Rio Tinto's dangling the potential closure of Tiwai Point in front of the Government. What's its power play and what are the consequences for New Zealand?

Rio Tinto's dangling the potential closure of Tiwai Point in front of the Government. What's its power play and what are the consequences for New Zealand?
Energy and Resources Minister Megan Woods

By Jenée Tibshraeny

Rio Tinto made waves on Wednesday, announcing closure of its aluminium smelter at Tiwai Point was on the cards, as it began a strategic review of New Zealand Aluminium Smelters (NZAS).

While its news was met with cynicism by stakeholders, and the Government ruled out giving it a subsidy, it was a bombshell nonetheless.

NZAS employs nearly 1000 people and makes up about 13% of the country’s electricity demand.

If it closes, or even downsizes, New Zealand’s electricity market gets shaken up.

Power bills fall in the short-term at least, and businesses/government are forced to re-evaluate their future investment plans. For better or worse, the effects reverberate through the economy.

So then, as sceptical as one may be about Rio Tinto’s latest play, its strategic review is worth paying attention to.

Is Rio seriously considering closing NZAS, which is one of the two smelters in the world that produces ultra-high purity aluminium and the only one to do so using renewable energy?

NZAS Chief Executive Stew Hamilton told RNZ’s Kathryn Ryan circumstances were different to the last time Rio Tinto put its hat out and received a $30 million payment from the Government.

He emphasised high energy costs and fluctuating aluminium prices, pointing out Rio Tinto hadn’t called a strategic review of this sort before.

Meridian, which supplies NZAS with electricity, said it only found out about the review the night before it was announced. NZAS accounts for 39% of Meridian’s contracted sales by volume.

Its CEO Neal Barclay told interest.co.nz: “The fact the smelter owners have called a strategic review shows that they wish to find a solution.

“If they wanted to exit, they could have exercised their right under the contract to reduce consumption or exit with 12 months’ notice. The fact they have not, means that a closure is not a focus right now.”

Barclay said in an investor conference that the company wasn’t prepared to “take one for the team,” or provide NZAS with even more heavily discounted electricity to keep supply tight to the benefit of other electricity companies.

Meridian will surely bend back as far as possible, won’t it?

Harbour Asset Management’s head of equities, Craig Stent, isn’t convinced.

“It is our understanding that NZAS currently pays a blended price of around $57/mwh for its electricity from Meridian [a bit more than half the wholesale price, plus or minus] and is seeking to get that cost down by circa $10-12/mwh, which equates to a direct hit to the earnings of the electricity industry of $50-80 million per annum,” he said.

“We would expect negotiations to continue to take place and for participants to meet somewhere in the middle.

“At the same time, Meridian will want to also get a win-win outcome, whether that is for a longer contract term or other terms such as demand management.”

Stent noted: “The economics of the smelter, whilst not stellar, do appear to be cashflow positive according to Meridian and others.”

What does Rio want?

NZAS’s Hamilton told RNZ it isn’t asking for another taxpayer handout.

Rather it wants a prolonged review of electricity transmission pricing methodology (TPM) to wrap up, and favour more of a user pays model than is being proposed.

Commissioned in 1971, the Manapouri hydroelectric power station (New Zealand’s single largest power station) was built specifically to supply Tiwai Point.

Accordingly, NZAS believes it’s unfair Meridian is having to subsidise the cost of investment in transmission assets in other parts of the country.

Fudged cost/benefit analysis and disagreement on how to move forward with TPM has seen the process extend over a decade.

If the proposed beneficiary model, which includes a cap to ensure no individual customer pays more than 3.5% above what they pay under the current system, gets the go-ahead, it will be implemented from April 2021.

NZAS maintains these changes, being consulted on until October 31, will be too little, too late.

Electricity and transmission costs make up about a third of NZAS’s input costs.

The company met with Energy and Resources Minister Megan Woods in recent months and asked her to push things along. She told media she made it clear she wasn’t getting involved, as the review was an independent process run by the Electricity Authority.

Meridian expects NZAS to save $10 million in transmission costs under a new regulatory period starting next year. If the proposed TPM is implemented, it will save another $12 million a year.

Put in context, NZAS reported expenses related to “raw materials, energy and consumables used” of $524 million in the 2018 calendar year.

Is electricity pricing really the issue, or is it simply the only lever Rio has?

The director of Enerlytica energy research and advisory firm, John Kidd, said electricity wasn’t the root problem, even though NZAS was pitching it as the solution.

“Energy would not be an issue if global aluminium markets were stronger,” he said.

"Energy is however the one value driver over which NZAS does have direct domestic influence, and with over 13% of the electricity market, is a lever Rio continues to be unafraid to pull.”

Kidd said Rio’s modus operandi power play was to be “opportunistic and disruptive”.

“NZAS’s move has been carefully timed to apply maximum leverage to exploit a cocktail of processes and uncertainties,” he said.

These include the transmission pricing review, generators being in the process making new-build decisions to meet anticipated higher demand, ongoing uncertainty around gas supply ahead of what could prove to be a volatile 2020; and election year.

All this said, what would happen if the smelter was shut?

Barclay of Meridian said electricity prices, particularly in the South Island, would fall in the short-term.

“Beyond that, the entire market will find a new equilibrium.”

S&P Global Ratings said this could take two or three years.

Stent of Harbour Asset Management said Transpower would need to make a number of transmission upgrades to release hydro generation from Manapouri and Clutha, and move it up the country.

He said it was estimated the major work would take three summers to complete, but altogether upgrades would take up to eight years.

“We would also likely see closures of thermal plant and deferment or cancellation of geothermal and wind development projects that are currently in the pipeline,” Stent said.

National Energy Research Institute CEO, Simon Arnold, agreed heightened competition from an oversupply would put pressure on operations that are fuelled by more costly forms of energy, such as the Huntly Power Station, causing them to close.

S&P Global Ratings said Genesis Energy and Contact Energy would face a higher degree of risk because of their exposure to thermal generation, while Meridian Energy and Mercury NZ would face less risk given their portfolios fully consist of renewable generating assets.

Is much-needed investment in new capacity on hold while we wait for Rio to update the market on its review by March 2020?

Barclay said: “Meridian has a wind project north of Napier that is currently in a pre-feasibility stage.

“The wind farm, called Harapaki would comprise 41, 4-4.3MW turbines, with the final capacity confirmed by the technology Meridian selects during its procurement process later this year.

“Any decision to build this would be considered in the context of this review.”

With New Zealand’s gas resources expected to be depleted within the next 7-10 years, and electricity demand set to increase substantially, new capacity is crucial.

This Ministry of Business Innovation and Employment (MBIE) graph shows how reliant New Zealand is on more wind capacity being built.

This MBIE graph shows the effect a hypothetical closure of Tiwai in 2030 is expected to have on new electricity capacity built:

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

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Interesting conflict between tactics and strategy? The government bureaucracy are thinking strategically and Rio Tinto are thinking tactically, seems to be one way of looking at it. Rio sense opportunity to get a better long term deal because the aluminium price is low. So they lock in low input costs and stand to do nicely when aluminium prices go up.

Trouble is, Rio may be being too clever by half. There is such a thing as winning battles but losing wars. In this case there could be a public backlash against them. After all, we have elected an anti-business government. They may be on thinner ice than they think.

We the public have been told year after year we pay for our power based on, broadly one can only suppose, what the international market expects. The rather ill considered, change for the sake of change, restructure by National’s Bradford doesn’t seem to have changed much at all. Except of course up the number of board members and executive layers. The thing is though, if the motor in your car is sick you don’t make it go any better with cheaper petrol. This situation cannot even be seen as working it’s way through a trough for aluminium market returns. The subsidiary, which keeps it going, has been about, and debated, for decades. It is as delusional as it is self defeating, to keep manufacturing falsely costed products. Muldoon and his SMPs should tell most people that.

"We the public have been told year after year we pay for our power based on, broadly one can only suppose, what the international market expects." and therein you encapsulate the issue. The privatisation of power generation in this country was one of the biggest shaft jobs the public received, and successive Governments have not sought to correct the matter. They are too interested in the dividends that are mandated, so we all get ripped off while effectively subsidising places such as NZAS. A "market based price" is just a sign of greedy and lazy business, seeking to extract the last dollar from a tight market. Through our winters people are dying because they cannot afford their power bills, will they die through the summer when they cannot afford air-conditioning too? The power industry should be re-nationalised and structured to serve the people, not the Government.

The Greens are conflicted; they don't like dams or wind farms but also don't like hydrocarbon fuelled power stations either, can't have nukes so no solutions are evident. I wonder what their solution would be?

Electricity in NZ is not privatized. NZ government is the controlling shareholder of more than 60% of the generation capacity of NZ and is the sole owner of its distribution (by the way more than 50% of the cost of electricity in NZ is for its distribution). NZ electricity industry is in absolute control of the government. It is not a privatized industry. If you mean government runs electricity as a business then yes, it does. Should it be run as a charity?
I am not defending the industry, but if not a market based price, then what? whatever one feels like to pay? sell at cost?
I thought nationalised mean owned by government. It is owned by government. Do you mean a more local government type? because DHBs and City Councils are so fabulous in serving the people?
NZAS is not subsidised. If it was "subsidised" why the share prices of power companies dropped following the threat? it is a huge customer of excess electricity production. They buy electricity in serious bulk quantities. Do you expect them to pay the same price as you and me?
NZAS is in a very good position to bargain because power companies will struggle to sell their electricity if it does not buy it from them. If there were other customers who wanted to buy electricity offering a better price, I am sure that the power companies would have just told NZAS to go away.

Yes the industry is privatised, sorry public owned through shares that are traded on the share market, and they pay dividends. As the largest shareholder the Government could direct how much profit is made, but they don't. Why? Power companies are not expected to be a charity, but they have neglected their networks and generation infrastructure in favour of dividends because the Government has demanded this. Then they have argued increased charges to pay for what they have wilfully neglected.

Try some basics, the minimum profit any business must make is $1. Perpetual growth is a false premise sold by economists and accountants. Any business must absolutely understand how much it costs to exist, and produce it's products. The price of those product should be based on this. the principle of charging what the market will bear is another falsehood sold by accountants and the greedy. As a tax payer I would expect the Government and our power companies to know, accurately, how much it costs to produce their power by the kilowatt. This would give an indication of their efficiency. Then, their infrastructure - generation and transmission, will have an estimated life and replacement value, I would expect them to be putting those funds aside annually and planning for replacement, and planning for an element of growth and resilience. At the end of all this you can arrive at a minimum price to charge for each kilowatt of power generated or transmitted. Are those figures available? If not why not - they are after all majority owned by our Government? How do we know we are paying a fair price, and what type of power generation offers the best return for the country?

I have no problem with your argument. But your facts are not right. NZ Government controls 100% of electricity distribution. It is not private. If your problem is that government thinks like a business when it comes to its electricity distribution asset, it does not mean that is private. You will need to check the Transpower financial statements to see if they are doing that or not. I guess that they are doing it.
I have never been told that NZ power generation assets (both privatley held ones and Crown controlled ones) require significant maintenance, again a poorly ran power generation company can be something that happens under both private and crown ownership. The cost of electricity information is available from Electricity Auhtoirty https://ea.govt.nz/. Who controls whole sale pricing (see this report file:///C:/Users/Peyman.Momenan.XRB/Downloads/Analysis-of-historical-electricity-industry-costs-final-published-Jan2014.pdf)
As I said before. it is true that NZ has partly privatised its power generation companies, however NZ electricity market is far from a free market, neo-liberal, thing. Neo-Liberalism may be horrible but NZ electicity market is not an example for it. Your need to have facts.

Believer - it is only the Transmission system that is 100% owned by the Government and their charges are less than 10% of the domestic bill. The distribution system is a segmented monopoly and owned by a variety of bodies, and their charges are about half the bill

Distribution is not production. I also disagree on "neo-liberal" it is simply the effect of crony-capitalism which is really what neo-liberalism has proven to be an utter failure.

You’re right, perpetual growth is a myth. However, govt and most of the population expect perpetual growth in taxes and social welfare. It doesn’t add up...

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"we have elected an anti-business government" - that would be the dumbest comment I have seen on this site for a while (excluding the MAN)

by the same token, I wouldnt say they are "pro business" either. Unless you're a meth dealer, then you just say you're addicted and get a lighter sentence

Working with a couple of ex meth dealers and addicts who are slowy rebuilding their lives and trying to go straight - thanks for your comment I will pass on the bucketloads of empathy dripping from it.

What the government has accomplished with the farming sector is actually a pretty good balance. It got the sector to sign on, and it's recognised that it's not easy and requires some time but it's important to be progressing. The alternative could have been a stalemate for years with no progress, or a backlash and an alternative government that paid lip service but achieved no progress at all.

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... anti nat gas ... anti business ... anti farming ..

Pro immigration ....

... is this really the way to make us feel good , Taxcinda ?

And yet the business continues as normal - people are paid - growth is good..sigh ..sound bites by the bitter old men continue ah.

Glad you dropped the racial component of your favourite daily comment, there are still two more elements in there that need to go though.

.. well done ... now , we just need to appraise Mr frazz of the need to not define people by age and by sex , and we will have made this beautiful world a little bit happier & friendlier...

Seems I've stirred up the bees nest today...

... if I had to be described thus , it would be as Bombus terrestris ... Grand Bee Hive . .

Hopefully its not your hair style?

Are you paying a noticeable amount more in tax under Jacindas govt Gummy? To justify the name calling I mean.

.. yes ... I am ..

More detail please so we can fact check?

16% fuel tax which goes across all aspects of peoples lives......affects the poor proportionally more

Between 2008 and 2017 National raised petrol taxes six times, usually by 3c - Simon Bridges was Transport Minister for three of those years. They also increased GST from 12.5 to 15 percent.
GST - that increase affects the poor proportionally by far

Wow so you noticed Nationals increase but not Labours....
Someone is a bit one eyed !
Your question was about the current taxes added by Taxcinda

Not really I'm a TOP supporter, my point was GST increase was the biggest tax increase to hit the lower income in NZ. Plus calling out the name calling one eyed Nat bots on this site.

Pro climate change and what legislation has been put in place that is significantly anti-business? What anti-farming has gone on?

What tax increases? cant see any myself.

Know their anti-gun ideology is certainly clear and I hope that will bite them badly come Nov2020.

Since you are a libertarian well you know you will never feel good about any Govn 99% of NZers would consider acceptable.

I suggest the Govn will be almost panicking, that 1000jobs and all the votes involved from family and other businesses will be petrifying I suspect. Meanwhile for the other 4+million of us we would look forward to lower energy prices so could well be hoping it closes.

Why would the cost go lower? It’s not like it’s a product that goes off and so they need to find a buyer. Also, if they have profit targets in dollar terms then it may even push the price up. If prices does drop, the govt get less dividends which pushes their income down. I guess they will make that up by increasing tax.
Also, what are the local implications of staff being laid off....not forgetting contractors and associated industries. Again, it will be the tax payer who suffers. Maybe a subsidy is not a bad idea.

Uh, it does go off, it has to be used instantly or not produced in which case you have a stranded asset.

I indeed see there would be a severe impact on the local economy and population. The Q is then is there a NET gain (or indeed a loss) from lower prices for the Nation despite the severe impact to the local economy.

The problem with blackmail is the blackmailers keep coming back.

Also as it stands my understanding is we as users are already subsidising this business.

Why should we be worried about the jobs. We currently import 55,000 people per year because we have a so called shortage of workers. !000 jobs is only roughly 1 weeks worth of immigrants.

Good point.

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If closing Tiwai Point means all those wind farms currently consented won't need to be built , then I'm all for it ....

... and , lest we lose our perspective here , Rio is a giant miner , with worldwide mining investments... their market capitalisation is $A 33 billion ... they're not poor ... not going out of business anytime soon ... don't need a $NZ 30 million top up .... haaaaa haaaaaaaa !

But still Jonkey gave in to them...maybe he was promised a seat on the Board?

Is Rio seriously considering closing NZAS, which is one of the two smelters in the world that produces ultra-high purity aluminium and the only one to do so using renewable energy?

Thanks Jenée. that's a good question. Current carbon price is NZD25 per unit (2 tonnes CO2). IMF suggest 75USD per tonne should happen right now. Australian smelters running on coal-fired electricity are the ones at real risk so Rio Tinto may see this as their last chance to lock in a scam price in NZ. Hopefully its too late for anyone to take them seriously.

It sounds like a business worth keeping alive for long-term payoffs, maybe not under the current ownership structure though.

In the likely event of Rio Tinto's exit, a consortium of ACC Investments and NZSF could take the business over and redirect future profits to cover accidental injuries and retirement pensions.
It makes a lot of sense to keep the operating margins, jobs and subsidies within our borders.
Could we emulate the success of Equinor/Statoil here in NZ? Stay tuned to find out more.

should be: "in the UNLIKELY event of Rio Tinto's exit....

I can't wait for Glenbrook to jump on this too.
Surely it's only a matter of time before they start with similar murmurings again.

NZ signed up to various climate change treaties promising to reduce CO2 emissions. Currently failing partly because of lack of political will (both Nats and Labour - it takes long term decisions to make a difference) and partly because of unplanned population growth related to an excessively high immigration. Killing the smelter is the easiest solution.

... but plants love CO2 ... why would we sign up to starving the planets greenies from their means of growth ?

How bizarre we are....

Running low on Oxygen today are we Gummy?

Well the Greens want it closed , NZ First could not give a toss , and Labour are cluesless as to the likely economic impact of having a surplus almost of 1/5th of our generation being unused ..... and this is not timber or milk powder which has a shelf life , electricity cannot be stored , use it or lose it

1000 extra nuclear power plants around the world would stop man made emissions lickety splick ...

... clean , green , atomic power ... nature at its purest form , atoms ....

So long as we can get air traffic using electricity too, perhaps.

Would have been nice if we could have gotten to the point of small, safe nuclear power for shipping too.

RS - I'd have no problem with nuclear if it was inter-generational neutral.

But it isn't. We get to use the energy now. Future generations don't get to use the energy but get to maintain the radioactive wastes.

I guess I call that fraud. There's a lot of it about..... :)

run out by the sound of it...finally after a long time starvation his now addled brain has packed in.

... back to the ad hominem attacks on fellow bloggers ... sad ! ... if you're gonna abuse anyone who has a different point of view I'm gonna think that you , PDK and frazz are one and the same person ...

That's funny, I've long thought of you as one and the same person.

But not as a fellow blogger. I prefer a tad less obfuscation, and a bit more fact:
https://phys.org/news/2011-05-nuclear-power-world-energy.html

Come on Gummy you are better than that. PDK is far smarter than I am...and you can dish it out but not take it huh?

But we did sign up. And we didn't have the sense to make it 'per capita'. And climate change is the new political flavour of the month.

"Climate Change " seems to be the new religion of this era ... supporters are fervent in their belief , and scathing of sceptics .... " deniers ! " they shriek ... and then , they glue themselves to a building , or block a roadway somewhere....

.... it's all rather funny , really ...

On the other hand, those who suggest listening to the scientific community is worthwhile view the folks who take an alternative tack as being like acolytes of a new religion. Fervent, devout quoters of talking points, shrieking at little girls who dare suggest listening to the scientific community on issues...

Symptomatic of our world of weaponised information, in some ways.

Plants love bullshit too, which is why we are so grateful for climate deniers spewing spurious logic throughout our environment.

I believe in significant human damage to the planet. Polluting water, soil and air. Destroying habitats etc. I also believe that the level our polluting can have massive impacts on our environment including affecting its climate.
However, i also find it troubling that some people who are passionate about environment use a terminology resembling a religious cult. Climate deniers? Climate heretics? Climate infidels?
To me climate change is the wrong focus. Not that green house gases cannot contribute to it. Just that it also may be affected but things that are totally independent of human activity like solar activities. If earth was getting cooler, less stormy, then would it have been OK to continue polluting the air, soil and water? to destroy other living being habitats? NO. We must reduce our polluting ways regardless of whether climate is changing or not.

I agree. Personally, I'm far more interested in cleaning up waterways, replanting native forests, reducing waste (especially plastic), and promoting active transport. All have clear benefits to us and the natural world, and as a happy by-product they may make some difference to climate change.

... absolutely agree with you & with Believer1980 ... along with the bold " predator free NZ by 2050 " goal , we ought to be aiming for trash free , 100 % pure waterways ...

Let's crank up cleaning this country... lead by example ... rather than lecturing other nations ... and rather than caving in to some UN dictated nonsense ...

" 100 % pure NZ " is an aspirational and achievable goal for all of us ...

Finally something we can all agree on - I have started who's with me?

We must reduce our polluting ways regardless of whether climate is changing or not.

Absolutely. Especially when we factor in the Anthropocene Extinction and the risk it is putting everyone at through the reduction of biological diversity.

There is a bigger environmental risk at play here - killing the operations will require another aluminium smelter elsewhere to make up for the supply gap. There The odds of this alternative running their operations in a clean manner on renewable energy is quite slim.
Therefore, our decision could lead to a net increase in global emission levels.

Coal fired aluminum production produces 10-20x the CO2 emissions per ton than hydro. Yes it could marginally reduce our emissions but at the cost of significantly increasing someone else's...

This is a systemic question. Climate Change ranks about 3rd, after energy (use and availability) and entropy. So we have to stand back and ask bigger-picture questions.

One factor which the article misses, is the company 'set up' to take the dross. It spread the stuff all around Southland, then went belly-up. Socialising the costs, is a way of describing that. It's what business does, offloads costs. Time we called that outfit and charged them what it's worth to us to use ourselves. If they choose not to pay, we organise transmission, and electrify our transport.

That's quite a weird comment. Quite contradictory, I would think..

It's what business does, offloads costs
IOW: "businesses are bad because they socialises costs."

If they choose not to pay, we organise transmission, and electrify our transport.
So, essentially, "If they [Rio Tinto] don't want to pay, we'll subsidise another business".

Businesses are only responsible to maximise shareholder's interests (read: profits). Some may have consciences, but the rest force the need for legislation.

I said nothing of the sort. I think economic growth has become bankrupt (not enough physical underwrite for all the currently-held bets) and therefore regard interest and (at this scale) profit as questionable, future-wise. But we need to run our society cohesively, post-growth, and electrification of transport is an essential part of that. (There is, of course, the question of what sort of transport, where and how much?). I said nothing about subsidising another business - I see society as needing fed, watered, sheltered and energised, in a long-term maintainable manner. If you can fit 'business' into that, fine, but I suggest we have seen the end of growth-engendering factors; they merely displace others, under a sinking lid.

electrification of transport is an essential part of that

I'm sorry, but if you are proposing wide scale electrification of the transport network you are inherently proposing an infrastructure subsidy.
That benefit of the project (like all transport projects) will disproportionately accrue to the transport operators (who are private business) - effectively, a subsidy.

With respect, you have an ingrained assumption-set, which adds up to 'not listening'.

The aim is to wean ourselves from the unmaintainable energy-source our society is dependent on, before it weans itself from us (even as we are complicit in forcibly weaning what remains, from others). Concurrently, we need to become ecologically/physically/resource-wise long-term-maintainable.

Whether someone makes a profit or whether business (as we've come to short-term know it) can continue, is secondary.

With respect, don't live in a fantasy world.

... ha haaa ha ... good one ....

k-s - https://www.resilience.org/stories/2017-04-20/limits-to-economic-growth/

give yourself the time; it may take a bit of assimilating given your starting-point.

Give myself time for what? Reading through the bios/credentials of those behind resilience.org?
That should take but 36 seconds.

The great thing about the internet is that there is webpage to support any narrative.
The bad thing about the internet is that it appears to make anyone a (righteous) expert on very higher order concepts while skipping the fundamentals.

Perhaps some more fundamental knowledge of infrastructure and basic economics would have avoided your original contradictory comment which you have now tried to steer the direction of the thread away from.
Even the enlightened such as yourself need humility.

What do you mean by 'more fundamental knowledge of infrastructure and basis economics'?

Here's a take which parallels mine almost exactly:
http://fleeingvesuvius.org/2011/10/08/on-the-cusp-of-collapse-complexity...
(sorry it has a lot of words :)

We need to address the work that can be done using the existing source (Manapouri) and what it is most useful doing in the future. We need to do that in a without-prejudice manner - but those of us who have looked ahead certainly have some ideas, and they don't include the current paradigm.

Oh, and 'basic economics' as taught (as you'll learn from the link) has the odd fatal flaw.

Go well.

Common goods also have a fatal flaw - but yet you proposed that as an alternative to subsidising one business.

Also, you'd maybe get more following if you were less patronising. You opinions (which are what they are - quoting blog sites is an opinion/hypothesis, not proven) are worth no more than anyone else's.

Hardin's little classic can be read two ways - the neolibs chose to believe it advocated private ownership. The global reality suggests otherwise - it needs rules and enforcement.

Patronising? I guess I'm too long in the tooth to care. We have run a false societal narrative and it is about to bite us in the posterior. I choose to promote the needed debate, and I guess I lose tolerance for those who choose to slow or avoid it.

When you come across opinions, you merely need to go back to first-principles. With energy, that's easy. With economics, sadly, it's a little like money; floating in mid-air, not related to anything concrete.

I think the research is pretty clear on the outcomes of public goods and free riding. Along with many other externality issues. There's not really two ways to read it.

Surely, the elementary principle of economics is the same as energy - the law of conservation ~ there is no free lunch. Total energy in any system is finite.
Seems like a perfect analogy for the first principle of economics..

But if what in fact you actually mean, but poorly articulated, is that economics deals in greater uncertainty (intrinsically behavior focused), I would wholeheartedly agree. It's a poor science - any study of human behavior is. However, likewise the natural sciences can also be very poor science.

But the poorest science of all is science that doesn't have a unified theory or empirical basis. That's the 'science' you tend to push, unfortunately. To take a general position on the feebleness of economics, you need to move away from doing that. And do so without being so 'long in the tooth to care'.

Then I must not articulate it properly. What I push is systems - which is about as unified as it gets.

https://www.interest.co.nz/opinion/98119/murray-grimwood-looks-how-we-sh...

But do take the time to read that link I put up - done because it would be a bit long as a thread comment. I'd be interested in a real rebuttal - but never seen one.

As it applies here, the systems approach would put the need to become sustainable, above everything else. It would also appraise existing energy-generation, before building more. And it would ascertain where the energy was best used, and therefore sent.

As it applies here, the systems approach would put the need to become sustainable, above everything else. It would also appraise existing energy-generation, before building more. And it would ascertain where the energy was best used, and therefore sent.

Okay, so surely you understand the importance of economic theory in such a 'systems' approach...right?
I think the most pertinent rebuttal is that the modelling you propose is exceptionally difficult. Exceptionally.
I doubt you have any reference for just how complex it is. The idea of any sort of modelling - be it the natural sciences, or economics - is on obtaining the most parsimonious model for the application in order to test for some hypothesised relationship. It's a process we have been doing for millenia - reducing complexity to a manageable state in which we can derive understanding.
Reading your posts occassionally, I get the feeling that you don't understand this - no model, be it in the natural sciences or economics is correct. Nor is it assumed anywhere near adequate in the eyes of the empiricist - and this is the starting assumption in any empirical literature.

Sciences get it better than economics, for the simple reason that they don't ignore items of inconvenience.

No, sorry I don't 'understand the importance of economic theory'. Quite seriously. Norway is following economic theory. It's taking a once-off, never-to-be-equalled energy stock, converting it into digital '1's and '0's, which it 'invests' in a sharemarket which cannot out-survive the global depletion of said energy stock (renewables don't do it: https://www.withouthotair.com/ ). So they're swapping the family cow for a few magic beans. One of the biggest mistakes has been short-term thinking. Here's a good local stab at it: https://www.stuff.co.nz/national/politics/91147477/jonathan-boston-safeg...

Manapouri is a family cow - it's energy and it's real. It was built for spurious reasons, but it's there. How best to use it, in an ever-more-energy-depleted future, isn't a question of economics. Beyond peak energy flow, price signals are merely an expression of more debt in the bet. Maybe a measure of desperation, but hardly a marker for creating a sustainable (as in: long term maintainable) society.

Without interest and without being linked to something real (the Petajoule, gold, resource stocks, depletion rates are options), while being debt-issued, money merely reflects our forward bet(s). Conventional economics does supply, demand, then usually suggest an alternative at some price-point. On a planet with 1 billion people, largely peasant in their resource demands, that might have worked. With going-on 8 billion, stripping the place bare, it doesn't work. No substitution satisfies the next doubling in demand, and no substitution can stave off ultimate depletion. Kate Raworth https://www.kateraworth.com/ and Ellen MacArthur https://www.youtube.com/watch?v=eOGy683afyo
are two who 'get' the problem. My favourite lady is this one: (the clip's a bit dated, she dies a while back) https://www.youtube.com/watch?v=HMmChiLZZHg

We need Dr Woods to be thinking along those lines.

Sciences get it better than economics, for the simple reason that they don't ignore items of inconvenience.
Like I said - you obviously don't understand the modelling. No one "ignores terms out of inconvenience". They omit terms on the basis of not having adequate data or structural understanding. There is no point including factors in your model for which you can't explain their presence or rely on the robustness of the results. Science does this, as does economics, or any discipline reliant on structural modelling.
As far as I am aware, the overwhelming majority of natural sciences are pretty big on including error terms in their models. So I don't see your point. Unless of course, you have failed to recognise this...
I think it goes back to ya needing to understand things before you criticise them. Models are a combination of art and science that demonstrate a principle or relationship. Perhaps some reading might help you understand fundamentally what they are:
https://plato.stanford.edu/entries/models-science/

No, sorry I don't 'understand the importance of economic theory'
Okay, well in your 'systems' approach you should because without it the conversion to your utopia is impossible. Although I (or yoiu, seemingly) have no idea what your systems model actually represents, it seems the omission of human behavior would be characterised, in your own words, as an omission of the inconvenient. Ironic.

How best to use it, in an ever-more-energy-depleted future, isn't a question of economics. Beyond peak energy flow, price signals are merely an expression of more debt in the bet.
??? This doesn't make sense.
Again, economics is about managing scarcity. Surely it is ever more pertinent for efficient allocation in an 'ever-more-energy-depleted'. As for the second part, that doesn't really make any sense.

Conventional economics does supply, demand, then usually suggest an alternative at some price-point.
Well in an extremely simplified way of speaking, sorta. A better way to think about it is that economics offers a substitute at a given level of technology. Once you accept that util isn't underpinned by one unit of real resource, I think your understanding of the subject and world will flourish. As long as you choose to ignore this (conveniently), I don't think your opinions will get much praise outside of internet blog sites..

Finally, if you are big on robust science, Kate Raworth is not someone you should be quoting. You frame your whole argument around the robustness of theory, modelling and assumptions and then quote someone who epitomises those shortfalls.

News Just in ..........The World Bank's annual Doing Business survey issued a few hours ago shows that New Zealand has the envious title of being the easiest country in the world to start and run a business ............

But but but - the we elected a anti-business government ...how can this be?

They didn't say anything about the cost of doing business though. With nearly everything here imported, tough labour laws and a reasonable minimum wage it certainly isn't the easiest to turn a profit.

Agreed - but then if you cannot afford to pay even the minimum wage then your not a business.

Sounds like Meridian should consider a low ball bid for the plant.

... that plant could be repurposed as a kick arse heavy metal adventure playground ... super slides , giant flying foxes , rollercoaster rides ... and pump in some old school heavy rock and metal music ...

But then Hamilton would get pissed off.

six years ago they estimated remediation costs of 400 million,these old aluminium plants are full of asbestos so nobody will want to buy it and rio wont want to pay for it.keep it going or shift it sideways into an entity that has no real assets and can go into liquidation.

Could someone explain how much loss of energy there would be if the electricity is sent from Manapouri to Auckland. And how much it would cost to enable this to happen?

Lots, and plenty. The Cook Strait crossing is a DC line, which implies DC-AC conversion at either end with 5-10% losses each end. Pure transmission line losses are of the order of 10-15% over that distance excluding the conversions. And beefing up the SI and NI legs of the lines plus the added conversions is gonna be in the billions of capex, and 5-10 years of build. Now I'm a Failed electrical engineer (never could get the point of square root of minus one). So other commenters can refine my necessarily crude costings. But it is surely Lots, and Plenty.....

Has Meridian been thinking ahead and done their best to identify another 'user' if NZAS closes down or demands too much of Meridian. I'm sure there must be other metal refiners out there who would relish the prospect of relatively cheap 100% renewable energy. It would be interesting to see how NZAS would react if Meridian said : "that's ok, we've got another metal refining company lined up to use this energy...have a nice day".

Another metal refining company with billions to spend on greenfield development, resource consent and the ability to be up and running within 12 months?

What about a big ass Tesla Battery like they have in Adelaide. The 100MW/129MWh battery. Cost NZ$100 mln. Put it as far north as possible on the North South Link that starts from Benmore. Send Manapouri power up the line at night when its low demand to be stored in the battery. Then send the power north during peak to service Wellington and lower North Island. Then Waikato Hydro can be used soley for upper north Island. Maybe Huntly could even stop burning dirty Indonesian coal to keep the lights on in Auckland. And everyone in Southland.Homes and businesses can have power for 5c per kwh. Fill yer boots. Might attract some new business to the area

That would require about 8 Tesla batteries ie $ 800 Million + NZ $ and provide power for about 80 minutes !!

Plus an upgrade to Clyde - about $ 2-300 million,

Plus a Cook Straight upgrade - anther $ 3 Billion maybe.

Plus about 15 % on transmission charges Tiwai would not be paying,

Plus new transmission charges on the $ 4 Billion - at 6% = $ 240 million / annum.

Batteries are simply not an economic option.

Yet JB..some big break throughs in storage about to be announced.
https://www.bbc.com/news/business-50140110

They have far more effective energy storage. They are called lakes. If they want another one they should dust off the proposal to build one in the lake Onslow area of Otago
https://www.odt.co.nz/regions/central-otago/massive-hydro-storage-plan-b...

I also wonder about a pump storage system between lakes Wanaka and Hawea?

Another really good one here in the North Island would be great too. Is there any where else suitable on the Central Plateau?

This happens every 5 years or so. The smelter won't close.

Rio have recently signed a contract with Iceland at a rate between $NZ47 to $55 /MWhr which is pretty much in line with what they are paying in NZ. This equates to 5 cents per kWhr. It is very very cheap. Iceland is blessed with very bountiful sources of renewable geothermal and hydro energy with 72% of their output going to 3 smelters. Maybe we should be comparing notes with them.
It may be that that this power is more valuable to us in our goal to eliminate fossil fuels. In fact ultimately that is almost a certainty as we will have to invest a lot of money otherwise. Even redirecting Manapouri power away from Tiwai will not come cheaply. So the big question we face is, does Tiwai have a long term future and if not how are we going to manage the transition?
Maybe we have to negotiate a progressive close down of Tiwai as we change the rest of the system to supply the power where and when we want it.
Maybe there are other ways we can incorporate the smelter in our system. Could we alter the way that it is run, so that it fully produces only when we have plentiful or surplus power (the dynamics of this would have to be over a longer time scale as pot-lines cannot be just turned on and off instantly.)
This smelter produces some of the highest quality aluminium in the world. Does what it is paid reflect this in the accounting that we are being presented? If it isn't then, is the premium for this quality accrued somewhere else. Where? Is there some way that NZ can capture value from the quality of our product. Can we set up specialised down stream industry that add value and capitalise on the quality of our aluminium. We may be able to make more money by producing less aluminium but processing it into high value products.
We need to treat their concerns sincerely, not yield on our position and be prepared to accept that the smelter will close. If it is a bluff on Rio's part then we should be prepared to call it. If we approach negotiation this way and they are bluffing we may discover that the smelter is of more value to them than they are making out. If push comes to shove then they may be prepared to pay more not less.

If push comes to shove and we can't resolve the price issue with Rio, is there any value in NZ taking over the operation ourselves. If Rio have to close it then it will cost them a fortune to close it down, so it will effectively have negative value to them and it may well be cheaper for them to pay some body to take it on

There is no significant premium on very pure aluminium. All Tiwai produces are ingots. These are bought by the foundries who remelt them, adding the alloys they need and removing the impurities before casting them into the desired product.
To use Tiwai's power elsewhere, They have to build a double circuit line from south of Roxburgh to Whakamaru. And it would need two Cook Straight cables to give security of supply. It can be done, but it would take a decade and truckloads of money to do it - Maybe $10-15 billion. That assuming it can get through the RMA process.

I suspect that it may not be that bad.
The up dated DC link has a capacity of 1200 mw which means by my calculations you could transfer 10,512 gWhr/year north if you ran it flat out all year.
Last year about 3,500 gWhr was transferred north and a small amount south.
The smelter consumes about 5,400 gWhr per year.
If there was no smelter we would use some of the power in the south island and never need to move any power from the north to south.
As we can see from above, we could add the extra 5,000 odd gWhr surplas from the smelter to the existing 3,500 gWhr going north and still not exceed the 10,512 Gwhr installed capacity.
Obviously we would need to change the way that we manage lake storage and power generation, and this would have to be modelled to see how it worked out. But may it be not as difficult and scary as you may first think.
I am not sure but we may need extra transmission line capacity from Roxburgh to Benmore. And even that may not necessary because I seem to remember that an extra transmission line was built from Roxburgh to Invercargill to give 100% redundancy to the smelter should both Manapouri and the original Invercagill lines fail. Each of which was capable of supplying the Southern load including the smelter. In any event, not a biggy.

A bit of self criticism at this point. The above is somewhat idealised and takes no account of what limitations there may be in how much the NI can accept from the south. Picture the middle of the night in summer while having to preserve minimum river flows. If this was a constraint then we would have to start thinking about load shifting - ripple control, charging electric cars at night etc. If that were insufficient then we could give consideration of some sort of pumped storage system in the north island. Now that I think about it, the lake Onslow pump storage system would only be helpful in preventing energy being wasted when water is spilled from the south island lakes.

The Cook Strait cable is mostly used for two shifting, often in round power mode. The maximum load north is limited by the number of thermal units on (to give necessary inertia) and the load in the NI at the time. They often cannot put more load north, even though its capacity might not appear to be fully used. There also need to be reserves in the North Island, or major sheddable load..
There are major constraints at Livingston and even if they are fixed, the lines either side have severe limitations. Read the Transpower documents. There are also significant constraints getting power from Haywards north.

Is it coincidence, or not, that Rio Tinto comes out with this just as the Waiau River communities '#just3%' call (for 3% of Meridian's consented water take to remain in the Waiau for ecological reasons) is starting to gain some traction and attention - even internationally.
The govt is finding it harder to ignore the ecological degradation caused by only around 5% of the water now flowing in the Waiau. Eugenie Sage is said to be visiting the community in the very near future as the pressure is mounting on the Green Party and govt to admit to the problems in the Waiau. Meridian doesn't want to give up any water. http://www.scoop.co.nz/stories/PO1909/S00228/did-minister-parker-mislead...

So it is interesting that this comment from Rio Tinto is coming out now, given in December 2018 the 4th pot line was re-started at the smelter with the Rio Tinto Aluminium chief operating officer Pacific Operations stating: Restarting this potline will increase the smelter’s production capacity by around 10 per cent and, with increased orders for other products, has created 45 jobs.”
The investment is underpinned by the strong market for NZAS’ products, significant enhancements in the competitiveness of the smelter and a new partnership with Meridian Energy to provide additional clean hydro energy until 2022.
https://www.riotinto.com/media/media-releases-237_26567.aspx

The battle for 3% more water, for ecological reasons, is only just warming up. The Waiau community will not back down, and Meridian and the govt, from past performance, is not likely to unless forced to, either. This govt says all the right things about sustainability, wanting good water quality, world leaders etc, but a trip to the Southland Waiau, shows that this govt, and all others before them, don't practice/mean what they say. Rio Tinto's threat is just the side show deflection.

Yes, CO, I recall the Mighty Waiau in the late 60's and it's a shadow of its former self. Also Tewaewae Bay coastal dynamics were substantially altered by the diminution in flow and it may be unlikely that restoring Waiau flows would cause any reversion....

Again? This negotiation comes up again and again.

Every year since way back Rio Tinto has claimed Tiwai is marginal. So they need special treatment. It's a load of rubbish.
Since they claim it's nearly worthless how about they sell it to a company owned by New Zealanders for $1. I don't mind personally helping with the $1 if that is still an inflated price.
Surely Rio Tinto would be glad to get the $1, given how badly they say they are doing.