The NZAS smelter at Tiwai Point, Southland.
Rio Tinto once considered closing its aluminium smelter at Tiwai Point and the Southland plant was at one stage prepared for sale.
Now, the Anglo-Australian metals and mining behemoth is all-in.
In late May, Rio’s New Zealand Aluminium Smelters (NZAS) signed 20-year power supply agreements with Meridian, Contact and Mercury, ending years of uncertainty as to the plant’s future.
Included in the ground-breaking deal were demand response agreements, which means the smelter – if called upon – can dial back on production if there is a shortage of power in the grid.
As Tiwai consumes 12% of New Zealand’s power supply, the demand response deals mean that it can act as a de facto battery if the system comes under stress.
The deals mean Tiwai can turn down the power required for the plant by 25 megawatts (MW) to 185MW.
For perspective, 185MW is enough to run Otago.
Aside from its 20-year power deals, Rio’s apparent indifference towards Tiwai looked to be well and truly over when it announced that it had bought the 20% of NZAS that it did not own from Japan’s Sumitomo.
All this from a company that has been no stranger to playing hardball with suppliers and governments when it comes to negotiating new contracts for its power-hungry smelters.
And it’s not as if aluminium prices are racing away.
At around US$2500 a tonne ($4079), current prices would have been deemed as healthy in days gone by, but like many businesses, inflation – in Rio’s case the higher cost of raw materials – has eaten into margins.
So why the apparent sea change?
Rio’s man in New Zealand, NZAS chief executive Chris Blenkiron, says signing a 20-year power deal and taking out Sumitomo’s stake should offer a clear message.
Blenkiron says the motivation for staying on is simple.
“If you are making an electric vehicle, it is with an aluminium frame because of its weight compared with steel.
“If you look at the resources the world needs for this energy transition, aluminium is a core part of that.
“And if you look at the next 20 years, our view would be that demand will continue to go up because it is what is needed as the world transitions.”
Rio hasn’t always been so bullish.
Up until recently, the company was looking at closing Tiwai at the end of this year and had threatened to shut it down several times.
The plant was at one point rolled in with Rio’s other smelters in Australia to form Pacific Aluminium, in a move seen as a precursor for a possible sale.
Blenkiron says Tiwai is now definitely back in the fold.
“Some of the things that Rio has done over the last six to 12 months show that it’s really backing aluminium as part of its portfolio, which is great for Tiwai.
“Rio is one of the world’s largest energy users – outside of China – and the stuff that we make, produce or mine is critical to the energy transition.
“Aluminium is a key piece of that and it’s also one of the most intensive manufacturing operations that requires electricity.
“That’s why Tiwai is back in the fold, and why having green aluminium is so critical.”
As the push and shove over Tiwai has gone on over the years, Blenkiron said the fact that the plant has green credentials has tended to get lost.
Tiwai – which draws much of its power from the giant Manapouri power station – is one of the lowest carbon-emitting smelters in the world.
At two tonnes of carbon per tonne of aluminium, Tiwai is well short of the global average of around 12 to13 tonnes.
Aluminum is New Zealand’s 10th-biggest export.
The metal is the country’s biggest export to Japan, and the biggest to South Korea – all transported by Rio’s own ships.
Tiwai’s relatively low carbon footprint has also come down over the years – from four tonnes in the 1990s – due largely to Rio’s investment in processes.
Now that the Tiwai deal is out of the way, and the previous Government’s Lake Onslow pumped hydro project is on the scrap heap, two big barriers have been removed for New Zealand’s power planners.
Soon after it was announced, Mercury New Zealand confirmed that it would proceed with the expansion of the Kaiwera Downs wind farm near Gore.
Once completed, the 155MW project will generate enough electricity to power the equivalent of about 73,000 homes per year.
Blenkiron says access to “green electrons” will be huge for the economy and the country.
“The world is chasing green electrons right now.”
Rio is also exploring ways to make the smelting process completely carbon-free.
The multinational plans to install carbon-free aluminium smelting cells at its Arvida smelter in Québec, Canada, using the first technology licence issued by the ELYSIS joint venture. Rio will design, engineer, and build a demonstration plant equipped with 10 pots.
Blenkiron says the ability to have a “no-carbon” industry or low carbon industry in New Zealand would open up a huge opportunity.
Now that NZAS has, in a sense, become an energy player in its own right, Blenkiron has his views on where the sector stands right now.
“What we were able to put together with the demand response deal helps the sector as a whole – and that helps the gas sector, which I think is in trouble.
“As we push up against 100% renewables, or close to it, you still need ways to ‘firm’ that through the intermittency that exists with wind, solar and the like.
“Having gas peakers in the system looks like it’s going to be very important to get through the days when the sun is not shining and the wind is not blowing.
“But equally, having a demand response like ours goes a long way towards firming that up.”
While uncertainty over Tiwai has tended to hold new projects back, so too has the now-discarded Lake Onslow pumped hydro proposal.
“If you look at the demand response deal that we did, and if you compare that to what the Parliamentary Commissioner for the Environment [PCE] was saying about Onslow, it covers about 20% of what Onslow was proposed to cover.
“And it’s not going to cost the taypayer $20 billion to build, plus the deal is live today.”
Blenkiron, after the public relations disaster of potentially toxic ouvea pre-mix stored at Mataura, Gore, is keen to emphasise the company is taking its clean-up commitments seriously.
All the company’s pre-mix has been brought back to the site at Tiwai and exported for use in the cement industry around the world – one year ahead of schedule.
Getting rid of the 200,000 tonnes of SCL – discarded inner liners from cells used in the smelting process – is a work in progress.
The company has three memoranda of understanding with Ngāi Tahu, covering remediation and other matters.
At 50 years of age, Tiwai is no spring chicken, but it’s around the middle of the pack globally.
Bell Bay – Rio’s smelter in Tasmania – is 20 years older than Tiwai.
“Tiwai is in good nick. We have continued to invest in that plant,” Blenkiron said.
A few years back, the company invested tens of millions of dollars in upgrading its switch yard – where power meets the smelter.
“We have continued to invest in it, and we are confident that it’s got lots left in it yet,” Blenkiron said.
Unsurprisingly, the reaction to the deal from Southland was positive, given the province has for years lived under the cloud of a possible closure of the smelter – which employs 1000 people and forms a key plank of the local economy.
Sheree Carey, chief executive of the Southland Business Chamber, said the deal was a “momentous occasion” for Southland.
“With this announcement, 2024 becomes the defining year that sets the course for Southland’s next 20 years, and we are confident that the future is bright.”
Blenkiron said the “underlier” of bringing Tiwai back into the fold was Rio’s strategy on energy transition.
“The strategy became very clear that we had to focus on energy transitions. And with aluminium being a key material for that, it became clear that if we are going on in on energy transition, then aluminium has got to be part of that.”
In addition to its Tiwai deal, Rio is looking at how it powers Boyne Smelters in Queensland – Australia’s second-biggest.
Blenkiron appeared keen on restarting line four at Tiwai – which shut down during Covid – but that would mean a separate supply agreement for the 50MW required.
“We would love to be running that,” he said.
“I think it would be a good thing – good for the balance of trade and good for jobs.
“I get the sense that the generators are up it but, to be clear, we have not started a conversation.”
Blenkiron points out that Rio, like New Zealand, has committed to being carbon-free by 2050.
The trouble is there is no way, yet, to make aluminium without carbon emissions, although Tiwai comes close.
May’s power deals meant a big cultural change for NZAS.
“Heavy industry has always been asked to run with as much stability as possible to eke out every tonne,” Blenkiron said.
“The value of Tiwai going forward will be for the plant to come off and on as the country needs it, and we are already one of the best in the world at doing that.”
Completely shutting down a potline is more tricky than simply turning down the power, but it can be done.
“On the call, we either dial down or cut out cells to stop production,” Blenkiron said.
“It’s easier to stop than to start.
“Cutting them back in – and getting the heat back in the cell – is a difficult process and it is labour-intensive.”
Blenkiron says the demand response deal is one of the largest, if not the largest, of any such deals anywhere in the world – certainly as a proportion of the national grid.
It means that up to 4% of New Zealand’s electricity demand is able to be turned off.
A call of that magnitude would arise from a severe stress event, like a drought.
As a group, Rio is keen to put its public relations setbacks behind it.
Internationally, matters sank to a new low in 2020 when Rio destroyed Juukan Gorge in Western Australia – home of culturally significant caves over 60,000 years old.
So, with the Tiwai deal, has the Rio mindset changed?
“For us, this was about trying to resolve a range of very complex problems,” Blenkiron said.
“It’s been clear that for us to operate in New Zealand and around the world, we have to be operating in communities that want us to be there.
“That means operating as a partner.”
Rio may in the past have “misstepped”.
“We have to listen more closely and work in partnership with the community – the generators and the business community,” Blenkiron said.
‘You have to listen closely to find out what people need.
“What they needed from us was ironclad commitments on remediation, action and progress,” he said.
“And that’s what we have delivered.”
- Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
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