Meridian says if Tiwai smelter stays, it should be for at least another 15 years

Rio Tinto has declined to say whether it is considering challenging an Electricity Authority rule change that could give the regulator the power to veto a new power deal.

Peter Meecham / Stuff

Rio Tinto has declined to say whether it is considering challenging an Electricity Authority rule change that could give the regulator the power to veto a new power deal.

Meridian Energy and the majority owner of the Tiwai Point aluminum smelter have made broadly positive comments about the prospects of them reaching a deal to keep the smelter open after 2024.

That is despite the Electricity Authority throwing a potential spanner in the works last week when it announced an “urgent” rule change that could see it veto any supply deal that it thought was not fair to other prospective power users.

The smelter needs a new power supply deal if it is to stay open after its current supply agreement expires at the end of 2024.

Meridian chief executive Neal Barclay said on a conference call to analysts on Wednesday that the power firm required a contract that would see the smelter remain for at least another 15 years.

READ MORE:
* Energy Minister defends state-owned ‘gentailers’ after their profits double
* Meridian sets out conditions for ’10 to 20 year ‘deal with aluminum smelter
* Smelter draws cool response from Meridian after saying it may not close in 2024

“We would need to see a long term commitment to New Zealand so we are talking, obviously, 15 to 20 years. I think it needs to be at least that, ”he said.

Barclay gave no indication that Meridian and the smelter were close to an agreement on any new price the smelter might pay for electricity.

There was a “massive gap” between the price the smelter was currently paying for power – which is believed to be about 3.5 cents a kilowatt-hour – and what Meridian considered “a sustainable price”, he said.

Barclay said whether the “smelter stays or goes has become much less relevant in my view” as far as Meridian was concerned.

Meridian Energy boss Neal Barclay has signalled it is more indifferent to the fate of the smelter, but says that if it stays it should be for the long term.

Supplied

Meridian Energy boss Neal Barclay has signalled it is more indifferent to the fate of the smelter, but says that if it stays it should be for the long term.

The Electricity Authority has estimated households may be paying up to $ 200 a year more for power as a result of the smelter’s current power contract.

Last week it gave itself the power to veto large power contractsin a major, surprise intervention in the power market.

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, or the authority cleared the contract.

Barclay said he believed even Meridian’s current low-ball pricing deal with the smelter would pass that test and he did not expect the regulator’s intervention would be a major issue.

The Electricity Authority’s general manager of market policy, Andrew Doube, did not confirm that.

He said one of its concerns was “the presence in the current Tiwai contracts of use-it-or-lose-it clauses that prevent on-selling of electricity”.

“The amendment is not retrospective, but one of its conditions is an ability for the buyer to on-sell any unused electricity, which would have precluded the current contract ‘passing the test’ unless one of the other two conditions were met,” he said.

Those other conditions were the net value of the contract being positive or the authority clearing the contract.

“The authority has not assessed if the net value of the current contract is positive and did not provide clearance of the current contract,” he said.

A spokesperson for the majority owner of the smelter, Rio Tinto, declined to say whether the company was considering a legal challenge to the authority’s intervention.

But he said Rio Tinto “continues to see a positive pathway for a longer future” for the smelter.