ANALYSIS: Two fossil fuel power plants in Huntly signalled for closure are to remain open, Genesis Energy has revealed.

Instead, they will have their life extended.

The move follows agreements reached with other power companies to share the cost of keeping the two plants open.

Photo: GENESIS ENERGY

The Huntly units burn gas and coal, and have a capacity of 500 megawatts.

Genesis Energy announced last year that it would shut down the units at the end of 2018.

This was applauded by environmentalists who saw it as a step towards making New Zealand electricity greener.

Genesis Energy had cited an economic rationale, saying the power plants' fixed costs were too high and their usage too low to be economically sustainable.

The closure alarmed other companies, which feared electricity could run short if the Huntly plants were unavailable as a back-up.

Their worries about energy security were echoed in reports by Transpower. Multi party negotiations then followed and an agreement has now been reached.

Today, Genesis Energy announced the plants will operate until December 2022.

It said it had entered into contracts with other electricity generators, covering operational and capital costs of the units.

Genesis says the time to develop new generation, along with the uncertainty over the future of the Tiwai Point aluminium smelter in Southland, means Huntly needs to stay open for longer.

The exact details of the contracts remain uncertain at this stage, but will almost certainly involve payments from other companies to Genesis to meet the costs of keeping Huntly open.

These would be done with so-called swaps - in which companies buy each other's electricity supply for long periods, agreed in advance.

The price of the swaps would be tilted slightly in favour of Genesis to offset its costs.

The main reason for this deal is that alternative projects such as windfarms are unaffordable to build as long as uncertainty persists over Tiwai Point. This uses a seventh of New Zealand's power and could shut down as soon as 2018.

If that happened, New Zealand would be flooded with cheap electricity and any new plant would plunge into the red.