Meridian reaches deal for possible voluntary cut to smelter production

Wednesday, 28 April 2021

A voluntary deal paves the way for the Tiwai Point smelter to cut production to conserve electricity, but there is no immediate cut.

The Tiwai Point aluminium smelter and Meridian Energy have reached a deal that could see the smelter voluntarily cut back its electricity usage before a deeper power shortage forced a production cut.

The agreement could see the smelter reduce the amount of power it uses by up to 30.5 megawatts to about 540MW any time between now and the end of May, in return for compensation from Meridian.

It is understood the arrangement does not mean the smelter will necessarily cut production, however, and will not have an immediate impact on jobs.

The smelter’s majority owner, Rio Tinto, would not reveal the compensation Meridian would pay if it did make the voluntary cuts.

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The smelter is believed to be operating very profitably at the moment, with aluminium prices sitting close to a 10-year high at just under US$2400 (NZ$3330) a tonne.

A Rio Tinto spokeswoman said the smelter had already reduced its electricity usage by about 6MW by not replacing pots which have been taken out of circulation during “the normal cycle on the potlines”.

“We are pleased to now be in position to be able to do more to assist New Zealand’s security of supply for all customers should the lake levels not be replenished in the short term,” she said.

The smelter could be forced to make a deeper cut to its electricity usage under a separate, existing agreement that is designed to be triggered if an electricity shortage worsens.

The additional, voluntary agreement comes as spot market electricity prices continue to hover above 30 cents a kilowatt-hour.

The smelter is believed to be paying about 3.5c/kWh under a new deal it struck with Meridian earlier this year to stay open until at least the end of 2024.

Gas shortages, low lake levels caused by La Nina and a long period of relatively low investment in new renewable generation appear to have contributed to high spot market prices.

But Energy Minister Megan Woods last month asked officials and the Electricity Authority to report on whether the wholesale market was operating as it should.

A spokeswoman for the minister said on Wednesday that she yet to receive that advice.

The Electricity Authority published what appeared to be a defence of outcomes in the sector on Tuesday, stating that it wanted to correct “misperceptions” about spot market prices and the wholesale market.

The regulator said New Zealand’s electricity market was “well-regarded internationally”.

”We have seen people comment that New Zealand has one of the most expensive wholesale markets in the world,” it said.

“This statement is likely to be based on the current supply conditions and is not true over the long term. Generally, New Zealand is at about the middle of the OECD countries in terms of energy prices for industrial consumers,” the authority said.