Simon Johnson looks at how New Zealand Aluminium Smelter Limited is behind the Meridian/Genesis deal keeping the Huntly Thermal Power Station burning coal as the threat of closing the Tiwai Point smelter is stalling the construction of consented renewable energy projects.
My last post at Hot Topic was about energy companies Meridian and Genesis doing a deal to keep the Huntly Thermal Power Station open (and burning coal) for an extra four years.
My post really just noted how backwards the decision was in terms of reducing emissions of greenhouse gases. And that the expected shut-down of Huntly represented the only predicted drop in energy emissions New Zealand had advised to the UNFCCC. And that reduction has just gone up in smoke.
However, New Zealand Aluminium Smelters Limited and the Tiwai Point smelter have a malignant background role in the Huntly deal.
Meridian Energy said the deal was necessary to provide security of energy supply if the hydro lakes are low. That is only the case if the next ‘cab off the rank’ of renewable energy capacity is not built to replace Huntly. The generators don’t want to build any new renewable capacity if the smelter closes and Meridian then releases cheaper Manapouri hydro electricity onto the grid.
Hence helter smelter deja vu all over again.
The last time I blogged about the smelter was in late 2012, when the Government was rolling out the partial privatisation and float of Meridian Energy. New Zealand Aluminium Smelters Limited chose that moment to threaten to close the ‘unprofitable’ smelter and to demand cheaper electricity from Meridian.
For a re-cap of the issue, see this summary by Bryce Edwards as of April 2013. The conclusion was in August 2013 with a new (secret) power deal with Meridian with the Government putting in a $30 million subsidy on the promise of no plant closure before the end of 2017.
In terms of climate change policy, Gareth Renowden pointed out that the closure of the smelter would be a good thing.
Electricity prices would fall as Meridian’s cheaper Manapouri hydro power would enter the wholesale electricity market. The most expensive generation, from coal and gas thermal plants (such as Huntly) would be forced out of the market by price. Electricity security would be better, as Lake Manapouri’s storage would be available as a buffer for droughts instead of being committed to the smelter.
Cheaper power, less emissions, more renewables, more security. That sounds like the right strategy on a planet with a finite carbon budget consistent with no more than two degrees celsius of warming. What’s not to like?
Now fast forward to April 2015. Meridian has been partially floated. New Zealand Aluminium Smelters Limited is yet again stating that its electricity transmission costs are too high and linking that to the smelter’s future.
“No decision had been made about the future of the smelter, and we are doing everything we can to secure a long-term commercially competitive electricity price for the smelter.”
So back to square one. New Zealand Aluminium Smelters saying yet again “Nice smelter, you got there. Shame if something happens to it”. So who do they expect to give them a handout this time? Transpower, actually. The opportunity being the Electricity Authority’s review of transmission costs, in which a draft proposal was expected to give New Zealand Aluminium Smelters a windfall of fifty million dollars.
I suppose I should not be surprised by this sort of business behaviour. However, I am more interested in the electricity demand implications of a smelter closure.
Belinda Storey of Pure Advantage says that the threats to close the smelter have made future predictions of electricity demand uncertain. And therefore
“Electricity companies have delayed investments in wind, solar, and geothermal energy while the Tiwai negotiations hold to ransom the forecasting of future demand.”
In November 2015, Meridian CEO Mark Binns confirmed that new electricity investments had been stalled by the possibility of the smelter closing
“because nobody wants to build a new plant if Tiwai Point can go on 12 months notice”.
In December 2015, Binns confirmed to Fairfax’s Tom Pullar-Strecker that a smelter shut-down would release about 1.15GW of electricity, which would drop wholesale electricity prices and that none of the generators wanted to build the power station that would stop first when electricity demand dropped below supply. Binns even said
“No-one wants to spend a lot of money and have a stranded asset”.
So, in 2016, in New Zealand’s electricity market, renewable electricity projects will be stranded assets. Pretty much because of New Zealand Aluminium Smelter Limited’s preferred mode of corporate behaviour.
The only thing more bizarre are the completely contradictory media releases from Energy Minister Simon Bridges.
In August 2015 Bridges was celebrating the 2018 Huntly closure as creating renewable opportunities. In April 2016, Bridges commended the reversal of the Huntly closure as a ‘transition’ ‘down the path of greater renewable generation’.
Is there no use of fossil fuels that Bridges won’t describe as ‘transitional’? Is there any other explanation for Bridges contradictory statements than the assumption that he is a complete political weather vane when it comes to policy?
Conclusion
From that last no doubt factual observation of Mark Binns, from his point of view as the boss of a company with public shareholders, we enter a “Bizarro World” of contradiction and ridiculousness. In the rest of the world, Nicholas Stern and Mark Carney and Carbon Tracker have laid out the case that coal, oil and gas reserves are stranded assets. But in New Zealand, it is new renewable electricity generation that will be stranded assets.
All because of consistently unedifying corporate behaviour by one trans-national company. And the Minister of Energy views the situation as within his very elastic definition of ‘transition’ and is happy to leave direction of the market to the partially privatised generating industry. Never mind carbon budgets and the Paris Agreement.
We now have a National Government which is 1) subsidising a loss-making smelter that is hugely distorting the electricity market and 2) horribly crippling an existing carbon market by giving carve-outs and exemptions to major emitters including the smelter and agriculture. Its getting really hard to see the difference between this and the ‘Think Big’ developments and farming subsidies in the 1970s. Climate Change Minister Paula Bennett has said she “wants to set up a taskforce on climate change, involving business, agriculture and environment groups and she’s also open to a cross-party discussion about what the next steps should be.” Dear God. They are going to clone Muldoon.
But wait there’s more. Paula Bennett’s Climate Change Taskforce will involve the Productivity Commission and have ‘work groups’ under ‘task forces’, according to Richard Harman’s politik.co.nz website. Harman concludes, rather gushingly I thought for a very experienced journalist, that “it is quite clear that she has now decided on a need for action and she is going to push ahead”.
A grand policy of stupification!
Standard Operating Procedure for when you want to appear to be doing something but wish to do nothing. After a 1000 page report complete with recommendations, (the greater part of which will be lost on the General Public) Ministers can then choose the least costly, and the bits that offer a kick back for cronies. These will be loudly publicized as “taking action” and the sheeple will go back to sleep again until the next crisis point.
I guess we’ve got it!
By contrast one of the most interesting political events re climate change has been the complete switch in Canada. I was fascinated, a few days back, therefore, at the initiative and planning of the environment minister of the Government of Ontario. Just take a look at the bullet points . It’s not a done deal yet but compare an action plan with our very own inaction plans.
Surely Paula Bennett will bend the curve and wrap some policy around the climate change pipeline really soon sweetie.
Despite a long history to the contrary one always hopes.
Actually I’m not too much in favour of governments trying, as they do, to control things from the top down. They think they can and must limit the change to whatever they, or their supposed supporters, are comfortable with. It is better to nudge things in the right direction with incentives applicable to all, and leave people to sort out at all levels the details. The evidence from Sweden and British Columbia is that people like it that way.
Trading schemes are too limited and I note that the french are talking about implementing a baseline to carbon pricing since the brits gave up their effort, all in an attempt to get the price back off the floor.
One of the essential nudges therefore is a progressive carbon tax as we’ve often discussed. What are the chances this govt will entertain this idea?
I refer everyone to an entertaining 2012 TED talk on nudging Stockholm traffic away from congestion. This will download immediately. The incentive principle is aptly demonstrated. Just be patient with some awkward video editing.
It’s way past nudge in the right direction territory. To get the GHG reductions we need, so much of the way we run our society has to turn in a completely different direction.
Hard to do that with a government that subsidises oil and gas exploration, builds roads while running down the rail network and, as Mr February’s post describes, effectively obstructs new renewable energy generation.
National’s supporters are comfortable with the status quo. Agreed we need a carbon tax, but it is very unlikely that this government will introduce one.
There is so much a Government can do right now. Carbon Taxes at an appropriate level, investments in public transport, more efficient transport systems, renewable energies, investment in GHG reductions in food production, and reforestation programmes, to name but a few.
Western Governments have committed themselves to a “War on Terror” where the perils are far less catastrophic than unmitigated Warming. In order to fight an impending danger, Nations place themselves on a War Footing, where the whole economy and function of the population becomes focused on meeting the danger. We are almost, if not already, at that point. Sometime soon a Leader of the Western World must call for their Nation and others to join them in the fight against AGW.
I suspect that we are selling the electricity to the smelter at a very low price and we could make better use of this asset. I think that we should tell them that they can go as soon as they like and we then offer this cheap electricity to the businesses in the South island. We could generate new businesses in the region that would be much more use to the country. These international companies pay very little tax and the only benefit they offer is jobs but we could do better with many local smaller companies.
N fertiliser plants. It is what the hydro plant was originally proposed for (though explosive nitrates instead of fertiliser) and there is a demand that some were seeking to fill powered by lignite. Using electricity to fix ammonia has an additional benefit because you can burn it in a converted diesel engine (The Dutch ran buses on Ammonia during the occupation when their fuel supply was curtailed and an Alaska grid uses ammonia synthesis and burning to buffer their electricity grid).
Two fingers up to RTZ over their threats to close as you have another scalable application of electricity. Improved market for new intermittent renewables as the N fixing can be variable with wind output, and you displace the existing main source of production – gulf states with surplus gas.
As part of the Budget Bennett is changing the “two-for-one” deal. I think this silly legislation to transitionally end the temporary transition measure is Paula Bennett’s idea of “bending the curve”. I think she can’t tell the diffrence between convex and concave. It’s just extending more privileges to emitters.