Tiwai Smelter Closure
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What are peoples thoughts around this?
Is it Rio Tinto playing the perfect card in times of hardship not seen in a long time to force the Govt to give them preferential Electricity value?
Would you be happy with the Govt stepping in to satisfy their requirement at the expense of you getting much much cheaper Electricity?
Something in the back of my mind suggests that the Smelter won't close and we will see this game played again.
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Having worked in the electricity industry on and off for the last 20 years, they have been receiving hugely subsided pricing for all that time. They consume more than 10 percent of the entire countries electricity, and already pay a fraction of the cost of other major consumers.
If it was a NZ business, I'd say keep them afloat, but with all the profits going back overseas, I don't think it is worth spending the hundreds of millions per year to save a few thousand jobs.
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@Stockcar86 said in Tiwai Smelter Closure:
Having worked in the electricity industry on and off for the last 20 years, they have been receiving hugely subsided pricing for all that time. They consume more than 10 percent of the entire countries electricity, and already pay a fraction of the cost of other major consumers.
If it was a NZ business, I'd say keep them afloat, but with all the profits going back overseas, I don't think it is worth spending the hundreds of millions per year to save a few thousand jobs.
Would we be spending 100's of millions or would it just be a revenue loss of the Govt/public owned Electricity Co's?
By keeping them in the market it naturally keeps energy prices up
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They remind me of a high profile NRL player. Every time their contract comes up for renew all of a sudden they are looking at other options. Never happens tho as they end up getting their way..
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English and Key told them last time round that the well had run dry and not to expect any more. Robertson has confirmed this.
Given the Mataura fiasco I would be telling them to fuck off and don't come back.
The money spent on subsidy should go a long way towards creating other work opportunities.
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@Hooroo said in Tiwai Smelter Closure:
@Stockcar86 said in Tiwai Smelter Closure:
Having worked in the electricity industry on and off for the last 20 years, they have been receiving hugely subsided pricing for all that time. They consume more than 10 percent of the entire countries electricity, and already pay a fraction of the cost of other major consumers.
If it was a NZ business, I'd say keep them afloat, but with all the profits going back overseas, I don't think it is worth spending the hundreds of millions per year to save a few thousand jobs.
Would we be spending 100's of millions or would it just be a revenue loss of the Govt/public owned Electricity Co's?
By keeping them in the market it naturally keeps energy prices up
I look at this through the lens of generation, as primarily it is the generation costs that drive end-user costs. FYI - most generators are also retailers, so that they can manage the risk of high generation prices against fixed end user prices.
If Tiwai goes away, from a generation perspective, you have more capacity. This does not mean you have to use it all, but in winter it means that North Island can consume more of South Island hydro generation, and vice versa in dry periods when SI can consume excess geothermal from NI.
With the wholesale spot market, generators submit their best pricing/quantity for each 30 minute increment, and Transpower as system operator selects the lowest cost combination of offers to satisfy demand. Generally, increased capacity does not always mean lower prices, with some execeptions (our dams are full, we need to send as much water through as we can to avoid spillage) - what drives up prices is constrained capacity - where there is not enough capacity to meet forecast demand, that is when prices can really go up.
Having Tiwai out of the equation will lead to more generation capacity in the South Island, which may lead to lower prices but not necessarily.
All but one of the major generators (Contact Energy) are SOE's. They need to make the appropriate ROI on their capital to the government, but are not out to maximize their profit to shareholders like Contact is. In fact, if they make too much money, they get penalized. The generation assets for renewables (hydro, solar, wind, geothermal) have a baseline expense to run, however that does not drastically increase or decrease depending on the amount you want to generate. Therefore, you don't decrease your generation costs by not generating from those sources. Again, that would mean that prices could reduce, but not to any great extent.
I am not an expert, unlike everyone else on The Fern
, but I would expect to see a downward shift in pricing with the extra capacity not being consumed by Tiwai. That would mean the power companies need to adjust to deal with reduced income (both from generation and from retailing) but we are looking at a stepped-down adjustment. Gaining 13% generation capacity won't mean that prices drop by that much - at best maybe half that. -
@Stockcar86 over there is the 30 minute bid-in process much like the NEM here? Last-in sets price?
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@Stockcar86 although if they make no profits, but keep paying staff all that money stays in NZ...
Think I heard $400m in employee wages which will largely be spent locally.
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@taniwharugby Is that $400m smelter wages or power company wages?
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@JC think to Smelter employees (and contractors?) unless I misunderstood (as unlikely as that might be
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@NTA Similar I think. The generators offer into the market a specific quantity at a specific price. The highest-priced bid offered by a generator required to meet demand for a given half-hour sets the spot price for that period
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@Stockcar86 the politics of ‘saving jobs’ can’t be underestimated especially in time of economic recovery. Trying to explain the intricacies of power generation, prices, overseas profits vs my government is saving jobs and this is what we are doing to do - is a simple message. May not be the right one, but it’s a good wedge.
If the government don’t want to do it right now, then a delaying tactic would be to have a review/cost benefit analysis done, to buy time.
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@Stockcar86 said in Tiwai Smelter Closure:
@NTA Similar I think. The generators offer into the market a specific quantity at a specific price. The highest-priced bid offered by a generator required to meet demand for a given half-hour sets the spot price for that period
That sounds right. In theory, if cheap hydro is available in large quantities, the expensive generation should rarely be required, so spot prices should trend quite a bit lower.
