Tiwai Point Aluminium Smelter, Southland. (Photo: Creative Commons)
Tiwai Point Aluminium Smelter, Southland. (Photo: Creative Commons)

BusinessNovember 29, 2019

A modest proposal for the future of the smelter at Tiwai Point

Tiwai Point Aluminium Smelter, Southland. (Photo: Creative Commons)
Tiwai Point Aluminium Smelter, Southland. (Photo: Creative Commons)

Closing it down entirely isn’t the answer, but neither is letting it run as before. Jeanette Fitzsimons has a compromise plan.

An asset or a liability? Actually, Tiwai is both, but the liability could be turned into an asset with some creative thinking. A structural change in New Zealand’s relationship with the aluminium industry could provide a way forward.

On the one hand, Tiwai uses 13% of our national electricity supply, all renewable hydro from Lake Manapouri. Some want to see that freed up for other uses, to replace coal and gas from Huntly and elsewhere, and give cheaper power to households and other businesses.

Shutting the smelter down would also reduce our national greenhouse emissions from all sources by 0.8%, making it easier to meet the targets in the Zero Carbon Act and our commitments under the Paris Agreement. What’s more, those emissions are heavily subsidised by taxpayers because the government gives Rio Tinto free carbon credits under the ETS. This will total some billion dollars by 2030 if the smelter stays that long. There are better uses for a billion dollars than subsidising a rich multinational.

On the other hand, assimilating 13% of our power and 1,000 skilled workers is a very large lump for the national economy to digest. At present the transmission infrastructure to take all that power north from Lake Manapouri doesn’t exist and building it would take a few years, at an estimated cost of $600 million.

While our national climate targets would benefit, the global climate wouldn’t. Tiwai is one of very few smelters powered by renewable electricity, although it is still far from carbon zero (the carbon anodes yield one molecule of CO2 for every molecule of aluminium metal). Tiwai is said to produce the cleanest and purest metal in the world. Globally, three quarters of aluminium is made with fossil fuels, mainly coal, and this would likely replace the product from Tiwai. So if aluminium sales remained the same, global greenhouse gas emissions would rise, but New Zealand would get a boost towards our climate targets. That doesn’t help transform our economy towards zero carbon. We haven’t done much yet, and don’t need a free pass to climate sainthood.

The world needs to reduce its use of aluminium (along with steel and cement) if we are to make any impression on our alarming climate chaos statistics. There are ways of doing this which would result in some smelters closing, but preferably we wouldn’t start with the cleanest, most efficient ones.

The problem that remains if the smelter closes is the size of that big lump of power and people. However last month’s announcement of Rio Tinto’s strategic review hints at a way forward, referring to “curtailment or closure”.

The big issue with 100% renewable electricity is how to meet demand when the lakes are low, the sun doesn’t shine and the wind doesn’t blow. This issue has been greatly overblown – these three things normally don’t all happen at the same time so a mix of the three  gives a reasonable level of security. There are many technologies that can help, from batteries to pumped storage to winter-focussed efficiency. Then there is significant geothermal – not strictly renewable or zero carbon (though generally treated as such) but highly reliable.

However storage – daily and seasonal – is still an issue and electricity is difficult and expensive to store. The government, driven by the electricity industry, plans to provide short-term back up with a number of new gas-fired peaking power stations. This would rule out any hopes of getting to zero carbon by 2050 as these stations will have design lives of at least 40 years, and will need a major new gas user such as a petrochemical plant, to keep the gas flowing.

While you can store electricity short-term in batteries, it is difficult to store it from one season to the next. However it could be embodied in aluminium. The metal ingots will not rot or rust or be eaten by pests, are convenient and not too bulky to store. Contracts can be met by planning to release the ingots during a shutdown to provide continuity to  markets. A “curtailed” – ie scaled down – smelter could be run as part of the electricity system’s dry year storage: making aluminium, and storing some of it, when power is cheap and available, with planned shutdowns when it is not.

Unplanned shutdown at a smelter is a disaster, with the metal “freezing” in the pots, and this has given rise to the perception that they can’t ever close. But these days they can be designed to survive planned closures. Low rainfall in the hydro lakes is fairly predictable and the impact of hydro shortages on the electricity system takes time to develop, so there is time to manage a smelter in response. Stockpiled aluminium ingots can be used to fulfil contracts.

There are four potlines at Tiwai. The plant has been on the market since 2011 with no takers so it would be a buyer’s market. I propose we create a small SOE, linked in with the electricity system, to offer Rio Tinto a reasonable price for the newest, most efficient line – or possibly even two. Meridian, the main power supplier to the smelter, could even start negotiations by offering them $1 for it, absolving them of the legal requirement to clean up the considerable mess there will be when it finally closes. The new owner would market a smaller quantity of premium, renewably powered, very pure aluminium, and usefully release extra no-emissions Manapouri hydro power onto the market.

The lump of extra power then becomes digestible. It could help with the transition away from coal in the South Island where milk and other food processing, schools and hospitals and various small industries are still reliant on coal. Voluntary redundancy might take care of many of the displaced workers, and we retain the skills, earnings and tax contributions of the others. We retain a (scaled down) export industry and the new company becomes part of the operation of the grid. Less transmission infrastructure needs to be built. We save all or most of the ETS carbon subsidy and stabilise our now genuinely “100% renewable” electricity system.

Unfortunately such a commonsense scheme could not possibly emerge from the current cartel-like electricity industry which is totally focussed on increasing its sales and profits. They want to retain thermal power stations because that raises the price they can charge for all electricity. There is ample evidence that they are actively discouraging solar, clean domestic-log burning in winter, and energy efficiency. For example, they want to get rid of the low fixed charge for small users, raising fixed charges to up to $2/day and lowering per unit charges which penalise the thrifty and makes alternatives uneconomic. The public good just doesn’t figure.

This outcome is the eventual consequence of the Max Bradford restructuring and privatisation of the 1990s. It will take a brave, very well informed and advised government to turn this round. No-one in the last 20 years has had the understanding and the courage to take action for the public good. I’m not holding my breath.

Jeanette Fitzsimons is an energy analyst with a particular focus on climate change.

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