Oversupply In Power Sector Driving Investment Overseas


BMI View : We believe Mighty River's announcement to temporarily halt development of the Puketoi Range wind farm and other generation projects indicates a situation of oversupply in the market which is unlikely to be resolved anytime soon. In our opinion, Mighty River is shifting its investment focus to more promising markets overseas such as Chile due to the country's favourable economic and demographic trends.

On June 7, New Zealand utility Mighty River Power announced that it had been granted a final resource consent to build a 310MW wind farm in the Puketoi Range, but said that it would not begin construction for at least three years. The company also said that it was unlikely to start any new generation projects in the next three to five years, mostly due to an over-construction of gas, wind and geothermal power stations over the past decade. Might River produces about one-fifth of the country's electricity needs, and was partially privatised by the government in May 2013.

We believe Mighty River's announcement to temporarily halt development of the Puketoi Range wind farm and other generation projects indicates a situation of oversupply in the market which is unlikely to be resolved anytime soon. Electricity consumption in the country has remained relatively stable over the past decade - growing 1% per annum on average between 2006 and 2010 - and appears likely to remain on this trajectory over our forecast period. However, a number of sizeable power projects came online in the past decade, leading to a slight surplus in electricity supply over demand. Additionally, several more power projects are in various stages of development, and the completion of these projects could further widen the gap between supply and demand.

Fact Box: Power Project Pipeline In New Zealand
Project Name Value (US$mn) Capacity/Length Companies Timeframe Status
BMI's Project Database
Hydropower plant, Waitaki River 648 260MW Meridian Energy 2012- Project design under review by Parliamanet; Environmental approval granted (September 2009)
Wind farm, Castle Hill, North Island na 600MW Genesis Energy 2013-2015 Second public consultation held (April 2011); Resource consent applied in late 2011
Waitahora wind farm, Puketoi Range near Dannervirke, Hawke's Bay, North Island 371 156MW Contract Energy 2011- Environmental approval received (Dec 2010)
61-turbine wind farm, Turitea, Palmerston North na 180MW Mighty River Power 2011-2013 Approval received from Board of Inquiry (Feb 2011)
Te Mihi Geothermal Power Project 623 166MW SNC-Lavalin, McConnell Dowell, Parsons Brinkerhoff 2012-2013 Contract awarded; Toshiba To Supply 83MW geothermal turbines by 2012
168-turbine Hauauru ma raki wind farm, near the west coast of the country's North Island na 504MW Contract Energy 2011- Received all resource consents (May 2011); Construction to start within 10 years
Ngatamariki geothermal power plant expansion, north of Taupo 381 82MW Mighty River Power, Ormat Technologies July 2011 - 2013 EPC contract (first phase) awarded; Resource consents granted (May 2010)
Geothermal power plant, near Rotorua 166.3 45MW Ormat Technologies, Tikitere Limited Partnership February 2012 - Received authorisation, construction to start once consent given from Maori community (Feb 2012)
Kaipara Harbor Tidal Farm, North Western Peninsula, North Island 491 200MW Crest Energy, Todd Energy 2005 - At planning stage, Received government approval in 2011, seeking foreign developors (April 2012)
Waitaha hydropower plant 120 20MW Westpower, Electronet November 2012- At planning stage (November 2012)

At present, we have over 2.2GW of power projects in various stages of development recorded in our Projects Database, and the completion of these projects would increase the installed capacity by over 20% by 2022, exceeding the growth in electricity demand. We note that not all of these projects will be completed on schedule as the rights to these projects belong to Mighty River. One of the projects is Mighty River's 180MW Turitea wind project near Palmerston North, which we believe will be delayed given the announcement. Mighty River also recently applied to begin exploratory drilling for the Te ia a Tutea project on the Taheke geothermal field, and we expect this project to also face delayed. That said, we still expect a comfortable buffer in electricity supply over demand to be maintained over the coming years, even after Mighty River's decision to delay development of its projects.

In our opinion, Mighty River is shifting its investment focus to more promising markets overseas. In late-May, a Chilean unit of Mighty River, MRP Geotermia Curacautin Ltda, was awarded an environmental permit for the 70MW Curacautin geothermal plant in central Chile (see 'Vast Renewables Potential Ready To Be Tapped', June 4). The Chilean energy market is extremely attractive given favourable economic and demographic trends, and we believe that Mighty River will continue to focus on the market and other similar markets in the near- to medium-term until the New Zealand power market regains its attractiveness.

This article is tagged to:
Sector: Power, Renewables
Geography: New Zealand, New Zealand, New Zealand, New Zealand

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