Whirinaki plant sells for $33m | Hawkes Bay Business | Business News for Hawkes Bay, New Zealand

Contact Energy will pay the government $33 million for the diesel-fired Whirinaki power plant north of Napier.

The standby power station, or "generator of last resort", was opened in 2004 to generate power in an emergency.

Contact will use it to develop a hedge market so large consumers can avoid high electricity price spikes.

Contact will also buy four million litres of diesel at market price at the time of the transaction.

The electricity generator and retailer expects to take ownership this month.

Contact CEO Dennis Barnes said the plant was a welcome addition to its portfolio, enhancing generation and fuel security.

"The plant will also help Contact's active development of an electricity hedge market in New Zealand and we have the option of moving the plant in the future and refuelling it on natural gas, if market conditions and gas prices make such a move desirable," he said.

Forsyth Barr analyst Andrew Harvey-Green said Contact got the station at a good price but it would probably need to be moved "at some point".

The existing Napier natural gas pipeline would not handle the volume required.

Lines losses were higher over a high distance and there was increased possibility of the plant being isolated from its customers. "You want it nearer your big power users," he said.

In its current position it would always be the last station to be fired up,"because diesel is so expensive".

Contact has said that Taranaki or South Auckland could be possible new locations for the plant in the future. A decision on relocation was probably about two years away.

A hedge market would help electricity consumers on the spot market avoid price spikes.

Contact would fire up the station to supply electricity at a pre-determined price.

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