Taupō geothermal project back on following Labour's backflip on Tiwai

Tuesday, 29 September 2020

Contact Energy has announced it is ready to start work again on a stalled geothermal project on the Tauhara steam field.

Contact Energy says it is prepared to fire up work on its stalled $600 million Tauhara geothermal project in the wake of a Labour Party change of heart to extend the life of the Tiwai Point aluminium smelter.

Contact announced in July it would defer investment into the “shovel-ready” geothermal power station near Taupō – while claiming it remained the “country’s cheapest and most attractive option for new, renewable, baseload electricity generation”.

This was so it could assess the impact of “Covid-19 and the potential exit of NZAS (New Zealand Aluminium Smelters Ltd)”.

Earlier this year Rio Tinto threatened it would close the smelter in August 2021 unless it could get an agreement on electricity transmission charges by the end of December, but on Monday Labour leader Jacinda Ardern announced that, if elected, the party would seek a deal to keep the smelter open for a further three to five years.

Prime Minister Jacinda Ardern and Energy Minister Megan Woods talk to Southland leaders about the Labour Party's Tiwai Point smelter policy at the Great South offices in Invercargill on Monday.

* Impact on electricity sector of smelter closure 'cannot be overstated', analyst warns

* Green hydrogen for Tiwai? Govt acknowledges interest is out there

* Tiwai Point aluminium smelter to close, 1000 jobs to go

In July Labour’s plans for a $100 million recovery package for Southland to cope with the closure were torpedoed by New Zealand First which wanted a 20-year deal to keep NZAS running.

In a release on Tuesday Contact chief executive officer Mike Fuge confirmed work on Contact’s Tauhara geothermal project was ready to restart.

The Tauhara geothermal field north of TaupÅ already contains the Te Huka Geothermal Power Station which Contact Energy opened in July 2010.

The Labour announcement demonstrated broad-based political support for an orderly transition to a post-Tiwai world, he said.

“There remains a strong desire to help secure the financial sustainability of the unique low-carbon smelter at Tiwai, and retain the more than 2,500 jobs in the region over the medium term.”

The shift in the political framework meant the company could resume readying Tauhara for potential investment.

“We know the Tauhara geothermal field is world-class and it is the most attractive new renewable project in New Zealand, with the advantage of providing baseload generation too. We believe it can lay the groundwork to support New Zealand’s increased renewable electricity needs over the next decade.”

He said any potential decision to invest in Tauhara would consider appropriate capital management, including Contact’s dividend policy which was currently under review.

Fuge said the announcement of a rapid NZAS exit was an unwelcome surprise for many stakeholders, but it had also provided the catalyst for new industries to think about setting up businesses in New Zealand, and seen existing industries re-examine electrification opportunities.

“We won’t be sitting back – the news of the increased likelihood of an orderly transition period does not diminish our enthusiasm for helping decarbonise New Zealand’s economy.

“We now have time to work with existing and new customers to build a smooth path to a lower carbon future.”

Contact’s $40 million appraisal work for the Tauhara project which it completed in June involved the drilling of four wells which it said had secured the equivalent of 75MW of high-temperature production fluid.

The company has selected Sumitomo Corporation as the preferred construction partner for a 150MW power station development at the base of Mout Tauhara and signed an early works contract allowing progress on the design of the project prior to any final investment decision.

New Zealand construction company Naylor Love has partnered with Sumitomo for the civil engineering components of the project, and Fuji Electric will supply the steam turbine.

The announcement of Labour's policy on the smelter could also put Meridian Energy's investment in its proposed 41 turbine Harapaki wind farm north-west of Napier back on track.

A Meridian spokeswoman said there seemed to be “broad political consensus” around the desirability of delaying the smelter's closure.

Meridian had “deferred its investment decision on Harapaki” but was continuing to assess that in light of developments, including those in regard to the smelter, she said.