Re: Zinifex... ZFX
If you've been listening to business news then you may have heard that ZFX has just been announced as a successful tenderer of reserve capacity to NEMMCO (National Electricity Market Management Company). This post is to explain what this is about since most probably don't know about such things (I assume).
Bottom line is it doesn't materially affect the overall profitability of the business.
NEMMCO operates the electricity market and controls the dispatch of power stations in the main grid covering Qld, NSW/ACT, Vic, Tas (not yet permanently connected to the other states but about to be) and SA. Isolated areas plus WA and the NT have their own systems.
NEMMCO has been seeking additional reserve capacity in Vic/SA regions to cover a forecast shortfall this Summer (Jan 16 2006 onwards). Transmission limits (the lines are already fully loaded) preclude sourcing this from the other states. The reserve capacity offered can be either generation which is not normally available to the market or a reduction in consumption from a major user. In total NEMMCO has been seeking (and has got) 575MW across the two states. 200MW of this relates to emergency pre-commissioning operation of the Tasmania - Victoria link (Basslink) at up to one third capacity if needed in an emergency. Basslink is expected to be fully operational on a permanent basis by the end of April this year.
ZFX has offered to reduce consumption at its Port Pirie (SA) plant when requested to do so by NEMMCO. NEMMCO will only make such a request when there is an actual lack of reserve capacity in the system. Typically this would be during extreme high temperatures in Vic and SA although could also occur due to failure of transmission lines or power stations.
ZFX will be paid for reducing their load when requested. The $ amount is confidential but likely to be more than they would otherwise pay for the electricity they would have used. It most likely reflects the value of lost production.
According to statements from ZFX, the load in question is the cell room (electrolytic cells) in the zinc side of the plant. This is relatively easy to switch on and off. It acounts for 15MW of the plant's 35MW load. The rest of the plant will not be affected by this tender.
The good news here is that ZFX can
probably recover the lost production over time as it is generally possible to stockpile intermediate product at plants such as this (though I'm not certain if this is the case at Port Pirie but it probably is). Assuming that the cell room isn't the bottleneck in the process (possible but unlikely since it's not particularly difficult to add small increments of capacity to a cell room whereas it is to the rest of the plant) they ought to be able to recover lost production over time.
Bottom line: They've
probably just done a deal which is revenue neutral over the short term but leads to a small profit over the longer term. Not likely enough profit to meaningfully affect overall company results though. On other matters, the move is likely to be viewed favourably by the SA government which may bring some benefits at some point although that is of course not certain.
The ZFX tender covers Jan, Feb, Mar 2006. NEMMCO also expects to require additional reserves in the SA region in 2006 - Dec, 2007 - Jan, Feb, Mar, Nov, Dec, 2008 - Jan. NEMMCO will wait to see if there is a market (voluntary) response to develop new generation or reschedule maintenance etc. If that is not sufficient then they will conduct tenders for the relevant periods closer to the actual date. ZFX will need to re-tender for these periods.