Russell McVeagh is pleased to have advised Genesis Energy on its landmark 10-year term Huntly Firming Options (HFOs) with Contact Energy, Mercury NZ and Meridian Energy, contracting a total of 150 MW of option capacity.
An HFO is an innovative structured electricity swaption that provides each counterparty with virtual access to Genesis' Rankine Unit generation capacity at the Huntly Power Station. Designed to support national security of electricity supply during dry winters with low hydro inflows, the HFOs combine bilateral swaption agreements with a multiparty framework governing fuel procurement and the establishment of a joint strategic reserve fuel stockpile.
The HFO structure mirrors Genesis' fuel supply chain logistics and generation process, requiring each counterparty to notionally order fuel to support its underlying swaps. Once the fuel is delivered, the counterparty may exercise the option at any time with up to four swap profiles in any combination. Unlimited swaps can be called during the 10-year term.
While the HFOs are currently backed by coal-fired generation, the arrangements contemplate a negotiated transition to lower-emissions biomass as a backing fuel when commercially viable.
Led by Banking and Finance partner Jesse Fairley alongside Senior Associate Ling Yan Pang, the Russell McVeagh team worked closely with the Genesis team on all aspects of structuring and implementing the transaction.
We also thank the counterparties and their advisors (Bell Gully - Contact Energy, Chapman Tripp - Mercury NZ, and MinterEllisonRuddWatts - Meridian Energy) for their collaborative approach throughout. Bell Gully also advised Genesis on the Commerce Act authorisation application.
If you would like to learn more about our work in energy markets and derivatives, please get in touch with the team.