The sharemarket has been blindsided by the news that mining giant Rio Tinto is looking at shutting down the country's biggest power consumer, the Tiwai Point aluminium smelter, less than a year after a fourth potline was reopened at the facility.
Shares in Meridian - the biggest power generator and the NZX's biggest company - dropped 8.7 per cent to $4.95 on heavy turnover.
Contact Energy, which like Meridian also has significant South Island generation assets, fell by 9.7 per cent to $7.69.
Mercury NZ dropped 8.4 per cent to $4.99, Genesis Energy declined 6 per cent to $3.06 and Trustpower fell by 3 per cent to $8.34.
The power companies - which form about 16 per cent of the market - helped drive the entire sharemarket lower, the S&P/NZX50 index falling by 2 per cent to 10,854 points.
Meridian supplies Tiwai Point but the other generators' share prices fell in sympathy because a shut-down at the smelter - which consumes about 13 per cent of the country's power output - would unleash more power onto the national grid, depressing prices and profits for all the players.
Rio Tinto has in the past made noises about shutting down the facility in what has been seen as a ploy to negotiate lower power prices.
Devon Funds chief investment officer Mark Brown, noting the power generators had enjoyed a strong run since the start of the year, said the Rio Tinto announcement had come as a complete surprise.
"It's been a tough day all round trying to deal with the fallout from this announcement," he said.
$1.5b wiped off power companies as smelter owners hint at closure
Power price shake-up: Govt to push consumers to shop around
Brown noted the issue of Tiwai's future had come under the spotlight before.
"But this is the first time that they have gone as far as doing a full scale review," he said.
And the reason for the review? "It's hard to tell, but it's clear they want a lower power price," he said.
"If clean electricity is used in a rather dirty industry which is smelting you would think that they could charge a premium from a carbon footprint point of view," Brown said.
Brown said uncertainty over Tiwai would overhang the sector "until the decision is made, one way or the other".
The power companies, particularly Meridian, have been rallying hard since the start of the year as investors increasingly turn to high-yielding utilities in the face of declining interest rates
Tiwai Point employs about 1000 people and the smelter forms an important part of the Southland economy.
"It makes a major contribution to the Southland community and it will probably become an election issue," Brown said.
A general election is expected to be held late next year.
Energy Minister Megan Woods has warned Rio Tinto not to expect taxpayer funds to help Tiwai remain open.
Rio Tinto said it would "will conduct a strategic review of its interest in New Zealand's Aluminium Smelter at Tiwai Point, to determine the operation's ongoing viability and competitive position".
This would include talks with the Government and electricity suppliers.
Meridian Energy said the review options included closure.
In a statement, a spokesman for Woods described the review as "a commercial process by a commercial operator" and signalled there should not be an expectation of a bailout.
"We hope that these discussions and work by NZAS and Rio Tinto result in the smelter remaining open and continuing to back the Southland economy by trading on its position as producing the world's greenest, low-carbon aluminium," Woods said.
"The New Zealand Government has had a clear position since 2013 under the Key/English Government that there will be no more financial assistance from taxpayers for Rio Tinto, which is already supported by Meridian for the power it uses. This hasn't changed."
Opened in 1971, the smelter is New Zealand's largest electricity user, consuming around 14 per cent of total generation, mainly from the nearby Manapōuri Power Station.
Rio Tinto said "under current market conditions and with high energy costs, we expect the short to medium outlook for the aluminium industry to be challenging and this asset to continue to be unprofitable.
"Rio Tinto intends to hold discussions with the Government of New Zealand and energy providers to explore options and identify economically viable solutions to find a pathway to profitability for the asset."
Rio Tinto has advised Meridian that it will provide the market with an update on the strategic review by the end of the first quarter in 2020.
Rio Tinto is the second biggest mining company in the world and aluminium is its second biggest product line after iron ore.
Rising trade tensions between the US and China have been blamed for the decline in aluminium prices, which have fallen from US$2537 a tonne in April last year to US$1705 a tonne today.