Alcoa warns of 'escalating electricity prices' as it negotiates new power agreement
/ By Bridget JuddGlobal aluminium producer, Alcoa, has warned of a climate of "escalating electricity prices" as it seeks to secure a new power agreement.
A subsidised power contract with the State Electricity Commission of Victoria, which is said to have cost taxpayers more than $100m a year on some occasions, expired yesterday.
Enacted in the late 1980s by then-Labor premier John Cain, the subsidy was designed to provide electricity to both the Portland and now-defunct Point Henry smelters at a price linked to the world price of aluminium.
AGL Loy Yang had been recruited to supply power to the smelter from today onwards, replacing the subsidy, but Alcoa terminated its contract with the company in August to renegotiate a better price.
Alcoa said it was still in active commercial discussions on a new power supply agreement.
"The commercial discussions are continuing in a climate of escalating electricity prices in Victoria," a spokesperson for Aloca said.
"[Prices] have increased by more than 50 per cent over the past 12 months."
The company's foray into an already volatile power market is exacerbated by the expected closure of Australia's largest coal-fired power generator, Hazelwood, which will see power prices increase.
Alcoa said its strong preference was to find a "workable solution" to secure the smelter's position, but that its future would ultimately be decided by its ability to remain internationally competitive.
Victorian Government 'ready, willing and able' to assist Alcoa
The uncertainty threatens to undo the western Victorian community of Portland, where Alcoa is deeply entrenched in the regional economy.
Providing more than 2,000 indirect jobs — almost a quarter of Portland's total population — the company is the region's largest employer and biggest taxpayer.
Despite ruling out "open-ended engagements" with the company, the Treasurer Tim Pallas said the government was willing to offer financial support.
"Obviously we're keen for Alcoa to get to a position where they have some certainty as to their future," he said.
"We've held a number of discussions with them about their current operations, and those discussions are ongoing."
"There's been a recognition that it would be desirable to see Alcoa work out its arrangements with AGL as soon as possible so they can have a more direct discussion with the state about their long-term needs."
Commodity market analysis group, CRU, said the Portland smelter would be "highly vulnerable to closure" if it was moved to spot-market priced power.