The energy shortage is forcing manufacturers to cut production to keep power flowing to households. Will more renewable electricity fix the problem for the future?
Some major power generators are wearing the cost of the energy crisis, warning higher gas prices and generation costs may impact their earnings - but they’re also passing some of it on to customers where possible.
Genesis took a $116 million earnings hit due to increases in fuel costsin the year to the end of June, including the cost of importing more coal to fire its Huntly Power Station - the national electricity system’s back up option that has been used heavily this winter while hydro lakes are near record lows and domestic gas production fields came up empty.
Competitor Mercury has warned it could be faced with a $90m hit this financial year, $11m of which included buying gas to fulfil its retail customers at the current high prices.
“It’s also driven by the fact that we’re starting the year significantly down in the in the hydro lake,” Mercury’s outgoing chief executive Vince Hawksworth told Markets with Madison.
“Our inflows over the last financial year were at 30% of normal, and our lake [Taupō] itself has been down as low as 15% or 16% of full for the time of year.
“It’s been really challenging because we would expect to be producing more from that resource.”
Although Mercury did increase power prices last financial year, with the volume weighted average price rising $9 per megawatt hour for households and by $8 for commercial customers.
Mercury's dam at the northern end of Lake Karapiro in the Waikato. Photo / Sarah Ivey
It passed on higher wholesale electricity prices to the small portion of its customers who were on variable price contracts, Hawksworth said.
“Of all of the sales that we make, less than 5% of them are purely exposed to the spot market, 98% of our actual volume is sold on fixed prices to families, mums and dads, to small businesses, large businesses and to very large businesses.”
Some of its industrial customers were now cutting production, or considering closing down completely, due to high energy costs - a trend that Hawksworth expected would lead to more customers signing fixed price contracts.
That would mean Mercury would have to carry the burden of higher wholesale prices when they occurred, but he said it was a risk the company was happy to carry.
“We should own that risk. And we should be responsible for managing that risk. And if we do a good job of doing it, our investors will be happy. And if we do a bad job of owning it, our investors will sack us.
“The fact that we’ve had to announce guidance that’s lower than last year is because when we manage that risk, we manage [it] across a distribution of possible outcomes.”
Watch Vince Hawksworth discuss the energy crisis - as he calls it - and if $1 billion worth of new renewables is the answer, in today’s episode of Markets with Madison above.
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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Madison Reidy is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
