Contact Energy promotes 'ThermalCo' proposal as profit rises 50%
Monday, 16 August 2021
Contact Energy chief executive Mike Fuge says he isn’t embarrassed about reporting a 50 per cent rise in profits during a year when the industry’s performance has repeatedly been called into question.
Issues in the electricity sector have included soaring wholesale power prices that have curbed industrial production, rising carbon emissions, last week’s power cuts, independent retailers quitting the market, and multiple investigations ordered by the industry’s regulator.
“We have committed over $500 million to investment in renewable electricity and we have reduced our dividend slightly to enable that investment to continue,” Fuge said.
“We can confidently say that we are investing in the right thing and those profits are being directed to a very good purpose,” he said.
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Contact is however pushing its own mini shake-up of the electricity market, arguing it would make sense for power firms to pool their fossil-fuelled generation into a single business.
That would mean combining many of the generation assets of Genesis Energy, including its Huntley power station, with Contact Energy’s Taranaki Combined Cycle gas power station and numerous smaller gas and diesel burners.
Fuge said combining fossil-fuelled generation into a single “ThermalCo” would help reduce carbon emissions by making it easier to ensure the least damaging fossil-fuelled generation was relied on first.
Contact had no views on who should own ThermalCo, “whether that is a current industry player or players, private equity, pension funds or whether the Government has a stake – we are not even going there”, he said.
Contact could be a part-owner but all options would be on the table, he said.
“What is important is the structure. The fundamental theory is New Zealand does have the gas resources available over the next 30 years if it wants to use them,” Fuge said.
“What you don’t want to see is the chaotic exit of different pieces of kit because people don’t have the confidence or the capability to maintain them any more.”
Fuge said Contact had had “very preliminary and informal” discussions about the ThermalCo proposal with other parties, including the Government, and they would continue.
“Everyone is curious.”
The fully-privately owned company was the first of the big four ‘gentailers’ to report its annual result.
Its profit for the year to the end of June rose to $187 million, from $125m in the year prior, with its operating earnings climbing 24 per cent to $553m.
Those operating earnings were exactly as forecast by broker Forsyth Barr, which is predicting overall operating earnings from the big four gentailers will edge down 2.6 per cent this year to just under $2.1b.
Fuge said Contact had embarked on a “significant strategic reset” that would see it decarbonise its generation portfolio.
In February, it gave the green the light to the development of its 152 megawatt Tauhara geothermal power station and it has signalled its first investments in wind energy.
But Fuge said there was “no doubt” flexible thermal generation would still be required as the electricity sector “moves towards” the Government’s goal of being 100 per cent renewable.
Figures suggest the sector has in fact been moving away from that target, with the proportion of renewable electricity looking likely to decline this year, for the third consecutive year.
Statistics NZ reported last week that the electricity generation sector was the only industry that significantly increased its carbon emissions in the year to the end of March, with a 13 per cent rise in emissions.
“As an industry we will need work together to expedite sensible decarbonisation, while maintaining security of supply and affordability,” Fuge said.
The company will pay total annual dividends of 35 cents this year, down from 39c last year.
Contact last week joined Genesis and Mercury in offering a $50 credit to the total of 34,350 homes that were cut off during power cuts last Monday.
Electric Kiwi has complained to the Electricity Authority that Contact and Genesis withheld generation that they could have to used to prevent the power cuts – a claim both generators strong deny.
Contact also announced on Monday it had passed the milestone of supplying broadband connections to 50,000 customers.