New Zealand’s state-owned power generator and retailer Meridian Energy has sold its Australian subsidiary Southern Hydro to Australian Gas Light Company (AGL) for A$1.4B (US$1.1B).

The sale includes the 62MW of hydro assets in New South Wales bought by Meridian Energy for A$85M in April 2001, the 540MW A$600M Southern Hydro assets purchased in May 2003, the 91MW Wattle Point wind farm it commissioned in May this year, as well as several wind farm and hydro developments currently in the advanced development planning stages.

‘In a world that is beginning to price carbon into the costs of producing energy, AGL has recognised the potential value of adding the Southern Hydro assets to its generation portfolio,’ said Meridian Energy Chief Executive Keith Turner. ‘They have also recognised the significant improvements to those assets that have resulted from the world-class hydro engineering expertise we have been able to contribute during our ownership.’

The acquisition of Southern Hydro follows AGL’s earlier announcement of a plan to demerge into two new major listed businesses by separating its retails and merchant energy assests from its infrastructure assets. The hydro assets purchased will be a key part of the energy business, while Wattle Point will be part of the infrastructure business.

‘The power generating characteristics of Southern Hydro will provide greater flexibility to the wholesale electricity portfolio through the quick start-up capabilities of the hydro generation assets,’ said AGL Managing Director Greg Martin. ‘This will assist AGL in delivering lower average wholesale energy costs at times of peak electricity demand and enhance the company’s retail market competitiveness.’

All of Southern Hydro’s power stations are accredited under the Australian Federal Government’s Mandatory Renewable Energy Target (MRET) scheme. The Southern Hydro assets will progressively supply more of AGL’s Renewable Energy Certificate (RECs) requirements over time. Between now and 2020, when the MRET scheme is due to conclude, Southern Hydro will supply approximately 30% of AGL’s total REC requirements representing approximately 55% of AGL’s uncontracted REC requirements.

‘These hydro and wind generation assets will help reduce the carbon intensity of AGL’s power generation portfolio. This will provide the company with a competitive advantage as governments and customers increasingly seek to reduce greenhouse gas emissions,’ continued Martin.

‘There are also opportunities for future expansion of both wind and hydro generation with development projects included in the Southern Hydro portfolio. These are in addition to AGL’s existing development projects at Townsville (370MW of gas-fired power generation), Hallett (250MW of gas-fired) and the Hallett Wind Farm (90-135MW).’

AGL expects to complete the acquisition by the end of November.