“New generation proposals are leading to a far more secure outlook for electricity supplies for the next three to four years, when annual demand growth of more than 2% is forecast,” Contact chairman Grant King told shareholders at the company’s AGM in Wellington this morning.
“This is a direct result of electricity prices rising in response to tightening supply and these prices stimulating investment in new generation from both renewable and thermal sources.
But while smaller, near-term generation projects were proceeding on normal commercial terms, not enough was being done to secure electricity supplies for the longer term, according to King.
“New Zealand is facing substantial challenges in meeting its fuel and generation needs over the next decade,” he said.
Questions remained over what would replace the dwindling Maui gas field, with a substantial expansion of exploration needed over the next three to four years to provide greater certainty on future domestic gas supplies.
Contact had started exploring in its own right, through its sole offshore Taranaki permit. But it was also investigating LNG as a backstop option, in association with Geness Energy.
Concerns were also growing that lack of investment in the national electricity transmission system posed increasing risks to security of supply. The government needed to act quickly to encourage an effective solution to this issue, King said.
In the meantime, Contact had identified several projects to increase output across its generation fleet by more than 100MW, mainly from renewable energy sources, requiring capital expenditure of over NZ$130 million.
The projects included: increasing production at the Wairakei and Poihipi geothermal stations (approximately 50MW of additional power); new drilling at Ohaaki geothermal station (15-20MW); installing turbines at the top of the Clutha hydro system (8-16MW); and upgrades to the Otahuhu-B and Taranaki combined cycle gas stations (24MW).
But Contact’s most significant future generation options - new large-scale (350MW-plus) combined cycle gas turbine plants at Otahuhu, south Auckland, and Stratford - remained on hold due to regulatory and transmission concerns and insufficient certainty regarding future gas supplies.
Each new plant could satisfy between 2-3 years of electricity demand growth, which is presently exceeding 2% per annum, and Contact could realistically complete one of these by the end of the decade.
Contact posted a “solid increase” in its December quarter earnings _ to NZ$41.3 million from NZ$27.5 million _ with EBITDA rising to NZ$118.7 million from NZ$98.9 million.
“Contact continues to deliver strong earnings to shareholders and prices to customers that reflect longer term price trends rather than short term wholesale market price fluctuations,” said chief executive Steve Barrett.
Increased wholesale gas sales of NZ$8.9 million (compared to NZ$4.4 million for the last 2003 quarter) mainly came from sales to Genesis Energy.
Contact’s gas usage in its own thermal portfolio increased to 8.7PJ (8.2PJ), though there were times Contact’s combined cycle plants did not operate due to low power prices.
King dismissed recent industry speculation of an imminent capital return to shareholders, saying the board had no current intention of doing so.
But he said that with the forthcoming change to a June financial year, the board would shortly consider new dividend payment date options, with the aim to maintain fully imputed dividends.
