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Brian Fallow argues there is a better use for the electricity consumed by the Tiwai Point smelter than keeping a reluctant foreign owner in a business it wants to quit

Brian Fallow argues there is a better use for the electricity consumed by the Tiwai Point smelter than keeping a reluctant foreign owner in a business it wants to quit
Winston Peters by Jacky Carpenter.

By Brian Fallow

Winston Peters’ plan to save the Tiwai Point smelter is as cruel and cynical a piece of electioneering as we are likely to see. 

It is cruel to pretend to the smelter’s workforce and the wider Southland community that it is anything other than a zombie enterprise, whose economics could only be salvaged, if at all, by expropriating other New Zealanders for the benefit of a foreign multinational. 

It is cynical because he must know that it is not going happen. 

There is a reason Rio Tinto has wanted rid of Tiwai and the rest of its Australasian aluminium business since 2011.  

The economics of the global aluminium industry has been transformed by China building smelters apace, using electricity from coal-fired power stations and subsidised in the ways state capitalism allows, to the point where it accounts for more than half of global production. The resulting global glut had already depressed prices before they lurched lower when Covid-19 hit. 

There is, of course, no acknowledgement of that in Peters’ entirely insular account of how it has come to this. 

Instead, he proclaimed in a speech in Invercargill today (Friday) “My party is here today to oppose any idea of closure and to promise that if we go on having a say in government then we commit to a 20-year agreement with a 10-year review, with a fair electricity cost based on the cost of supply and a respectable margin.” 

And what’s a respectable margin? “Something like the original agreement of 10% when this great enterprise first started.” 

More to the point – and on this Peters is silent – is what is the “cost of supply”? 

If it is the historic cost of building Manapouri 50 years ago (and a subsequent second tailrace tunnel) that is long amortised. And the fuel, Fiordland’s copious rainfall is free. 

But the relevant cost has to be the opportunity cost. What could Meridian get for that electricity if it made it available to the national market? 

Modelling that is a task of fiendish complexity. It would involve figuring out what the response of such a shock – though one long anticipated -- would be to both the supply and demand sides of the wholesale market, and the cost and timetable for upgrading the national grid. 

Clearly the failure of Rio on one side and Meridian (and Contact) on the other to agree terms tells us that there is no power price low enough for Rio that is not too low for Meridian.  

And it is not just the taxpayer’s money that Peters is proposing to give away. Meridian has minority shareholders too. What about their rights? 

But the biggest opportunity cost here is the national one. 

The closure of Tiwai – however unfortunate for the people of Southland – is nationally the 21st century equivalent of striking oil. 

It frees up about an eighth of the country’s electricity production and it is renewable. 

Surely we could find a better use for that resource than to keep a reluctant foreign owner in a business it wants to quit. 

Several electricity-intensive options have been mooted: a smelter to produce photovoltaic grade silicon metal, a “green” hydrogen plant, a databank to serve the cloud. Even a Tesla giga-factory. 

But given the prospect that Marsden Point will go the way of Tiwai Point, and for similar reasons, arguably the best use of all that power would be to enable the next government to get serious about fostering transition to electric vehicles.  

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64 Comments

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The simple difference between politicians and leaders is clear here. Speaking generally of course, leaders will work for the betterment and benefit of those they lead, politicians care only for that which will lead to them being elected regardless of the outcome for the electorate. The whole democratic world suffers from this and solutions are not likely to present themselves as long as politicians run the show.

I could not agree more.

That is why I see CCP officials are leaders, who led China to achieve this enormous success to date.

CCP officials do not even call themselves politicians.

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Xing if you want to be taken at least semi-seriously you really need to tone down the blatant propaganda and blind adherence to the Party line. Add some intellectual and debateable discourse.

Mike Pompeo has plans for your leaders.

https://youtu.be/7azj-t0gtPM

Do leaders practice ethnic cleansing?

So salvaging Tiwai now seems to be very definite. Just as realistic as the entry and recovery of bodies at Pike River Mine.
Pity Winston wasn't the first in the Pike River Mine re-entry - as was his stated intention - for it to be then immediately sealed up.

Yes,yes,yes!!

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So what's new? We all know that Peters is cynical and never more so than with an election looming-only this time he sees the very real possibility of political oblivion in front of him. So, he is lashing out in a hopefully, vain attempt to be seen as relevant. He cares nothing for the long term interests of anyone but himself and is more than prepared to use the people of Southland for his own ends.
I will open a bottle of bubbly if he, Jones and NZ First are consigned to history's dustbin on election night.

Problem is who are you wanting to see in power minus nzfirst. -- A labour/greens or nats/act govt? Neither appeals to me. He doesn't deserve it but Winstons handbreak is needed.

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Just received an email from NZF - "Our immigration policy needs a fundamental reset" containing " will demand the immigration portfolio because for decades the old parties have failed us ". I've been writing comments for years suggesting a lower, more rational immigration rate but I simply can't trust NZF. We do need a policy and a means of measuring its success - what we have had is a policy that is never discussed without either blatant racism or accusations of racism used to shut up debate and as an excuse to allow the status quo which is rorts and corruption. The best we can get out of our govt and its predecessors is "we want skilled immigration" and then what we get is 75% not arriving as skilled and the skills that do arrive are frequently low paid chefs and small shop managers on below average wage.

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The problem lies in the definition of skills and the supposed shortage. I personally know a Contracting Company that advertised for positions at well below the market rate and thus got no applicants. The owner then went to INZ saying he'd advertised for 3 months but to no avail. He then got permission to import the labour he required. As it turned out the labour he put onto his clients sites were so far below the expected level of expertise he subsequently folded and the migrants sent home. Karma's a b*tch

I sure hope that sort of thinking is in the minority.. hopefully less than 5%

Either Labour or National on their own.
NZ is too small for MMP to be anything but what we've seen - an unbalanced control of our parliament by minority parties who will pledge their allegiance to whoever offers them the biggest bribe.
FPTP might be old fashioned, but it's probably a better fit for a small nation.

Eh, I'd prefer them to lower the threshold and implement STV. More representative rather than less.

Yes it's a shame that STV is used only at local government, which has poor turnout and is a completely different political setup than central government. With STV we'd lose the party lists, and instead get the list members people have actually voted for not dodgy people halfway down the list (looking at you Jian Yang).

I've noted that STV just gives everyone their least worst option, not the government that more people prefer as their first choice. Best leave it in local government where nobody cares.

A continuation of this present coalition which included the cost of somehow salvaging Tiwai, would do much less harm to NZ economically & socially than a coalition consisting of solely Labour/Greens for sure.

Agreed - his rhetoric is clearly about trying to buy votes for NZF. Simply callous and ego-centric.

So Southland is the new Northland!

sounds more like WP sending out an S.O.S for his party than a bonafide attempt to save the smelter, with as much chance of success as the prebble,"save the rail"campaign.

Funnily enough LL if we had made some significant investment into rail and freight hubs serviced by rail back then we'd have much less heavy transport on the roads with their ensuing pounding and damage. It also would have been cheaper then to do what is being proposed now... freight hubs and rail connectivity. Ole Maddog might have been a bit more on to it than we thought at the time

Good idea but trying to find a government that will actually put up the capital that rail actually needs to make a good job is but a pipe dream i feel. i.e the rail gauge needs to be changed and the rail corridors need to be widened and straightened so that the trains can travel at a decent speed. Would pay off hugely in the longer term but we all know our pollies don't do long term!

There's no way NZ rail will change the current gauge, only choice is to double track existing corridors. But I agree.. fat chance of either

The failure here is planning. It has been known for sometime that the aluminium smelter days were numbered but nothing has been done to find an alternative use of the power. Sure ideas are floating around but will take years to be established. In the meantime what are the workers suppose to do. Spare the aluminium smelter (if possible) for a few more years while the alternatives are secured would be a better way.

"Necessity is the Mother of Invention."
We spared the smelter last time ( for what, $30 million or so?). Yes, planning was non-existent, as it would be again if we spared it this time. Something about Can and Road comes to mind....

Spoken by someone who obviously won't be affected in the slightest by the closure.

Agreed, 50 mill would be relatively cheap given the alternatives.

Appreciate this is old history and irrelevant now, but can’t help but acclaim those protesters at Aramoana who knew what they were about. Otherwise NZ would have had double the problem one supposes.

Thank you - it's nice to be appreciated.

Surely there is a cost benefit to having the smelter continuing? But the cynical side of me wonder why tis issue has come up right before an election.

So many talk about these pipedream energy intensive industries and the author is the same "Several electricity-intensive options have been mooted: a smelter to produce photovoltaic grade silicon metal, a “green” hydrogen plant, a databank to serve the cloud. Even a Tesla giga-factory. " and there is no mention of the economics which are easily available. And despite all the virtue signalling, there is no premium on commodity goods with "clean" energy production.
The other unpalatable truth is the cost of unsubsidised coal fired generation in India or China is cheaper than what Tiwai power would cost. That would have the added benefit of being a lot closer to the market. So even if a good scheme, why would a new industry set up here?

Here is just one article that puts actual costs on the process of green hydrogen production. Storage and transportation add significantly to the costs.
https://www.forbes.com/sites/woodmackenzie/2020/01/31/green-hydrogen-a-p...

Production of Hydrogen would only work if it was then converted to something else. Hydrogen alone isn't viable

There is a premium paid for "green methanol" but fundamentally you're right. NZ would either have to set up a plant supplying the NZ market & maybe Aussie too, or give any offshore outfit massive tax breaks (similar to what Ireland did).

This paper here suggest green methanol is only economic if there are huge subsidies (also known as carbon credits)
https://pubs.rsc.org/en/content/articlelanding/2018/se/c8se00032h#!divAb...

Green methanol becomes viable when there is a significant reserve of renewable electricity available. The methanol produced could be blended with imported fuel (NZR won't be refining) so would potentially give another saving. The carbon required could be extracted from the atmosphere - expensive but doable. Part of the economic equation NZ has to factor is the shelving of other renewable generation sources if we can't use Manapouri's power at source, also the retiring of sites such as Stratford CC and the required upgrades to the grid. I personally don't believe the full costing has been done, merely a focus on Tiwai and Southland.

"Green" methanol is not viable unless the electricity is near free and there are carbon charges to subsidise it. Cost of methanol on the market is $US250/tonne. If the plant had to pay the same as what Tiwai did, the cost would be about $600 tonne. ICEs do a lot less mpg on blended fuel so there is no benefit there.
The economics has been done by Transpower and the like. You just haven't read it. Try their latest transmission planning document.

So US250/t equates to about NZ450/t, about 45c/ltr. Also that Methanol is produced from hydrocarbons. It's true that ICEs are less efficient running on blended fuel but the raw material is made here. As for Transpower the latest figures I saw were circa 400-600mln for the upgrades over several years. You still haven't factored in the loss of Stratford and the deferment of other renewable generation. Without the upgrades to the grid Manapouri will be spilling water so an argument could be made for a reduced rate. Also there is the substitution for Methanex exports, Pohakura is running down and they are talking of leaving. (Not common knowledge yet)

The Transpower documents I referenced show a new Cook strait cable and a duplex line from Wellington to Auckland.. That will cost megabucks and take years. The CUWLP will only allow 1/4 of the power north and the $600M seems to getting that through the NI grid. And you still need GTs on the grid to give the FIR and inertia.
So what if methanol is made here on calorific value alone, it is worth less than half the raw cost of petrol and it can't substitute diesel which is half the fuel use. The prices I referenced were all in $USD as that is what it is sold in, so green methanol would be still stupidly expensive. The prices are in tonnes which means your even cost per litre is wrong.

To put some more flesh on the grid upgrades needed, Transpower has stated this year that the $100M CUWLP will only get 1050GWh a year to Twizel. To get the other 3500GWh, they will need to build a 220kV double circuit line from Makarewa to Twizel. Once there, then the troubles really start. And you can't even use it in the South Island north of the Waitaki as all those lines are near overloaded already. The teeshirt sloganeering of "bring the power north" fails even the simplest analysis.

Well I'm not sure what maths you're using but 1 tonne is approximately 1000 ltrs so $450/t equates to about 45c/ltr. I never said it was a substitute but it can be blended. If it isn't sold on the world market but instead sold internally then the costs/benefits are in NZ$ not US. If Methanol production is such a loser why is Methanex still here? The fact remains that finding a use for Manapouri power insitu is a sh+tload cheaper than trying to shift said power north across the strait. And it preserves and maybe even enhances the Southland economy

The density of methanol is 0.792 (at 20°C) so it isn't my maths wrong, it is your abysmal science knowledge.

Ok so multiply my costs by the difference (a whole 8c/ltr). No big deal. Still less than the 600+ mill to upgrade the grid. No need to get all superior about things. You have your opinion which leaves Southland in the lurch and I have mine, which offers an alternative.

Methanex is using natural gas as its feed stock which I think uses less electricity than making green methanol.

And this one suggests it's viable..
https://www.methanol.org/renewable-methanol/

If you read your link they give no mention of the costs. The process is feasible, just not economic,.

Lets face it, Mother J's speech was purely election click bait aimed to use their buzzwords Hydrogen and EV! Where would the hydrogen be used? There are no or next to no production hydrogen powered cars and won't be for the foreseeable future due to there cost of manufacture.
Hydrogen is also very difficult to store, and VERY flammable! As for an EV industry the major car manufacturers and a few wealthy individuals have been working on them for decades and are still not profitable. So NZ can just skip decades of development! LOL! Just more bullshit from the masters of bullshit and not helpful to Southland!

The smelter would be useful if we made our stuff from the aluminium. Gee it up with recycling in some way. Why not build our own electric cars here with a partnership with a major car company. Market too small? Look to send built cars to Aus too.

Why would I not just build said car factory in Australia, where they already have vehicle supply chain slack looking for work?

Because Australia found that the subsidies they had to pay to get cars built there made them a lot more expensive than if they imported them.

How about we just make all new arrivals, plus recent ones, live in Southland to soak up the power ?
Xing can organise it.

Sounds good - they can learn to roll their Rs, and eat cheese rolls.

Maybe Rio could sell it for $1 to the managers .

I mean , its really all that is left to do other than close it down

And as working capital , the Power companies and Government could supply credit lines for 3 years followed by an an equity for debt swap .

The power is going to go to waste so supplying something that has no value and little real cost is easy , and the Government can borrow money at 1% right now for its stake .

The next issue is finding a market in an over-supplied aluminium market

Still got to buy and ship in the bauxite. Processing depending on someone else’s raw material? Plenty of old industrial ruins to see on TV doco’s to illustrate that bad business practice.

I am involved with a kiwi company with a shovel ready project based in Dunedin. They need lots of power and product has huge demand worldwide...

Kindly quantify 'lots' and 'power'.

Process involves steam..so either coal or? But hey lets just keep our focus on Tiwai must be bailed out at any cost to save the jobs and no one else will set up shop as we are so far away...blah blah blah.

If you could narrow down your "lots of power" and your "huge demand" it would make it easier to comment. The last publicly notified industry was/is the LVL/MDF plant in Golden Bay.. it took about 2% of the supposed spare power on a good day

They always used to say don't put all your eggs in one basket. Tiwai Point is a mini basket for the electricity generators/distributors with nearly 20% of their product to one customer. They have to come out of such dependence. May be a good time now to look at alternatives.

You seem to be overlooking the fact that Manapouri was built specifically to supply Tiwai, never envisioned to supply national grid

What is surprising is that Meridian share price which was $2 in 2016 is still over$4 when the biggest power station in NZ is about to lose it's only customer. Crazy asf if you ask me

True that Boatman, the market always looks forward but I have to agree.. what is it looking forward to?

I have suggested bitcoin mining and mining of other cryptocurrencies in addition to using surplus energy to charge Mr Elon Musks batteries which can be transported by truck boat plane or train to the energy demanding center ie a CBD for daily use or even to a stricken city in a civil defense situation...

Do they listen, i dunno but i have emailed this to Winston's office many months ago, before Tiwai Pt even was being talked about again...

To be mining rather than printing currency, and using surplus energy to warm the cold and poor - it's a no brainer

President of Property

Days to the General Election: 26
See Party Policies here. Party Lists here.