$83m plant ‘good for region’ — Eastland Group's Matt Todd
The purchase of an $83 million geothermal plant in Kawerau will have long term benefits for the community here, Eastland Group says.
Eastland Generation will take over ownership of the 26MW Kawerau TOPP1 power plant at the end of this month.
Eastland Group chief executive Matt Todd said the deal gave the group full ownership of the 2015-built plant, which has a geothermal resource consent for the next 35 years.
Unlike the group's Te Ahi O Maui plant, where the group also owns the steam below ground, the TOPP1 deal only purchased the plant, meaning operating earnings would be lower than TAOM.
An existing contract with a major customer — one of the main generators/retail companies — meant the group had certainty of price from the plant's output.
“In year one, it should generate $6m of EBITDA (operating earnings).
“Our generation business is generating 32 percent of our revenue; with this, it will go up to about 38 percent. I think that's pretty important. Our earnings would have been under all sorts of pressure in the most recent financial year without the generation plants because, due to regulations, we saw a $9m drop in allowable revenue for Eastland Network. Through Covid we've largely been able to keep profitability at the level it was, which is a significant achievement. Without the generation business it would have been a big step backwards.”
The group will now have capacity to generate about 65MW of renewable energy, through geothermal and hydro generation.
Following the purchase of TOPP1, the group's total assets will increase to about $835m, with about $300m of that now held out-of-region.
The group's debt-to-asset ratio will sit at about 41 percent.
“Ultimately, we'd like to see debt levels come down to give us a bit more capacity but we also recognise that at the moment, interest rates are at historic lows. So, if you believe you can borrow now into assets that are going to generate future cashflow and get some of that debt paid down then that's a really good economic investment.”
Mr Todd said the fact the group can provide the same or increased level of distributions to its owner Trust Tairawhiti would be an immediate and long-term benefit for Tairawhiti.
“I genuinely believe without the generation assets we would not have been able to do that (over the past year).
“Other than that there are other indirect benefits. With the business growing in scale we'll see more capability within region, as we bring this generation expertise back to Tairawhiti. There's jobs created out of region too, as we need people there.
“The other thing, is we are very keen as a company about sustainability and lowering our carbon footprint. Geothermal is not completely green, but it is fully-renewable.”
An important focus for Eastland Group is working to identify potential renewable energy generation options, such as solar, wind and waste to energy, that could be located in Tairawhiti.
“We are working through that and hopefully we'll have an announcement on solar within the next few months.
“Solar is still relatively marginal from an economic perspective, but we know the price is dropping every year. I think it's really important for this company to develop capability around solar. If we could get something up and running here in Tairawhiti then as that price starts to fall there is real appetite to look at bigger-sized plants and further local generation opportunities.”
• See also today's editorial