Rio Tinto and Meridian sign winter power deal

Tiwai Point's owners have signed a deal that will see more power released to the grid in peak times.

Security of electricity supply this winter looks more assured after the Tiwai Point aluminium smelter’s majority owners, Rio Tinto, agreed to cut back on demand to make more power available to the grid in times of peak demand.

An agreement signed with the smelter’s main supplier, Meridian Energy, will see New Zealand’s aluminium smelter at Tiwai make 20 megawatts (MW) of electricity available to the national grid, if required, over a 12-week period this winter.

Tiwai is by far the country’s biggest power user, representing about 13 per cent of consumption.

The 20MW announced today is additional to the 50MW demand response agreement already in place with Meridian.

Early this month, National grid operator Transpower said New Zealand needs to up its investment in flexible power systems if it is to meet increased demand this winter.

“While we all hope this winter will not put undue stress on the national grid, having up to 70MW of available electricity will be beneficial if New Zealand’s energy system does come under pressure,” Rio Tinto’s chief executive and general manager for the smelter Chris Blenkiron said.

“As we look to secure a future for Tiwai beyond 2024, we would expect any future electricity supply arrangements to have demand response capability built into them.

“This recognises that with the energy we use comes a responsibility to play our part in keeping the lights on across New Zealand when needed,” Blenkiron said.

Starting on June 3, Meridian can call up to 20MW at any time for up to four trading periods (two hours) per day and up to 20 trading periods over a fortnight, and Tiwai will reduce its consumption to meet the request.

The 20MW is the approximate equivalent of the electricity needed to power all the homes in the city of Napier.

Meridian said the 50MW demand response agreement expires on December 31.

Chief executive Neal Barclay said the deal meant New Zealand would have greater energy security this coming winter, with less coal needed during periods of peak consumption.

“As New Zealand works towards a more renewable electricity system, we need to think creatively about how we can manage winter demand and dry-period energy needs, and we believe demand response has an important role to play,” he said.

In its winter outlook, Transpower called for a step-change in investment in flexible power-system resources such as fast-starting generators, grid-scale batteries and demand that can be reduced quickly when the power system is tight.

Transpower said the system needed more flexible resources to ensure sufficient electricity supply capacity to meet peak winter demand as New Zealand transitioned to a more renewable and intermittent electricity supply.

Separately, Rio Tinto said discussions were ongoing regarding a long-term supply contract for Tiwai to replace the current one, which ends in December.

“Discussions with a range of parties, aimed at finalising electricity supply that will see a long-term future for the NZAS smelter at Tiwai, are complex and are ongoing,” a spokesman for Rio told the Herald.

“We want to secure a commercial outcome that allows the smelter to be sustainable throughout the commodity cycle, drives investment in new renewable generation and plays its part in the broader energy market by providing more flexible demand response when needed,” the spokesman said.

He added that Tiwai’s employees, Southland and the energy markets were all looking for certainty.

“We are working constructively with all involved parties and will announce an outcome as soon as we can,” he said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.

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