ENQUIRE HERE
 
< Back to News Archive

 
posted on:
January
20
2017

CS Energy says Rio Tinto lost on smelter power deal gamble

 



Source: Financial Review 20/10/17 


Rio Tinto took a commercial gamble and lost by not locking in a long-term electricity contract at its Boyne Smelter in Central Queensland and relying on the more volatile spot market, according to the state-owned power generator CS Energy.


As the mining giant accused the Queensland government of being "un-Australian" after soaring prices forced the company to slash production and cut jobs at the Gladstone aluminium refinery, CS Energy chairman Jim Soorley on Friday hit back at Rio Tinto accusing them of playing games over their decision to use the spot electricity market for 15 per cent of their power needs.


Mr Soorley, the former Brisbane lord mayor, said the state-owned generator had offered Rio a competitive 12-month contract for 185 megawatts for the Boyne Smelter just before Christmas, but they knocked it back.


"They took a commercial gamble and they lost. They played the spot market and got burnt badly," Mr Soorley told AFR Weekend.




"And now they are expecting the state government to pick up the pieces for their bad management. They are asking us to subsidise their bad behaviour and poor management decisions. If they had any concern for their workforce they would have done this deal."




Mr Soorley also accused Rio Tinto of "running off to the government like school children" when they did not get the deal they wanted at the Gladstone smelter.


Rio's Boyne Smelter is the largest aluminium smelter in Australia, producing about 585,000 tonnes a year. They have a long-term supply agreement with CS Energy for 85 per cent, or 810 megawatts a year, of its power needs from Gladstone Power Station in which it has a 42 per cent stake. But since its expansion it also needs to source another 15 per cent through either additional contracts or on the spot market.


But spot electricity prices in Queensland have surged as high as $12,000-$14,000 megawatt hours during the east coast heat wave, leading to the company slashing production worth $100 million and cutting as many as 30 jobs.


Boyne Smelter's general manager Joe Rea said the company could not keep going on full production with uncompetitive power prices.




A spokeswoman for Energy Minister Mark Bailey said both CS Energy and another state-owned generator, Stanwell Corporation, made a number of offers to Rio "at a significant discount to market prices", but a commercial arrangement was not reached.


Federal Energy Minister Josh Frydenberg said soaring electricity prices in Queensland could become a regular occurrence if the Palaszczuk Labor government continues to pursue its 50 per cent renewable energy target by 2030.


Mr Frydenberg said he had spoken to Australian Energy Regulator chair Paula Conboy and asked the regulator to expedite its investigation into the price spikes.


"The madness of Queensland's 50 per cent renewable energy target has to be seen to be believed," he told AFR Weekend. "With more than 90 per cent of their electricity supply coming from fossil fuels, such a high target will inevitably lead to higher costs and threaten energy security.




"At the very least the Queensland government needs to accept that its claim that the 50 per cent target is cost-neutral and won't lead to the closure of coal-fired power stations is unbelievable."


Meanwhile, Mr Frydenberg has approved the $900 million stage three expansion of the New Hope Group's Acland mine, west of Brisbane. The controversial mine expansion has 28 strict environmental conditions including water management. The project still requires three more approvals from the state government.