Big dry hits smelter production

Low rainfall in southern hydro catchments has forced the Bluff aluminium smelter to cut back consumption and output by 5 percent, on top of cuts already in place because of low world aluminium prices.

New Zealand Aluminium Smelters announced it was reducing its electricity load to 540 Megawatts from 572 MW because of "extremely low hydro lake levels".

The decision is expected to reduce production capacity at the smelter by approximately 400 tonnes per week, or 5 percent of total production.

"NZAS is working closely with Meridian Energy to help conserve storage in the South Island hydro lakes," said NZAS general manager Ryan Cavanagh.

"We are working with customers and suppliers to minimise any adverse impact to production schedules."

The smelter, which uses approximately one-seventh of total New Zealand electricity production, is often the first major industrial plant to make significant reductions in output in reaction to dry years which periodically affect the country's hydro-dependent electricity generation system.

Around 70 percent of total electricity production is from hydro sources most years.

The closest hydro catchment to the smelter is the Lake Manapouri power station, which was built to service the Southland plant. It is sitting at a storage level of 176.6m above sea level, just below the bottom of its permitted operating range of 176.8m.

Catchments on the Waitaki hydro system, further north in the South Island, are looking healthier.

Wholesale electricity market spot prices have jumped above $200 per Megawatt hour in recent days in the North and South Islands, reflecting the scarcity of water. Spot prices generally sit between $50 and $70 per MWh.

The smelter move comes amid negotiations between Meridian Energy, which holds the smelter electricity supply contracts, and the NZAS joint venture partners, Rio Tinto and Sumitomo Corp, for more favourable power prices, despite having just started under new 18 year contract terms.

The move is seen as Rio, which is struggling with losses and over-investment globally in aluminium plants, seekisto leverage local conditions, since uncertainty over the smelter's future could affect the earnings of state-owned power companies slated for partial privatisation.

(BusinessDesk)