Switching the country's largest aluminium smelter, Tomago Aluminium, to 100 per cent renewable energy would help position Australia as a major economic power in a decarbonised global economy, a new report suggests.
But the smelter's chief executive Matt Howell said while the company was committed to the growth of renewable energy, the reality of the energy-intensive aluminium manufacturing process meant it was likely to remain dependent on coal-fired electricity for the foreseeable future.
"I'm an optimist and there is definitely a future for clean energy in this country. Our long-term goal is to have more renewables in our portfolio and to lower our carbon footprint." he said.
The Institute for Energy Economics and Financial Analysis report said Australia's abundance of low-cost renewable energy sources, comparative advantage in the production of hydrogen and large mineral deposits meant it was well-placed to be a world leader in the production of steel, aluminium, cement, silicon and lithium.
Tomago Aluminium produces 595,000 tonnes of aluminium a year. It also consumes about 10 per cent of the power generated in NSW.
An IEEFA case study argues the smelter should transition to renewable energy as a national priority.
"Australia's aluminium sector is particularly interesting right now because it is failing with all smelter operators losing money and considering closure," report author Clark Butler said.
"Australia is one of the world's most emissions-intensive aluminium producers. Deployment of renewable electricity is a path out of this quagmire, and the fall in cost of renewables makes it more viable than ever."
Despite its high energy production, Mr Clark said demand for the metal was likely to increase.
This would be driven by electric vehicle manufacturers seeking to offset the weight of batteries and low-emissions building standards which would require the use of low-carbon aluminium.
Electronics companies will also put an increased focus on emissions in their supply chains creating demand for low-emissions aluminium.
To take full advantage of this demand, Butler says Tomago Aluminium would need renewable energy at internationally competitive prices.
"Ideally this would come from wind and solar power, which would be "firmed" or supplemented by hydrogen, batteries, or stored-hydro power to provide the level of reliability a smelter needs," he said.
"The hydrogen used for firming variable supply, as well as a variety of industrial purposes, would ideally be produced by an electrolysis process driven by renewable energy."
"This would also create an opportunity for the Hunter Region to lead in the production of green ammonia and green steel - Orica, Molycop and InfraBuild could all benefit from hydrogen."
Mr Howell said the need for 'firming capacity' (the ability to top-up supply when the sun isn't shining or the wind isn't blowing) remained the biggest challenge for the uptake of renewables in the aluminium industry.
"The question is how do you make the transition over time?" he said.
"When you have a need for commercially viable firming capacity the only option is thermal power - that is coal, gas and nuclear until we have commercially pumped hydro available to us."
He said it remained to be seen if AGL's proposed gas-fired power station at Tomago would provide firming capacity from renewables.
"It's a peaking plant that is designed to shore-up the supply during periods of peak demand," he said.
"Could it provide firming capacity? It depends on how it is set up."
But Mr Butler said switching the smelter to renewables would not only protect and create jobs it would also be an opportunity to improve electricity demand response in the grid because the smelter could be used as a balancing tool.
"By focusing on large scale, low cost of capital, zero emissions, renewable investments tied to significant energy users with long-term growth prospects in a low carbon economy, there is a real chance to build momentum," he said.
"If the aluminium sector could be reinvigorated and put on a globally competitive footing, Australia can get five years ahead on the decarbonisation path. However, if the smelters close and all that load is lost, building this kind of investment momentum will be far more difficult and Australia could fall five years or more behind more forward-looking countries."
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