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Meridian defers North Island wind farm on smelter closure impact

Meridian Energy has deferred construction of its proposed Harapaki wind farm north of Napier citing reduced demand from the expected closure of the Tiwai Point aluminium smelter.

The company had been close to approving the 160MW development last month when smelter owner Rio Tinto announced the end of the firm’s supply contract with Meridian from August next year.

Meridian chief executive Neal Barclay said the company was unaware whether any of its recent proposals to keep the smelter operating for another one to four years was acceptable to Rio.

Given Rio Tinto’s expected exit, he said the Meridian board had made the ‘‘tough’’ decision to defer construction of Harapaki.

‘‘While the business case for Harapaki is very sound, the market needs time to adjust to Rio Tinto’s decision to exit New Zealand. We’re still confident that we’ll build Harapaki in the future,’’ Mr Barclay said.

The country’s biggest electricity generator, Meridian yesterday reported a 2% increase in fullyear operating earnings, with strong retail performances here and in Australia offsetting weaker generation volumes in Australia and lower generation prices in New Zealand.

Earnings before interest, tax, depreciation, amortisation and changes in financial instruments rose to $854 million in the year ended June 30 from $838 million a year earlier.

Net profit plunged to $176 million from $339 million, reflecting higher depreciation costs, value adjustments on electricity and other hedges, and a $57 million impairment charge on the firm’s Australian generation assets.

After excluding those one­time items, underlying net profit fell 5% to $317 million.

The company will pay an 11.2 cent per share final dividend on October 16 to shareholders registered on September 29. That is up from 10.7c a year earlier. The firm cancelled its long­running capital return programme when Rio announced its Tiwai decision last month.

Meridian shares fell 1.6% to $5.04, trimming their gain so far this year to 3%.

Meridian said while the detailed timing of the smelter’s closure was yet to be determined, the firm’s planned response was well established and the fundamentals of the sector remained strong.

National grid operator Transpower was expected to complete line upgrades in the lower South Island to help shift surplus electricity north by May 2022, it noted.

The company’s ‘‘swaption’’ agreement with Genesis Energy, through which it sourced backup supplies during dry periods, was also likely to be terminated, it said.

Bilateral contracts with potential wholesale customers were in varying stages of negotiation, while the company expected to continue expanding its retail business and was seeking new, large customers in the lower South Island.

The biggest contributor to Meridian’s improved earnings was its NZ retail business, where ebitdaf climbed to $83 million from $67 million a year earlier. Earnings from the New Zealand generation business rose to $744 million from $740 million, reflecting the fact record generation volumes offset a 28% slide in average generation prices.

In Australia, where the company is considering building a 130MW wind farm and battery facility at Rangoon in New South Wales, earnings rose to $66 million from $64 million. Meridian noted that in the new environment it would prioritise work to optimise its Waitaki hydro assets over those at Manapouri.