Contact says Government expects more from wind than can be delivered 

Contact Energy says Government forecasts for wind power generation underestimate its cost and overestimate its likely performance.

High international turbine prices mean only about 750MW of turbines could be built that would produce power at a cost of less than $80 a megawatt-hour, Contact said, a third of that estimated by the Government.

Only about 300MW might run during average wind conditions, Contact said in a submission to the Government, which is considering a national energy strategy that would require all new power plants to be non-polluting.

Contact last month deferred plans for a new gas-fired plant in favour of a $2 billion investment in wind farms and new generators on its geothermal steamfields.

“Wind has an important role to play but has limited value, particularly in delivering firm peak demand capacity,” Contact said.

“Other forms of renewable energy will need to play a more prominent role. Contact believes geothermal is, in this context, of great strategic importance.”

Contact, half-owned by Sydney-based Origin Energy, runs three of New Zealand’s five-largest gas or coal-fired power stations and is one its the largest carbon producers.

Until last year it had eschewed investment in wind power.

“Contact is playing a really smart game,” said John Norling, who helps manage the equivalent of $1 billion at AllianceBernstein.

“The whole greenhouse gas issue has taken quite a dramatic turn internationally in the recent past and Contact has changed its position dramatically as well.”

Contact told investors last week the power industry could make a 40 per cent cut in its greenhouse gas emissions by 2014 if output from rival Genesis Power’s coal-fired plant was cut by more than 80 per cent over that time.

Still, that scenario requires a carbon charge of at least $20 a tonne to reduce Huntly’s competitiveness against new gas-fired plants and make new wind and hydro-electric projects viable.

“Anybody advocating pulling Huntly out of the market in seven years hasn’t got their numbers right,” said Genesis spokesman Richard Gordon.

“It’s difficult to see how a new gas turbine, at today’s capital cost and tomorrow’s gas prices, is going to push Huntly out of the market, even if there was a $40 carbon cost.”

The 1000MW coal-fired Huntly plant is the nation’s biggest generator and has run near capacity in recent years as rising demand and low hydro-electric lake levels cut power supplies.

Government-owned Genesis favours retiring the plant over 20 years as new gas-fired plants are built.

While a carbon charge would reduce Huntly’s cost competitiveness, restrictive new fuel contracts for Contact’s gas-fired plants would give Huntly an important advantage responding to peak demand, Alliance’s Norling said.

That, and forecast economic growth, would ensure it remained an important producer in the near term.

“Over the next few years it will still be producing a meaningful amount of electricity because it will still be needed,” he said.

Contact wants the Government to cap pollution levels and establish a market for emission permits by 2009.

Generators and other polluters would have to buy and trade permits to keep within mandated levels.

By Gavin Evans

nzherald.co.nz

2 April 2007