New Zealand's relatively flat demand for electricity continues to weigh on the listed generator-retailers, which reported lower retail sales in the final six months of 2016 in a moribund market.
Wellington-based Contact Energy today joined Mercury New Zealand, Meridian Energy and Genesis Energy in lodging its latest operating metrics with the NZX, and continued the theme of weak electricity sales, with mass market and commercial and industrial electricity demand down 0.6 per cent to 4,001 gigawatt hours in the six months ended December 31, while the average electricity sales price was down 1.3 per cent to $179.01 per megawatt hour. Contact shares fell 3 per cent to $4.85.
Meridian's retail electricity sales fell 12 per cent to 2,797 GWh with a 4.1 per cent increase in average retail sale price, less distribution costs, to $108.90/MWh, and Genesis's volume of sales were down 3.3 per cent to 2,323 GWh, while mass market prices including distribution costs were up 1.8 per cent to $239.13/MWh and 5.1 per cent to $117.12/MWh respectively for time of use (TOU) sales to commercial and industrial customers. Mercury sales rose 6.3 per cent to 2,395 GWh, due to a 20 per cent jump in commercial volumes, while prices fell 2.8 per cent to $112.30/MWh.
"On the demand-side it's been a fairly consistent theme for the last few months in terms of talk about the irrigation load being quite weak compared to what we saw last year, dairy production is down as well, and residential is also down," said Andrew Harvey-Green, a senior equity analyst at Forsyth Barr. "The market's been fairly tough for a reasonable period of time and in reality, it's probably going to continue for the foreseeable future."
Flat demand for electricity of recent years and threat of Rio Tinto pulling the plug on the aluminium smelter at Tiwai Point have reduced the need for new investment in generation, meaning the major gen-tailers' returns to shareholders have been rising despite price and demand pressures because they have little need for new capital spending. Across the four companies, retail sales fell 2.8 per cent to 12,109 GWh, and government data this week showed electricity prices rose 2.3 per cent in the December quarter from a year earlier.
Forsyth Barr's Harvey-Green said the reduced demand was more pronounced on the east coast of the South Island, and to a lesser extent in the North Island, with Auckland's expanding population underpinning demand in the country's biggest city.
"It's hard to see what's going to turn it around. It tends to be the big things that move demand in a big way, either up or down," he said.
The latest operating reports show generation across the four companies was up 2.5 per cent to 18,219 GWh, due largely to a 7.5 per cent increase in Meridian's generation to 7,029 GWh, reflecting ample water supplies in hydro storage lakes. Genesis's total generation shrank 7.9 per cent to 3,110 GWh in the half as coal-fired generation was scaled back almost completely, while Contact generation dropped 7.7 per cent to 4,310 GWh on lower thermal and geothermal generation. Mercury's generation dipped 0.2 per cent to 2,367 GWh.
In a note, Morningstar analysts said Mercury had a "fairly soft" December quarter with energy margins down on the prior period and was tracking slightly below the firm's forecasts, with the lower sales price "a key detractor from earnings" reflecting "additional commercial and industrial sales re-contracting at lower prices than achieved historically". It retained its $3.10 share price target and 'hold' recommendation on the stock, which recently traded unchanged at $3.08.
In a separate note, Morningstar said Meridian's first-half energy margin would only be slightly higher than a year earlier due to a soft December quarter, although increased storage levels in hydro-dams put it in "a good position to maximise hydroelectric output in the near term" even it did weigh on wholesale prices. Morningstar was also upbeat about Meridian's Powershop Australia retail brand, which it said was performing well. The research house also kept its price target at $2.72 and 'hold' recommendation for Meridian, which recently traded at $2.75, unchanged on the day.
Genesis shares slipped 0.2 per cent to $2.155.