Renewable target concerns Alcoa

A MANDATORY renewable energy target of 20 per cent would add up to $300 million a year to the cost of producing aluminium in Australia, according the country's leading producer.

In its submission to the federal government's green paper on a Carbon Pollution Reduction Scheme, Alcoa said the aluminium industry could not tolerate the cost impacts of both the emissions trading scheme and a mandatory renewable energy target.

The company has called for the most electricity intensive of the energy intensive trade-exposed industries to be exempt from the MRET.

The direct cost of energy represents, on average, more 20 per cent of the total cost of both alumina refining and aluminium smelting, with some sites experiencing energy costs well above this average.

Alcoa is currently the state's largest consumer of gas.

"The most electricity intensive of the EITE industries, such as the aluminium industry, should be exempt from the MRET to avoid substantial international competitiveness impacts," Alcoa said in its submission.

"This imperative was recognised by the Victorian government when it exempted the Victorian aluminium smelters from the Victorian [Renewable Energy Target] scheme."

The government is committed to ensuring 20 per cent of Australia's electricity supply comes from renewable energy sources by 2020.

This will require electricity generators and retailers to generate or buy a minimum amount of electricity sourced from renewable generation.

Critics of the mandatory target, which would act as a supplementary measure to operate alongside an emissions trading scheme, say it will be counterproductive to the effectiveness of an ETS, which allows the market to determine the appropriate energy mix and provide an incentive for the lowest cost abatement options to be taken up.

A report released earlier this year by the Productivity Commission stated that the MRET, used in conjunction with an ETS, would be costly and achieve no extra abatement.

But for companies like WorleyParsons, which is currently studying the viability of a number of advanced solar thermal power stations across Australia, an MRET is vital, particularly during the early stages of the ETS.

"We urge, in whatever form the ETS is introduced, that MRET objectives, and other mechanisms to support cleaner energy production remain robust and aggressive," the company wrote in its submission.

"This will be particularly important if the critical price signals discussed above are introduced gradually or weakened in some way. In essence, if the government decided to use a smaller 'stick', it should provide a sweeter 'carrot'."