PORTLAND Aluminium is a step closer to survival after the federal government announced it would underwrite the money the smelter loses over the next four years when it powers down on days electricity use surges.

While its long-term future is still dependent on a power deal, which at least one observer believes could be announced shortly, the federal government deal is viewed as a hugely positive sign.

Energy and Emissions Reduction Minister Angus Taylor said the government would underwrite up to $76.8 million – subject to negotiation – over the four years to 2024-25.

The smelter powers down on days of high electricity demand, largely during summer, in order to ease pressure on the Victorian grid – while it has been paid to do so in the past, the process does carry some risk to the pots taken offline and also reduces production.

Mr Taylor said the underwriting would be temporary and would end when post-2025 electricity market reforms were in place that better valued the essential system services provided by large industrial loads.

In return for government underwriting, Portland would be required to participate in the reliability and emergency reserve trader scheme to the maximum extent possible.

“The Portland aluminium smelter provides unique and valuable energy services and emergency reserves to the grid, particularly over summer,” Mr Taylor said.

“It is three times larger than the largest battery in Australia and has been vital to avoiding black outs in previous summers.

“The Government will ensure Portland continues to play that important role and is appropriately compensated for the grid services it provides.

“However, the Government’s underwriting is not a silver bullet. We need more dispatchable generation in the system, and we need mechanisms to keep providers of valuable system services participating in the energy market.”

An Alcoa spokeswoman said the company was encouraged by the federal government’s proposal.

“We look forward to working with the federal government to establish an agreement that recognises the valuable contribution Portland Aluminium makes to grid security and helps to ensure the smelter’s continued operation,” she said.

“Meanwhile we continue to work constructively with other industry stakeholders in order to ensure the smelter is globally competitive.”

The initiative was welcomed by community, worker and contractor representatives.

Australian Workers’ Union state secretary Ben Davis said it was “another piece in the puzzle” to ensure the smelter’s future.

“It recognises what Alcoa have been doing over a number of years powering down when it gets hot,” he said.

“Obviously we’re keen to see where they’re up to with the state government (and its help in any power deal) which I think we’ll hear about in the next few days or so.”

Committee for Portland chairman Steve Garner said it would be a “fantastic story” for Alcoa to bounce back from the 2017 potline disaster and “to put themselves in a position to negotiate some serious improvements on the power deal would be the icing on the cake”.

“The fact that this (federal) announcement has been made means that ongoing security is there for a minimum of the next four years,” he said.

“I’m a firm believer in let’s see what happens during the course of the four years.”

Mr Garner is also the executive director of major smelter contractor Keppel Prince and said the news was good for those employees and the city in general.

“It gives other investors and other potential groups confidence when they’re looking for a bit of stability and confidence going forward,” he said.

Glenelg Shire Mayor Anita Rank said the announcement was “a huge relief” close to Christmas by providing financial security for the 470-strong workforce and hundreds of staff employed by contractors.

“This is a great first step for Portland Aluminium,” she said.

“Whilst it is fantastic news, our primary concern remains for Portland Aluminium to negotiate a long-term power solution and secure a sustainable economic future for the region.

“This deal will provide a much-needed confidence boost ahead of these important negotiations and help ensure the future of 2500 direct and indirect jobs in south-west Victoria.

Federal Member for Wannon Dan Tehan said the government was backing the smelter to remain viable, and keep locals in jobs, while it acted in the interests of all Victorians.

“The government’s underwriting comes at a time when Victoria has been hard hit by the COVID-19 pandemic,” he said.

“Keeping the grid reliable and secure is more important now than ever to support jobs, families and businesses.

“If Portland were to close it would risk the reliability and security of the grid and may lead to the early closure of one of the coal-fired generators the state relies on for much of its power.

“If another coal-fired generator closes early, it would mean higher electricity prices for all Victorian consumers as it did when the Hazelwood power plant closed in 2017, which saw prices skyrocket by up to 85 per cent.”