Hydro Tasmania and Bell Bay Aluminium are negotiating the state's biggest power contract at a time of low aluminium prices, rising power prices and increased political pressure to cut carbon emissions.
The Bell Bay smelter uses about one-quarter of Tasmania's energy production to produce about 190,000 tonnes of aluminium a year and pays $50 million in salaries to employ 440 people.
While the contract signed in 2010 was not due to expire until 2025 the smelter is reportedly looking for a 30 per cent cut in energy prices.
A Rio Tinto spokesman told The Examiner: "We continue to engage with Hydro Tasmania and the state government over Bell Bay Aluminium's energy supply contract".
"We look forward to working with the new Tasmanian government ministry on this important issue."
Hydro Tasmania has confirmed negotiations and says it is pleased that the industry has recognised the value of "green " aluminium-that is aluminium produced with renewable energy such as Hydro Tasmania's hydroelectricity and wind which has relatively low carbon emissions.
"We are encouraged that Rio Tinto has seized the opportunity provided green aluminium by announcing its Aluminium Stewardship Initiative certification earlier this month, for some of its operations in Australia and New Zealand," a Hydro statement said.
"As the world looks at ways to decarbonise, aluminium businesses globally have begun streamlining their operations, closing carbon-intensive smelters and prioritising hydro-powered operations."
Hydro is keen to emphasise that its clean electricity can be commercial for both its customers and Hydro Tasmania.
In the 1990s, the Bell Bay smelter received heavily discounted power prices.
Tasmania is in the midst of a renewable energy boom through several wind farm developments and the government is expected to offer prices competitive with other states.
The Examiner understands changes in aluminium prices and the Australian Dollar are factored into the energy price paid by Bell Bay Aluminium annually.
Aluminium prices have dropped from AUD $2660 a tonne in October 2019 to $2608.