NZ’s big four team up to improve security of power supply

Cooling towers at the Huntly Power Station. Photo / NZME

The big four power companies have teamed up to look at ways of extending the life of Genesis Energy’s coal and gas-fired Rankines at Huntly to improve security of power supply.

Genesis said the move was in response to market conditions last winter when the market experienced a “pinch point” due to a combination of a faster-than-expected decline in gas supply, low hydro lake levels and very light wind conditions.

The medium-term outlook for gas supply was also a key factor, the company said.

Huntly backs up New Zealand’s security of supply by providing coal and gas-fired electricity to the hydro-dominated grid when lake levels are low and when the wind drops.

One of Huntly’s Rankine units was scheduled to retire in 2026 and the other two in the early 2030’s.

Genesis and its competitors Mercury, Meridian, and Contact have entered non-binding heads of agreement to investigate the potential for Huntly’s Rankines to play a key role in managing “dry-year risk” and enhancing system security over a longer-term timeframe, as the country sets about adding more intermittent wind and solar generation.

The commercial structure is being worked through, including key terms such as pricing and cost, Genesis said.

The structure may include a strategic fuel reserve to cover disruptions to other fuel supplies and arrangements similar to the Huntly firming options Genesis brought to market last year, which could potentially be extended to cover a term of up to a decade.

Genesis said the new arrangements could be in place for 2026, subject to any regulatory approvals.

Last winter’s constrained power supply saw wholesale power prices spike to over $800 per megawatt hour (MWh) compared to around $300MWh today.

The spike was blamed for the closure of some energy-hungry timber mills in the central North Island.

Early this week, Genesis Energy and ASX-listed Foresta said they had signed a term-sheet to advance negotiations on the supply of torrefied biomass, or black pellets, for electricity generation at Huntly.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.