Company chairman Brian Corban yesterday afternoon said the decision to proceed with the new 385MW plant, known as E3P (Energy Efficiency Enhancement Project), was great news for Genesis and New Zealand, as it would mean more generation capacity to meet the country’s increasing demand for electricity.

Securing gas agreements from leading suppliers was key to the decision to proceed with construction of the high-efficiency, gas-fired turbine. “Also key was the government’s agreement to assist Genesis in dealing with risk outside usual commercial parameters.”

Finance Minister Michael Cullen and Energy Minister Pete Hodgson welcomed the announcement.

"The new plant will support economic growth and enhance New Zealand as an investment destination by bringing significant new generation on stream to meet medium term demand," Cullen said.

The government had facilitated the development by agreeing to share a limited (unspecified) amount of risk with Genesis around the long-term supply of gas, he added.

"This risk sharing arrangement is a one-off to smooth the transition to a post-Maui environment in which alternative gas sources have yet to be confirmed", Hodgson said.

However, Electricity Commissioner Roy Hemmingway and Contact Energy chief executive Steve Barrett both criticised the deal between State-owned Genesis and the government.

Hemmingway said this type of arrangement was the wrong way to get more generation and risked driving urgently needed new private investment out of the electricity sector. "Investors are keen to know the government will not intervene on the side of State-owned enterprises.”

Barrett said there were some “troubling aspects” to the announced deal and that Contact would be “most concerned if the taxpayer-backed guarantee were to blunt industry efforts to secure new gas sources.”

However, Hodgson said Genesis and the banks were not taking on any unusual risks and the worst case scenario would mean the government being called on to help service project debt.

There was only a slim chance of insufficient gas being available for E3P as Genesis had earlier this year signed long-term contracts for the supply of Kupe, Mangahewa, McKee and Pohokura gas, he added.

E3P will be 50% more efficient than the existing 20-year-old dual-fuel Huntly plant. E3P is scheduled to be commissioned by late 2006.

While Barrett said the E3P decision underlined the important future role of thermal fuels, he wondered about the rationale for the guarantee. “It is difficult to assess because few details have been disclosed, and it has been developed without inviting alternative proposals”.

Contact looked forward to the government providing more information on the arrangement so it could assess the impact of the arrangement, he added.