Tomago or data centres.

By now you've probably heard that the Albanese government is bailing out mining giant Rio Tinto's Tomago aluminium smelter. The bailout comes to the tune of a reported cost of $2.5 billion, or $2.5 million per worker, and comes on top of the $2 billion in green production credits that were already committed in January 2025.

Let's just say that Rio Tinto's lobbyists are eating well this week!

Do I think it's a good idea? Of course not. Saving jobs is not the same as creating wealth, and it's not at all clear that Australia needs to preserve aluminium smelting capacity. Even if you look past "jobs" as the motivation (mentioned by Albanese no fewer than 5 times in a few sentences) and cite "national security", it would be far cheaper to let the smelter close and stockpile aluminium on the Defence budget. Instead, Australia will pay a premium to continue smelting one of the most energy-intensive metals on the planet.

But the real story here is energy. Yesterday's bailout leans so heavily on Snowy Hydro 2.0 because aluminium smelting requires a constant, uninterrupted source of power: a single outage can cause molten liquids to solidify, damaging production cells. Renewables simply cannot provide that without a big, fat battery like Snowy Hydro in the mix.

Tomago uses around 10% of NSW's total electricity, equivalent to a continuous baseload power demand of almost 1 gigawatt (GW), or nearly 9 terawatt-hours (TWh) a year. For context, a modern data centre uses anywhere from around 25kW for a small facility up to hyperscale operations that draw in 50MW or more.

In other words, if Australia simply let Tomago shut down, it would instantly free up enough grid capacity to power 40,000 small data centres, nearly 500 medium-sized ones, or 20 hyperscale facilities. Unlike Tomago, data centres might actually reduce household energy bills because they can scale their energy demand depending on the network load, helping to stabilise prices on a renewables-heavy grid. In effect, they chop the top off the marginal cost curve, even with the same total demand.

They also create good 'new economy' jobs, generate revenue for governments, and give Australia international leverage in the AI space: the 9TWh currently vacuumed up by Tomago is equivalent to roughly 2% of the world's total data centre energy consumption.

If Australian politicians are genuinely worried about the grid's capacity to handle data centres, a good start would be to stop paying billions to keep aluminium smelters plugged into it.