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Contact says future of TCC depends on reliable, affordable gas

Thursday 27th June 2019

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Contact Energy says its 377 megawatt gas-fired Taranaki Combined Cycle plant could play an important role helping electrify industry but it would need cheaper and more reliable gas supplies to do so.

The company makes most of its power at hydro-electric dams and geothermal plants and is aiming to help its industrial customers switch from coal and gas. By 2022, it wants its Simply Energy partner to have converted about 40 MW of emissions-intensive energy use to renewables. 

Chief executive Dennis Barnes says the country is at the start of a "decades-long" transition away from fossil fuels. That decarbonisation drive will increase electricity demand but the timing is unclear.

He told analysts and investors last night that a new plant at the Tauhara geothermal steamfield near Taupo is likely to be the country’s lowest-cost new generation build. A series of appraisal wells the company plans there will help define the extent and character of the resource for an investment decision early 2020.

At the same time, the firm faces a choice whether to extend the life of the Taranaki Combined Cycle plant beyond 2022.

“With electricity demand still at 2008 levels, the first stage of any potential Tauhara investment would be sized to substitute the energy we currently produce from our Taranaki Combined Cycle plant – TCC,” the firm said in a note on his presentation.

“If the green shoots of demand growth accelerate, TCC has the capacity to be the lowest cost transitional source for new demand while the business case for new renewable generation is developed,” Barnes said.

“This ongoing business case for TCC is dependent on securing an additional reliable gas supply at a significantly lower price than current expectations.”

Power costs surged last year after maintenance work at the Pohokura gas field, the country’s largest, cut supplies when the country’s hydro supplies were low and other gas plants were also on scheduled maintenance.

Supplies were also reduced earlier this year while operator OMV conducted a series of work-overs to help maintain production from the field.

OMV took over the operatorship of the Pohokura and Maui fields from Shell late last year and has committed to invest more than $500 million in coming years to improve supplies from the two fields.

They, along with the offshore Kupe field and the onshore Mangahewa field, have delivered more than 80 percent of the country’s natural gas in recent years. Remaining proven and probable reserves across all gas fields are equivalent to about 11 year’s demand.

The government last year banned new offshore exploration and hasn’t committed to offer new onshore permits in Taranaki beyond three years. Existing permits can still be worked.

Barnes noted that the reduced reliability and increased cost of gas is accelerating the case for the long-term substitution of thermal plant with new baseload geothermal.

Contact has secured 4.5 petajoules of gas for this winter and has access to any new gas OMV develops at Maui until the end of 2024.

“Our perspective is that gas is getting more expensive and less reliable at a time when it’s facing increased competition from renewables,” Barnes said. “To maintain its share of energy production it should be doing the opposite.”


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