Transmission must catch up with generation

23 October 2008

Transmission must catch up with generation investment

Contact Energy today said investment in the country’s transmission system is required if the grid is to catch up with the significant investment in new generation to enable the most cost effective electricity to be delivered to consumers. Speaking at Contact’s Annual Meeting in Auckland, Chief Executive David Baldwin said despite managing some challenging issues, the company was well positioned to continue to deliver long-term shareholder value and lead investment in renewable electricity generation projects for New Zealand.

“Contact is making good progress in its $3 billion investment programme in 1,400 megawatts of the country’s most important new generation projects,” he said.

“The electricity market is clearly delivering the new generation that New Zealand needs.

However, historic underinvestment in the country’s transmission network is now preventing the lowest cost sources of electricity from reaching consumers.” Mr Baldwin said the unexpected removal of pole one of the HVDC in November last year has highlighted the increasing reliance of the South Island on North Island electricity generation. He said this situation has reinforced the critical role a modern transmission system plays in the efficient operation of the electricity market.

“We’ve seen fundamental shifts in the New Zealand energy market over the last 10 years, with South Island demand growing faster than the North Island’s and nearly all of the new generation built during that period in the North Island.

“The most competitively priced new electricity generation is predominantly in the North Island and, as such, the requirement for electricity to flow from the north to the south will continue to increase.

“The inability of the grid to adequately support the South Island has led to higher wholesale prices in the south which will be reflected in retail tariffs until the HVDC is replaced around 2012 and other transmission constraints are addressed.” Contact’s Chairman Grant King noted that transmission constraints and subsequent higher South Island wholesale prices significantly impacted on Contact during the last quarter of the 2008 financial year and the first quarter of the 2009 financial year. He said this was the reason why the company is not currently expecting to outperform its 2008 full year result.

“Despite managing some complex and ongoing issues around transmission constraints, Contact remains well positioned for future growth.” Mr King noted that the company continued to outperform the NZX50, was delivering increased dividends to shareholders and was leading the country’s investment in new, largely renewable electricity generation projects.

“The company’s strong balance sheet positions it well to access the capital required to fund its growth programme.” Mr King said that along with the company’s diverse generation assets, Contact’s new generation projects will enable the company to manage the introduction of an emissions trading scheme from 2010.

“Supported by a strong transmission system, these projects have the ability to make an important contribution to a secure and cost-effective electricity system and to long-term shareholder value,” he said. Full speeches and presentation slides from the Contact Annual Meeting are available at www.contactenergy.co.nz/annualmeeting.

ENDS

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