Genesis 'comfortable' for now with Huntly closure decision

Tuesday 25th August 2015

Genesis Energy still plans to close the remaining 500 Megawatts of ageing gas and coal-fired electricity generation capacity at its Huntly power station in 2018, in spite of last week's surprise decision by Contact Energy to close its 400MW Otahuhu-B gas-fired power station at the end of next month.

Chief executive Albert Brantley said he was "still comfortable" with the decision to retire the two 250MW Rankine units at Huntly, on the basis that Genesis has been unable to fetch commercially justifiable prices to run the units from wholesale electricity market participants. Genesis said at the time of the closure decision that only a substantial change in market conditions would change its mind.

Meridian Energy chief executive Mark Binns speculated last week that the Contact decision could see a change of heart from Genesis.

Genesis chair Jenny Shipley made it clear that the only reason Genesis would reconsider its decision on the Huntly units would be if the price offered for generation from them became attractive.

"It's up to the market to put a value on the Rankines," she said. It was "premature" to judge how the electricity market would react to the range of decisions made recently to remove more than 1,000MW of gas and coal-fired generation capacity, reflecting a combination of low demand growth, the rising availability of baseload generation from 'always on' geothermal power stations, and improved capacity to shift electricity load between the North and South Islands after completion of the Cook Strait cable upgrade.

For the current financial year, Shipley said the board was expecting earnings before interest, tax, depreciation, amortisation and changes in the value of financial instruments to come in at a similar level to the 2014/15 result, at $344.8 million. That was 12 percent ahead of the previous year's result, but 5 percent below the prospectus forecast issued before the April 2014 partial privatisation of the government controlled electricity generator and retailer, which also owns a 31 percent stake in the Kupe oil and gas field.

Ebitdaf from Kupe fell 13 percent to $93.5 million in the year to June 30, with higher production offsetting low global oil and gas prices. Production is currently running at 10 percent above base levels and there were no plans to wind back production following the most recent further slides in oil prices, which have gone briefly below US$40 a barrel, said Brantley.

"Although the low international oil prices are likely to have some impact on Kupe's Ebitdaf, current hedging in place for the 2016 financial year covers 80 percent of the projected oil production at US$85.40 per barrel," he said.

Commenting on future dividend policy, chief financial officer Andrew Donaldson told a media briefing the company remained committed to a BBB+ investment grade credit rating and that decisions on capital returns would only arise when company debt levels fell sufficiently. For the year ahead, Genesis expected to increase dividends in line with its previously announced policy of progressive increases at around the rate of inflation.

BusinessDesk.co.nz

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