Margin pressure rising for New Zealand electricity retailers, Fitch says

Monday 8th February 2010

Electricity retailers will experience pressure on their profit margins in 2010, thanks to higher wholesale electricity prices, transmission system upgrade costs, and investment in new generation capacity, says Fitch Ratings in its latest outlook for the New Zealand electricity sector.

"Over the longer term, Fitch expects wholesale electricity price changes to be driven by underlying increases in the capital cost of new generation and fuel costs, particularly with the depletion of the Maui gas field, offset by the downward pressure of a more efficient market as the transmission network is upgraded," the international credit rating agency says.

Fitch keeps its ratings outlook for local power companies "broadly negative" in the short term, especially for South Island generators such as Meridian Energy, Contact Energy and TrustPower, who are constrained because of weaknesses in the Cook Strait cable connecting the grid between the two islands.

Hurdles in approving new generation proposals also remained "a key issue", especially for wind and hydro projects, although Fitch believes Resource Management Act reforms should help to address the issue.

The greatest single impact for the sector is the Electricity Amendment Bill, which is not due for enactment before year's end.

As previously indicated, Fitch believes the reforms will have both positive and negative impacts for electricity producers, but that these cannot be fully judged before the reforms are in place.

Businesswire.co.nz

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