After a torrid few years, Contact Energy is on the cusp of reinventing itself, and is again well-placed as the smart user of natural gas to fill in the gaps left by the vagaries of wind and hydro electricity. Contact MD David Baldwin was at his most compelling describing the vital role played by thermal plant when a rare combination of Transpower outages saw wholesale prices jump briefly last week to around $5000 per MWh in the North Island, requiring the immediate commitment of all available thermal generators. It’s partly why Contact is now examining sites for another peaker plant, akin to the 200MW plant currently being commissioned at Stratford, even though it is running some five to six months late, because “we struggled with getting the engineering done in a comprehensive way with our contractors.”

Particularly significant for Contact is the changing shape of its gas portfolio, with the quantities of “take or pay” gas diminishing from 52PJ this year to 40PJ next year, at the same time as its Ahuroa gas storage facility comes into play. These two factors will both substantially increase Contact’s flexibility of gas use, and avoid it facing the problem it confronted last year, where it had 10PJ of “spare” gas which wasn’t used. Early injection of 5PJ into Ahuroa had saved the company around $30m, but another 2PJ had been sold at a loss and the remaining 3PJ were paid for but not taken. This meant an “effective cost” of gas of $11 per GJ last year, well above the already high new average gas unit cost of $8.16 per GJ. On top of this, Contact is choosing to run its previously baseload combined cycle gas turbine plants at Otahuhu-B and Stratford as “mid-merit” plant from now on, reflecting their age, the value of gas, and the increasing value of thermal to fill in generation gaps created by fluctuating renewable generation.

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While Contact has consented sites capable of taking new peakers at Otahuhu and New Plymouth, other sites were also being assessed, with constrained gas transmission into Auckland one key issue. While interesting, Contact did not see the latest revision of P50 gas reserves out to 2022 as significantly changing its view of whether investment in new, long-life baseload gas plant could be justified. While cagey on just how significant the upside could be, Baldwin also revealed Ahuroa may be a larger storage facility than first thought.

Meanwhile, the company’s extensive geothermal development plans continue to develop, with competitive tenders out at present for the 220MW Te Mihi plant. Previously, Contact had signalled a delay on Te Mihi and a longer life for the 50-plus year old Wairakei plant. However, Baldwin says the emergence of competitive tendering for Te Mihi made it possible the plant will be advanced more quickly. Most significantly, Contact believes this new flexibility will, from here on in, restore its ability to profit significantly in dry years, when hydro resources are conservatively managed, and to perform more profitably in wet years. The last financial year was wet, and underlying earnings were depressed by 6% to $150m.

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