First clues on chance of ComCom approving $1.9b Contact-Manawa merger
Thursday, 24 October 2024
Contact Energy’s hopes of buying smaller power firm Manawa Energy for $1.9 billion appear have suffered an early set-back after the country’s competition watchdog outlined its approach to considering the merger.
Contact and Manawa last month asked the Commerce Commission to clear their merger, saying it would not substantially reduce competition.
Contact had a 20.5% share of the market for electricity generation, while Manawa had a 4.3% share, they said.
However, the Commerce Commission indicated in a statement of preliminary issues on Wednesday evening that it could hone in on narrower definitions of the markets that could be affected that did not view all forms of generation as homogeneous.
Contact submitted there was no need to define “narrower product markets”, based on how electricity was generated, for example whether it was by wind or by hydro, the commission said.
The power company’s argument was that “although different types of generation have different characteristics, the physical supply and demand for electricity involves interaction between all types of generation”, it said.
But the commission indicated it would not necessary accept that approach.
“We will consider … the different ways in which electricity is generated, including how generators decide on the appropriate level of electricity to supply using their portfolio of generation assets,” it said.
Two submitters have already urged the watchdog to look at its implications at a more granular level than Contact and Manawa suggested, and reject the merger.
Octopus Energy chief operating officer Margaret Cooney said the merger would lead to “increased concentration within an already highly concentrated generation market”.
But the consolidation of the two companies’ hydro assets exacerbated that issue, she said.
“Hydro generation plays a critical role in providing flexible capacity, and concentrating control of these assets could reduce the effectiveness of competition in both the wholesale and retail electricity markets,” she said.
“The Electricity Authority’s Market Development Advisory Group has already highlighted serious concerns regarding the concentration of flexible generation assets.”
An anonymous submitter with apparent knowledge of the industry has also objected, defining the resource “most at risk of being exploited” even more narrowly, as that for “seasonal energy storage”.
“The energy storage reservoirs that can provide balancing include Tekapo, Pukaki, Hawea, Mahinerangi, Lake Coleridge, Lake Onslow and Taupo,” the submitter said.
Manawa generates power from Lake Mahinerangi and Lake Coleridge, while Contact generates from Hawea.
“While there are other hydro schemes with reservoirs, many of these are not operated to enable seasonal balancing and can be considered ‘run-of-river’,” the submission said.
The ability to “firm” or guarantee power to customers required access to energy storage, it noted.
“Thus, seasonal energy storage is very valuable and is only provided by the aforementioned resources.”
The merger would also place Contact in a wind-farm joint venture with Pioneer Energy which also managed Lake Onslow, potentially giving it influence over the future use of that resource, they said.
Pioneer usually controls the storage and outflows of water from a small dam at Lake Onslow that powers its Teviot River hydro scheme.
The commission is currently scheduled to make a ruling on the merger by November 26, but it has been common for complex clearances decisions to drag out for the best part of a year.