfarlane to “make sure they get the message loud and clear’’. Mr O’Dowd said the RET was costing the Boyne smelter in his electorate of Flynn, which includes Gladstone, about $25m a year and this could be “make or break’’.

Victorian Liberal MP Dan Tehan, who is also a member of the group, expressed concern about the impact of the RET on the Portland smelter in his rural Victorian electorate of Wannon. He said the smelter, with 720 workers, was the largest employer in the Portland area.

The meeting took place after the chair of the Coalition backbench energy committee, Dean Smith, told The Australian that the “great majority’’ of Liberals were in favour of significant change to the RET.

Senator Smith was speaking after economic modelling by Deloitte Access Economics, commissioned by the Australian Chamber of Commerce and Industry and the Business Council of Australia, showed keeping the RET entailed a $34 billion hit to Australia’s economy, leading to the loss of 4900 full-time jobs by 2020. The job losses rose to more than 6000 by 2030.

The study said the share of electricity generation stemming from the renewable sources was on track to rise to 27 per cent by 2020, instead of 20 per cent, because of lower demand.
The Australian

Any politician who ignores the potential loss of a few hundred jobs in their electorate is brave. Any politician who ignores the (perfectly avoidable) potential loss of 10s of thousands of jobs is “crazy” brave.

There’s a choice – and to STT it’s “no brainer”: the mandatory RET simply has to go.

As retiring Queensland Senator, Ron Boswell put it: “We can have a carbon price and renewable energy targets or viable manufacturing. We can’t have both” (see our post here).

Well, Tony, which is it?


No pressure: it’s just the future of REAL jobs
& industry that hang in the balance.

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.


  1. Maureen campbell says:

    Well let’s face it, Mr Palmer has nothing to loose, he has more money than he knows what to do with. This man is a merchant banker.

  2. Well, Tony get rid of the RET and the corrupt fans, and that will start to turn this great nation around for the better.


  1. […] and mining – lining up to ensure that the mandatory RET gets scrapped now (see our posts here and here). If the RET is retained, expect to see more industrial outfits close their doors, killing […]

  2. […] Tehan, however, has a representational dilemma on his hands. He also has a major aluminium smelter owned by Alcoa at Portland to consider. Alcoa’s smelter employs around 600 (directly) and sustains the regional city of Portland. Hence, his each way bet (see our post here). […]

  3. […] has called for substantial changes to the mandatory RET; in an effort to save the Bell Bay aluminium smelter, along with unspecified Tasmanian “businesses”. At first blush, it looks as if Jacqui has just […]

  4. […] Although, it now appears that one the PUPs – Jacqui Lambie – a Senator from Tasmania – has just broken ranks with her boss; calling for substantial changes to the mandatory RET in an effort to save the Bell Bay aluminium smelter (see our post here). […]

  5. […] With Clive Palmer keen to retain the mandatory RET expect to see more perfectly avoidable disasters like this, starting with Australia’s aluminium processors (see our post here). […]

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