The Tiwai Point aluminium smelter has reached a long term power supply deal that will keep it open for another 20 years.

Meridian Energy and New Zealand Aluminium Smelters (NZAS) have agreed a long-term fixed price power contract until 2044.

The future of the smelter has been hanging in the balance for years as the expiry of the current contract at the end of this year loomed.

Meridian Energy chief executive Neal Barclay called the agreement an "excellent result" after many years of negotiation.

"This is a fantastic outcome for New Zealand and the Southland region. It's further proof that large industrial businesses can utilise New Zealand's renewable energy advantage and create low carbon sustainable products, high value jobs and export dollars for our country."

"We are very pleased that the NZAS team have adopted a more flexible approach toward their operations."

The smelter's owner, global mining giant Rio Tinto, has long complained about the transmission prices it has been charged, which it said alongside volatile world aluminium prices put a question mark over the smelter's viability and future.

The smelter opened in 1971 and is supplied by power from the specially constructed Manapouri power station. It uses about 13 percent of the country's electricity, which it buys at rock bottom prices.

In 2013 the then National government led by John Key paid the smelter $30 million to stay in operation.

"This new package of contracts is commercially sustainable and delivers value for our shareholders, so we are talking a real win-win here," Barclay said.

The new agreement contained provisions for the smelter to cut power usage at times when there was peak demand but insufficient supply in the country.

NZAS chief executive Chris Blenkiron did not comment directly on the decision to stay open, but said the demand response contract made the smelter the country's biggest storage battery.

"Making up to a third of our supply available to help New Zealand is something we are happy to do to make sure that we play our part in the wider energy sector and help to keep the lights on.

"When our demand response is called on, it effectively means New Zealand will have to burn less coal at Huntly, ultimately reducing New Zealand's carbon emissions."

Contact Energy and Mercury Energy are back-up suppliers to Meridian, and all the contracts need to be approved by the Electricity Authority.

Reproduced with permission