Contact Energy seeks larger slice of the pie in power generation
Monday, 13 February 2023
Contact Energy is planning to do more than its fair share in meeting the expected increase in electricity demand over next several years, chief executive Mike Fuge says.
Large power companies have frequently been criticised for dragging their heels ramping up supply.
John Harbord, chief executive of the Major Electricity Users Group, cautioned in 2021 that generators were incentivised to keep the market on the “precipice of shortage”, to maintain high prices.
But Contact chief financial officer Dorian Devers said it planned to increase its total generation from about 8 terawatt-hours (TWh) a year now to 13.4TWh by 2030.
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Fuge said its planned ramp-up in generation compared favourably against estimates for the overall increase in electricity demand over the period.
Devers said the Boston Consulting Group had estimated the country would need to increase its renewable generation by about 50% to 60TWh by 2035.
Of the extra 20TWh of additional generating capacity that would be needed, Contact would have “6TWh sorted by 2030”, he said.
Contact has been banking heavily on geothermal power and expects to make a final investment decision by the end of the year on whether to replace its ageing Wairākei A and B power stations near Taupo with a larger 180MW plant at Te Mihi.
Like other power companies, it has also been accelerating its planned investments in wind and solar energy.
Contact Energy and Christchurch Airport announced on Thursday that they would build what they said would be one of “the country largest solar farms” capable of generating 290GWh of power a year on a 300 hectare site adjacent to the airport.
Resource consent was being sought for a similar-sized solar farm in the North Island, Contact said.
The Government has an “aspirational target” of only generating electricity through renewables by 2030.
But Fuge said Contact, which along with Genesis still has significant thermal generating capacity, continued to see gas being used to meet the peaks in power demand in “the medium term”.
“As an industry, we might well get to 95% to 98%. But let's not put the lights out just because we have some ideological stance,” he said.
Contact kicked off the reporting season for the major power companies on a relatively dour note on Monday, reporting a net loss of $7 million for the sixth months to the end of December, due to a write-off.
Fuge said the company had decided to take a $86m after-tax hit to recognise that the underground Ahuroa Gas Storage Facility in which it has a contract to store gas, would not be able to hold as much gas as it had expected.
Without the write-off Contact would have posted a $79m net profit.
The Ahuroa Gas Storage Facility is natural reservoir at the site of an old gas field that was converted to store gas after production at the field ceased in 2008.
Contact had expected it would hold 18 petajoules (PJ) of gas, but the company reported in December that it might only be able to store between 10PJ and 12PJ because the reservoir had partially filled with water.
Contact’s operating profit for the half year fell by $76m, to $246m, with Fuge blaming lower wholesale prices, lower renewable and thermal generation and increased operating costs.
The three other major ‘gentailers’, Meridian, Mercury and Genesis, are all expected to report an increase in their operating profits over the next three weeks.
Analyst Forsyth Barr had forecast Contact would post a $244m operating profit, and has estimated that the operating profits of the four big power companies during the six months to the end of December combined would rise 22% to just over $1.4b.