New Zealand has a surprising tool to boost its grid: an aluminum plant

Aluminum smelters are energy hogs. To make the lightweight metal, facilities need hundreds of megawatts of power running at near-constant rates, which can place a big burden on the electricity systems where these plants operate — and generate lots of planet-warming emissions if the power is dirty.

Increasingly, utilities and aluminum producers are exploring ways for smelters to support, rather than strain, the grid. Experts say such solutions will be crucial as global aluminum production rises in the coming years, driven largely by demand from clean energy industries.

The latest example of this emerging effort comes from New Zealand. Companies there recently struck what they called a ​“groundbreaking deal” to turn the country’s sole aluminum smelter into a valuable resource for the island country’s grid.

Located on New Zealand’s South Island, the Tiwai Point smelter produces around 330,000 metric tons a year of aluminum — a material that’s found in everything from soda cans, skyscrapers, and satellites to clean technologies like electric cars, heat pumps, solar panels, and wind turbines.

Producing all that metal at Tiwai Point involves drawing up to 572 megawatts of continuous power, the vast majority of which comes from a nearby hydroelectric power station. The smelter is New Zealand’s largest electricity consumer, accounting for about 13 percent of total annual electricity use in the country of 5.1 million people.

Late last month, Rio Tinto, the plant’s majority owner, signed 20-year supply deals with three New Zealand energy producers, which will provide at fixed prices a ​“diversified mix” of renewable electricity from not just hydropower but also potentially geothermal, solar, and wind power.

But the deal is perhaps more notable for what Rio Tinto will give, not what it will get. The new contracts include a significant agreement around demand response — a concept that is gaining traction within the larger industrial sector as a way to manage demand from big power users such as data centers, AI systems, warehouses, and even steel recycling furnaces.

The agreement provides financial incentives for the Tiwai Point smelter to curb its electricity use — and therefore lower its aluminum production — during dry seasons, when the hydroelectric plant’s lake inflows can become critically low. Under the contract, Meridian Energy and Contact Energy can call upon the smelter to reduce demand by between 25 MW and 185 MW.

That, in turn, will free up renewable resources for other parts of the country during seasons of low supply and high demand, reducing the need to ramp up fossil-fuel power plants during a drought. It will also ensure there’s sufficient energy available for New Zealand’s households and businesses when they need it, the companies said. 

“The level of flexible demand offered by [the smelter] will support the electricity system to become even more renewable, while relying less on coal and gas when the hydro lakes are low,” Neal Barclay, Meridian Energy’s CEO, said in a May 31 statement.

The agreements, which are subject to regulatory approvals, are expected to start in July and run through at least 2044. The companies didn’t disclose the value of the demand-response incentives.

Melissa Lott, a professor at Columbia University’s Climate School in New York, has previously studied the Tiwai Point smelter and continues to follow its progress, given the facility’s outsize role in New Zealand’s energy system and broader economy. The 53-year-old smelter has come close to shuttering several times and was slated to close this December, owing to high energy prices and a tough economic outlook. The new contracts ensure it will stay open for two more decades.

Lott said the demand-response agreement in particular is ​“big news” with potentially wider implications for aluminum producers in the United States and globally.

“It shows that there’s actually a big tool in your toolbox for an industrial partner” to increase demand flexibility, she told Canary Media. For industrial companies, it says, ​“If you give us the right financial incentive, or the right contract, we’ll do it.”

Such flexibility by major power users ​“could actually help keep the overall system costs down for consumers, for households, which is really significant,” she added. It also allows grid operators to better accommodate the influx of variable renewable sources like wind and solar — and lessen reliance on fossil-fueled backup power.

High demand, tight supply

The news from New Zealand highlights some of the nuances that come with scaling up production of a power-hungry and often highly polluting industry — while also trying to clean up global electricity generation.

Globally, producing aluminum contributes about 2 percent of carbon dioxide emissions every year. Of those emissions, about 70 percent come from generating electricity to run smelters, which use scorching heat and electrochemical reactions to transform alumina into a shiny finished product.

On paper, curbing aluminum’s emissions seems simple enough: Instead of running smelters with coal-fired electricity, switch to renewables. But smelters aren’t the only ones clamoring for carbon-free energy; growing cities, data center operators, and other manufacturers all want a piece of the pie. For hydropower in particular, widespread droughts are further straining supplies in many countries, including China, the world’s top aluminum producer.

In Iceland, three large smelters consume roughly 80 percent of the country’s annual electricity supply. The Nordic country has abundant hydropower and geothermal energy resources. But the infrastructure needed to generate and deliver electricity is currently at full capacity, and demand is expected to rise in the next few decades as the economy expands, according to Landsnet, Iceland’s publicly owned transmission system operator.

“Today we are producing the same [amount of energy] as we are using, and we don’t have any extra,” Svandís Hlín Karlsdóttir, an executive vice president at Landsnet, said during a recent interview at the company’s office in Reyjkavík. ​“We need to add something new to be able to meet the demand that is coming.”

Iceland is considering building wind and solar farms and expanding its geothermal capacity. At the same time, Landsnet is developing pilot projects with aluminum producers to explore how the giant facilities could help balance the load on the nation’s grid. ​“We need demand response,” Hlín Karlsdóttir said.

Meanwhile, in Australia, the aluminum giant Alcoa is participating in a program that can turn one of its smelters into an emergency power source.

In 2021, the Australian government said it would provide up to $14.8 million per year for four years to underwrite Alcoa’s participation in the Reliability and Emergency Reserve Trader scheme. The arrangement recognizes ​“the smelter’s ability to rapidly shed load when required to help protect the power grid from unexpected interruptions when it is under duress,” Alcoa said at the time.

So far, the company has been called upon ​“multiple times” to participate in the scheme, a spokesperson for Alcoa said by email this week. Participating involves halting production in its potlines, the rows of deep, rectangular steel shells in which alumina is made into molten aluminum.

“We can, if required, take each of the smelter’s two potlines offline for about an hour at a time to reduce load on the network,” the spokesperson said. ​“Reducing load for longer periods can lead to operational instability and cause damage to the potlines.”

Deals like this one and the new agreement in New Zealand demonstrate how large industrial companies are becoming increasingly aware of their own role in balancing the larger grid — and the potential moneymaking opportunities that can come with that, said Chris Bataille, an adjunct research fellow at Columbia University’s Center for Global Energy Policy.

“As wind and solar goes up and down, and as batteries empty and fill in, if they [smelters] can do any amount of demand adjustment to help the grid stabilize, there might be another business value in this for them,” he said.

Another potential way for aluminum producers to boost their flexibility is to make excess materials when energy supplies are most affordable or abundant, then stockpile that aluminum to keep supplying their customers during low production periods.

Bataille said that the Tiwai Point agreement represents ​“a step on the road for New Zealand” but that more still needs to be done to balance the smelter’s extraordinary energy demands with the grid’s broader needs.

“The endpoint is to come up with an industry that can raise or lower its demand as necessary, as renewables are available in the system,” he said.