Tauhara 2 was a key geothermal energy project for
Contact and for New Zealand. Six years ago a small Maori trust in the central
North Island faced a big decision. Either sit back as passive landlords and
collect the rent on the land while a power company tapped its geothermal riches
or take a risk and take an equity stake in what is the country's fastest
growing electricity source.
Tauhara North No 2 Trust chose what it knew would be the
tougher path - but one which it says is already paying dividends. The trust -
held by about 800 owners who affiliate to Ngati Tahu - borrowed more than $100 million to take a 25
per cent stake in the $430 million Nga Awa Pura geothermal station, in
partnership with state owned enterprise Mighty River Power.
"We were the land owners and knew the
resource was there. It was a matter of understanding its true value and wanting
to do something ourselves and participate in the venture instead of just
leasing the land," said the trust's chief executive, Aroha Campbell.
The station was commissioned early this
year and the investment is on track to deliver gross revenue of $20 million a
year to the trust, she says.
"The key for the trust is providing a
balance between our economic investment which ultimately we want to end up with
jobs for our owners and beneficiaries - we want to maintain a balance."
The trust is set to take a further 10 per
cent of Nga Awa Puruaand has the option of
taking an equity stake in an even bigger Mighty River project, Ngatamariki.
"We have been there and we understand
what the risks are."
At Mokai a 113MW power station is 75 per cent owned by theTuaropaki Trust, the rest owned by Mighty River.
Further development is under investigation.
Further north, on the shores of Lake Rotoiti, Maori land ownersTaheke 8c
Incorporated of Ngati Pikiao have
partnered with Contact Energy and exploratory drilling has begun.
Maori have tapped the geothermal resources
of the North Island for centuries, first for cooking and warmth, then tourism
and now power. And right now energy from the earth is the most cost-effective
way of generating it.
From the 1950s to the 1970s it was hydro -
massive public works schemes were built on rivers and canals.
Huge dams were built for the ultimate in
green energy. For the next two decades, cheap and plentiful Maui shone,
providing peaking and then baseload generation for the next two decades before
wind became viable around the turn of the century.
For the past 50 years geothermal was
chugging in the background and largely under the radar.
But with all the easy hydro sources tapped,
gas prices up sharply and the best wind sites built on or consented, the focus
over the past five years has been on new geothermal plants exploiting fields
and technology New Zealand helped pioneer at Wairakei.
Contact Energy and Mighty River have been
at the forefront of the geothermal renaissance.
Mighty River's development general manager
Mark Trigg says when the company began its
life in 1998 with predominantly hydro assets on the Waikato River, it
determined that strategically, it needed to diversify its fuel base and
embarked on a programme of geothermal development.
It was not until the 2000s and the
realisation that Maui gas was coming to an end if not physically, then
contractually, that the playing field was levelled for other fuel sources.
"In the past few years the fossil
fuels tax impost has made geothermal even more attractive as is the case for
all other renewables. The advantage over other renewables in that geothermal is
baseload, much more manageable and easier to quantify and justify
economically," Trigg says.
Geothermal projects are clustered around
the Taupo area, and in contrast to South
Island hydro projects are close to population centres and near the national
grid which is being upgraded.
Latest data from the industry group, the
Geothermal Association, shows the the most
recent capacity additions have lifted the contribution of geothermal
electricity from around 6 per cent of generation (in terms of gigawatt-hours)
in 2004 to current levels of around 10 per cent.
Projected development curves based on
announced projects now suggest geothermal energy could be generating 20 per
cent of New Zealand's electricity possibly as early as 2020.
Power stations have been developed on
geothermal fields atWairakei, Kawerau, Ohaaki, Rotokawa, Ngawha and Mokai. Community-owned Ngawha is
at the stage of being able to supply 70 per cent of the Far North's electricity
demand, the association says. And the geothermal is not limited to electricity
generation.
The latest technology is geothermal heat
pumps. These are like the air-source heat pumps available from specialists and
local hardware stores, but exchange heat with the ground or groundwater rather
than air.
Mighty River Power has invested more than
$1 billion that it has made over the past five years in geothermal generation.
New capacity has resulted in a 400 per cent increase in geothermal output since
2007, was a major contributor and driver of the 22 per cent increase in the
company's earnings to $233.6 million for the second half of last year and has
underpinned two announcements on a lift in earnings guidance since.
Enthusiasm, expertise and the availability
of capital to invest has encouraged the company overseas. Global demand for
geothermal is also outstripping the comparatively low demand for electricity in
New Zealand.
Mighty River has so far deployed about half
of US$250 million capital committed through international partner GeoGlobal Energy (GGE) to projects in California,
Chile, and into Bavaria in Germany.
Trigg says the company has a genuine competitive
advantage on a global scale; the same couldn't be said for wind, hydro or gas.
"Around 0.3 per cent of global generation is fragmented and therefore what
we bring is technical expertise and the business development expertise of our
partners and, most importantly, the ability to apply risk capital.
"Going offshore provides a very
strategic diversification or our growth. From a Mighty River Power business
perspective the fact demand growth is only around 2 per cent means it pretty
much limits the rate of new generation development that will be able to be
achieved domestically and that's on the assumption you just get your market
share of growth," he says.
In New Zealand generators face a big
variable - the price they receive - but in most other countries there are
long-term power price agreements with retailers and, in a carbon conscious
world, subsidies and other incentives from governments.
"That eliminates a significant risk
you have in New Zealand."
Trigg warns that easy geothermal is almost at an end.
Beyond the next "tier one" projects, Contact's Te Mihi and Tauhara and Mighty River's Ngatamariki,
developments will be tougher.
"Once you move beyond those you
probably get to a stage where it's project by project - there's not a clear
fuel source that is superior to all fuel classes. That's about the time when
the wind projects that are currently being consented will come into play as the
best economically viable."
Contact's general manager of renewable development
JamesKilty says his company's focus is
definitely in New Zealand. "I see five to six years of heavy lifting here
in New Zealand and that's where our priorities lie."
"There's a lot of claim-staking around
the world on geothermal, but in terms of actual projects a lot of the
development has been in our back yard."
A Taupo Maori
land trust and Contact Energy have signed an agreement that will allow
exploratory geothermal drilling to go ahead within a year. The drilling will be
carried out on trust land north of Taupo and
600m from Contact's proposed Tauhara 2
geothermal energy development.
Tauhara Moana Trust chairman Toby Rameka and Contact Energy chief executive Dennis
Barnes said strong relationships were essential for responsible development and
the agreement marked the beginning of a new phase in the relationship between
the trust and Contact.
"Over the time we have spent together
advancing Tauhara 2, we have developed a
respect for each other. It takes time to get to this place in a relationship
and I look forward to strengthening our ties in the years ahead." Rameka said the trust was looking forward to its next
phase of development.
"Particularly as it relates to the
geothermal resource which our whanau and our leadership have a deep and
emotional connection with. "It is far better to
be part of a project, be informed and be active partners than be on the outside
and in the shadows."
Rameka said the trust and Contact had an interest in
sustainable and responsible development that brought benefits to the region and
New Zealand. "For Tauhara Moana, any
development undertaken on our whenua or that we are involved in has to take
into account cultural, environmental, social and commercial issues. If this can
be achieved, then making use of your resource for the benefit of your people
and your community is an easy decision.
"We know from our longstanding
relationship with Contact Energy that these things are important to them
too," he said. The trust believed Contact was committed to
developing Tauhara in a way that made the
best use of the trust's geothermal resources in the long term.
Trustee Topia Rameka said the agreement was unique and was based on
a value-sharing arrangement reflecting the risks and certainties of the
project. He said the trust had not decided to look at a royalties-only scheme
but instead wanted to share the risk and receive more of the benefits of
geothermal energy production.
The full commercial details of the
agreement were not revealed, both parties asking for confidentiality in the
short term. Barnes said Tauhara 2 was a key
project for Contact and for New Zealand. "Geothermal energy provides
reliable, renewable baseload energy, whereas other renewable resources are
intermittent."
Hydro, wind energy and thermal generation
faced the cost of offsetting its carbon footprint and gas supplies were
uncertain. "Tauhara 2 was consented last
year and will be built when market conditions allow."
Geothermal projects commissioned in the
past decade or under development:
Mighty River Power: The company is active in three geothermal fields - at Rotokawa, Mokai and Kawerau - and significant potential exists for further
development within the Taupo volcanic zone