Contact sees benefits of $420m developments

Contact Energy chairman Grant King Photo / Brett Phibbs

Contact Energy is expecting to see the financial benefits of developments worth $420 million in the second half of the current financial year.

Company chairman Grant King told the company's annual meeting in Christchurch today that continuing high levels of take-or-pay gas and high hydro inflows were likely to result in the first half being broadly similar to the second half of the 2010 financial year.

But the second half of the year to next June was expected to benefit from increased operational flexibility as the $170m Ahuroa gas storage facility and $250m Stratford peaker plant were brought in to commercial operation.

Take-or-pay gas levels would reduce by around 25 per cent from January.

Ahuroa will provide a reservoir for Contact to store gas during periods in which the gas is not needed, such as in summer during periods of low electricity demand, when the wind is blowing strongly or during a wet winter.

The company will be able to operate its gas-fired power stations only as needed.

Stratford, a fast-start gas fired power station, will balance weather-dependent renewables such as wind and hydro, and add to supply during periods of peak electricity demand.

Such units can start-up in about 10 minutes, adding flexible generation to Contact's portfolio.

Contact managing director David Baldwin said completion of the two assets, along with a reduction in gas take or pay volumes, would restore significant flexibility into Contact's portfolio from 2011.

Until 2006 highly flexible Maui gas supply contracts had enabled Contact to respond to varying gas requirements by reducing generation from its gas-fired stations during wet periods and increasing gas-fired generation during dry periods.

That enabled Contact to deliver steadily increasing financial performance irrespective of weather.

From 2007, Contact's Maui gas contracts came to an end and were replaced with significantly more expensive and highly inflexible gas supply arrangements.

During wet years - such as in 2009 and 2010 - Contact had to pay for gas that it didn't need because of the high levels of hydro generation, which led to the recent below-trend financial performance.

But as a result of Ahuroa and Stratford, from January Contact would be much better placed to deliver trend earnings in both wet and dry years.

Contact's strategy for growth remained focused on a range of options across gas, geothermal, wind and hydro.

In May the $100m Te Huka geothermal plant had been brought into commercial operation, while a consent application was lodged in February for the 250 megawatt Tauhara 2 geothermal project, with a decision due early next year.

Consents were being sought for two wind farms in the North Island and Contact was continuing to engage with community groups on potential hydro projects on the Clutha River.

- NZPA