Mercury Energy will this week sign a $75 million deal to revamp its ageing Karapiro power station as part of an overhaul of its Waikato River hydro system that will cost close to half a billion dollars.
The 70-year-old power station will have its generators and turbines replaced by Austrian-based firm Andritz in a transformation Mercury's executive general manager, hydro and wholesale, Phil Gibson, said was "like moving from a record player to Netflix".
New equipment will allow the station to lift its peak capacity by 17 per cent, the increase sufficient to charge more than 6000 electric vehicles simultaneously.
"When you're spending $75m to keep it going and for that money get to find another 17 per cent more capacity, it's a triumph," Gibson said.
The overhaul of the landmark station is the fifth on the nine-station Waikato system which generates about 10 per cent of the country's electricity and helped deliver record earnings last year after two years of strong inflows.
Gibson said the overhaul of the total system could take close to two decades to complete and was being funded off the balance sheet of Mercury, the country's third biggest gentailer.
He said Mercury was privileged to own and operate the stations, the oldest of which - Arapuni - dates back to 1929.
"Our modernisation programme brings the best of new design and manufacturing practices to these stations, in many cases replacing machinery that has operating for more than half a century," Gibson said.
At Karapiro, the three units with generators and turbines weighing 250 tonnes will be lifted out and replaced over three summers.
Gibson said there would be minimal disruption to generation.
"The project will also benefit the regional economy with an increase in personnel living near and working at Karapiro through various stages of the modernisation."
The contract with Andritz Hydro is due to be signed this week and follows two years of scoping.
The project will increase overall peak station capacity by 17 per cent or 16.5MW, to 112.5MW - enough to power approximately 19,000 New Zealand homes - and average energy production by 32GWh to 537GWh per year.
Construction of the Karapiro power station started in 1940 during World War II. Progress was impacted by war-related labour and materials shortages. It was completed in 1947 and commissioned in 1948.
Lake Karapiro was formed behind the dam and is now well used for rowing and waka ama regattas.
Andritz Hydro has installed more than 30,000 turbines (generating 420,000 MW) around the world.
Other significant Waikato River projects that Mercury has completed include upgrades at Ohakuri and Arapuni and to come are two larger projects, similar in scale to the Karapiro project, under way at Whakamaru and Aratiatia with completion expected in the mid-2020s.
Gibson said the major work was done during summer when demand was lowest. Tight supply with gas outages and low lake levels pushed up spot prices last year and Transpower has asked generators to avoid maintenance work this May and June so that it can maintain a sufficient capacity buffer during peak winter demand.
The national grid operator has highlighted two dates in mid-May when a combination of planned power station outages and transmission work could leave that margin lower than it would like, should one of the big North Island thermal plants drop out of the system at peak time.
Last week Mercury said high spot prices in the December quarter should enable it to meet its full-year earnings guidance despite lower hydro production and the loss of earnings from a meter business which is soon to be sold. The firm reiterated its September forecast for $515 million of operating earnings in the year to June.
That was despite the company also lowering its full-year hydro generation assumption by 50 gigawatt-hours to 4150 GWh due to low inflows into its Waikato catchment since October.
The sale of the Metrix business, announced last month and scheduled for March 1, would also reduce earnings before interest, tax, depreciation and changes in financial instruments by about $10 million, the company said.