Flat NZ electricity demand keeps pressure on power companies

New Zealand's relatively flat demand for electricity continues to weigh on the listed generator-retailers, which reported lower retail sales in the final six months of 2016 in a moribund market.

Wellington-based Contact Energy today joined Mercury NZ, Meridian Energy and Genesis Energy in lodging its latest operating metrics with the NZX, and continued the theme of weak electricity sales, with mass market and commercial and industrial electricity demand down 0.6% to 4001 gigawatt hours in the six months ended December 31 while the average electricity sales price was down 1.3% to $179.01 per megawatt hour. Contact shares fell 3% to $4.85.

Meridian's retail electricity sales fell 12% to 2797 GWh with a 4.1% increase in average retail sale price, less distribution costs, to $108.90/MWh, and Genesis's volume of sales were down 3.3% to 2323 GWh, while mass market prices including distribution costs were up 1.8% to $239.13/MWh and 5.1% to $117.12/MWh respectively for time of use (TOU) sales to commercial and industrial customers. Mercury sales rose 6.3% to 2395 GWh, due to a 20% jump in commercial volumes, while prices fell 2.8% to $112.30/MWh.

"On the demand-side it's been a fairly consistent theme for the last few months in terms of talk about the irrigation load being quite weak compared to what we saw last year, dairy production is down as well, and residential is also down," said Andrew Harvey-Green, a senior equity analyst at Forsyth Barr. "The market's been fairly tough for a reasonable period of time and, in reality, it's probably going to continue for the foreseeable future."

Flat demand for electricity of recent years and the threat of Rio Tinto pulling the plug on the aluminium smelter at Tiwai Point have reduced the need for new investment in generation, meaning the major gen-tailers' returns to shareholders have been rising despite price and demand pressures because they have little need for new capital spending. Across the four companies, retail sales fell 2.8% to 12,109 GWh, and government data this week showed electricity prices rose 2.3% in the December quarter from a year earlier.

Mr Harvey-Green said the reduced demand was more pronounced on the east coast of the South Island, and to a lesser extent in the North Island, with Auckland's expanding population underpinning demand in the country's biggest city.

"It's hard to see what's going to turn it around. It tends to be the big things that move demand in a big way, either up or down," he said.

The latest operating reports show generation across the four companies was up 2.5% to 18,219 GWh, due largely to a 7.5% increase in Meridian's generation to 7,029 GWh, reflecting ample water supplies in hydro storage lakes. Genesis's total generation shrank 7.9% to 3,110 GWh in the half as coal-fired generation was scaled back almost completely, while Contact generation dropped 7.7% to 4,310 GWh on lower thermal and geothermal generation. Mercury's generation dipped 0.2% to 2,367 GWh.

In a note, Morningstar analysts said Mercury had a "fairly soft" December quarter with energy margins down on the prior period and was tracking slightly below the firm's forecasts, with the lower sales price "a key detractor from earnings" reflecting "additional commercial and industrial sales re-contracting at lower prices than achieved historically." It retained its $3.10 share price target and 'hold' recommendation on the stock, which recently traded unchanged at $3.08.

In a separate note, Morningstar said Meridian's first-half energy margin would only be slightly higher than a year earlier due to a soft December quarter, although increased storage levels in hydro-dams put it in "a good position to maximise hydroelectric output in the near term" even it did weigh on wholesale prices. Morningstar was also upbeat about Meridian's Powershop Australia retail brand, which it said was performing well. The research house also kept its price target at $2.72 and 'hold' recommendation for Meridian, which recently traded at $2.75, unchanged on the day.

Genesis shares slipped 0.2% to $2.155.

(BusinessDesk)