Monday, April 13, 2015

The silver lining

On Friday MBIE released a report on the future of New Zealand's electricity industry, which highlighted the massive effect of Tiwai Point and the back in profit - but they're uncertainty it creates in the market:

The future of New Zealand Aluminium Smelters at Tiwai Point near Bluff has been thrust back into the limelight in a report by the Ministry for Business, Innovation and Employment.

Meridian Energy's generation from Manapouri supplies NZAS with the equivalent of 13% of New Zealand's electricity, but there is ''considerable uncertainty'' about its future, the ministry says, with a July deadline looming for a decision by smelter owner and Australian mining giant Rio Tinto.

Until Rio Tinto announces a decision, other power generators around the country are in limbo over issues of maintenance, upgrading, expansion or closing some of their respective assets, and then how the sector will respond to changes in electricity supply and demand.

All of which sounds bad, but given that we have an oversupply of electricity at the moment, its not that big a deal. Meanwhile, it highlights the wider cost of maintaining those 3,500 jobs in Southland: its not just the direct $30 million subsidy they extracted from the government last time they threatened to close, but the fact that they use 13% of our total electricity supply and don't pay full cost for it. Which means that every single one of us is indirectly subsidising Pacific Aluminium through our power bills.

If Tiwai Point shuts down, we get that 13% back. Which means not just cheaper short-term power prices due to oversupply, but also being able to shut down or mothball thermal plants, meaning reduced greenhouse gas emissions. It would be very bad for Southland, but pretty good for the rest of us.