10 Apr 2015

Smelter manager calls for cheaper power

3:56 pm on 10 April 2015

Managers at the aluminium smelter at Tiwai Point have given a strong hint that they must have cheaper electricity prices.

Tiwai Point smelter

Tiwai Point smelter Photo: Wiki Commons

In a statement, the chairman of New Zealand Aluminium Smelters Brian Cooper says the smelter pays one of the highest prices for electricity paid by any smelter anywhere in the world, outside of China.

He said only smelters in Eastern and Southern Europe paid similar prices.

The statement comes after electricity companies indicated they felt nervous about the future of the plant, since it uses about one sixth of all New Zealand's electricity and any shutdown would flood the market and completely overturn all power companies' assumptions about their economics.

The Tiwai Point smelter came within inches of closure two years ago, due to low aluminium prices.

In the end, it was saved by a $30 million grant from the Government and an undisclosed cut to the price it pays Meridian Energy for its electricity.

The rescue deal had an opt out clause, allowing the plant to close in 2017 if it wanted to, but it would have to serve notice in July this year.

The ticking clock until that date had electricity companies here worried about the flow-on effect from any such decision.

The smelter's chairman Brian Cooper said no decisions had been made about the future of the smelter.

He said his managers were in negotiation with its electricity supplier Meridian but said these were confidential as were any other talks they might be having.

But he said they were doing everything they could to secure a long-term commercially competitive electricity price so that the smelter could continue to operate at or above its current production.

Mr Cooper insisted that not only was the price paid by his company for electricity high, but so were the prices paid for transmission of that electricity.

Mr Cooper said the company paid one of the highest transmission charges, faced by a smelter, in the world, adding that those costs have dramatically increased, by $25 million per annum, over the past seven years.

He said last year the smelter paid $64 million in transmission costs alone.

Mr Cooper did not give details of the plants' economics, but said aluminium prices had been volatile since 2013.

He said there was a modest improvement in the last half of 2014 and this coupled with a drop in the New Zealand dollar had a positive impact on the company's revenue.

But he said since then, aluminium prices had fallen by more than 10 percent and remained below the historical averages.

The smelter was worth $500 million a year to the Southland economy but had struggled since the global financial crisis cut profitability right across the minerals sector across the world.

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