Aluminium Smelter Closing?

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#2343118 24-Oct-2019 16:05

Tripper1000 explained it. Transpower have designs and plans to allow Manapouri capacity to flow to the broader grid, and cost estimate of $600m. Until that work is completed, not much benefit to the entire grid should Tiwai close down, or reduce capacity.

I say, spend the money.

wellygary

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#2343119 24-Oct-2019 16:07

This is a good primer on the basics, without any of the "shut them down we're being ripped off" hype

https://www.odt.co.nz/business/power-politics-aluminium-smelting

Tracer

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#2343177 24-Oct-2019 17:30

That ODT article is pretty good and well balanced.

duckDecoy:

The old method allocated transmission costs based on the amount of power used.

The new proposal works (in simple terms) by spreading the investment costs of the network (e.g. HVDC upgrades) across the parties who benefit. So if a party gets 10% of the benefit from the HVDC upgrades, they pay 10% of the HVDC investment cost. If a party doesn't benefit from an upgrade they don't pay, for example Tiwai gets very little benefit from the North Island Grid Upgrade projects and as such doesn't pay much.

So I'm not sure Tiwai have a strong case around the 11 million saving not being good enough, they are paying their share of the projects that they benefit from.

They currently pay approximately the book value of the Manapouri-Tiwai lines every year. I think they have a strong case for paying a lot less. The initial recommendations to EA suggested they should pay a lot more than $20m less.

CYaBro

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#2343199 24-Oct-2019 19:02

Jeeves:

Nothing I said was incorrect. Just very simplified :)

Actually you are incorrect as you mention a nice beach in Northland rather than a hydroelectric power station in the South Island. 🤣

Opinions are my own and not the views of my employer.

k14

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#2343225 24-Oct-2019 20:28

Tracer:

They currently pay approximately the book value of the Manapouri-Tiwai lines every year. I think they have a strong case for paying a lot less. The initial recommendations to EA suggested they should pay a lot more than $20m less.

The one thing missing is that they don't solely use the Manapouri - Tiwai lines. Lake Manapouri/Te Anau has periods of low flows and Tiwai relies on the lines all the way up to Huntly to operate at the steady load they require. It is an incredibly complex system and very difficult to get consensus on the way costs should be allocated. It seems this is a ploy to get the discussion to a political and leverage their apparent position of power to improve their bottom line. It will be interesting to see how it plays out.

loceff13

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#2343287 24-Oct-2019 21:03

Before we even consider reducing their power costs further(providing the Government eats that cost) we should be making them set aside funding for cleanup(ie 2 of their waste processors went into liquidation in the past decade leaving government to pay the majority of it) plus moneyf or the site cleanup when Tiwai does eventually close. It's no good saying they have an obligation to fix it but not setting any funds aside.

If it's a private power company eating the cost then whatever, they will do whats in their interests.

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Tracer

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#2343299 24-Oct-2019 21:20

k14:

Tracer:

They currently pay approximately the book value of the Manapouri-Tiwai lines every year. I think they have a strong case for paying a lot less. The initial recommendations to EA suggested they should pay a lot more than $20m less.

The one thing missing is that they don't solely use the Manapouri - Tiwai lines. Lake Manapouri/Te Anau has periods of low flows and Tiwai relies on the lines all the way up to Huntly to operate at the steady load they require. It is an incredibly complex system and very difficult to get consensus on the way costs should be allocated. It seems this is a ploy to get the discussion to a political and leverage their apparent position of power to improve their bottom line. It will be interesting to see how it plays out.

Nobody is saying they should only pay for that, it's just for perspective. Did you read the ODT article?

Southland's former Chamber of Commerce president Carla Forbes believes the smelter has been ''quietly overcharged'' nearly $200million for grid upgrades in the North Island over the past 10 years, during which time overall transmission costs have been hiked by 61% on the South Island.

''Since 2004 more than $1.3billion has been invested in the grid in the upper North Island but only 39% of that is being paid for by the upper north, while transmission costs have increased by 61% in the Lower North Island and South Island to cover the cost.''

Geektastic

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#2343663 25-Oct-2019 22:21

loceff13:

Before we even consider reducing their power costs further(providing the Government eats that cost) we should be making them set aside funding for cleanup(ie 2 of their waste processors went into liquidation in the past decade leaving government to pay the majority of it) plus moneyf or the site cleanup when Tiwai does eventually close. It's no good saying they have an obligation to fix it but not setting any funds aside.

If it's a private power company eating the cost then whatever, they will do whats in their interests.

There is no 'government eats their costs".

The government is us - the money they spend (or do not receive) is ours.

shk292

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#2343756 26-Oct-2019 10:25

Surely is this is the lowest-carbon way of producing aluminium, then any subsidy is money well spent - assuming it prevents the smelting company moving to say China and using coal power to produce the metal.

loceff13

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#2343847 26-Oct-2019 18:28

If you can sell it sure..

rfdawn

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#2343857 26-Oct-2019 19:27

Aluminium smelters running off hydro-power are quite scarce world-wide.

Current carbon prices are way too low and will ramp up for the foreseeable making eg. Australian coal-powered smelters less and less competitive.

Rio Tinto will know all this and have zero intention of closing down here, they are just trying it on.

Our canny negotiators should present them with a schedule of future power price rises that just undercut future prices of coal-fired electricity.

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Tracer

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#2343884 26-Oct-2019 20:30

rfdawn:

Aluminium smelters running off hydro-power are quite scarce world-wide.

Current carbon prices are way too low and will ramp up for the foreseeable making eg. Australian coal-powered smelters less and less competitive.

Rio Tinto will know all this and have zero intention of closing down here, they are just trying it on.

Our canny negotiators should present them with a schedule of future power price rises that just undercut future prices of coal-fired electricity.

That would be fine if competing primarily with Australian smelters, but that's not the case. Aluminium is an international commodity, and as long as there are countries not caring much about carbon (China, Russia, etc.), and companies are willing to buy from them... Rio have a number of hydro powered smelters in Canada (and they own the hydro stations themselves, which is the basis of their argument that they know how much Meridian is overcharging them).

rfdawn

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#2343892 26-Oct-2019 20:48

Tracer:

That would be fine if competing primarily with Australian smelters, but that's not the case. Aluminium is an international commodity, and as long as there are countries not caring much about carbon (China, Russia, etc.), and companies are willing to buy from them... Rio have a number of hydro powered smelters in Canada (and they own the hydro stations themselves, which is the basis of their argument that they know how much Meridian is overcharging them).

Current world over-supply means some (not many) aluminium smelters should close.

NZ does not have to beat the most-efficient smelters, just the least-efficient ones.

Worst case, we inherit a smelter and decide if it's worth running ourselves.

I say call their bluff. It's way past time to do that.

dgashby

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#2343893 26-Oct-2019 20:51

loceff13:

Before we even consider reducing their power costs further(providing the Government eats that cost) we should be making them set aside funding for cleanup(ie 2 of their waste processors went into liquidation in the past decade leaving government to pay the majority of it) plus moneyf or the site cleanup when Tiwai does eventually close. It's no good saying they have an obligation to fix it but not setting any funds aside.

If it's a private power company eating the cost then whatever, they will do whats in their interests.

Last time this topic came up a few years ago I was discussing it with someone close the electricity industry. They commented that if the smelter is closed down the owners are contractually obliged to remediate the land to it's original state. As you can imagine this would be a very significant and expensive undertaking.

wellygary

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#2343996 27-Oct-2019 08:22

dgashby:
Last time this topic came up a few years ago I was discussing it with someone close the electricity industry. They commented that if the smelter is closed down the owners are contractually obliged to remediate the land to it's original state. As you can imagine this would be a very significant and expensive undertaking.

Remediation is estimated by many at around $400 million , which is pocket chang for Rio Tinto

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