The decision announced yesterday signals the end of large-scale coal-fired generation in New Zealand and was welcomed by environmentalists, who are impatient to see the economy transition away from fossil-fuelled generation towards more renewable energy sources.
The Genesis (GNE) decision follows confirmation earlier this week the Tiwai Point aluminium smelter had secured an electricity agreement with Meridian Energy that will keep it fully operational for at least three years, and Origin Energy's successful $1.8billion sale of its 53% Contact Energy (CEN) stake.
Craigs Investment partners broker Peter McIntyre said the Tiwai supply issue and Origin sale had been ''two major issues driving weakness'' in the New Zealand electricity sector, but were now resolved.
''These two issues have weighed on [investor] sentiment in the sector, with the share prices having fallen between 15% and 30% since the highs in the first quarter of the year,'' he said.
Forsyth Barr broker Peter Young said the Huntly plant was not making a great deal of money at present, and cost up to $25million to keep open.
''Contact should be the big winner, as it is the player with the spare capacity that it can sell to those concerned with dry-year cover,'' Mr Young said.
Genesis Energy chairman Jenny Shipley said the decision signalled the end of large-scale coal-fired generation and associated carbon emissions in New Zealand.
''New Zealand's changing electricity market has seen improvements in the management of dry-year events, along with a significant decrease in coal-fired generation, and by 2018 the two coal units will no longer be required unless market conditions change significantly,'' she said in a statement yesterday.
At their peak operation, the units at the Huntly power station emitted around 5% of New Zealand's total greenhouse gas, she said.
Their closure would move the generation sector closer to its 90% renewable target, and lead to operation and cash cost savings for Genesis of about $20million to $25million a year.
Coal Action Network Aotearoa (Cana) welcomed Genesis' decision but noted that this would now bring close scrutiny to the next-biggest coal user, Fonterra.
Cana spokeswoman Jeanette Fitzsimons said: ''The Genesis announcement will give the owners of the consented wind and geothermal projects the certainty to go ahead and build, creating jobs in a clean-energy future.''
She said Fonterra was New Zealand's third-largest coal user, its coal use having grown by 38% since 2008, and with more growth planned.
''It [Fonterra] ignores the options of more sustainable waste wood-fired boilers in favour of coal for its milk-drying processes,'' Ms Fitzsimons said.
Greenpeace NZ Campaigner Simon Boxer said the Huntly closure served to ''further expose the Key Government's inability to act on climate change''.
''It's an embarrassment that businesses are now leaving the leaders of our country in the dust when it comes to moving away from dirty energy,'' Mr Boxer said in a statement.
From an investor's point of view, Mr McIntyre said Contact and Meridian were the preferred stocks in the energy sector.
Both had strong operating cash flows and low debt levels, and were committed to paying large distributions to shareholders.
On face value, Genesis offered a ''very attractive'' higher distribution yield, but the long-term impact of the Kupe gas field's contribution had to be considered.
Mighty River Power was an attractive investment, with an estimated 7.5% dividend yield for full year 2016, but it was Craigs' least preferred stock, due to fluctuating hydro output because of weather.
Mr Young said CEN, Meridian and Trustpower were Forsyth Barr's preferred electricity stocks.
While GNE had value, there are concerns regarding debt levels and its ability to deal with risks, he said.
