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Contact decarbonisation effort gains momentum; new contract close

Friday 27th September 2019

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Contact Energy says its decarbonisation efforts are gaining momentum, with a new contract close on a project to install an electric boiler for an industrial user.

James Kilty, the firm’s chief generation and development officer, says there is “very real interest” from commercial and industrial users wanting to come off coal and gas.

He wouldn’t name the company Contact has been working with, nor the size of the boiler to be installed. But he said Contact is in necessarily lengthy discussions with several firms. Any agreements resulting will be more in the form of partnerships, including long-term contracts, given the scale of investment required on both sides.

“You’ve got to start at the big end of town,” Kilty told BusinessDesk.

“To make a meaningful environmental and economic difference you have to help the big users with their problems.”

Contact shares last traded at $8.55 and have gained about 45 percent this year.

Heavy industry accounts for about 15 percent of the country’s emissions. Food processing, including dairy and meat processing, is heavily reliant on hot water and steam and accounted for about a third of the almost 9 percent of emissions that came from manufacturing in 2016, according to government data.

Fonterra is trialling both electrification and biomass as part of its emission-reduction strategy. Other firms are switching from coal to gas, or from coal to wood. Synlait Milk installed a 6 megawatt electrode boiler at its Dunsandel plant to reduce its coal use there.

Fonterra, New Zealand Steel, Refining NZ, Oji Fibre Solutions and Pan Pac Forest Products are working with the Major Electricity Users’ Group to test whether a long-term power purchase contract for part of their combined load can bring forward development of renewable electricity at a material scale.

Contact, the country’s second-largest energy retailer, makes more than 80 percent of its electricity at dams on the South Island and at its geothermal fields around Taupo. It is currently drilling at the Tauhara field as part of a plan to expand generation there so it can reduce its use of gas-fired generation, or to provide firms with direct steam field heat for processing.

The firm is aiming to remove about 60,000 tonnes of CO2 by 2022 by helping industrial customers displace about one petajoule of fossil fuels with electricity.

Yesterday, the company said it had increased the emissions reduction it is seeking across its own generation activities and brought forward the target by four years.

It is now seeking a 34 percent reduction in own-generation activities' emissions by 2026 – using 2018 as the base year. The previous target, announced in April, was for a 30 percent reduction by 2030.

It is also seeking a 30 percent reduction in emissions from within Contact’s suppliers’ products and services – so-called scope 3 emissions – by 2026. The earlier target was 15 percent by 2030.

About 80 percent of Contact’s generation emissions come from its gas-fired assets in Taranaki, with the balance from the geothermal business.

Kilty says the emission reduction can be achieved by replacing gas capacity with geothermal. But that did not mean the company was yet committed to shutting its ageing 377-megawatt Taranaki Combined Cycle plant, or that it is going ahead with the first stage of generation development at Tauhara.

He says the new targets are required if the firm’s goals are to align with minimising global warming to the 1.5 degrees targeted in the 2015 Paris agreement on climate change. But they also reflect the firm’s confidence that the reductions are achievable.

The company concluded a steam supply deal with Norske Skog-owned Nature’s Flame business in July, and the firm’s joint-venture with industrial energy specialist Simply Energy has also improved its discussions across that sector, Kilty said.

All those talks take time but some of the firms involved are large and they are “better than long-shots” as prospects, he said.

“This decarbonisation strategy is starting to get momentum.”

Kilty says the drilling at Tauhara is going well and all indications are that the resource will probably be better than the company expected a decade ago when it sought consents for generation development there.

“We’re confident that the resource will provide a significant uplift in megawatts for us,” he said.

The appraisal drilling, due to wrap up early next year, will “position us really well for the next few years of fun.”


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