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UPDATE: Mercury, Genesis signal weaker earnings

Article – BusinessDesk

UPDATE: Mercury, Genesis signal weaker earnings on low lake levels, gas shortageBy Gavin Evans

April 18 (BusinessDesk) – On-going dry weather on the North Island has prompted Mercury NZ and Genesis Energy to lower their full-year operating earnings forecasts.

Mercury, which makes most of its power at nine power stations on the Waikato River, today lowered its forecast earnings before interest, tax, depreciation, amortisation and changes in financial instruments to $495 million, from the $515 million it signalled in January.

Continued dry weather around Taupo means it expects only about 4,000 gigawatt-hours of hydro production for the full-year, 150 GWh less than it had expected in January, and down from 4,947 GWh in the June 2018 year. Total generation that year was a record 7,704 GWh.

Mercury said its March-quarter hydro output was 26 percent lower than a year earlier. Increased geothermal output offset a little of the hydro decline, but nine-month production was still 7 percent lower than last year at 5,374 GWh.

Storage in Lake Taupo has been sliding steadily since January and is now at its lowest since June 2014.

A front forecast this weekend will bring 20-40 mm of rain to much of the North Island, but dry weather will return by the middle of next week, NIWA said yesterday.

Genesis runs the Tekapo, Waikaremoana and Tongariro hydro schemes as well as gas and coal-fired plants at Huntly.

It says low storage and reduced gas supplies from the Pohokura field means its full-year ebitdaf will be at the lower end of the $360-$375 million range it had previously indicated. It has had to burn more expensive imported coal to help make up the shortfall.

“Genesis’s gas entitlements from the Pohokura field for the past quarter have been down 5 percent on the prior comparable period and are expected to continue to be down during parts of April and May as the well workovers are completed and the rig is demobilised from the platform.”

While the firm’s March-quarter generation was 9 percent higher than a year earlier, reduced hydro production and higher gas and coal prices and production pushed the firm’s generation fuel cost 32 percent higher at $56.75/MWh.

Wholesale electricity prices have been high all year due to low national hydro storage and reduced output during a workover programme OMV is wrapping up at the offshore Pohokura field. Storms on the South Island late last month restored lake levels there but dry weather has persisted on the North Island.

High power prices, and the potential for interest rate cuts, have pushed the share prices of most of the generators to records in recent weeks.

Genesis shares fell 2.4 percent to $3.085, trimming its gain this year to about 19 percent this year. Mercury shares fell 2 percent to $3.85, a gain of about 10 percent this year.

Data from Genesis today shows storage at Lake Tekapo rebounded with last month’s storms but had been below-average since early December. Storage at Waikaremoana on the North Island’s east coast has been below average since mid-October.

Contact Energy today noted that controlled storage on the North Island is about 40 percent below average. Its own hydro production, in the South Island’s Clutha catchment, was up 3 percent in March and 24 percent higher during the nine months through March.

But much of its gas-fired capacity has been out of the market this year due to a lack of fuel. Thermal production the past nine months is down about 28 percent.

Almost half the gas Contact burned for generation last month come out of the Ahuroa storage facility.

Today the company said its 377 MW Taranaki Combined Cycle plant will be available from today until the end of June if market conditions require it.

“The arrangement will see fuel diverted from less efficient thermal plant to Contact’s combined cycle plant. This effectively adds a small amount of additional generation capacity over peak periods due to the better efficiency of TCC. Contact is continuing to work on securing additional gas and will inform the market when contractual commitments are made.”

Contact shares last traded at $6.80 and have risen about 15 percent this year.

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