Mercury ploughs ahead with $464m wind farm project despite uncertainty over Tiwai

Mercury Energy chief executive Fraser Whineray. Photo / NZ Herald.

North Island power generator Mercury Energy said it would plough on with the second stage of its plan to build New Zealand's biggest wind farm, despite uncertainty posed by the possible closure of the major power user, the Tiwai Point aluminium smelter.

The company said the second, south stage of its Turitea wind farm, near Palmerston North, would involve 27 turbines at a cost of $208 million.

The project is in addition to a 33-turbine, $256m project at the north end of Turitea announced early this year.

All up, the wind farm will produce 222 megawatts of electricity, or 840 gigawatt hours annually.

Rio Tinto, the smelter's majority owner, said last month it had started a review of Tiwai and would look at all options, including closure.

The review is due by the end of March next year. Under the terms of its contract with its main supplier, Meridian, Rio Tinto is required to give 12 months' notice.

Closure of the smelter - which uses 13 per cent of New Zealand's power - is expected to create volatility in the electricity market, particularly in the lower South Island.

Mercury Energy chief executive Fraser Whineray said short-term uncertainty was a feature of the electricity market.

"On one hand, wholesale electricity prices are currently elevated, mainly due to issues in the gas market which are likely to remain," he said.

"On the other, the aluminium smelter at Tiwai Point is being reviewed by Rio Tinto," he said, noting that its electricity supply contract with Meridian concludes in 2030.

"Renewable energy projects are about the very long term, and we believe the case is compelling for the completion of this leading North Island wind farm site, situated close to the national grid, supporting New Zealand demand into the future," Whineray said.

Whineray told a conference call for analysts and journalists he doubted Rio Tinto would close the plant in the near term.

The smelter at Tiwai Point. Photo / Supplied

"It's either 2021 or at any point at their option - probably till 2030 - when we believe it is highly likely that they will," he said.

"You have to assume that at some time during life of the [wind farm] project, there will be a change in what happens down there," Whineray said.

Analysts said Mercury would be the least affected by Tiwai's closure because its generating assets - all for renewable energy - are in the North Island.

They say those involved in coal- or gas-fired thermal energy would be under threat because of extra power going into the grid once the smelter closes.

But getting power from the deep south would be expensive - requiring $500-$600m in investment in the national power grid.

Whineray said an early departure by Rio Tinto would have its biggest impact on the thermal generators.

"If it's later, that allows for greater partial of full demand substitution with new opportunities, particularly in the South Island, which might offset the length and expense to get to get the power out of the deep south," he said.

He said current elevated prices showed there was a strong need for more generation.

"We are sitting here with above average hydrology and prices are over $250/megawatt hr. This is a clear signal that more energy needs to be brought on."

On completion, Mercury's wind farm generate 840 gigawatt hours compared with 4200gwH from hydro and 2600gwH for geothermal.

Mercury already generates around 6,800gwH of renewable electricity per annum, about 17 per cent of New Zealand's total electricity generation, from its hydro and geothermal stations located in the central North Island.

It operates solar business Mercury Solar, and has a 60kW solar array at its Penrose research and development centre.

Mercury also owns almost 20 per cent f Tilt Renewables, which operates and develops wind farms in Australia and New Zealand.

The north stage of Turitea is due for commissioning late next year, while the south stage is due in late 2021.