NEW ZEALAND

Contact warns: NZ power system at risk

The government and energy companies need to urgently eliminate uncertainty and speed up the devel...

Contact warns: NZ power system at risk

At today’s annual general meeting in Dunedin, chairman Phil Pryke and chief executive Steve Barrett both evangelised as they talked of “snake oil salesmen” and the whole electricity industry being “bedeviled by unknowns.”

Pryke said Contact would not “soft-pedal” on the seriousness of the situation facing this country - increasing electricity demand in the face of rapidly dwlindling gas supplies and uncertainties over carbon taxes and resource consent issues.

“Electricity prices will have to rise significantly over the next few years, and will be influenced in part by factors such as carbon taxes and the cost and timeliness of development approvals.”

The industry needed certainty over the level and structure of any carbon taxes, from 2007, to avoid any waste of corporate and national resources.

“The proposition that, somehow, security of supply can be achieved without significantly higher output prices is absurd. Anyone who suggests they can deliver that trifecta of low prices, clean energy and reliable supply is either lying or dreaming. Frankly, I can only think of such as snake oil salesmen.”

No future fuel would be as cheap as gas from the now rapidly dwindling Maui field. Coal was relatively cheap and plentiful but would probably attract a carbon tax. Imported LNG would come at a price considerably higher than Maui.

Wind would play an important part, though even the latest wind technology struggled to compete with gas, coal or many hydro options. Hydro options were limited and likely to be costly to develop.

“The great unanswered question still remains: what fuel will be used?

“All the political posturing and market tinkering in the world will not make gas or coal come out of the ground or over a wharf any cheaper; nor will it reduce the cost of wind technology, or create an easily dammed river,” Pryke said.

Barrett said the development of the new Pohokura and Kupe fields was proceeding slowly and “these sources will not be sufficient to fill the whole energy gap.

“The best solution would be a new gas find but time is running out for that, and exploration activity remains small-scale while players continue to delay development of known resources.”

Investment decisions involving hundreds of millions of dollars needed to be made at a time when the industry was “bedeviled by unknowns”.

Contact estimated it could take five or six years to build a new LNG or coal plant and probably longer for hydro or wind-powered plants. Over the next eight years investment of around NZ$5 billion in new fuel and power generation capacity would be necessary.

“The electricity industry needs some answers from the government soon,” said Barrett, while Pryke concluded: “we are running out of time.”

Contact today reported an after-tax profit for the three months to December of NZ$27.5 million, a solid increase on the NZ$18.4 million earned in the first three months of the last financial year. Earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$101.5 million in the period also largely reflected the substantial growth of the business, with total electricity and gas revenue of NZ$296.7 million being 20% higher.

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