Stakeholders in the electricity sector and across Southland are celebrating the extension of the Tiwai Point aluminium smelter’s lease on life.

The smelter, which was slated to close from the end of August, will now remain open until December 31, 2024. The deferred closure is a result of a deal between Meridian Energy and the smelter’s owners, the multinational mining company Rio Tinto.

The prospective near-term shuttering of Tiwai Point, also known by the initials NZAS (for New Zealand Aluminium Smelter), had paralysed Southland’s economy and the electricity sector with uncertainty. The new closure date was greeted by Finance Minister Grant Robertson as “welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed to working on a managed transition with the local community.”

Dealmakers pleased

Robertson wasn’t the only person celebrating. Energy Minister Megan Woods said she was hopeful the time would allow the Government to transition Southland’s economy away from being so reliant on the smelter and to find a potential replacement industry to operate on the site.

“The strong relationship between the Government, local authorities and the Southland business community means we are in a good position to map out a transition plan which allows for high wage jobs to remain in Southland as the region transitions, while providing new opportunities for economic growth in the region,” she said.

“Meridian’s announcement that it is actively developing new growth opportunities for when Tiwai closes, including process heat, IT infrastructure and green hydrogen, highlights the opportunities for high-paying jobs that the Southland region has as the transition is made.”

Meridian chief executive Neal Barclay said in a statement that, “We have worked hard to provide solutions that we believe were of lasting value to the Smelter and acceptable to our shareholders. We’re pleased that Rio Tinto has accepted this offer, which will now provide certainty for the Southland community.”

In addition to preserving the regional economy, the decision allows the Government time to sort out what will happen to the hundreds of megawatts of electricity that the smelter currently uses and to negotiate a solution to the impasse over what to do with NZAS’ toxic waste.

Transmission pricing still on the table

The exact terms of the deal are unclear, but Rio Tinto has long pushed for cheaper power prices to offset the increased amount it pays for the cost of transmission. 

As it stands, the cost of upgrading the national grid is distributed evenly across power users. Since Tiwai Point uses about 12 percent of the country’s electricity, the smelter pays about 12 percent of the cost of any grid upgrades. That occurs even for recent costly upgrades to the grid in Auckland and Northland, which have no impact on the smelter whatsoever.

The Electricity Authority, which regulates the electricity market, has finally wound up a 10-year process to redesign these charges so those who benefit most from grid upgrades pay for them. These changes would save Tiwai Point $10 million a year, but aren’t scheduled to come into effect until April 2023 – far too late to benefit the smelter or incentivise it to delay its exit.

To compensate, Rio Tinto had previously pushed Meridian for a 33 percent reduction in the price of power, which the energy company rejected at the time.

Despite winning a new deal with Meridian, NZAS’ owners indicated in a statement that they were still pursuing a transmission pricing discount, saying, “discussions with the New Zealand government are progressing in relation to their commitment to address the smelter’s high transmission costs”.

Southland rejoices

Contact Energy announced on Thursday that it was also involved in the deal, supplying Meridian with 100 megawatts of baseload electricity through the end of the new contract with the smelter.

“We are pleased to have played our part in helping secure the financial sustainability of the unique low-carbon smelter at Tiwai and retain the 1000 high-paying jobs in Southland and the 1600 associated contractor and supplier roles too,” Contact CEO Mike Fuge said.

Southland officials and union reps also celebrated the decision. Graham Budd, the CEO of Southland’s regional development agency Great South, told the Otago Daily Times that the preservation of the thousands of jobs dependent on the smelter was crucial.

E tū negotiator Joe Gallagher told the paper that “everyone is happy”.

Invercargill MP Penny Simmonds, a member of the National Party, said the deal was good news.

“Tiwai Point is an important part of Southland’s economy and it is vital to have this certainty for the next four years,” she said.

“This extra time creates an ideal opportunity to work through a transition to new options for Southland and the energy industry. There are a number of new opportunities being discussed around hydrogen, and this extension will create the space to do the business case and take the community along.”

Marc Daalder is a senior political reporter based in Wellington who covers climate change, health, energy and violent extremism. Twitter/Bluesky: @marcdaalder

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