New Zealand Aluminium Smelters calls for cheaper power
Electricity demand would require about a decade to recover back to present levels, if the Tiwai Pt smelter in Southland closed, a government report says.
New Zealand Aluminium Smelters (NZAS) is the largest single electricity user in the country, accounting for almost 13 per cent of national electricity usage in 2013.
NZAS and Meridian Energy agreed a new power deal in August 2013, which included Meridian cutting its electricity charges, after a lengthy standoff was ended with the help of a $30 million Government subsidy. However, the smelter can terminate the contract completely from January 2017 provided it gives 15 months' notice.
The smelter is complaining that it pays some of the highest prices for power in the world and wants a better deal, yet again.
A Ministry of Business, Innovation and Employment document seeking submissions on its scenarios for the future of the electricity sector, gives an analysis on the smelter.
There was still considerable uncertainty about future production and decommissioning the smelter after 2017 remained a realistic possibility, the document says.
In five of the eight scenarios, listed in the document, the smelter continues to use an average of 570 MW until the end of the projection period.
In two scenarios it assumes the smelter moves to 400 MW from 2017 and remains there for the rest of the projection period.
In one scenario, it assumes the smelter closes from 2017.
National electricity demand would be reduced by 11 per cent as a result of closure, the document says.
Consequently, it would take nine years for the electricity demand to recover to the same level it was in 2016, it says.
"The Ministry's modelling suggests that the smelter's decision relating to production levels beyond 2017 is finely balanced. The decision is sensitive to assumptions about, among other variables, future aluminium prices (in $US), future exchange rates ($NZ with $US), and the price at which the smelter could hedge additional electricity usage."
NZAS chairman Brian Cooper said the smelter was one of the most efficient in the world but currently pays one of the highest power prices paid by a smelter anywhere in the world, outside of China.
Only smelters in Eastern and Southern Europe pay similar prices.
NZAS also paid one of the highest transmission charges, faced by a smelter, in the world, he said.
Costs had dramatically increased, by $25 million per annum, over the past seven years – last year the smelter paid $64 million in transmission costs.
A transmission costs system, where the grid user pays for what they actually use, would deliver a better outcome for NZAS, he said.
"No decision had been made about the future of the smelter, and we are doing everything we can to secure a long-term commercially competitive electricity price for the smelter."
Meridian Energy chief executive Mark Binns said the owners of Tiwai were in a competitive international market but the issue was around the value of power in New Zealand.
The smelter was paying less for energy than it did eight years ago, however this was not the case for transmission charges.
The Electricity Authority review of transmission charges would not be in place before the Tiwai situation was resolved.
It was difficult to say if closure would lead to cheaper prices.
There may be a reduction in supply and a period of readjustment in the market, he said.
Meridian was considering all its contingency plans.
Greens Energy spokesman Gareth Hughes said it looked as if the government were hoping it did not close because only one of the scenarios reflected this.
However, it was important that it did not pour more taxpayer money into the smelter, he said.
He believed closure would improve the electricity market and consumers would benefit from lower prices.
Labour Party energy spokesman Stuart Nash said last week he expected Tiwai Point will keep on smelting for another five years.