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Trustpower well-positioned for volatile market, renewables development

Monday 13th May 2019

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Trustpower says a “material” volume of new generation will be required to meet demand during the next three years and wholesale prices are likely to be volatile as more intermittent wind is added to the mix.

But the country’s fifth-largest power retailer says the overall impact on pricing is harder to pick, given cheaper renewable generation may be offset by greater cost to maintain security of supply.

Chief executive Vince Hawksworth says the country’s move to a net-zero emissions economy will increase the value of renewable generation and peaking capacity and the company has spent a lot of time thinking about which of its generation assets can provide more of either.

Optimisation and efficiency will remain a focus, but the firm is also open to new opportunities, particularly as a partner in solar, hydro, geothermal and wind projects being developed by some smaller players, he says. That could be more than just a straight offtake arrangement for developments.

“Co-venturing could well be a really good space for us,” he told BusinessDesk. The firm has been in discussions and “I think we could bring a lot of value for those smaller players.”

Trustpower, which also offers gas, broadband and phone services, considers itself a “total package utility provider.” It earlier reported a net profit of $92.7 million for the year ended March 31, down from $114 million a year earlier, excluding the Australian hydro business sold that year.

Underlying earnings fell 24 percent to $103 million, reflecting the very strong generation inflows the firm enjoyed a year earlier.

Earnings before interest, tax, depreciation, amortisation and changes in financial instruments fell 9 percent to $222 million. The firm had signalled an earnings range of $220-226 million in April.

The company will pay a 17 cent final dividend, unchanged from a year earlier, on June 14. It will also pay an unimputed special dividend of 15 cents the same date.

It has paid out 40 cents a share in special dividends since the sale of Green State Power in New South Wales to Meridian Energy last year.

Trustpower shares rose 2.6 percent to $7.18, taking their gain this year to almost 18 percent.

The company uses its 27 power stations around the country to help manage the price risk it faces on the wholesale purchases it makes to supply its 267,000 power users. It lost most of its generation development portfolio when its wind assets were split off into Tilt Renewables in October 2016.

Efficiency upgrades at its power stations increased its average annual production by about 50 GWh in the decade through 2016 and are projected to deliver a further 65 GWh out to 2025.

Hawksworth noted the 1,994 gigawatt-hours of power the firm generated in the past year were about 4 percent above the long-run average, but still 11 percent less than the year before. That saw generation earnings fall 13 percent to $172 million.

The company received $125/MWh for its generation in the past year, up from $88 a year earlier and $52 in the 2017 financial year.

During the past year, Trustpower upgraded generators at the firm’s Coleridge power station in Canterbury and at Matahina in the Bay of Plenty. It is now considering replacing part of one of the two 40 MW turbines at Matahina to generate more power during periods of low river flows.

Installing a 32 MW runner on one unit would reduce the site’s already limited peaking capacity but would generate more during times of low flows. Matahina generates about 270 GWh annually and the change could add another 10.5 GWh of production.

Retail earnings rose 8 percent to $64 million. Total utility accounts rose 1 percent to 402,000, with increased gas and telecommunication customers more than offsetting a decline in power accounts.

The number of customers taking more than one service increased by 7 percent to 107,000. About two-thirds of new customers are signing up for two or more services.

The company, which will this year start offering mobile and fixed-wireless broadband services through a partnership with Spark New Zealand, said its retail gross margin climbed to $156 million from $148 million the year before.

“This rise is well in excess of the increase in utility accounts, validating Trustpower’s view that the new category of bundled energy/telco is more profitable than either energy or telco alone,” Hawksworth said.

“We now have 107,000 customers using two or more products. Customer retention levels in our bundled customers continue to remain higher than established energy retailers and is greater than levels reported by major telcos.”

Trustpower had about 96,000 telecommunications connections at the end of March, 9,000 more than a year earlier.

It says data usage and fibre connections are continuing to grow as are customer expectations. Smaller suppliers are likely to struggle to invest in that quality of service while also maintaining an acceptable margin.

Trustpower noted it has been investing $3-5 million annually for the past five years building out a national fibre network with sufficient capacity and redundancy to meet rising demand.

The company, which has capacity rights on the Southern Cross and Hawaiki cables, has data storage in Australia and is now adding storage in data centres in San Jose and in Portland in the US to keep up with demand and provide additional redundancy. It will be in place in time for the Rugby World Cup in September.

“Without a dedicated carrier-grade network you cannot provide the level of service customers are demanding," Trustpower says.

Assuming average hydrology, the company is expecting ebitdaf of $205-225 million for the current financial year. That assumes telecom customers increase to about 103,000.


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