The Tiwai Point smelter demand response in winter 2024

In May 2024, the New Zealand Aluminium Smelter (Tiwai Point) entered into new commercial agreements, with Meridian Energy and Contact Energy to provide the electricity system with large scale 'demand response'. These agreements began in July and include demand response, which means that Meridian Energy and Contact Energy can ask Tiwai Point to reduce the smelter’s electricity use and in return, Tiwai Point is paid for doing this.

During winter 2024, New Zealand experienced an electricity fuel shortage due to low rainfall and declining gas production. In June, Meridian Energy called on its demand response option with the smelter at Tiwai Point. The smelter then reduced its electricity consumption which allowed Meridian to conserve hydro storage. This article explains the scale of this demand response and its impact on the electricity system.

Large electricity users can enter into demand response agreements with electricity providers

Electricity demand in New Zealand is not constant – it varies based on the time of day and year. Demand tends to increase in the morning, as people get ready for work and school, and again in the evening, when heating and cooking appliances are used. Seasonally, demand peaks during winter, when more heating is required.

Some industrial users consume a relatively steady amount of electricity, regardless of the time of day or season. As part of their business strategies, these users can enter into demand response agreements to monetise their electricity use. During periods of high national demand (such as during winter) or fuel shortage (during a dry year), they can be paid to reduce their electricity use to reduce demand on our electricity system. Reducing demand in this way is called ‘demand response’.

Demand response is a key tool in a highly renewable electricity market

As New Zealand’s electricity is increasingly produced by more intermittent sources, like wind and solar, demand response will play an important role in New Zealand’s electricity industry. Traditionally, electricity generation is controlled to meet demand, however, as intermittent generation increases, demand response will be critical to enabling demand to match available generation.

Demand response agreements help address both fuel and capacity issues in the electricity system. Large scale agreements, where industrial electricity users turn down demand, for days or weeks, will help balance the system during years with fuel supply issues. Short-term demand response, like the controlling of hot water cylinders by retailers, will turn down demand for minutes to hours when electricity demand is high.

The Tiwai Point smelter is New Zealand’s largest electricity user

The Tiwai Point smelter is New Zealand’s single largest electricity consumer at 572MW. In 2023 the smelter consumed the equivalent to 20% of the North Island’s electricity use. The smelter has contracts with three electricity generators (Meridian, Contact and Mercury) to supply its electricity. The contracts with Contact and Meridian have demand-response options, where the smelter can be paid to reduce its electricity use.

Tiwai Point smelter saved roughly 330GWh of electricity over winter 2024

Hydro lake storage was low heading into winter 2024, and electricity spot prices rose to reflect the increasing cost of supplying electricity.

To help balance electricity demand and supply over winter, Meridian called its 50MW demand-response option with the Tiwai Point smelter on 22 June. This required the smelter to reduce its electricity consumption by roughly 9%. The smelter’s demand reduction was increased to 185MW from 19 August, which is the maximum amount in its contract. However, from 23 August, the smelter agreed to further increase its demand response above the contracted maximum, to 205MW, which was a 36% reduction in total consumption.

From 10 June to 30 September 2024, the smelter’s demand response saved an estimated 330GWh of electricity, which is equivalent to 7% of New Zealand’s total hydro storage capacity.

While the demand response ended in late September and the smelter’s demand began increasing again (Figure 1). The smelter is expected to be back to full output in mid-April 2025.

There are stand-down periods for all demand response options, meaning the options cannot be called again within the applicable stand-down time. Given the demand response requests in 2024, Meridian will only have access to the 25 and 50MW demand-response options during winter 2025. Then before winter 2026 the 100 and 185MW options will return.