Tiwai enters into deal with Meridian

Gretta Stephens.
Gretta Stephens.
Tiwai Point aluminium smelter's immediate future is assured after owner New Zealand Aluminium Smelters clinched a revised electricity contract with Meridian Energy, which in turn has deals with other suppliers.

Meridian has also agreed with Rio Tinto-owned New Zealand Aluminium Smelters (NZAS) that the aluminium manufacturer can retain an option to cut back its take by 172MW to April next year, which would come into force in April 2017.

At stake in recent weeks has been the 172MW of energy which, if turned down by NZAS, Meridian could have easily sold into the New Zealand market if the other generators did not take a stake.

NZAS had to decide yesterday whether to remain open or repackage its electricity supply agreement with Meridian Energy; whose supply comes from Manapouri and represents 13% of the country's output.

NZAS employs 800 people directly plus a further 2400 indirect jobs around Southland, and under yesterday's deal will keep operating its three potlines.

While manufacturing some of the highest grade aluminium in the world, NZAS has been hit hard by low aluminium prices globally and its electricity supply costs are a considerable cost component.

Craigs Investment Partners broker Peter McIntyre said Meridian Energy had signed an extended deal with Rio Tinto, which ''moves the can further down the road''.

NZAS will remain in full production until 2018.

''Meridian will cover the [total] 572MW through to 2030, but on adjusted terms.

''At first glance, it appears Meridian is taking one for the team, but the 172MW that the discussions are really about have been divided up by the market,'' Mr McIntyre said.

Meridian chief executive Mark Binns said it was the company's view that it was in the interest of other generators to provide the ''cover'' of 172MW to NZAS.

''Meridian has always been clear that the contract structure entered into in 2013 was intended to incentivise NZAS to obtain 172MW from other generators and allow Meridian to achieve market prices for this volume, which would have been released from the contract [with NZAS],'' Mr Binns said in a statement yesterday.

Contact Energy said in a separate statement yesterday it had signed a deal with Meridian to supply 80MW for NZAS, for a minimum of four years to maximum 14 years, while separately Genesis Energy would supply 50MW for the same usage, for two years beginning in January 2017.

NZAS chief executive Gretta Stephens said yesterday's agreement was good news for the workforce, Southland and New Zealand.

''We have crossed a hurdle today and now have more certainty about our immediate future,'' Ms Stephens said.

''The agreement provides short-term security for the smelter and allows time for [aluminium] market fundamentals to improve,'' she said.

However, she highlighted NZAS' combined electricity and transmission prices were still not internationally competitive, with the smelter last year paying $64 million of transmission costs.

''We believe those who benefit from the infrastructure they use should pay for it, which is not happening now.

''According to the Electricity Authority's options paper, NZAS pays more than $50 million every year for transmission infrastructure it receives no benefit from,'' Ms Stephens said.

Despite an ''exhaustive commercial process'' during the past year to understand if power could be secured from other generators, Ms Stephens said Meridian was the only generator, as the owner of Manapouri, which was able to contract with NZAS to meet its energy needs.

''The contract has ongoing flexibility to maintain or reduce the load, or terminate the contract from 2018 based on market conditions,'' she said.

simon.hartley@odt.co.nz

 

 


Tiwai Point

Meridian Energy will cover the 572MW through to 2030, but on adjusted terms.

NZAS continues to operate all three potlines.

Of the total 572MW, 172MW of supply has been renegotiated:

Meridian Energy:                 42MW
Contact Energy:                  80MW
Genesis Energy:                  40MW
Mighty River Power:            10MW

Source: Craigs Investment Partners


 

 

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