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New Zealand's longest-running online daily news and commentary publication, now in its 25th year. The opinion pieces presented here are not purported to be fact but reasonable effort is made to ensure accuracy.

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AI or Aluminium?

18 Apr 2024

What is the best use for the huge amount of electricity being generated in the lower South Island of New Zealand?

Is it something that should be given away for a song in order to subsidise Rio Tinto's aluminium smelter and thus preserve a good number of jobs?

Or might that electricity be better used to attract the building and operation of energy-intensive data centres of the type that will doubtless become incredibly valuable to the new AI age that we're about to enter?

This is a decision that could have a profound effect on NZ's economic welbeing in the decades to come.

According to this story on Arstechnica, providing enough electricity to power contemporary data-centres is becoming a real chokepoint to the growth of AI.

I'm actually quite surprised that government hasn't spent significant effort in promoting NZ's south as a great place to build such datacentres.

As a location for such centres, New Zealand has some very real positive attributes that would likely make it a very attractive place.

Firstly, we have a stable political environment and a relatively stable economy, two critical requirements for any country in which you might be wanting to invest a sizeable sum.

Secondly, if Rio Tinto throw their toys out of the pram, we end up having a significant amount of electricity going spare and, even better, that electricity is from 100 percent renewable sources making it ideal for virtue-signalling on the part of any corporate that taps into it.

Another crucial consideration is the effect of climate change on weather. Whilst Europe and other parts of the world seem to be suffering significantly from the effects of extreme weather systems brought about by climate change, New Zealan's weather remains comparitively benign and consistent. This reduces the risk profile of operations here.

Then there is our remoteness from the world's "hotspots".

This is somewhat of a double-edged sword. On the one hand it means immunity from the effects of potential global conflicts and disasters but on the other it does place an increased reliance on long runs of fibre-optic cable and satellite links for connectivity with the rest of the Western World.

The bottom line has to be the benefits that New Zealand will get from this huge amount of electricity that's on offer.

If we go the Rio Tinto way then we acknowledge that there will always be a demand for the product they produce and that their presence would ensure jobs for the locals.

However, the downsides of the smelter are obvious and are a problem that is already plaguing councils in the area. This is the environmental impact associated with waste products from the smeltering process.

The AI datacentre option, by comparison, is likely to employ fewer people, once construction is complete. However, the environmental impact from huge racks of AI processors humming away will almost certainly be a lot lower and odds are that we could actually charge a lot more for the power in the first place. In fact I wonder whether the ability to charge more for the power could more than offset the effect of jobs lost, perhaps by funding the creation of new enterprises in the region.

I get the impression that everyone just wants to kick this ball down the road and defer any real decisions for as long as possible. That, IMHO, would be a poor decisions. The time to strike a deal with potential AI datacentre operators is *now*, while the industry is nascent and the demand is high.

Sadly, I really do fear that our politicians will take the easy road and simply continue to offer a foreign company access to our most valuable natural resource (renewable electricity) at a give-away price. Mark my words that this decision would come back to bite us on the arse in a decade or so's time when we'll have to spend huge sums building new generation capabilities to service a rapidly growing EV fleet.

Carpe Diem folks!

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