NZ: Contact Energy to proceed with Te Mihi, but delaying Tauhara project
Alexander Richter
26 Feb 2010
New Zeland's Contact Energy is still planning the development of the 220 MW Te Mihi and 250 MW Tauhara geothermal plants, but might delay Tauhara somewhat.
Reported from New Zealand, “Contact Energy Ltd., is delaying generation investment and reviewing its use of gas-fired plant as rising fuel costs and tough competition squeeze margins.
The company may proceed with the smaller of two proposed geothermal projects and delay the second, Chief Executive Officer David Baldwin said today. The company will also consider converting its 400-megawatt gas-fired plant at Otahuhu to run only in peak demand periods to improve profitability, he said.
Contact, half-owned by Sydney-based Origin Energy Ltd., is rethinking strategy as new fuel contracts reduce the flexibility of its gas-fired plants and competition constrains retail price increases. First-half underlying profit was little changed at NZ$80.1 million ($56 million) as generation prices fell and gas, transmission and marketing costs climbed, the company said today.
New Zealand’s thermal generation market is now “quite different” from even three years ago, Baldwin told journalists in Wellington. “Costs involved in keeping thermal plant available for even just a couple of months a year are the same as they are for keeping thermal plant available for 12 months.”
Contact fell as much as 2.4 percent to NZ$5.66 and was at NZ$5.71 at 3:30 p.m. in Wellington. First-half net income was NZ$88.1 million, compared with the NZ$90 million expected, based on the median estimate of four analysts surveyed by Bloomberg.
Rising fuel costs and emission penalties have prompted Contact and rival Mighty River Power Ltd. to increase their investment in geothermal energy. About 11 percent of New Zealand’s electricity comes from underground steamfields.
In October, Contact signaled it may invest as much as NZ$850 million in 2012-2013 in building the 220-megawatt Te Mihi steam plant and a 250-megawatt Tauhara geothermal plant.
In today’s presentation, the company indicated capital expenditure declining through 2013-2014 and not exceeding NZ$500 million again until 2015-2016.
The change reflects a greater separation in timing between the two projects, and the likelihood that the smaller project will proceed first, Baldwin said.
The Te Mihi project has already been approved and was designed to replace the 52-year-old Wairakei geothermal plant. That work is being reviewed with the aim of keeping more of the older plant in place to deliver more than the 70 megawatts net gains expected, he said.”
Source: BusinessWeek
