Electricity Authority makes ‘urgent’ move to block cheap Tiwai smelter power deal

The Tiwai Point aluminum smelter needs a new power deal to stay open beyond the end of 2024 and now the Electricity Authority has given itself the right of veto.

John Hawkins / Stuff

The Tiwai Point aluminum smelter needs a new power deal to stay open beyond the end of 2024 and now the Electricity Authority has given itself the right of veto.

The Electricity Authority has blocked power companies from entering into large power contracts with customers “unless certain conditions are met” in a major, surprise intervention in the power market.

The “urgent amendment” to the Electricity Industry Participation Code impacts contracts of more than 150 megawatts and means power companies would not be able to strike a new power-supply deal to allow the Tiwai Point aluminum smelter to stay open beyond the end of 2024, without its approval.

The authority’s market policy manager, Andrew Doube, noted that it estimated last year that households were on average paying up to $ 200 more than they should for electricity each year because of the smelter’s current power contract.

The smelter is believed to paying its major supplier, Meridian Energy, a low-ball price of about 3.5 cents per kilowatt-hour for power, and Doube said that had the effect of maintaining demand and keeping wholesale prices high.

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The authority said in a statement that the intervention on Thursday would “protect consumers from potentially paying more than they should”.

“While the authority did not definitively determine that the Tiwai contract was inefficient it considered … a timely and targeted intervention was required,” Doube said.

“This is all the more urgent given the recent announcement that New Zealand Aluminum Smelter is seeking to negotiate a new deal with generators when its current contract expires at the end of 2024,” he said.

The smelter’s majority owner, Rio Tinto, and Meridian Energy have been approached for comment.

Contact Energy is also involved along with Meridian in helping to power the smelter.

Its chief executive Mike Fuge confirmed on Monday that negotiations had now started with smelter, which would need a new power contract if it was to remain open beyond its current scheduled closure date at the end of 2024.

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Market speculation suggested that a new power contract could be struck at a price in the region of 6 to 8 cents per kilowatt-hour, but that was prior to the authority’s intervention.

Under the authority’s urgent rule change, no supply deal over 150MW could be agreed unless the buyer was able to on-sell any unused electricity, the “net value” of the contract was positive and the authority cleared the contract.

The smelter currently has a contract for about 572MW.

The authority said its rule change would be in place for nine months, while a “proposed permanent amendment is consulted on”.