The Benmore Dam in the Waitaki Valley as Meridian Energy spilled water from the hydro lakes.
The Benmore Dam in the Waitaki Valley as Meridian Energy spilled water from the hydro lakes.
New Zealand requires a "significant uplift" in renewable generation investment if the country is to get anywhere close to its 2050 net-zero carbon target, Meridian Energy says.
The company, which hopes to make an investment decision by year-end on a 140 MW wind project it plans north-west of Napier, says there needs to be a more balanced approach to consenting if older gas and coal-fired capacity is to be replaced with renewables.
The country's existing hydro-generation also has to be protected in any reform of the management of fresh water, Meridian chief executive Neal Barclay told analysts and journalists today.
He said even a partial decarbonisation of the economy – using known technologies – would increase electricity demand by about 50 percent during the next 30 years. And within 20 years, almost a third of the country's existing generation will either have to be replaced or repowered.
"We will need a more positive consenting framework and a population that supports wind farms – even in their backyards," Barclay said.
"But provided future governments remain committed broadly to the well-functioning open market structure we have today, then investors in generation and storage capacity will have the right incentives to efficiently meet that demand."
Meridian Energy's Manapouri hydro station. SUPPLIED
Meridian, the country's biggest generator, earlier today reported a record $339 million net profit for the year ended June 30 on the back of record New Zealand hydro production, sustained high power prices and growth in Australia.
Net profit jumped 68 percent. Earnings before interest, tax, depreciation, amortisation and changes in financial instruments rose 26 percent to $838 million, also a record.
The company will pay a 10.72 cent final dividend and a 2.44 cent special dividend on Oct. 16 to investors registered at Sept. 30. That lifts the full-year payout, including special dividends, by 11 percent to 21.30 cents.
But the 16.42 cent ordinary dividend for the year was at the bottom end of the payout ratio of 75-90 percent of free cashflow the firm aims for.
Questioned by analysts, chief financial officer Mike Roan said the firm needed to preserve flexibility for when conditions are dry and so that it can pursue development options as they arise. The sustainability of that level of payout had also been a factor when setting the final dividend, he said.
Meridian shares fell 2 per cent to $4.675, trimming their gain this year to 36 percent.
Generators are kicking off a round of investment in new plant in anticipation of rising demand, to lower emissions from their existing portfolio, or to replace ageing power stations.
Mercury NZ was due to start work this month on a $256 million, 119 MW wind farm at Turitea south-east of Palmerston and Contact Energy has started appraisal drilling for a new geothermal plant it is considering at its Tauhara field near Taupo.
Last week, Tilt Renewables said it is aiming to make a decision by the end of September on the $270 million, 133 MW Waipipi wind farm it plans to build near Waverley to supply Genesis Energy.
Barclay said the industry is on the "verge of a significant investment cycle" although the timing of that remains uncertain.
Meridian is yet to commit to the Maungaharuru project north of Napier but has sought a change to the consents so it can install fewer, but larger and more efficient turbines there.
It wants to maintain its generation market share and could start work there after Christmas if the consent change is approved and the board agrees the investment, Barclay said. On that timetable, full production could be achieved in 2022.
Barclay said the firm is also on track to reduce its long-term exposure to coal-fired generation through swaption agreements it relies on for back-up supplies during dry periods. Its contract is currently with Genesis Energy.
Neal Barclay, general manager retail at electricity company Meridian Energy. NZHerald photo
Barclay said Meridian is in talks with a number of parties as to how dry-year risk can be covered long-term within the country's increasingly renewable generation fleet.
While it's hard to know how that will work out, Meridian is confident that coal does not need to be part of the New Zealand power market "beyond probably midway through the next decade," he said.
"There will be a requirement for gas to continue on for probably at least a decade or two after that. We're working with parties and trying to give parties confidence around investment decisions that they could potentially take as part of these swaption negotiations."
Barclay and Roan both noted the "extraordinary" circumstances beyond the company's control – low lake levels coinciding with outages at the Pohokura gas field - that had driven the earnings growth in the New Zealand business.
But operationally the firm performed well, lifting hydro generation by 9 percent when inflows were only 4 percent above average and when the firm was carrying out upgrade work on its Ohau hydro chain.
Ebitdaf from the Australian business rose to $64 million, from $44 million a year earlier, driven by higher customers numbers and increased generation. Other earnings – mostly from the Powershop UK business and technology arm Flux Federation – rose to $18 million from $17 million.
Barclay told analysts not to expect a similar group result this financial year. Planned maintenance on the high-voltage power link across Cook Strait and at the Pohokura gas field early next year will be a significant challenge for the firm to navigate, he said.
The work on Transpower's HVDC link includes replacing power lines north of Wellington and replacing the control systems for one of the two 'poles' that make up the link. Power flows, which generally run north from the South Island, will be reduced by a third to a half from January through to early April. On four Saturdays there will be no inter-island power transfers.
Barclay said managing constrained generation will be a challenge, given Meridian's South Island dams have historically been full 45 percent of the time during that part of the year.
"None of this is insurmountable and we are building our hedge position accordingly. But it is also fair to say that FY20 will likely be more operationally challenging than this last year."
