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23 October 2019

Transmission Pricing and Tiwai

Carla Forbes, Past President

Southland and in fact the South Island are paying exorbitant and unfair rates for power transmission. South Island generations currently pay the whole cost of the cable carrying electricity between the North and South Island.

Transmission costs in the lower North Island and South Island have increased by 61% on average to pay for upgrade investment in the upper North Island

Most of NZ’s electricity is generated from renewable energy sources (Hydro and increasingly geothermal and wind) these sites are in remote areas, a long way from where most (voters) people live. Hence why government are reluctant to have a fair model of user pays, the people (the voters) live far away from the source.

A system that robs peter to pay Paul will always have Paul’s support.

This government and remaining at the status quo with transmission pricing will devastate Southland. Tiwai is a key economic driver and is carrying the cost for elsewhere and it isn’t sustainable. The smelter employs nearly 1000 people on site and in total, along with people working in roles in the community, support 2260 direct and indirect jobs. The economic and social impact touches all Southlanders and we need a fair and equitable pricing methodology to ensure Southland as a community remains viable.

How the country’s transmission grid costs are allocated has been a hotly debated issue for over ten years.

But during those intervening years the Tiwai Point aluminium smelter has been quietly overcharged nearly $200 million for grid upgrades to take power from our hydro rich region north and to bolster the aging grid in Auckland.

This is $200 million the smelter will never get back and has had to absorb into its operating costs. Currently on a comparative basis the smelter pays almost 10 times what their off shore competitors pay for electricity and transmission prices. This is unfair and has made commercial sustainability incredibly challenging for the team at Tiwai.

It has to change or the last to leave Southland can turn of the lights.

Now the latest proposal for reforming transmission pricing will possibly deliver an $11 million annual reduction in costs – but not before 2024.

This is too little, too late but the real kicker is that the smelter will have to contribute $1 million annually for a price cap to soften price increases for consumers in the north.

It’s just not fair…