Tiwai Point, Wikimedia CC

Tiwai Point closure – Expert Reaction

Tiwai Point owners Rio Tinto will close the Southland-based aluminium smelter after operating for almost 50 years.

The smelter directly employs about 1,000 people in Southland, and uses around 12 per cent of New Zealand’s electricity.

The SMC asked experts to comment on the energy and economic impacts of this announcement. 

Associate Professor Nicola Gaston, Co-director, MacDiarmid Institute for Advanced Materials and Nanotechnology, comments:

“The closure of Tiwai Point is first and foremost a loss for the people of Southland who will be impacted by the loss of thousands of jobs at an awful time. However, it is not a huge surprise, on some level: Rio Tinto has threatened to pull out previously, repeatedly, in negotiating the cost of the electricity supply with Government, and the discussion about what New Zealand should do with the energy is not new.

“Jeanette Fitzsimons (former Green Party leader) pointed out late last year that ETS subsidies for the smelter would total a billion dollars by 2030, and that we should consider better uses for the 13 per cent of our electricity supply, all of it renewable.

“Many of my colleagues at the MacDiarmid Institute are deeply passionate about this being the right time to invest in new tech to make the most of our renewable energy advantages in New Zealand – whether this is a form of energy storage, which could include green hydrogen generation, or something even more ambitious, such as using the energy for manufacture of other components needed for a zero carbon economy, such as solar panels – these options exist, but require a government-led business case to be developed.

Green data centres are another option that should be on the table: the carbon cost of data is higher than that of pre-COVID air travel, and increasing rapidly. A long-term solution will be forms of low-energy computation to mitigate this, but in the meantime, setting up data centres in locations where they can exploit the availability of renewable energy is a smart option.

“We have choices, here, and good ones. The priority underlying New Zealand’s zero carbon strategy and national investment should be that of a Just Transition, where the costs do not fall unfairly on vulnerable communities. The opportunity here is to show that, as a team of five million, we can get this decision right for the people of Southland.”

No conflicts of interest.

Dr Anna Berka, Lecturer in Management, Entrepreneurship & Innovation, Massey University, comments:

“Rio Tinto has flagged potential closure for some years. The current crisis has clearly pushed it over the edge. Previous governments went far to make it comfortable here; it was granted some of the lowest electricity prices, reportedly below cost. In return, Rio Tinto has been obstructive to emissions pricing, and by all indications seems to have abused our resource consent process as well. As the largest consumer of electricity in the country, its closure will have ripple effects on the entire energy sector, resulting in temporary surplus capacity – and resulting in downwards pressure on market prices, as well as very likely reducing the viability of new generation capacity currently under development.

“In terms of emissions, this may actually be a good development as the plant has been using up a lot of our low-cost hydro capacity and this might let us close down Huntly sooner. The big question is whether Southland can come up with creative ways to make use of existing assets and skills and re-channel them into new employment opportunities. Despite the fact that Rio Tinto’s departure ultimately seemed inevitable, it does not sound like there is a transition plan in place for employees.”

No conflict of interest.

Professor Emeritus Ralph Sims, Sustainable Energy and Climate Mitigation, Massey University, comments:

“Few countries have surplus power generation available to meet the present electricity demand as will be the case in New Zealand once the Tiwai Point smelter starts phasing out its high electricity-consuming aluminium potlines over the next year or two.

“Initially, some surplus generation will become available in the South Island.

“However, Transpower has already been planning investment in transmission lines for when Rio Tinto inevitably closed their plant. Their aim is to upgrade the existing Manapouri connection to the national grid and bring more electricity northwards from Manapouri up through the cable across Cook Strait.

“We know Meridian has been selling relatively cheap power to the smelter (whilst presumably still running the power station profitably).

“We know the generation from Manapouri is around 12 per cent of New Zealand’s total generation. (It is the largest hydropower station in New Zealand and second largest power station after Huntley, which runs on coal and gas.)

“We know there will be growing demand over the next decade or two for electricity, especially for electric vehicle charging and industrial and commercial heating by companies, schools etc., looking to displace coal with electricity.

“We also know there is a government target to move from the present renewable generation of around 85 per cent share of total generation to closer to 100 per cent.

“This will also further reduce the combustion of gas and coal used for power generation and therefore help lower the total carbon dioxide emissions from electricity generation.

“So, in a perfect world, closing Tiwai Point should theoretically result in greater shares of renewable electricity, a reduction in greenhouse gas emissions, and cheaper electricity prices for all New Zealanders.

“However, it’s not that easy.

“We have an electricity market largely driven by profit motives; an emphasis on increasing supply rather than reducing demand from increased energy efficiency; and the challenge of designing an electricity system that will be reliable even when higher shares of variable wind and solar generation drop, or in dry seasons when hydro lakes are low. (Maybe Manapouri could act as a bigger energy storage ‘battery’ in that regard.)

“We also have a carbon price that, although now rising steadily, is still too low to drive the necessary urgency to reduce our greenhouse gas emissions by any means possible.

“So, will New Zealand electricity consumers reap the economic and environmental benefits of having cheaper hydro power suddenly becoming available once the smelter starts winding down?

“I have my doubts.”

No conflicts declared.

Associate Professor Nirmal Nair, Department of Electrical, Computer and Software Engineering, University of Auckland, comments:

“Rio Tinto’s declared exit from Tiwai Aluminium Smelter within the next 18 months brings to close our five decades of partnership as a country with them, which has shaped one of our major energy transitions beginning of 1972, when Manapōuri our largest hydro station was commissioned. We then followed examples of our Northern Hemisphere counterparts like Norway, who began this journey of building large hydro-electric power plants along-side large electricity consumption loads since the start of the 20th century. A large-load is necessary for large generation investment to ensure electricity network stability and security.

“We as a country have embarked upon the journey for a zero-carbon 2050 with deep-electrification as one potential pathway. Transpower have recently (post-COVID-19) updated their potential doubling of electricity demand through their 2018 NZ Energy strategy Te Mauri Hiko to about 68% increase from our current 41 GWH energy consumption up then. With a demand destruction of about 11% of our energy with Tiwai closure, this estimate will further need revision.

“What the likely energy consequences are, which we as a country need to prepare for, is based on how this news is going to play out in the next two to 10 years or so. Here are some:

Will another international aluminium company purchase Tiwai from Rio Tinto’s receivership? Will we as a nation agree to give the new owners a 10-15 year ‘free electricity’ deal in this immediate post-covid pandemic transition? During good times we have been generous to the international screen-industry production for example.

Could we develop an energy intense data centre like our Nordic counterparts have developed as an immediate transition pathway? It is not likely to immediately eventuate but a possibility worth considering as we move towards increased digitalisation.

Will carbon-intense electricity generation countries, like Japan, move firmly towards Hydrogen economy post-COVID-19?

“If the demand destruction of electricity load happens in the next two to three years, we will need to spend some dollars to strengthen the transmission assets there to port the electricity to North Island.”

No conflict of interest.

Adjunct Professor Harvey Weake, Faculty of Engineering, University of Auckland, comments:

“I guess the industry has been bracing for this announcement for some time. Given the plant is close to 50 years old, that is a pretty good innings for such a plant and without a major capital injection to maintain its competitiveness, it was just a matter of time. Newer plants are just more energy efficient.

“While this will be a tough period for Southland, I see longer-term upside for New Zealand around a substantive gain in electricity storage. As New Zealand progresses towards 90+ per cent renewable power from a mix of incremental geothermal and wind, New Zealand must increase electricity storage capacity to meet both short and medium term interruptible supply to cover both windless periods and droughts. The most effective option is the standby Huntly coal power station to act as the dry weather ‘firmer,’ but this will ultimately be retired. Once this is retired, New Zealand either has to build another high elevation lake of around one billion tonnes of water, or build some other electricity storage facility to hold the equivalent of 500MW over 100 days. Either way, the solution will be very expensive.

“This announcement effectively allows this decision to be deferred for a couple of decades as Manapouri becomes more integrated with New Zealand’s strategic electricity storage.

“Short-term economic losses from the loss of Tiwai will be primarily through the loss of local fixed costs from that industry, but given it is foreign held, the impact to New Zealand’s economy will be pretty modest given it wasn’t projected to make significant profits anytime soon.”

No conflict of interest.

Professor Sally Brooker, Department of Chemistry, University of Otago, comments:

“New Zealand should make the most of that electricity for producing green products (e.g., hydrogen, ammonia, silicon for PVs, and/or even keep making super green aluminium on a smaller scale as Jeanette Fitzsimmons suggested in an earlier Spinoff article), and use the Regional Development Fund or COVID-19 budget to develop the necessary plant at Tiwai. It is a great site to do so. And it would keep skilled jobs in Southland as, without the smelter, the region will be absolutely hammered by the job losses.

“New Zealand needs to be investing heavily in further developing green energy generation and use, as part of our current government spending/investment. We could be world leaders in going completely to green energy (including transport – electricity, green hydrogen etc), as the world looks to respond to global climate change. We start from such a strong position with our high percentage of green electricity.”

No conflict of interest.

NOTE (13 July 2020): Professor Brooker’s initial response referred to “silica”. It has since been changed to “silicon”. Links to The Spinoff articles referenced have also been included.