The Tiwai Point aluminium smelter in Southland will continue to operate until at least 2044 after striking a deal with Kiwi energy companies to supply renewable electricity until then.
New Zealand Aluminium Smelters (NZAS), which is owned by multinational mining group Rio Tinto, has often talked of closing due to low commodity prices and high electricity costs.
In 2019, Rio Tinto announced a strategic review of the smelter after a year of losses and eventually decided it would halt operations in 2021.
NZAS says it employs 1000 workers, indirectly supports another 2200 and makes up about 6.5% of Southland’s gross domestic product.
The potential closure became an election issue in 2020, with various parties pitching plans to rescue the important regional employer, but ultimately aluminium prices came to the rescue.
Global prices for the metal climbed to a record high during the pandemic and have remained consistently elevated for the past three years.
Fetching a better price for the product on the global market made New Zealand’s relatively high energy costs more palatable and Rio Tinto signalled it would look to keep NZAS open.
On Friday, the firm announced it had struck a deal for electricity supply to the smelter for the next 20 years, ending the ‘will-they-won’t-they’ drama for a generation.
Meridian Energy, Contact Energy and Mercury NZ will deliver 572 megawatts of electricity to meet the smelter’s full electricity needs.
Contact announced it would supply the smelter with up to 120 megawatts of electricity for a minimum of 10 years at a confidential price.
This price was “consistent with long-term electricity supply agreements” for large South Island industrial users and materially higher than in the transitional agreement, it said.
The new arrangement includes demand response agreements with Meridian Energy and Contact Energy, under which NZAS may be requested to reduce electricity consumption by up to a total of 185MW.
Mike Fuge, chief executive of Contact Energy, said his company had been operating for the past four years on the belief that the Tiwai Point smelter would continue to run long term.
“Confirmation of the sustainable electricity demand from the smelter supports the acceleration of the Contact26 strategy to decarbonise New Zealand, with the addition of demand response also supporting security of supply”.
Energy Minister Simeon Brown welcomed the agreement as certainty for the electricity market and relief for the Southland economy.
Including the demand response element would help to ensure electricity was available for households when supply was tight.
“As our electricity system becomes more based upon renewables, intermittency of generation becomes a larger problem. This commitment from NZAS will help ensure the grid can continue to deliver electricity to Kiwis during times of peak demand,” he said.
32 Comments
Great news for Transpower too - and everyone whinging about transmission and distribution costs on thread the other day. Tiwai will continue to prop up the rest of North Island grid upgrades.
"'Since 2004 more than $1.3billion has been invested in the grid in the upper North Island but only 39% of that is being paid for by the upper north, while transmission costs have increased by 61% in the Lower North Island and South Island to cover the cost.
...In their current form, South Island generators pay for all of the costs of the high-voltage direct-current line that transports electricity between Islands, it said.
''The line charge has been about 10% of the wholesale price of electricity, which is like a ''tax'' on South Island generation and encourages investment in otherwise more expensive North Island generation,'' the authority said."
https://www.odt.co.nz/business/power-politics-aluminium-smelting
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There were plans to change transmission pricing. Not sure whats happened with that. Under that plan the aim was to charge the upper north island customers way more.
You can imagine the rhetoric: which would have increased costs to the poor large families in South Auckland and Whangarei by X amount.
I would say: whats wrong with putting generation near the load? If that means thermal, well, that would be the cheapest option..... for those poor large families....
Should a poor electricity user in Southland have to pay extra grid stability/transmission/distribution costs so a rich Northland Islander can put a solar panel on his roof? Keeping your house connected to the, increasingly expensive to stabilise, grid doesn't come cheap.
Agreed. Lots of bully-boy stuff and blackmailing of politicians to use taxpayer money to subsidise their production. I think what swung it in NZ's favour however was Rio Tinto's shareholders (increasingly armed with ESG and climate change objectives) questioning why they'd be closing renewable energy smelters when we have a "climate emergency".
Now there's a certified bludger of many years standing.
Hopefully this time it is a deal that is in the best interests of the country.
Edit.
Would have been great if this had been done as part of a strategic analysis of our electricity assets and infrastructure use going forward by the government as opposed to adhoc business deals.
NATO can't handle the much smaller (relatively speaking) industrial and defence manufacturing capacity of Russia. What makes you think they have a hope against 10x bigger China? If NZ were smart we'd stay right out of the room while the thousand pound gorillas of the Pacific decide to have a fight.
China lacks the advanced chips and semiconductors needed - after Biden tightened the grip there. US tech still reigns supreme especially on the battlefield.
China will need to take Taiwan by force as a result, and will be interesting to see what sort of casualties are inflicted in doing so.
A shrinking population and loss of military grade young men due to 1 child policy and tiger mums will see China defeated if they ever tangle with Uncle Sam
They do process extremely high purity aluminium which is a value-add since it gets used for semiconductors, capacitors, LED's etc. I think only Japan has a higher quality smelter producing industrial quantities (Nippon Light Metal Company, Shimizu Plant). Although I also read somewhere else that Emirates Global Aluminium was their main competitor for high purity aluminium.
420,000 t/year, not sure how that compares to other smelters, Tiwai Point is around 330,000 t/year.
Interestingly it looks like a lot of other countries are starting to produce Ultra High Purity aluminium like Canada & Australia so there might be more competition coming online in the coming years, although there could also be increasing demand. Not an expert on this stuff though so take it with a grain of salt.
Yes sadly we just don't have much of the downstream manufacturing left and in the case of electrical we were never well positioned in the first place to retain the downstream manufacturing. We had massive stills drain & manufacturing facilities leave, they are not coming back until NZ has more favourable conditions to manufacture. We are no Japan. We are as low tech as you can get when compared to Japan. A lot of the time we cannot even get simple trains to work, imagine though if we had the engineering market & skills for Japan's level we could have been able to have not only working train systems but even bullet style ones across the island. The manufacturing factories there are really a sight to behold.
Classic multinational bullies. Rio Tinto were always on the edge of pulling out from their most profitable smelter in the world because of high electricity prices. When they last threatened, Contact asked when are they leaving, as several data processing companies wanted to set up using the electricity they aren't using any more. Nek minnut, 20 year deal. What a joke.
Still lots of potential on the Clutha river (NZ's largest by rate of flow), Contact was investigating 4 dams that would've contributed up to 800 MW altogether, but the costs didn't stack up.
https://www.stuff.co.nz/southland-times/4879846/Hunt-on-for-more-dams-o…
Heard Murray Sturgeon, NZ MDF industry founder in Nz, speak at a conference.
If we used the tiwai power for processing logs the gdp output is five times greater than aluminium smelting.
But who cares when any sod can borrow a mill from the bank.Maybe when they can’t we will seek out the opportunities.Or most likely others will.
Except from the sustainability point of view he is on the ball. We ship logs to china, so they can be processed to mdf and shipped back to us but we cannot ensure the quality in China or the power use for processing (mostly coal fired plants). Avoiding the shipping cost alone both ways is a massive environmental saving. Then on top consider the building materials market. How much more sustainable (& less FF used) we could be if we processed logs for building supplies in NZ for NZ building.
Sure his stand point is from the economic end, but man oh man on the environment & sustainability end he has hit a bullseye. We are screwing up by not having the materials processing and manufacturing in NZ and having double the environmental cost of logistics. All so we can hide it on our CC balance sheet (we don't even count the environmental cost of shipping the processed materials back to us).
It would be hugely hypocritical to discount someone simply on the basis they have experience in the industry using the processed materials NZ has in every home and business. In fact because they have experience they often know more about a subject then the general public who discount them out of complete ignorance (most the public don't even know the steps to how simple things are made)
Knowing the manufacturing processes of mdf materials I can say near half, especially in China, is tossed in landfills without even being shipped to those who are using them to make things (overage and minor issues). A large proportion has microplastics & glue mixed in. If we are lucky a large amount is burned up in the atmosphere with really good filters (some companies are setup to use it to run boilers). It will burn of course in the end but the unlucky bit it the degrading, leaching and then being burnt without filters. There is no free lunch and if you had to pick, processing in NZ to have less waste from the outset, less FF used to process, less FF used in logistics is the better option, followed by NZ actually being able to direct proper waste management of processed log materials that are tossed before making it to a manufacturer or retail.
We do share the globe and the climate after all. You cannot carve a piece of the atmosphere out.
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