Contact Energy posts $34m profit, plans new power station

9.45am

Contact Energy, which today reported a $34 million net profit for the six months to March 31, said it planned to build a new power station in Auckland or Hawke's Bay.

The plans should ensure 'additional generation capacity from winter next year", the company said in a statement.

The plants will be designed to operate on distillate as well as gas, given the uncertainties which currently exist in relation to availability of future gas supplies, chief executive Steve Barrett said.

Commissioning was planned by June next year.

Mr Barrett said the company was considering two alternatives: a 192 MW dual-fired station to be built adjacent to Contact's existing gas-fired Otahuhu B station in south Auckland; or a 150 MW distillate-fired station a Whirinaki in the Hawke's Bay.

The Whirinaki plant would initially be designed to run on distillate, with the potential to convert to gas in the future should gas supplies become available.

The company was advancing plans for both options simultaneously.

Contact has been discussing the potential developments with the respective regional councils responsible for each site.

Mr Barrett said these plans had been under consideration for the past 12 months and had become more viable recently because of the growth in electricity demand, revised estimates on gas supplies and delays to the construction of plant by other generators.

Mr Barrett said growth in demand for electricity was rapidly eroding the reserve margin for electricity supply.

"In our view, this new plant would ideally be on-stream by the 2004 winter as we would face an extremely tight supply situation if we encounter another dry winter.

"These new plants would provide the type of insurance cover we need to get us through a dry winter.

"Given the lack of gas availability, we have focused on the use of alternative fuel - namely, distillate - but both options would have the potential to run on gas should suitable supplies become available in the future."

Contact, 51 per cent owned by United States giant Edison Mission Energy, expects to confirm at the end of this month its commitment to proceed with one of these plants. That would be dependent on reaching a suitable off-take agreement for the new plant, resolving any consent issues and sourcing the plant from suppliers.

Mr Barrett said either plant would require an investment in excess of $100 million by Contact and the company needed to understand what risks might be associated with such a project.

"The Government has signalled it is reviewing current electricity supply arrangements.

"New generation capacity is clearly necessary to meet the emerging electricity supply gap. We are keen to invest in this new plant but we need to know what the future electricity market arrangements will be and what this would mean to the project."

The Government has said that unless there was more certainty over supply and pricing in the wholesale electricity market, it would consider setting up a centralised power buying authority rather than leaving it to individual players such as Contact.

"Any significant change to existing arrangements would threaten our ability to proceed with an investment of this magnitude," Mr Barrett said.

He said any potential changes to existing arrangements needed to recognise and address the underlying cause of a potential future shortfall in generation capacity.

"As we have said continually, the market has signalled the need for new generation capacity and there is no lack of appetite to invest in new plant. But, these plants can't proceed without any gas to run them," Mr Barrett said.

Since 2000, consents have been granted for 1300 MW of new plant -- 90 per cent of it gas-fired, Mr Barrett said.

"However, since those consents were granted, the assessment of Maui's economically recoverable gas reserves has been cut by 55 per cent and Pohokura's reserves estimate cut by 25 per cent. And there have been no major new finds."

Mr Barrett advised the Government policy should focus on three key areas: improving the Resource Management Act processes to allow quicker development of projects of national significance; clarifying details of the new carbon tax regime so the relative costs of different fuels can be assessed; and reviewing existing arrangements to maximise competition in the upstream gas sector.

- NZPA