Geothermal key in faster growth for Mighty River Power in New Zealand

Preliminary visualisation of the proposed Ngatamariki Geothermal Power Station (flash plant option) (source: Mighty River Power)
Alexander Richter 5 Oct 2011

Mighty River Power's decision to deploy more than $1 billion into domestic geothermal development have been instrumental in driving sustained growth and a diversified power generation portfolio of the New Zealand utility.

Following the release of Mighty River Power’s 2011 Annual Report, media outlets now focus on “the importance of geothermal – as a ‘game-changer’ for the Company’s earnings profile and shareholder value, and in fuelling growth and driving a positive change in New Zealand’s energy mix.”

Chair, Joan Withers, says Mighty River Power’s track record of domestic growth and performance compares well with that of New Zealand’s best commercial entities.

“Investment in geothermal generation in New Zealand has enabled this Company to grow faster than any other in the sector over the past decade, and internationally geothermal development provides Mighty River Power with a platform for considerable future growth.

“These offshore developments are opportunities for us to capitalise on the unique competencies the Company has developed, and match high-value employment with informed equity capital, which is not only good for Mighty River Power, but a strength for New Zealand as a whole.”

Mrs Withers says the strategic decisions to deploy more than $1 billion into domestic geothermal developments have been “hugely influential in driving the sustained growth and the evolution of Mighty River Power from a single-river hydro company, to one with a considerably larger, more flexible and more diverse generation portfolio – that gives us a more stable earnings base”.

“Our commitment this year to the new $466 million Ngatamariki geothermal plant near Taupo is another important milestone in our domestic growth and the further diversification of our New Zealand generation base.”

Mrs Withers says Mighty River Power stands out as the only predominantly renewable energy company in New Zealand with a significant geothermal business. More than 96% of electricity generation in FY2011 was from hydro and geothermal renewable resources.

The addition of 2,200GWh of annual base-load geothermal production – balanced by a strong expansion in the last couple of years in the scale and quality of Mighty River Power’s retail base in advance of bringing the generation projects to market – “has strengthened our earnings profile and enabled a step-change in profitability”, she says.

Mighty River Power Chief Executive, Doug Heffernan, says the Company’s FY2011 results show the benefits of this industry-leading growth, with more than a third of total generation now base-load geothermal. This will rise to 40% with the contribution from the new Ngatamariki plant.

Dr Heffernan says Mighty River Power’s earnings now have a larger base with geothermal, which is not influenced by hydro uncertainty, and around 80% of hydro available even during dry years.

“This means that our firm production has gone from 3,700GWh to 5,400GWh in the course of a few years, and our total annual generation capability is now more than 8,000GWh.”

Mighty River Power’s strong increases in geothermal and hydro production in FY2011 increased the Company’s share of the wholesale market by about 2.5% to more than 17% – displacing coal and gas generation in the wholesale market.

Ministry of Economic Development (MED) figures show geothermal replaced coal as the number three fuel source for electricity generation, providing about 13% – more than three times the amount of generation from wind.

Mighty River Power is among the top 10 global geothermal operators. Dr Heffernan says the Company is making significant progress in leveraging its expertise as an informed investor in and operator of geothermal to tap global opportunities for growth, not constrained by the demand for electricity in New Zealand.

“Globally, geothermal is a niche industry, representing only about 0.3% of generation but with growth over the next five years projected to be greater than New Zealand’s total existing capacity.”

Dr Heffernan says geothermal is valued internationally as a premium renewable because of its reliability and ability to earn higher long-term returns than wind or solar. To date, Mighty River Power has committed US$250 million (or less than 10% of the Company’s balance sheet) through the GeoGlobal Energy (GGE) Fund to offshore geothermal projects in the US, Chile and Germany across eight reservoirs.

He says Mighty River Power’s international investments offer more growth opportunities and the potential for target returns that are superior to new domestic projects.

“And the initial projects and countries where we have chosen to invest reflect attractive legal frameworks, political and market risks – for example with long-term off-take contracts that reduce investment risk and are not available to new generation investments in New Zealand.

“These opportunities allow us to leverage our strategic capabilities and diversify our development portfolio.” Dr Heffernan says the Company has targeted markets with strong demand, geothermal resources as good as New Zealand or better, with strong incentives and low sovereign risk.

“We see significant opportunities for further equity investment. However, we will maintain our current prudent and careful approach to building on these opportunities.”