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Contact Plans For New Plant To Secure Supply

Contact Plans For New Plant To Secure Supply Next Year

Contact Energy announced today that it was moving ahead with plans for a new power station to be built in either Auckland or Hawkes Bay to ensure additional generation capacity from winter next year. The plants will be designed to operate on distillate as well as gas, given the uncertainties which currently exist in relation to availability of future gas supplies.

Contact Energy chief executive Steve Barrett said the company was advancing plans for a new plant that could be commissioned by June next year.

Mr Barrett said the company was considering two alternatives:

A 192 MW dual fired station to be built adjacent to Contact’s existing gas-fired Otahuhu B station in south Auckland. The new plant would be designed to run on both distillate and gas and would be located inside or adjacent to the existing Otahuhu A station complex; or

A 150 MW distillate-fired plant at Whirinaki in Hawkes Bay. The plant would initially be designed to run on distillate, with the potential to convert to gas in the future should gas supplies become available.

The company was advancing plans for both options simultaneously. Contact has been discussing the potential developments with the respective regional councils responsible for each site. Mr Barrett said these plans had been under consideration for the past 12 months and had become more viable recently because of the growth in electricity demand, revised estimates on gas supplies and delays to the construction of plant by other generators.

Mr Barrett said growth in demand for electricity was rapidly eroding the reserve margin for electricity supply.

“In our view, this new plant would ideally be on-stream by the 2004 winter as we would face an extremely tight supply situation if we encounter another dry winter.

“These new plants would provide the type of insurance cover we need to get us through a dry winter.

“Given the lack of gas availability, we have focused on the use of alternative fuel – namely, distillate – but both options would have the potential to run on gas should suitable supplies become available in the future.

“We expect to confirm at the end of month [assume you mean end of May] our commitment to proceed with one of these plants.

That commitment will be dependent on reaching a suitable offtake agreement for the new plant, resolving any consent issues and sourcing the plant from suppliers.
Mr Barrett said either plant would require an investment in excess of $100 million by Contact and the company needed to understand what risks might be associated with such a project.

“The Government has signalled it is reviewing current electricity supply arrangements.

“New generation capacity is clearly necessary to meet the emerging electricity supply gap.

“We are keen to invest in this new plant but we need to know what the future electricity market arrangements will be and what this would mean to the project

“Any significant change to existing arrangements would threaten our ability to proceed with an investment of this magnitude.”

Mr Barrett said any potential changes to existing arrangements needed to recognise and address the underlying cause of a potential future shortfall in generation capacity.

“As we have said continually, the market has signalled the need for new generation capacity and there is no lack of appetite to invest in new plant. But, these plants can’t proceed without any gas to run them.”

“Since 2000, consents have been granted for 1,300 MW of new plant – 90 per cent of it gas-fired.

“However, since those consents were granted, the assessment of Maui’s economically recoverable gas reserves has been cut by 55 per cent and Pohokura’s reserves estimate cut by 25 per cent. And there have been no major new finds,” he said.

Mr Barrett said Government policy should focus on three key areas: Improving Resource Management Act processes to allow more timely development of projects of national significance. Clarifying the details of its new carbon tax regime so decisions could be made about the relative costs of different fuels. Reviewing existing arrangements to maximise competition in the upstream gas sector.

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