Almost as fast as they are generating big profits
Three of New Zealand’s big power companies have reported their annual results, giving state coffers a handsome boost from dividends. Meridian, for example, in achieving an operating profit of $780m is paying a final dividend of 11.9c a share (17.9c for the year, $462m in total).
Meridian, Mercury, Genesis and Contact’s combined operating profits for the year have totalled just under $2.7bn, fulfilling a forecast by broker Forsyth Barr that they would report the largest-ever increase in their operating profits, after what it described as in many ways a perfect year for the sector.
Higher customer sales, higher generation volumes and positive wholesale trading results helped Meridian’s operating profit rise 10% in the June year to $783m.
The company described its performance in a statement to the NZX as an improved operating result, driven by “higher customer sales, higher generation volumes and positive wholesale trading results”.
“If you only read the income statement, it might look like we had a poor result last year, but that couldn’t be further from the truth,” chief financial officer Mike Roan said.
Meridian reported that the average price it charged consumers and non-corporate business customers for electricity rose to 13.6 cents per kilowatt-hour, from 12.7c/kWh the previous year, an increase of about 7%.
Meridian CEO Neal Barclay said the company is taking steps to help vulnerable customers with the cost of electricity by putting $5m into a new Energy Wellbeing Fund “to support families in energy hardship with the aim of reaching 5000 households by the end of 2024”.
Meridian’s new $448m Harapaki wind farm, which is under construction in the Hawke’s Bay, is now expected to produce its first power in October, after a three-month delay caused by damage from Cyclone Gabrielle.
“The sector is experiencing a growth phase greater than at any other time in New Zealand’s history. Competition is strong, and we’re confident the sector will drive the best outcomes at the least cost for New Zealanders,” Barclay said.
“For Meridian to do our share of the heavy lifting, we’ll need to build the equivalent of 20 large wind farms by 2050.”
Capital expenditure in the year to the end of June, which included its spending on the Harapaki wind farm, totalled $346m.
The company provided no material update on its negotiations with Rio Tinto over a new power contract that would allow the aluminium smelter near Bluff to remain open beyond the end of next year, saying discussions were ongoing but were complex, and the outcomes were uncertain.
“Undoubtedly it will be a better outcome for NZ and the climate challenge if the smelter remains operating in NZ. From our perspective, it is certainly looking commercially viable,” Barclay said.
Earlier in the month Mercury reporting its annual result said significant investments to increase the scale of the business, and record generation has delivered results for Mercury in 2023.
Mercury CEO, Vince Hawksworth said annual generation exceeded 9 TWh up 21% from 2022 levels. Record inflows into the hydro catchment underpinned strong hydro generation at 5,209 GWh, 28% higher than average. More than 1,000 GWh was spilled during the year to maintain lakes within consented operating limits. Wind generation increased 16% to 1,471 GWh following the Turitea South wind farm becoming fully operational.
Mercury is NZ’s largest electricity retailer by customer market share, with 860,000 customer connections after the Trustpower retail and NOW NZ acquisitions in 2022.
Mercury’s net profit was $103m, down $366m on the previous year, with the previous year’s results including the gain made on the sale of its Tilt Renewables shareholding. Mercury reported $841m operating earnings up $260m on 2022’s $581m.. Operational expenditure was $346m, up $116m.
Mercury’s Chair, Prue Flacks, said the company remained highly attuned to its role supporting New Zealanders through the transition to a low-carbon economy and more immediate economic challenges.
“We acknowledge this is a challenging time for many, with the rising cost of living impacting many households. As a major electricity retailer, we have a role to play in supporting customers and we take that responsibility seriously,” said Flacks.
A final dividend of 13.1c a share is to be paid on September 29, she said. This brings the full-year ordinary dividend to 21.8c, up 9%.
Mercury said it is largely on track to meet or in some cases exceed its three-year objectives, two years in.
Mercury’s FY24 EBITDAF guidance has been set at $835m.
Genesis Energy says exceptional hydro power generating conditions helped take its operating earnings – ebitdaf – to a record $523.5m in the June year, up 19% on the previous year’s, the NZ Herald reported.
The company – which runs the coal and gas-fired Huntly Power Station, along with several hydro assets in the North and South Islands – said its net profit fell by 12% to $195.7m, reflecting changes on valuations of its Huntly units.
Genesis declared a final dividend of 8.8c, taking the total annual dividend to 17.6c – the same as the previous year’s.
That was despite free cash flow jumping by 27%% to $335.2m.
The dividend, as a percentage of free cash flow, fell to 56% from 70%.
CEO Malcolm Johns said the board had decided to hold the dividend steady in order to pay down debt, while preserving capital for future investment opportunities in renewables.
NZX-listed Genesis had previously guided for Ebitdaf for 2023 of $515m.
The company said its 2024 ebitdaf is expected to be around $430m, subject to hydrological conditions, gas availability and any material adverse events or unforeseeable circumstances.
“Given how wet 2023 was – which we have seen in the Mercury result – Genesis was able to pull back on its costly thermal generation and buy electricity from a lower-priced spot market,” Johns said.
“This also helped to have a massive reduction in its emissions for the year.
“Next year’s guidance of $430m is a little softer than expectation, at face value, but part of the difference is because of the extended outage of Huntly’s Unit 5.”
Favourable hydro conditions throughout the year led to 65 per cent of Genesis’ generation coming from renewable sources, the highest proportion since the company was formed in 1999, the company said.
Conversely, thermal generation fell to record lows, resulting in significantly reduced fuel costs and a 45% reduction in emissions compared with 2022.
Lower thermal generation was also the key driver in a 16% drop in revenue to $2,374.2m on the corresponding period.
The impact of inflation was felt in increased costs for insurance, software, staff and for the Kupe oil and gas field.
Staff numbers rose, particularly in customer-facing roles, and contributed to an 11 per cent increase in operating expenditure to $330.2m.
Johns said the result enabled Genesis to invest in new renewable generation and play a key role in New Zealand’s transition to a new energy future.
Genesis announced a solar farm in Canterbury of around 52 megawatts (MW) and rights to three other sites in the North Island that could deliver about 400MW combined. A final investment decision is expected on the Canterbury development later this year.
“Looking through the three lenses of people, planet and profit, this is a pleasing result,” he said.
Johns said Genesis was examining other renewable options for the future and is looking at building a battery at its Huntly site.
He said the energy sector is at the heart of NZ’s successful transition to a low-carbon future, and Genesis had an important role to play with the assets that it owns.Early this month, Genesis said an outage at its Unit 5 combined cycle gas plant at Huntly would cost $20m-30m.
Unit 5, which usually delivers continuous or baseload power to the electricity grid, has been out of action since June 30.
An investigation revealed a failure of one of the unit’s three circuit breakers.
Genesis had earlier advised that it expected Unit 5 to return to service by August 31, but it has now pushed that date out to May next year.
The cost of fixing Unit 5 is included in the year-ahead guidance.
Commenting on the flat dividend, Johns said:
“There is always a balance between rewarding shareholders and ensuring that you have the capital to continue to invest in the future of the business.”
The board had opted to pay down $68m in debt.
“That gives us some powder in the keg around solar development, technology and developing the business to drive productivity,” he said.
He said Genesis was reviewing its strategy for the years ahead, as New Zealand pursued its policy of decarbonising the economy.
The review would cover its pipeline of renewable energies investment, the role that Huntly would play in ensuring grid security of supply, particularly for the upper North Island.
The timing of Genesis’ new North Island solar builds is subject to regulatory processes, and final investment decision. However, the first of the new sites is expected to be generating electricity by 2026.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton
The company described its performance in a statement to the NZX as an improved operating result, driven by “higher customer sales, higher generation volumes and positive wholesale trading results”.
“If you only read the income statement, it might look like we had a poor result last year, but that couldn’t be further from the truth,” chief financial officer Mike Roan said.
Meridian reported that the average price it charged consumers and non-corporate business customers for electricity rose to 13.6 cents per kilowatt-hour, from 12.7c/kWh the previous year, an increase of about 7%.
Meridian CEO Neal Barclay said the company is taking steps to help vulnerable customers with the cost of electricity by putting $5m into a new Energy Wellbeing Fund “to support families in energy hardship with the aim of reaching 5000 households by the end of 2024”.
Meridian’s new $448m Harapaki wind farm, which is under construction in the Hawke’s Bay, is now expected to produce its first power in October, after a three-month delay caused by damage from Cyclone Gabrielle.
“The sector is experiencing a growth phase greater than at any other time in New Zealand’s history. Competition is strong, and we’re confident the sector will drive the best outcomes at the least cost for New Zealanders,” Barclay said.
“For Meridian to do our share of the heavy lifting, we’ll need to build the equivalent of 20 large wind farms by 2050.”
Capital expenditure in the year to the end of June, which included its spending on the Harapaki wind farm, totalled $346m.
The company provided no material update on its negotiations with Rio Tinto over a new power contract that would allow the aluminium smelter near Bluff to remain open beyond the end of next year, saying discussions were ongoing but were complex, and the outcomes were uncertain.
“Undoubtedly it will be a better outcome for NZ and the climate challenge if the smelter remains operating in NZ. From our perspective, it is certainly looking commercially viable,” Barclay said.
Earlier in the month Mercury reporting its annual result said significant investments to increase the scale of the business, and record generation has delivered results for Mercury in 2023.
Mercury CEO, Vince Hawksworth said annual generation exceeded 9 TWh up 21% from 2022 levels. Record inflows into the hydro catchment underpinned strong hydro generation at 5,209 GWh, 28% higher than average. More than 1,000 GWh was spilled during the year to maintain lakes within consented operating limits. Wind generation increased 16% to 1,471 GWh following the Turitea South wind farm becoming fully operational.
Mercury is NZ’s largest electricity retailer by customer market share, with 860,000 customer connections after the Trustpower retail and NOW NZ acquisitions in 2022.
Mercury’s net profit was $103m, down $366m on the previous year, with the previous year’s results including the gain made on the sale of its Tilt Renewables shareholding. Mercury reported $841m operating earnings up $260m on 2022’s $581m.. Operational expenditure was $346m, up $116m.
Mercury’s Chair, Prue Flacks, said the company remained highly attuned to its role supporting New Zealanders through the transition to a low-carbon economy and more immediate economic challenges.
“We acknowledge this is a challenging time for many, with the rising cost of living impacting many households. As a major electricity retailer, we have a role to play in supporting customers and we take that responsibility seriously,” said Flacks.
A final dividend of 13.1c a share is to be paid on September 29, she said. This brings the full-year ordinary dividend to 21.8c, up 9%.
Mercury said it is largely on track to meet or in some cases exceed its three-year objectives, two years in.
Mercury’s FY24 EBITDAF guidance has been set at $835m.
Genesis Energy says exceptional hydro power generating conditions helped take its operating earnings – ebitdaf – to a record $523.5m in the June year, up 19% on the previous year’s, the NZ Herald reported.
The company – which runs the coal and gas-fired Huntly Power Station, along with several hydro assets in the North and South Islands – said its net profit fell by 12% to $195.7m, reflecting changes on valuations of its Huntly units.
Genesis declared a final dividend of 8.8c, taking the total annual dividend to 17.6c – the same as the previous year’s.
That was despite free cash flow jumping by 27%% to $335.2m.
The dividend, as a percentage of free cash flow, fell to 56% from 70%.
CEO Malcolm Johns said the board had decided to hold the dividend steady in order to pay down debt, while preserving capital for future investment opportunities in renewables.
NZX-listed Genesis had previously guided for Ebitdaf for 2023 of $515m.
The company said its 2024 ebitdaf is expected to be around $430m, subject to hydrological conditions, gas availability and any material adverse events or unforeseeable circumstances.
“Given how wet 2023 was – which we have seen in the Mercury result – Genesis was able to pull back on its costly thermal generation and buy electricity from a lower-priced spot market,” Johns said.
“This also helped to have a massive reduction in its emissions for the year.
“Next year’s guidance of $430m is a little softer than expectation, at face value, but part of the difference is because of the extended outage of Huntly’s Unit 5.”
Favourable hydro conditions throughout the year led to 65 per cent of Genesis’ generation coming from renewable sources, the highest proportion since the company was formed in 1999, the company said.
Conversely, thermal generation fell to record lows, resulting in significantly reduced fuel costs and a 45% reduction in emissions compared with 2022.
Lower thermal generation was also the key driver in a 16% drop in revenue to $2,374.2m on the corresponding period.
The impact of inflation was felt in increased costs for insurance, software, staff and for the Kupe oil and gas field.
Staff numbers rose, particularly in customer-facing roles, and contributed to an 11 per cent increase in operating expenditure to $330.2m.
Johns said the result enabled Genesis to invest in new renewable generation and play a key role in New Zealand’s transition to a new energy future.
Genesis announced a solar farm in Canterbury of around 52 megawatts (MW) and rights to three other sites in the North Island that could deliver about 400MW combined. A final investment decision is expected on the Canterbury development later this year.
“Looking through the three lenses of people, planet and profit, this is a pleasing result,” he said.
Johns said Genesis was examining other renewable options for the future and is looking at building a battery at its Huntly site.
He said the energy sector is at the heart of NZ’s successful transition to a low-carbon future, and Genesis had an important role to play with the assets that it owns.Early this month, Genesis said an outage at its Unit 5 combined cycle gas plant at Huntly would cost $20m-30m.
Unit 5, which usually delivers continuous or baseload power to the electricity grid, has been out of action since June 30.
An investigation revealed a failure of one of the unit’s three circuit breakers.
Genesis had earlier advised that it expected Unit 5 to return to service by August 31, but it has now pushed that date out to May next year.
The cost of fixing Unit 5 is included in the year-ahead guidance.
Commenting on the flat dividend, Johns said:
“There is always a balance between rewarding shareholders and ensuring that you have the capital to continue to invest in the future of the business.”
The board had opted to pay down $68m in debt.
“That gives us some powder in the keg around solar development, technology and developing the business to drive productivity,” he said.
He said Genesis was reviewing its strategy for the years ahead, as New Zealand pursued its policy of decarbonising the economy.
The review would cover its pipeline of renewable energies investment, the role that Huntly would play in ensuring grid security of supply, particularly for the upper North Island.
The timing of Genesis’ new North Island solar builds is subject to regulatory processes, and final investment decision. However, the first of the new sites is expected to be generating electricity by 2026.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton
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