Genesis said the HFOs would provide the opportunity of supply and price certainty to mitigate peak supply risks and shorter duration constraints.
The options are backed by coal generation, with Genesis seeking to replace that with biomass “as soon as it is commercially viable”.
Genesis Energy chief wholesale officer Tracey Hickman said the response to the HFO offer recognised the support Huntly Power Station’s Rankine units provide the energy market.
“The strong interest has provided a clear indication of the value the market puts on the firming and flexibility offered by Huntly and its ability to provide both energy and capacity security to meet market demands and system security,” Hickman said.
“The stressed market we are experiencing this winter from the combination of reduced gas availability, low hydro inflows and low wind is clear evidence that Huntly’s diversity of generation units and fuels will be important for New Zealand’s energy security for the foreseeable future,” she said.
There were no bids from independent retailers or large corporates, Genesis said.
Genesis said to keep Huntly as the country’s largest energy security site, market support through future HFO’s will likely be required.
Without that support, Huntly may not be available in future dry years or when renewables are unable to generate electricity, the company said.
Genesis plans to evolve HFOs and offer further auctions to all market participants over coming years with greater volumes and possibly longer periods.
The company intends to maintain an operational coal stockpile of around 350 kilotonnes.
Levels above this will be driven by fuel orders of HFO holders, allowing HFO holders to manage energy risk for their customers.
The HFO product is designed so generation capacity may be notionally called upon during periods of both capacity and energy scarcity over the next two calendar years.
Genesis developed the options partly in response to the increasing winter capacity issues the system has experienced in recent years.
The company noted Transpower expects meeting winter peak demand is likely to be challenging through 2025, at least.
Genesis Energy chief wholesale officer Tracey Hickman.
The 1200MW Huntly Power Station was built to provide back-up supply to New Zealand’s highly renewable electricity generation.
Back-up generation steps in when the renewable system is unable to deliver, providing the market security of supply and price stability.
The station has five thermal generating units, including three 250MW Rankine units, a 403MW combined-cycle gas turbine and a 50.8MW open-cycle gas turbine.
Genesis said earlier this year an independent engineering review concluded at least two of the Rankine units can run to 2040 with continued investment.
The Rankines are currently the only units in New Zealand capable of delivering long-duration generation, with significant energy storage and access to international energy markets.
Last week, daily average wholesale prices traded over $800 per MW/h, up from $194.49 per MW/h at the start of June, because of low lake levels, calm conditions and constrained gas supply.
The Rankines can run on gas and coal, but in the New Zealand context, coal is the most reliable fuel for providing certainty in times of shortage or in acute peaks, Genesis said.
International coal prices were already rising steeply for more than a year before the war in Ukraine started in February 2022, due largely to increasing Chinese demand.
The benchmark Indonesian coal price averaged US$58 per tonne in calendar 2020 and rose to a peak of US$331 in October 2022 as a result of increased coal demand and reduced exports of Russian natural gas to Europe.
Coal now trades at around US$145/tonne.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
