Contact to run plant as back-up

By CHRIS DANIELS and KEVIN TAYLOR

Contact, New Zealand's biggest private sector power company, has won the job of providing the country's first instalment of reserve power.

However, details of the Government's new dry-year reserve electricity generation plant reveal that instead of Contact building it and supplying the power as expected, the Government will own the $150 million oil-fuelled station and will pay Contact to build and operate it.

Contact's Whirinaki site in Hawkes Bay has been picked as the likely home for the new 155MW station, primarily because of existing resource consents.

Electricity produced by the new station is expected to cost between $150 a megawatt hour and $200 a megawatt hour, depending on the price of fuel.

Daily average prices on the wholesale electricity market last week ranged between $54.33 and $92.06.

A new electricity levy, announced by Energy Minister Pete Hodgson in May and soon to be imposed on all power users, will pay for the new station, which will be ready for next winter.

Contact chief executive Steve Barrett said yesterday that the company would be paid a fee for use of the site and "associated rights" for the next 11 years.

Contact would also be paid an annual operating fee, the amount of which is being kept secret.

The original idea was for Contact to build and own such a dry-year reserve station, but Barrett said the Crown sought other arrangements so it could be built in time for next winter.

Asked what was in the deal for shareholders, he said there would be an "appropriate commercial return".

"I think that certainly we are interested, as the minister is, in getting additional resources into New Zealand for next year and so that certainly is an important motivation for us at Contact Energy."

A new Government-appointed Electricity Commission is being established which will be responsible for issuing contracts for reserve generation.

Hodgson said it would be up to the commission how much more generation would be contracted, but the agreement with Contact would be a "pretty useful chunk" of the amount required in dry years.

"It may be even the thick end of it," he said.

Hodgson said the idea of reserve generation was that it would not be used except in dry years.

"So it tends to be low-capital-cost, high-running-cost plant, and that is the nature of this.

"It will be a last cab off the rank. It will be a cab that we use, we hope, seldom."

Commissioning the new station was just the first part of a Government plan to build up enough dry-year reserve generation for a 1-in-60-year drought.

If the Whirinaki station had been working this year, said Hodgson, the need for this winter's public power savings campaign would have been reduced.

Despite yesterday's announcement of Contact's involvement, the deal is not set in concrete, as Hodgson said the Government was also looking at alternative sites for reserve generation, mainly in the South Island.

When southern hydro lakes are low, power needs to be sent from the North Island to the South, which can cause transmission constraints.

Orders have been placed by the Government for three Pratt & Whitney power plant engines, but it is possible that not all will be installed at Whirinaki.

Hodgson said a decision on location would be made by October.