Jeanette Fitzsimons: NZ could cash in on Rio Tinto move

The smelter at Tiwai Point is one of the more efficient plants in the world and produces exceptionally pure aluminium. Photo / Supplied

Does anyone really believe that Rio Tinto is serious when it threatens to close its smelter if it doesn't get cheaper power?

Having seen it operate at a parliamentary select committee considering the emissions trading scheme, when its Asia-Pacific boss swanned in and put on an amazing piece of theatre threatening closure if there was a price on carbon, I don't think so.

It is very good at threats to get its way and sees us as a small country with few options.

The Bluff smelter is one of the more efficient plants in the world and produces exceptionally pure aluminium, currently at around 5c/kWh. However, in case anyone thinks there is a risk it would be good to consider our options. The smelter was built in tandem with the Manapouri power scheme. It is valued by the electricity industry because it takes base load (continuous) on long term contract.

The 1993 revised contract gave it an additional 60 MW (about 10 per cent of its use) provided that it reduced its consumption by that much when the lakes were low and supply was tight. Rio Tinto has preened itself ever since on its good citizenship whenever this clause is invoked and it saves us from power cuts.

Most New Zealanders don't realise it was a contractual requirement in return for getting more cheap electricity when it was available.

Many have argued that if it were shut down we would benefit from the hydro electricity released. But it isn't quite that simple. First, the smelter uses 15 per cent of our total electricity - a continuous 572MW, sometimes up to 610MW.

That is large enough to destabilise a lot of things. New transmission would have to be built to get an additional 15 per cent to the north where it is needed.

Secondly, we have a glut of electricity at the moment: demand is not rising and new renewable wind and geothermal stations have been consented but are not being built.

This is what is worrying those who want to sell 49 per cent of the generating companies; if the smelter isn't drawing power the price will crash. There is also the social disruption of about 800 jobs lost in Invercargill.

Surely there is a better opportunity here. There are three potlines and a fourth small one. If you close the old ones the pots freeze and they can't be reopened. Let's close one each year and release that power to the grid. The newest line and a bit are capable of a planned shut down without the pots freezing and wrecking the whole plant. Let's offer Rio Tinto a price for that portion (I guess a fire sale price would be appropriate as it can't easily take it away) and run it as a small SOE as part of the electricity system.

When there is ample power the potline runs flat out making and storing aluminium. Every winter if the lakes are low when demand is high, it does a planned shut down and releases the power to the rest of us.

It could flatten the winter peak (though not the daily peak as it can't shut down that fast) and use the stored ingots to continue to meet demand.

Some jobs would be preserved. Some aluminium would continue to be made and sold and supply NZ metal rolling and extrusion and fabrication plants. The closed bits could be cannibalised for parts for many years.

The benefits would be:

About 350-400MW released to the grid would lower prices but not crash the market if every domestic consumer were given a "smelter dividend" - a basic block of cheap power, to compensate them for extreme price rises over recent years.

This would be a real help to families struggling with poverty and cold homes. Additional consumption could cost more to discourage waste. This has been discussed for years as a "stepped tariff" or "progressive pricing". It would also make electric cars more feasible, powered by renewable electricity.

The winter peak would be met by the third and fourth potlines. Fossil generation could be substantially reduced. Huntly, sometimes responsible for 10 per cent of our greenhouse gas emissions, could close with one unit going on stand-by for short-term peaks or outages, probably running on gas. Our system would become much more renewable.

Some additional water could be returned to the Waiau River which is suffering from losing so much. Manapouri sends its water to Deep Cove, starving the river of water it needs for fish breeding.

The remaining potline could be the nucleus of new industries at Bluff, focusing on using the aluminium and generating more jobs.

The challenges would be in building new transmission lines north. This would cost, but Transpower has said it is quite feasible. It should publish plans to do this now. It would be the best bargaining chip we could have in the wrangle over the power price with Meridian.

There could also be challenges in the old contract that sold the power to RTZ Power NZ, separate from the smelter. We have to ensure it doesn't still own that power if the smelter closes, or there will be no benefits for us.

Managing the seasonal effect on employment in Southland would be another challenge, but better than no jobs. You can't store electricity. You can store some water from hydro stations but there are limits to how much. You can easily store aluminium.

Oh, but I forgot - we are not allowed to plan the electricity system any more.

* Jeanette Fitzsimons is a former Green MP and party co-leader.