Meridian Energy has lifted its first half profit. The second half might not be so good. Photo / Supplied
Talks between Meridian Energy and Tiwai Point’s owner - NZ Aluminium Smelters (NZAS) - are dragging on.
The main sticking point has come down to one thing: Price.
The ageing Southland plant could win a stay of execution – beyond its signalled closure in 2024 – if talks are successful.
Meridian chief executive Neal Barclay, in releasing the company’s first half result, said negotiations, which started last year, had dragged on for longer than expected and may continue for some months yet.
“We are still engaged in negotiations,” Barclay told the Herald. “They are driving the timeline on that, it is fair to say.
“It’s taking longer than they would prefer and certainly longer than we had expected,” he said.
“What I am saying is that there is still a reasonable gap between the parties on the fundamental issue of price,” he said.
“There is no guaranteed outcome that the smelter continues to operate, nor is there a foregone conclusion that it will close,” he said. “There is still quite a bit of work to be done.”
Tiwai is by far New Zealand’s biggest power consumer – taking about 13 per cent of the country’s total electricity supply.
NZAS has talked about being able to switch off individual units on its potlines to offer the power grid some slack when demand is extremely high, or when supply is constrained.
“We are talking to them specifically about those opportunities,” Barclay said.
Under the arrangement, NZAS would be paid for switching off units when required.
“It’s a win-win opportunity for them and the electricity sector.
“They are more open to that conversation than they have been, historically.”
Meridian and Environment Southland want NZAS to clean up the site at Tiwai.
Specifically, Meridian wants NZAS to commit to longer-term contracts than the one and two-year deals that have been done in the past.
Beneficial hydro conditions helped Meridian Energy boost its first-half net profit by 39 per cent to $201 million.
The company - 51 per cent owned by the Government - generates its power solely from renewable sources – wind, hydro and solar.
Operating earnings - ebitdaf – came to $425m, up 8 per cent – after benefiting from $51m of electricity hedge close-outs.
Unlike many of its peers, Meridian does not issue earnings guidances for the full year.
Barclay said he was pleased with the company’s progress in advancing its “strategic” agenda – building more renewable power projects.
In the six months, Meridian more than doubled the size of its renewable development pipeline of “buildable” options to 11,100-gigawatt hours.
“We have got a lot done that sets the business up for the future,” he said.
The result itself, aside from the one-offs, was “not quite as strong”.
“But we still believe the underlying business drivers, in terms of customer numbers and customer growth, and our ability to deliver on new renewable projects, are tracking well,” he said.
Over the six months, Meridian sold a number of hedge contracts that were surplus to requirements, at a strong profit.
“We don’t expect to see this new level of performance from energy trading in the second six months,” he said.
“We are saying that here and now, hydro storage across the country is slightly north of average for this time of year.
“Meridian’s catchments are about average, so we are in a good position.”
Barclay said the forecast La Nina weather pattern would typically bring a dry spell.
“So we are managing the hydro catchments in a conservative manner - half expecting dry weather and not as much inflow into those catchments,” he said.
“That potentially reduces the amount of money we make because we sell less energy.”
Meridian has earmarked $2.5 billion for future renewable energy projects.
“We are committed to what we are calling our market share of what will be required to decarbonise the country,” he said.
Barclay said that would amount to 20 more projects the size of its giant Harapaki scheme in Hawke’s Bay over the next 27 to 28 years, or the equivalent in solar power.
“So we need to be building solar and wind farms at a far faster rate than we are today.
“That’s why we are building a pipeline of options so that we can get them built.”
There was also continued growth in the amount of energy sold to Meridian’s retail customers.
In December, Meridian announced it will begin construction of the $186m Ruakākā Battery Energy Storage System, New Zealand’s first large-scale grid battery storage system, south of Whangārei.
Meridian is preparing to lodge consent applications for a new wind farm at Mount Munro in the Wairarapa and a 130-megawatt solar farm, also at Ruakākā, in the middle of this year.