Carbon credit ruling set to cost Genesis more than $100m - analyst

Monday, 2 August 2021

Genesis and Beach were at odds over who should foot the carbon bill for gas supplied to Genesis from the Kupe oil and gas field.

An unfavourable arbitration decision is set to cost Genesis Energy more than $100 million in cash and carbon credits – if you price carbon credits it will lose at their market value – an analyst says.

Genesis announced to the NZX that an arbitrator had ruled against the company in a dispute with Australian gas supplier Beach Energy.

The two companies had been at loggerheads over which of them should pay for carbon credits needed to offset the supply of gas by Beach to Genesis between 2018 and the 2025 financial year.

Genesis chief executive Marc England said the arbitrator had surprised the generator by determining that Genesis should foot the bill.

Genesis had not expected to lose the dispute and will be conducting a review.

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Genesis, which is 51 per cent owned by the Government, will need to pay $53m to meet the carbon liability on the gas contract for the period through to the end of June this year.

In addition to that, it will need to hand over about 1.6 million carbon credits that it has stockpiled, to meet its obligations on the contract through to 2025.

The value of those carbon credits, based their purchase price, was between $13m and $15m a year, Genesis spokesman Chris Mirams said.

Forsyth Barr analyst Andrew Harvey-Green said the decision would cost Genesis “north of $100m” on a market price basis.

Carbon credits are currently trading for about $48 each on the spot market, putting the market value of the additional credits Genesis will need to forgo at about $77m and the total cost of the arbitration decision on that measure at $130m.

Genesis said its board would be “undertaking an independent expert review of the processes and decisions” which led to the outcome.

CORRECTION: An earlier version of this story incorrectly stated that Genesis had bought the carbon credits it would need to forgo through to the 2025 financial year for $13 to $15 each, whereas their cost was about $26 each, based on the figures provided by the company.