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Genesis Energy ends imported coal contract

Media Release: 24 January 2014

Genesis Energy ends international imported coal contract in favour of local supplies

Genesis Energy, operator of New Zealand’s largest power station at Huntly, has ended a contract to import coal from off shore and, at the same time, has extended its supply agreement with Solid Energy.

Both moves will result in a reduced supply of coal to the Huntly Power Station and are a consequence of the Company’s decision to place a second of its older coal/gas generation units at Huntly into storage at the end of 2013.

The Station is now operating with two older 250MW dual fuel units and two modern gas turbines (400MW and 48MW). Of the two other original coal/gas units, one will remain in long term storage and the second will be decommissioned.

Genesis Energy’s Chief Executive, Albert Brantley, said the “decision to close a second unit and end the imported coal contract was made in order to meet the changing New Zealand electricity market and ensure the Company is well placed to meet the future.

“We have a clear focus on reducing our costs over the longer term. However, we also want to ensure that the Company can produce enough energy for New Zealand should there be extended dry periods that reduce the ability of hydro stations to operate.”

In conjunction with this decision, Mr Brantley said the Company has also been negotiating its supply agreement with Solid Energy and was pleased to strike a deal that will extend the supply relationship a further three years to June 2017, subject to Ministerial approval under the Crown Minerals Act.

“We expect to continue to run the two operating coal and gas fuelled units at Huntly.

To do this effectively we plan to manage their fuel supply contracts on much shorter time frames than we have done in the past, giving the Company more flexibility in the wholesale electricity market,” Mr Brantley said.

“Although we are winding back our use of coal, ending the international coal contract is good news for New Zealand and good, in the long term, for the environment. Our reduced reliance on coal is reducing our carbon dioxide emissions, and subsequently reducing our New Zealand Emissions Trading Scheme obligations and that will result in a lower carbon cost to our business,” Mr Brantley said.

The Huntly Power Station will now rely on coal from its own stockpiles supplemented by deliveries of coal from Solid Energy and other North Island suppliers. The cancellation of the international contract does not, however, exclude Genesis Energy from re-engaging with international suppliers if the need should arise and, with a 90 day delivery time-frame, the Company expects to be able to manage any risks associated with only having New Zealand suppliers.

Costs resulting from the exit of the coal supply agreement will be accounted for this financial year, but the overall exit has a positive financial impact on the company from 2014/2015. The value of the contract and the payments remain confidential.

ENDS

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