Smelter cuts production
The Tiwai Point aluminium smelter has agreed to reduce its electricity usage by about 11 megawatts by cutting its production in return for compensation from Meridian, amid fresh warnings over the continuing power market squeeze.
The cut comes on top of an earlier 6MW cut and will reduce its energy consumption to 555MW.
The smelter is the latest in a line of industrial power users that have curbed production amid what threatens to be a slowly unfolding power crisis triggered by low rainfall, gas production problems, and a long period of relatively low investment in new power generation.
John Harbord, chairman of the Major Electricity Users Group, said yesterday that businesses that were looking to re-hedge electricity in the second half of this year were facing hedge price increases of ‘‘up to 100 per cent’’ compared to last year.
‘‘Some energy-intensive companies simply cannot afford hedge prices that high. Further job losses are likely, with our regional communities likely to be the hardest hit.’’
Lake levels and forecasts yesterday appear just a day or two away from the point where Meridian could contractually require the smelter to slash electricity consumption by a further 63 megawatts, to
492MW, over the next 130 days in return for compensation.
The power company reached an agreement with the smelter last week that established a framework for the smelter to make the smaller, voluntary cuts of up to 30.5MW, also in return for compensation, but cuts did not kick in immediately.
A spokeswoman for the smelter’s majority owner, Rio Tinto, said the
11MW cut that had been made this week had been achieved by turning off some of the smelter’s pots but would not result in job losses.
The production cut comes with aluminium prices sitting at US$2511
(NZ3487) a tonne, their highest price since August 2011.
NZ Steel and the Norske Skog paper mill in Kawerau also reduced production in response to high wholesale prices last month, and Harbord partly blamed the closure of the Whakata¯ ne Mill in March on the electricity market.
Spot market electricity prices peaked above 50 cents a kilowatthour on Tuesday morning when Fonterra added its voice to calls for market changes, saying in a submission to the Electricity Authority that the electricity market was no longer fit for purpose.
The Electricity Authority
‘‘Further job losses are likely, with our regional communities likely to be the hardest hit.’’
John Harbord
Major Electricity Users Group chairman
mounted a defence of the electricity market last week, saying it was wellregarded internationally and was ‘‘doing the job it is designed to do, reflecting lower levels of supply’’.
Harbord said members of the MEUG had discussed the EA’s statement at their monthly meeting last week and indicated they had not been won over.
‘‘Individual MEUG members were of the view that the commentary read like an ostrich with its head in the sand, pretending everything is OK and that New Zealand has it good compared to other countries.’’
Harbord has previously argued that generators are almost incentivised to keep the market ‘‘on the precipice of shortage’’. He was aware of another MEUG member that was operating at a loss because of high electricity prices.