Business

The man with a $100m cost saving plan for Boyne Smelter

Tamar Valley Power Station has a gas fired combined cycle power plant that cost $451 million and produces 210MW per annum.
Tamar Valley Power Station has a gas fired combined cycle power plant that cost $451 million and produces 210MW per annum. Aurora Energy

BOYNE Smelters Limited general manager Joe Rea put out a call to Gladstone Engineering Alliance members to come up with costs cutting measures --- 72-year-old Michael Fearns was listening.

The former president of the Gladstone Engineering Alliance has a plan that could save the smelter about $100 million a year. It would cost $451 million to implement and would protect it from changing electricity prices.

At the Gladstone Engineering Alliance annual industry update to contractors, engineers and other industry leaders, Mr Rea asked for them to help the smelter survive.

With aluminium prices sitting at about US$1500 a tonne, more than half of the 1995-2008 average of US$3402 a tonne, Mr Rea said profits for aluminium were gone and the commercial electricity prices were killing the business.

The smelter is a part owner of NRG Power Station in Gladstone and gets 810MW (81%) of its power from that station, but for the remaining 185MW (19%) it is forced to compete on the open market.

The 185MW is substantial and is enough energy to power every home on the Gold Coast for a year. Securing a good deal on that contract has been an issue for the smelter for many years.

In September 2013, it curtailed production by 8% for three months because the price of electricity meant it was running at a loss.

The price went down after the three months and production went back up, but the following September the smelter was facing another expensive summer for the extra 185MW of electricity.

Former GEA president Mr Fearns said if the smelter was to invest in a gas fired combined cycle power plant it would easily survive the next five years and many more to come. By his mathematics, the gas fired plant would cost $451 million, based on a gas fired plant in the Tamar Valley in Tasmania that produces 210MW. That plant started production in 2009 and produces 140MW through the gas turbine and a further 70MW in the steam turbine.

If the smelter pays for "(180MW) at the household rate of 22 cents a KWH, it comes to almost $350 million per annum," Mr Fearns said.

He said he didn't know the rate the smelter bought its power at but at half the household rate it still amounted for $175 million per annum, and $100 million per year would be a "feasible" saving.

But the smelter's $720 million upgrade of the carbon bake furnaces about four years ago has stopped the smelter from investing in Mr Fearns' idea.

"Securing a competitive (source of power for the 185MW) is top priority for us and wedded to that is remaining cash positive," a statement from the smelter to Mr Fearns read.

The $720 million upgrade that decommissioned two furnaces and built a new one improved the smelter's efficiency, but the "owners have not yet seen a return on that investment" and are unwilling to invest more.

But Mr Fearns said if the smelter looked at a bigger picture, the $451 million investment would save more money over the next five years and the smelter would be in a great position by the time the alumnium price increased again.

Why companies are looking for savings

 

Topics:  boyne smelter gladstone engineering alliance gladstone industry industry



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