Contact, Meridian shares rally as Transpower hastens upgrade

Transpower has brought forward its southern network upgrade by a year. Photo / File

Shares in Contact Energy and Meridian Energy rallied after national grid operator Transpower said it planned to finish its lower South Island network upgrade by 2022 - a year earlier than previously advised.

Transpower said it had completed an assessment of the possible acceleration of works for the remaining sections of the Clutha Upper Waitaki Lines Project (CUWLP) - the thermal upgrade of the Cromwell to Twizel section of the Roxburgh-Twizel line, and the duplexing of the Roxburgh to Livingstone section of the Roxburgh-Islington line.

"From that assessment, Transpower confirms that it is now working toward an expected completion date of May 2022," it said in a statement.

"It is possible that further acceleration initiatives during project delivery could lead to a slightly earlier date, but this will only be known as the project progresses on the ground," it said.

Rio Tinto, majority owner of the Tiwai Point aluminium smelter, plans to close the smelter - which uses 13 per cent of New Zealand's power - next August.

As it stands, the network is not geared for shifting surplus power out of the southern South Island to points north because of limitations of the network, which means the southern generators will need to "spill water", post-closure, until Transpower can shift it.

Contact - which reports its annual result on Monday - closed up 33c or 5.54 per cent to $6.29 while Meridian gained 13c to $5.

Harbour Asset Management senior portfolio manager Shane Solly said the move would be a "win win" for the sector in the near term.

"It's one year less of potential spilling of water and that's 'quite an important thing for the gentailers at the moment in terms of their ability to sustain dividends," he said.

The planned closure of Tiwai will mark a seismic shift for New Zealand's power generators.

At 622 megawatts, the amount of power consumed by Tiwai is enough to supply half of greater Auckland.

The smelter's closure will affect most of New Zealand's electricity generators or retailers to varying degrees over the next two to three years, if not longer, according to ratings agency S&P Global.

Tiwai's main supplier, Meridian, says the current year is looking strong but 2022 and 2023 could prove challenging because of the plant's closure.