Photo: RNZ / Nate McKinnon
The Tiwai Point aluminium smelter has reached a long-term power supply deal which will keep it open for another 20 years.
Meridian Energy and New Zealand Aluminium Smelters (NZAS) have agreed a long-term fixed price power contract until 2044.
The future of the smelter has been hanging in the balance for years as the expiry of the current contract at the end of this year loomed.
Meridian Energy chief executive Neal Barclay called the agreement an "excellent result" after many years of negotiation.
"This is a fantastic outcome for New Zealand and the Southland region. It's further proof that large industrial businesses can utilise New Zealand's renewable energy advantage and create low carbon sustainable products, high value jobs and export dollars for our country.
"We are very pleased that the NZAS team have adopted a more flexible approach toward their operations."
The smelter's owner, global mining giant Rio Tinto, has long complained about the transmission prices it has been charged, which it said alongside volatile world aluminium prices put a question mark over the smelter's viability and future.
The smelter opened in 1971 and is supplied by power from the specially constructed Manapouri power station. It uses about 13 percent of the country's electricity, which it buys at rock bottom prices.
In 2013, the then National government led by John Key paid the smelter $30 million to stay in operation.
"This new package of contracts is commercially sustainable and delivers value for our shareholders, so we are talking a real win-win here," Barclay said.
The new agreement contained provisions for the smelter to cut power usage at times when there was peak demand but insufficient supply in the country.
NZAS chief executive Chris Blenkiron did not comment directly on the decision to stay open, but said the demand response contract made the smelter the country's biggest storage battery.
"Making up to a third of our supply available to help New Zealand is something we are happy to do to make sure that we play our part in the wider energy sector and help to keep the lights on.
"When our demand response is called on, it effectively means New Zealand will have to burn less coal at Huntly, ultimately reducing New Zealand's carbon emissions."
Contact Energy and Mercury Energy are back-up suppliers to Meridian, and all the contracts need to be approved by the Electricity Authority.
Southland Mayor Rob Scott said it was fantastic news and the deal would offer some financial stability to the region.
He said there are over 2500 jobs at Tiwai.
End of uncertainty
NZAS chief executive Chris Blenkiron said the new agreement put an end to a long period of uncertainty.
"It has been a long process to get to today's announcement, but worth the effort to secure a long-term future for New Zealand's smelter and the many benefits associated with this."
He said the demand response contract made the smelter the country's biggest storage battery.
"Making up to a third of our supply available to help New Zealand is something we are happy to do to make sure that we play our part in the wider energy sector and help to keep the lights on.
"When our demand response is called on, it effectively means New Zealand will have to burn less coal at Huntly, ultimately reducing New Zealand's carbon emissions."
Rio Tinto Aluminium chief executive Jérôme Pécresse said the deal had been reached in a spirit of collaboration among all parties.
"They give us confidence that our New Zealand workforce and assets can continue competitively producing the high purity, low-carbon aluminium needed for the global energy transition."
Rio Tinto is also buying the minority stake in NZAS held by Japan's Sumitomo Chemical.
World aluminium prices have hit a two-year high in recent days of more than US$2700, having doubled since the low point during the start of the pandemic.
The Bluff smelter produces some of the highest quality metal in the world sought by aeronautical and car manufacturers, with the added benefit it is made using renewable energy.
The smelter contributes about $406 million to the Southland economy, with annual export revenue of about $1 billion. About 1000 full-time staff and contractors work at the smelter, with a further 2200 people employed indirectly.