KEY POINTS:
Contact Energy's planned 400MW gas-fired power plant at Otahuhu in South Auckland remains a viable project, despite the Government's preference for renewable energy, says the electricity generator's chief executive, David Baldwin.
Baldwin said the Government objective of maintaining a secure energy supply ensured gas-fired plants would remain an
important component of the nation's generating fleet.
Gas-fired plants also complemented intermittent renewable sources such as wind farms.
Otahuhu C could also meet the energy strategy objectives of reducing greenhouse gas emissions because it would displace less environmentally friendly plants such as Huntly.
He said: "The question of security of supply is the reason that you cannot ignore the possibility that additional gas capacity will be needed."
Contact called for tenders for the Otahuhu C plant - for which it already has resource consents - in October, saying it was the best new generation option for the country.
Baldwin said Contact had a balanced portfolio of plants that positioned the company well to operate in an environment where greenhouse gas emissions were limited.
"We have 50 per cent of our generation in renewable hydro and geothermal plant, and have well-developed investment plans targeting new wind, geothermal and hydro generation," he said.
"The bulk of the remaining 50 per cent is provided through modern, high efficiency combined cycle gas-fired power stations which, through recent efficiency upgrades, have had their carbon dioxide emissions cut by around 120,000 tonnes per annum."
Baldwin said Contact accepted that the world was entering a carbon-constrained era and that a price on carbon was inevitable, but called on the Government to establish a carbon trading market sooner rather than later. "Not only would this increase investment certainty across the economy, but would also encourage the market to provide innovative solutions we need to reduce all emissions."
Meanwhile, Baldwin said he supported changes allowing power lines firms to generate unlimited energy outside their network catchments and doubling the amount of energy they produced inside these catchments.
Were lines companies now a threat? "No," Baldwin said.
Contact's shares fell 9 cents to $7.86 after the release of the strategy. But investors were sanguine about the initiatives. They said the document was short on detail, resolving few of the key uncertainties in the energy sector.
Tyndall Investment Management fund manager James Lindsay said: "It was a good overview document, [but] I was surprised there was no detail on the mechanism of carbon pricing."
Lindsay said although the strategy introduced a bias against fossil fuel-fired generation this might have a silver lining for firms such as Contact.
Lower demand for gas might result in lower gas prices. This could boost generators' profits since they had often struggled to pass on the high gas prices to consumers.
AMP Capital Investors equity analyst Douglas Lau said: "This is broadly positive for renewable energy, but clearly some people in the market would have expected a carbon regime to come into play."
Lau said the restrictions on the lines companies was an opportunity for companies such as Vector.
Meanwhile, Trustpower and Contact could benefit from proposals to revise the Resource Management Act so national benefits can be compared in conjunction with environmental impacts.