August blackout ‘an early warning’ as Genesis warns Huntly will be needed for a long time

Genesis says it is close to striking a deal to roll out industrial-scale solar power, but its chief executive warns the country will need the gas and coal-powered Huntly Power station for a long time.

The company, majority owned by the Government, revealed that Huntly burned around 1.5 million tonnes of coal in the year to June 30, as the electricity sector was struck by low rainfall in hydro catchments and gas supply issues.

Genesis expects the amount of coal that will be burned for electricity generation will drop sharply this year, but the need to have Huntly available will go on, or the types of blackouts that were seen on August 9 could become much more frequent.

“We don’t see a future without Huntly for New Zealand’s electricity sector,” Genesis chief executive Marc England said.

“It was built to be New Zealand’s backup generation when the weather doesn’t play ball, and we believe it will play that role for a long time.”

August’s blackouts were “an early warning to what we’re going to have to deal with as a market, going forward,” England said, as he called for a debate on how to manage the backup the system needed as new renewables were developed.

“As we become 95 per cent renewable, which we should do this decade, we’re going to need that backup less, but when we need it we’re really going to need it,” England said.

This could “quite possibly” require the market to pay companies to have thermal generation ready to operate as required.

“Most modern developed economies have moved to have a capacity market of some sort. You have it alongside your energy market. It’s not a case that your energy market is wrong, you just need to provide a clip-on.”

The supply gas and hydro shortages of early 2021 had put pressure on the company, as it was forced to operate a Rankine unit which had not been used for more than five years.

This meant resetting rosters, cancelling holidays and hiring contractors. “It was a big effort but it avoided 10 times more blackouts this winter,” England said.

A month after the unit had been turned off, a shortage of generation caused Transpower to require lines companies to shed load, causing blackouts in parts of the North Island.

Initially Energy Minister Megan Woods appeared to point the finger of blame at Genesis for the blackouts, because the unit was not turned on.

Genesis said when other generation fell over there was no time to turn on the unit.

“The irony of being singled out for one night [August 9] when we hadn’t run that unit for a month at that point, and it was such an exceptional thing to have done for six months prior to that, to provide longer-term energy security, the irony was not lost on Genesis,” England said.

“The minister, in the end, backed away from her statements, so that’s good, and we’ve had a productive discussion on where things need to go.”

Huntly could potentially “become more renewable” in time, with Genesis poised to test the technical feasibility of using biomass as fuel, even though it is not yet clear whether doing so would be economically viable.

Genesis has a major project under way to build or buy new renewable generation to reduce the need for baseload from Huntly.

As well as signing deals for wind farms and geothermal production, Genesis says it is in advanced talks to form a joint venture to roll out industrial solar.

Two years ago Genesis parked solar plans after Rio Tinto announced it could close the Tiwai Point aluminium smelter, and England conceded the technology had taken much longer to emerge than expected, but was adamant it was close.

“I’m very confident you’ll see some large-scale industrial solar in the next few years.”

Genesis’ results were largely in line with analyst expectations, with earnings before interest, tax, depreciation, amortisation and fair value adjustments (ebitdaf) of $358 million for the year to June 30, up $2m on a year earlier.

Net profit was down $12m to $34m for the period.

Genesis declared a final dividend of 8.8 cents per share, up from 8.6c in 2020, giving a total dividend of 17.4 cents per share.

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