NZ’s big four generators get closer to a deal on Huntly
Genesis Energy and the other big power generators are getting close to a deal to support Huntly Power Station in its back-up role. Photo / NZ Herald
The big four power generators are getting closer to doing a deal to support Genesis Energy’s thermal generation at Huntly in order to offset dry-year risk for the hydro-dominated national electricity system.
The four – Genesis, Mercury, Meridian, and Contact – have signed a detailed non-binding term sheet as a basis for establishing a strategic energy reserve centred on Huntly to support security of supply.
The agreement is in response to the market conditions during winter 2024, when wholesale prices spiked to $820 per megawatt hour because of constrained gas supply, low hydro lake levels and low wind conditions.
Genesis said the poor medium-term outlook for gas supply was also a key factor behind the four getting together.
In February, the parties entered into a non-binding heads of agreement to investigate the potential for Huntly’s steam turbine Rankine units - one of which was scheduled to retire in January 2026 and the other two in the early 2030s – to remain in the market and continue to play a key role managing in dry-year risk.
The detailed term sheet builds on the non-binding heads of agreement signed in February and sets out in greater detail how the proposal will function, Genesis said.
Huntly’s coal- and gas-fired Rankines perform a critical role supporting the electricity system as more intermittent wind and solar generation is added.
A recent review by KPMG showed they will likely be needed even more in the 2030s as the country builds increasing amounts of intermittent renewable generation.
The long-term nature of this proposal will support Rankine capacity staying in the market out to 2035, Genesis said.
The proposal will be similar to the Huntly firming options that Genesis brought to the market last year.
It is expected to cover a term of up to 10 years out to 2035 and will enable retiring Rankine capacity to remain in the market, coupled with a strategic fuel reserve to support security of supply.
Genesis said it is also progressing its investigation of biomass as a fuel to gradually displace coal.
Following the formalisation of the proposal contemplated under the term sheet, residual Rankine capacity will be made available to the broader market through further Huntly firming options and hedge products.
“While the term sheet is non-binding, it demonstrates good faith and a clear commitment by the parties, as they progress to agree and execute long-form agreements,” Genesis said.
The parties intend for the proposal to be in place from January 1, 2026.
Genesis said it would need certainty by early November to finalise planning to complete operating and compliance works in order for Rankines to be available for winter 2026 and to maintain capacity for the three units.
The Major Electricity Users’ Group (MEUG) welcomed the announcement, but said more was needed to maintain security of supply.
“MEUG welcomes Genesis Energy signing a non-binding agreement with three gentailers to potentially retain the Huntly power station’s Rankine units to back up or ‘firm’ the electricity system,” MEUG executive director Karen Boyes.
“We expect the four parties involved to continue their progress and conclude a final agreement before November this year, so that the Rankine units are available during the winter of 2026.”
MEUG has been calling for action on maintaining sufficient flexible firming generation, which is needed to protect against dry-year risk and the increasing level of intermittent wind or solar renewable electricity generation.
Looking ahead, MEUG members were awaiting the release of a Government-commissioned review of electricity markets.
The independent review will look at whether current regulations and market design support economic growth and access to reliable and affordable electricity.
In addition to maintaining flexible firming generation from generators such as Huntly, the Government should also focus on single party oversight of security of supply, MEUG said.
“At present the responsibility for security of supply of our electricity system is spread across multiple parties, with no clear line of accountability,” Boyes said.
“There must be one party in government or the electricity sector that is responsible for the oversight of security of supply across the entire system.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.