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This affects not just the Southland community but also this country’s decarbonisation plans and the prospects for building power generation. Supposedly, the smelter was to close in 2021 with little notice. Cut-price power from Meridian and its Manapouri hydro station was part of a deal to extend the smelter’s life to 2024.
Rio Tinto, the Australian mining giant which owns 79.36% of the operation, had claimed the smelter was old and not viable. Without cheaper electricity, it would have to shut down. The smelter employs about 1000 staff directly, mostly in well-paid jobs, and about 1600 indirectly.
The Government, power companies Meridian and Contact Energy and the local community would buy time to find alternative industries and job opportunities. Some might be based on the abundant electricity near at hand. “Green” hydrogen production for energy for industry and heavy transport has been promoted, as have power-hungry data centres.
Last week the Government announced a Just Transition work plan for the region. While it is vague at this stage, the idea is to develop new industries and lessen Southland’s dependence on one large employer.
Circumstances for Rio Tinto have changed. Prices for resources have climbed dramatically, especially for aluminium. China has shut down large coal-burning smelters as it attempts to reduce its carbon emissions. Electricity prices for European smelters have climbed. Aluminium has gone from oversupply to a shortage.
Tiwai, apparently unable to compete with other smelters, becomes worthwhile again. The green, or at least greener than other plants, credentials become more significant in a more environmentally conscious world.
Rio Tinto has been creaming it thanks to the sweetheart power deal and the soaring aluminium price. It was no shock, therefore, when New Zealand’s Aluminium Smelter this week announced the plant could stay open beyond 2024. Not surprisingly, Southland authorities are pleased, although a little wary because of the way closure has regularly been threatened. What would there be to stop that risk again when aluminium prices next slip? John Key’s National government had earlier coughed up $30 million to keep the smelter open. As it should, the Government is continuing the “transition” plan. Meridian, as its representative has said, will also take a much harder line. The extent of Rio Tinto’s pressure in 2021 — sometimes described as blackmail — might, in fact, have done the country and Meridian a favour.
Southland has been able to imagine and move towards life sans smelter. Public sympathy — also hammered by environmental issues at Tiwai and the Mataura dross issue — now runs against the smelter’s owners. The means of transporting excess power north — the smelter uses about 14% of the country’s electricity — is improving.
For once, the Government and Meridian hold strong cards. Other uses for that power are part of the Government’s decarbonisation plans, particularly for heavy transport and industry. This is now thrown into doubt. In parallel, New Zealand’s generation needs become extremely difficult to predict and therefore plan for. Should the smelter stay, an agreement will need to be reached on the environmental issues and on the smelter reducing power use at times during dry years when the hydro lakes are low. Although the smelter unfairly pays too much in transmission charges, this is massively overcompensated by its current $35 a MW/h. The average wholesale price for other customers this year is $224. The Government — this is about far more than just Meridian and Contact selling power to the smelter — will need to be involved. There is, and has been, far too much uncertainty both for Southland and the nation. A long-term agreement will have to be reached relatively soon if the smelter is to stay. New Zealand has responded at Rio Tinto’s behest too often. The country needs to know where it stands.