Smelter deal could clear way for big investments in South Island wind farms

The wind seems to be blowing towards the development of another big new industry for the lower South Island.

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The wind seems to be blowing towards the development of another big new industry for the lower South Island.

A deal to keep the Tiwai Point aluminum smelter open beyond the end of 2024 would probably precipitate a rush of investments in wind farms in the lower South Island, Contact Energy chief executive Mike Fuge believes.

The South Island’s wind energy resource is currently largely untapped, with the majority of wind farms located in the lower North Island.

But speaking after the company’s annual result on Monday at which Contact also announced a $ 300 million investment in a new geothermal plant, Fuge said the undeveloped wind resource in Southland and Otago had been “conservatively” estimated at between 3 and 5 terawatt-hours (TWh) a year.

All of that could come into play if the smelter stayed open, he said.

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At present the country’s total electricity demand stands at about 40TWh a year.

Fuge said Contact was looking at a couple of sites for South Island wind farms but intended to take a “balanced portfolio approach” and was also evaluating sites in Northland and Taranaki.

“For the South Island, getting resolution on Tiwai is the key first step,” he said.

Chief financial officer Dorian Devers said it was no longer economic to use gas or coal generation for baseload generation in New Zealand because of its high cost, meaning that was now only an option for covering short-term demand peaks.

Electricity from coal and gas generation was now costing about 25 cents a kilowatt-hour to produce, which was a higher price than generators could normally sell power for, Fuge said.

Fuge said Contact was now in negotiations with the aluminum smelter over a new power supply agreement to replace its existing deal which terminates at the end of 2024.

The smelter is also understood to be in talks with its main power provider, Meridian Energy.

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The smelter was understood to have been paying about 5.5 cents per kilowatt-hour for power before it negotiated that price down to about 3.5c / kWh last year.

But Fuge indicated a starting point for any calculations would be the cost of providing “firmed” renewable electricity, meaning the cost of providing a renewable power supply that was backed up so as not to be vulnerable to fluctuations due to factors such as the weather.

Contact estimated that cost at about 10c to 11c per kilowatt-hour, but indicated that could be adjusted for “local conditions” and any demand management that could be put place to reward the smelter for cutting power during periods of peak demand.

“I think we’re all realizing that the price of firmed renewable electricity is going to be a lot higher than we originally anticipated,” he said.

All the signals in its negotiations with the smelter were positive, “but we haven’t obviously got to the brass tacks of price yet”, Fuge said.

“There will be a range of factors at play, but it won’t be the current price, we can say that with certainty,” he said.