Finance Minister Grant Robertson said there were problems in the aluminium market. "As a sector, it has had its troubles." Rio Tinto was having discussions around the world with Governments.
Transpower says it could cost up to $600 million to build its network to shift excess power at the bottom of the South Island further north.
The grid operator says it will "continue to work with its customers and the industry on projects that can expedite the delivery of surplusrenewable electricity northward" after the decision by Rio Tinto to close its Tiwai Pt aluminium smelter next year.
To efficiently move power to the North Island, where there is most demand, a fourth HVDC link would be required.
Transpower would need to upgrade its central North Island network and will now consult major users to assess what future demand could be.
The smelter uses about 13 per cent of New Zealand power supply and could lead to lower energy costs, but a $500m-$600m upgrade of the national grid would result in transmission charges increasing for all the country.
Contact Energy has also warned it may close a gas fuel power station in Taranaki.
The Taranaki Combined Cycle Power Station produces 377MW of electricity.
Contact may also pause work on a smaller geothermal project which is "shovel ready".
Transpower already has committed to complete an upgrade of its grid in the south, the Clutha Upper-Waitaki Lines Project, at a cost of about $100m.
The state-owned enterprise has previously said this would improve electricity supply to Southland during dry periods, and allow additional generation (should it become available) to be exported from Southland.
"Transpower will now assess whether there is an opportunity to progress this work even more quickly than currently planned," grid development manager John Clarke said.
"The departure of the New Zealand Aluminium Smelter presents a number of operational considerations that we will work through in due course."
Consumer NZ says the increase of supply against stable demand should result in lower retail prices for consumers.
"However, as always in the electricity sector, nothing is simple. There are options open to the electricity industry that could see non-renewable generation reduced or switched off, accelerating decarbonisation, but reducing capacity gains," Consumer NZ chief executive Jon Murray said.
Transmission costs are always a factor in New Zealand as generation is situated a long way from demand.
"We would expect Transpower to make that argument in a transparent manner to ensure it is justified and consumers do not unfairly miss out on the benefits of any potential decrease in the retail price of electricity."
Murray said RioTinto's announcement was disappointing, particularly for workers at the smelter and those in the broader Southland community.
A fourth HVDC pole may be needed in any major grid upgrade. Photo / Richard Robinson
Meanwhile, Greenpeace says Rio's exit should result in cheaper electricity for New Zealand households and the chance to swiftly decarbonise transport and industry.
"The Tiwai closure will mean cheaper power for New Zealand households. It also means there is more clean, renewable energy that can be used to power our cars and industries as we move to a zero-carbon economy," Greenpeace executive director Russel Norman said.
It would mean there was more clean, renewable energy that could be used to power cars and industries as the country moved to a zero-carbon economy.
"This will cut climate emissions out of the transport and industrial sectors, while simultaneously helping to reduce New Zealand's current account deficit by cutting the billions of dollars we spend on importing oil for the transport sector," Norman said.
Rio Tinto's departure blew any case for new coal, gas or oil development out of the water.
"The argument for more fossil fuel exploration, extraction and generation is over."
The Government needed to move quickly to develop a plan to deal with the Tiwai closure including ensuring a "just transition" for workers in the region, he said.
"The market isn't going to solve this. We need the Government to manage the transition of both the energy sector and the Southland community through what is a significant time of upheaval."
Norman said the smelter had only survived this long because of massive handouts from the Government, cheap power - subsidised through higher household energy bills - and exemptions in the Emissions Trading Scheme.
"Every few years, Rio Tinto has had the Government and the power companies over a barrel, threatening to leave more than 1000 people jobless if they didn't receive Government subsidies and rock-bottom power prices.
Rio Tinto was blasted earlier this year by Environment Minister David Parker for failure to deal with its hazardous waste.
There were claims the company reneged on a verbal agreement given last week to remove the waste that has been stored in the Southland town of Mataura for the past six years.
The Anglo-Australian conglomerate is the world's second-biggest miner behind BHP.
In May, it was under investigation for destroying two sacred Aboriginal caves in Western Australia.
