Aluminium smelter starts talks with power firms to keep smelter open beyond 2024

Thursday, 28 July 2022

The Tiwai aluminium smelter has agreed to reduce its electricity use if the system is under stress.

The company that runs the Tiwai Point aluminium smelter has announced it has begun “exploring potential pathways” with electricity generators that would see the smelter stay open beyond the end of 2024.

New Zealand Aluminium Smelter (NZAS) chief executive Chris Blenkiron said it understood the importance of providing certainty to its staff and the people of Southland.

“There is lots of work to do, but we believe there is a positive pathway to securing a long-term presence for the smelter,” he said.

A spokesman for the company said it was “early days”.

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NZAS will need to arrange a new power supply contract for the smelter in order to stay open beyond its current scheduled closing date at the end of 2024.

Great South chairman Ian Collier said the Southland region needed certainty around the smelter's future.

“Until we have certainty as a region as to what the future of the smelter is, that impacts on other decisions that need to be made [for the region].'

The electricity price negotiations between the smelter and power companies would be different this time, Collier said.

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'There's an end date for the current supply contract so we need those parties to get around the table and negotiate the future of the smelter … so decisions can get made and we can move on with or without the smelter.'

The smelter hired about 1000 people and was a vital player in Southland and it’s workers and the many businesses associated with it and the region as a whole needed to know what its future held, Collier said.

Invercargill Mayor Sir Tim Shadbolt said the smelter’s “hugely significant announcement for the region” meant it was seriously looking to its longer term viability.

“The economic benefits to Southland of the annual $400 million it contributes to the local ecomony, while it remains open, can not be understated. '

In 2020 NZAS terminated a contract with its major power supplier, Meridian Energy, that had guaranteed it power at a price of about 5.5 cents per kilowatt hour until 2030 but, the following year, it struck a shorter-term deal at a cheaper price believed to be about 3.5c/kWh that secured it power until the end of 2024.

Meridian Energy said in a statement to the NZX that it would engage with the smelter and expected to be involved in contract negotiations.

Sources have suggested Meridian could be more comfortable with the smelter going to the market for a new power deal, rather than immediately beginning direct negotiations with the company.

That is especially after the Electricity Authority expressed concerns in October that their current agreement was distorting power prices and may have resulted in consumers’ power bills being $200 a year higher than they would otherwise have been.

NZAS is widely expected to need to pay more for power than it was paying under its original contact terminating in 2030 in order to secure a fresh supply deal.

Aluminium prices have dropped sharply from just under US$3800 a tonne in May to trade at US$2470 a tonne but remain substantially above the price the metal was trading at when the smelter’s majority owner, Rio Tinto, was threatening an earlier closure.

Blenkiron reiterated that irrespective of whether any agreement was reached to extend the operations of the smelter, it would remediate the site.

“Work is already underway to remove waste, improve our environmental performance, and continue building enduring relationships with our community,” he said.

Southland Chamber of Commerce chief executive Sheree Carey said she was pleased remediation of the site was taking place no matter what the power outcome was.

Carey also noted the uncertainty for the plant's workers and associated businesses as Tiwai’s future remained in the air. However, it had given the rest of the region time to work on diversifying into different industries, she said.

The future of Tiwai Point appeared in jeopardy in 2020 after Rio Tinto announced plans to shut the smelter down in 2021, citing expensive electricity costs before it announced it had secured the cut-price power deal from Meridian and Contact Energy to keep it open for another four years.