Mighty River Power continues geothermal growth

V

8 June 2011

Mighty River Power continues geothermal growth with new $466m plant

Mighty River Power today confirmed a further expansion of the Company's generation portfolio in New Zealand, with a NZ$466 million geothermal plant north of Taupo.

Mighty River Power's General Manager Development, Mark Trigg, said the plant - with an initial output of 82MW - would be built on the Ngatamariki geothermal steam field 17km north-east of Taupo, a world-class geothermal resource.

"This is another important milestone in our domestic development pipeline and one of our big goals for 2011. It's great to see another major project underway for us in New Zealand, so soon after Nga Awa Purua and Kawerau."

Mr Trigg said the Ngatamariki plant would provide additional reliable renewable capacity and further diversify Mighty River Power's generation portfolio, with increasing geothermal generation complementing the Company's original core hydro base.

The development, which follows the commissioning of Kawerau (2008) and Nga Awa Purua (2010), will lift Mighty River Power's geothermal energy production, measured on ownership interests, from over 30% to more than 40% of the Company's generation output, and lift total geothermal capacity under its operation above 460MW.

The Company has recently secured $250 million additional debt facilities which would be used to finance the project from the Company's balance sheet, he added. The $466m project cost included all expenditure to date and capitalised interest during construction, as well as a significant contingency allowance to cater for steamfield development either during construction or in the five years after project commissioning.

Resource consents were granted in May last year, and work is scheduled to begin on site in July, with the project expected to be completed and operating at full capacity by mid-2013.

The Ngatamariki plant will be 100% owned by Mighty River Power, although Tauhara North No.2 Trust - which was a joint participant in securing the resource consents - would receive a revenue stream from the project and has an option to take an equity stake in the plant in the future at market value.

Mighty River Power's Chief Executive, Dr Doug Heffernan said the Trust, which is a joint venture partner in the Rotokawa and Nga Awa Purua plants on the Rotokawa field, had been important in bringing the project to fruition.

GEOTHERMAL A KEY DRIVER OF EARNINGS GROWTH

Dr Heffernan said the Company was now seeing the benefits flowing through to its financial performance from the investments of more than $1billion that it has made over the past five years in geothermal generation.

New capacity has resulted in a 400% increase in geothermal output since 2007, and was a major contributor and driver of the 22% increase in the Company's earnings to $233.6 million for the six months (to 31 December 2010), underpinning the lift in earnings guidance issued in March for FY2011.

"The Ngatamariki project, along with our international geothermal developments, will allow us to continue that growth trend by building on the core competency we have now developed in geothermal," Dr Heffernan said.

EPC AND DRILLING CONTRACTS AWARDED

Mr Trigg said the international geothermal technology supplier ORMAT had been awarded the project under an EPC (Engineering, Procurement and Construction) arrangement. As a turn-key contract, this significantly reduces construction risk to Mighty River Power.

"The benefit of the ORMAT design for this development is its modular nature, allowing four generation units to be built in this first phase of the project, with infrastructure capacity sufficient to allow for further units to be added in the future." He said the construction phase over the next two years would create several hundred jobs with contractors and local suppliers.

The Company's decision to progress with the project has also seen it enter into a minimum two-year contract with the Iceland Drilling Company for the provision of a drilling rig. Mr Trigg said that the type of drilling rig being offered by the Iceland Drilling Company represented a significant step forward in drilling technology and is the first of its type to be used in New Zealand. In addition to the Ngatamariki wells, the rig will be available for exploration drilling at new prospects and the drilling of replacement wells on existing fields.

GEOTHERMAL KEY GROWTH OPPORTUNITY

Dr Heffernan said the Ngatamariki project was further evidence of the increasingly important role of geothermal, as New Zealand's third-most important fuel source, making up more than 13% of electricity generation currently, and likely to be boosted to over 15% in the next two to three years.

He said that geothermal was gaining prominence in many international markets, as various factors were combining to support renewable generation options. Geothermal was considered a 'premium renewable' for its continuous reliable output.

Mighty River Power committed US$250 million to international geothermal investment in early 2010. It currently has interests in a 50MW project (Hudson Ranch) in the Imperial Valley Southern California which is due to be operating in the first half of 2012; is partway through a drilling programme to confirm resource on the Tolhuaca geothermal field in Chile; and is well advanced with development opportunities in Bavaria in Germany.

ENDS

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