30 May 2017

Transmission costs eat into Tiwai’s profits

Despite a record production year in 2016, the New Zealand Aluminium Smelter’s profit margin has dropped by more than half since 2015.

Pacific Aluminium New Zealand, who own 79.36 per cent of NZAS, released the financial results for the smelter on May 30.

The report showed an underlying profit of $25 million for the smelter at Tiwai Point in 2016.

This figure represented a drop of $29 million on the previous year’s results, which amounted to a profit of $54 million.

New Zealand Aluminium Smelter chief executive Gretta Stephens said while profits were lower than the previous year, NZAS produced a record amount of saleable aluminium in 2016.

The smelter produced 338,556 tonnes of aluminium from its three P69 Reduction Lines, an increase of more than 5000 tonnes on 2015.

Stephens said there were several contributing factors towards the reduced profits.

Falling aluminium prices, averaging about US$1,605 per tonne (down $60 per tonne on 2015’s figures), had an effect on the smelter’s profitability.

However, the impact of the historically low prices was softened by a weak New Zealand dollar.

Stephens said the biggest factor was the transmission costs the smelter had to cover. with NZAS currently paying about nine per cent of all Transpower’s transmission charges to consumers.

“The result must be seen within the context of NZAS’ transmission costs.

“The team at NZAS is world-class, this year shaving off the equivalent power use of 1,000 kiwi homes from our works load.

“But we can’t control transmission costs which at $67 million for the pricing year were more than two and a half times our underlying profit.”

Stephens said the current transmission pricing model was not fairly distributed throughout the country.

“When it comes to transmission charges, we believe you should pay for what you use.”

The current model, which is currently under review by the Electricity Authority, has proved unpopular throughout Southland.

Since 2004, $1.3 billion has been spent on the upper North Island grid, yet only 39 per cent of the investment has been paid for by the upper North Island.

Since that time, transmission prices have increased by 330 per cent in the South Island, 225 per cent in the lower North Island, and 40 per cent in the upper North Island.

With the Electricity Authority still undergoing public consultation on the reform of its transmission prices, it could be several years before any changes are put in place.

For the 2017 pricing year, NZAS’ transmission costs will increase by another $5 million to reach a total of $72 million.

However, aluminium prices have increased since the beginning of 2017, currently sitting at US$1,948 per tonne.