Tiwai point closure

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Peter Fraser

Seems like that phone call to Tiwai Point I was talking about last month wasn’t needed after all; as Comalco are literally ‘pulling the plug’ themselves. The reason is simple: the plant isn’t viable. Like the Australian car industry, it shows what happens when millions of dollars worth of taxpayers’ subsidies aren’t available.
As previously mentioned, this will have a huge - and negative - regional impact but a huge - and positive - national impact. Here’s a summary of the national impact:

  1. From an ''NZ Inc perspective Tiwai is basically a story about exporting electricity - albeit in a solid form called aluminium ingots. We don’t get the money for the aluminium - Comalco does.
  2. Tiwai uses between 12-15% of NZ’s total power generation capacity from a dedicated supply at Manapouri. And that capacity is highly strategic - as it is baseload and it is cheap.
  3. Manapouri was basically a stranded asset - the power went straight to Bluff. This meant that in the absence of the smelter the power had a zero opportunity cost as it couldn’t be used elsewhere. However, Transpower is in the middle of a grid upgrade and long story short, that power can now be shifted - so that opportunity cost issue really matters.
  4. Manapouri generation is critical in terms of two conversations: firstly, how to largely decarbonise electricity generation (so let’s stop whining for at least 3 minutes about offshore oil and gas exploration); and secondly, how electricity can assist with the decarbonisation of other sectors: notably transport and stationary energy. All other things being equal, closing Tiwai point means phasing out the North Island thermals: and mothballing Huntly. Now 100% renewable is hard: but we can get close - and getting rid of Tiwai is how we do it.
  5. Finally, there is the impact on electricity prices. Cutting to the chase, electricity prices are set on the basis of the marginal - or least efficient - plant that is required to satisfy demand. This means it is high cost generators like Huntly that set the electricity price, not low cost generation like Manapouri.
    Now the reason power prices stay high is a huge chunk of low cost electricity is kept off the market, which is forced, as a consequence, to buy expensive power. So all other industrial and domestic power users are, in essence subsidising Tiwai Point jobs through paying too much for power. Indeed, my expectation is the value of the gentailers will fall as the ability to extract rents is reduced.

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charlie mitchell

By my analysis, Rio Tinto - which made a net profit of $8b last year and $14b the year before that - was set to receive $800m in climate subsidies from New Zealanders between now and 2030, around $80k for every job it provided.

— Charlie Mitchell (@comingupcharlie) July 8, 2020

ecomanda

The way I see it, there are a couple of options now that Rio Tinto has said they're closing Tiwai. Both require Government leadership and a strong plan for the energy sector. (1/3)

— Amanda Larsson (@ecomanda) July 9, 2020

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