Closure may see cheaper power

The threatened closure of the Tiwai aluminium smelter would result in an over-supply of power generated in the South Island and could lead to cheaper power prices, ratings agency S&P says.

On Wednesday Rio Tinto announced it is considering closing the New Zealand Aluminium Smelter near Bluff as part of a strategic review of the facility.

The smelter accounts for about 12 per cent of New Zealand’s electricity consumption.

If the smelter reduced production or closed there would be surplus electricity generation, particularly in the South Island.

S&P said additional investment would be needed in the national grid to distribute power from the South Island to the North Island. ‘‘This would result in lower electricity prices in the South Island over the short term, and could take at least two to three years for the market to normalise.’’

It also issued a warning to electricity generators pending a strategic review of the smelter’s future.

Rio Tinto said given current market conditions and with high energy costs, it expected the aluminium industry would continue to be unprofitable.

A strategic review to determine the fate of the smelter would be undertaken with results expected at the end of the 2020 March quarter, S&P reported.

Following the review’s announcement, more than $2 billion was wiped off the value of power companies.

Electricity retailers’ share prices all dropped after Wednesday’s announcement, and S&P predicts generators would also be affected..