Here’s why the Huntly Power Station is being looked at…by Four ASX-listed energy companies

Its not every day you see four industry oligopolists publicly announcing they’re eyeing off a single commercial asset, let alone working together to see if it could be viable, but that’s what is happening with the Huntly Power Station.

Huntly Power Station: The largest such facility in New Zealand

Huntly has been producing energy (mostly via coal) for over 40 years and has a 1,200MW capacity, making it the largest in New Zealand. It lies in the Waikato district, which is immediately south of Auckland.

As a country with a lot of wind and rain, New Zealand has high potential to be a renewable energy powerhouse, but there is always need for a backup solution and this is where Huntly is supposed to fit in.

At least, until it is intended to be retired. One if its four units was scheduled to retire next year with another two in the early 2030s. The company had intended to replace coal with biomass – and it would need around 300,000t of biomass to replace coal. To be fair, it is a lofty goal to begin with as the largest facility in the world is only producing 120,000t. But with Japan seeking 10Mt by 2030 (and Japan is just one country with a target), there is an opportunity as well as a challenge.

The trouble is, New Zealand had energy supply problems last winter with low hydro lake levels and low wind conditions. And this was with Huntly still online – just imagine how worse it would’ve been without the supply, it could’ve been a ‘Winter of Discontent’ as Britain had in 1978-79.

Biomass represented an opportunity to have a more stable energy supply. You can even store biomass in a living tree until you need to put it into ‘the grid’. But of course it costs money to set it up.

Four companies coming together to save Huntly

Huntly is currently owned by Genesis Energy (ASX:GES). Genesis, along with Mercury (ASX:MCY), Meridian (ASX:MEZ) and Contract (ASX:CEN) (the other 3 of New Zealand’s ‘Big 4’ Energy firms and also ASX-listees) all announced that the quartet entered into a non-binding heads of agreement to investigate the potential for Huntly to continue to operate.

The parties till need to work through what such a corporate structure and business model would look like, particularly key terms like pricing and cost. there might even be a strategic fuel reserve to cover disruption to other fuel supplies.

But investors were told this was in order to manage ‘dry-year risk’ and enhance system security over the longer term. As well as this, any such deal could be in place by 2026, subject of course to regulators giving their blessing.

This will not be the only development going on at Huntly. Last September, French energy giant TotalEnergies’ subsidiary Saft announced a battery energy storage system would be built on site that would be 100MW/200MWh, to come online in the third quarter of 2026.

And it was only a couple of days prior to the 4-way heads of agreement that Genesis and ASX-listed Foresta signed a term-sheet to advance a supply of biomass for energy generation – one that Genesis claimed was the first, but would not be the last. Foresta has plans to build a $370m biomass production facility to supply this power station, and others.

Conclusion

This may seem much ado about nothing, particularly because this is in New Zealand. But we don’t think investors should be surprised if we see more coal-fired power assets stay online in the years to come as the pivot to renewable energy proves to cost more time and money than had previously been anticipated.

There could be quite a lot of ESG-focused investors disappointed in a number of companies and Genesis could be the tip of the iceberg.

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