Tomago won’t be 100 pct renewable until 2033, but Squadron and others want to see multiple supply deals

The landmark decision to provide $2.5 billion to support the transition of Australia’s biggest aluminium smelter and biggest electricity user from coal to renewables is being hailed as a major breakthrough for the country’s energy transition.

The decision is likely to break the massive road blocks in new project investments and unleash at least 3 gigawatts of new wind and solar capacity, possibly more. But it will take time, with Rio Tinto not expecting the new electricity supply to be 100 per cent renewable until 2033.

That timeline seems slow, but probably realistic given the time it takes to get financing, financial approvals and construction in Australia these days, and the potential limitations on transmission, with work still underway in the Central West Orana renewable energy zone, and yet to start in others such as New England.

There are concerns, however, over how the transaction will be managed, and who will get the final call on which projects go ahead and why.

The funding deal between the state and federal governments puts Snowy Hydro in centre stage, as it will be writing the contracts for new wind and solar and providing the power until those new projects are built.

In a statement, Andrew Forrest’s Squadron Energy, now one of the biggest renewable energy developers in Australia’s main grid, said the way the program is implemented will be crucial to ensuring the new capacity is delivered on time, at lowest cost, and in a way that increases competition in the market.

“No single renewable energy company can meet Tomago’s requirements alone,”  Squadron Energy CEO Rob Wheals said in a statement.

“This will require multiple generators working alongside Government, Snowy Hydro and Tomago to deliver a coordinated solution at the scale Australia needs.”

Squadron did not spell it out, but its concerns – and those of others – appear to be centred on the potential of Snowy Hydro to hand the main part of the wind component to a single project, such as Origin Energy’s 1.45 gigawatt Yanco Delta project.

They fear that such an outcome would hand even more market power to Origin, whose lack of investment in new wind and solar until now has been on of the reasons it has managed to obtain government backing to extend the life of its Eraring coal generator twice already.

There are fears this could be repeated, with state energy minister Penny Sharpe saying on Wednesday that the government would not shy away from making hard decisions about extending coal closures, if needed.

No details have been released on how the process will be managed. In an emailed statement, Snowy Hydro said only: “Snowy Hydro will play a role in managing the renewable energy portfolio that will support Tomago. We are working closely with the Commonwealth on commercial arrangements.“

Squadron – and others of course – have reasons to hope that multiple projects are contracted for the Tomago tender, including its own 700 MW Spicers Creek wind project, which is located in the Central West REZ and is looking for buyers, as are Acen’s Valley of the Winds, Someva’s Hills of Gold and Tilt Renewable’s Liverpool Plans projects in the same REZ.

Yanco Delta is located further away in the south-west REZ, along with a host of other potential contenders, such as AGL and Someva’s Pottinger wind project, Spark’s Dinawan and Goldwind’s Copabella projects.

Asked about the Tomago decision on Thursday, Origin CEO Frank Calabria said: “We’ve got the ability to respond to the way we operate Eraring today, and then we have to think of it about the decisions we make in terms of how we supply the portfolio going forward, but they all go into the mix.”

The competitors to Origin would like to see multiple projects contracted to the smelter. This would bring new competition to the market, and also extra capacity that can be sold to other large industrial users and help keep prices down.

Jamie Chivers, the CEO of Someva Renewables, said it would ultimately be a matter of timing. “In the end the contract will go to the lowest cost project,” he said. Chivers and others expect Snowy Hydro to conduct a formal tender, or tenders.

“With a pipeline of wind projects in NSW, we stand ready to work constructively to help deliver a solution that is reliable, affordable and helps secure Australia’s long-term clean energy sovereignty,” Wheals said.

“Tomago is more than a smelter. It is a nationally significant industrial asset that sits at the heart of Australia’s manufacturing capability.

“If we get this right, it won’t just secure Tomago’s future, it will demonstrate that decarbonisation and industrial competitiveness go hand in hand and set a model for other energy-intensive industries.”

It is now somewhat ironic that it is the country’s biggest energy users which now find themselves at the forefront of the energy transition – Rio Tinto for its Tomago smelter in NSW and the Boyne Island smelter in Queensland, which will make the transition even quicker – and Forrest for his Fortescue iron ore giant in the Pilbara.

Analysis by Energy & Resources on behalf of the Electrical Trades Union suggests the Tomago deal could unlock $8 billion to $10 billion in new renewable energy investment and support between 2,400 and 3,900 direct jobs during peakconstruction.

The analysis found there is already a substantial pipeline of renewable energy and battery projects capable of supplying Tomago, including 12.3GW of projects with development approvals outside the major Renewable Energy Zones and a further 10.7GW of projects with access rights in the South West and Central-West Orana Renewable Energy Zones.

“Tomago shows we don’t have to choose between heavy industry and renewable energy. We can protect good industrial jobs and use the energy transition to create thousands more,” Electrical Trades Union NSW/ACT Organiser, Brad McDougall said in a statement.

Tomago had tried to find renewable energy suppliers in a series of tenders held in recent years, but could not find the right projects at the right price.

The $2.5 billion funding deal with the state and federal governments will fill the gap between what Rio Tinto is prepared to pay (around $75/MWh) and the asking price of wind and solar battery hybrids (up to $110/MWh).

The difference now is that the contracts will be written by Snowy Hydro. Rio has a 10-year PPA with Snowy from January, 2029 to late 2038, with the last five years to be entirely renewable.

“Under the agreement, Tomago Aluminium will enter into a 10-year power purchase agreement (PPA) for electricity supply to the smelter through to 2038, with the power to be supplied by 100 per cent renewable sources from 2033,” Rio Tinto said. “The PPA will begin following the 31 December 2028 expiry of the current electricity contract.”

Rio Tinto says that once Tomago is supplied by 100% renewable sources, from 2033 under the PPA, it will reduce the smelter’s Scope 1 and 2 operating carbon emissions by 7.1 million tonnes per year.

Tomago will also continue to provide large-scale demand response capability under the arrangements, helping reduce electricity use during periods of system stress, improving system reliability and supporting the integration of more renewable energy.

About $100 million will be invested to make that happen, part of a $1.1 billion commitment by Rio Tinto to update the smelter.

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