Mighty River buys into US plant

Mighty River chief executive Doug Heffernan. Photo / Rotorua Daily Post

Mighty River Power's $154 million investment in a California geothermal power plant will position it for further expansion in the United States, the taxpayer-owned company says.

Auckland-based Mighty River has bought stakes in a geothermal field and proposed 49mW power station at the edge of the Salton Sea, a salt lake in inland southern California.

The investment comes as the company looks to step up its $26 million geothermal operation in Chile and a week after another state-owned enterprise, Meridian Energy, announced it was spending $240 million on a wind farm in South Australia.

Mighty River says it is using its geothermal expertise to capitalise on what it hopes will be a lucrative investment in California.

The deal is through Mighty River's international partner, GeoGlobal Energy, which is investing US$107 million to help fund the US$400 million project.

The station, Hudson Ranch Power 1, is scheduled to be commissioned in two years.

Mighty River chief executive Doug Heffernan said the costs of building the power station was higher than a similar plant in this country, but federal tax credits made it viable.

"They ultimately underpin the economics of what are more expensive plants." Heffernan said a strong geothermal base at the Salton Sea would give Mighty River the potential to expand operations in the United States in the same area or beyond.

"If things go well we could look to reinvest that capital in other projects."

Risk had been reduced by buying into a project where there was a proven resource, the equipment being installed was the same as what Mighty River had installed in New Zealand and there was a long-term sales contract to an Arizona utility.

The company was acutely aware of failures other New Zealand businesses had suffered through international expansion.

"A lot of those risks with New Zealand companies going offshore to Australia or anywhere else were because market conditions were more difficult than they had anticipated. In this case, we've already laid off this market risk."

Heffernan said the project was being funded from retained earnings and borrowing and would not push New Zealand power plants down the list. "The real thing is the shareholder value of the company being improved by making these investments."

The Government was aware of the deal and had been supportive, he said.

A spokesman for State Owned Enterprises Minister Simon Power said the investment was an operational matter for Mighty River which was required to demonstrate its long-term value for taxpayers.

HOT SPOT
* The Salton Sea is one of the biggest and hottest geothermal fields in the US. Steam has been tapped there for the past 20 years. It lies on the San Andreas fault.
* The Salton Sea was the title of a film starring Val Kilmer - described as a dark tale of redemption of crystal meth freaks set near the dead lake.
* The late US congressman and half of Sonny and Cher, Sonny Bono pushed for the cleanup of the Salton Sea.