Electricity regulator sees long future for Tiwai Point smelter

New Zealand's abundant renewable electricity may be the saviour of the Tiwai Point aluminium smelter, attract energy-intensive industries to New Zealand and eventually see electricity exported across the Tasman Sea to Australia, the chair of the Electricity Authority, Brent Layton, says.

In a speech to a stakeholder function in Wellington yesterday, Layton said his personal belief is that the Rio Tinto-controlled aluminium smelter would not close "provided the transmission pricing methodology is changed so the smelter pays for the services it receives and the costs of providing those services".

The smelter has routinely claimed over the years that its viability is threatened by rising New Zealand power prices and, more recently, by the possible rejection of electricity transmission reform proposals that would lower the cost of access to the national grid for South Island power producers and users, at the expense of upper North Island users. The proposals were strongly resisted by the New Zealand First party, now a coalition partner in the newly formed government.

"In a world in which most countries have Paris Agreement obligations (to reduce greenhouse gas emissions), I think the demand for aluminium will grow and the risks of heavily subsidised production low-cost, fossil-fuelled generators in places like China will decline," said Layton. "New Zealand's capacity to increase its renewables capacity at around current costs may, in a world in which countries are striving to meet Paris Agreement obligations, result in the migration of some energy-intensive industries to this country, particularly those that require continuous reliable supplies of electricity."

Electricity demand would increase anyway as the use of electric vehicles grows and as some industries start using electricity rather than gas or coal for high-heat processing. However, both trends would occur over time, giving the New Zealand electricity market time to build new capacity to meet increased demand.

In perhaps his most speculative remarks, Layton also suggested that if New Zealand could harness the high-temperature heat recently detected along the main fault divide on the west coast of the South Island, the country might be able to use new electricity grid technology to send power thousands of kilometres across the Tasman Sea to Australia.

"Australia desperately needs to find economic substitutes for its base-load brown coal plants," said Layton. "It is arguably the major political and economic challenge facing the 'lucky country'.

"HVDC (high voltage direct current) lines of almost as great a length are being planned elsewhere in the world, such as between Iceland and Britain and losses at 3 percent 1000 kilometres are obviously excessive," he said, referring to the inevitable energy losses that occur when electricity is transmitted. The north and south islands of New Zealand are connected by an HVDC link, but until recently, it has been assumed that line losses would be too great to make the 2000 kilometre-plus connection to Australia feasible.

Layton made no mention of the new coalition government's intention to review retail electricity pricing, but stressed the regulator "should not favour some technologies, product offerings or models over another; incumbent businesses over new entrants (or vice versa); and large players over small ones (or vice versa)".

He expected peer-to-peer electricity trading and reconciliation of energy consumption to be achieved using blockchain technology to emerge.

While the authority was "pretty comfortable" with the way the electricity market performed during the prolonged dry spell that drained hydro lakes close to crisis levels between February and July, it would nonetheless undertake a formal review.

"Complacency is not appropriate when dealing with the reliability of electricity supply," he said.

(BusinessDesk)