Commerce Commission backs Huntly power deal to secure electricity supply

The Commerce Commission has provisionally approved a deal between the big power generators to support Genesis Energy’s fossil fuel-powered Huntly Power Station, which supports the national grid when conditions demand it.

The competition watchdog issued a draft determination on the deal between Genesis, Contact, Meridian and Mercury which allows them to enter agreements referred to as the “Strategic Energy Reserve Huntly Firming Option”.

In energy, “firming” ensures constant supply of power to the grid, regardless of conditions at the time.

The parties intend for the agreements - aimed at adding security of supply and price stability - to take effect from January 1, 2026.

The deals follow on from last winter’s power price spike, which saw wholesale prices hit $820 per megawatt hour because of dry weather, calm wind conditions, and constrained gas supply.

The proposed arrangements give Contact, Meridian and Mercury an option to access certain notional generation capacity from Genesis’ coal and gas-driven Rankine Units at Huntly until December 31, 2035.

In exchange, Contact, Meridian and Mercury will pay an annual premium, which Genesis will use to contribute to the cost of maintaining, operating, and resourcing the ageing Rankine units.

Commerce Commission associate commissioner Nathan Strong said the proposed arrangements provide Genesis with an economic incentive to maintain Rankine Unit 2, a gas/coal-fired unit at Huntly Power Station, for use as “dry year cover”.

Genesis had in the past said it would retire Rankine Unit 2 in January, 2026, if authorisation for the proposed arrangements was not given.

“Authorising the proposed arrangements means the capacity of Unit 2 can be made available to the wholesale market during dry winters,” Strong said.

“Our provisional view is that this will improve security of supply and lower wholesale prices while new capacity in the pipeline comes to market, compared to a situation where Unit 2 is retired.

”In assessing the authorisation application, based on the evidence received to date, the commission is provisionally satisfied that the proposed arrangements create net public benefits that outweigh any potential lessening of competition."

Genesis had told the commission that 135 megawatts of Rankine capacity remained unallocated.

“If these arrangements go ahead, Genesis has said it will design hedge products for the remaining Rankine capacity that are suitable for third parties such as independent retailers and generators, industrial customers and financial intermediaries,” Strong said.

“Given its assessment of the likely benefits and detriments, the commission provisionally considers it appropriate to authorise the proposed arrangements for 10 years, until December 31, 2035.”

The draft determination is open to submissions.

The commission noted that New Zealand’s hydro-dominated electricity system is susceptible to “dry year risk”.

The big four generator-retailers had submitted that the proposed arrangements would help meet New Zealand’s electricity demand for at least the 10 years by keeping Unit 2 operational.

“This will improve security of supply and result in lower wholesale prices compared to a situation where Unit 2 is retired, while New Zealand pursues net zero carbon emissions by 2050,” the commission said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.