KEY POINTS:
Contact Energy says it is likely to go ahead with a new gas-fired power station at Otahuhu in South Auckland to meet a looming demand crunch unless the Government fast-tracks the consent process for renewable generation.
Contact, New Zealand's largest listed energy generator and retailer, made the comments
during its annual results briefing yesterday at which it said its underlying June year net profit eased to $231.2 million from $241.6 million a year earlier.
Chief executive David Baldwin said the company had performed well, despite having to absorb a 20 per cent increase in the average cost of gas and a 42 per cent reduction in wholesale electricity prices.
Wholesale prices were lower as a result of high hydro levels and the effect of rival Genesis Energy's e3p gas fired power station coming on line in April. Gas prices rose as cheap but dwindling Maui gas was increasingly supplanted by more costly supplies.
With e3p now in operation, New Zealand probably had sufficient generation to meet growing demand until 2012 or 2013 which was "the next supply crunch time," according to general manager of corporate affairs Bruce Parkes.
Baldwin said geothermal or gas fired generation were the only base load options to meet that demand.
Given the current emphasis on tackling climate change as well as fuel costs, geothermal was the preferable option but took significant time to gain necessary consents.
Contact has plans for two new geothermal plants near its existing Wairakei station as part of a $2 billion renewable energy investment programme but unless it gained consents for them by the second half of next year, it would not be able to construct them in time to meet demand.
Meanwhile, it already has consents for the 400 megawatt gas-fired Otahuhu C station, which, if built, would effectively commit the country to importing LNG as domestic gas supplies ran out.
"If we can't construct the [geothermal] powerstations by the timeframe we've set out, which would require an efficient consenting process, then I think the chances of New Zealand needing that generation [Otahuhu C] are much more likely," Contact spokesman Jonathan Hill said.
Contact remains hopeful the Government will consider its consent applications by way of a "call in" process, which, under the Resource Management Act, allows for a shorter and more cost-effective consent process "while respecting the need to balance national and local issues".
Based on public statements from Energy Minister David Parker, Parkes expected the Government would adopt "a more proactive approach to the use of call in" as part of its National Energy Strategy due for release within the next two or three months.
As part of its National Energy Strategy, the Government is also set to announce a "cap and trade" carbon pricing regime.
Should carbon emissions be priced at around $20 per tonne, which is at the lower end of expectations, that would push average retail electricity prices up by about 4 per cent, adding about $80 to the average consumer's annual bill, said Baldwin.
However, that cost would make wind generation more economic.
As part of its renewables strategy, Contact also plans to build four wind farms with a combined capacity of 700-950 megawatts and expects to lodge consent applications for the first two of those within the next three months.
The company believes those projects are also strong candidates for the call-in process.
Contact yesterday announced a 17c final dividend, taking its total payout for the year to 27c, up 1c on last year.
Given its renewable generation plans, it says capital expenditure is likely to rise 80 per cent this year to about $300 million and to increase to almost $700 million by 2011.
Baldwin said the company expected "a challenging year ahead", given the continued upward pressure on gas costs. Shares closed up 9c at $9.53.
CONTACT ENERGY
12 months to June 30
Operating revenue
2007 - $2b
2006 - $2.33b
Operating profit
2007 - $543.7m
2006 - $557m
Net profit
2007 - $239.6m
2006 - $280.9m
Adjusted net profit
2007 - $231.2m
2006 - $241.6m
