19 Dec 2016

Aluminium smelter electricity battle gets backing

7:25 am on 19 December 2016

Southland community and business leaders are backing the local aluminium smelter in its battle to pay lower electricity transmission costs.

Tiwai Point smelter

Tiwai Point smelter Photo: Wiki Commons

The Tiwai Point plant has traditionally enjoyed a concessionary price for electricity it actually uses but has always argued the costs it must pay for transmission are exorbitant.

It costs $918 million to run New Zealand's 12,000km national grid, and the smelter has to pay $60.8m a year of that cost.

It originally hoped to reduce that to about $10m, because it only uses one 160km power line, from Manapouri to Tiwai Point, and argued it should not have to pay for wires over 1000km away in Northland or Auckland.

But the Electricity Authority's series of reform proposals is progressively dashing those hopes.

Its latest, and probably penultimate, proposal lowers the smelter's bill only slightly, from $60.8m to $47.4m or $41.9m, depending on how it is assessed.

Tim Shadbolt

Tim Shadbolt Photo: RNZ/Ian Telfer

Invercargill mayor Tim Shadbolt said that was not nearly good enough.

"We are going to fight it all the way, and we have been getting quite good at fighting these sorts of battles," Mr Shadbolt said.

"I believe it is a case of rallying the troops and getting the South Island mayors together and trying to explain to people what our case is and hoping they will take the side of justice."

The Tiwai Point smelter employs 800 people, gives $500m a year to the Southland economy, and exports goods worth $1 billion annually.

It was not just just Tim Shadbolt who wants that sort of benefit to stay in Southland - so does Venture Southland chief executive Paul Casson.

He said the proposed reduction of transmission costs under the latest scheme was not a significant one, and at the end of the day, people who used the wires should pay for them.

That meant that people in and around Auckland who had benefited from massive investments in electricity transmission should pay more than people in the southern South Island, who lived near hydro lakes and had not had anything like the same level of grid investment spent on them.

In its early days of looking at these issues, the Electricity Authority would have greatly reduced transmission costs in the southern South Island.

But a series of changes - price caps and others - has modified those proposals, leaving the smelter facing a still considerable bill.

Southland Chamber of Commerce president Carla Forbes said in winding back earlier concessions to the south, the Electricity Authority was going in exactly the wrong direction.

"Southland is an ideal place to locate energy intensive industry," she said.

"But with the current transmission cost system, no one would want to set up here because there is a big disadvantage.

"We need change to redress the current imbalance: people should be paying for what they use."

The Electricity Authority has invited people who object to its latest proposal to send in submissions.

The smelter meanwhile faces another deadline: 1 January is the date that a portion of its electricity rises slightly in price.

It is also the first day available to smelter bosses to announce a shut down of the smelter if they want to: closure is permitted any time after 1 January 2018 - but needs a one year term of notice to comply with existing contracts.

However the likelihood of a shutdown is questionable - the smelter is believed to be getting by financially - aided by a tiny rise in aluminium prices this year after years of much bigger falls.

On the other hand, Tiwai Point's electricity price may not be quite as advantageous as some of its critics suggest.

That price has always been a closely guarded secret, but was estimated at 4.8 cents a kilowatt hour by the analyst Nevill Gluyas of First New Zealand Capital.

A portion of the smelter's electricity will rise on 1 January to slightly over 6 cents, according to Mr Gluyas.

That is actually higher than spot prices over the past month.

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