October 16, 2007 (Bloomberg) – Contact Energy Ltd., New Zealand’s biggest publicly traded energy company, may spend as much as NZ$2 billion ($1.5 billion) building the nation’s largest wind farm to help reduce its reliance on gas-fired generation. The Hauauru ma raki site, near Port Waikato on the North Island, has the potential for 218 turbines with a total capacity of 650 megawatts. At that scale it could produce enough to power 250,000 homes, Wellington-based Contact said in a statement to the New Zealand stock exchange.
The project is Contact’s first investment in wind, and will be five-times bigger than the country’s largest operating wind farm. Today’s announcement comes less than a week after Energy Minister David Parker said power companies are likely to face a 10-year ban on building gas-fired, base-load generators.
The profitability of wind is still “a little bit debatable,” said Paul Richardson, who helps manage the equivalent of $2 billion at BT Funds Management New Zealand Ltd. in Auckland. “Costs are growing for turbines and then you’ve got the currency issue” to manage as well, he said.
Contact fell 8 cents, or 0.8 percent, to NZ$9.42 at 4:01 p.m. in Wellington. The NZX 50 Index dropped 0.4 percent at the same time.
The Waikato project will cost between NZ$1.5 billion and NZ$2 billion and may take five years to build once planning approval is received. Its final size will be determined by consenting and land purchase agreements, the company said.
Contact, under former Chief Executive Officer Steve Barrett, eschewed investment in wind, citing better returns it could make developing underground steam fields that provided 18 percent of output in the year ended June 30.
David Baldwin, who took over in May 2006, said in February the company was likely to spend NZ$1 billion on wind projects in the next five years. A similar sum would be spent starting two new geothermal plants at its steam fields by 2012.
“Hauauru ma raki is nationally significant both in terms of meeting New Zealand’s growth in demand for electricity and for the development of clean, renewable electricity,” Baldwin said in a statement today. Its location near the fast-growing centers of Auckland and Hamilton makes it `strategically important,” he said.
New Zealand, a signatory to the Kyoto Protocol on climate change, wants 90 percent of its electricity to come from renewable sources by 2025, from about 70 percent now. It has five operating wind farms, with more planned after rising gas costs and proposed carbon charges made them more economic.
Still, rising turbine costs and delivery delays forced the cancellation of some smaller projects and have altered others.
TrustPower Ltd., whose 120-megawatt Tararua site is country’s the largest wind farm, was this month given planning approval for a 200-megawatt project near Lake Mahinerangi on the South Island. The company will review the investment dependent on turbine costs and exchange rates and is likely to proceed in stages, Chief Executive Keith Tempest said Oct. 1.
Meridian Energy Ltd., the country’s biggest power producer, reduced the size of its West Wind project near Wellington to 140 megawatts in August citing rising steel and turbine prices. The company is now awaiting planning consent for a 630-megawatt wind farm on the Lammermoor Range on the South Island.
Contact also said it plans to build a 100-megawatt gas- fired peaking plant alongside its 377-megawatt base-load generator at Stratford in the Taranaki province.
The new fast-start plant will cost about NZ$140 million and will allow the company to retire its 33-year-old New Plymouth power station into a dry-year reserve role, Baldwin said in the statement. The new generator could be operating by 2009, he said.