Meridian Energy issued a terse statement earlier this month on the future of the Tiwai Point aluminium smelter.
This followed speculation that with the price of aluminium soaring to US$3000 a tonne (it used to vary between US$1400 and US$1800) the smelter’s majority owner, international giant Rio Tinto, would want to extend its contract for cheap electricity (some say the cheapest in the world) beyond its current contract date of 2024.
The price of aluminium on world markets is now just on $US3300.
The Meridian statement on February 8 simply said:
“Meridian Energy notes today’s media coverage on the future of the Tiwai Point aluminium smelter. Meridian confirms it is not in discussions with the smelter’s owner, NZAS, about a new electricity contract. The existing contract between Meridian and NZAS ends on 31 December 2024.”
Meridian had to fight hard to renew the power contract and make concessions on price, to keep the smelter open beyond 2021.
The smelter is Southland’s biggest employer, with 600 workers directly employed and 1000 indirectly. The smelter is a vital element in the Southland economy and has been for nearly 50 years..
The power company’s miff with media speculation – if that is what it was earlier this month – is understandable in the light of its six-monthly report (published this week). For while Rio Tinto is no doubt enjoying juicy profits from the smelter, the pickings were thinner for Meridian.
The company reported net profit after tax of $145m from continuing operations for the six months ended 31 December 2021, $82m (36%) lower than the same period last year, mainly reflecting negative changes in the value of hedge instruments. Excluding these hedge value movements, Meridian reported a $5m decrease in underlying net profit after tax.
Meridian’s Chief Executive, Neal Barclay, says operating performance in the first half of this financial year includes a reduction in revenue received from the Tiwai Point Aluminium Smelter.
Point of Order thinks some of Meridian’s executives may still be feeling bruised from the negotiations with Rio Tinto – but perhaps they may feel better if Rio Tinto comes back to them, this time perhaps with a begging bowl.
Certainly Barclay has sensibly left the door open for further negotiations, although he says there are “no current discussions” with the smelter on a new contract. But Meridian is “not averse” to further talks and Barclay says Rio Tinto will need to pay “a fair and enduring price” for electricity”
As well, it will need to demonstrate proper environmental responsibility, and to make a long-term commitment to NZ.
“If Rio Tinto are serious about decarbonisation then 10 to 15 years, or even 20 years, is not unreasonable,” Barclay says.
Some reports have suggested Rio Tinto screwed down the price it pays for electricity to about 3.5c a kw/hour from about 5.5c in its latest power contract.
Meanwhile Meridian says the on-par performance with last year reflects continued strong momentum in the company’s operating business.
“It’s pleasing to see continued growth in retail sales, which reflects an enduring commitment to excellent customer service and support,” Barclay says.
“Our retail performance has helped offset the impact of NZAS exit pricing, and we’re making sound progress on our strategy to develop new sources of South Island demand following the Tiwai contract end in 2024.”
Meridian completed the sale of MEA (which includes Powershop Australia) on 31 January 2022. The final sale price was A$740m. Meridian expects to recognise a gain on sale in the order of $240m in its full year accounts for 2022.
“This transaction is an outstanding result for Meridian’s shareholders and a testament to the quality of the Meridian Energy Australia business and the employees who have been dedicated to its success,” Barclay says.
Meridian has completed bulk earthworks at its Harapaki wind farm development in Hawke’s Bay and has been actively working to increase its renewable development pipeline. This includes the company’s November 2021 announcement of the development of Ruākākā Energy Park.
This project will house a battery energy storage system (BESS) at least 100MW in capacity, as well as a utilityscale solar farm.
Four potential partners have been selected for the next phase of the Southern Green Hydrogen project, a joint venture between Meridian Energy and Contact Energy to investigate the feasibility of developing the world’s first large-scale green hydrogen plant in Southland. A process is now under way to assess proposals from each of the four counterparties to develop the production and export facility in Southland.
“We’re excited to move forward with the RFP and bring the project closer to fruition,” adds Barclay.
The electricity sector has been the focus of a number of regulatory reviews, including the Electricity Authority’s Wholesale Market Review and reviews of the 9 August 2021 power outages.
“While we have some concerns with some of the preliminary findings from the Electricity Authority’s most recent Wholesale Market Review, there is no doubt that as an industry we need to move faster to help New Zealand achieve its climate goals. We always support ways that the sector can provide better outcomes to consumers, and we’re committed to working with the sector, businesses, government, and consumers to ensure we achieve these goals”.
Point of Order doesn’t often praise power companies but believes on this occasion Barclay and his team deserve a bouquet.
Dare we confess we have a soft spot for Meridian which harks back to our standing a little way behind the Hon Ralph Hanan at the hole-through for the underground tunnel—one of the great engineering feats in NZ— carrying the water from the Manapouri station out to Doubtful Sound in Fiordland.