Anglesey Aluminium Metal (AAM) Limited, the Holyhead based smelter, faces some very difficult choices over the next two to three years.

With the impending closure of Wylfa Power Station on Anglesey in 2010, the aluminium smelter urgently needs to secure an alternative supply of electricity.

The existing continuous 250 MW electricity baseload supply contract with Wylfa has been a long term one, so providing stability and certainty. With the closure of the Wylfa nuclear plant, that certainty framework disappears and AAM is urgently searching for a viable solution.

Jointly owned by Rio Tinto (51%) and US-based Kaiser Aluminium and Chemical Corporation (49%), Anglesey Aluminium Metal has been a major supplier of aluminium metal for extruding, rolling and re-smelting to UK and European markets since it started at Holyhead in 1971.

With over 500 highly paid posts at the plant, closure would be a severe blow to the local economy, which will need to readjust to the closure at Wylfa.

David Bloor, Anglesey Aluminium MD,reckons there are in effect four options on the table. Firstly, the smelter could negotiate and secure another long term (10-15 years) contract on the open electricity market as in the past. Mr Bloor, however, is not sanguine on prospects for such a deal because of the inherent risk in forward pricing.

Alternatively, AAM could opt for shorter term - say 2 yearly- contracts on the open market, but the question would be whether such terms could be secured as profitably as in the past.

If the above two possibilities are not feasible, the third choice would be to have on-site generating capacity. The company has commissioned feasibility studies into alternative energy sources on site, including building a biomass power station.

Providing a secure, dependable and steady supply of wood chips would require significant quantities of wood. There would also have to be consideration given to securing sufficient sources of supply and the lead times from felling, drying out and processing of the wood chips, not to mention the transport logistics.

If the above three options are not workable, the fourth option is simply to switch off the power and shut the gates. Such a scenario fills local people with gloom, but Mr Bloor said this possibility had to be considered. After all,the plant along with the jetty in Holyhead harbour, has been an icon of the town's industrial base since its introduction in 1971.

Just consider that while this Rio Tinto Kaiser smelter has doubled its production to over 140,000 tonnes since it started in 1971, it has also achieved remarkable results on its carbon emission targets. Against a Kyoto target of a 12.5% reduction in greenhouse gases by 2012, the company has cut its carbon equivalent emissions by more than 50% since 1990.

And its amazing to reflect on such an outstanding achievement in a relatively energy intensive industry in the week that G8 leaders gather in Germany to discuss a post-Kyoto (2012) framework with tougher greenhouse gas emission targets. In fact, Angela Merkel, German Chancellor and current G8 President, has suggested an ambitious plan of 50% reduction in greenhouse gases by 2050.

It is ironic that closure is considered a possibility as globally we have seen a surge in demand for aluminium along with other industrial metals such as copper, zinc and iron. With no apparent let-up in demand from China, India and other emerging markets, this seems a good time to be producing aluminium.

Indeed, GFMS Metals Consulting notes that global primary aluminium in April 2007 climbed to 3 million tonnes, a 12% riseover 12 months, and European demand also seems to be holding up well.

Mr Bloor believes that so long as the relationship between aluminium and electricity prices translates into a profit, even a small one, then the Holyhead plant will continue going forward.

His ideal scenario is for Wylfa B to be given the green light and for a similar partnership deal as before to be struck with the new nuclear generator.

So let's hope the recent Energy White Paper and nuclear consultation lead to a favourable climate for new nuclear build. We can then expect energy giants like E.ON and EDF Energy to be fighting for the contract to design, build and operate Wylfa B, and Rio Tinto Anglesey Aluminium will have another lease of life.