Aluminium Smelter Closing?

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tdgeek

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#259819 23-Oct-2019 20:41

No doubt this is an every year or so topic, the "review" By Rio Tinto.

https://www.stuff.co.nz/business/116801034/rio-tinto-to-review-future-of-aluminium-smelter-in-bluff

The Stuff comments crowd seem to think this is good as it will cause price decreases for the public. I assume because Rio Tinto gets cheap rates so we can too?

IMO if it closed, the revenue generated by those cheap rates ends. Who provides it now? No one. So someone has to provide that lost revenue, so I would assume it would cause an increase in rates? I have no idea, but an interesting discussion.

1. They use 13% of power, so that would theoretically mean we can go green way sooner?

2. Its a huge part of Southlands economy. Who covers that if they close?

Its annoying as its artificial. We have supported super low rates, so the business case is artificial, its more based around accounting than viability. But we want them, and they want us?

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#2342681 23-Oct-2019 21:22

Manapouri (owned by Meridien) supplies Tiwai point.

If that supply was able to be dumped on the market it would significantly reduce spot rates and that would flow onto consumers. The only problem is initially that power couldn't be transmitted.

The network would require significant investment to transmit the power as it was never designed that way (Manapouri was built specifically to supply Tiwai Point).

tdgeek

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#2342688 23-Oct-2019 21:35

Handle9:

Manapouri (owned by Meridien) supplies Tiwai point.

If that supply was able to be dumped on the market it would significantly reduce spot rates and that would flow onto consumers. The only problem is initially that power couldn't be transmitted.

The network would require significant investment to transmit the power as it was never designed that way (Manapouri was built specifically to supply Tiwai Point).

So, the power that Tiwai would not use (as it closed) cannot be transmitted outside of the smelter? I certainly take your word for it, but that can be remedied?

My take was Tiwai uses 13% of NZ's usage. The other 5B of us use the 87%. If it closed tomorrow, us Kiwis would still use that 87% volume, and the 13% would not be used, so would be spare, and no revenue for Meridian.

If their usage at cheap rates was dumped as you suggest, and is consumers got cheap power, that means the 13% we used from what was Tiwai's replaces the same volume that we paid full rates for, so Meridian theoretically gets the Tiwai revenue (from us now) and loses the full price for that 13%, so they do in fact lose? Or us Kiwis day the same, so no change, but Meridian is now down the Tiwai revenue?

Handle9

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#2342703 23-Oct-2019 21:50

It's to some extent a commodity market so if supply increases greater than demand then the price decreases. As price decreases some generation ceases to be economic and would be closed, which then stabilises the price. Basically this is what the generators do with peakers (basically jet engines). They only run them when demand is high as they are relatively expensive to run.

Transpower estimates it would cost about $600m, and take about 3 years, to upgrade the grid. It's doable.

https://www.beehive.govt.nz/sites/default/files/2017-12/Transpower.pdf

refer to page 9

JaseNZ

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#2342704 23-Oct-2019 21:52

Havn't they used this ploy before to keep their prices low just to increase their bottom line. They turned a good profit last year.

They use the fear of putting people out of work to get more money out of the tax payer.

Ding Ding Ding Ding Ding : Ice cream man , Ice cream man

Handle9

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#2342705 23-Oct-2019 21:53

JaseNZ:

Havn't they used this ploy before to keep their prices low just to increase their bottom line. They turned a good profit last year.

They use the fear of putting people out of work to get more money out of the tax payer.

Yip, it's likely just part of the negotiation

benokobi

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#2342723 24-Oct-2019 00:12

I feel if the local media stopped creating the panic every time they announce something like this they’d have less negotiating power.

There’s other locally owned businesses employing significant numbers in Southland who don’t get any of the incentives Rio Tinto are provided and at some point the fearmongering has to stop and they need to operate on their own merits.

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Geektastic

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#2342725 24-Oct-2019 00:30

Sounds good.

Need electricity from somewhere to charge all these wonderful electric cars we are all going to own....

peejayw

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#2342735 24-Oct-2019 06:48

Close it down and use the cheap power to promote the uptake of EV's. We gain by having to import less oil and it's attendant pollution and also cease the production of 800,000 tonnes pa of CO2 that the smelter emits.

I'm supposed to respect my elders, but it's getting harder and harder for me to find one now.

tdgeek

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#2342755 24-Oct-2019 07:27

It would be on the surface good to shut it down. If we use 87%, and our renewables is about 85% we could get to near on 100% renewables with removing a signature on a contract. Id not want cheaper power as Southland will suffer. The Govt and Southland would need to find an industry to replace some of the employment. RT is running on artificial costs to turn a profit

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#2342758 24-Oct-2019 07:46

peejayw: Close it down and use the cheap power to promote the uptake of EV's. We gain by having to import less oil and it's attendant pollution and also cease the production of 800,000 tonnes pa of CO2 that the smelter emits.

Wow! They keep talking about the the aluminium being produced there being ‘green’. I guess greener (than other sources) is more accurate. There must be a premium market overseas where industries, such as car manufacturers, want to virtue signal how green they are by ‘ethically sourcing’ materials. However, even if there is such a premium market, Rio Tinto is not likely to reference it while in negotiations to reduce its energy costs even more.

If the government was willing to throw Taranaki under the bus, maybe its time to do the same to Southland. The biggest problem would appear to be the location of the available electricity generation. But what a great opportunity to encourage other industries to the lower South Island with cheaper energy costs. Or how about a hydrogen plant?

“We’ve arranged a society based on science and technology, in which nobody understands anything about science technology. Carl Sagan 1996

noroad

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#2342773 24-Oct-2019 07:56

A couple of comments on this -

1. Long term, the importing of Bauxite mined in Australia then smelting it in New Zealand and re-exporting it does not seem like a sustainable business model to me. At some point sooner or later its no longer going to add up, its inevitable. The loss of jobs in Southland is clearly a horrible thing, but its not as if the writing hasn't been on the wall for many years.

2. Our current government with short sighted virtue signalling has stopped further oil and gas exploration and a significant amount of the countries base load generation is using gas. The current gas fields do not have a particularly long life expectation.

3. There is little or no sustainable (hydro/geothermal) base load expansion planned and all the low hanging fruit was tapped in the 1960's era.

4. Electricity consumption will certainly rise, and significantly so if people want low-pollution options like electric vehicles.

In my opinion the joining of Manapouri into the national grid instead of feeding a non-sustainable smelter is inevitable and important for the country overall. I feel for the people at the smelter, but for the country at large it needs to be done.

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tehgerbil

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#2342795 24-Oct-2019 08:36

Honestly Tiwai point is a disgusting blight on our energy industry. The sweetheart arrangement is appalling and the only winners are the shareholders for Tiwai and Meridian.

Seriously - they're wanting taxpayer support for 1000 jobs, when they're also pillaging the publics pocket in terms of energy prices!? It's double dipping and practically corporate welfare.

We've already given then $30 million dollars 6 years ago, and they were told to piss off asking for any more. But sure enough, they've come back cap in hand asking for more taxpayer cash.

And all of this less than 1 year after an massive upgrade in production??

Something is not right here.

Further digging revealed the sweetheart deal on carbon credits.

An interesting article from 10 years ago about the climate subsides it's getting. allegedly equating for $225k per worker.

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#2342797 24-Oct-2019 08:39

Business is business.

As long as it remains economic it will continue. As soon as it isn't, it won't.

Electricity pricing isn't a subsidy by the rest of us for employment elsewhere. Or at least, it ought not to be.

sen8or

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#2342798 24-Oct-2019 08:41

All just part of the bargaining strategy from Rio Tinto. They know that without them, the Southland economy would tank, at least temporarily. Not just the 1000 jobs but all they businesses around them that service or benefit from those employed. Its a big card to play, and if they play it too often, they run the risk of being "the boy who cried wolf".

Even a quick look at their 6 month 2019 financial results simply does not back up their claims of underperformance, far from it, with increases in return on equity, increased in earnings before int tax deprn & amortisation, dividends to shareholders nearly doubled compared to the same period last year.

If you are going to cry poor, at least have the financial results to back up that statement.

jfanning

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#2342805 24-Oct-2019 09:01

So based on the comments that people would be happy for Tiwai to close, I assume you are also happy for the proposal of true transmission costs being passed on to the consumer?

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