Industry needs cheap electricity, not wind and solar

The Wall Street Journal reported Monday that Century Aluminum is planning to build the country’s first new smelter in 45 years. That could be good news, if the company can find the “sustained low-cost power environment” it needs to site and operate the smelter.

That’s why it’s so surprising that “Century is counting on the aggressive build-out of solar- and wind-powered generating capacity now under way to start yielding excess power after 2030.”

Heavy industry is being crippled by rising electricity costs — but wind and solar aren’t the solution.

The Journal reports:

In manufacturing, few things are as power-intensive as smelting powdery aluminum oxide into aluminum. The process takes about 24 hours, and producing a ton typically uses more electricity than a single household consumes in an entire year. Century expects its planned smelter to produce about 1,500 metric tons of aluminum a day.

To spell out the napkin math: producing 1,500 tons per day, if the smelter ran 365 days per year, would get annual production of 547,500 tons. This new smelter could use more than half a million households’ worth of electricity each year.

Relying on intermittent wind and solar isn’t likely to meet that demand. After all, the wind isn’t always blowing, and solar has a bad habit of stopping at night when the sun goes down. Interruptions in electricity service can lead to significant operational difficulties and costly shutdowns.

Expensive electricity cuts tight margins for aluminum, which was trading at about $2,500 at the end of June. According to the Wall Street Journal, “For every dollar increase in the price of a megawatt-hour of electricity, Century said it costs the company at least $3 million in annual profit.”

So why would Century be considering a new smelter at all? In addition to a $500 million grant from the Department of Energy, the company is counting on “a provision in the Inflation Reduction Act that allows primary aluminum producers to receive a federal tax credit for up to 10% of their production expenses, including electricity.”

Century Aluminum is still deciding where to site its new smelter, but I’d be surprised if Minnesota were on the short list. Isaac Orr, former policy fellow with Center of the American Experiment, explains that the closing of the Northern Foundry in Hibbing, MN, was due to increasing electricity prices for industrial customers:

From 2009 to 2023, Minnesota Power, the Investor-Owned Utility (IOU) that served Northern Foundry, has increased electricity prices for industrial customers like the foundry by 62 percent, compared to the U.S. average increase of only 18 percent, making it increasingly difficult for energy-intensive businesses to compete with firms in other states and countries with more rational energy policies.

Northern Foundry was the definition of an energy-intensive business. The firm used electric induction furnaces to melt ductile iron into parts used for the automotive, heavy truck, industrial, and recreational industries. When operating at full capacity, the facility consumed six megawatts (MW) of power, equivalent to the average consumption of 5,660 Minnesota homes.  

In an average year, this facility likely uses more than 30,000 megawatt-hours (MWh) of electricity. As rates have risen, the prices increased Northern Foundry’s costs by an estimated $1.2 million, or about 27 percent of the company’s payroll. Ultimately, they saw the writing on the wall and closed up shop for good.  

Reindustrialization would not be such a challenge if U.S. and state energy policies weren’t actively deindustrializing through rising electricity prices.