Lake Wānaka's water level is extremely low after a prolonged dry spell. Photo / Chris Bridgeman
Lake Wānaka's water level is extremely low after a prolonged dry spell. Photo / Chris Bridgeman
Concerns about the state of the electricity market are weighing on Mercury Energy’s share price, despite the company reporting a 159% increase in its June-year net profit.
The big lift in the bottom line to $290 million was mostly due to changes in the fair value of its unhedged financialinstruments.
The company’s earnings before interest, tax, depreciation, amortisation and financial instruments (Ebitdaf) came to $877m, up 4% on the previous year and slightly below the company’s previously advised guidance of $880m.
“The impact of significant investment to increase scale, together with strong generation performance, helped secure Mercury’s results over the period,” chief executive Vince Hawksworth said.
Over the year, Mercury continued to deliver more renewable generation and committed $700m to the expansion of the Kaiwera Downs wind farm and the Ngā Tamariki geothermal station.
Mercury’s result, and Contact’s on Monday, came amid still-high wholesale power prices and low lake levels.
New Zealand Aluminium Smelter (NZAS) today agreed to reduce electricity consumption by another 20 megawatts (MW) to further help New Zealand’s national grid through the energy squeeze. This is in addition to the 185MW demand reduction the smelter recently initiated.
Wholesale power prices have fallen after peaking at over $800/megawatt-hours (MWh) this month, but they remain elevated around $450/MWh.
Last week, Methanex, the country’s largest natural gas buyer, temporarily mothballed its remaining operations at Motunui in the midst of an acute gas supply shortage.
Mercury’s Ebitdaf guidance for 2025 was set at $820m.
Market analysts at wealth manager Jarden said the dry start to 2025 had put downward pressure on the outlook, resulting in a meaningful downgrade relative to its own expectation for Ebitdaf of $859m.
By early afternoon, the company’s share price was down 36c or 5.3% at $6.44, reflecting the impact dry hydro conditions would have on generation.
“Key here is that it’s a short-term impact - assuming it eventually rains,” Craigs Investment Partners senior research analyst Mohandeep Singh said.
“These are long-term infrastructure assets, so a one-year earnings impact is not a major impact on the long-term valuation,” he said.
Mercury chairman Scott St John said the energy transition would require “careful navigation” - particularly to maintain reliable power while rapidly and affordably scaling up renewables.
St John said the company expected electricity price pressure to continue for some time, reflecting the ongoing need for higher-cost thermal generation in the system.
“As we continue to invest in renewables, generating capacity must remain flexible enough to quickly adjust to changing environmental conditions, such as low rainfall or cloudy, still days.
“Gas has a critical role as a transition fuel,” he said.
“Gas supply challenges need to be addressed head-on, with recent projections highlighting this may continue to impact energy markets through to early 2026.”
To help facilitate the transition, Mercury said it had supported the ongoing operation of the Huntly Power Station with purchases through the market security and Huntly firming options.
St John said lower-than-usual hydro inflow from February 1 to August 18 had compounded current challenges, contributing to high spot and wholesale prices.
“While a few are exposed to these current high spot prices, 98% of our sales volume across residential, small and large business customers are protected from these elevated prices due to fixed-rate agreements,” he said.
The company, just over half-owned by the Government, will pay a fully imputed final dividend of 14.0 cents per share, bringing the full-year ordinary dividend to 23.3 cps, up 7% on the prior year’s.
For the current 2025 year, Mercury expects to pay a dividend of 24.0 cps.
The power companies’ results come at a time of increased interest in how much margin they make when wholesale prices are high.
Newly published data from the Electricity Authority (EA) showed total margins for the top six power companies in the week to August 11 came to $70.8m.
Energy Minister Simeon Brown, commenting on Contact Energy and Mercury increasing their dividends, said the Government wanted more power generation.
“And you know, those are the conversations we’ve been having with the sector,” Brown told reporters at Parliament.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
