Contact expands into Northland

By CHRIS DANIELS energy writer

Contact Energy has signed a deal to buy all the power generated from the Ngawha geothermal station in Northland.

The station belongs to Far North power lines company Top Energy and is New Zealand's only geothermal plant outside the Taupo volcanic zone.

It produces 9.5 megawatts of electricity, but is likely to be upgraded soon to 25 megawatts. The $30 million expansion would mean the station could provide enough power to meet 70 per cent of the Far North region's demand.

Top Energy chief executive Roger de Bray said the deal was good, as Contact was the retailer for 90 per cent of all power consumers connected to the company's network.

Contact will buy all power generated at the Ngawha station for the next three years, along with a right of renewal option for a further two years. It already buys the power from the station, but this contract is new, awarded after a competitive tender process.

De Bray said it was too risky for a company with such a small amount of generation to sell its electricity into the wholesale market, which is dominated by a few big generator-retailers.

A company like Top Energy would always be a "price-taker" in the wholesale market, so it was more sensible to sell all its electricity to one customer.

The deal is part of an increasing trend towards what is known as "distributed generation" - where smaller scale generation is built closer to where it is actually used.

In the past, huge power stations and hydro schemes were built far from load centres, requiring billions of dollars of investment in transmission lines. Much more energy is lost when transmitted long distances, again raising the cost of remote generation.

Transmission constraints, particularly in the mid-North Island and north of Auckland, can push up power prices and reduce network reliability, making the Far North particularly vulnerable.

De Bray said if the Ngawha expansion went ahead 40 per cent of Top Energy's assets would be in generation.