The head of the country’s green bank says the fine details of its role in the transition of the Tomago aluminium smelter’s electricity supply from black to green is still being worked out, underlining the amount of work that still needs to be done to unlock the $10 billion in new investment needed.
The federal and state government announced this week an agreement to provide $2.5 billion in funding to ensure the future of the country’s biggest electricity consumer as its long standing coal contract ends in 2028, and then transitions to a 100 per cent renewable energy supply by 2033.
Few details of the plan have been released, and the media statements issued by prime minister Anthony Albanese and NSW premier Chris Minns did not even mention the key roles to be played by the federal government owned Snowy Hydro and its green bank, the Clean Energy Finance Corp.
It was, however, confirmed by federal energy and climate minister Chris Bowen.
“We worked on a very innovative arrangement together with New South Wales, working with our government agencies, Clean Energy Finance Corporation and Snowy Hydro, to bring on that renewable energy,” Bowen said at a media event at Tomago on Wednesday.
Bowen said three gigawatts of new capacity will be built. “It will take projects which have been worked on in the pipeline that maybe have already received environmental approval but haven’t reached final investment decision. Some will be wind farms, others will be solar backed by batteries.”
But the key players in the deal – apart from the government funding – have given away little about how it will actually work on what that deal involves.
“We are working closely with the Commonwealth on commercial arrangements,” a spokesperson for Snowy Hydro said in an emailed statement to RenewEconomy.
“It is still being shaped,” said Ian Learmonth, the outgoing CEO of the CEFC, in the latest episode of Renew Economy’s weekly Energy Insiders podcast. “We’ve been working on and off with the government some time now because as you know, this deal’s been some time in the making.”
The general expectation is that Snowy Hydro will need to go to market to secure capacity from the best wind, solar and battery projects, many of which are expected to be in the new Central West Orana renewal energy zone.
The government funding, which amounts to around $250 million a year over a decade, will narrow the gap between what Rio Tinto is prepared to pay to keep its smelter profitable (assumed to be less than $70/MWh) and the price for new renewables, particularly wind whose costs and asking price have soared to around $110/MWh.
The CEFC is likely to play a key role in narrowing the gap further by providing concessional finance, and it is assumed – or at least hoped for by key renewable players such as Andrew Forrest’s Squadron Energy – that the contracts written by Snowy Hydro will go to multiple projects.
However, until those new projects can be delivered, Snowy Hydro will need to turn to other major generators, including AGL (which currently holds the Tomago contract until the end of 2028), Origin Energy and EnergyAustralia to supply the power needed by Tomago, with the help of the government funding.
The difficulty in getting new projects over the line, particularly wind, is underlined by the fact that only four of 31 wind projects that have won contracts under the Capacity Investment Scheme have reached financial close and begun construction.
Those that have done so, including the CEFC-backed Carmody’s Hill wind farm, have been able to do this with firm off-take agreements. The lack of them meant that in the last financial year, the CEFC provided just $340 million of finance to wind, solar and battery projects.
We suggested to Learmonth that that it not sound like very much.
“That’s, uh, not an unfair observation,” Learmonth said. “There’s a lot of very substantial, particularly wind projects in our pipeline. Some of these do relate to … connecting into some of the new transmission we’ve also been involved in financing.
“So you would like to think that that … renewable number will be dwarfed over the coming 24 months as these big projects hit FID. They’re large scale gigawatt-plus type wind farms, needing big banking syndicates, and challenging economics.
“We would like to see that number grow because our job in renewables is far from done …. some very big projects have, been getting close to FID, but just need that little nudge to get the pieces to come together.”
The common factor in those projects that have reached FiD is the existence of a lengthy power purchase agreement, but these have been hard to come by, even with the impending closures of a number of coal fired power generators such as Yallourn in Victoria and Eraring in NSW.
The Tomago smelter which needs nearly 10 terawatt hours, is likely to change that equation, as Rio Tinto’s Boyne Island smelter in Gladstone has done in Queensland, being responsible for nearly all the long term PPAs recently written in that state for new wind and solar.
“The levelized cost of energy for onshore wind is probably above a hundred bucks a megawatt hour,” Learmonth says.
“So Tomago’s certainly not paying that. And so there’s … part of that gap we’re working with the government as to how we play a role in providing our flexible, in some cases, concessional finance to some of these big projects to help plug that gap.”
You can listen to the full interview with Ian Learmonth, and catch up with the week’s energy news, in the latest edition of the Energy Insiders podcast here. Energy Insiders Podcast: Will the green bank save the Tomago deal?
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