So, their solution (demand response) is to cut back industrial production. I wonder about the economic repercussions of such a policy.
DB2
The Anaconda aluminum plant in Montana sold their electricity on the open market when the energy prices spiked. (Remember Enron and California energy prices) They had contracts for electricity from Hungry Horse Dam. It was a very lucrative business for them. They shut the plant down and sold their electricity, easy peasy. Oh except for the people working, they had a hard time of it.
Andy
The recent report of energy recovery from warm sewage makes you wonder how much energy could be recovered from cooling aluminum (or steel).
Is the energy captured now? Could they do more?
From the article:
The 53-year-old smelter has come close to shuttering several times and was slated to close this December, owing to high energy prices and a tough economic outlook. The new contracts ensure it will stay open for two more decades.
Sounds like a win-win.
That is not what they are doing. They stop production and thus the electricity is freed for meeting some peak demands. Iis called demand response.
If increased electric power demand allows you to sell your electricity for more than the sales price of the aluminum you’re producing, that would seem to be a positive “economic repercussion”.
Of course, shutting down the plant puts people out of work, but Private Equity has been doing that since the dawn of Mitt Romney.
intercst
Yes, I understand. But there is opportunity to do much more if they are willing to invest (as some others have).
Come to think of it, aluminum smelting isn’t a particularly labor intensive process. I bet you could have a clause in the contract that put the hourly workers on “paid leave” during the shut downs and it would still be wildly profitable. I’m assuming they already keep management on the payroll.
intercst
This isn’t as absurd as it sounds. If you usually run an aluminum plant (or any energy consuming factory really) for 9 hours a day, but it doesn’t really matter which 9 hours, then if you run it during the 9 hours that has the lowest energy prices then you will come out ahead. Not only will YOU come out ahead, but the energy generator will also come out ahead because quite often the excess energy has to be wasted or sold to the grid for a negative amount (you have to pay someone to “cart it away”. Now spread that across a month or a year, where you smelt aluminum at all times when energy is cheap (or even free), then everyone comes out ahead. Now if the aluminum smelting plant has to be run 24/7 to be profitable, that’s another story, but since energy is one of the main inputs, maybe running it 9/6 with lower input costs (energy) is sufficient to produce MORE profit overall. Furthermore, you might not need that much aluminum at all times, sometimes you may want to produce less intentionally, for example, when futures prices for aluminum are too low for you to sell it at a sufficient margin.
There are things in this world that don’t always appear to be clever at first glance, but when looked at more deeply are indeed clever.
The same might apply to data/compute centers someday (it probably already does). Maybe a large provider of data centers will have 15 different locations, but only need to use 10 or 11 of them to satisfy demand at any given time. They might choose to run the ones in locations where energy is cheaper at that time, and idle the ones in locations where energy is expensive at the time.
As a marginal producer, the New Zealand plant will have a tough go of it. One would think that maximizing production would be a high priority, but maybe not.
DB2
Maximizing income, I think, would be highest priority.