The Tiwai Point aluminium smelter, near Bluff. Photo / Mike Scott
The Tiwai Point aluminium smelter, near Bluff. Photo / Mike Scott
New Zealand’s biggest power user, NZ Aluminium Smelter (NZAS), is set to become its biggest battery.
Power generator Meridian Energy’s and NZAS said they had struck a deal that will see the smelter cut back on production when the power grid is under stress.
The parties said the agreement hadgone unconditional after gaining the approval of the Electricity Authority (EA), an independent Crown entity.
Under its terms, NZAS will reduce consumption of electricity at its Tiwai Point smelter by up to 50 megawatts - about the same amount of energy consumed by 50,000 homes, when requested by Meridian.
Tiwai is by far the country’s biggest power consumer - taking about 12 per cent of its total power generation.
The agreement means New Zealand will likely need to burn less coal when a dry spell causes the hydro lakes to drop, Meridian chief executive Neal Barclay said.
When NZAS reduces consumption of electricity, that power can effectively be made available to other users.
“The net result is likely to be a reduction in carbon emissions from burning less coal and, just as importantly, a reduction in the overall cost of the electricity system, which ultimately reduces costs to customers,” Barclay said.
NZAS will be compensated for lost production when the company is asked to reduce consumption.
Barclay said the arrangement was a good day for the system.
“These types of arrangements will help us transition to a low-carbon economy far more efficiently than building a whole bunch of infrastructure to manage the transition,” he said.
Today’s deal is separate from Meridian’s talks with NZAS over the smelter’s future power contracts.
The current contract runs out at the end of 2024. After that, the future of the ageing smelter remains uncertain.
Meridian, 51 per cent owned by the Government - generates its power solely from renewable sources - wind, hydro and solar.
Barclay said Meridian had been working hard with NZAS to arrive at an agreement to cover the times when the system is under stress.
“In a sense, Tiwai has become a battery in its own right,” Barclay told the Herald.
Meridian Energy chief executive Neal Barclay. Photo / Supplied
“That’s exactly how we are thinking about it.”
In the past Meridian, when confronted with a dry patch and low lake levels, has dialled back its hydro generation and has had to call on coal and gas-fired generation to keep the system in balance.
“This agreement means that we can dial back the hydro, and dial back the demand, and the system stays in balance, but with less carbon emission and with lower costs overall as well.”
Barclay said the demand response agreement was an example of how the country can make the transition to zero or low carbon emissions.
A similar, informal, arrangement had been in place with NZAS and used over eight of the last 10 years during dry spells.
“To actually put this in place, ahead of when we need it, means that we know that it’s there and we know that we can rely on it,” he said.
“It enables not only Meridian, but the whole system, to operate effectively.”
Under the arrangement, Meridian needs to give NZAS three days’ notice before the smelter starts cutting production.
As it stands, the system looked to be in good shape for the winter, thanks to high hydro lake levels, Barclay said.
“But what we have seen more and more of is that the seasonal weather patterns seem to be changing.”
The droughts that Meridian has had to manage over the last few years have typically been in the lower South Island, over summer and spring.
The smelter’s majority owner, Anglo-Australian mining company Rio Tinto, has in the past made a name for itself as a tough negotiator but NZAS has of late signalled a change of approach.
On that score, Barclay noted Meridan had been unable to do a demand response deal with NZAS previously “so this is a really good development”.
In the meantime, talks about supplying the smelter with power, post 2024, were continuing.
“The key thing is that we are still talking - still making progress - but we have a long way to go, so it’s not a foregone conclusion as to whether it shuts down or whether it continues.”
NZAS is trying to put together a portfolio of energy contracts.
Meridian will be the biggest supplier, but NZAS is also dealing with other generators to meet total capacity needs.
NZAS chief executive Chris Blenkiron said NZAS had, on an ad hoc basis, cut back on production in the past when the system became stretched.
“This the first time that the power will proactively sit with the generator, who can then call on it.”
Making aluminium is a complex process and Blenkiron said the deal does create some operational challenges for the smelter.
“I believe that Tiwai is New Zealand’s largest battery and this is an example of how this comes to life,” he said.
“As we look forward and we push up against 100 per cent renewable, I think it demonstrates that heavy industries like ours need to be thinking about the energy system,” he said.
“Different industries need to respond differently but for us, this sends a strong signal that Tiwai does want to play a role in the system going forward,” Blenkiron said.
The demand response agreement terminates on December 31, 2024, the same date as the current electricity agreement.
