The point of my focus is on Tiwai
Deborah Hart comments on the future of Tiwai Point and the impact negotiations have on consumers.
An earworm has been on repeat in my head of late – that old Police song: "Every breath you take, every move you make, I'll be watching you."
It's probably apt given how much I have been watching the antics of a big corporate player – New Zealand's Aluminium Smelter (NZAS), majority owned by mining giant Rio Tinto.
It's easy to think that the company has played a good game of brinksmanship over the years with its threats of exiting New Zealand and leaving Southland bereft of 1000 jobs. On the back of looming closure - and the on-again, off-again antics - it secured $30m from government coffers in 2013 and in 2021, super-cheap electricity contracts through to December 2024, on the promise to stay at least until then.
But things changed on October 27, 2021 when the regulator, the Electricity Authority, stated those contracts might have left Kiwis out of pocket by some $200 per household to subsidise the smelter's bargain-basement electricity. That caught the headlines, now watch for the authority's final word later this year.
But the jig seemed to be well and truly up a few months ago with Energy Minister Megan Woods clearly exasperated by the "will-we-stay-or-will-we-go" antics of the smelter owners. She said the "uncertainty was not good for New Zealand or Southland" where the smelter is located. And she further criticised the smelter for its part in keeping electricity prices high and preventing decarbonisation.
Now Tiwai Point's owners have said they are in discussions with electricity generators - hardly surprising, given that aluminium prices are still high.
The reason we're watching is that it's our job. The Consumer Advocacy Council was set up as the direct result of a review of electricity prices that found residential and small business electricity consumers needed a strong advocate, noting that they "struggle to make their voices heard and exert influence over decisions affecting them in the electricity sector".
Nowhere can that be seen more clearly than the audacity of negotiating an electricity deal with a large industrial player to the detriment of small electricity consumers. It's hard to imagine that those consumers were even thought about in the 2020 negotiations between Meridian, which I point out is 51 per cent state-owned, and NZAS.
So, who are the main players in the new negotiations? NZAS is 79 per cent owned by Rio Tinto and 21 per cent by Sumitomo Chemical, and Meridian. Perhaps Contact will be there too as the existing contract is with these two big players.
But this time, things have shifted and not in the smelter's favour.
Events over the last month highlight how fragile New Zealand's growing electricity demand is, with Transpower's recent warnings about risks to electricity supply. More emphasis is surely needed on assuring consumers that sufficient generation will be connected, and networks will distribute enough electricity to reliably meet demand - now and in the future - particularly given the long-time scales to connect new generation.
Meridian has indicated there will be no sweet deal. The loss of the smelter and the extra electricity generation would be quickly taken up by the ever-growing electricity needs of other consumers. Plus, there's the prospect of other big industrial users needing supply. There's talk of a data centre and a green hydrogen plant to replace the smelter.
The Government is not putting its hand in its pocket and has said if the smelter stays it needs to decarbonise with renewable fuels to limit rising global warming.
It's also worth noting that when the Electricity Industry Amendment Bill likely passes, any time now, the regulator – the Electricity Authority – will augment its existing functions with an explicit small electricity consumer protection function to safeguard the interests of residential and small business consumers. The authority will no doubt be keeping an extra sharp eye on the outcome of contract negotiations.
Consumers have made it clear to us that any contracts entered into should not impose cross-subsidies between them and NZAS.
And so, the Consumer Advocacy Council will be thinking about the country's five million residential electricity consumers and half a million small businesses. They should not be disadvantaged this time round.
Tiwai Point and Meridian, we are watching you.
This opinion piece was originally published on the NZ Herald website on 2 August 2022 and in print on 3 August 2022.