After announcing it would close in 2021, as part of negotiations to get cheaper power until 2024, the owners of the Tiwai Point aluminium smelter now want to stay longer. Photo / Gregor Richardson
After announcing it would close in 2021, as part of negotiations to get cheaper power until 2024, the owners of the Tiwai Point aluminium smelter now want to stay longer. Photo / Gregor Richardson
Meridian Energy says it wants a long-term commitment from Rio Tinto if the mining giant wants to keep the Tiwai Point aluminium smelter open beyond 2024, as it continues to plan for the closure of New Zealand's largest electricity user.
New Zealand's largest electricity generator announced flat first-half earnings forthe six months to December 31 on Wednesday, with earnings before interest, tax, amortisation and fair value adjustments (ebitdaf) of $394m, down $1m from the same period in 2020.
The results included lower revenues from the aluminium smelter in Southland, after Meridian cut a new deal with its majority owners Rio Tinto at the start of 2021, which swapped cheaper electricity for a commitment to keep the smelter open until the end of 2024.
Meridian, which owns the Manapouri Power Station (which was built to supply the smelter) is highly exposed to Tiwai Point's closure, with only a fraction of the electricity currently able to be exported to other parts of New Zealand.
Earlier this month Rio Tinto issued a statement saying it wanted to remain open beyond 2024, with analysts saying the smelter was likely to be highly profitable.
Contact Energy - which is also exposed to the closure of the smelter - said last week it expects the smelter to remain open.
Meridian Energy chief executive Neal Barclay says the company is planning for a future that does not include the smelter. Photo / Doug Sherring
Meridian chief executive Neal Barclay told analysts that while Rio Tinto appeared to be making a "genuine effort into re-establishing relationships with their key stakeholders", there were currently no negotiations under way between the two companies.
If Rio Tinto wanted to negotiate, Meridian was interested, but it would need to be prepared to pay a fair and enduring price for electricity, be prepared to offer seasonal flexibility and "demonstrate proper environmental responsibility" Barclay said.
The company would also need to provide a "long-term commitment" to New Zealand.
"The overhang on our industry of whether the smelter is going to close or not becomes even more intolerable as we forge towards a zero-carbon grid," Barclay said adding that the Southland wind resource was "exceptional and underdeveloped" and could contribute to economic growth if the market had confidence in electricity demand in the region.
Asked if he would accept a shorter extension, Barclay said "10, 15, 20 years is not unreasonable to expect them to ask for".
Meridian has been engaged in a wide range of projects to find demand to replace the load currently used by Tiwai, including electrification of process heat, data centres and a possible large-scale hydrogen project in conjunction with Contact Energy.
If Rio Tinto wanted to open negotiations, as part of a long-term move to reduce its carbon profile, Meridian had some firm bottom lines.
"That will only happen if you commit to a long-term contract, so there cannot be any of the conversations where you get out with only one or two years' notice," Barclay told the Herald.
"It's too disruptive for our sector. You're either in or you're not."
Meridian believed it was possible that it could support both large-scale hydrogen production and the smelter because of the highly flexible nature of hydrogen production to back off when hydro storage was low. This would require both new wind farms in Southland and demand response from the smelter.
Analysts do not expect any hydrogen plant to be fully operational until at least 2028, meaning there was a scenario where it may be worthwhile for Meridian to offer Rio Tinto a short contract negotiation.
Barclay said he would "never say never" when it came to the possibility of a shorter contract. However, he believed if Rio Tinto wanted to keep the smelter open it would be part of a long-term strategy to lower its carbon profile.
He also believed the smelter would run into "all sorts of problems" if it tried to extend the life of the smelter for a short period, as it ran the risk that workers from an already ageing workforce would begin leaving.
Rio Tinto has not yet commented on Barclay's comments.
Meridian's board has declared an interim dividend of 5.85c per share, a 2.6 per cent increase on a year ago.
In January, Meridian completed the sale of Meridian Energy Australia for A$740m (NZ$793m). The company said it expected to report a gain on the sale of $240m for the year to June 30.
"This transaction is an outstanding result for Meridian's shareholders and a testament to the quality of the Meridian Energy Australia business and the employees who have been dedicated to its success," Barclay said.
