Contact says earnings ahead of last year, eyes geothermal options

Tuesday 6th November 2018

Contact Energy says its operating earnings during the past four months are ahead of last year.

The company, which has simplified its business to improve its retail and generation margins, generated 3,158 GWh of electricity in the four months through October, about 8 percent more than the year before.

Average prices for that output were 55 percent higher at $133.42 per megawatt hour.

The company’s earnings before interest, tax, depreciation, amortisation and changes in financial instruments in the financial year to date are higher than the prior comparative period, chief executive Dennis Barnes said in notes for a presentation to investors.

“Our flexible generation portfolio and stored gas reserves saw an increase in merchant sales to support the market during the recent high-priced periods as the market responded to gas field outages and lower national hydro storage levels," he said.

“This has been partly offset by $3 million in higher LPG product costs, as well as payments to secure flexible gas storage which reduce ebitdaf by $14 million a year from 1 October 2018.”

Contact, the country’s second-largest electricity and gas retailer, is working hard to maximise the value of its activities as new retailers continue to chip away at the customer bases of the major players. Falling wind generation costs and rising carbon costs will also keep pressure on its gas-fired and geothermal generation activities longer term.

Last year, Contact sold its Ahuroa gas storage facility to free up capital while also encouraging its expansion by the new owner. In July, it agreed to sell its LPG distribution assets to First Gas for $260 million to simplify its multi-fuel retailing activity and eliminate its exposure to international LPG prices and domestic supply issues.

It is also targeting an $18 million reduction in operating costs this year.

Today, the company said it would accelerate its efforts to automate more of its retail processes to lower costs while also transforming Contact into a provider of “smart solutions” for customers. It is developing further apps and billing options to give customers more choice and is looking to build its broadband offering, which currently has about 3,000 customers.

It will also keep working to lower the costs of its geothermal operations, which provide baseload electricity but need to remain competitive with the combined ability of wind and hydro-power stations to work together also to produce baseload. The company is also thinking how best to optimise the value of its remaining gas-fired plants as the country works to increase use of renewables in generation, industry and transport.

Contact says it has a range of geothermal generation options at Wairakei and on the nearby Tauhara field that can be developed depending on demand.

While the resource consents for the original Wairakei plant expire in 2026, Contact says there is a compelling case for future generation development there, given the fluid volumes available beyond the requirements of the company’s Te Mihi and Poihipi plans.

The company has consent to build a third unit at Te Mihi, but notes it has alternatives, including re-powering Wairakei or building a new plant, which would require less capital.

Contact says its consented 250 MW Tauhara development remains the country’s “pre-eminent” renewable option. But it says that field also lends itself to staged developments and that a brownfield development of the existing Te Huka plant is also attractive.

Barnes noted those options will only be developed if they are backed by observable demand or contracts.

Contact also operates two gas-fired peakers at Stratford and the ageing 400 MW Taranaki combined cycle plant there.

The company noted it faces a decision in 2021 on whether to invest further to keep TCC operating. A year later the contracts underpinning Genesis Energy’s dual-fuel Rankine units at Huntly are due to expire.

Wholesale power prices have been high throughout October due to declining South Island hydro storage and a fault at the Pohokura field, which has reduced deliveries from the country’s biggest gas field.

Contact said it is engaging with suppliers for gas in 2019. It has not contracted for material volumes, and it observed that that is not unusual for this time of year.

In addition to the gas it expects to contract, the stored gas it can access at Ahuroa, and other contractual options it has, Contact says it will have “appropriate access” to energy to meet its customers’ needs next year.

(BusinessDesk)

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