Genesis Energy expects to be buying coal for its Huntly Power Station by late this year. Photo / NZME
Genesis Energy expects to be buying coal for its Huntly Power Station by late this year. Photo / NZME
Power generator Genesis Energy expects to be buying coal again by the end of this year, in part due to a quickly diminishing gas supply.
Genesis said it aimed to maintain its solid fuel stockpile “to keep the lights on” for its customers through the “yo-yo” effects ofthe energy transition away from carbon dioxide emission.
Chief executive Malcolm Johns pointed to rolling blackouts in Alberta, Canada, as an example of a system that did not have market settings to support enough thermal generation being available to back up more wind and solar farms.
“Increasing levels of intermittent renewable generation from wind and solar farms cause a challenging ‘yo-yo’ effect on thermal generation, requiring it to swing in and out of operation, in an unpredictable way, driven by fluctuating wind and sunshine,” Johns said.
He told the Herald there were three variables behind the company’s plan to buy more coal for the first time since 2022.
“One is that demand is growing at the moment. The second is that gas is in shorter supply than we anticipated. The third thing is the Unit 5 outage last year, where we had to burn coal.”
The gas-fired Unit 5 is an important piece of kit for Genesis and the entire power grid as it supplies baseload, or continuous, electricity. The outage went from June last year to January this year.
Johns said an expected gas shortage would be difficult to navigate.
“All the major fields are declining faster than originally anticipated.
“They have less than a decade of gas available in them, but the level of production coming out of them is quite different,” Johns said.
Johns said there had been a big structural change in the market.
“The shortage of gas is a real issue and it’s not going to be easy to solve.”
Genesis expects to be buying coal from either local suppliers or from Indonesian mines over the next two years, after which it intends to add biofuels to the mix.
The less gas there is available, the more the company has to rely on coal.
Of the two fossil fuels, gas emits less carbon dioxide.
Johns said the gas outlook was roughly 30 per cent less than it was. “In other words, production has fallen about 30 per cent faster than we were expecting.
“There is no question that gas supply is fairly tight in the market at the moment, but it’s more about availability of gas in the outlook in the coming years.
“That’s ultimately led us to using more coal in the last 12 months than we expected.
Genesis Energy chief executive Malcolm Johns. Photo / NZME
“The outlook is that we will use more solid fuel over the next two years than we forecast,” he said.
Genesis plans to maintain the coal stockpile at 350,000 tonnes - or about 670 GWh of electricity.
“We are happy for the market to determine [what] the ultimate size of that stockpile at Huntly is.
“What we are now trying to be clear on is that we think the operating level needs to be ... around 350,000 tonnes.
“We will be below that by the time we get to spring this year, so we will have to top that up.
“And we expect to have to top that up for the winters of 2025 and 2026.”
Genesis, which is just over half-owned by the Government, plans to invest $1.1 billion in new renewable solar and wind generation, grid-scale batteries and the establishment of a biomass supply chain for use at Huntly.
The solid fuel stockpile will fall below 350,000 tonnes by the end of winter and this will trigger a need to order more solid fuel deliveries to maintain the target operational stockpile ahead of the winters of 2025 and 2026.
Genesis said nationally, hydro inflows between July 2023 and April 2024 were 13 per cent less than the same period a year earlier.
That led to less electricity generated from hydro-power schemes nationally.
Demand up
Johns said demand growth was expected to continue due to industrial, business, home and transport electrification, and new data centres. Demand was up 4 per cent in the 2024 year to date.
In the coming weeks, Genesis would begin market engagement around a new security product called Huntly Firming Options to cover the needs of other market participants for the winters of 2025 and 2026.
Biomass can be used interchangeably with coal and will form part of the stockpile management strategy as the supply chain is established.
“We are acutely conscious of the desire of many to see our solid fuel transition go faster to support gas in lowering the carbon outcomes of thermal generation,” said Johns.
“We are committed to driving this as fast as we can,” he added.
“However, thermal generation remains critical to keeping the lights on in a high renewables grid.”
Information released last night by the Gas Industry Co - an industry organisation - showed a material decline in gas production.
The data showed there was a 12.5 per cent reduction in gas production during 2023, and a 27.8 per cent reduction in gas production in the first three months of this year beyond what was projected.
Energy Minister Simeon Brown and Resources Minister Shane Jones, in a joint statement, said the Government had been advised that some large gas consumers were expressing concern about their ability to secure gas contracts.
“The previous government stifled investment confidence in the natural gas sector,” Brown said.
“We are now seeing the serious impacts of these decisions with significant reduction in gas being produced which is leading to significant supply constraints and higher prices for consumers,” he said.
Cindy Baxter, from Coal Action Network Aotearoa, said increasing fossil fuel consumption was not the way to tackle climate change.
“In the 21st century, we should not be looking at fossil fuels as a solution to a fossil-fuelled crisis,” she said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
