After more than a year of hesitancy, the announcement on Thursday that the Tiwai Point smelter will close on December 31, 2024 provided much-needed certainty.
For more than a decade, the smelter’s multinational owners, Rio Tinto, have threatened to pull out of the country, devastating the Southland economy, if they can’t get cheaper power prices or subsidised transmission costs. A previous tantrum in 2013 saw the government fork over a $30 million direct subsidy.
When Rio Tinto announced in October 2019 that it was undertaking a “strategic review” of the smelter’s viability, with the option of closure on the table, the coalition government ruled out direct subsidies but wouldn’t rule out other means of keeping the major industrial player afloat. Shortly after NZAS – as the smelter is sometimes known – announced in July of last year that it would close on August 31, 2021, the government said it was in negotiations to keep the smelter open for longer.
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This volatility has plunged the electricity sector and the Government’s plans for a just transition in Southland into uncertainty. Given that NZAS uses 12 percent of the country’s electricity, its abrupt exit could defer for several years the need to build new electricity generation while simultaneously requiring sudden and significant investment in transmission lines to bring power from the Manapouri power station in the South Island to urban centres in the North Island.
With the new staged exit, however, much of that planning becomes much easier.
The transition and the implications for our electricity system are inter-linked. There’s a possibility that the Government decides the best transition involves a new, electric-powered industrial site where Tiwai Point now stands. That could look like a data centre or a facility for the production of green hydrogen to help decarbonise heavy road transport.
Already, a prospective $700 million data centre near Invercargill is hoping to soak up some of the Manapouri electricity after Tiwai exits and Meridian and Contact Energy are investigating the possibility of hydrogen in the region.
At the same time, Transpower is continuing work on the Clutha Upper Waitaki Lines Project, which will connect up the massive transmission lines between Manapouri and Tiwai to parts of the grid with an easier path to the North Island. If enough renewable electricity freed up from Tiwai is channelled north, officials estimate that half a million tonnes of carbon dioxide emissions or more could be averted every year, by reducing the need to fire North Island-based fossil fuel electricity generators.
That benefit could be enhanced even more if the Government takes a different tack for Southland and allows the vast majority of Manapouri’s electricity to be exported to Auckland. In a 2020 report, Transpower estimated the country would need to build 68 percent more electricity generation by 2050 to meet growing demand from population growth and the electrification of transport and industrial process heat.
Under that scenario, building new renewable energy generation isn’t a choice – it’s a must if New Zealand is to avoid running out of power.
The scale of the investment needed is massive. Around 40 new massive generation and battery projects will be needed in just the next 15 years at a cost of $8-10 billion, Transpower found.
“To put this in perspective, as much generation will need to be built in the next 15 years as was built in the past 40 years,” the report stated.
However, the staged exit of Tiwai Point between 2021 and 2025 was also modelled. In this scenario, electricity demand grows only by 55 percent, somewhat alleviating the need for new generation.
While the Government will be taking the impact on the electricity sector into account as it engages in transition planning, it should also be looking to the halting transition from oil and gas production in Taranaki. Despite celebratory press releases and the creation of a new energy centre, stakeholders in the region say the Government hasn’t done enough long-term planning and appears to be funding projects in a scattershot manner instead of a strategic one.
If the electricity sector and the people of Southland are to benefit most from the certainty that the deal between Tiwai and Meridian has given them, they must also have a clear roadmap from the Government about what the transition will look like and where Manapouri’s electricity will go.