The favourable dynamic of high power prices and plenty of rain is expected to make its presence felt when the big power generators report their first half results this month.

First out of the blocks next week is Contact Energy, which is set to report on Monday.

Planned maintenance shutdowns at Pohokura gas field saw power prices spike late last year, but there was plenty of rain about to charge the hydro lakes.

That's expected to translate to a big improvement in the bottom line for the generators, particularly those with South Island generating assets.


For Contact, which owns the South Island giant Clyde Dam and the nearby Roxburgh Dam, Forsyth Barr senior analyst Andrew Harvey-Green expects EBITDAF of around $298m for the six months to December - up $58 million on the previous corresponding period's.

"In particular, the second quarter had very strong hydro generation so the first half will be above average," Harvey-Green says.

"The key thing during the second quarter was that there was high wholesale prices as well, and that has benefited Contact's generation position further," he said.

Harvey-Green said last year's Pohokura shutdowns highlighted the importance of gas in the New Zealand electricity system.

"When we are short gas, it will have an impact on electricity prices," he said.

Pohokura, now owned by OMV and Todd Energy, is the country's biggest gas producer.

The field, off the coast of Waitara, typically delivers more than 70 petajoules of gas annually from five offshore and three onshore wells.

In recent years Pohokura has met about a third of the country's gas demand.


Meridian is set to report its first half on February 20, Mercury on February 26 and Genesis on Feb 27.

Power play
Aside from hydro and the vagaries of the domestic power system, the share prices of the power companies have continued to find find favour as bond substitutes, particularly now that the world's central banks appear to have caved into the market pressures by adopting a decidedly dovish outlook in just the last few weeks.

It's looking increasingly likely that interest rates are going to remain very low for some time yet, which will continue to make the high yielding power generators look good to income seeking investors.

Over the last 12 months, Contact's share price has risen 12 per cent, Meridian's 27 per cent, Genesis 9.5 per cent and Mercury's by 9.4 per cent.

"The really interesting thing that we have seen in the markets over the last few weeks has been central banks yielding to market demands," Matt Goodson, managing director at Salt Funds, said.

The US Federal Reserve having previously indicated two more moves were likely in 2019, has since backed off, perhaps in part due to Wall Street's savage sell-off late last year.

"The Fed is on hold, China is continuing to inject liquidity and even the Reserve Bank of Australia is moving to a more neutral stance," Goodson said.

Closer to home, the Reserve Bank of NZ is expected to adopt a more dovish tone when it releases its review of its official cash rate next week.

ANZ economists expect a rate cut, fromthe present already low 1.75 per cent, by the year's end.

"That (low interest rates) tends to favour certain classes of stock rather than stocks with high economic cyclicality," Goodson said.