Company chief executive David Baldwin said the facility will enable Contact to store gas underground during off-peak periods, such as during the summer, and use it during times when it is most needed, such as during winter peaks.

"The gas storage facility is an important part of a renewable future for New Zealand," he said.

"It is hoped to be operational at the time our new peaking plants enter service and will enable us to use these plants with maximum flexibility and efficiency to the benefit of the country's electricity supply."

Contact had earlier this week executed contracts with General Electric to buy two 100MW gas-fired peaking units to be installed next to Contact's existing Taranaki Combined Cycle gas-fired power station at Stratford.

Contact has also signed a contract with United Group NZ to project manage, engineer, and install the two peaking units, and to procure and install the balance of plant required to complete the $NZ250 million project.

Baldwin said Contact expected the two fast-start LMS100 gas turbine peaking units to be in service before the winter of 2010.

"The role of thermal generation is changing and, as recognised in the New Zealand Energy Strategy, the strategic use of efficient, fast-start peaking plants will be needed to support increasing volumes of weather-dependent renewables."

He added the Stratford plant would be important for North Island energy security at times when wind and hydro generation were not available.

Last week company acquisitions manager Liz Kelly said Contact planned to develop the near-depleted Ahuroa gas field as New Zealand's first underground gas storage facility.

The field is part of US independent Swift Energy's $US87.8 million ($A93.54 million) sale of its New Zealand assets to Origin Energy and 51.4% subsidiary Contact Energy.

Origin will project manage the Ahuroa project implementation and will operate the facility for Contact, but Contact will direct all design and construction decisions. The required volumes of gas will be about 10-15 petajoules, with initial injectability rates of about 170 terajoules per day.