Genesis Energy profit falls on lower hydro power generation

Genesis Energy has reported its result for the year to June. Photo / NZ Herald

Genesis Energy, like its fellow North Island competitor Mercury, has slightly increased its dividend despite the uncertainty posed to the energy sector by the planned closure of the Tiwai Point aluminium smelter next August.

The energy generator and retailer, which operates the Huntly power station, said its operating earnings, or ebitdaf, fell by 4 per cent to $356 million in the June year, driven by lower hydro generation and the impact of Covid-19 lockdowns.

At that level, the result was at the lower end of a previously advised earnings guidance of $355m to $365m, but Genesis still managed a 1 per cent increase in its dividend to 17.2c, which was ahead of market expectations.

John Kidd, head of research at Enerlytica, said the dividend announcement defied speculation that Genesis would revisit its dividend policy in light of the uncertainty surrounding Tiwai.

"The increase - albeit modest - to the dividend may surprise given the turbulence of Tiwai and some suggestion that Genesis could look to retain cash while the situation plays out," Kidd said in a research note.

Tiwai consumes about 13 per cent of New Zealand's power output, and its closure is widely expected to disrupt the energy sector, at least until such time as the national grid can shift power from the deep south northwards.

Chief executive Marc England said the closure of Tiwai would potentially accelerate its "Future-gen" strategy to develop 2,650 gigawatt hours of renewable generation options.

"We are relatively relaxed on a portfolio basis - whether Tiwai stays or goes," he said on a conference call.

Genesis forecast its ebitdaf for 2021 to be in $395m to $415m range - subject to hydrological conditions.

It has a strategic ebitdaf goal of $400m plus.

The company said it had to use its portfolio of fuels and generation assets to ensure a solid result during a year of exceptionally dry North Island conditions, several planned and unplanned market outages, and the disruption of Covid-19.

"The second half tested our portfolio flexibility through multiple gas and transmission outages, exceptionally low North Island hydro catchment inflows and the Covid-19 lockdown," England said.

Hydro generation fell by 491 gigawatt hours versus the year prior.

This meant the Huntly Power Station's back-up generation was called upon more regularly to stabilise wholesale electricity prices for all market participant, he said.

England said Genesis' diversified generation portfolio had demonstrated its value to all market participants.

"I am proud to say that our business strategy has been thoroughly stress tested this year and has performed under the challenging conditions," he said.

The company's shares last traded at $2.91, up 9c or 3 per cent.

Earlier this week, Mercury Energy increased its dividend for the 12th year in a row - by 2 per cent to 15.8cps despite a fall in its operating earnings.

Aside from Huntly, Genesis sells electricity, reticulated natural gas and LPG through its retail brands and is New Zealand's largest energy retailer with about 500,000 customers.

The company generates electricity from a diverse portfolio of thermal and renewable generation assets and has a 46 per cent interest in the Kupe Joint Venture, which owns the Kupe Oil and Gas Field.