Genesis Energy chief executive Malcolm Johns says LNG is a possible fuel for its Huntly Power Station. Photo / Getty Images
Genesis Energy chief executive Malcolm Johns says LNG is a possible fuel for its Huntly Power Station. Photo / Getty Images
Imported liquefied natural gas (LNG) could be in the mix for the Huntly Power Station, Genesis Energy chief executive Malcolm Johns says.
The power generator and retailer earlier said a “challenging operating environment” drove its earnings down by 33% in the June year to $131.1 million, compared with the previousyear.
The company’s earnings before interest, tax, depreciation, amortisation and financial instruments (Ebitdaf) came to $407.2m, down 22% from the previous year’s Ebitdaf of $523.5m.
Included in earnings was a $29.4m insurance payout on the Unit 5 turbine at Huntly, which was out of action for seven months after a breakdown.
The latest result was hit by gas supply constraints, low hydro and wind levels and the Unit 5 outage.
LNG has been touted as a way to deal with a looming gas shortage after Government data released in July showed the country’s natural gas production was expected to drop below demand very soon.
Natural gas, cooled to very low temperatures, becomes a liquid, reducing it to 1/600th of its original volume, making LNG much easier to transport and store.
The technology is commonplace overseas and has been used extensively, and in quick order, in Germany after Moscow’s invasion of Ukraine.
Johns said the company’s result showed there was resilience in its portfolio, which comprises the coal and gas-fired Huntly Power Station, plus hydro assets in the central North Island and in the South Island.
Fuel costs were $169.5m higher, but 99.9% of Genesis customers were not impacted by the spike in wholesale power prices.
Unit 5 is now back to full availability - supported by extra gas supplied by Methanex.
Malcolm Johns, CEO of Genesis Energy.
Genesis - which forms an important link in the power grid by supporting the country’s mostly renewables-based system - is looking at a portfolio of fuels that are likely to be required over the next decade.
As it stands, biomass and coal are the best options, Johns said.
He noted New Zealand’s gas market remained “exceptionally tight”.
LNG could play a role, but it would not come cheap.
Johns said LNG’s role would be in winter “peaking” - supplying power in times of peak demand - and in providing dry-year security.
Genesis had been able to secure additional gas supply to support customers and generation at Huntly through agreements with market participants.
The company had also taken a right to develop up to 10 petajoules of gas storage with the Tariki Joint Venture.
This would enable gas - including gas from LNG - to be stored for use during winter months.
“We have said that if an LNG facility was developed in New Zealand, we would almost certainly seek long-term offtake from it.
“For it to work for us, we would need to have gas storage as well, and we would use it primarily as a dry-year energy reserve with winter peaking capacity,” he said.
“I would not be confident enough to put a probability on it, but there is certainly a lot of work being done.
“What we have been really clear about is that we have a large number of machines that can convert that LNG to electricity.”
The electricity system is in the political spotlight due to the continued lack of water and wind, and constrained gas supply and high wholesale prices.
“In terms of the wider system risk, my view is that all renewable generation - no matter what type - needs to carry a fair share of the system risk, because Mother Nature is not always going to show up in the future, and we just can’t do this again,” Johns said.
During the year, progress was made in delivering on its “Gen35″ strategy to substantially lift its investment in solar, grid scale battery storage and wind power, which is aimed at growing the renewable portfolio to around 8300 gigawatt hours (GWh).
The first stage of a new lower-cost retail operating model was implemented, a final investment decision was made on installing 100MW/200MWh of battery storage at Huntly, a new site for a 127MWp (megawatt peak) solar farm was confirmed, and negotiations were ongoing in securing a local and sustainable supply chain of biomass.
Genesis declared a final dividend of 7.0 cents per share (cps), taking the annual declared dividend to 14.0 cps, down 21% on the previous year’s total dividend.
Expenses jumped by 10% to $363.1m.
Over the next four years, Genesis is targeting building 500MW of new renewable electricity and freeing up 500MW of baseload generation at Huntly to support energy security, he said.
In the immediate future, Genesis expects Ebitdaf of around $460m in the 2025 financial year.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
