In a letter to the Government late last year, New Zealand's only aluminium smelter said it believed it could operate for another 15 years beyond its current 2024 closure date
The Tiwai Point aluminium smelter's multi-decade "will they, won't they dance" may be about to end. In a letter to Government ministers in late November, released to Newsroom under the Official Information Act, the smelter said it saw a path for it to remain open until 2039 – a 15-year extension from its current closure date of 2024.
"NZAS [New Zealand's Aluminium Smelter] believes there is sufficient volume across generators' portfolios to develop a long-term, multi-supplier power agreement framework that will enable us to operate through to 2039," the smelter wrote.
The letter, addressed to Finance Minister Grant Robertson and Energy and Resources Minister Megan Woods, confirms some of the details of a Forsyth Barr analysis released around the same time. The author of that analysis told Stuff it wasn't based on any inside knowledge, but he had also picked 2039 as an end-date for a new contract as well as accurately sketching out the shape of the contract being negotiated.
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Chris Blenkiron, the chief executive of New Zealand's Aluminium Smelter (NZAS), has previously said he is working with multiple energy companies to extend the smelter's operations beyond 2024. Currently, the smelter receives almost all of its power from Meridian and a bit from Contact Energy.
The letter says the power price paid by the smelter would change as the price of aluminium fluctuates, so generators would reap higher returns when aluminium carries a high price. It would also include provisions requiring NZAS to reduce electricity demand during dry years and demand peaks. As the single largest electricity user in the country, the smelter has significant sway in the power market.
Officials, briefing Woods ahead of a meeting with the chief executive of the smelter's multinational owner Rio Tinto in December, said NZAS may look to ink power-purchase agreements (PPAs) with generators. These long-term contracts are common overseas but have yet to be used much in New Zealand. They are considered to be an important part of de-risking investment in new generation, because they ensure at least some of the power will have a guaranteed buyer. For the purchaser, certainty of price and supply is a welcome benefit.
"Having a large load such as NZAS operating in the PPA market will significantly increase demand in and maturity of the New Zealand PPA market," officials wrote.
NZAS wrote in its letter that it expected it could incentivise the build of 540 megawatts of new renewable generation with PPAs, which would work out to around 216 megawatts supplied to the smelter 24/7 after accounting for intermittency.
A 15-year contract would put decades of uncertainty about its fate on ice, at least for a while. NZAS threatened to pull out of New Zealand in 2013, earning a $30 million payment to keep it open. In 2019, it announced a strategic review of its future amid low aluminium prices and the Government said it wouldn't receive any new handouts.
In 2020, NZAS announced it would close the next year, but Meridian and the smelter managed to sign a deal at the start of 2021 to extend its life through to 2024. That deal involves a below-market power price for Tiwai, which the Electricity Authority estimated raised the cost of household power bills by $200 a year.
At the start of 2022, while the Government worked on a transition plan for Southland once the smelter leaves, it announced it was seeking to stay open beyond 2024. Woods criticised NZAS for its "will they, won't they dance" introducing uncertainty into New Zealand. In May last year, she took another crack, saying the uncertainty is "not good for New Zealand or Southland".
In a statement to Newsroom, Woods said the smelter needed to urgently clarify its plans.
"Securing an electricity contract is a commercial matter for Rio Tinto and NZAS. However, I urge them to make and communicate their decision as soon as possible. It is nearly three years since this last round of closure discussions happened. This is extremely hard for the local community. The people of Southland need certainty."
She added the Government has announced plans to end the region's dependence on the smelter with investment in hydrogen and aquaculture.
If it does extend its stay, the smelter added it would look to invest in decarbonisation technologies as well. Process improvements could cut greenhouse pollution by 3 percent in the short term and replacing fossil fuels with green hydrogen on-site could reduce another 13 percent.
Tiwai expects its green hydrogen demand could amount to 7500 tonnes a year, supporting the development of 50 to 125 megawatts of electrolysers.
The biggest green opportunity is in new technology to cut CO2 emissions from the smelting process, which is on the way but not yet in commercial use. That could reduce the smelter's annual emissions by 700,000 tonnes – a similar order of magnitude to the climate gains from the Government's recently announced $140m investment in NZ Steel.
NZAS may also look to work with Ngai Tahu and the Government to expand Rio Tinto's global offsets programme to New Zealand – likely through planting native trees.
In the tail end of its letter, it argued smelting aluminium contributes more to GDP, employment and energy demand than other potential power users. Data centres and green hydrogen exports – both mooted as possible replacements for NZAS – contribute less than a third as many jobs and less than half of the GDP boost, it said.
"Green aluminium export to Japan from New Zealand also has a much lower carbon footprint than H2 for the same electrical capacity. Given this, the smelter will continue to be the cornerstone of green industry in the region while the market for these new industries mature and become more commercially viable over time."
