Contact Energy
Recent investment in Contact’s generation portfolio and gas storage will provide increased flexibility and improve profitability in the year ahead.
Steady performance
Contact, in which Origin has a 52.6 per cent interest, delivered a steady earnings result.
Underlying EBITDA for Contact decreased $1 million on the prior year to $345 million. Increased electricity sales volumes and prices, and improved portfolio flexibility, resulted in a NZ$14 million increase in Underlying EBITDA reported by Contact. However the foreign exchange impact of a strengthening Australian Dollar against the New Zealand Dollar resulted in a marginal decrease in the Australian Dollar Underlying EBITDA.
Contact’s electricity business segment contributed higher earnings and revenues, benefiting from an increase in sales volumes and higher tariffs. This was partially offset by increased network and gas costs and the introduction of carbon taxes through New Zealand’s Emissions Trading Scheme.
Increased flexibility due to the commissioning of the Ahuroa Gas Storage Facility and Stratford Peaker Power Station and a lower contracted minimum gas take-or-pay level helped to increase electricity earnings in the second half of FY2011 by 8 per cent compared to the second half of FY2010.
Contact finished the year in a strong financial position, after successfully completing a NZ$351 million renounceable Entitlement Offer for investment in growth opportunities. Origin’s contribution to this equity raising was NZ$202 million.
Customers
At the end of FY2011, Contact had 566,000 customers, a 6 per cent decrease on the prior year.
Time of use sales have increased 31 per cent to 3,920 gigawatt hours and further incentives have been offered since the end of the reporting period to customers on Contact’s lower cost online billing and payment options.
Increasing portfolio flexibility
New assets have improved the operational flexibility of Contact’s thermal generation. The year in review was again wet with low wholesale prices. In this environment, Contact was able to reduce the cost of thermal generation, demonstrating the benefits of these projects.
The Stratford Peaker Power Station commenced commercial operation at the start of June 2011.
The Ahuroa Gas Storage Facility, which enables gas to be stored and used as required, also lowers the effective cost of Contact’s gas-fired generation. During the year, 5.8 PJ of gas was injected into the Ahuroa Gas Storage Facility. At the same time, Ahuroa’s flexibility has meant that Contact did not replace a major take-or-pay gas contract and lowered the volume of gas that must be purchased under take-or-pay arrangements.
The benefits from these projects have already begun to accrue. The availability of the Ahuroa Gas Storage Facility and the Stratford Peaker Power Station place Contact in an improved position to manage costs if wet conditions were to continue to prevail in FY2012.
Growth opportunities
Contact continues to investigate wind, hydro, geothermal and gas-fired opportunities to help meet future demand forecasts for energy.
Contact has approved development of the NZ$623 million, 166 MW Te Mihi geothermal power station. Work on the Te Mihi project has commenced and the Te Mihi Power Station is expected to be brought into operation in calendar year 2013.
Resource consents for the 250 MW Tauhara 2 geothermal development to the north east of Taupo have been obtained. Investigation of the potential for development of the Taheke Geothermal Field in partnership with the landowners, the Taheke 8c and Adjoining Block Incorporation, is also ongoing.
In addition, Contact was granted consents for two wind farm developments during the year. The 156 MW Waitahora Wind Farm was consented for construction along the Puketoi Range, and the 504 MW Haua-uru ma- raki Wind Farm was consented for construction on the west coast of the Waikato region.
