Federal Government intervenes in Victorian energy market

The Federal Government intervened in Victoria’s energy market, underwriting revenue at the Portland aluminium smelter in exchange for the ability to order the facility to reduce its power consumption during periods of high state-wide electricity demand.

The Portland facility is a major user of electricity, representing around 10 per cent of Victoria’s electricity demand. The Federal Government has said that it’s $76.8 million investment over four years will help to ease pressure on the grid, including on particularly hot days, to prevent blackouts.

The Federal Government will underwrite revenue earned by the Alcoa-owned facility for reducing its load when the supply-demand balance is tight, and provide Portland with a guaranteed Reliability and Emergency Reserve Trader (RERT) revenue of up to $76.8 million in exchange.

The underwriting is temporary and will cease once post-2025 electricity market reforms are in place that better value the essential system services provided by large industrial loads.

In return for Federal Government underwriting, Portland will be required to participate in the RERT to the maximum extent possible.

Minister for Energy and Emissions Reduction, Angus Taylor, said the Federal Government was focused on maintaining the reliability and security of the electricity system.

“The Portland aluminium smelter provides unique and valuable energy services and emergency reserves to the grid, particularly over summer,” Mr Taylor said.

“It is three times larger than the largest battery in Australia and has been vital to avoiding black outs in previous summers.

“The Government will ensure Portland continues to play that important role and is appropriately compensated for the grid services it provides.

“However, the government’s underwriting is not a silver bullet. We need more dispatchable generation in the system, and we need mechanisms to keep providers of valuable system services participating in the energy market.”

Member for Wannon, Dan Tehan, said the Federal Government was backing the Portland Smelter to remain viable, and keep locals in jobs, while it acted in the interests of all Victorians.

“The Government’s underwriting comes at a time when Victoria has been hard hit by the COVID-19 pandemic,” Mr Tehan said.

“Keeping the grid reliable and secure is more important now than ever to support jobs, families and businesses.

“If Portland were to close it would risk the reliability and security of the grid, and may lead to the early closure of one of the coal-fired generators the state relies on for much of its power.

“If another coal-fired generator closes early, it would mean higher electricity prices for all Victorian consumers as it did when the Hazelwood power plant closed in 2017, which saw prices skyrocket by up to 85 per cent.”

AEMO and AusNet also have an obligation to ensure Portland is able to continue to provide these energy services to the grid to deliver affordable, reliable power for consumers. The Federal Government is working productively with the Victorian Government to ensure assistance is provided.

The Federal Government said it will continue to take necessary steps to ensure an affordable, reliable and secure electricity system to power Australian homes, businesses and industries.