Meridian Energy says it expects to build a new wind farm about every three years after giving a project to build a $395 million wind farm in Hawke’s Bay the green light.
The company had put plans for its 41-turbine Harapaki wind farm on ice last year amid concerns the Tiwai Point aluminium smelter might close this year.
But it confirmed at the same time as releasing its half-year results on Wednesday that it would now press ahead with the project.
The wind farm, which will have a maximum theoretical output of 176 megawatts, is expected to take about three years to complete and create 260 new jobs during construction.
Meridian chief executive Neal Barclay indicated the project would mark the start of a period of more serious investment in new generation, after what has been a long industry-wide lull.
“If we look forward to the sort of demand growth we think is going to be required to decarbonise the energy sector in this country and the amount of new renewables needing to be built, we are planning on building and delivering a new wind farm every three years,” he said.
Meridian reported a 19 per cent rise in its net profit for the six months to the end of December to $227 million, thanks to movements in financial hedging instruments.
But its operating profit fell 9 per cent to $422m due a drop in hydro generation and lower electricity prices in Australia where it also operates.
Barclay said its operating performance reflected “less than favourable conditions compared to the prior year” with generation volumes falling 7 per cent.
The company was pleased to have increased retail customers by 3 per cent to total more than 500,000 since June, he said.
Meridian Energy is not ruling out adding to those numbers by buying Trustpower’s retail business after it was put on the block last month.
Barclay said he believed Meridian had been “reasonably successful” growing its own retail business organically and felt that was “probably the smart way for us to progress”.
“But when assets like that come on the market, we always have a think about it,” he said.
Meridian and its shareholders have experienced a rollercoaster ride on and off the sharemarket in recent months, with the value of the company fluctuating by as much as $11b from peak to trough.
Over the space of just three months, Meridian’s share price surged 65 per cent only to recede even more sharply, after global investors poured money into “green energy” stocks in the wake of US President Joe Biden’s election win.
The company is believed to have dropped its prices to the Tiwai Point aluminium smelter to as low as 3.5 cents a kilowatt-hour as part of deal to keep the smelter open until at least 2024.
Barclay did not dismiss the possibility that the smelter might stay open longer than that, amid what are now historically high aluminium prices of about US$2130 (NZ$2930) a tonne.
But he emphasised the smelter would not have the automatic right to Meridian’s power after 2024, and that Meridian aimed to find customers who would pay more for its power.
“They may not close shop,” he said during a conference call to analysts, suggesting the smelter could have a longer term future if it found a way to rely on off-peak power.
“I think the only way they could continue to operate in this country would be if they got serious about providing reasonable ‘demand response’ to the market – they have the capability and that would be an angle for them.”
Meridian has been found by the Electricity Authority to have contributed to an “undesirable trading situation” (UTS) by spilling water from its South Island dams that it could have used to generate power.
But the company appeared to suggest on Wednesday that it might need to fork out as a little as $2m to unwind the consequences of that, despite an assessment from independent retailer Haast Energy that the starting point for the charge should be $38m.
The controversial market model underpinning the electricity sector has been brought into question by the UTS ruling, a government desire to see all electricity generated from renewables by 2030, and the expected long term rise in the demand for power.
Ministry of Business, Innovation and Employment modelling in 2019 suggested that 6.3 gigawatts of new generating capacity would be required by 2050, based on its best guesses but not entirely accounting for the 100 per cent renewable goal.
That would require adding capacity equivalent to more than seven times the output of Meridian’s massive Manapouri hydro scheme.
Rival Contact Energy has committed this year to making another rare investment in specific new capacity, committing $580m this month to build a 152MW geothermal power station on the Tauhara field near Taupo.
Barclay said Meridian was supportive of the advice provided this year to the Government by the Climate Change Commission.
“We believe that the electricity sector is a huge part of the solution to decarbonise our economy and support New Zealand businesses and individuals to make the changes they need,” he said.
“Our decision to build the new Harapaki wind farm is our next step towards that solution,” he said.