Meridian Energy had contingency plans to sell its Manapouri power station electricity if the Tiwai Point aluminium smelter closed, Meridian chief executive Mark Binns said yesterday.

Negotiations between the smelter and the state-owned enterprise over the future of its electricity contract continue.

Smelter owners Rio Tinto have said the smelter could close if it could not secure cheaper prices from Meridian.

Manapouri has a maximum generating capacity of 800MW, which Meridian said could power 591,000 homes a year. Most of its power is used by the smelter, which it was built to supply.

If the smelter closed, it could free up generation for use elsewhere.

"If the smelter did close, we have been through planning exercises and we've evaluated all potential outcomes," Mr Binns said.

Two 220 kilovolt power lines, run by national grid operator Transpower, take the electricity from Manapouri to Tiwai.

Mr Binns said it would not require a similar powerline to be built northwards if the smelter closed.

Transpower is upgrading the carrying capacity of its Southland and Roxburgh-to-Waitaki lines in the first part of a $170 million programme designed to transport power from the large wind farm developments proposed for Southland.

Transpower spokeswoman Rebecca Wilson said Transpower had planned further upgrades to the South Island network if necessary.

Mr Binns said that, combined with the HVDC Cook Strait cable, which would begin testing by the end of the year, the network could handle Manapouri without a huge upgrade.

"My understanding is it would be relatively simple."

Most of the power would be heading to the North Island, he said.

Meridian did not want the smelter to close but had to consider the possibility given what it would mean for the business.

"This is something we don't want to see happen. But clearly we have to review all potential (circumstances)."

Economic commentator Rod Oram said the advantages of freeing up the Manapouri generation could outweigh keeping the smelter open by selling it cheaper electricity.

"I reckon there's a greater economic value from that electricity than to sell it very cheap to Rio Tinto," he said.

"Obviously there would be a short-term problem. I can't define short term, but it would take the market time to adjust. For example, we know Meridian and Transpower have said they'd need to invest in more transmission capacity to get it to the North Island."

The power could be used to generate new business and employment, he said.

"I do feel very sorry for people who would lose their jobs. I feel bad saying this."

However, Mr Oram thought it was unlikely the smelter would close.

He believed Rio Tinto was playing hard ball, as it had in 2008 over the emissions trading scheme.

- © Fairfax NZ News

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