>The thing is, there is a point where the difference between the spot-price on the market and the brokered purchase price is larger than the value of the aluminium that can be smelted with that energy. When this happens, the smelter shuts down its smelting operations and sells the energy back to the market instead.
That seems odd, Aluminum smelters are even harder than coal fired power stations to power cycle. The cells have to kept constantly molten, freezing damages them.
Pot-lines can be turned off for periods of seconds to hours because they have plenty of thermal inertia (assuming the control systems are modern enough, and the power regulations make it profitable for the smelter to do so).
They can also temporarily shift taps (change voltage and power draw) to increase or decrease load, within some constraints.
Only if the pot is turned off long enough to solidify is it a problem - and even in that case if base load prices shift enough it can be profitable to do so in a functioning electricity market, e.g. for a pot cathode that is nearing replacement time they could turn it off earlier than otherwise. In New Zealand they once turned off a whole Aluminium smelter for months when we had a long dry spell and the country ran out of hydro-power (I recall the frozen pots had a > 50% possibility of getting restarted too - the chemistry is somewhat of an art so some luck involved!).
I have two friends who work architecting whole electricity markets (for a whole countries). They have masters degrees in operations research. Pretty cool designing how to set up the pricing, bidding, and rules to optimise for changes base load, spot load, failures, network limits, etc etc. It is hard to design bidding systems to avoid market failures - think Enron & California!!!
If you ever get a chance to visit a smelter, do it, they are damn cool engineering. High current at low voltage (the pots are like huge molten batteries) and the bus-bars cause very large magnetic fields and are apparently dangerous if you were to carry a magnetic tool! IAAEE - I am an electronic engineer - even though I do full-time JavaScript development ;-(
Also a smelter essentialy only has two variables that control its profitability - the price of electricity and the price of aluminium. A smelter wants to have a long term futures contract for electricity supply, and matching long term futures contracts for selling aluminium on the commodities market.
They have some control over the price of electricity - the control is via:
* long term electricity supply options (e.g. the New Zealand government gave a smelter here a special decades long contract, so a company would set up a smelter in NZ, even though the bauxite is mined in Australia and shipped thousands of kms).
* possibly owning their own generation capacity (the NZ smelter had a large hydro dam built for it, and they had contractual control over its power).
* most importantly to optimise where to put the smelter to best take advantage of long term cheap power (cheap base load prices, supply reliability, political stability).
Shipping bauxite to NZ from AU is not far. Lots of bauxite is shipped from Australia to Norway to be smelted. Because NO has cheap hydro power, this is considered economical!
Interesting, I guess on those time-scales it does make sense. I was Qatar a few years ago when a series of power failures caused all the pot-lines on Qatalum's brand new smelter project to freeze.
My understanding is somewhat limited, as that is a second-hand anecdote.
They probably don't turn the smelters off completely, instead simply scaling production down to a minimum. This seems like the most reasonable action in any case, as they would want to continue smelting as soon as the spot-price dropped.
For me the most interesting part of this was the fact that energy brokers existed (not that surprising) and that the free market allowed for instruments like this to be developed.
There are quite a few levels of distribution as well, and each of those implement different market instruments to optimise for reduced risk and costs.
A hard problem that is starting to emerge is actually based on both how distributors amortise risk, and the emergence of smart meters.
Smart meters should be able to help regulate the entire market, because they give us better control over the load profile. The thing is, a typical consumer buys their energy from a retailer, who themselves will have agreements with wholesalers, who in turn work with energy providers and the NEM. Who should have control over the smart meter, its data and operation? Who should benefit from the cost savings and reduced risks?
At the moment the cost savings seem to be shared fairly equally, but ownership of data and control varies based on legislation (state to state in Australia). There is definitely a lot of room for innovation in this space; I'm looking forward to seeing how things progress as more and more of these devices are deployed.
That seems odd, Aluminum smelters are even harder than coal fired power stations to power cycle. The cells have to kept constantly molten, freezing damages them.