Contact station to shut as profit slips 43pc
Contact Energy is shutting down its gas-fired 400 megawatt Otahuhu power station in Auckland at the end of next month, as it announced that operating profits had fallen more than 10 per cent for the year.
Bottom line profits fell 43 per cent to $133 million, in part because retail power competition lowered prices and put pressure on profit margins. Contact customers paid about $40m less for power than in the previous June year.
Contact prices fell an average 2 per cent in the past year on the costs of generation and retailing costs, as more customers gained discounts. That reduction did not include changes to transmission and other costs. Contact chief executive Dennis Barnes said discounting had dominated the market and competition was expected to remain intense.
Otahuhu is the third big power station closure announced this year, which will remove more than 1000 megawatts of capacity from the system in total over time, with an independent market watcher saying that showed the extent of a power glut.
But the closure would potentially wipe out the power surplus and put the country at greater risk of a power shortage in a dry year.
Contact said it made the decision to shut the base-load Otahuhu station as ‘‘New Zealand moves to a greater share of renewable electricity generation’’.
‘‘Our decision to close our Otahuhu B station reflects the growth in renewable electricity generation, such as the new Te Mihi geothermal power station, which has effectively replaced Otahuhu in Contact’s portfolio,’’ Barnes said.
Contact has two ‘‘combined cycle gas turbine’’ stations , the other at Stratford, and they had only been running about a quarter of the time.
‘‘They don’t run together and one could say that the Otahuhu station is spare to the market and spare to us,’’ Barnes said.
‘‘This is the right action to reduce costs in an over-supplied market and it is right to make the decision in good time for the market to respond.’’
Otahuhu was built in the late 1990s at a cost of $350m and was seen by some in the industry as a cheap station. The plant was plagued by troubles when it was built, coming on stream a year late and then failing within a year.
Genesis Energy plans to shut down the last two coal-fired stations at Huntly in 2018, taking out 500MW of power capacity.
At the start of this year, Mighty River Power announced its gasfired 140-MW Southdown power station in Auckland would close at the end of the year.
Independent energy consultant Bryan Leyland said closing Otahuhu was in line with an industry aim of keeping the country on ‘‘the edge of a shortage’’.
‘‘The closure brings forward the day when we will be more vulnerable to dry years and the possibility of serious shortages when the next one occurs,’’ he said.
Contact said the percentage of customers getting a discounted price had risen from 50 per cent a year ago to 70 per cent on more than the standard discount of 10 per cent off the ‘‘rack rate’’. The average discount was 18 per cent and 55 per cent got a 22 per cent discount.
Barnes expected that to increase. But he hoped to see customers stay for longer with a better service and a good price. ‘‘And give them no reasons to switch.’’
Meanwhile, Contact also announced operating profits were down 10.6 per cent to $525 million for the full year.
Underlying profits, excluding one-off items, were down 29 per cent to $161m.
Bottom line profits were down 43 per cent to $133m.
Contact’s cornerstone shareholder, Australia’s Origin Energy, sold its 53.09 per cent holding earlier this month.
The company will pay a final dividend of 15 cents a share, to be paid on September 15.