Meridian in $600m hydro buy

By CHRIS DANIELS energy writer

State-owned power company Meridian Energy will announce today that it will spend up to $630 million buying an Australian hydroelectric power scheme.

The 10-station Southern Hydro system in Victoria can generate 500MW of power, or 6 per cent of the state's capacity. It is being sold by the US energy giant Alliant, which also owns 19.1 per cent of local generator and retailer TrustPower.

The 10 Southern Hydro stations are peaking stations, selling power only when the wholesale price is high. In Australia, such peaks occur during summer heatwaves, when air conditioning is heavily used.

The Clyde dam, New Zealand's biggest, can generate 432MW of electricity. Meridian already owns five small hydro stations in Australia - four in New South Wales and one in Victoria. It does not own the dams or lakes, which were built mainly for irrigation, but owns small turbines attached to them.

The sale announcement comes just days after big power users complained about Meridian's tactics in the New Zealand wholesale electricity market. It is certain to again raise questions about the suitability of state-owned enterprises embarking on foreign expeditions.

Meridian, which refused yesterday to comment on the purchase, may well argue that earnings from the stations could help to pay for its ambitious plans to build a canal-based hydro scheme on the lower reaches of the Waitaki River.

It has yet to seek resource consent for this plan, which is expected to cost at least $1.2 billion. Despite this, Meridian has begun asking for proposals from developers and construction companies interested in working on the scheme, which it calls Project Aqua.

In its annual report, Meridian outlined its healthy financial position, including a $101 million profit, a $100 million special dividend and the acquisition of a new $900 million debt facility. It paid the special dividend to bring its balance sheet more into line with the Government's commercial expectations.

Major energy users and business lobbyists are expected to target the electricity sector this year as an area that needs further restructuring, with the SOEs first in line.

One suggestion is that the big three - Meridian, Genesis and Mighty River - have their retail and generation arms separated, forming new, smaller state-owned companies.

The idea is that this would encourage a more competitive market for generating power.

But the SOEs would argue that the existence of a customer base gives them the freedom to invest in new generation, as they already have buyers lined up.