Electricity Authority ban could sweeten Tiwai deal


Business

Tightened rules around wholesale power deals are being favoured by smaller retailers and opposed by large generators

The Electricity Authority’s solution to prevent consumers bearing the brunt of “sweetheart deals” like last year’s Tiwai Point agreement has the sector divided.

Large electricity generators and users are unsurprisingly opposed, with smaller retailers and consumer groups in favour of the proposed changes.

Smaller retailers are even arguing the changes, banning what they called “sweetheart deals”, could be beneficial for large negotiations, such as discussions for the aluminium smelter’s power supply beyond 2024.

Last October, an Electricity Authority (EA) review into the wholesale power market found households could be paying an additional $200 a year to subsidise cheap energy received by the Tiwai Point aluminium smelter.

The review said generators Meridian and Contact Energy had sold power to Tiwai, the country’s largest single energy user, for half a billion dollars less than it cost to produce to keep it as a customer.

At the time EA chief executive James Stevenson-Wallace said the deal, agreed to in early 2021, maintained demand and kept wholesale prices elevated, though this was denied by Meridian, which argued high wholesale prices reflected tight supply demand and natural gas scarcity.

In response, the EA is proposing to prohibit generators from signing contracts of above 150MW unless certain conditions are met, including the net value of the contract being positive, allowing the buyer to onsell unused power, and being granted clearance.

It put an urgent code amendment in place following the report and seeks to permanently introduce a ban.

Submissions on the proposal were released yesterday.

Genesis said the issue being tackled was not systemic and intervention of the scale and nature proposed was not justified.

Mercury believed it would create a new regulatory burden and uncertainty that had to be taken into account when making investment decisions in new generation that was a consequence of large load users and could prove costly given the imperative to decarbonise and electrify the economy.

Despite making it very clear EA hadn’t made a convincing case for the code amendment, Meridian appeared to be the least opposed and believed the proposal was largely workable, subject to some tweaks, including clarifying if the new rules were intended to have retrospective effect.

Bargaining chip

Electric Kiwi and Haast Energy, two of five of the smaller or ‘independent’ retailers that submitted collectively, suggested the intervention could actually be a positive for Meridian.

In a joint statement, Electric Kiwi chief executive Luke Blincoe and Haast Energy managing director Phillip Anderson said Meridian had changed its tone on its pricing since it was looking increasingly likely smelter would continue to operate in New Zealand for the long term.

“Now that NZAS has decided it wants to continue to operate in New Zealand beyond 2024, Meridian has shifted its language from justifying current pricing as being “sharp” to wanting the new pricing to variously be ‘fair’ and ‘sustainable’.

“Meridian’s statements remind us of the Telecom CEO [Theresa Gattung]’s infamous admission they were ‘not being straight up’ with customers and ‘used confusion as its chief marketing tool’,” the submission said.

“One of the ironies of the authority intervention is that, despite Meridian’s protests that the current Tiwai price is above ‘opportunity cost’, the intervention is likely to help Meridian’s negotiations with NZAS and bolster the price they receive in any new contract.”

A recent research report by Forsyth Barr suggested a new energy deal would see Tiwai paying 7.3c/kWh at the current aluminium price, compared to an estimated 3.5c/kWh under the existing contract.

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