The AGL Energy Limited (ASX: AGL) share price is rising after making an announcement about a contract.
What happened with AGL?
AGL announced that it has finalised a new agreement to supply a proportion of the electricity requirement of the Portland Smelter joint venture aluminium smelter in Portland, Victoria, until July 2026. The agreement starts from 1 August 2021 when the existing supply contract ends.
The energy business said that the new contract represents a mutually beneficial outcome on commercial terms, for a volume of 275 MW, and provides AGL with flexibility including rights in relation to the short term reduction of volume at times of peak demand.
AGL Managing Director and CEO Brett Redman said: “AGL recognises the importance of the Portland smelter to the communities it supports and as a large wholesale electricity user. The total Portland load comprises approximately 10% of Victoria’s total energy demand and we are pleased to play our part in securing its continued operations.”
The owners of the smelter, including Alcoa Corporation (NYSE: AA) and Alumina Limited (ASX: AWC) also made announcements which referenced that it’s AGL, Alinta Energy and Origin Energy Ltd (ASX: ORG) that are part of the deal to supply energy.
To provide context, ‘Alcoa of Australia Limited’ owns 55% of the smelter. Alcoa Coporation (NYSE listed) owns 60% of Alcoa of Australia Limited and Alumina (ASX listed) owns the other 40% of Alcoa of Australia Limited.
This deal is partly made possible thanks to the Victorian Government agreeing in principle to a funding package that matches the Federal Government’s contribution (which reportedly was $A$19.2 million per year for four years). The arrangement recognises the smelter’s ability to rapidly lower its energy demands when required to help protect the power grid from unexpected interruptions when it is under duress.
Other management comments
Alumina Limited CEO Mike Ferraro said: “This is a very good result for the dedicated employees and the local Portland community and will help provide stability for the electricity grid. The Portland smelter is now deriving more than 30% of its consumed electricity from renewable sources and this figure is expected to grow.”
The Victorian Renewable Energy Target aims to grow the renewable energy to 50% of total energy by 2030.
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