Genesis Energy is offering rival generators, big power users, and electricity retailers a means to protect themselves from volatile prices and possible shortfalls in renewable generation.
Genesis Energy's Huntly Power Station is a thermal power station which can use coal, gas or both simultaneously as fuel. Photo: GENESIS ENERGY
It has called for indications of interest in its new Market Security Options (MSO), which would allow them to lock in a guaranteed power supply from the thermal fired Huntly station when extra generation is needed.
The MSO is a form of insurance aimed at smoothing out price shocks and volatility, and helping to manage the transition between thermal and renewable power.
"This product is really backup for when the renewables aren't there, and the hydro is low and there are gas shortages, coal does provide that back up generation," Genesis chief trading officer Pauline Martin said.
The company was willing to reserve generation in small amounts through to large volumes to garner the widest interest for 2023/24, Martin said.
A company buying an MSO will pay a fee to reserve generation, and specify when they want the fuel delivered at which time the price of coal would be fixed along with the associated carbon cost.
Power companies have used a system of swaptions to reserve back-up thermal power supplies if they run short to ensure they have sufficient to cover the needs of their own customers. Genesis' swaption deals expire at the end of the year.
Martin said surging global coal prices had prompted it to look at the MSO as a replacement for swaptions and to provide a commercial solution to ensuring thermal generation remained available for the foreseeable future.
Coal prices have gone from US$49 a tonne in late 2020 to US$322 at present.
Huntly, which runs on coal and gas, had been used in six of the past seven years to provide back up supplies, most recently being last year after a long , dry summer, cold winter, and gas shortages required it to provide enough power for 120,000 households, nearly the size of Christchurch, Martin said.
Genesis had enough coal stockpiled to last until the end of 2024 assuming average usage, but any unforeseen demand for power could deplete that by the middle of next year.
Genesis has been looking for "commercial arrangements" to be reached by the industry to ensure thermal stations are available to cover renewable shortfalls, but has never been a supporter of the idea floated by Contact Energy to put thermal stations into a separate company to be managed.
"This is a really flexible product, it's different to anything that's been offered before and we're hoping there'll be interest in this product, we're willing to do really small volumes, it's a two-year product, and it gives really good flexibility about when the fuel is locked in, so we're hoping there'll be industry interest in it."