The new supply contract will go towards supporting Contact’s planned operation of its two fast-start gas peaking units at Stratford and gas supply to retail customers.
The expiry dates for Contact’s current contracts for supply from the Maui and Pohokura gas fields were December 2024 and 2025, respectively.
With the underlying wholesale gas price up by over 50% since Contact’s last long-term contracting process, pricing was “materially higher”, causing an implied short-run marginal cost of more than $200/MWh for electricity generated through Contact’s Stratford peakers.
That was in addition to $50 million a year of fixed operating costs required to support the running of the peakers, Contact said.
The company has decided to keep its ageing gas-fired Taranaki Combined Cycle thermal plant available as a backstop, reversing an earlier decision to pension off the plant.
“With an ongoing decline in domestic gas production, the long-term gas market has contracted, and this is reflected in a higher cost of electricity generation from gas,” Contact chief executive Mike Fuge said.
“As more new intermittent renewable generation is built in New Zealand, flexible gas generation remains an important part of the system, keeping the lights on when the sun isn’t shining and wind isn’t blowing.
“Securing gas supply is key to Contact’s planned operation of its peaking assets in support of the energy transition.”
Contact said it had a range of initiatives aimed at reducing reliance on its gas peakers.
These include a 100MW grid-scale battery under construction at Glenbrook and two more in planning, as well as mechanisms across commercial and industrial supply contracts and retail products to enable the management of peak electricity demand.
The forecast annual gas delivery profile will be illustrated in Contact’s interim 2025 result.
Contact and Genesis Energy offer thermal-based power to the power grid when the mostly hydro-power-driven system is in short supply.
Separately, Contact said in its monthly operational report that electricity demand last month was down 1.4% on December 2023 but was up 1.6% on December 2022.
That was because of reduced consumption by NZ Aluminium Smelters (NZAS) following the activation of “demand response” mechanisms, which are aimed at taking pressure off the system.
Demand excluding NZAS was up 0.7%.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
