Higher levels of power generation helped drive Genesis Energy’s earnings up over 2025, but the company says a big lift in investment and increased fuel and carbon costs will bite in the current year.
Genesis, 51% owned by the Government, said leveraging its portfolio of assets helped drive a 29% lift in its net profit to $169 million for the June year.
Genesis produced 30% more electricity than planned last winter, when a gas shortage and low lake levels drove a sharp spike in wholesale prices.
The board declared a final dividend of 7.17 cents per share (cps), taking the total to 14.3cps, up 2%.
The company’s normalised earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) came to $470m, $10m ahead of its own guidance, and up 14% on the previous year’s.
For the year ahead, the company’s guidance was for ebitdaf in a range of $430m to $460m, subject to hydrological conditions, gas availability, plant reliability and stable market conditions.
Investment firm Jarden said the 2026 outlook was a big disappointment, with the midpoint of the guidance range being $62m below consensus estimates.
“Having used up most of its cheap carbon credits, the company is moving into higher carbon pricing, impacting 2026 more than expected,” Jarden said.
By late afternoon, Genesis’ share price had dropped by 6.25c or 2.6% to $2.3475.
The big four electricity companies – Genesis, Mercury, Meridian and Contact – this month signed detailed agreements to establish a strategic energy reserve centred on Huntly Power Station (HPS) in support of national security of supply.
The agreements will enable critical back-up electricity generation and fuel being available to support the security of the electricity system and price stability.
The company said the 2025 year was marked by high volatility across the energy sector.
“Declining gas availability, low hydrology and increased reliance on thermal generation tested the resilience of the sector,” it said.
“Genesis responded by flexing its portfolio to support both its customers and the wider market, with HPS playing a central role in maintaining national energy security,” it said.
Chief executive Malcolm Johns said Huntly once again played a critical role in ensuring earnings resilience and security of supply for New Zealand.
“It is now widely accepted that Huntly is essential to the country’s future energy security and will remain a core asset within the Genesis portfolio,” he said.
Johns said the coal- and gas-powered station is now backing up national wind generation more often than it is backing up dry hydro periods.
“Energy security is required across minutes, hours, days, weeks and months, and HPS has asset and fuel flexibility to monetise the full spectrum,” he said.
He told the Herald the lower outlook for 2026 reflected elevated levels of investment in technology.
“We’re implementing three major systems at the moment, our customer billing and relationship management re-platforming, upgrading our financial management system and also our electronic trading and risk management system.
“All those systems are essential to the way that we can comply with regulatory requirements going forward and also run our business in an optimised way.
“We’ve got between $55m-$65m of expenditure on that in 2026.”
Johns said an additional $20m in fuel and carbon costs would also be a factor in the current year.
He said it was a “solid” outlook for 2026.
“But without that technology investment, we’d be more like up [ebitdaf] around $500m.
“In 2028, it’s in the mid to upper $500m [range] and we are on track for that.”
After last winter’s wholesale price spike to over $800 a megawatt hour, Johns said Genesis had done everything it could to avoid a repeat performance.
Genesis offers Huntly firming options (HFOs) – two- and 10-year contracts to market participants to offer flexible generation capacity from the coal- and gas-fired plant at Huntly.
HFOs provide supply and price certainty, hedging against the system’s peak supply risks and shorter duration constraints, and are backed by the station’s steam turbine Rankine units.
Johns said the HFOs mean that the ageing third Rankine at Huntly will now be available next winter, subject to review.
Overall, the coal stockpile at Huntly will move up from around 600,000 tonnes to one million tonnes, which he said would offer good security against a prolonged dry spell.
“We can say that we now have 235 megawatts of HFOs in place, two and 10 years, and they are value-accretive.”
Johns said no Genesis customers were exposed to the very high wholesale prices experienced last winter.
Genesis’ result comes just as wholesale power prices look to be on the rise again, despite favourable hydro lake levels.
Johns said wholesale market gains reflected high gas prices.
Gas still produces about 8% of New Zealand’s base load electricity, and the cost and availability is becoming challenging, he said.
The Government’s review of the electricity sector, led by Australia’s Frontier Economics, is due out late next month.
Johns said any new structure would need to support much-needed investment in new renewable energy projects and assets to firm up energy supply.
“Clearly, uncertainty in the market like we’ve seen over the last 10 years or so makes that very challenging.
“So whatever decisions are made around the Frontier report, the fundamentals are that we’re in a competition for capital as a sector and as a country, and we pay for that capital through either dividends or interest rates.
“The riskier the investment is in New Zealand, the higher those dividends and interest rates will need to be to attract that capital.
“We would hope that the decisions are made in support of making capital easier to invest, and in both renewables and a new firming assets.”
Various industry groups have called for a greater separation between generators and their retail operations.
“If you look back to winter 2024, we are proud of the fact that we protected all of our customers from the high wholesale market prices of last winter and that’s the incentive of an integrated model – you’re looking to balance supply and demand long-term to the benefit of customers and shareholders,” Johns said.
“If decisions are made that it’s not the right model and you want to add cost into the system, then ultimately that has to be paid for somehow,” he said.
“The mathematics of electricity are like gravity – you can try and defy it for a period of time, but ultimately somebody has to bear the cost to the system.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.