Contact Energy, New Zealand’s largest power company, is also among its most enterprising. Currently it is building a 168MW geothermal plant at Tauhara as market demand for renewable energy strengthens.
The company reports its project to investigate the world’s first-large-scale green hydrogen plant in Southland with Meridian Energy is also progressing well, with potential development partners shortlisted.
Only last week PM Jacinda Ardern said developing a “shared plan with businesses and investors” to establish a new green hydrogen industry in NZ was one of the government’s primary economic development objectives.
Contact Energy’s shareholders could be understandably excited, therefore, when the company this week reported a 70% rise in net profit to $134m (from $78m in the corresponding half), just as CEO Mike Fuge said the company was excited about the role its renewable generation was set to play in the decarbonisation of the country over the next decade.
Of course, the development of renewable energy doesn’t come cheaply: the cost of building the new geothermal plant at Tauhara, near Taupo, has blown out by $140m to $818m, which the company said was because of complexities in construction as well as higher costs caused by the pandemic.
The upside has been that the Tauhara field will be more productive, resulting in increased generation of 168MW from the original expectation of 152MW.
The completion of Tauhara had been put back to the second half of 2023 from mid-2023.
Market demand for renewable energy had markedly improved in the past year, which had improved the economic outlook of Tauhara, Fuge says.
“We’ve seen the emergence of multiple data centre projects, process heat conversions ramping up, and strong appetite from industrial users for long-term electricity supply deals.”
Last year, Contact raised $400m through a capital offer to pay for development of the new field, which the company said was the best renewable energy project on the drawing board.
This week Fuge reported double-digit growth in operating earnings and profit off the back of a period of strong hydro generation, and increased sales to fuel-constrained competitors.
Contact produces more than 20% of the country’s electricity from hydro stations in the South Island, and geothermal and gas-fired stations in the North Island. Hydro generation was up 6%, which reduced the need for higher-cost thermal generation.
The company secured long-term power agreements with major power users over the period, including Oji Fibre, Pan Pac, Genesis Energy and Foodstuffs.
“Long-term contracts underpin sustainable operations, support additional renewable generation development, and can also displace thermal generation.”
Contact Energy’s retail business also performed well over the half, adding 29,000 customers across its electricity and broadband offerings.
The big question over the world’s first large-scale green hydrogen plant in Southland stems from the news that Rio Tinto as the majority owner of the Tiwai Point aluminium smelter will want to continue to operate the Bluff-based smelter beyond the end of its current price power contract in 2024. The price of aluminium is now so strong, high profits are rolling in.
Some analysts have suggested that the green hydrogen plant could be shelved if the smelter continued to operate beyond 2024, as there would not be enough electricity to support both projects without new generation being built.
Point of Order imagines Fuge and his executive team have the capacity to work their way through the problem.
“It’s early days, but we are encouraged that the smelter’s owner recognises it needs to play a larger role to help manage dry year security of supply in NZ’s electricity system,” Fuge said.
Meanwhile Contact Energy has lodged consents with the Waikato Regional Council for a new, smaller geothermal power station at Te Huka near Taupō and and for an extension of its geothermal consents at Wairakei. It has secured land access rights to build 600MW of wind projects across the country.
In all the excitement which Fuge may generate among his shareholders there is one cloud on the horizon: the question of government intervention on power prices. There is already tension over high prices in the wholesale electricity market, with hedge contracts pointing to prices of around $180 per Mwhour over the next three to nine months.
Energy Minister Megan Woods has made noises about “changes” she plans but what she intends is far from clear.
Fuge and his cohort meanwhile will press ahead with the strategy that from Contact Energy’s standpoint is working very well.
Point of Order 