Rio Tinto Seeks Bailout for Tomago Smelter: Why Rising Energy Costs Should Alarm Every Business

10/6/25, 3:19 am

The Ark Accounting Corp.

Rio Tinto Group, the world’s second-largest mining company, is in talks with the Australian federal and NSW state governments for a multi-billion-dollar bailout to keep its Tomago aluminium smelter operational amid surging electricity costs. The facility, one of Australia’s largest single-site electricity users, consumes roughly 12% of NSW’s entire power supply and produces over 590,000 tonnes of aluminium annually.

What’s Driving the Crisis?

Skyrocketing Power Prices: Electricity makes up nearly 40% of operating costs at Tomago. Wholesale prices have spiked amid policy volatility, gas supply pressure, and the accelerating energy transition.
Structural Exposure: The smelter is locked into large-scale, round-the-clock consumption, making it acutely vulnerable to price fluctuations and capacity constraints.
Energy-Intensive Legacy: Despite Rio’s broader decarbonisation goals, legacy industrial infrastructure like Tomago remains critically dependent on fossil-fuel-based grids.
Government Response: The federal government has earmarked A$2 billion in production tax credits to support green industrial facilities transitioning to renewables, of which aluminium smelters are a key beneficiary.

The Ark Insight: Why This Matters to Every Mid-Sized Business

1. Energy Cost Inflation Is No Longer Contained

Tomago isn’t an isolated case. With NSW and VIC wholesale electricity prices forecasted to increase up to 40% by 2026 (AEMO), businesses across the board, especially those in food processing, cold storage, manufacturing, and construction, will see margins squeezed unless structural action is taken.

A 10% rise in power prices can erode net margins by 3–6 percentage points for energy-intensive SMEs.

2. Energy Strategy Is Now Core to Business Strategy

Gone are the days when energy was a “fixed overhead.” It’s now a strategic risk factor, linked to ESG credentials, operating continuity, and even valuation. Businesses without long-term energy procurement strategies or efficiency frameworks are exposed.

3. Policy Uncertainty Transfers Risk to the Market

As governments shift from coal subsidies to decarbonisation incentives, businesses must navigate an uneven transition landscape. Those who proactively engage with renewable incentives and grid resilience programs will secure a competitive advantage.

The Ark's Recommendations

✔ Build Energy Intelligence Now:

Use digital tools to track hourly usage, forecast demand spikes, and benchmark industry norms. Even non-industrial clients can unlock savings through peak-shifting and consumption rebalancing.

✔ Evaluate Long-Term PPAs or Embedded Network Solutions:

Secure your rates with 3-7 year renewable Power Purchase Agreements (PPAs) or explore shared-generation networks within industrial clusters or precincts.

✔ Tie ESG to Economic ROI:

Align decarbonisation investments (e.g. HVAC upgrades, solar storage systems) with operational payback metrics. We help clients frame this within grant submissions and CFO board reports.

✔ Finance Efficiency Through Green Instruments:

From asset financing to green loans, we can help reengineer CAPEX-heavy projects so repayments are funded by efficiency gains, not core cash flow.