Tiwai smelter likely to stay: Contact

Contact Energy says the continuation of the Tiwai Point aluminium smelter would lower the risk of...
Contact Energy says the continuation of the Tiwai Point aluminium smelter would lower the risk of investment in new, renewable generation and contribute to energy security. PHOTO: GREGOR RICHARDSON
Contact Energy says constructive negotiations with Rio Tinto have reinforced the energy company’s long-held view that New Zealand’s Aluminium Smelter at Tiwai Point appears likely to stay.

In its half-year financial results announcement yesterday, Contact said it was expecting a new agreement to be long-term, at a fair price materially above the current pricing, and including demand response, mitigating dry-year risk.

"A new long-term agreement would de-risk investment in new renewable generation, contribute to energy security and help to preserve an important export industry, supporting growth and decarbonisation of the New Zealand economy," chief executive Mike Fuge said.

In 2021, the owners of the smelter announced an extension until the end of 2024 of the possible closure of Southland’s largest employer and New Zealand’s largest single user of electricity.

Contact reported net profit of $153 million for the six-month period and operating earnings (ebitdaf) of $354m. Reported figures included a net provision release relating to the Ahuroa Gas Storage facility onerous contract of $29m within ebitdaf ($19m within net profit after tax and interest).

Excluding the provision release, underlying net profit was up 70% on the corresponding period last year to $134m and ebitdaf was up 26% to $325m.

The company said the improved operating result was driven by closer alignment of channel pricing to the wholesale market and greater thermal efficiency, partially offset by lower hydro generation, reduced steam revenue following the closure of its Te Rapa power station and one-off write-offs of $8m relating to damage to peaker assets and the CRM software system upgrade programme not continuing as originally planned.

Contact expected to deliver underlying Ebitdaf of $620m in FY24. The board declared an interim dividend of 14c per share.

The next six months would see Contact reaching "significant milestones" in the delivery of its strategy to lead the decarbonisation of New Zealand, Mr Fuge said.

Remediation works got under way at Contact’s Tauhara geothermal development in November and reconstruction of the steam separation plant was near complete.

Tauhara was expected to come on line in Q3 2024 at the initial design capacity of about 152MW, and Te Huka 3 was on track to following in Q4. Both would join Contact’s renewable generation fleet this year and would add 1.9TWh per annum of baseload renewable output once full capacity was reached, he said.

Drilling, advanced steamfield design and tendering had progressed to prepare for a final investment decision this year on GeoFuture, the replacement of Contact’s 65-year-old Wairakei geothermal plant.

Final investment decisions were also expected this year on a 100MW North Island battery and the Kowhai Park solar development at Christchurch Airport.