Mercury has blamed tough power generating conditions for a sharp decline in its earnings over the June year.
The company, 51% owned by the Government, said its net profit for the year came to just $1 million, down $289m from the prior year.
The fall was due to lower earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) and changes in unrealised gains or losses on unhedged electricity derivatives.
Generator-retailer company net profits are accounted for on a “marked-to-market” basis, with derivative financial instruments treated as if they had been cashed up at balance date.
Mercury’s ebitdaf - the market’s preferred measure of profitability - came to $786m, down $91m from the prior year.
This was mostly driven by the short net position and high electricity prices.
Mercury was upbeat about the current 2026 financial year, with an ebitdaf forecast of $1 billion.
“This ambition reflects significant reinvestment of capital with about $600m of growth capex expected to be deployed over the period on major infrastructure works for the benefit of New Zealand,” chief executive Stew Hamilton said.
Chair Scott St John said it had been a challenging year but that Mercury had been building a lot more generation capacity, which would make a meaningful difference to the country’s energy future.
St John said global headwinds including inflation, compounded local challenges as hydro inflows and ongoing gas constraints tested supply and temporarily pushed spot prices up during periods of peak demand.
Mercury was directly impacted by these challenges, he said.
“Despite this, we remain optimistic about the long-term outlook given the sheer volume of work currently under way,” he said.
New Zealand stood to benefit from a new wave of generation development – over four terawatt hours (TWh) of new renewables was expected to be commissioned between now and 2027, St John said.
Mercury was contributing a significant proportion of this, with 1.1TWh of new renewables under construction and plans to deliver 3.5TWh over the next five years.
Just over half of Mercury’s earnings go straight back into building and maintaining the assets, he said.
The market was developing solutions that will help bridge the gap when weather-dependent renewables fall short, such as the recent agreement among the big four generators to establish a strategic energy reserve at the Huntly Power Station.
“Improvements to market and policy settings are also required, including greater transparency of gas market information to support decision making,” he said.
“Options such as capacity mechanisms or direct government investment should see careful cost-benefit evaluation,” he said.
The electricity sector is still smarting from last year’s power price spike to over $800 a megawatt hour - driven by a gas shortage, low hydro lakes, and calm wind conditions.
The severely stretched national grid caused some energy intensive industries to shut their doors.
“We acknowledge the supply challenges in winter 2024 that affected the broader sector, along with the ongoing challenges of the energy transition, have impacted confidence,” St John said.
Jarden, in a research note, said Mercury’s ebitda of $786m was ahead of its estimate of $768m, largely driven by good trading gains and cost containment.
Mercury’s $1b ebitda forecast for 2026 was also ahead of Jarden’s and market consensus estimates.
Mercury’s total generation volume for the year was 7906 gigawatt hours, 10% lower than the prior year.
This was largely driven by reduced hydro generation, 17% lower at 3,410GWh – the fourth lowest lowest for the Waikato scheme since 1980.
Wind generation was 6% lower at 1,936GWh due to lower wind speeds.
Meanwhile, geothermal generation was 2% lower at 2,559GWh because of planned outages.
Capital expenditure was up $193 million on the prior year to $347m with the second stage of Kaiwera Downs and Kaiwaikawe Wind Farms beginning construction.
Hamilton said Mercury was “doing the heavy lifting” on generation development, with $1b invested in three major builds, simultaneously under construction.
The Ngā Tamariki Geothermal Station expansion and the Kaiwera Downs 2 and Kaiwaikawe Wind Farm builds are all tracking to schedule and budget.
Mercury is also putting the finishing touches on its refurbishment of the Karāpiro Hydro Station.
The project will be completed in September, delivering a 16.5MW capacity uplift.
The upcoming upgrades to Maraetai, Ōhakuri, and Ātiamuri Hydro Stations are believed to be New Zealand’s largest hydro reinvestment programme to date – a $550m investment that is expected to increase capacity by 58MW and generation by 87GWh.
Hamilton said Mercury remained “acutely aware” of the pressures facing households and businesses around New Zealand, with ongoing cost-of-living challenges across the board.
Electricity price increases of about 9.7% on average were implemented from April 1, largely driven by regulated lines and transmission costs (about 6.9% of increases on average).
Residential gas prices also increased during the year, with supply constraints continuing to drive wholesale gas price increases.
Hamilton said the company had implemented a range of measures to help those customers facing hardship.
Mercury continued to compete for customers in a dynamic retail environment, with total connections up 5% to 906,000.
The company declared a fully imputed final dividend of 14.4 cents per share, bringing the full-year ordinary dividend to 24.0 cps, up 3%.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.