Meridian close to signing deals to sell 'Tiwai' power to replace coal boilers

Thursday, 25 February 2021

Greenpeace stages a protest against Fonterra’s use of coal boilers at its Clandeboye factory in Canterbury in 2010.

Meridian Energy believes it is close to signing deals that will see it supply cheap electricity to commercial customers in the South Island to replace coal boilers.

Such deals could make it less likely that cheap power will be available to power the Tiwai Point aluminium smelter, should it want to continue operations beyond 2024.

Meridian chief executive Neal Barclay told Parliament’s Transport and Infrastructure select committee that it expected to have about 5000 gigawatt-hours a year of renewable electricity to sell after then.

It had been offering commercial users 10-year deals to buy that power at electricity prices that were similar to those it used to offer the smelter before it offered the smelter a further “unsustainable” discount last year, he said.

It was also offering a contribution towards their conversion costs, he said.

Meridian Energy chief executive Neal Barclay hinted the company could have its first grid-connected solar power plant up and running within five years.

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“I have got three memoranda of understanding on my desk right now ready to be signed out,” he told MPs.

“So I think you will hear a lot more about that in the not too distant future.”

Meridian is believed to have previously sold power to the smelter for about 5 cents a kilowatt-hour, before cutting that to about 3.5c/KWh to retain the smelter as a customer until 2024.

One of the biggest opportunities in front of Meridian is believed to be to selling power to Fonterra to replace coal boilers that it uses to dry milk into milk powder at its South Island factories.

Fonterra chief operating officer Fraser Whineray said it did not disclose commercial negotiations, but “would welcome anything that reduces the cost of electricity for both our farmers and our manufacturing sites”.

Less than a third of its sites used coal, he said.

“As part of our ongoing decarbonisation approach, we are looking at several technologies including increased use of wood biomass and greater use of electricity.

Meridian’s Harapaki wind farm, simulated above, should produce power commercially at a price of about 6 cents a kilowatt-hour, the company has revealed.

“This involves balancing many factors including location, available technology, security of supply and the cost of the system,” he said.

Fonterra had committed to achieving a 30 per cent reduction in its absolute off-farm emissions by 2030 and being ‘net zero’ by 2050, he said.

Barclay told the select committee that the conversion of coal boilers to electricity could result in up to a 5 per cent increase in the demand for power, which would suggest it could soak up between a third and half of the power that may one day be freed-up by the smelter’s closure.

However, the “most exciting” opportunity was using its renewable power to produce green hydrogen for the transport industry, he said.

“There is a massive cry in Japan, South Korea and other parts of Asia for that product,” he said.

“I know there is a lot of scepticism around the economics of that, but we are working with some pretty credible players.”

Barclay also indicated that Meridian could bring its first grid-connected solar power plant on line within five years.

But he forecast wind energy would be the “mainstay new generation” in New Zealand for the next 30 years because of the favourable economics here.

The $395m 41-turbine Harapaki wind farm that Meridian signed off on Wednesday would produce power at a price of about 6c a kilowatt-hour, he said.

Barclay faced some questions from MPs over a finding by the Electricity Authority that it had spilled water from its South Island dams for several weeks in 2019 that it should have used to generate power.

He appeared to blame electricity traders at the company for the “undesirable trading situation” which could cost the company many tens of millions in retrospective charges, but for which it expects to have to fork out less than $2m.

Documents cited by the Electricity Authority suggest Meridian spilled water to avoid crashing wholesale electricity prices in the South Island.

But Barclay told the committee it “wasn’t doing it for profit maximisation”.

“Where we fell short was some of our trading overnight locked in place some trades that our management had instructed the team not to do, but it hadn’t quite got through,” he said.

“Traders turned at 7pm, read the instructions maybe but didn’t quite comprehend them as well as [they] could,” he said.