Tiwai deal game changer for power industry - Editorial

New Zealand Aluminium Smelter has signed a 20-year deal to keep Tiwai Point operating.

OPINION

The deal between New Zealand Aluminium Smelter (NZAS) and Meridian Energy to keep the Tiwai Point smelter operating for the next 20 years is a game changer for New Zealand’s electricity industry and should also be a boon for consumers.

Two years in the making, the deal will see Meridian, Contact and Mercury supply power to the smelter while at the same time, if there is too much demand on the electricity market, there is a mechanism where the smelter can agree to wind back its usage to ensure there is enough supply for the whole market.

The smelter is New Zealand’s largest power user taking up around 12 per cent of the electricity market.

Kiwis have already felt the power supply crunch with the unexpected cold snap in early May when consumers were asked to cut back on electricity use or face potential power outages.

With the rise in electric vehicles, data centres and AI, the demand for power is only going to grow. New Zealand has a huge advantage in that most of our power is generated through sustainable methods through hydro or thermal generation.

Big businesses like NZAS majority owner Rio Tinto and data centre builders Microsoft and Amazon have recognised that and are taking advantage of it to make green aluminium and power their data centres through clean energy.

New Zealand’s power generators are investing more in building solar and wind farms to meet growing demand but it requires big investments on their part. The Tiwai deal gives the sector certainty and the ability to invest more in building plants knowing there will be ongoing demand.

The deal locks in NZAS for a minimum of eight years with a two year notice period for contract negotiations so that gives at least 10 years. There are also stiff penalties if NZAS pulls out of the deal.

If demand on the electricity market is high there is a clause in the contract which means Meridian will pay NZAS to reduce usage to ease pressure on the market. That’s good news for consumers.

In recent years high demand for power and lower generation through low lake levels has resulted in Genesis Energy needing to fire up the Huntly Power Station and burn imported coal to fill the gap.

That’s not an ideal situation and one many Kiwis would be keen to see the back of.

It will take time to build more renewable generation but this deal gives the power companies the time to do so. It’s also a win for the people of Invercargill and Bluff who work at the plant and their families.

It would have been a big blow to the Southland economy to have such a large employer pull out of New Zealand, especially at a time when Kiwis are already under financial pressure and the job market has tightened substantially. Southland punches well above its weight when it comes to regional economies.

The cost of the deal has not been spelled out but analysts believe it will weigh on the profits of Meridian in the short term. That seems a small price to pay for certainty for the industry and power users.