Beehive backs power station

By CHRIS DANIELS

The Government has agreed to share the risk with Genesis Energy of developing a $520 million power station at Huntly.

That raises the question of whether Genesis, a state-owned enterprise, is getting an unfair advantage over private sector competitors.

Genesis and the Government yesterday announced that a new, 385MW combined cycle power station will be built next to the existing station at Huntly. It should start producing electricity by late 2006.

The new station will be the first substantial addition to New Zealand power generation since 2000 and will help to meet soaring demand.

The Government's role will incense private generators such as Contact Energy and Trustpower, with their own plans for power stations.

It is also bound to spark debate on whether the state-owned enterprise model - seen by some as an unsustainable"half-way house" - should be abandoned in favour of more transparent, centralised control of the energy sector.

Its latest financial results showed Genesis more than doubling its after-tax profits to $44.2 million for the six months to December 31.

"Muldoon will be able to stop turning in his grave," an industry insider said. "Just like the good ol' days."

Finance Minister Michael Cullen and Energy Minister Pete Hodgson said the Government had "facilitated the development by agreeing to share a limited amount of risk with Genesis around the long-term supply of gas".

Without it, Genesis would "not have been able to proceed within normal commercial parameters".

Hodgson described the arrangement as "a one-off to smooth the transition to a post-Maui environment in which alternative gas sources have yet to be confirmed".

Cullen said the decision to support Genesis was pragmatic and reflected the Government's "foremost responsibility is to ensure new generation is built in a timely way."

Genesis has been pushing for Government support to build the new station for some time, but has only now been able to convince it that enough has been done to secure crucial gas supplies.

These new contracts, and greater activity in the oil and gas exploration sector, have apparently been enough to convince Treasury officials that an underwriting exercise would not put taxpayer dollars at unnecessary risk.

A spokesman for Hodgson said Genesis and the banks were taking on the normal amount of risk expected in such a commercial arrangement.

In the worse case, the Government could be called upon to help service the debt incurred by Genesis building the station.

Contact Energy chief executive Steve Barrett welcomed news of the new station, but said he would be concerned if "the taxpayer-backed guarantee were to blunt industry efforts to secure new gas sources".

"The rationale for the guarantee is difficult to assess because few details have been disclosed, and it has been developed without inviting alternative proposals."

Powering ahead

* Genesis is calling the new station Huntly e3p or Huntly Energy Efficiency Enhancement Project.

* The existing Huntly station uses a steam turbine to generate electricity. A combined cycle plant uses a gas turbine first, then converts what would otherwise be waste heat to electricity using a steam turbine.

* Contact Energy owns two similar power stations, one in Taranaki and the other at Otahuhu. It has plans and full resource consents to build two more stations, but has shelved these plans because of uncertainty over gas supplies.

* New Zealand's biggest thermal station, the existing Huntly plant, is rated at 1000MW. It is 50 per cent less efficient than the planned new station. The Clyde Dam, the last major hydro station to be built, can generate 432MW.