Big four power firms discuss joining forces to keep coal burning at Huntly

Wednesday, 12 February 2025

The country’s four largest power firms are discussing jointly funding a coal stockpile at Genesis’ Huntly power station and extending the life of its three Rankine coal-burning turbines for several more years.

The move was not enough to assuage Resources Minister Shane Jones, who made clear on Tuesday that his party, NZ First, was minded to go to the next election seeking a mandate for a major restructure of the electricity industry.

He told The Post the power firms’ joint initiative was a “dollar short and a year late”.

“It's a commercial decision that reflects the fact that Genesis, for too long, has borne the fiscal burden of ‘contingency’ in terms of firming the capacity of our power system,” Jones said.

“It's quite a cynical ploy. Rather than being seen as the market working, I think it shows that the market has not worked.”

The Huntly power station has often been relied on to ensure there is enough thermal power to keep the country’s lights on during “dry winters” when hydro lakes are low and to meet peak morning and evening demand.

However, concerns have emerged recently over Genesis’ incentive to continue fulfilling that role on its own.

Electricity system operator Transpower warned last month that the risk of a power shortage this winter had increased because of a reduction in the supply of gas and estimates of the size of the likely stockpile of coal.

“While the current coal stockpile has increased and allows for more Rankine generation in immediate months, our risk modelling for future months has a reduction in this coal stockpile, further constraining thermal generation and increasing the risk,” it warned.

It also noted in an update earlier this month that NIWA was indicating a larger likelihood of “average to below average rainfall” over the next three months in major South Island hydro catchments.

Genesis Energy, Mercury, Meridian, and Contact advised the NZX today that they had agreed to jointly investigate extending the life of Huntly’s Rankine units, the first of which had been due to retire next year and the others in the early 2030s.

They could also jointly support the creation of a “strategic fuel reserve” that would improve the security of electricity supply over the next 10 years, they said.

While it is expected that would initially comprise coal, Genesis has been investigating using its Rankine units to burn “torrefied biomass”.

That is a fuel similar to charcoal made from wood and is considered part of the atmospheric carbon cycle, meaning it is not regarded as making a net addition to carbon emissions.

Genesis once envisaged retiring its coal-fired turbines in 2018. But instead they have been repeatedly reprieved.

Jones acknowledged that environmentalists would be disappointed to see coal burnt at Huntly for longer.

“I understand that. But unless we have ‘firming’ the clean, green dream will never work,” he said.

The four generators told the NZX the commercial structure of their proposed arrangement, including key terms such as pricing and cost, were being worked through.

Any agreement could be expected to require Commerce Commission approval, though the Government has proposed changes to the Commerce Act that could potentially make that easier to obtain.

The initiative was announced in the wake of strong warnings from Energy Minister Simon Watts and Jones yesterday that they expected the sector to deliver affordable and reliable electricity.

However, Genesis, Mercury, Meridian, and Contact advised that any arrangement would not be in place before next year, which would mean it might not help alleviate any energy crunch that occurred this winter.

Responding to Transpower’s more immediate concerns, Genesis chief executive Malcolm Johns said it “would once again do what it could to make Rankine capacity at the Huntly power station available to the market as needed”.

“Generally, Genesis operates two Rankines in support its own customers. For short periods of time and subject to plant and people availability we can operate a third Rankine.”

Genesis had been steadily rebuilding its coal stockpile since last winter and had a forward supply chain in place, Johns said.