Contact shelves plans for new power station

By CHRIS DANIELS energy writer

Contact Energy has put plans for a new Otahuhu power station on hold, saying it cannot sign up enough cheap gas to justify the expense.

Announcing a $30.1 million profit for the six months to the end of March, chief executive Steve Barrett said plans to build a 400-megawatt power station had been delayed.

Growth in electricity demand meant 150-200MW of new generation was needed each year, said Barrett.

But since Contact had been unable to sign up new gas contracts beyond 2008, it said it could not make a final commitment to go ahead with the already well-advanced plans.

It had been granted resource consent to build the station, and was waiting for one environmental appeal to be dispensed with.

The station would act as a twin for the existing combined-cycle gas turbine station, Otahuhu B, which opened in 2000.

Contact's senior managers have been warning that New Zealand will be at risk of energy shortages if new gasfields are not discovered and brought into production quickly.

During last year's cold, dry winter, when hydro-electric stations were unable to generate much power, New Zealand depended heavily on gas-fired power stations using fuel from the Maui gasfield.

Gas use for electricity production increased by 24 per cent last year, and 47 per cent of all gas used went to electric power stations.

Maui gas is expected to run out in five years, to be replaced by smaller gasfields, meaning scarcer and more expensive fuel for electricity generators such as Contact.

Contact's state-owned rival, Genesis Power, is going ahead with its plan to build a new power station on its Huntly power station site.

Modern power stations, using "combined-cycle gas turbines" are much more efficient at turning gas into electricity. The Huntly station, which uses coal and gas to make up to 1000MW of power, has an efficiency rating of under 35 per cent, so it takes nearly three units of fuel to produce each unit of electricity.

New stations, such as the one Contact would have installed at Otahuhu, have efficiency ratings of more than 50 per cent.

But in order to borrow money to build such a station, which could cost up to $450 million, long-term supplies of cheap natural gas are needed.

Genesis announced in March that it had increased its shareholding in the Taranaki Kupe oil and gas field from 50 per cent to 70 per cent, in part to assure gas supplies for its new Huntly project, expected to be commissioned in 2004.

Contact's general manager of corporate affairs, David Hunt, said another reason the Otahuhu project had been delayed was a lag in consent approvals.

The delay came despite Contact's stated confidence in winning an appeal by the Environmental Defence Society over carbon dioxide emissions. The society last year made a similar appeal against the Genesis Huntly project, but withdrew its objection after Genesis agreed to cap plant emissions.

Chief executive Barrett said he did not know if Genesis had enough gas for its Huntly plans. On the question of the environmental objections, he said Contact hoped to reach some kind of compromise with the objectors, as had Genesis.

Genesis has already said it has enough assured gas supplies for the next 10 years to justify proceeding with its new station.

Contact says the economics of its project also needed to be evaluated more thoroughly and it wanted clarification of how the gas transmission system would work when new gas supplies became available.

"Contact is very firmly of the view that a major new increment of generation capacity will be required in the near term, and we would very much like to be the party that builds the new generation plant," said Barrett.

Corporate relations general manager David Hunt said the company was investigating retro-fitting existing diesel-powered units at the old Otahuhu A station.

Engineers were working out whether it would be practical to alter the turbines so that natural gas could be fed into them, rather than diesel.

If Contact goes ahead with this plan, the station would still be used primarily as a backup power generator, able to produce about 40MW of electricity, compared with the 400MW the new Otahuhu B station can produce.