Windfall taxes on power companies may not be a good idea when advancing towards decarbonising the economy

Meridian Energy has chosen Australian resource firm Woodside Energy as its preferred partner to develop a green hydrogen project in Southland.

Meridian CEO Neil Barclay expects  broad, future economic gains from the project.

“We believe a large-scale hydrogen and ammonia facility in Southland, focused on the export market, will accelerate the development of a domestic hydrogen economy and strengthen NZ’s platform to contributing to decarbonising our transport and industrial sectors”.

The production of hydrogen and ammonia from renewable energy in the South Island has been touted as a suitable use of power whether or not the Tiwai Point smelter closes after 2024.

Observers  might have thought such a project would have drawn  applause from the Green movement. The Green Party in contrast  has been attacking what it calls the “excess profits”of the big energy companies and proposing windfall taxes on them, along with other major  corporates.

Some critics contend the big electricity companies are profiteering, and paying out high dividends as a result of  elevated  market prices, but as one authority pointed out, defining excess dividends in terms of net profits does not adjust  for “front-loaded” depreciation charges, which are non-cash items. Over the past five years, the industry dividend payout ratio relative to free cash-flow is about 80%.

 It should also be noted, major companies are investing in new energy plant,as the government sets the target of  becoming 100% renewable.

So it appears Meridian wants to push ahead with the hydrogen project, even if Tiwai Point keeps  operating.

Woodside was shortlisted, along with Fortescue Future Industries, to put forward proposals for large-scale hydrogen and ammonia production using renewable energy.

Barclay said Woodside had been selected because of its established track record.

“In addition to its operational and marketing expertise, Woodside has demonstrated climate change ambitions, and as we are a 100% renewable energy company and committed to sustainability, that was a key focus for us in selecting a partner.”

Contact Energy originally joined Meridian in the investigation, but has now opted out, although it would be available to supply electricity to the project.

However, Japanese industrial conglomerate Mitsui has joined the project to develop the potential market for ammonia. It is the largest importer of ammonia into Japan.

The three companies will now start the engineering design for the project, which is targeting the production of 500,000 tonnes of ammonia a year.Woodside CEO Meg O’Neill says the project is “right for the time”.

She added “Woodside brings the technical skill and operations experience to develop this project at pace to meet customer demand for hydrogen, which we expect to grow in the energy transition.”

One thought on “Windfall taxes on power companies may not be a good idea when advancing towards decarbonising the economy

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.