Contact Energy Goes Slow On Generation Projects
May 20th, 2009
The engineers at Contact Energy must be wondering whether they will ever get to build a big new power station. The company has announced a go-slow on 220 MW Te Mihi geothermal power station, the replacement for the ageing Wairakei geothermal plant. Contact spokesman Jonathan Hill says falling demand for electricity and increased funding costs created by the tightness in global financial markets have prompted Contact to delay making a final decision to proceed with Te Mihi. Hill says the worst recession in 30 years is a big part of the problem. Elsewhere there is uncertainty about how quickly Rio Tinto’s aluminium refinery at Bluff will return to full production, if ever. Using around 7% of NZ’s electricity, the smelter has been operating at two-thirds capacity since a transformer failure last November.
Also delayed for at least a year is Contact’s resource consent application for the 180 turbine wind farm south of Port Waikato, known as Hauauru ma raki, or HMR. The board of enquiry for the HMR project held preliminary hearings earlier this month on the $1bn project, which would be far and away NZ’s largest wind development, if it occurs. Contact appears to have been surprised by the much greater level of detail sought by the presiding judge heading the board, and has decided to take another year to prepare the more detailed submissions which it appears are necessary.
The delay also reflects the same downturn in demand delaying Te Mihi, along with a significant shift against the economics of wind development in NZ since the fall in the kiwi dollar late last year. Meridian Energy has already faced criticisms its new West Wind project behind Wellington is producing relatively expensive electricity at perhaps as high as $105MWh, well above its own projections for a Tier One wind site such as West Wind where production costs of around $85MWh are assumed.
But Contact does have smaller projects on the go. Its 26MW geothermal binary plant for Centennial Drive is on the water to NZ at present, construction on the new open-cycle peaking plant at Stratford is proceeding apace, and the company has recently commissioned NZ’s first underground gas storage facility near the Stratford site. It is also considering tenders for a small hydro plant using the lake-level control structure at Lake Hawea. However, the Te Mihi and HMR delays fit a long pattern for Contact of creating opportunities for new large-scale plants – eg Otahuhu C which received a resource consent some years ago but remains unbuilt because of uncertainty about natural gas supplies. Hill says development work on the Tauhara geothermal steam field is continuing to schedule. An investment decision on Te Mihi is now likely later in the year.
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