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Better rainfall improves outlook for NZ gentailers, metrics show

Tuesday 17th April 2018

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Favourable rainfall across New Zealand has improved the outlook for the electricity sector according to the latest operating metrics lodged with the NZX.


"Hydro conditions have been pretty favorable, which has been an ongoing story for the North Island for a long time and the South Island has recovered, so that's probably the key thematic coming through, along with pretty stiff retail competition," said Forsyth Barr analyst Andrew Harvey-Green. 


Mercury New Zealand joined Contact Energy, Genesis Energy, Meridian Energy and Trustpower in lodging its latest operating metrics, lifting its annual earnings guidance for the third time as wet weather continues to benefit the electricity gentailer. 


Mercury said large inflows associated with cyclones Fehi and Gita suppressed wholesale prices and pushed national hydro storage to 114 percent of average by the end of the quarter and the favorable hydrological conditions saw it lift its full-year hydro generation forecasts to 4,700GWh, up 150GWh due to continued wet weather in the Taupo area. 


Mercury also said, however, customer numbers decreased by 2,000 over the quarter to 391,000 due to intense retail competition with 48 retail brands now competing in the New Zealand market, up 12 from the previous year. 


Last week, Wellington-based Infratil said annual earnings were at the top end of guidance thanks to a return to normal rainfall for Trustpower's Hydro scheme.  Trustpower's total overall electricity connections have dropped 1.1 percent to 273,000 due to Trustpower losing a small number of commercial customers with a large number of connections, it said. 


Genesis' operating metrics also show it is continuing to benefit from the heavier rain on the North Island.  The Tekapo lake ended the March quarter on 122 percent average. National storage, however, recovered through the quarter, ending on 111 percent of average. 


For electricity generators who are more dependent on South Island rainfall, things are also improving after a dry spring and summer left hydro-lakes at below average levels. 


According to Meridian, its March monthly total inflows were 113 percent of historical average, up from 107 percent in April. South Island storage was at 110 percent of average and North Island storage at 135 percent of average on April 10. 


Meridian, however, also saw a 0.5 percent fall in electricity demand in March versus the same month a year earlier. March was a warm month across New Zealand and heavy rains led to flooding in some areas and lower irrigation use.  Meridian’s retail sales volumes in March 2018 decreased by 8.6 percent compared to March 2017.


Contact Energy, which has two hydro-power schemes on the South Island, also said the rainfall improved in March. As at April 11, South Island controlled storage was 110 percent of the mean, versus 107 percent on March 31 while North Island controlled storage was 144 percent of mean versus 152 percent on March 31.  


In an analyst's note, Morningstar forecast solid revenue growth for Contact Energy of  around 3 percent per year on average "reflecting tightening electricity markets and normalisation of rainfall." 



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