Of the big four power generators, Meridian Energy fared the worst from last year’s droughts, booking a $452 million net loss for its trouble.
The company, 51% owned by the Government, said the loss was driven by a steep decline in its energy margins arising from two droughts.
Meridian said its cashflow fell to $318m in the year from $667m in the previous year.
The net loss compared with a $429m net profit a year earlier.
Earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) – the sector’s preferred measure – dropped to $611m from $905m a year earlier.
Jarden, in a research note, said a significant ebitda rebound forecast for 2026 (Jarden estimate: $1.094 billion) would be contingent on average hydro conditions.
Meridian’s underlying net profit fell from $359m to $56m in 2025.
A key factor behind the results was a 23% decrease in energy margins – down from $1.276b to $982m, the company said.
The result was impacted by two severe droughts and $300m spent on hedge and “demand response” contracts to help maintain security of supply.
Chief executive Mike Roan said the split between them was roughly 50/50.
“While we took a big financial hit, I think we did the right thing,” he told the Herald.
During the year, Meridian called on its demand response arrangement with aluminium smelter NZAS, the country’s biggest power user, resulting in the plant cutting production and allowing some breathing space for the national grid.
Roan said the company had weathered a perfect storm.
“The combination of historically low hydro inflows, extended periods of low wind, two major droughts and a dramatic decline in gas availability combined to make this a very challenging financial year.
“But the fundamentals of this business have been strengthened through sound investment and delivering on our strategy.”
Despite the challenges, there were some important wins.
“We secured five resource consents for new assets, invested $193m in building and maintaining generation plant, acquired two businesses, and undertook a strategic reset of the retail business while growing customer connections.”
Meridian’s balance sheet is structured to underwrite major droughts.
The company declared a final ordinary dividend of 14.85 cents per share, bringing the total to 21.00 cents per share.
The board said it may review the level of dividends in the event of a severe drought in future years so the company can prudently manage cash flows.
The droughts and domestic gas supply issues that shaped Meridian’s result also impacted on wholesale and customer pricing, with increases in lines and transmission charges being key factors.
These issues combined to generate scrutiny of the industry and potential reforms through the Energy Competition Task Force and the Government’s Frontier Report.
The Government is expected to make an announcement on the Frontier report late next month.
“We would expect decision makers to focus any interventions on the core challenge driving costs into the sector, which is the rapid decline in the gas market,” Roan said.
Freeing up contingent water storage at Lake Pūkaki was a vital step and Meridian’s application was going through a fast-track process.
Pūkaki holds more than 40% of the country’s total hydro storage, and access to more of its water will reduce the impacts of future droughts on both supply and prices, Roan said.
Continuing to focus on reducing resource consenting timeframes would also greatly help to improve security of supply more rapidly, he said.
In the meantime, Meridian and the sector had taken steps to support security of supply for winter 2026 and beyond by supplementing gas as a peaking fuel.
Last month, Meridian, together with Contact, Mercury and Genesis, signed a deal to support Genesis’ coal- and gas-fired Huntly Power Station.
Meanwhile gas, or the lack of it, continues to be a problem.
“It’s been a bloody tough job of resetting the risk products that the industry needs given now we know that gas is buggered,” Roan said, adding no one had expected the gas sector to fail in the way that it did.
Roan disagreed with the widely-held view that there has been underinvestment in renewable energy.
Over the last 15 years, there’s been $12b invested in either new or into existing generation facilities, he said.
Looking ahead, Meridian said it expects to invest over $350m in new and existing assets during the 2026 financial year and a total of $2b over the next three years.
Over the next few days, Meridian is expected to announce a new 200-megawatt solar development.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.