As it prepares to close one of the country’s biggest gas power plants, the power company says NZ must make more strategic decisions about which high-emitting thermal plants to close, and when

Contact Energy says power companies are making disorderly decisions to shut down coal and gas plants – and cites its own decision to decommission its 377 megawatt Taranaki Combined Cycle gas power plant in 2023.

“What you’re trying to avoid is a chaotic exit,” says chief executive Mike Fuge

The company has published a report arguing for a “ThermalCo” bringing together the country’s coal and gas generators, so as to schedule their gradual decommissioning more strategically through an NZ Inc lens.

It’s a proposal that has been greeted coolly by the biggest thermal power company, Genesis. In August, the company told Newsroom that  it was not discussing the proposal with Contact; this week its chief executive Marc England reiterated to BusinessDesk that Genesis already owned the critical coal and gas infrastructure at Huntly. “Genesis,” he said, “for most intents and purposes is New Zealand’s ThermalCo today.” 

But Fuge said it was urgent, and called for power operators and regulators to consider it seriously.

“The risk you run, which in a way is what’s happened in the Australian market, is a disorderly exit of different pieces of thermal, where the decision to close that piece of plant is made with a very narrow perspective of what’s the best thing for me as an individual company to do tomorrow. And sometimes there’s a broader New Zealand Inc lens that has to be brought brought to that.”

He said some characterised the coal and gas power plants as “waiting to die” assets; he was clear that some deserved to die sooner than others as New Zealand moves towards zero carbon.

“Ideally, what you’d like to see is the highest carbon emissions, less efficient units closed first. And then you move gradually to the higher quality, more efficient plants which have much lower gas emissions.

“What you’re trying to avoid is a chaotic exit. And if there is a rational, cohesive exit, as you get to those very, very high levels of intimate renewable generation, I think there is a there is a reasonable case that we’ve laid out in these two papers for cohesion and collaboration.”

Asked what power plant might next be shut down without with national strategic consideration, he gave the example of Contact’s Taranaki Combined Cycle.

“Look, we’ve already signalled very strongly that we see TCC, that we’re most likely not to carry out the next refurbishment. I think it would be speculation beyond that. I think there is certainly a longer term future for the high quality, highly efficient peaking plant that is around the country. What you need to be very careful of is a premature exit of baseload plant. Like, for instance, Unit 5 at Huntly. And the Rankine units.”

There is seen to be an ongoing need for peaking plants to help the transition to renewables, as they can be powered up when the sun goes behind a cloud and the wind fades. “Peakers” are plants that can be fired up fast, to meet urgent, short-lived demand like the power shortages of August 9, on the coldest night of the year.

As well as its hydro dams, Contact Energy owns the TCC gas plant and a neighbouring 210MW natural gas-fired peaker power station at Stratford, as well as the Whirinaki gas peaker and a smaller Te Rapa gas plant.

Genesis Energy owns the Huntly power plant, where it operates the three big 250MW Rankine Units 1, 2 and 4, that can be run on gas or (more recently with gas prices high) on imported Indonesian coal. It also has the E3P 585MW Huntly Unit 5 gas turbine, and Huntly Unit 6, a 48MW open cycle gas peaker turbine.

The other big thermal generation player is Todd Generation, which runs the McKee and Junction Road gas-fired plants near New Plymouth, and had won resource consent to build 360MW more of gas peakers at Ōtorohanga – but Newsroom reported last month that it had canned those plans. There are other smaller gas or cogeneration plants including Kapuni, Mangahewa and Kinleith.

Todd Energy’s downstream vice-president Babu Bahirathan declined to comment on the ThermalCo proposal, but Mike Fuge was optimistic about winning the gas power company’s backing. “I think Todd have had a long history in the upstream New Zealand energy market,” he said. “They are savvy investors. They have a long history of investing and understanding the dynamics of oil and gas investment and broader energy investment. I think they will respond with curiosity.”

Newsroom asked if the decision to close TCC in Stratford would be any different if there were a ThermalCo already in place, planning the exit of power plants more strategically.

“That would be speculation. I don’t think it would be any different. But there might be a case where you’d look at, let’s say, TCC and E3P and say running those two as baseload is a far better outcome than running one of the Rankine units on coal over winter.

“That would be a decision for if we put TCC in there for ThermalCo today. There’s still discussion internally about whether we would shut TCC anyway.”

Contact Energy announced a review of its portfolio of thermal assets in February. In its annual report in August, it reported back on how it would operate those assets to align with decarbonisation, as the best way to create long-term value for both shareholders and for New Zealand.

The report said Contact also recognised supply constraints and the need for an orderly transition away from thermal generation, without threatening the stability of supply or affordable access to energy. New Zealand continued to rely strongly on thermal generation when intermittent renewables couldn’t meet demand, the report said – but another lower-emissions contributor is geothermal energy.

Contact Energy is building a geothermal plant at Tauhara, near Taupō. “We expect to close TCC in 2023 when the geothermal power station at Tauhara is commissioned,” the report said.

“TCC is due for an expensive refurbishment and input costs will escalate as gas and carbon costs continue to increase. This closure will reduce our emissions footprint and help us meet our recently
updated science-based targets.

“We need to find the best operating model for our remaining thermal assets.”

A WSP report, commissioned last year by MBIE, says a number of thermal generation plants have been retired over the past decade. These include Southdown and Southdown E10, Otahuhu B and Huntly Unit 3. “This reflects the changing New Zealand electricity market, fuel markets and the push for New Zealand to have more renewable energy supplied to the national grid,” the report says.

But there have also been new thermal plants commissioned including Bream Bay Peaker, McKee and Junction Road. “Due to a number of factors, it is expected that there will continue to be a retirement of existing thermal generation units over the next 10 years. So careful planning will be required to ensure grid security and generation supply.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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