All-renewables electricity generator Meridian Energy [NZX: MEL ] has initiated talks with rival Genesis Energy [NZX: GNE ] to preserve access to two ageing gas and coal-fired electricity plants at the Huntly power station, which Genesis intends to close next year.

Chief executive Mark Binns told shareholders at the Meridian's annual meeting decisions since March to close 1100 megawatts of gas and coal-fired generation capacity would leave New Zealand exposed to possible electricity shortages by the end of the decade if there are droughts and inflows to hydro storage lakes are insufficient to meet national power demand.

Genesis won praise from environmental groups for announcing closure of what would be the country's last large-scale coal-fired power plant, but said in a statement responding to Meridian that it had always been willing to reconsider if market conditions changed.

The company would "consider any market response that would see Genesis Energy incentivised to keep the Rankine units operating beyond 2018," although such arrangements would need to be stitched up mid-2016, as the closure process was already under way.

"New Zealand still needs plants with the flexibility to generate into dry years and into peak demand periods," said Mr Binns, who believes keeping available the Rankine units, as the two 250MW units are known, makes sense for other electricity market participants too.

"However, there is no guarantee that we will be able to complete any commercially acceptable arrangement," he said. "Nothing can be taken for granted and Meridian is also discussing similar dry year contract arrangements with other parties who have the ability to build new gas peaking plants, where we may be able to enter into financial arrangements, providing us with similar dry year cover."

Todd Energy is believed to be considering options to build a new gas-fired peaking plant.

Mr Binns said the situation could ease if the Tiwai Point aluminium smelter were to exercise its right from 2017 to close down. The smelter uses around 12% of all electricity generated in New Zealand and was, as far as Meridian could tell, "doing it tough" in an over-supplied global market.

"It still remains very difficult to predict the long-term future of the facility," he said. "While finding the right balance between our interests is always difficult, we hope that market conditions improve and the smelter stays." The risk of closure was a big factor for anyone contemplating investing in a new power plant.

That said, Meridian continued to assess its development options for later in the decade and was working with European wind turbine experts to try and reduce the average price for wind generation in New Zealand to below $70 per megawatt hour, compared with $75 to $82 per MWh at present.

Mr Binns was less enthusiastic about rooftop photo-voltaic solar generation, despite its growing popularity with consumers, because New Zealand already got around 80 percent of its electricity from renewable resources at far lower cost than solar PV units.

"We have looked at the whole solar supply chain for opportunities and it is difficult to see where there is a compelling business case for investment, other than possibly project development in Australia, which currently needs a subsidy to be competitive with wind."

On the potential for batteries to store electricity generated at cheap times of day for release at peak times, Mr Binns said, "in our assessment in the New Zealand market, battery costs need to reduce by approximately 70% before their adoption would become viable - all other things being equal."

While some shareholders might ask why Meridian didn't pursue new renewables technology more vigorously, the company would "not be investing for the sake of it", although it remained committed to a 100% renewable generation fleet.

"You can rest assured that we will invest when there is a strategic imperative or there are opportunities where we feel there is good potential to reach acceptable rates of return," Mr Binns said.

He also indicated announcements before Christmas on efforts to sell a franchise for its online retail offering, Powershop, to an operator in Europe. Powershop has launched in Australia and there are now 100,000 customers on both sides of the Tasman being serviced on its platform.

(BusinessDesk)