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Dr Muriel Newman

Dr Muriel Newman

Will President Trump bring down power prices in New Zealand?

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Will the President of the United States be responsible for lowering power prices in New Zealand?

That question has been raised because this could be one of the unintended consequences of Donald Trump’s latest move “to make America great again”.

Bringing jobs back to the manufacturing industries in America’s Rust Belt states was one of his key election campaign promises. As a result, the President has now declared war on steel and aluminium imports, which he believes are undermining American producers.

His intention is to increase the competiveness of domestic steel and aluminium manufacturing, by making imported products more expensive – through the imposition of a 25 percent tariff on imported steel and 10 percent tariff on imported aluminium.

The executive order was issued under an obscure section of American trade law, which enables the President to impose tariffs on imports that pose a threat to US security. With some three percent of US aluminium and steel production being used for military purposes, President Trump has argued that the steel and aluminium industries are vital to national defence.

The President believes US manufacturers have been badly affected by overproduction in China, which he says has depressed global metal prices, forcing domestic companies to reduce production and cut jobs: “The American aluminium and steel industry has been ravaged by aggressive foreign trade practices. It’s really an assault on our country.”

In 2017, the US manufactured 82 million metric tons of steel and imported 30 million tons of foreign steel, mainly from Canada, Brazil, South Korea, Mexico and Russia. In 2016, they manufactured 840,000 tons of aluminium, and imported 4.7 million tons, mainly from Canada, Russia, United Arab Emirates, and China. 

Since the original tariff announcement, the President has softened his stance, by suggesting the possibility of exemptions for countries that deliver benefits to the US.

In particular, he’s said that if the US can finalise a favourable North American Free Trade Agreement with Canada and Mexico, they will be excluded from the tariff.

He has also singled out Australia, tweeting that the country could have an exemption, in return for a security agreement: “Working very quickly on a security agreement so we don’t have to impose steel or aluminium tariffs on our ally, the great nation of Australia!”

Some believe the President’s new tariffs will start a trade war as countries seek to retaliate. There are also major concerns that there will be a substantive impact on steel and aluminium producers around the world – including New Zealand – as countries which currently export to the US look elsewhere to reduce the price cut they would face, depressing prices globally.

According to Trade Minister, David Parker, who has ruled out any form of retaliation, New Zealand’s iron and steel exports to the US were worth $39 million last year out of a total of $433m, while aluminium exports were worth $23m out of a total of $1.1 billion.

Steel in New Zealand is produced at Glenbrook, south-east of Auckland, and aluminium, at Tiwai Point, near Bluff in Southland.

It’s the impact of President Trump’s tariffs on aluminium production that could affect our power bills.

The Tiwai Point smelter is owned by New Zealand Aluminium Smelters – a joint venture between the Australian and British Rio Tinto Group, and the Japanese Sumitomo Group. Established in 1971, it imports alumina from Queensland and the Northern Territories and processes it into aluminium nuggets. Some 90 percent is exported, mainly to Japan and the Asia Pacific region, with just two percent going to the USA.

Since aluminium manufacturing requires a large and very reliable power source to continually supply electricity to the reduction cells, smelters are only viable when they have access to an abundant source of inexpensive energy. Tiwai Point’s location near Bluff was therefore dependent upon the construction of the Manapouri hydro power station and the promise of cheap power by the New Zealand government. 

The smelter uses 13 percent of the country’s electricity supplies and accounts for 10 percent of the Southland region’s economy. It employs 800 full-time workers, and is responsible for a further 3,000 indirect jobs.

Over the years, the economics of aluminium production – which largely depends on the price of alumina, the cost of power, and the exchange rate – has fluctuated widely, with the company threatening closure in 2013 as a result of falling profitability. In response, the National Government offered a massive taxpayer-funded $30 million subsidy to keep the smelter operating. Their agreement was on the condition that it would have to continue operating until at least January 2017.

The smelter also signed a contract with Meridian Energy for the continuous supply of 572 megawatts of cheap electricity for the period from 2013 to 2030. In 2015, a variation of their agreement enabled other generators, including Contact Energy and Genesis Energy, to contribute 172 MW of that total.

Under that agreement, each year, New Zealand Aluminium Smelters has the right to review its operation and terminate the contract – or reduce its electricity demand to 400 MW with one year’s notice.

While only a small proportion of the aluminium produced at Tiwai Point is exported to America, if the changes introduced by President Trump depress prices globally, the future viability of the smelter may again be under threat.

So what does this have to do with your electricity bill?

Since Tiwai Point uses around 13 percent of New Zealand’s total electricity production, if the plant was to close, an abundance of cheap hydro-power would then become available for other consumers, at lower prices.

It’s not quite that simple, of course. Because Tiwai Point is at the bottom of the South Island and the majority of electricity demand is at the top of the North Island, some transmission difficulties would need to be addressed.

Furthermore, the power companies – which are all listed on the New Zealand Stock Exchange and have maximising profits to shareholders as a key objective – are likely to try to minimise potential losses by cutting back on production.

However, in the short term, power prices would undoubtedly ease.  

Whether any of this eventuates of course, is not clear, but it remains a distinct possibility given the precarious economics of aluminium production.

So what is the current state of power prices in New Zealand?

When National was first elected to Government in 2008, then Energy Minister, Gerry Brownlee, launched a major review aimed at bringing power prices – which had increased by 78 percent between 2000 and 2008 – under control.

Amongst other things, the resulting package of reforms made it easier for consumers to switch power providers and shop around for the best pricing deals.

As a result of these changes, Ministry for Business, Innovation and Employment figures show that while power prices have risen by around 6 percent above inflation since 2012, because household power usage has reduced – mainly due to more energy-efficient appliances and better insulated homes – spending on electricity has somewhat stabilised: In 2012, the average household expenditure was $2,074 for 7,609 kilowatt hours, and in 2017 it was $2,029 for 7,046 kWh.

Our power bills reflect the contribution that the different system operators make towards delivering electricity to our homes. These operators include the Electricity Authority regulator, five major generators – Contact Energy, Genesis Energy, Mercury Energy, Meridian Energy and TrustPower, Transpower’s national grid of almost 12,000 kilometres of high voltage transmission lines, local power line distribution networks operated by 29 lines companies, and an increasingly competitive range of power retailers.

As a result, over 30 percent of our bill goes to the generators, 26 percent to the distributors, 16 percent to the retailers, around 10 percent pays for transmission charges, 4 percent for governance and meter reading – and on top of that we pay the Government GST.

Around 85 percent of New Zealand’s electricity supply comes from renewable sources – predominantly hydro, with geothermal, wind and solar power. That’s the third-highest proportion in the OECD, behind Norway and Iceland.

When in Government, National adopted the former Labour Government’s target of 90 percent renewable energy generation by 2025. The new Labour led coalition has upped the ante – they want 100 percent renewable energy generation by 2035.

But there are major challenges in achieving a total reliance on renewable energy – namely, what do you do in dry years, when the hydro lakes are low, the wind doesn’t blow, and the sun doesn’t shine?

Those other countries that are more dependent on renewable energy than New Zealand have greater back-up capacity. Norway has two years of storage in its lakes, compared to New Zealand’s six-to-eight weeks, and Iceland, not only has huge reserves of untapped potential in lakes, but also in geothermal fields.

Whether the environmental lobby likes it or not, New Zealand needs to include back-up fossil-fuel generation – in the form of the Huntly coal-fired power station – in our energy network, to provide security of supply and to ensure the lights are kept on.

This week’s NZCPR Guest Commentator, energy expert, Bryan Leyland, explains the situation:

“Transpower’s 2017 review of system security – based on an optimistic assessment of peak demand and the ability of thermal generators to make up the dry year shortfall – is sobering. It warns of an increasing risk of short blackouts whenever there is insufficient generation to meet peak demand and much longer blackouts due to lack of hydro generation in a dry year.

“The risk was high a few weeks ago but has reduced since then due to heavy rain in the hydro catchments. Even so there is still some risk because Tekapo B station is out for maintenance, snow pack is unusually low, Huntly does not have enough coal on its stockpile and we don’t know how much extra gas is available…

“At the moment, Huntly has the 230,000 tons of coal on its stockpile that it needs to meet its contractual obligations. But to provide dry year insurance for the economy, it needs about 1 million tons of coal. That would probably be sufficient to keep the lights on.”

In 2015, Genesis Energy, the company that owns Huntly, announced it was no longer economic to run. However, this raised such concern amongst generators and Transpower, about the security of supply if back-up generation was not available, that multi party negotiations were held, and in 2016, Genesis announced that Huntly would continue to operate until 2022.

Following on from this, last month, Genesis announced that Huntly will now operate until at least 2030, with coal being phased out under normal market conditions by 2025, but available as a system back-up after that.

The Climate Change Minister, Green Party leader James Shaw responded by saying he was not concerned: “We want to get out of fossil fuels by 2035. I think the Genesis announcement is consistent with that”.

His party, however, was concerned: “There is no future in burning coal to produce electricity in New Zealand. Coal belongs in the ground, not burnt in the atmosphere.”

But the idealistic commitment to 100 percent renewable energy is based on wishful thinking – unless new hydro dams are built, vast new geothermal generation capacity discovered, or batteries invented that can store unlimited power, New Zealand will always need coal or gas generation as a backup, to ensure the security of our electricity system. 

Government policy should reflect reality, rather than idealism.

Meanwhile, the new Minister of Energy, Dr Megan Woods, has announced a review of electricity prices in New Zealand. This will deliver on Labour’s coalition commitment to New Zealand First to “hold a full-scale inquiry into retail power pricing”.

But back to where we began – if the new US tariffs depress the aluminium market to the point where the profitability of the Bluff smelter is undermined and it is forced to close, the country would be awash with cheap electricity – and President Trump would have brought a new era of lower power prices to New Zealand!


Do you believe it is realistic for the Government to aim for 100 percent dependence on renewable energy generation in New Zealand? 

*Poll comments are posted below.


*All NZCPR poll results can be seen in the Archive.

Click to view x 120


Why bother other countries do not come close Barry
NZ has wet & dry years, which make the Hydro as the best renewable source of energy, a bit unreliable. This problem will have to resolved first Pierre
Your article explains it all Colin
This will take a few years to achieve but we can ultimately attain this goal. John
WE need more rain, more storms, more snow but it aint coming, how hihs the moon? Warren
At present there are not enough hydro stations to achieve this so extra hydro stations will have to be constructed even then we are totally dependent on mother nature. Won’t happen. Ken
there dont want woodfries when we have renewble wood  Owen
If Trump causes cheap power in this way, won’t Tiwai again threaten all those jobs unless the gummint again gives a generous taxpayer bailout, and all gains from this touted cheap electricity will vanish into the mist? Lesley
Not it in the reasonable cost. Why bother? Huntly emits carbon dioxide that increases plant growth. Even the Royal Society of New Zealand cannot produce any evidence that convincingly shows that carbon dioxide causes dangerous global warming. Bryan
Not without major investment into more renewable energy sources. Albert
Dreams are free but they don’t warm your house. Chris
Would be great if we could, but realistically we need to have back up and with the new methods of burning coal, that produce very little polution we need to have this option ready Sue
This is reality not wishful thinking as nature is unpredictable Bruce 
Battery technology is the key. Once cheap, durable battery packs are available then there will no longer be the need for individuals to use mains electricity. This will allow private citizens to send electricity to the grid for commercial purposes and be paid for what they supply. Alan
Renewable is too weather dependent and expensive. Bryce
I don’t believe this is possible now or ever. The Greens and their supporters will prevent the construction of any new hydro or geothermal facilities on environmental grounds but they similarly don’t want us to use coal. Are they actually stupid or just woefully ignorant of reality?  Kerry
Anything is possible James
100per cent is not possible but gap might be lessened by more wind based generation Jim
Such idealism is unrealistic. Michael
Of course it could, but not until more dams are built George
Eventually Rod
Not unless we invest in more Hydro and Wind generation. Peter
Because of the uncertainty of constant availability of water, and the fact that no new sources of geothermal power have been found or utilised, we need reliable back-up sources of power to “keep the lights on”.  Laurence
Not sensible! William
We don’t have the resources RM
The water resources for power generation have all but been exhausted. Wind Power is unreliable, even if we covered New Zealand with forests of turbines, Tidal generation has yet to be proven internationally, even in locations where the tidal rise and fall is three times greater than in NZ. Geothermal sources may yet be developed, but experts believe there are limits to this source which will still not permit NZ to generate sufficient power in a dry hydro year. Perhaps we would have sufficient power if we adopt the stone age economy the Green Society would have us adopt. Michael
100% renewable is a fantasy that could also endanger reliable supply to all New Zealanders. Gary
Someone is dreaming. Bill
It is not practical or achievable Ian
We must ensure there is a reliable backup. Our modern world is so reliant on electricity.Without it there would be total chaos. Bryan
With a booming population and the slow and restrictive expansion of our current energy requirements we must have instant back-up for the near future.coal,gas and petroleum [or nuclear power station where its needed, ie Auckland] are the only options. Idealism can not replace realism. Ced
Any person or group who believes there is only one way to achieve energy dependence is not recognizing the imperfection of human decision making and the “unknown of the future” be it weather, war or otherwise. Carol
Sure it won’t be possible Claire
All based on the nonsense of human induced carbon affecting the atmosphere. Have people not understood that the carbon emissions of just one of the world%u2019s 200 volcanoes in just one day negate all the efforts around the world to ban carbon emissions over the LAST 5 YEARS – and that climate change is largely due to the activities of waxing and waning Magnetic Fields up to 125,000 Km across – as has happened for millions of years  Hylton
Totally unrealistic target. Every system has to have a backup for when ‘things go wrong’. In our case, coal or gas fired capacity is already in place so would need to be retained. Only alternative to this is to develop a fail-safe system eg solar. Graham
It is desirable but not practical Lloyd
To be 100% dependent on renewable is just nonsense and if that type of woolly headed thinking is allowed to prevail then we will all have diesel generators in our backyard. Why can’t we have practical thinking making these decisions for us instead of silly people in authority for which they have no qualifications for making such important decisions?  Don
Australia tried that and failed. Existing power generators are not able to guarantee continued supply. Mark
History has shown that we cannot rely on renewable energy and if we want to revert to a third world country turn the lights of. How stupid. Tom
Not in my lifetime!. a bit too ambitious.  Don
…never have all all your balls” in one court… Simple stuff…. CHowes
I would hope so but think power will become dearer before we achieve this. Elizabeth
The Government could if they use their heads in the right way. But it will take the next 30 years to get things right. Truck would never be on a E-power. As they need the power to pull heavy loads. With happening one has to think of the electricity market and prices. Robert
As a long term goal. Peter
An excellent aspiration but on current projections, probably not achievable. The ghastly Trump can take no credit for your predictions and I consider you are trying to create a silk purse out of a sow’s ear by pursuing this argument! Barbara
We already have instituted wide ranging improvements to our systems and this will continue – making absolutes distorts the system overall and can only end in turmoil Rob
That is impossible, despite the Greenies protestations. They are technically ignorant! Mike
I say “yes” but with reservations. If we build new hydro power stations in different climatic regions, to ensure continuity of supply it might be possible. If domestic solar installations became cost effective, that would make a significant impact on the necessity of commercial production. However, going 100% renewable is probably somewhat idealistic and if it meant blackouts of any description, it is patently ridiculous to even suggest it. Then the Green Party does have a percentage of complete luddites on it’s register, so anything is possible while we are governed by a coalition of losers. Dianna
Simply because the Greens will not agree to increasing the Hydro power generation needed. Lionel
As usual, dangerous extreme loony left will muck it up with unrealistic ideology. Geoff
Cannot increase population and bring in electric cars without massively increasing demand so coal has to stay as elect. Producer Terry
I don’t think it’s possible  Peter
It is reasonable to aim for 100%, however that aim might not be achieved. The question could have been better worded, e.g., Can New Zealand achieve 100% dependence on renewable energy, the answer woudl be “No” Peter
They are on a different planet. Probably want more of those inefficient ugly windmills dotting the country side Laurie
With New Zealand Government and Local Bodies hell bent on Co-Governance arrangements this is a dangerous path. Co-Governance means that any Tribal Group in a region effectively has “Veto Rights” over any decisions made by our elected Government or Local body representatives. Renewable energy sources such as water, air, steam will all be given to Maori as part of tribunal claims and the Tribal Elite controlling these groups will impose tariffs that will feed the gravy train. Unfortunately coal will also fall under their control. We need Nuclear Power to protect us from being controlled and taxed by the controlling Tribal Elite. Bruce
South Australia tried it and what happened there just 12 months ago – the storms came and wiped out much of their ‘renewable’ power forcing them to buy in power from their more sensible neighbouring states. WE now have too many dreamers! Stuart
And there is no allowance made for the electrification of transport!!! Alan
Because the Greens always object to any new hydro projects! So how can we go totally away from fuel burning? Hugh
If they build more hydro dams in the North Island. Michael
Greens, rocks in their heads as usual David
Yes, if and only if, hydro-electric generation capacity is increased by approx 1GW “immediately” and and further mixed-source generation capacity developed in line with medium-term demand growth. I
If we could convince the government to supliment the installation of solar panels and up the price paid to the producer I think it would be plausible  Andrew
Not a snowballs chance in hell! Wally
In the short Term no but certainly in the longer Term yes. Laurel
No! Just allow people free to function in a free market and you will be amazed at what will happen. Business people working freely amongst themselves sort issues out far quicker than can any central planner who usually holds ideals detached from reality while supporting a vast and stifling bureaucracy.  Don
Delusional ignorant dreamers. Go back to your caves. Alan
No, nature is too fickle. George
Talk about ideology gone mad – trying to run a country without reliable electricity back-up generation, if things go wrong is reckless. The country needs security of supply and at the present time, renewable energy generation cannot provide that.  Jeremy 
NZ needs another big hydro dam to act as backup if the Government is serious about 100% renewable energy, but they will need to get started now as it will probably take until 2030 to get it approved and built! Michael
Another example of environmental nuttiness! Graham
As you say, government policy should be realistic, not idealistic. The country needs the coal-fired generation capability for if things go wrong so yes, 100% renewable energy is totally unrealistic. Maxine
Sadly common sense seems to have disappeared in the debate about energy targets. Unless we discover more geothermal fields or build more hydro dams, a totally renewable target is totally mad! Larry