As the release of a Government-commissioned report on the electricity sector approaches, Contact Energy chairman Rob McDonald says the market is not broken.
The report from Frontier Economics is expected before the end of the month, but the industry is largely in the dark as to its likely contents.
Electricity, and the cost of it, is shaping up to be a political issue before next year’s general election.
Last week, senior NZ First minister Shane Jones said he wanted his party to consider re-nationalising the generator-retailers to shake up the market.
Today, McDonald told Contact’s annual meeting: “The market is not broken.”
“Those who call the market broken fail to come with a solution,” he said.
“The solution to lower energy prices is more capacity and that comes from more investment.”
McDonald said Contact was investing at pace.
The electricity market received a jolt last winter when unexpectedly low gas reserves and unusually dry weather drove spot power prices to over $820 a megawatt hour.
Since then, a number of measures have been put in place, among them an agreement by the big four power companies to support Genesis Energy’s coal stockpile.
McDonald said notwithstanding ongoing challenges with the upstream gas market, the fossil fuel would remain an important peaking fuel in the medium term.
Contact has signed long-term gas supply contracts to support the availability of its gas-driven peakers – which support the market in times of peak demand.
Over the last four years, Contact has committed $2.3 billion to building energy infrastructure.
The company has completed $1.2b of new renewable generation with the Tauhara and Te Huka 3 geothermal projects coming online.
Contact also has $1.1b in projects under construction, spanning geothermal, solar and grid-scale batteries.
Chief executive Mike Fuge said the sector had moved to shore up supply after last year’s gas shortage.
“The challenge for us is that New Zealanders are doing it tough, and if they’re doing it tough, they’re grumpy and sometimes politicians can respond to that,” he told the Herald after the annual meeting.
“And I think that’s what we as an industry have to be telling our story and explaining a critical need for continued investment going forward.
“That’s something we shouldn’t shy away from, otherwise we might get an unpleasant surprise.”
Fuge said the industry needed certainty.
Contact is the only one of the big four power companies to not have the Government as a shareholder.
“The wonderful thing about being independent is that we have been able to move, at pace, with a very high level of investment,” Fuge said.
“The amount of renewable electricity generation that has been built in the last four years is far more than was ever built in the Think Big times, which had Government sponsorship,” he said in reference to Sir Robert Muldoon’s Government’s debt-heavy energy initiatives of the 1970s and 80s.
All the big four generators have retail operations and market talk is that changes could be afoot in terms of the separation between the two.
Fuge said talk of separation was a distraction from that really important role of building new supply.
“The problem is not the relationship between retail and generation.
“The reason we have high prices is we don’t have enough energy in the system and you cannot distract people from that singular focus of just building more supply.”
In its June year, Contact reported earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) of $774 million, up $111m or 17% on the previous year.
The company took over second-tier power generator Manawa Energy in July and Fuge expects the company to be fully embedded by Christmas.
Contact’s guidance for the current year is for ebitdaf of $980m.
“We will have a full year of Tauhara and Te Huka 3 online, and we’ll have the full most of the year of Manawa online, so we’re expecting that to go well,” Fuge said.
“I think the nice thing about this year is we’ll be through the transition and as full year 2027 rolls in, you’ll see some of the longer term power purchase agreements that Manawa has signed up to reprice up to current market conditions,” he said.
“That will give us a bit of a tailwind by 2027.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.