Energy-intensive heavy industry has a long term future in New Zealand, but only if policies to decarbonise the economy can deliver a secure energy supply, says the outgoing chief executive of New Zealand Aluminium Smelters, Gretta Stephens, who will swap to be CEO at Bluescope's New Zealand Steel plant later this month.
Against a backdrop of the government's decision to stop issuing new exploration permits for offshore oil and gas deposits and a commitment to 100 percent renewable electricity by 2035, Stephens said: "For businesses such as the smelter, the security of baseload power is our Number 1 consideration, so if you're going to go to 100% renewable and you're going to have big heavy industries like a smelter or a steel works, you need to think through what's providing the baseload power.
"The question is what do you do in a non-normal hydro year. What's the option in a dry year? Who is holding the assets to produce the extra power necessary in a dry year? We're consuming that power 24/7, 365 days of the year, regardless of whether the sun's shining or the wind's blowing. So, how you're going to provide the baseload power is a big consideration for me," she told BusinessDesk.
That does not necessarily mean that some gas or coal-fired power stations would need to stay available to the electricity system for times when renewables were not able to supply total demand.
One option to consider was pumped hydro, where water is pumped back uphill into hydro storage lakes during periods when excess generation is available from wind and solar power stations. The issue was attracting strong attention in Australia, but had yet to surface much in New Zealand, she said.
However, options such as large-scale battery storage were not relevant for the needs of plant with the huge electricity demand of a facility like the Tiwai Point aluminium smelter, which uses about one-seventh of all electricity produced in New Zealand.
Stephens quoted her counterpart at the Tomago smelter in South Australia - the largest in Australasia - as saying that the huge Tesla battery installed in South Australia to help the state cope with fluctuations in renewable energy availability could run Tomago for just eight minutes.
Majority-owned by Pacific Aluminium, a subsidiary of Rio Tinto, the Tiwai Point smelter has been for sale for the last six years along with a clutch of Australian smelters, including Tomago and Gladstone, the latter currently cutting production because of skyrocketing spot prices for wholesale electricity in Queensland.
"The New Zealand energy market is now looking quite sane compared with what's been happening in Australia ... although in the aluminium industry, the wise thing to do is always to keep the majority of your power on long term contracts which aren't subject to that volatility," said Stephens. The contracts for the three main potlines at Tiwai Point run through to 2030 and the smelter will shortly reopen a smaller, fourth potline, which has been closed since 2012 but will reopen since negotiation of a contract through to 2022 with Meridian Energy.
Also running in Tiwai Point's favour is the fact that its electricity is around 85 percent produced from renewable sources, compared with its Australian counterparts' ongoing reliance on coal.
"Inside the aluminium industry, the advantage of being on hydroelectricity is something we've realised for a long time but it's something that's really starting to dawn more broadly on people outside of our immediate industry," Stephens said.
"Particular customers are now seeking low carbon footprint aluminium preferentially, so that's gaining us certain customers and giving us market share at least in comparison. It's not translating into a whole lot extra in terms of premiums or price at the moment, although we do have some of our aluminium marketed under Rio Tinto's RenewAl brand, which has a full third party certification associated with it for customers who have that as part of their intent in their supply chain."
Stephens said selling the PacAl smelters had proven difficult in the last five years because metal prices had been at historic lows.
"Now the price is back up but it's incredibly volatile with what's going on with tariffs and sanctions, so it's still probably a difficult time to make a decision on what the value of the assets is."
While it was conceivable the Tiwai Point smelter could be sold separately because of its renewable energy profile, it was unlikely, she said.
"When you've got a group of assets, you've got to be very careful about cherry picking."
By moving from NZAS in Southland to NZ Steel in south Auckland, Stephens will find herself arguing the opposite side of a long-running debate over the fair allocation of national grid transmission costs. NZAS has sought relief from what it sees as subsidy for North Island and other consumers while NZ Steel has opposed such a deal as a cost increase that will compromise its competitiveness.
Stephens leaves the company on May 25 and will be replaced by Stew Hamilton, an expatriate New Zealander who will be returning for his fourth tour of duty at the Tiwai Point smelter, coming home after a stint running a gold mine in north-western Tanzania.