Power prices 'already up' as a result of Tiwai Point aluminium smelter deal

Tuesday, 19 January 2021

Power companies are hiking their prices from April 1, Consumer NZ warns.

The price of electricity has rallied on futures markets with the announcement of a deal to keep the Tiwai Point aluminium smelter open until at least the end of 2024, a retailer says.

Luke Blincoe, chief executive of ElectricKiwi, said the price at which retailers could buy electricity on the wholesale market to cover their demand in future years had increased by about 10 per cent to about $150 per megawatt hour since the deal, and stayed there.

Retailers would have little choice but to pass on the cost to consumers, he said.

“It is going to flow through to consumers, there is no alternative scenario.”

ElectricKiwi chief executive Luke Blincoe says the industry will need to pass on the higher wholesale prices, which suit generators.

* Global aluminium prices bounce back, but 'day of reckoning' still looms

* Broker believes Tiwai smelter beat down Meridian on power price by 36%

“We’d pride ourselves on always trying to be the cheapest and most cost-efficient, but the reality is generators want to see wholesale prices firm,” he said.

Blincoe said the wholesale price rise had come “straight off the back” of an NZX announcement by Meridian Energy on Thursday that it had signed a contract with the smelter’s majority owner, Rio Tinto, to supply the smelter with power until the end of 2024.

In fact, it had slightly preceded the announcement of the deal, raising a separate question about “the timeliness of disclosures”, he said.

The smelter is believed to be paying a reduced price of about $35/MWh for power under its new contract with Meridian.

The price was agreed as a result of commercial negotiations in which Energy Minister Megan Woods said the Government had no involvement, but Blincoe said it represented a “subsidy by Kiwi families”.

Generators all wanted higher wholesale prices, so for them the smelter staying open was a good thing, he said.

“Everyone in New Zealand who is a consumer subsidises that,” he said.

Flick Electric chief executive Steve O’Connor said future prices had been drifting higher but spiked about 10 per cent on the day of the smelter announcement, leaving little doubt that was connected.

“It is not an issue for us in the short term because we are well hedged right now, but it will certainly be an issue in the long term for all independent retailers if those wholesale prices remain high,” he said.

“The theme here is if the wholesale price-jump remains, Kiwis are going to end up paying for Meridian’s deal yet Meridian is still going to make the same amount of money, which is not cool.”