Smelter clause ensures ‘faster’ power price-rise

Press, 27 August 1980, Page 12

Smelter clause ensures ‘faster’ power price-rise

PA Dunedin The price of power for the planned second aluminium smelter was expected to increase “much faster” than that of ordinary wholesale-priced power, the Under Secretaiy for Energy (Mr Brill) said in Dunedin.. He also said that the smelter’s use of electricity would make no difference to the domestic cost of electricity — it would merely reduce wastage over the dams.

The cost to the country would be “peanuts” because extra electricity was already available and unsold.

Mr Bril! said that an allowance had been built into the smelter price to offset the export and regional development incentives the Fletcher-C.S.R.-Alusuisse consortium should otherwise be entitled’ to expect These were a once-only benefit of $56 million plus an annual benefit of $l3 million.

They had been provided as part of the power price agreement rather than a direct payment “to reduce administrative problems.” Exports of aluminium ingot were not entitled to the usual tax concessions or grants. Mr Brill. said it needed to be clearly understood that the use of New Zealand’s surplus power by

big consumers suCh as' the smeltery-made no difference to the domestic cost of electricity, it merely reduced wastage over the dams..

“Local power authorities include in our bills the total cost of elect r i c i t y reticulation throughout their area of responsibility. This extra distribution cost is very substantial and may lead to the retail price being almost double the basic wholesale price charged by the Government,” he said.

The Government must take into account the capital costs incurred in providing the power. Aluminium smelters use a fixed load which fluctuated very little and the amount of electricity sold “is ea.ual to the dam capacity.” “But the individual homeowner is not a regular consumer. Dams have to be installed and maintained all year round to cope with peak demands on mid-winter weekdays, but this huge investment shows no return for much Of the time. “The current wholesale price for electricity (at 100 per cent continuous demand) is 2.3 c per unit, and the 25 per cent rebate for South Island industrial users reduces this cost to 1.74 c per unit. If the smel-. ter was operating today it would be paying almost

exactly the same,” •■Mr Brill said.

The average wholesale power price was expected to remain in real terms for the forseeable future. Generally it would be altered for. changing money values and reviewed not more than once a year. "But the price agreed with the consortium, for example, has a built-in escalator which is adjusted quarterly. It is tied to the price of aluminium, which in turn is dependent on the international price of energy. This is expected to increase the smelter’s power price much faster than that of ordinary power.” Mr Brill said that in the first few yeats the smelter contract would cost the country “peanuts” (specified as less than 0.2 c a unit) as the extra electricity was already available and unsold. “But later the smelter’s requirements will mean new power stations will have to be built earlier than otherwise planned. Charges and interest costs associated with this earlier construction should be debited to the smelter so that it pays a higher than average rate for a period. "These calculations have all been taken into account in fixing a price,” he said. In addition, because of its benefits to the nation the consortium

should be entitled to receive normal incentives for export and regional development, and these have been built into the price as well. “After all these factors are brought into account, will the country receive a good return on its outlay in new power stations?” He said it “definitely” would, and compared the return to New Zealand with Che return on infla-tion-proof bonds. The smelter would mean the Government was buying, an inflation-proof bond with a positive return “several times better than 2 per cent.” Mr Brill said that taken .with three other projects (the expansion of New Zealand Steel, Ltd, the methanol plant and the synthetic gasoline plant) the aluminium smelter would help provide enough foreign exchange "to wipe out New Zealand’s entire current deficit” (which stands at $532 million), '■ “This will strengthen the New Zealand - dollar, improve living standards, assist in the reduction of inflation and promote employment by removing the main constraint on new activity,” he said,

“The alternative is to allow these energy resources to lie unused. There is no other firm and hopeful South Island use for it in the offing.”