27 Jan 2014

Genesis to mothball another coal-fired generator

6:58 am on 27 January 2014

Genesis Energy has ended its contract to import coal from Indonesia and has extended its contract with Solid Energy by three years to June 2017.

Genesis says ending the imported coal contract will cost it an unspecified amount in the year ending June, but that it will have a positive financial impact from the year beginning 1 July.

It says both moves will mean less coal being supplied to its Huntly power station and that it has put a second of its older coal generation units at Huntly into storage.

Both Genesis and Solid Energy, whose financial woes are well-documented, are owned by the Government which plans to sell up to 49 percent of Genesis soon.

Devon Funds Management analyst Phill Anderson says Genesis is responding to excess supply of electricity by mothballing some of its expensive coal-fired generation.

He says that's a reflection of what is happening in the electricity market where demand for the last three or four years has been well below what expectations were five years ago.

Mr Anderson says a lot of new plants, such as Ngatamariki geothermal plant and the Te Mihi geothermal plant, which are just coming online now were committed to.

He says that's lead to a big over-supply of electricity in New Zealand and the Huntly coal units are high cost, so it's natural they should shut down and when units are shut down less coal is needed to burn.

Mr Anderson says Genesis would have had to balance procuring coal from the Genesis mines which are close to Huntly so have lower shipping costs but potentially higher operating costs, compared to Indonesia where there is cheap labour, fewer environmental laws and higher shipping costs to get it to Huntly.

He says Genesis has obviously come to a deal that makes it more competitive for them to get domestic rather than Indonesian coal.