Tiwai Point -- February 2020

The various owners of Tiwai Point aluminium smelter have been out-negotiating successive New Zealand Governments since before the smelter was even built. The builders and original owners of Tiwai Point, Consolidated Zinc, reneged on their agreement with the Government to build the Manapouri hydroelectric power station, leaving the Government to foot the $135 million bill in order to make ConZinc commit to the construction of the smelter.

The smelter paid little to no tax from its opening in 1971 through to the late 80s and, due to its exposure to bauxite prices, electricity charges and fluctuations in the New Zealand dollar, frequently operates at a loss.

Despite its wildly changing fortunes the smelter has grown to be a significant employer in Southland, directly employing some 800 staff and 2000 contractors, and by some estimates it’s responsible for 10% of Southland’s GDP. This is one card Rio Tinto, the smelter’s current owners, play when negotiating with the Government. The other card is the Manapouri power station; without Tiwai Point the station is a stranded asset.

Tiwai consumes some 570MW of electricity annually, which is one third of the South Island’s consumption and thirteen percent of the nation’s, and uses it to produce the most pure aluminium on the planet. Without the smelter there’s nowhere else for the power to go. Every time closure is threatened blueprints to upgrade the South Island’s power networks are dusted off, and every time the threat is averted, as with the Government’s $30 million bail out in 2013, the plans are shelved again.

Almost every commentary I have read about a post-smelter New Zealand imagines the power being exported to the North Island, with Huntly power station being closed and the nation rejoicing as power prices tumble. The reality is much further from the truth; there’s no infrastructure to carry the extra power north and the inefficiencies in transporting it that far are huge. The best we can hope for, if the infrastructure upgrades in the South Island are completed, is cheaper prices in the South with Manapouri operating at a greatly reduced capacity. The worst case scenario would see the power station mothballed.

Wouldn’t it be nice if there were an option that allowed the Government to say “No, there will be no more handouts, we have another taker for the electricity and if you don’t like it you can leave”?

The Labour-led Coalition recently announced they were spending $10 million to replace the coal boilers in eight schools and two hospitals, reducing CO2 emissions by some 3000 tonnes (the equivalent of taking 1200 cars off the road). On the same day Fonterra announced they were converting their Te Awamutu factory from coal to wood pellets. This conversion carries a price tag of $11 million and will reduce emissions by 84,000 tonnes (32,000 car equivalents). I did the maths, that’s $8,333 per car equivalent for the Government and $344 for Fonterra. The private sector proves its efficiency again.

Fonterra’s Edendale factory in Southland is the Co-operative’s largest user of coal, it uses twice as much as the Te Awamutu site, but converting Edendale to an alternative fuel source is no simple task; there’s no piped supply of natural gas in the South Island and nowhere near enough readily available biomass to make wood pellets or similar a viable option. If only there was an abundant supply of clean, renewable energy close at hand and some way to get it to the factory…

Imagine if the Government dipped into their $200 million decarbonisation fund to build transmission lines to Fonterra’s Edendale plant, lines capable of bearing a load sufficient to allow Fonterra to convert their largest coal burning site to electricity.

There’s no downside; the Government would be investing in infrastructure, as they should, Fonterra would invest in a capital upgrade that reduces their coal consumption by a whopping 20% and the leverage Rio Tinto holds over our Government would all but disappear.

If Rio Tinto wants to stay then Manapouri could ramp up output and supply both Fonterra and the smelter, they’re capable of sustaining outputs of 800MW. If Rio Tinto decides to go, well there’s a little something they don’t tell you about the world’s most pure source of aluminium; each tonne produced comes with a price tag of 1.9 tonnes of CO2 emissions, and in Tiwai Point’s case that’s a whopping 570,000 tonnes per annum. Add that to the potential 170,000 tonne saving from weaning Edendale off coal and that’s the equivalent of removing 300,000 cars from New Zealand’s roads

If the Government are serious about climate change being this generation’s nuclear free moment then this would be a big step forward in taking action. Cutting CO2 emissions by a further 170,000 tonnes seems a lot more valuable to New Zealand than giving a gift to a billion dollar overseas-owned company.