Tiwai Point smelter closure could affect South Island hydro plants

The national power grid would need costly investment if Tiwai Point aluminium smelter closes, but it could reduce New Zealand's reliance on fossil fuels, a report by Genesis Energy suggests.

Genesis Energy, the biggest electricity retailer, has released a short analysis of what it thinks the smelter's closure might mean for the sector.

The smelter's majority owner, Rio Tinto, has started a review of the operation because of its poor profitability, highlighting the high power costs it incurs. It has said the options it will look at include closure.

The smelter consumes about 13 percent of the country's electricity and its closure has raised the prospect of that power coming onto the market, sending wholesale prices lower and leading to possible power station closures.

Genesis chief executive Marc England said his company, being a North Island-based generator, would escape relatively lightly and might even benefit commercially.

"If the smelter shut there would be a lot of power trapped in the South Island and we're predominantly a North Island generator, and we're actually short of energy in the South Island and we have more customer demand so in that case we'd be buying a lot more cheap power on the South Island swap market."

He said generators relying on South Island hydro lakes might be more severely affected.

Getting the surplus power up to the North Island would require significant investment in the transmission grid, notably the Cook Strait links, which is estimated to cost at least $600 million and take five to eight years to complete.

England said a potential benefit of the surplus power would be to accelerate the transition from the use of coal by South Island industrial users to electricity, which would help to lower the country's carbon emissions. He said it might also result in lower use of gas and coal fired generation, such as at Genesis's Huntly plant.

However, he doubted there would be much initial effect on retail power prices.

"So far wholesale prices this year have been 40 to 50 percent higher than last year ... and retail prices generally move slower than wholesale prices ... but if wholesale prices were depressed for a prolonged time then we would expect that to flow through eventually."

England said his gut feeling was that the smelter would stay open.

"There's lots of reasons for it to stay open both from Rio's perspective and New Zealand's energy perspective, so I think a deal will be done."

This article was originally published on RNZ and re-published with permission.

Help us create a sustainable future for independent local journalism

As New Zealand moves from crisis to recovery mode the need to support local industry has been brought into sharp relief.

As our journalists work to ask the hard questions about our recovery, we also look to you, our readers for support. Reader donations are critical to what we do. If you can help us, please click the button to ensure we can continue to provide quality independent journalism you can trust.

With thanks to our partners