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The Tiwai Point smelter, which was set to close in August, has been granted a reprieve after a new contract was settled between smelter owner Rio Tinto and generator Meridian Energy.
Yesterday it was announced an amended contract between Meridian and the smelter’s majority owners would enable the smelter to remain open for four years before it shut for good.
Tiwai Point is the country’s only aluminium smelter and uses about 14% of the country’s electricity, the equivalent of about 776,000 households.
The Otago Daily Times reported last year an anonymous source said, after a Tiwai stakeholder meeting, the company wanted the price of power cut by up to $100million, as well as its transmission costs, in order to remain viable.
A Meridian presentation to investors said the amended contract would include terms similar to the previous contract.
While pricing was confidential, the smelter could operate at a total 572MW, the same as before.
Usage would be locked in at 400MW for the duration of the contract but could be lowered by 172MW after January next year if six months’ notice was given.
New Zealand Aluminium Smelters (NZAS) general manager Stew Hamilton said it would power three of the four smelter potlines, and at this stage, there was no expectation it would be lowered by 172MW.
"We still need to get a fair price for transmission to ensure that we are commercially viable over the next four years.’’
The wind-down period would be looked at closer to the end of the contract, and the continuous running of the three potlines was dependent on transmission cost and the volatile aluminium market, he said.
He would not comment on the price of electricity settled on, but said it made the smelter more competitive on a world scale.
In the new contract, electricity prices were not linked to either aluminium prices or consumer price index-linked electricity price increases.
A summary of the presentation said
the Clutha-Upper Waitaki transmission work would enable full export from Southland for the duration of the contract.
The Clutha Upper Waitaki Lines Project would increase capacity on some lines between Clutha and the upper Waitaki Valley to improve electricity supply to Southland during dry periods, and to allow additional generation to be exported from Southland.
It would cost $197million.
While Meridian could not comment on the price settled on, a company spokeswoman said the existing capacity on the Clutha-upper Waitaki Valley network and improvements to it with Transpower’s current project were a consideration in its wider strategy.
About 90% of the aluminium produced by NZAS is exported.
The impact of the smelter’s closure will also be felt across the harbour at Bluff’s South Port.
Chief executive Nigel Gear said it represented about 33% of its cargo, in and out.
That translated to 20% of the port’s after-tax profit.
The South Port website states the port handles more than 3.5million tonnes of cargo in a normal trading year.
Mr Gear said he was pleased and relieved to hear the news of the extension as it provided breathing room.
Southland regional development agency Great South chief executive Graham Budd said it would increase confidence in the economy, and there were plans to increase and diversify alternative options for land use in Southland.