We have spent years considering the most likely impact of the smelter’s closure, as it consumes around 15% of New Zealand’s electricity.
Here’s a high level view:
- Transmission pricing will change again.
- Transmission line development is 6-12 months away being able to redirect that much power northwards.
- Tiwai will provide at least 12 months’ wind down. This will be in managed increments that increase electricity supply to the market.
- Gas availability in the North Island should improve.
Some questions that may come into focus over the next year or two:
- Solar options – will they continue?
- Will Contact develop its geothermal field in Taupo, or will this resource be put on hold, or even cancelled?
- Will gas-fired generation in the North Island close earlier than expected, and will this affect the reliability of electricity supply?
- If North island gas-fired generation does decline, will this increase the volatility of spot prices (whilst we hope reducing the average cost)?
- Will the government step in at the 11th hour and save the day?
The Smart Power view.
While there are no guarantees, we expect a reserved initial market response. Then perhaps one retailer will blink and prices will fall, perhaps for 2021 and beyond, but most likely not for the remainder of 2020.
It will be in the retailers’ and generators’ interests to hold prices up. Right now, there is nothing that should affect short-term pricing, although in this market the tail can wag the dog, albeit usually upwards not down.
South Island pricing would logically be far more affected than North Island pricing. The question remains whether the closure will really happen or whether the Government will swoop in to save the day. It’s an election year, after all.
Another factor is transmission infrastructure. Will the works required to effectively and efficiently transport power northwards be accelerated or will a ‘wait and see’ stance be adopted?
Overall, we think that this is a major and quite unprecedented announcement. It must affect prices one way or another, but we don’t know when and by how much at this early stage.
As we hear and learn more, we’ll do our best to keep you updated.