Contact Energy to see worth of new flexibility

Tuesday 22nd February 2011

Contact Energy, which lifted half year revenue 12% while underlying earnings were flat, is about to start finding out how successful it has been in its strategy to combat the impacts of variable hydrology and fixed gas supply contracts.

The company, which operates hydro, gas-fired and geothermal generation, said that in the six months to the end of December its revenue was $1.2 billion, with underlying earnings after tax of $78.8 million.

Today it also announced it had signed an engineering procurement and construction contract for its $623 million Te Mihi geothermal project, near Taupo.

The project is to be funded through a combination of debt and equity. A pro-rata renounceable rights issue will be launched in the near term, with Contact's 52% shareholder Origin Energy to subscribe for its share.

Contact managing director David Baldwin said the rise in revenue for the latest half year had been absorbed by rises in network and gas costs as well as the start of carbon costs under the emissions trading scheme.

Contact had developed a strategy to manage around weather volatility, after flexible gas contracts were replaced by fixed contracts in 2006.

The strategy included development of the $175 million Ahuroa gas storage facility, where gas injection and extraction systems were commissioned earlier this month.

Another part of the strategy was the $255 million Stratford peaking project, expected to be in commercial operation in April, Mr Baldwin said.

Those developments, together with a reduction in gas take or pay volumes from January 2011, would significantly improved Contact's operational flexibility and start to be realised in the second half of this financial year, the company said.

It expects its proposed Tauhara 2 geothermal project to be the next significant generation market investment following Te Mihi. It is also exploring the Taheke geothermal field near Rotorua.

NZPA

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