Contact Energy will spend $30 million on a series of appraisal wells on Taupo's Tauhara geothermal steamfield as it builds towards a final investment decision for a new power station in 2020.

The drilling programme - involving four appraisal wells - will commence in August and be completed in early 2020, it said. The bulk of the $30m will be spent in New Zealand.

"A potential new geothermal power station at the foot of Tauhara Maunga is New Zealand's cheapest and most attractive option for renewable baseload electricity generation," said chief executive Dennis Barnes.

According to Barnes, geothermal energy is important in the transition to a low-carbon future as it provides baseload generation unlike weather dependent wind, solar or hydro generation.

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Currently, Contact's geothermal electricity makes up 8 per cent of New Zealand's electricity supply. The company employs around 150 people in Taupo directly and spends around $55m annually in the region.

"Geothermal energy can also provide a low carbon supply of direct heat for industrial processes and we are working with a number of interested parties on prospective developments," he added.

The stock was unchanged at $7.34.