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Market Not To Blame For Lack Of Fuel Or Rain

Contact Energy - Market Not To Blame For Lack Of Fuel Or Rain

Government proposals for “significant change” to the electricity market threaten to delay further the construction of the new electricity generating plant that the country urgently needs, the chief executive of Contact Energy Ltd, Mr Steve Barrett, said today.

“Contact Energy has resource consents in place for three large, new gas-fired power stations that could be in operation within two years.

“Until yesterday, we would have been prepared to green-light an investment as soon as we had certainty about gas supplies. The Government needs to be very careful that it does not take actions that hinder new investment.”

A new, energy efficient combined cycle gas turbine power plant with the capacity to meet approximately half of Auckland’s daily power needs represented a $400 million investment with a commercial life of more than 30 years, said Mr Barrett.

“The threat of new regulatory intervention introduces a substantial source of uncertainty that is likely to deter rather than accelerate investment in new generating capacity.

“This cannot be the desired outcome, yet it is the most likely commercial response.

“It is not clear what the Government has in mind when it raises the prospect of significant change to current arrangements. Options raised in the past range from modifications to existing market arrangements, such as the introduction of a specific payment to encourage the provision of dry year reserve plant, through to radical proposals that would replace market arrangements with some form of central planning.

“The key question for any of these proposals is: how will they get new generation built to improve security of supply? Most will have the exactly opposite effect by undermining willingness to invest in new capacity.”

Mr Barrett said the lack of new investment in electricity generation had nothing to do with the wholesale electricity market structure and everything to do with the uncertainty about future fuel sources. Recent high spot prices were reflecting this, along with the fact that hydro lake levels were somewhat below mean.

“To blame current market structures for a lack of new fuel resources or a dry summer is to shoot the messenger.”

A further key impediment to new generation investment was lack of clarity about the Government’s intended carbon tax regime.

“The structure of this major new piece of public policy will determine whether a gas or coal-fired thermal station is the more economically viable. Yet there is no apparent urgency to reach a conclusion on this question,” said Mr Barrett.

“Contact Energy, along with other generators, recognises the need for new generating capacity.”

This was demonstrated by Contact’s recent decision to make the necessary investment to restore dual fuel capability at its New Plymouth power station.

“There are four sites in the North Island that have all received resource consents in the last year or so for new gas-fired power stations. All are delayed by the absence of secure new gas supplies.

“Ever since the announcement in late 2001 that there was far less remaining gas in the Maui field than had been expected, Contact has been calling for urgent action to develop the two largest, known gas resources at Kupe and Pohokura.

“If there is any reason for their delayed development, it is the highly concentrated ownership of gas resources and difficulties in the existing regulation of the gas market.”

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