A lack of dark clouds on the horizon is worrying Meridian Energy. As well as the subdued demand of a slow economy, the state-owned generator is seeing a difficult hydrological situation develop in the southern lakes.

Meridian's new chief executive, Mark Binns, told Parliament's commerce committee yesterday that the key storage lake, Pukaki, was 10 per cent lower than the same time in 2008, the last dry year.

"If we look at our combined catchment, from the beginning of summer to the end of March, we've had the lowest lake inflows recorded in 79 years," Binns said.

"The level at Pukaki has increased over the last month or so. Unfortunately that isn't the result of huge rainfall. We've been conserving water."


A national hydro storage indicator, published by NZX from Niwa data, had followed a similar track to 2008 so far this year, and was around 15 per cent below average levels for the time of year.

But power shortages were highly unlikely, for the next eight to 10 weeks at least, Binns said.

North Island generators had been seeing a lot of rain.

Meridian had taken forward cover, out to nearly October, to cover its downside risk in a financial sense. He believed the market was in a far better position than in 2008 to deal with a dry year.

The ASX hedge market was far more liquid. "[Market] players are pretty mature and willing to enter into bilateral contracts so you can underpin your financial downside."

Asked about the possibility of the company, which is on the Government's list for partial privatisation, needing additional capital, Binns said it had modelled its future cashflows, taking into account capital expenditure plans and dividend assumptions, and did not believe there was any danger of needing to ask shareholders for more capital.

Its main project was the 420MW Macarthur wind farm in Australia, costing around A$500 million ($635 million). At home, the next cab off the rank would be Mill Creek, a 60MW wind farm in the Ohariu valley near Wellington.

The project did not have the green light, but Binns was upbeat about its economics despite the national picture of over-capacity and flat demand. It was near an existing Meridian wind farm at Makara so the wind resource was well understood, he said.


"Also you've got a high New Zealand dollar against the euro, oversupply in the [wind] turbine market, steel at reasonable prices and very competitive construction prices. We believe there's room for small generation projects, it depends on your view of the future. New Zealand has to start growing at some point."