Continuous Disclosure: Rio Tinto, Tiwai and the question for electricity generators

Closure of the Tiwai Point aluminium smelter will come as a big blow for the power generators. Photo / Supplied

The planned closure of the Rio Tinto-controlled NZ Aluminium Smelters (NZAS) plant at Tiwai point next year will mark a seismic shift for New Zealand's power generators.

At 622 megawatts, the amount of power consumed by Tiwai is enough to supply half of greater Auckland.

If the smelter flicked the switch tomorrow, there is no way that power can shift north because of transmission constraints.

For that to happen, national grid operator Transpower needs to build the Clutha Upper Waitaki Lines Project (CUWLP), but that won't be finished until 2023.

The NZAS decision will affect all New Zealand's electricity generators or retailers to varying degrees at least over the next two to three years, if not longer, according to ratings agency S&P Global.

Tiwai's main supplier, Meridian, says the current year is looking strong but 2022 and 2023 could prove challenging because of the plant's closure.

Unless a solution is found, Meridian and fellow southern hydro power generator Contact face the likelihood of spilling water, which in the generation game is the same as spilling money.

Analysts say the absence of an electricity-hungry smelter will usher in a period of profound change for the power sector.

Investors had been forewarned - Tiwai's possible closure was mentioned as a risk in all the offer documents for the partial privatisations of Meridian, Genesis and Mercury in 2013 and 2014.

Grant Swanepoel, director of equity research at Jarden, says Rio Tinto's move to shut its majority-owned smelter at Tiwai Point will act to reset the whole industry.

"There is a rush on now in terms of the decisions to be made," Swanepoel says.

"That's going to cause a lot of volatility in terms of projections."

While Tiwai's departure will be a big blow, Swanepoel says the industry is innovative.

"They will be looking at ways to spill as little water as they possibly can in the coming years."

"The hole that has been created by this exit is quicker and deeper than expectations, so the response has to match that."

Mercury rising

Most of the power generators will be affected in some way, but Swanepoel says Mercury - solely a North Island player - looks like being the least affected.

"Ultimately, prices will come under pressure," he says.

Mercury is a renewable generator with retailing operations.

The company's strength is its North Island hydro generation which can often take advantage of pricing opportunity created by South Island hydro conditions.

Thermal squeeze

John Kidd, head of research at Enerlytica, said the impact of Tiwai's closure on the domestic energy sector could not be understated.

"The second-order impacts to regional development, climate change, GDP and balance of payments are also both negative and substantial," he said in an analysis.

There aren't many positives to be drawn, aside from providing some certainty after a decade of "will they or won't they" uncertainty.

He says the focus will now steer towards uncompetitive, high-cost plants.

"Clearly the most challenged candidates in this space is plant operated by Contact, with its Taranaki Combined Cycle and its 155MW Whirinaki diesel plant, and Genesis Energy with its coal and gas-fired facility at Huntly.

Genesis Energy's coal and gas-fired facility at Huntly. Photo / 123RF

"The squeeze on thermal is now, however, even tighter than what NZAS's exit infers due to a recent series of large commitments made to bring new renewable capacity to market," Kidd says.

Shelved projects

Then there are the projects on the drawing board that will need to be shelved.

Contact says its "shovel-ready" Tauhara geothermal power station remains New Zealand's cheapest and most attractive option for new, renewable, baseload electricity generation, but the sensible option is to defer the investment.

Chief executive Mike Fuge says a silver lining is the catalyst for users to accelerate their shift toward low-carbon electricity.

"However, this transformation would be a slow burn and take much longer than 12 months."

Fonterra power

If Tiwai shuts, Fonterra's power-hungry South Island plants would appear to be able to take up at least some of the slack.

But Fonterra's sustainable energy and utility manager Linda Thompson says it is too early to say exactly what the knock-on effects in the energy sector will be and what it could mean for the diary co-op.

Fonterra wants to reduce its carbon footprint and transition to renewable energy where it can to meet our target of net zero emissions at our manufacturing sites by 2050.

"We are also assessing a range of energy alternatives at our manufacturing sites, which includes electricity as one option," she said.

Lindsay strikes again

Multi-millionaire Brendan Lindsay is no stranger to reverse listings, having been involved in CSM's reincarnation as Me Today early this year. Now it appears Lindsay, through his investment trust, has become a shareholder in the listed shell, TRS Investments.

TRS advised the NZX that it had issued 333 million new shares to Lindsay's trust at $0.00025 a share, for the princely sum of $83,295 - giving the trust a 20 per cent stake.

Brendan Lindsay. Photo / Jason Oxenham

Funds raised from the placement will be used to fund the ongoing working capital requirements of the company "whilst it continues to undertake investigations to find a suitable business initiative to acquire via a reverse takeover transaction".

TRS has resolved to change its name to Ascension Capital, with from July 20.

Me Today

Healthcare company Me today is itself in the throes of raising more capital.

The company, which has taken on All Black Beauden Barrett as a brand ambassador, last week raised $4 million from selected investors.

A share purchase plan is under way and the company hopes to raise up to $4.5m in total.

The company has former Trilogy backers Grant Baker and Stephen Sinclair on board.

Skincare company Trilogy - formerly Ecoya which was listed by Baker, Sinclair and Geoff Ross in 2010 - went from next to nothing to $120m in turnover in just seven years.

In 2018, Trilogy was sold to Citic Capital China Partners for $203m or $2.90 a share.

Me Today is the result of a reverse takeover by CSM - which was listed on the now-defunct junior board, the NZAX, before moving to the exchange's main board last July.

Backdoor listings such as the one employed by Me Today are sought because they don't require a prospectus and are cheaper than a standard listing on the NZX.

In 2016, Lindsay sold plastic lunchbox maker Sistema to America's Newell for $660m.