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Meridian positions for next generation development

Wednesday 20th February 2019

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Meridian Energy says it is positioning itself to be able to develop new wind capacity when rising demand and long-term power prices warrant it.

Chief executive Neal Barclay says that, after excluding irrigation load, underlying electricity demand increased about 1 percent last year. That is likely to continue short-term and should be sustained longer-term by the country’s decarbonisation efforts, he told journalists and analysts today.

Longer-dated electricity futures have climbed about 15 percent during the past six months and generation development options are being positioned for building.

“We want to make sure we are in the game and we have options available,” he said.

Meridian Energy is the country’s biggest generator. It is currently working to amend consents it has for wind developments in the central North Island and north of Napier so that it can install larger, more cost-effective turbines.

But it is not alone eyeing generation options. Homes and businesses are adding close to 20 megawatts of solar a year. Nova Energy is building a 100 MW gas-fired plant near New Plymouth and Top Energy is planning to double the capacity of its Ngawha geothermal site to 53 MW. Genesis Energy and Tilt Renewables are planning a 100 MW wind development near Waverley.

Earlier this month, Contact Energy said it is ready to add modular capacity at its Tauhara geothermal field near Taupo to either replace ageing thermal plant or to meet contracted volume from new-to-market industrial load.

In August, Meridian said it may be able to make an investment decision on its Maungaharuru wind project in Hawke’s Bay by the end of 2019.

Today Barclay said the company probably has another six months to complete its work with councils and communities there to increase the size of the turbines. After that it would start preparing a business case.

He said the project, potentially up to 140 MW, is the country’s “strongest” next generation option. The company is keen to maintain its share of the generation market as new renewables are developed to help electrify the country’s heavy industry and transport, but will not proceed unless it makes commercial sense.

Barclay said the country can probably get to about 95 percent renewable power generation around 2035. And he thinks wind will be the mainstay of the new generation developed during the next 20 years.

Meridian favours projects that can be developed in “discrete chunks” that won’t overly depress wholesale prices.

But the renewable energy generator is already working on options to cover its dry-year risk after its current “swaption” agreement with Genesis Energy ends in 2022. The deal lets it call on up to 150 MW of capacity from its rival’s coal and gas-fired Rankine units at Huntly.

Meridian is keen to move away from coal and its relatively high emissions.

Barclay said there is not necessarily a single option for replacing the existing swaption. The company is likely to seek a three-to-five-year deal and he could envision a series of transactions replacing the current arrangement.

“There may be still some coal in the mix in the short-term. Gas has a bigger part to play and demand management is another part of the equation.”

Genesis plans to stop using coal at Huntly except in emergencies by 2025 and completely by 2030. Contact earlier this month indicated it may not extend the life of its 377 MW gas-fired plant at Stratford beyond 2022, citing the greater operational flexibility the dual-fuel Rankine units have in a dry-year role.

Barclay said the company is trying to resolve its commercial position beyond 2023, not solve the electricity market structure for the next 20 years.

Generation and storage options will develop rapidly in that time and the share of renewable electricity generation will increase, given it is the country’s best option for reducing the country’s non-agriculture emissions.

But he said the government’s target of achieving a 100 percent renewable generation system by 2035 won’t be met.

“The reality is that goal is unlikely to be economically feasible,” he said.

“We need forms of deep storage to manage supply when hydro inflows are particularly low on the South Island. The consensus view is that gas will remain cost-effective as a hydro firming fuel for the foreseeable future.”

(BusinessDesk)

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