| DUNKIRK, France
DUNKIRK, France Rio Tinto has invested nearly 80 million euros in its Dunkirk aluminum plant in the past 18 months and plans to invest at least that much again over the next five years on energy saving and efficiency improvements.
The largest aluminum plant in the European Union with 2012 production of 286,600 tons, seaside Dunkirk is the biggest single-point user of electricity in France, consuming 485 megawatts per hour, or half the output of one nuclear reactor at the nearby Gravelines site.
As Rio Tinto's 25-year contract with French utility EDF (EDF.PA) expires at the end of 2016, its electricity bill - which adds up to 23 percent of production costs - could rise as much as 80 percent from 2017, as contract prices catch up. But Rio Tinto is investing heavily to improve efficiency.
Plant director Colin McGibbon told Reuters the firm's main challenge is to avoid this increase, but he is confident about reaching a deal with EDF.
"We need an energy agreement that gives us sufficient visibility and value so that we can keep investing here. We think that is achievable," he said.
Rio Tinto has already covered half of its post-2017 electricity needs through Exeltium, a consortium of companies that buys power in bulk via long-term contracts with EDF.
Talks with EDF about the rest could include a contractual adjustment for uranium price swings and the provision of demand-response facilities, allowing EDF to briefly shut down the plant to balance its network during periods of peak demand.
An energy agreement for Rio Tinto's other French plant, the 148,812 ton Saint-Jean-de-Maurienne plant in the French Alps, was not so easily achieved, and Rio Tinto is negotiating with Germany's Trimet Aluminium AG about a sale of the plant.
Trimet has made a firm offer, a Rio Tinto official said, but if no deal is reached by the end of June, the option to close the plant remains on the table.
The aluminium industry has excess capacity and smelters worldwide are closing plants.
Rio Tinto's two French plants together consume nearly 6 terawatt hours (TWH) of electricity per year, compared with 6.5 TWH/year for all France's steel plants combined and about 9 TWH/year for the entire French railway system.
Aluminium production consumes so much more energy than other metal industries because it uses power-intensive electrolysis processes to refine the metal.
Rio Tinto has just finished a 32 million euro renovation of the Dunkirk plant's cathedral-size anode oven. The carbon-based anode blocks are dipped in the molten aluminum oxide, where electrolysis forces the oxygen in the oxide to bind with the carbon to form CO2 gas, leaving pure aluminium in the smelter.
Most of the world's aluminium plants are located next to hydro-electric dams, or close to Middle East oil fields where they use the waste gases. Increasingly, cheap shale gas is also drawing aluminium smelters and other energy-hungry industries to the U.S. [ID:nL5N0EE04K]
McGibbon said Dunkirk's position next to a nuclear plant, the availability of a port, and its proximity to its customers - 60 percent of its aluminium is used for drink cans, 15 percent for car parts - makes the plant viable.
But post-Fukushima safety upgrades and ageing plants are making nuclear less economical.
"Gravelines is investing three billion euros in upgrading its six reactors. Someone has to pay for this," he said.
The Dunkirk plant was built to use the excess electricity of two nuclear reactors originally destined for Iran. After the 1979 Islamic revolution, the French government put the two reactors in Gravelines, in Northwest France in 1985.
French Pechiney started the plant in 1991. A decade ago, Pechiney was bought by Canada's Alcan, itself later absorbed by Rio Tinto.
(Reporting by Geert De Clercq; editing by Keiron Henderson)