By raising the possibility of staying past 2024, Rio Tinto has thrown a wrench of uncertainty into decarbonisation pathways and power company construction plans, Marc Daalder reports
Analysis: When Rio Tinto announced last January that its aluminium smelter would undergo a staged exit and close for good on December 31, 2024, I wrote that it provided "much-needed certainty".
Now, that certainty has gone out the window, with the plant's CEO saying on Tuesday that the multinational "does see a positive pathway for New Zealand’s Aluminium Smelter (NZAS) to continue operating and contributing to the local and national economies beyond 2024".
The move is a continuation of more than a decade of brinkmanship by the mining company. On two separate occasions, the smelter has threatened to pull out of Southland and devastate the regional economy and in both of those cases, it has secured financial relief. In 2013, the National-led government bailed out the smelter with a $30 million cash payment. In 2021, NZAS and Meridian agreed to a sweetheart deal for cheaper power in return for a delay of the smelter's closure date from August 2021 to December 2024.
Both Meridian and the Government have reacted coolly to NZAS' announcement.
The power company, which is majority-owned by the Government, said in a statement to the NZX that "it is not in discussions with the smelter’s owner, NZAS1, about a new electricity contract. The existing contract between Meridian and NZAS ends on 31 December 2024."
Energy and Resources Minister Megan Woods told Newsroom the smelter's act was getting old.
"I am concerned about the 'will they, won't they' dance and the uncertainty that it introduces into the New Zealand market."
On Tuesday, Climate Change Minister James Shaw told Newsroom that the smelter shouldn't get any special deals on the price of power if it wanted to stay beyond 2024.
"The important thing is that they pay a fair price for the electricity that they use. If they do, that then underpins the grid and ensures that you continue to get renewables built around the country and in Southland," he said. As it stands, the rest of the country pays a higher power price to subsidise Meridian's cheap offer to NZAS. The Electricity Authority found in October that households were paying, on average, $200 extra a year in order to cover the cost of the Tiwai deal.
The smelter's exit - or lack thereof - also has important implications for climate policy. It uses about 12 percent of the electricity generated in New Zealand each year and the majority of that comes from the Lake Manapouri hydroelectric station.
Most of the country's climate plans, including the pathways drawn up by the Climate Change Commission last year, involve using that green electricity to power an electric fleet and decarbonised industry. The influx of cheap and renewable electricity could also allow the country's dirtiest fossil fuel stations to shut up shop.
According to the commission, New Zealand will need to build about 12.7 terawatt hours' (TWh) worth of new renewable generation over the next 15 years, some of which would replace a 5.2 TWh drop in fossil fuel power generation. If Tiwai stays open, then another 5 TWh of green electricity could be needed on top of that.
The commission's final advice highlighted the smelter's future as one of the two biggest risks the Government faces in meeting its first emissions budget.
"If the smelter were to unexpectedly stay beyond its currently signalled closure in 2024, this would lead to more fossil fuel electricity generation in addition to the direct emissions from the smelting process," the advice found.
"The continued operation of the aluminium smelter could result in continued baseload thermal generation and new fossil gas peaker plants to meet growth in electricity demand across the economy."
The commission's chief executive, Jo Hendy, told Newsroom, "The smelter staying in operation could result in continued use of gas or coal to meet existing and anticipated growth in electricity demand across the economy. However, if the smelter’s plans are sufficiently certain and publicly shared this could encourage new renewable generation projects to meet electricity demand and minimise use of fossil fuels."
Rio Tinto's announcement is unlikely to offer sufficient certainty.
"There is a need for even slightly more certainty. That was what was holding us back in the past, because it was clear that all the big companies were holding off on their investment decisions [in new renewable generation], so we don't want a repeat of that," said Robert McLachlan, a mathematician at Massey University who regularly writes about climate and energy issues.
In its advice, the commission found that uncertainty around Tiwai's situation would lead to a greater emissions gap than if there were certainty that it would remain open. If the smelter stayed open indefinitely, New Zealand's emissions over the next 15 years would be around nine million tonnes higher than if it closed in 2024. Uncertainty, however, would add another three million tonnes to that total, as power companies potentially delayed investment in new green generation.
Ralph Sims, a professor of sustainable energy at Massey, was hopeful the Tiwai dance wouldn't have too much impact on emissions. Power companies were less likely to wait for the resolution of the smelter's situation than to just bring forward their renewable investment plans.
"They have to hedge their bets. I think this latest announcement from Rio Tinto will probably err them towards investing sooner rather than later, now," he said.
Woods, despite her frustration, agreed that the announcement "doesn't radically alter the plans. We know that in order to achieve our transition, we have to build more generation capacity".
"Regardless of whether Rio stays or goes, we have to increase generation massively."
