The Tiwai Point aluminium smelter in Southland. Photo / NZME
The Tiwai Point aluminium smelter in Southland. Photo / NZME
Meridian and NZ Aluminium Smelters (NZAS) have struck a deal for the Tiwai Pt smelter to reduce electricity demand when the power grid is under stress.
The smelter is easily New Zealand’s biggest power user, taking about 12 per cent of current generation.
The deal will involve Meridian payingNZAS, which is majority-owned by mining giant Rio Tinto, for the power that it does not use over 2023 and 2024.
NZAS had previously signalled the ageing Southland plant would close next year but it could stay on for longer, particularly in light of its low-carbon-emission credentials.
The agreement terminates at the end of 2024, the same date as the smelter’s electricity agreement.
Meridian and NZAS are in discussions about a possible new agreement to kick in after that date.
The power generator, Tiwai’s main supplier, said today’s deal is conditional on approval from the Electricity Authority as it was a “materially large contract”. Meridian would apply for that today.
If approved, Meridian will be able to require NZAS to cut consumption by 15-50 megawatts. The different levels of demand flexibility have different ramp-down and ramp-up requirements.
“This is likely to be valuable at times of hydro shortage or when the electricity system is otherwise under stress, for example over winter peak periods or when generation or transmission is on outage or not available,” Meridian chief executive Neal Barclay said.
“New Zealand needs to build more flexibility into its electricity market and we believe demand response has an important role to play,” he said.
Meridian Energy chief executive Neal Barclay. Photo / NZ Herald
Meridian would pay NZAS a fixed price for each megawatt reduced.
Meridian and NZAS have also agreed to delete from the current electricity agreement the ability for Meridian to terminate the agreement if the smelter’s electricity use falls below 540MW for three months or more.
NZAS chief executive Chris Blenkiron said the move would allow greater security across the power grid.
“We are proud to contribute to greater security across the electricity system by reducing our demand at times when the system is under stress,” he said.
“NZAS has reduced consumption in eight out of the past 10 years and will continue to do so to ensure there is a reliable supply of electricity for New Zealanders when they need it most,” he said.
“This conditional agreement will give Meridian the flexibility it needs to manage demand at critical periods, and we are pleased to continue to play our part as a responsible electricity user,” he said.
Rio Tinto, the Anglo-Australian mining giant, has not been averse to playing hardball with governments and power companies around the world when it comes to securing the best deals for its energy-hungry smelters and New Zealand has been no exception.
In Southland, NZAS’ site remediation and treatment of toxic waste have been hot issues.
Around 10 per cent of Tiwai’s production is used domestically and the rest is exported to Rio’s partners.
Aluminium produced at Tiwai is among the least carbon-intensive in the world.
“Right now – all eyes are on how the world energy sector is grappling with this transition,” Blenkiron said last year.
He said then that the smelter can dial back production to help the grid during a drought or in times of peak demand.
Blenkiron said the next two years would be critical for Tiwai.
The plant has been going for more than 50 years, which is when most smelters reach their use-by date, but Blenkiron said Rio’s Bell Bay smelter in Tasmania has been going for much longer.
“We are still working hard with the generators to find our future, and that’s been the big focus.”
