Turn off Meridian open letter to Mark Binns on why I am divesting from coal-pushing Meridian Energy

When is a renewable electricity generator not a renewable electricity generator? Or what do you do when the electricity generator who are claiming to supply your home with 100% renewable electricity enters into a commercial contract that keeps a coal-thermal power station emitting carbon dioxide for an additional four years?

Meridian Energy has recently signed a contract with Genesis Energy to keep the Huntly coal thermal power station open for four more years instead of closing in 2018.

New Zealand has made some predictions of future reductions in emissions that we have confidently sent off to the United Nations Framework Convention on Climate Change (UNFCCC). Unfortunately Meridian's action has had the effect of sending the emissions savings up in a puff of coal smoke.

So I decided to divest from Meridian Energy and move my account to electricity supplier to Ecotricity who own only 100% renewable generation capacity and who are certified as carbon neutral. I used the Consumer Power Switch website. There is also the Whats my number web site.

I thought I should let Meridian Energy know I was voting with my account so I sent this open letter to Meridian Energy two weeks ago on 16 June 2016. I have not yet received a reply.

Mark Binns
Chief Executive
Meridian Energy Limited
PO Box 2128
Christchurch 8140

16 June 2016

Re: Meridian Energy’s support for four more years of thermal coal electricity carbon dioxide emissions from Huntly Power Station

Dear Mr Binns,

I am a Meridian retail customer. My customer number is TrJ5I19vcteK2 My account number is 1.h@"]41Y6x#5-r.

I consider climate change to be a serious risk that we are all morally obliged to respond to. In 2012 I deliberately chose Meridian as my electricity retailer because of it's 100% renewable generation.

I am aware that to some extent the electricity I consume inevitably draws on some fossil-fueled capacity due to the networked nature of the grid. However, I was satisfied that choosing Meridian as my retailer was the best I could do in terms of reducing carbon dioxide emissions as I would not be contributing my money to any fossil-fueled thermal generation. In the past four years I have been very happy with that choice and with the service I have received from Meridian. Unfortunately, I did not know that Meridian had a contract with Genesis to keep the Huntly coal thermal power station operating to 2018.

On 28th April 2016, Meridian Energy announced that it had signed a new contract with Genesis Energy that would keep the Huntly coal thermal power station operating for an extra four years. This contract therefore postpones the expected closure from the planned 2018 date to 2022. I have read the statement on the Meridian website explaining the contract as a means of reducing the risk of low levels in the hydro lakes. The explanation fails to take climate change seriously.

The Fifth Assessment Report of the IPCC sets out very simply the carbon budget consistent with limiting global warming to less than two degrees Celsius. The global warming we will experience will be linearly proportional to the cumulative volume of carbon dioxide emissions emitted by humanity. To prevent further dangerous levels of warming with a reasonable probability, cumulative emissions cannot exceed the carbon budget. At that point, emissions must not exceed net zero.

As a matter of physics, the additional emissions that will come from Huntly for the extra four years will result in higher and more dangerous eventual global warming. Meridian Energy's actions have facilitated these additional emissions.

I find Meridian’s actions to be completely contrary to the IPCC's finite carbon budget conception of mitigation and with Meridian’s previous statements on renewable electricity. Those statements now appear very shallow and insincerely held to say the least.

Therefore, it gives me some satisfaction to inform you I am moving my electricity account to a 100% renewable electricity generator who has carbon neutral certification and who is not a party of the Huntly contract. It is my sincere wish that as many customers as possible who are concerned about climate change also leave Meridian.

Yours sincerely

Helter smelter deja vu Tiwai Point smelter uncertainty stalls renewables for more Huntly coal

I look at how New Zealand Aluminium Smelter Limited is behind the Meridian/Genesis deal keeping the Huntly Thermal Power Station burning coal as the threat of closing the Tiwai Point smelter is stalling the construction of consented renewable energy projects. NB This post also features on Hot Topic.

My last post at Hot Topic was about energy companies Meridian and Genesis doing a deal to keep the Huntly Thermal Power Station open (and burning coal) for an extra four years.

My post really just noted how backwards the decision was in terms of reducing emissions of greenhouse gases. And that the expected shut-down of Huntly represented the only predicted drop in energy emissions New Zealand had advised to the UNFCCC. And that reduction has just gone up in smoke.

However, New Zealand Aluminium Smelters Limited and the Tiwai Point smelter have a malignant background role in the Huntly deal.

Meridian Energy said the deal was necessary to provide security of energy supply if the hydro lakes are low. That is only the case if the next 'cab off the rank' of renewable energy capacity is not built to replace Huntly. The generators don't want to build any new renewable capacity if the smelter closes and Meridian then releases cheaper Lake Manapouri hydro electricity onto the grid.

Hence helter smelter deja vu all over again.

The last time I blogged about the smelter was in late 2012, when the Government was rolling out the partial privatisation and float of Meridian Energy. New Zealand Aluminium Smelters Limited chose that moment to threaten to close the 'unprofitable' smelter and to demand cheaper electricity from Meridian.

For a re-cap of the issue, see this summary by Bryce Edwards as of April 2013. The conclusion was in August 2013 with a new (secret) power deal with Meridian with the Government putting in a $30 million subsidy on the promise of no plant closure before the end of 2017.

In terms of climate change policy, Gareth Renowden pointed out that the closure of the smelter would be a good thing.

Electricity prices would fall as Meridian's cheaper Manapouri hydro power would enter the wholesale electricity market. The most expensive generation, from coal and gas thermal plants (such as Huntly) would be forced out of the market by price. Electricity security would be better, as Lake Manapouri's storage would be available as a buffer for droughts instead of being committed to the smelter.

Cheaper power, less emissions, more renewables, more security. That sounds like the right strategy on a planet with a finite carbon budget consistent with no more than two degrees celsius of warming. What's not to like?

Now fast forward to April 2015. Meridian has been partially floated. New Zealand Aluminium Smelters Limited is yet again stating that its electricity transmission costs are too high and linking that to the smelter's future.

Board Chair Brian Cooper said

"No decision had been made about the future of the smelter, and we are doing everything we can to secure a long-term commercially competitive electricity price for the smelter."

So back to square one. New Zealand Aluminium Smelters saying yet again "Nice smelter, you got there. Shame if something happens to it". So who do they expect to give them a handout this time? Transpower, actually. The opportunity being the Electricity Authority's review of transmission costs, in which a draft proposal was expected to give New Zealand Aluminium Smelters a windfall of fifty million dollars.

I suppose I should not be surprised by this sort of business behaviour. However, I am more interested in the electricity demand implications of a smelter closure.

Belinda Storey of Pure Advantage says that the threats to close the smelter have made future predictions of electricity demand uncertain. And therefore

"Electricity companies have delayed investments in wind, solar, and geothermal energy while the Tiwai negotiations hold to ransom the forecasting of future demand."

In November 2015, Meridian CEO Mark Binns confirmed that new electricity investments had been stalled by the possibility of the smelter closing

"because nobody wants to build a new plant if Tiwai Point can go on 12 months notice".

In December 2015, Binns confirmed to Fairfax's Tom Pullar-Strecker that a smelter shut-down would release about 1.15GW of electricity, which would drop wholesale electricity prices and that none of the generators wanted to build the power station that would stop first when electricity demand dropped below supply. Binns even said

"No-one wants to spend a lot of money and have a stranded asset".

So, in 2016, in New Zealand's electricity market, renewable electricity projects will be stranded assets. Pretty much because of New Zealand Aluminium Smelter Limited's preferred mode of corporate behaviour.

The only thing more bizarre are the completely contradictory media releases from Energy Minister Simon Bridges.

In August 2015, Bridges was celebrating the 2018 Huntly closure as 'creating renewable opportunities'. In April 2016, Bridges commended the reversal of the Huntly closure as a 'transition' 'down the path of greater renewable generation'.

Is there no use of fossil fuels that Bridges won't describe as 'transitional'? Is there any other explanation for Bridges' contradictory statements than the assumption that he is a complete political weather vane when it comes to policy?

Conclusion

From that last no doubt factual comment of Mark Binns, we enter a "Bizarro World" of contradiction and ridiculousness. In the rest of the world, Nicholas Stern and Mark Carney and Carbon Tracker have laid out the case that coal, oil and gas reserves are stranded assets. But in New Zealand, it is new renewable electricity generation that will be stranded assets.

All because of consistently unethical behaviour by one trans-national company. And the Minister of Energy views the situation as within his very elastic definition of 'transition' and is happy to leave direction of the market to the partially privatised generating industry. Never mind carbon budgets and the Paris Agreement.

The Huntly power station decision - projected energy emission reductions to 2020 up in coal smoke

The decision to keep the Huntly coal thermal power station open for another four years is not only contrary to all New Zealand's commitments and climate targets, it also sends the Ministry for the Environment's projections of stabilising energy emissions to 2020 up in a cloud of coal smoke. NB this post is also features on Hot Topic.

We seem to have had an extra dose of announcements and activities about climate change in an action-packed month of April.

We have had our Minister, Paula Bennett, signing the UN Paris Agreement. The Morgan Foundation's "Climate Cheats" report made a big splash. That lead to Jack Tame's grilling interview of Paula Bennett. Then the Royal Society of New Zealand released two major reports on climate change; one on impacts and another on policy responses. The business-backed Pure Advantage group released a report on enhancing forestry sequestration.

So what did the New Zealand energy industry do to elbow it's way into the climate change spotlight? How do you beat signing the Paris Agreement or compete with climate fraud?

Well, you just say you are going to burn more coal!

On 28th April 2016, Genesis Energy and Meridian Energy announced they had reached an 'arrangement' that would keep the coal-burning Huntly thermal power station open for an extra four years. This deal postpones the expected shut down from the planned 2018 date to 2022.

Patrick Smellie notes two interesting details of the story. First, the irony that the "100% renewable" generator Meridian Energy has led the process of negotiating with Genesis. And second, that the public announcement of the shut-down by Genesis was just 'code' for negotiating a higher price from other generators.

The Green Party's Gareth Hughes points out that on the basis of Huntly's generation of 1,277 GWh of energy in 2015, the closing of Huntly would have lifted New Zealand's proportion of renewable electricity generation from 79.9 percent to 84.5 percent. So unsurprisingly the Meridian-Genesis deal is just 180 degrees in the wrong direction in terms of the 90 percent renewable target and the need to reduce greenhouse gas emissions.

Greenpeace has given us ten reasons to shut Huntly and have started an on-line petition to keep to the plan and shut Huntly.

But what effect will this have on the Ministry for the Environment's projections of energy emissions out to 2030? These are part of the December 2015 report "NZ’s Second Biennial Report under the UNFCCC". This chart shows projected "with measures" emissions and "without measures" (i.e. business as usual).

In the chart, the projected "with measure" emissions for each sector are the circles and lines. The projected 'business as usual'/'without measures' emissions are the lines between the data points marked by triangles on 2020 and 2030. That's because the without measures projections are for only two years! It is almost as if they are an after-thought.

The other thing to note is that for agriculture, transport and industry, there is no difference between "with measures" and "without" projections. This is of course because the Ministry is reflecting the Government's intention to exempt those three sectors of the economy from any climate change policy.

However, have a close look at the energy sector projections. There is some 'daylight' visible between the 'with' and 'without' projections. The "without" trends ever so slightly upward and the "with" trend is a plateauing. So something is expected to change the slight upward emissions trend to a plateau. The Biennial Report states on page 39;

"Energy emissions are expected to increase between 2013 and 2015, but then fall between 2015 and 2020. The remaining coal-fired power plant in New Zealand is expected to be decommissioned by 2018, reducing emissions from coal. Coal-fired electricity generation is expected to be replaced mainly by a combination of hydroelectricity, geothermal, wind, and gas-fired peaking plants in the modelled scenario".

In other words, the 'something' was the closing of Huntly. The Ministry for the Environment was relying on Genesis Energy to honour its public statement that it was closing Huntly. Which of course would then be attributed to the New Zealand emissions trading scheme. However it looks like the projections are now out-dated.

Conclusion

The 2030 emissions projections show that New Zealand's climate change policies are intentionally not affecting three out of five sectors of the economy. Now with two power generators reaching a private agreement to keep an non competitive asset, Huntly thermal power station, emitting for four extra years, the projected savings in energy emissions out to 2030 have gone up in a puff of coal smoke.

Rio Tinto Alcan NZ do a Godfather; Nice smelter you got. Be a shame if something happened to it

I argue that Rio Tinto Alcan NZ (New Zealand Aluminium Smelters Ltd), the owner of the Tiwai Point aluminium smelter is "God-fathering" the smelter, its workforce, the Southland economy, the New Zealand electricity market, Meridian Energy and the poor critically endangered slow-breeding kakapo, as well as "God-fathering" the New Zealand emissions trading scheme to get excessive free allocations of emissions units.

God-fathering? Yes a new term for climate change blogging. Its sort of a bit like Grandfathering, which is jargon from emissions trading. But it's sort of very different.

Grandfathering in an emissions trading scheme (an ETS), is giving the emission units for free to the existing emitters in the ETS on a historic pro-rata calculation. The units of course representing the desired cap on emissions. Alternatively the units could be sold by auction to emitters which is logical if we treat the units as shares in a public commons owned by the Government on behalf of citizens.

Of course our emissions trading scheme is not so simple. If our ETS just applied simple "grandfathering" as outlined, then it would have a real cap, it would not allow importing of unlimited international units, and it would be impossible for any emitter to receive more units than their emissions.

That's not the case under the NZETS, at least for some emitters. In 2010, New Zealand Aluminium Smelters Ltd Tiwai Point smelter, which is roughly New Zealand's third largest point source of greenhouse gas emissions, was a net seller of units, not a net buyer. Their free allocation of units was 135% more than the units they needed to surrender for their emissions.

That's excessive. The justification given for this is that in order to maintain their export competitiveness, New Zealand Aluminium Smelters Ltd needed to be compensated for the rather unfathomable and diluted emissions trading scheme fossil fuel energy costs that may flow through their secret contract with Meridian Energy and the electricity wholesale market. I will come back to this later in the post.

Let me update the smelter company's emissions and allocations for the 2011 year.

In 2011, New Zealand Aluminium Smelter Limited produced 354,030 saleable tonnes of aluminium. The 2011 Ministry of Economic Development Chief Executive's Report shows that the New Zealand aluminium manufacturing sector (a.k.a. New Zealand Aluminium Smelter Ltd) reported emissions of 601,370 tonnes CO_2-e for the 2011 year. We divide by two for the 'two tonnes for one unit' deal, and that results in an estimate of 300,685 units to surrender.

The Ministry for the Environment allocated 437,681 units to New Zealand Aluminium Smelter Ltd for the 2011 calendar year.

That's 136,996 more units allocated than surrendered or, alternatively, the units allocated to New Zealand Aluminium Smelter Ltd exceeded the units surrendered by 146%.

So that's even more excessive than 2010's 135% over-allocation!

How did New Zealand Aluminium Smelter Ltd/Rio Tinto Alcan NZ Ltd achieve that? Simple really. They threatened to close the smelter and move production offshore if the NZ emissions trading scheme really imposed a real carbon price on them.

"Nice aluminium smelter you got. Be a shame if something happened to it."

Now that's what I call "God-fathering"! But wait there is more.

In July, Rio Tinto Alcan NZ announced an annual loss.

The smelter Chief Executive Ryan Cavanagh said the smelter's financial difficulties were due to falling world aluminium prices. And that they needed to revise their electricity supply contract with Meridian Energy to get the costs of inputs down.

A day later, the parent company Rio Tinto Alcan indicated what may happen to it's unprofitable smelters. They will be shut down. No pressure, Meridian Energy!

"Thats a nice aluminium smelter you got. Be a shame if something happened to it."

According to Brian Fallow, if the smelter closes, there could be a "seismic" knock-on effect on the electricity market. Supply would exceed demand by the 14% of New Zealand's electricity generation used by the smelter. Wholesale electricity prices would react. Some generation assets might be crowded out of the market.

"Thats a nice wholesale electricity market you got. Be a shame if something happened to it."

Brian Fallow notes the Meridian power contract, that the smelter wishes to renegotiate, represents 40% of Meridian's sales. Closure of the smelter or renegotiation of the contract put the spanner of uncertainty into the Government's planned partial sale of Meridian and the other generators.

"Nice plan for partial privatising some state-owned power generators you got. Shame if something happened to it."

The closure of the smelter would also have an impact on the local Invercargill and Southland regional economy.

"Nice regional economy you got. Shame if something happened to it."

Next we hear that the smelter is fast-tracking the redundancies of it's highly-trained and highly-paid workforce.

"Nice well-trained professional smelter labour force you got. Shame if something happened to it."

And Rio Tinto Alcan NZ also wants to withdraw from partly funding the successful Kakapo Recovery Programme.

"Nice charismatic endangered species programme you got. Shame if something happened to it."

That's a lot of God-fathering!

Let's look at New Zealand Aluminium Smelter's electricity use and costs in 2011. How much do they use? How much do they pay? Does their power cost justify extra allocations of emissions units? Is it realistic for New Zealand Aluminium Smelter Ltd to try to get Meridian to give them cheaper power?

Let's look at some electricity use data from the Energy Data File 2012. The actual data is Spreadsheet G worksheet G.6.a., a copy of which is now at Google Docs.

This dot chart makes it very clear that the New Zealand Aluminium Smelter Ltd's Tiwai Point Smelter is, by a huge margin, the biggest single consumer of electricity in New Zealand. A single company at a single plant used 5.3 million megawatt hours (MWh) out of 38.8 million megawatt hour consumed in 2011, or 13.67% of the total consumption. Only the combined 4.4 million people in homes (the residential sector) used more electricity, 13 million megawatt hours or 33% of the total. If we just look at industrial use of electricity, and leave out the residential sector, the smelter used 20.6% of all electricity used by industry.

This chart shows average rates (including line costs) in cents per kilowatt hour (i.e. its megawatt hours divided by sales $$ times 100) for the industrial electricity sectors.

You need to look at the bottom left hand corner, not the top. That's because Rio Tinto Alcan NZ Ltd/NZ Aluminium Smelter Ltd pays the very lowest average rate for electricity in New Zealand; 5.03 cents! Residential users pay 22.6 cents per kilowatt hour, or four times as much.

No industry in New Zealand uses more electricity than New Zealand Aluminium Smelters Ltd. No industry pays less per unit for electricity than aluminium smelting. They even get excessively allocated emissions units to help with the lowest priced power contract in New Zealand. And now New Zealand Aluminium Smelters Ltd are going for "Godfather" gold by trying to bully their power price even lower.

Power to the smelter? Rio Tinto Alcan NZ Ltd wants to pay less for electricity for the Tiwai Point aluminium smelter

So, as of 10 August 2012, we know that New Zealand Aluminium Smelter Limited (Rio Tinto Alcan NZ Limited) say they are not profitable at the moment and the smelter may have to shut down.

Now they want to renegotiate their electricity contract with Meridian Energy. It could be tricky.

This is the secret contract for the aluminium smelter at Tiwai Point, where power from the Lake Manapouri Power Station is sold to a Rio Tinto Alcan NZ Limited subsidiary at what are suspected to be very cheap rates - possibly as low as 4.7 cents per kilowatt hour or one quarter of the price charged to the domestic consumer.

So how much electricity does the smelter use? How much does it pay? The old Ministry for Economic Development issues an annual report on energy use. The Energy Data File 2012 was published in June 2012 and this may help.

I downloaded a 5 megabyte zip file of spreadsheets.

Spreadsheet G records electricity production and use. Within it, worksheet G.6.a. is an 'Electricity Market Snapshot', giving electricity consumption by industry for the year ended 31 March 2011. I copied it and uploaded it to Google Docs. Funnily enough, aluminium smelting isn't mentioned.

However, there is 'Basic non-ferrous metals ANZSIC 2006 industry code C213'. This sector consumed 5,300,000 megawatt hours in the 2011 tax year. I looked up 'ANZSIC 2006 code C213 Basic non-ferrous metals' on the Statistics Department's website and it is:

"Aluminium Smelting This class consists of units mainly engaged in smelting alumina to produce aluminium, or recovering aluminium from scrap. The aluminium is cast into basic shapes or may be cast according to customer specifications. Also included in this class are units manufacturing aluminium alloys from primary aluminium smelted at the same unit."

.

In other words Basic non-ferrous metals code C213 is a 100 percent the bloody Tiwai Point Smelter! Now for some charts.

Okay, looks crap in Blogger. Click click for a 600 by 600 pix pick.

This dotchart makes it very clear that the Tiwai Point Smelter is by a huge margin, the biggest single consumer of electricity in New Zealand. A single company at a single plant used 5.3 million MWh out of 38.8 million MWh consumed in 2011, or 13.67% of the total consumption. Only the combined 4.4 million people in homes (the residential sector) used more, with 13 million MWh or 33% of the total. If we ust look at industrial use of electricity, and leave out the residential sector, the smelter uses 20.6% of all electricity used by industry.

Click click for a 600 by 600 pix pick.

This dotchart shows industry sector purchases of electricity from the generator/retailers at sales value. In spite of the smelter buying way way way more electricity than any other industry, the sales to the smelter in dollars are fourth in terms of value.

Click click for a 600 by 600 pix pick.

This chart shows industrial electricity users sorted by average rate including line costs in cents per kilowatt hour (i.e. its MWh divided by sales $$ times 100). You need to look at the bottom left hand corner, not the top. That's because New Zealand Aluminium Smelter Ltd pays the very lowest average rate for electricity in New Zealand; 5.03 cents! Residential users pay 22.6 cents per KWh, or four times as much.

New Zealand Aluminium Smelter Ltd is really demonstrating breathtaking audacity in threatening to close the Tiwai Point Smelter if they don't get their electricity costs lower, when they already enjoy the lowest electricity cost of any sector in New Zealand.

Meridian misjudged millions on the Mokihinui hydro dam

Gareth Hughes blogs that energy company Meridian's persistent advocacy for Mokihinui River hydro dam proposal, including obtaining resource consents, has now been proven to be a waste of 18 million dollars now that Meridian has withdrawn the proposal and the consents.

Gareth is bang on to describe the Mokihinui Dam proposal as ‘far-fetched’ and ‘unconsentable’. It’s the Conservation Act not the the Resource Management Act that makes the dam proposal ‘unpermit-able’ (if thats even a word!).

The Mokihinui River is conservation land. The Minister of Conservation can’t just give away conservation areas for non-conservation purposes.

The case law is a 1995 High Court declaration Buller Electricity Ltd v Attorney-General [1995] 3 NZLR 344 that said that the Minister of Conservation was correct to decline to give away the Ngakawau River for a hydro dam as it wasn’t a conservation purpose.

Meridian and its advisors have only themselves to blame for the $18m dead-loss (and also DOC’s costs). When they initially scoped out the feasibility of the proposal, they should have realised that the Buller Electricity precedent was a very high hurdle to cross.

I can only presume that their initial scoping suffered from ‘optimism bias’. It was also their choice to pursue resource consents before receiving formal access to the conservation land from the Minister of Conservation.