Contact Energy's half year profits are forecast to drop by 20 per cent by one analyst although there are positive revenue signs for the remainder of the year.

Forsyth Barr's Andrew Harvey-Green said normalised profit for the six months to December 31 was forecast to be $66.3 million, down from $82.4 million in the corresponding half year.

The main driver for the fall was increased interest costs.

In the first half of the 2011 year the company was able to capitalise interest associated with its gas storage and gas peaker projects in Taranaki.


Contact is New Zealand's third biggest listed company by market capitalisation and will deliver its interim result tomorrow.

The company owns dams on the Clutha River system and was hurt by low hydro inflows in the latest half year, Harvey-Green said. Hydro generation was down 16 per cent and was at its lowest level since 2006.

Wholesale prices generally increase when hydro production is low and while they did last August to October, it was insufficient for Contact to gain from its gas plants "hence the relatively disappointing" earnings expectation.

Harvey-Green said there were positives for the company, including its ability to increase sales to commercial and industrial customers.

The company had also succeeded in increasing customer numbers towards the end of last year.

Around the middle of the year it was losing about 8000 customers a month following an Electricity Authority campaign to encourage switching between power companies. Contact's heavy discounts for prompt paying customers had turned that around with gains of around 1000 a month.

Harvey-Green said he expected a "modestly upbeat" outlook statement for the financial second half.

Figures just released by the authority show that weekly average spot-market prices have doubled to around $130/MWh over the last several weeks.

The higher spot-market prices reflect the cost of using more expensive thermal generation so that hydro resources can be conserved.

Contact's share price has fallen from $6.15 to a low of $4.73 over the past year.