Explained: The $2.5 Billion Deal to Keep Tomago Smelting — and Get It Off Coal
The Albanese and Minns governments have struck a $2.5 billion deal with Rio Tinto to keep Australia's largest aluminium smelter running, committing public money to a 10-year below-market power supply guarantee that will shift the Tomago facility to renewable energy by 2033.
Prime Minister Anthony Albanese and NSW Premier Chris Minns announced the deal at the Tomago smelter near Newcastle on Thursday, 13 August 2026. Rio Tinto, a joint owner of the smelter, put out its own statement welcoming the agreement the same day. The Guardian
The arrangement kicks in after Tomago's existing coal-focused electricity contract with AGL expires in December 2028. From that point, the smelter enters a 10-year power purchase agreement running through to 2038. Tomago is no small customer: it draws 950 megawatts of constant power and is the single largest electricity user in Australia, taking more than 10 per cent of total generation in NSW. Rio Tinto
A power purchase agreement, or PPA, is simply a long-term contract where a buyer agrees to purchase electricity directly from a generator at a set price. In this case, the governments are helping finance the arrangement so Tomago gets power cheaper than the current market rate — and on the condition that the smelter moves to clean energy.
The government framing emphasises the deal's climate credentials. By 2033, the smelter is to run on clean energy only, cutting its annual greenhouse gas emissions by 7.1 million tonnes — roughly 1.5 per cent of Australia's annual climate pollution. The governments say the arrangement will underpin nearly 3,000 megawatts of new renewable and firming capacity in NSW, more than a giant coal station. "Firming" capacity refers to storage or backup generation (like batteries or pumped hydro) that fills the gaps when wind and solar aren't producing.
Federal climate change and energy minister Chris Bowen said the deal was developed with the Clean Energy Finance Corporation (a government-owned green bank that invests in clean energy projects) and Snowy Hydro to bring on renewable generation. The projects will be spread mostly throughout NSW rather than concentrated in the Hunter Valley, and will include wind farms and solar backed by batteries that have already received environmental approval but haven't yet reached a final investment decision.
On the owner's side, the smelter's partners committed to investing $1.1 billion in Tomago over the next 12 years, including $100 million for decarbonisation activities. The $2.5 billion public contribution requires the smelter to invest at least that $100 million in renewable energy. ABC News
Rio Tinto Aluminium and Lithium chief executive Jérôme Pécresse said the smelter now had "a pathway to long-term, cost-competitive, low-carbon power."
The stakes for the Hunter are substantial. The smelter directly employs about 1,000 people and is claimed to indirectly support around 5,000 more. A NSW Parliament paper from February 2026 warned that closure would threaten over 1,000 direct jobs and up to 3,000 indirect roles. The Tomago smelter produces 40 per cent of Australia's aluminium, a material the same parliamentary document described as one of the most essential in the country. NSW Parliament
Minns called the deal vital to the local and broader economy.
This is now the third heavy-industry rescue package the Albanese government has put on the public ledger. The Commonwealth previously committed $2 billion for Rio Tinto's Boyne aluminium smelter in Queensland, which underwrites $7.5 billion in new renewable energy and storage in that state, and $2.4 billion for steelworks in Whyalla, South Australia. Add Tomago and the total approaches $7 billion in subsidies directed at keeping domestic metals production alive while forcing the transition off coal-fired power.
The pattern across all three deals is the same: public money bridging the gap between what heavy industry can afford to pay for electricity and what the market is charging, conditional on decarbonisation commitments. Tomago's existing AGL contract runs on coal. The new PPA, backed by CEFC and Snowy Hydro financing, is meant to replace that with renewables and firming.
The live question is whether the renewable projects Bowen flagged actually reach final investment decision and deliver the promised 3,000 megawatts on the timeline the deal assumes. The government has selected projects with environmental approvals already in hand, which removes one common bottleneck. But environmental approval is not a construction guarantee, and the firmed capacity needed to back a 950-megawatt baseload smelter is not trivial. Rio Tinto's own corporate targets aim for more than 50 per cent renewable electricity at Tomago by 2030 and aspire to 100 per cent by 2035. The government deal tightens that to full clean energy by 2033.
The broader political calculation is straightforward enough. The Hunter is Labor heartland. A smelter closure on the government's watch would be both an economic shock and a political liability no incumbent welcomes. The Coalition and Greens will each have their own line of attack, the former on the cost to taxpayers, the latter on the pace of decarbonisation and the propriety of subsidising a mining multinational.
What the deal actually delivers, versus what was promised at the press conference, will be measurable soon enough. The 2028 AGL contract expiry is the deadline that matters. Everything between now and then is preparation.
