Interview with Dennis Barnes, CEO of Contact Energy
ThinkGeoEnergy was able to sit down with Dennis Barnes, the CEO of New Zealand based Contact Energy for an interview during the World Geothermal Congress 2015.
At the World Geothermal Congress in Melbourne in April this year, the delegation of New Zealand made a splash and in particular one company stood out, both in presence and activities. As one of the main energy companies in New Zealand, Contact Energy was represented with several papers and a large delegation of employees.
But the importance the company saw in the event was particularly shown by the presence of its CEO, Dennis Barnes. I was glad having had the chance to meet with him ahead of a New Zealand Luncheon at the Congress.
In 2004, Australian energy company Origin acquired a 53 percent stake in New Zealand energy firm Contact Energy. The CEO of Contact Energy is Dennis Barnes, who has been seconded from Origin, starting in his position 4 years ago, based in Wellington, New Zealand. In his role he an executive in the Origin group and is reporting to the CEO of Origin, who is also Chairman of Contact Energy.
In our discussions I was particularly interested to hear about the geothermal activities of Contact Energy, how it was for him to join a more geothermal focused utility, but also what the company thinks about its future activities in geothermal.
When asked about coming from a utility into a more geothermal focused utility, he described Contact Energy as an integrated utility from generation all the way through to the customer. In therefore he doesn´t consider this to have been much of a change, despite the company being also a geothermal developer.
The reason of geothermal energy has seen a renaissance in New Zealand was the need for additional power generation and geothermal energy simply was the cheapest way to add new generation capacity. “For Contact geothermal has been – emotions aside – a business decision.” so Mr. Barnes.
Since the interview Contact Energy has announced to focus on returns to shareholders in the form of dividend payments instead of international geothermal investment.
Long lead time for geothermal
Another element I wanted to explore in our discussions was, how the long lead-time for development of geothermal projects affects the business and future development for Contact Energy. Interesting enough this does not seem to be an issue at all. Mr. Barnes described every privileged resource position as having long development lead-time. “Commercial gas and oil fields, hydro schemes or a geothermal reservoir, if they are worth it, they all take a long time to develop. In New Zealand, Contact has worked for 57 years in the Wairakei geothermal field and developed its first hydro power plant in the 1950s. To be spending 5-10 years developing new resources every 50 years, cannot be considered a long time. Up to 10-20 percent of the cost for the development of a geothermal project are spent on resource development before one can commit to the development of a geothermal power station, this can feel like a long time. But from a greenfield to a generating geothermal plant one look at 7 years of development, which is not a long time in the resources industry. “Contact and Origin are wired for long life, long term resource development.”
New Zealand lack of new development
Contact Energy still sees opportunities in New Zealand, but mostly focused on cutting cost and technological development. Centrally driven power generation is currently stalled in New Zealand and Australia, but also in the whole western energy economies, so energy companies like Contact or Origin are looking at opportunities internationally. Contact Energy has been doing some strategic work, but it is still ongoing with no certain direction yet.
Where do you go to grow? You can only grow on your based on your core skills and competences. Over the last 6 to 10 years, Contact built a rather robust experience in geothermal development. So the company sees the time is now to look for opportunities and considers geothermal development as an option. If this is in geothermal countries time will show. But Contact is still in an early phase on determining that. This will be looked at also in the context of Origin and Contact and who within the Origin group would lead this. Currently the strategic work is lead by Origin and Contact is ready to support any decision that would involve geothermal.
[Note: In an announcement in May 2015, Contact announced that it cancels international geothermal development plans. In June 2015, there were also some news that reported that Origin could consider a sale of its stake in Contact, which it has since denied.]
In the discussion with Dennis Barnes, we also briefly touched upon the realities of a stock listed geothermal player. We touched upon this through various articles on ThinkGeoEnergy before, in light of the challenges of the smaller companies that were or still are listed, e.g. in Canada.
Currently, so Dennis Barnes, “due to current low interest rates, good cash flow businesses are increasingly requested to return cash to shareholders, which does not allow much lead towards investments for new development”, which affects both investment decisions but also long-time planning.
As can be seen in Canada, where all junior geothermal development companies essentially disappeared. Without sufficient cash flow through operating assets, geothermal companies will have trouble satisfying the needs of investors on the stock markets.
We thank Dennis Barnes for the time taken and his Communication team for the great work they have been doing in support of promoting geothermal energy.