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State-owned electricity generator Genesis Energy [NZX: GPLFA], slated for partial privatisation in the first half of this year, has paid to extract itself from contracts that saw it importing coal from Indonesian suppliers.
The only coal-fired power generator in the country will now rely on its own stockpiles and state-owned coal miner Solid Energy for its dwindling need to use coal to produce electricity, the company's chief executive, Albert Brantley, said in a statement this afternoon.
It has renegotiated a supply contract with Solid, which is seeking to rebuild its financial viability after crashing global coal prices and over-exposure to high-cost alternative energy projects forced a government and bank-backed bail-out over the last two years.
"Both moves will result in a reduced supply of coal to the Huntly power station and are a consequence of the company's decisioin to place a second of its older coal/gas generation units at Huntly into storage at the end of 2013," said Brantley.
He gave no figures for the cost of quitting existing commitments for coal supply from Indonesia, which have been controversial both because of the high carbon emissions profile of coal compared to other electricity fuel sources and because of the proximity of Solid Energy's Huntly East mine to the ageing coal and gas-fired Huntly power station.
Four 250 Megawatt units at Huntly are in the process of being decommissioned or placed in storage, with only two units currently available for service, leading to a decline in Genesis's demand for coal.
Its 2013 annual report shows that just 7.7 percent of its total electricity production of 13,057 Gigawatt hours came from coal, compared with 52.8 percent from the Tongariro and Tekapo hydro schemes, another 19.6 percent from both old and new gas-fired plant at Huntly, 13.6 percent from geothermal energy, and 4.8 percent from wind farms.
Its stockpiles of coal fell during the last financial year and were valued at $94.5 million at June 30, compared with $106.0 million in the previous financial year, and fuel inventories expensed during the year - a rough proxy for coal use - totalled $119.6 million, compared with $132.6 million the year before.
The Solid Energy contract has been extended for three years to June 2017, and is understood to give Genesis much more flexible terms than in the past, given its existing stockpiles and reduced demand for and availability of Huntly's coal-fired units.
In the past, the ageing Huntly plant was a lynchpin in dry years when hydro lakes ran low, but a combination of increased baseload generation from geothermal plant, which is not weather-dependent, and construction of new, lower cost, fast-start gas-fired peaker stations has reduced reliance on Huntly.
Brantley also made clear that Huntly would no longer be allowed to run at a loss just to make up for other power companies' failure to plan for dry winters, as occurred under his predecessor, Murray Jackson.
"We expect to continue to run the two operating coal and gas fuelled units at Huntly," said Brantley. "To do this effectively, we plan to manage their fuel supply contracts on much shorter time frames than we have done in the past."
Genesis is the last of state-owned electricity company slated for partial privatisation, following the full sale of Contact Energy in 1999 and the sales of 49 percent of both MightyRiverPower and Meridian Energy last year.
Subject to market conditions, the government is committed to selling up to 49 percent of Genesis - the smallest of its power companies by assets but by far the largest by customer numbers - in the first half of this year.
Earlier this week, Brantley announced the resignation from his senior management team of a key executive charged with updating the company's information technology and customer strategy, Sheridan Broadbent.
Broadbent joined Genesis in 2011 as general manager of strategy and business technology and had been "an outstanding executive with the full support of the board and the executive," said Brantley. "Her decision to leave Genesis Energy coincides with the conclusion of a number of key initiatives relating to the retail business, coal supply, and long term asset strategy."
The company was not intending to fill her role, taking Brantley's senior management team back to five direct reports.
SOE Minister Tony Ryall also today announced the appointment of two new directors to the Solid Energy board, Christchurch accountant Keiran Home, and Auckland barrister Rabin Rabindra, who has experience in water and other infrastructure governance.