George Osborne has acted to late to save Britain’s energy-intensive aluminium smelters from extinction.
By Roland Gribben
9:30PM GMT 11 Dec 2011
George Osborne was robust in his defence of measures to provide tax relief for energy-intensive industries. He told MPs in his Autumn Statement: “We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers.
Chancellor, the smelters have already disappeared. Well, almost.
At one stage, Britain had three smelters producing more than 300,000 tonnes a year of material that seems permanently tagged as “the metal of tomorrow”.
The first, at Invergordon, closed 30 years ago after an unsuccessful struggle by what was then British Aluminium (BA) to demonstrate the Highlands was capable of supporting big business as well as smaller hydro-powered smelters.
The second, at Anglesey, originally operated by RTZ (now Rio Tinto) and Kaiser, closed two years ago after failing to re-negotiate a “cheap” power contract.
An announcement about the closure of the third, at Lynemouth, Northumbria, came a month before the Chancellor delivered his Autumn Statement.
The Lynemouth closure brings down the curtain on the last of Harold Wilson’s “white heat” interventions, while the aluminium industry has undergone radical structural changes in the period. BA is history and Rio Tinto is now a global player with its takeover of Alcan. Rio Tinto Alcan said climate change programmes, higher energy prices and EU and UK carbon taxes, upped costs by £46m a year and killed the plant.
So the industrial sun has almost set on what started as a political and industrial initiative by Labour in 1968 to add a considerable production dimension to aluminium and provide a fillip for regional policy and the balance of payments. There were generous grants, industrial allowances and “cheap” energy contracts linked to nuclear power for Invergordon and Anglesey, and coal for Lynemouth.
Forty years on, the smelters are now industrial relics, regarded as an economic failure and a classic example of a Government attempt to pick winners that backfired.
Niall MacKenzie, head of the Institute for Innovation Studies at the University of Wales, says the venture was doomed from the start because of the heavy reliance on subsidies, compounded by blunders by electricity generators and management shortcomings.
The Wilson administration hoped the “white heat” of new technology would generate a new industrial revolution and an interventionist Government would bring industry into the 20th century. The reality was that the National Plan was pulped and the Industrial Reorganisation Corporation’s attempts to create world-class businesses promised much but delivered little.
The smelters were seen as an opportunity to help change the perennial balance of payment problems and to provide a boost for a young industry, jobs and regional development.
The problem with aluminium is its energy usage. Turning alumina into metal requires enormous power and represented about 20pc of production costs at the time. Britain could not offer cheap electricity to bridge the competitive gap. Or could it?
Enter nuclear power. Britain was leading the world with the civil application of nuclear power that promised cheap electricity. Linking nuclear output with the smelters was seen as cost-effective. Invergordon’s power contract was linked to the Hunterston B plant in Ayrshire and Anglesey to the nearby Wylfa station.
The Government had set its sights on supporting two 100,000-tonne smelters, selecting BA and RTZ. Alcan was furious at being ignored and mounted a campaign that culminated in a cheap coal deal with Lord Robens, chairman of the National Coal Board, who was fighting against nuclear power.
Alcan ended up building its smelter and a coal-fired power station at the Lynemouth pit that provided its fuel.
The smelters made their production debut in the early 1970s in a tough market. BA hit trouble early when the cheap energy contract turned out not to be cheap because of delays with the nuclear programme.
Dr MacKenzie says the smelter got to the stage where it was “too expensive to run as a viable operation”.
He blames BA for poor judgment over the contract, the Scottish generating boards for inflexibility and the Government for not taking a more active role in contract negotiations. Invergordon had a short and expensive life, closing in 1981 at a cost of £381m to the taxpayer.
Anglesey, the biggest single user of electricity in Britain, enjoyed more productive and profitable years, although the power contract proved a headache due to costly delays in building Wylfa. But the closure of Wylfa and the problems in producing a replacement contract that did not upset Brussels proved a journey too far.
Alcan ended with the best deal, with coal from local, now exhausted pits. It was said to be still profitable when the decision was taken to close the plant, but energy, accounting for around 30pc of production costs, has taxed it out of business.
The aluminium industry may have shrunk but it has benefited from the smelter contribution and is now back where it started, with a small Highlands production base at Lochaber.
Back in 1907, Highland smelters produced a third of the world’s aluminium output. Now it is less than 1pc of western European production.