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Genesis extends life of coal-fuelled power station

Power company has signed a “swaption” contract with Meridian Energy.

Sophie Boot and Pattrick Smellie
Thu, 28 Apr 2016

Genesis Energy [NZX: GNE] will keep its two coal and gas-fired units at Huntly Power Station operating for an extra two years, after wringing a high price from other electricity generators who wanted to keep them as back-up.

The two power stations were due to close in 2018.

The power company has signed a “swaption” contract with Meridian Energy "and other market participants", Meridian  [NZX: MET] chief executive Mark Binns says. 

However, no detail of the trigger price for firing up Huntly has been given and there is no indication of how much of up to 150 megawatts of additional capacity is committed to Meridian versus other generators.

Meridian only owns wind and hydro power stations and appears to have led the charge to pay to have the two 250 megawatt Huntly 'Rankine' units on standby for any periods of low inflows to hydro lakes that could compromise the security of electricity supply. The contract will make up to 100MW available year-round and an additional 50MW in the winter months, from April to the end of October.

The move will disappoint environmental campaigners seeking less fossil fuel use in the country’s electricity system, which is roughly 80% renewable, with a target of being 90% renewable by 2025.

Energy Minister Simon Bridges says the move is a "pragmatic" and "transitional" measure while the national grid operator Transpower also welcomed the decision.

"There were times in 2019 that we forecast a shortfall of energy, which could have been difficult to manage," chief executive Alison Andrew says.

"In extreme cases (for example a dry year when the hydro lakes are very low), we could have experienced a situation where consumers would have been asked to conserve their power usage."

Genesis announced last year that it would close its two remaining 250 megawatt Rankine units at the ageing Huntly station, New Zealand's only large-scale coal-fired power station unless there was a substantial change in market conditions.

Hailed at the time by environmental groups as the death-knell for coal-fired power generation in New Zealand, it has since become apparent the announcement was code for Genesis only being willing to keep the units operational if market participants were willing to pay a high enough price.

"Recent changes to the market, the time required to develop new generation, continued uncertainty over the future of the electricity-intensive smelter at Tiwai Point, and increased dry year risk resulting from other recent thermal plant retirements has indicated that a longer transition period than originally expected is required," Genesis says.

The Tiwai Point aluminium smelter uses around one-seventh of the electricity generated in New Zealand, but its long-term future is unclear. Its majority owner, Rio Tinto, is battling with a portfolio of Australasian smelters that struggle for profitability but which, for the moment, appear to be cash flow positive and are likely to remain open.

Once the country's largest power station and built in the Think Big era of the late 1970s and early 1980s, Huntly had four coal-fired units capable of generating 1000 megawatts of electricity, but Genesis had already withdrawn two units from regular operation as cheaper gas-fired and renewable power plants came on stream.

At their peak, the Huntly units emitted around 5000 kilotonnes of carbon dioxide annually, close to 5% of total national CO2 emissions. That had already dropped to about 2,300 kilotonnes of CO2 in the 2015 financial year, or 5% of New Zealand's total emissions.

Genesis has been burning coal in preference to gas when using Huntly in recent months as it seeks to exhaust a coal stockpile that it had estimated would last to 2018, at which point the station can continue to run on lower-emitting natural gas.

The company says it remains committed to removing coal-fired generation from its generation fleet in the future and will explore the development of a range of lower cost and lower-emitting generation options during the extended life of the units.

Genesis last traded at $2.045 and has risen 6% this year.


Sophie Boot and Pattrick Smellie
Thu, 28 Apr 2016
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Genesis extends life of coal-fuelled power station