Latest plant's power cheaper

Mighty River Power says electricity coming from its latest geothermal station will be cheaper than wind farms and other geothermal stations. Photo / Rotorua Daily Post

State-owned Mighty River Power expects electricity from its latest geothermal development to be lower than costs normally assumed for new geothermal power stations, and well below the assumed cost of new wind farms.

In an update on its development projects, the company said it expected the $466 million Ngatamariki plant, with an installed generating capacity of 82 Megawatts, to produce electricity "with a real long run marginal cost that is less than market estimates of $80 to $85 per Megawatt hour".

Most wind projects are assumed to require paybacks of around $100 per MWh.

The announcements come as the company prepares for partial privatisation, which is expected to be completed by September 30.

That timetable looks increasingly firm as legislation allowing the sale is due back in Parliament this week after select committee deliberations, a month earlier than scheduled.

Although Prime Minister John Key said this week that the mixed ownership model bill would not be passed under urgency by Parliament, its likely passage in the next few weeks suggests the launch of a sale process in late July or early August.

Today's update on Mighty River Power's development projects appears intended to bolster public understanding of its various generation opportunities, particularly in local and international geothermal markets, a small but growing niche where it is one of the top 10 global players, along with Contact Energy.

The expectation of relatively low-cost electricity from Ngatamariki is unaffected by difficulties experienced with one of the injection wells being drilled for the new plant, which Mighty River Power said was "within the project contingency".

The company has so far spent $229 million on the plant, expects to capitalise interest of $56 million, and has a contingency reserve available, "as appropriate for greenfield developments".

"The next significant milestone for Ngatamariki is the completion of planned injection capacity," said chief executive Doug Heffernan.

"The project remains within budget and on track for commissioning in mid-2013."

Mighty River Power's other major geothermal investment is in the United States, where it has put US$92 million into a 50MW, US$400 million plant in Arizona.

Mighty River Power has also drilled two production-scale wells for the Tolhuaca geothermal project in southern Chile, ahead of temperature and flow testing.

Also, surface testing on a German project is largely complete, with drilling permits being sought, and planning under way on a further four concessions.