How Different Aluminum Producers Manage Their Power Supply



Power supply

Aluminum production is a very energy intensive process. Almost a quarter of aluminum smelting costs go towards electricity. This makes electricity prices a key driving factor for aluminum companies. There are several ways that aluminum producers fulfill their electric power requirements.

A lot of aluminum plants have captive power plants. The plants produce their own electricity. To reduce the electricity costs, a lot of companies set up their smelting plants near cheap sources of electricity like hydropower.

Also, aluminum companies source electricity under long-term power supply arrangements. Some companies also source electricity under the market rates. In this part, we’ll look at how different primary aluminum producers manage their power supply.

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Power supply arrangements

  • Rio Tinto (RIO) has captive power plants that meet 36% of its power needs. It has long-term power purchase contracts for another 30% of its power requirements. According to Rio, “almost 80% of its total power needs comes from non-fossil-fuel based” sources compared to an industry average of 35%.
  • Alcoa (AA) is self-sufficient in 25% of its power needs. The remaining power requirements are met through long-term supply contracts.
  • Norsk Hydro (NHYDY) has one of the highest captive power generations at two-thirds of its total power needs. The company generates power mostly through hydropower. For the remaining needs, Norsk has long-term power supply agreements. Overall, Norsk Hydro uses hydropower for almost 70% of its power requirements.
  • Century Aluminum (CENX) sources power through a mix of open-market purchase and long-term supply agreements. The above chart shows Century Aluminum’s power supply arrangements. The company doesn’t own any captive power plants. Century Aluminum has a long history of power supply related issues at its plants. Currently, it forms 2.68% of the SPDR S&P Metals and Mining ETF (XME).

In the next part, we’ll explore how power supply arrangements impact aluminum companies.


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