Rio Tinto says coal power economics make competing impossible for smelters

Rio Tinto’s chief executive for aluminium and lithium, Jerome Pécresse, says the "economic reality" of coal-based electricity makes it impossible for smelters to compete. He argues that the shift to renewable energy is driven primarily by financial considerations rather than other factors.

According to Pécresse, the decision to transition to renewables is "first and foremost a decision based on economics."

Economic drivers

In Australia, this debate often centers on legacy infrastructure like the 1.6 gigawatt Gladstone Power Station, a coal plant. An Arena-backed trial is currently underway at Tomago, involving a battery storage system with a capacity of 30 megawatts and 360 megawatt-hours.

Matt Canavan, the federal leader of the Nationals, argues that only coal can keep smelters alive. Ultimately, the outcome depends on whether Australia can build enough firm renewables fast enough to sustain these energy-intensive operations.

Smelter operations and stakes

The company holds a roughly 52 per cent share in the Tomago smelter in New South Wales, which demands a constant electrical load of 950 megawatts. In Queensland, Rio Tinto maintains a majority stake in the Boyne smelter, a facility whose consumption accounts for approximately 10 per cent of the state’s total electricity usage. The company’s longest-running asset is the Bell Bay smelter in Tasmania, which has been in operation since 1955.

Smelter	Location	Rio Tinto Stake	Key Detail
Tomago	New South Wales	~52%	950 MW constant load
Boyne	Queensland	Majority	~10% of state electricity
Bell Bay	Tasmania	Owner	Operating since 1955

Government and corporate investment

• The federal Labor administration and the Queensland LNP will each contribute $1 billion to the Boyne smelter over the period from 2030 to 2040.
• Approximately 1,000 individuals work at the Boyne smelter.
• Rio Tinto pledged $7.5 billion toward new wind, solar, and battery storage initiatives in the Gladstone area.
• In August, federal and NSW Labor authorities agreed to back a $2.5 billion scheme for the Tomago smelter.
• The Tomago smelter provides employment for more than 1,000 staff members.
• This $2.5 billion initiative is expected to lower electricity supply expenses by roughly $35/MWh.
• In October, the Bell Bay smelter obtained a $200 million shared assistance agreement from Tasmanian and federal authorities.
• The Bell Bay arrangement features a five-year energy contract with Hydro Tasmania.

Power procurement structures and market positioning

For the Boyne smelter, the company is assembling its own energy solution by contracting solar, wind, and battery power purchase agreements (PPAs). In contrast, the Tomago smelter will rely on a single PPA from Snowy Hydro. Pécresse noted that these arrangements, supported by government funding, move the facilities to the "right side of the cost curve."

The executive stated that the lower carbon content of the new energy mix allows Rio Tinto to offer a product better positioned in the market, as a growing proportion of customers no longer want high carbon aluminium. He added that a fraction of these customers is willing to pay a premium for lower-carbon output.

While federal Nationals leader Matt Canavan has argued that the shift to renewables is causing the economic demise of smelters, the Queensland LNP government agreed to support the Boyne transition alongside federal Labor. This decision occurred despite the LNP’s historical support for coal and its practice of "calling in" previously approved projects, some of which are contracted to Rio Tinto.

Tomago battery trial specifications

The Arena-backed trial currently underway at the Tomago smelter involves a 30 MW and 360 megawatt-hour battery storage system. This facility is part of the broader infrastructure supporting the smelter's transition, which Pécresse describes as a matter of survival given the "so significant" increase in coal-fired electricity prices that precludes renewing current contracts.

What to watch

The immediate focal point is the status of the Gladstone Power Station, which is penciled in for potential retirement in 2029.