Genesis likely to reconsider Huntly closure, says Meridian Energy boss

Wednesday 19th August 2015

Meridian Energy chief executive Mark Binns says Genesis Energy will probably revisit its decision announced a fortnight ago to close the remaining two units at its ageing gas and coal-fired Huntly power plant following Contact Energy's announcement this week that it will close its gas-fired Otahuhu-B power station.

"Our modelling shows that somebody with gas can make money, so it's a question of 'who's it going to be?'" Binns said. He made the comments at a briefing after Meridian posted a 5.6 percent lift in full-year net profit, beating its prospectus forecast, and foreshadowed a $625 million plan to return capital to shareholders over the next five years, despite recent announcements about potential small-scale new generation opportunities.

Genesis and Contact have announced the closure of 500 Megawatts and 400MW respectively of generation plant in the last three weeks, with Genesis's decision widely hailed for signalling an end to coal-fired generation by 2018. However, the Genesis statement included an out-clause, saying the closures would proceed "unless market conditions changed significantly."

The Huntly station has coal stockpiled at the site and Binns' argument suggests Genesis may choose to run Huntly in the absence of the Otahuhu-B plant to run the stockpile down rather than use gas. Genesis is already seeking to end its existing coal supply contract with state-owned Solid Energy, using the coal miner's voluntary administration, last week, as a trigger because it doesn't need the coal it has previously agreed to buy.

"There's all sorts of positioning going on," said Binns. "I wouldn't like to predict but there's enough gas around, there are enough gas players who have shown a willingness to spend money. Todds (Todd Energy) have been gagging for some peakers (fast-start peaking generators to fill in short-term gaps in supply) in Taranaki, so this could be their opportunity."

Binns wouldn't rule out Meridian building more renewable capacity in the next four years, with the recent announcements on thermal plant closure bringing forward the likely need for new generation to around 2019, but it was more likely that smaller new plant would incrementally add to supply, especially as the long-term future of the Tiwai Point aluminium smelter was still uncertain.

"I think it's very unlikely that someone will spend $1 billion on major plant with Tiwai hanging out there," he said. "But you could see a number of smaller projects. But I'd bet you dollars to doughnuts the market will resolve this issue."

Asked whether he thought Genesis was "playing games" with its Huntly closure announcement, Binns said: "You made that statement, not me."

It would be "very interesting to see how (Genesis) investors react" to the Contact announcement, said Meridian chief financial officer, Paul Chalmers.

A Genesis spokesman declined to comment on Binns' comments.

Contact said it was closing the Otahuhu-B plant, commissioned in 1999, because it was under-used following the growth of baseload generation supplied from renewable resources, especially recent investment in geothermal energy.

BusinessDesk.co.nz

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