Meridian sets out conditions for '10 to 20 year' deal with aluminium smelter

Wednesday, 23 February 2022

Meridian has indicated it wants a “fair price” and long-term deal from the aluminium smelter to enter into a new agreement.

Meridian Energy chief executive Neal Barclay has opened the door to negotiations that could see the Tiwai Point aluminium smelter stay open for at least another 12 years until 2034.

Reporting the company’s interim results on Wednesday morning, Barclay said Meridian was still working on the assumption it would stop supplying power to the aluminium smelter (NZAS) when its current contract came to an end in December 2024.

He made clear there were “no current discussions” with the smelter on a new electricity contract.

But speaking to analysts on a conference call later in the morning, Barclay firmly opened the door to talks, saying Meridian was “certainly not averse to having discussions”.

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Electricity Authority chairwoman Nicki Crauford and then chief executive James Stevenson-Wallace give evidence to a select committee on February 10.

“When we do enter into negotiations with NZAS, we will advise the market,” he said.

The smelter’s majority owner, Rio Tinto, broke the ice in a statement earlier this month, saying it saw “a positive pathway to continue operating and contributing to the local and national economies beyond 2024”.

Barclay set out what Meridian would want from Rio Tinto before it would “consider any form of a contract extension”.

Rio Tinto would need to “demonstrate proper environmental responsibility, they’ll need to pay a fair and enduring price for electricity and they’ll need to make a long-term commitment to New Zealand”, he said.

“If Rio Tinto are serious about decarbonisation then 10 to 15 or even 20 years is not unreasonable,” he said.

Ongoing uncertainty over whether the smelter was going to close or not would become “even more intolerable” as the power industry moved towards ‘zero carbon’, he said.

Meridian Energy said that aside from lower revenues from the smelter, its latest financial result was ‘on par’.

A spokeswoman for Rio Tinto declined to comment on Meridian’s proposed 10 to 20 year timeframe for a deal.

Barclay said Rio Tinto would also need to offer “seasonal demand response”, in other words the ability to reduce the smelter’s electricity demand in times of short electricity supply.

Meridian has been talking up the potential for establishing a ‘green hydrogen’ plant in Southland as an alternative buyer for its hydro power.

But Barclay said the company could “have our cake and eat it”.

“We believe the industry can support both green hydrogen at scale and the continuation of the smelter,” he said.

At the moment, though, Meridian had “no idea” whether the smelter was willing to pay a fair price for energy it consumed, he said.

Rio Tinto is understood to have negotiated down the smelter’s power price from about 5.5 cents a kilowatt-hour to about 3.5c/KWh in January last year, at a time when aluminium prices were less than two-thirds of their current level.

Meridian reported a 41 per cent drop in its profits for the six months to the end of December.

The company booked a $133 million profit for the period, with revenues slipping 1 per cent to $1.67b.

But Meridian reported its “underlying profit” was down only $5m, and upped its interim dividend by 2.6 per cent to 5.85 cents a share.

Barclay said its operating performance was impacted by lower revenues from the smelter, but was otherwise “on par” with the same period the previous year.

The company expects to recognise a gain of about $240m on the January sale of its Australian subsidiary Meridian Energy Australia in its full year accounts for year to the end of June.

Contact Energy – which also supplies power to the smelter – noted in a letter to shareholders late last week that Rio Tinto had indicated its desire to keep the smelter open.

Chief executive Mike Fuge said it was “early days, but it is encouraging to see the smelter’s owner recognise the need for it to play a larger role in helping manage dry year security of supply in New Zealand’s electricity system”.