Tuesday 14th August 2018
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Trustpower is to acquire about 1,400 commercial power accounts after Opunake Hydro opted to quit the retail market citing tough competition.
Opunake supplies mostly small- to medium-sized firms through its Utilise business. It served 1,423 electricity accounts at the end of June – almost twice that two years earlier – according to Electricity Authority data.
But the firm, controlled by Hamilton-based WEL Networks since June, said it is quitting the retail market immediately to focus instead on growing its generation activities.
Chair Kevin Johnson said the board’s decision was a strategic one. The firm had done well but increased competition and volatile wholesale prices had made the past six to eight months particularly challenging.
“It’s both those things,” he told BusinessDesk. “The price swings are quite hard to address in a business sense.”
“We were a small player and with those market dynamics it’s quite difficult to compete effectively.”
Opunake is retaining the Utilise brand and has sold the customer book to Trustpower. Johnson wouldn’t disclose the sale price.
The block customer acquisition is the second by Trustpower this year and reflects the tough competition power retailers are facing in many parts of the market. Last month it completed the transfer of about 17,000 retail accounts from King Country Energy.
But it is not just the smaller players who have found the past year difficult.
Contact Energy yesterday said it lost $2 million on its ASX market-making activities during the past year, given the volatility of wholesale conditions and the tight spreads it must operate to.
Earnings from its own commercial and industrial customers also fell by $8 million as the firm surrendered volume rather than match low offers from rivals. The firm will now fold that business into its generation arm given there is little retail margin left on those sales.
Chief executive Dennis Barnes said pricing in that segment had trended closer to that of the ASX futures and tenders typically attract competitive bids from four generators, twice that just a few years ago.
He said there is now a complex wholesale relationship to manage with those customers, incorporating production and risk management.
The company already offers data, demand management and commercial-scale solar as services. Longer-term there will be more opportunities to help the larger users manage the complexity of reducing their carbon footprint, he said.
Trustpower is the country's fifth-largest power retailer by accounts. It supplies about 273,000 power connections, 38,000 gas connections and 89,000 telco accounts.
Last month it told investors the electricity sector remained highly competitive and that failures and further consolidations were likely.
It said its own commercial and industrial business was profitable and sustainable, selling about 1,700 gigawatt-hours of electricity annually. On average those customers – typically supplied on two- or three-year contracts - had been with the firm for seven years.
Opunake’s customer book peaked at almost 1,500 accounts in January. About 1,100 of the customers being transferred are on the North Island and the firm is aiming to complete the transfer by the end of September.
Johnson said the firm will start looking at generation options after that work is completed. The company operates 2 MW of gas-fired capacity at TAG Oil’s Cheal site in Taranaki and markets the production from a small hydro plant on the beach at Opunake.
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