Genesis Energy boss: ‘Mother Nature failed to show up’

Thursday, 22 August 2024

Malcolm Johns, photographed in his former role as CEO of Christchurch Airport, says households could choose if they want to pay more for lower emission electricity.

Genesis Energy has warned gas shortages will mean it will need to burn more coal to generate electricity and will miss its targets to curb its carbon emissions in the near term.

“Mother Nature failed to show up” for the company this year, chief executive Malcolm Johns said.

Johns also warned that dry weather that has contributed to havoc in the power sector by lowering hydro lake levels to near record levels for the time of year appeared to be becoming more frequent.

The company reported a one-third drop in its net profit to $131 million on Thursday and confirmed a big downgrade in its estimate of reserves at the Kupe gas field.

Genesis result comes amid growing angst over an energy crunch that has sent wholesale electricity and gas costs soaring and closed factories.

Coal has flipped to become a cheaper fuel for Genesis’ Huntly turbines than domestic natural gas, Johns says.

Winstone Pulp began consultations on the closure of its Karioi Pulpmill and Tangiwai Sawmill on Tuesday and the Tiwai Point aluminium smelter announced a further production cut.

Associate Energy Minister Shane Jones told The Post on Wednesday he was “horrified by the stupendous profits that were being reported by the gentailers” and he wanted to explore options for restructuring power companies.

While Genesis’ profit is down and it has lowered its total annual dividend to 14 cents a share, from 17.6c per share, Contact Energy and Mercury Energy reported higher profits and dividends earlier this week, amid the energy crunch.

Contact’s net profit rose 85% to $235m, and Mercury’s net profit rose 159% to $290m.

The country’s biggest power company, Meridian Energy, is due to report its annual result on Wednesday.

Johns told analysts on a conference call that imported coal had flipped to become “a cheaper generation fuel than domestic gas” over the past year.

“We will therefore be importing coal for some years until there is a solution to increase the supply of natural gas or import liquified natural gas,” he said.

Associate Energy Minister Shane Jones is considering whether power firms should be given the ‘Telecom’ treatment.

Energy Minister Simeon Brown is currently investigating options for facilitating the importation of LNG.

Johns said households could then be faced with a choice of cheaper power produced using coal, or more expensive power produced using LNG, with Genesis able to deliver either.

Genesis would miss its “science-based” target for reducing emissions this year but could be back on track by the year starting July 2027, he said.

However, he made clear even that goal would be subject to the weather.

A protracted outage of the Huntly Power Station’s largest turbine (above) ate into the company’s profits.

“New Zealand has always had dry years, but the swing between wet and dry appears to be becoming more frequent,” he said.

Natural gas fields were declining faster than forecast and New Zealand was now “structurally short” of gas and the result was more volatile electricity prices, he said.

As expected, the company downgraded the reserves at Kupe by just over 81 petajoules of gas, which is equivalent to just over half of the country’s total annual gas demand, resulting in a $64 million write-down.

Despite concerns power companies have not invested enough, fast enough to head off power shortages, Johns said the company was “delivering new renewables and energy security at scale”.

“Over the next four years Genesis is targeting building 500 megawatts of new renewable electricity and freeing up 500MW of baseload generation at Huntly to support energy security,” he said.

“This is New Zealand’s fastest, cheapest pathway to shoring up short-term energy security in a high-renewables grid,” he said.

The additional generation would be equivalent to about 5% of the industry’s current capacity.

Highlights this year included a decision to invest $150m in a battery at its Huntly Power Station that will be capable of storing 200 megawatt-hours of power to help meet demand peaks and to built a 207 hectare solar farm near Edgecumbe, Johns said.

The company’s financial performance in the year to June had been impacted by lower rainfall that cut its hydro output by 27% and the protracted outage of its “unit 5” gas turbine at the Huntly Power Station — which is its largest turbine.

Shane Jones indicated on Wednesday that the investment power firms were now making might not be enough to steer him away from promoting industry reforms.

“Telecom was split in half and I'm going to bring forward various proposals as the Regional Development Minister that we have some type of virtual or [other] options for separating these gentailers,” he said.

“I have the sense that they are not offering to the market options that are commensurate with how they look after their own customer bases.”

Former National Party minister Steven Joyce has also suggested telco sector reforms could provide some sort of blueprint for an overhaul of the industry.

Transpower meanwhile confirmed on Thursday that it would lower the bar on allowing generators to reduce hydro lake levels to levels that are not normally allowed in September.

The decision could be expected to have a downward impact on wholesale power prices, but Transpower has acknowledged the trade-off is a greater risk of power shortages next year — if the contingency was called on and lakes didn’t refill as quickly as hoped.