The Government has shown a clear preference that all new electricity generation come from renewable sources, and the Energy Strategy provides that there should be no construction of any new base-load fossil fuel plants for the next 10 years.

However, there will still be provision for some fossil fuel plants to the extent that they are necessary to maintain security of supply.

Contact have taken full advantage of this angle.

Modern gas-fired power plants can be started quickly and are well suited to peaking power production.

Contact has said the new plant will be necessary to support its increasingly renewable portfolio during peak demand times and periods of low wind or hydroelectricity generation. Such a move will enable them to fulfil existing commitments they may already have to purchase gas.

Although the Strategy is not legally binding on Contact at this stage, the Government has clearly indicated it will consider regulatory options under the Electricity Act to ensure this aspect of policy becomes enshrined in law.

The parameters of these exceptions will require clear legislative definition, in order to ensure that new fossil fuel generation is only allowed to the extent that it supports renewable generation and not beyond. To get this right will be a challenge. The extent of these restrictions and the effect they will have on industry participants will become more clear once the legislation enters the drafting process.

*Bryan Gundersen is a partner in New Zealand law firm Kensington Swan. He specialises in energy & resources and heads the National Energy Team.