• Don’t touch Manapouri - Rio Tinto.
• Nodal pricing harms retail competition.
• Plan to run Huntly on coal.

Using 14% of total production, the country’s single largest electricity consumer, Rio Tinto, backs the Electricity Technical Advisory Group’s recommendation that SOE generators be made to swap assets. The Aust-owned operator of the Tiwai Point aluminium smelter also says wholesale electricity based on “nodal pricing” is the “single biggest impediment to a liquid hedge market and thus a vibrant and competitive retail market.” Rio says “there has been much unsuccessful effort to date to deal with the negative complexities” created by NZ’s system of pricing wholesale electricity at each of the national grid’s 256 nodes, with prices at each node placing a value on transmission risk.

The Rio submission on the ETAG review ordered by Energy Minister Gerry Brownlee says “it is time to seriously investigate whether or not the nodal price mechanism should be retained.” Rio castigates Govt Ministers and officials who insisted the NZ electricity market was working when it faced its fourth possible winter crisis in seven years. “What astounded us in 2008 was the continued mantra from politicians and officials that consumption cuts in the productive sector, in the face of rising electricity prices, were a sign that the market was working.”

Rio says this might have been acceptable every 20 to 30 years, but “when it is happening every 2 to 3 years, then something is very broken and the market has clearly failed.” Rio runs the Tiwai Point aluminium smelter, consumer of around one-seventh, of all the electricity generated annually in NZ. The company questions whether any other First World country would have put up with such a string of security of supply emergencies.

It proposes a version of the ETAG’s Option 3, to divide Genesis and Meridian assets, but says there is too strong a physical tie between Manapouri hydro-electricity and the smelter to achieve the desired competition benefits for Manapouri to be part of the asset swap. Instead, it proposes Genesis get three mid-Waitaki stations, give e3p to Meridian, and MightyRiverPower’s Southdown gas-fired co-generation plant. These divisions would incentivise both Genesis and MRP to pursue thermal options, such as Genesis’s Rodney station proposal, while helping to address one of Rio’s largest concerns, the ongoing commercial viability of the 1000MW Huntly plant, which Genesis would continue to own under Option 3 and the Rio proposal.

Because it is such a big contributor to dry year risk management, Rio reckons national security of supply arrangements should incentivise Genesis to stockpile coal at Huntly, which would continue to run at a high capacity factor and might warrant refurbishment. While Brownlee appeared not to favour the asset swap, and urged Meridian and Genesis to show they could hedge their dry year risk more effectively through contracts, the Major Electricity Users Group, of which Rio is a member, has emerged as a big fan of the proposal. Suprisingly so too, does Genesis.

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