Meridian Energy [NZX:MELCA] won't invest further in Australian renewable energy projects if the Federal government's Renewable Energy Target subsidy scheme is scrapped, says chief executive Mark Binns.
He was speaking at the company's first half-year profit announcement since its partial privatisation in October.
The Australian government announced Monday that the RET scheme will be reviewed, although Binns was optimistic any change would "grandfather" renewable generation schemes that were built under the scheme.
Meridian is in the final phase of building a A$260 million, 64 turbine wind farm at Mt Mercer, inland Victoria, capable of generating 131 Megawatts. It also owns a smaller South Australian windfarm, at Mt Millar, purchased in 2010 from Transfield for A$191 million.
The expansion into renewables in Australia also saw Meridian go 50-50 in a joint venture on the A$1 billion construction of the Macarthur windfarm in Victoria, the largest such development in the southern hemisphere. Meridian sold its interest in Macarthur in June last year. Its current Australian portfolio has total installed capacity of 201MW, compared with 2,822MW in New Zealand, 415MW of which is wind generation and the remainder hydro, including the Mill Creek project, under construction.
Its trans-Tasman foray in part reflected the lack of opportunities for new renewable generation projects in New Zealand, which is currently over-supplied. Binns conceded today that Meridian's only New Zealand wind project, the $169 million Mill Creek development near Wellington, would probably not have gone ahead had the company known at the time that it could be facing the closure of the Tiwai Point aluminium smelter, its largest customer, later this year.
In 2012, when the Mt Mercer development was announced, Meridian chief financial officer Paul Chambers said "Australia's long term regulatory support and the quality of this project ensure that Meridian will get an excellent return from Mt Mercer."
Its construction would underpin the launch of Meridian's acquisition brand, Powershop, into the Australian market, which occurred late last year. Serviced by Meridian staff based in Masterton, the Australian Powershop operation now has some 5,000 customers, which Binns said was in line with its business plan so far.
The RET scheme targets 20 percent renewable electricity generation in Australia by 2020, and subsidises wind, solar and other renewable generation options to compete with low-priced coal-fired power stations, which produce much of Australia's electricity and give the country a heavy carbon footprint.
The scheme is estimated to cost Australian consumers around A$1 a week on the average power bill, and was described in The Australian newspaper this week as a "hidden carbon tax" that was hiking power prices by stealth.
Windfarms in New Zealand run profitably without subsidies.
"The RET is very significant to the renewables industry (in Australia)," said Binns. "The message given if it goes is a significant one. You will see a lot of people will be reluctant to go back into Australia and invest, given the signals given to support renewables."
A decision on the scheme's future was unlikely before September and Meridian expected to "survive in a form very similar to what it is currently", at least for existing investments.
"We won't invest further before the regulatory situation in Australia becomes clearer."
On New Zealand electricity sector issues, Binns said the Electricity Authority was slowly moving towards a new regime for sharing the cost of the national grid in a way that was likely to be fairer for South Island generators, such as Meridian, but he doubted a final outcome within the next 18 months.
Meridian instalment receipts rose 1.5 percent in trading on the NZX this morning to $1.05, 5 cents above their listing price in October last year, after the company announced a result for the six months to Dec. 31 that was ahead of prospectus forecasts, although lower than the same period last year.
Underlying net profit, the company's preferred measure of profitability because it removes distorting items, was $83 million, 6 percent lower than for the same period a year earlier, but 28 percent above the company's internal half year split of the prospectus forecast, Binns said in an NZX statement.
"Given performance to date, should inflows from this point match the assumptions in Meridian's prospectus, full year EBITDAF would exceed the prospectus forecast by approximately 7 percent."
Earnings before interest, tax, depreciation, amortisation and changes in the value of financial instruments (EBITDAF) was $268.2 million, 3.2 percent below the same period last year, but 6.5 percent above prospectus on the same split basis, Binns said.
Statutory net profit, at $116.9 million was 33 percent lower than in the same period last year, largely reflecting big swings in unrealised changes in the value of financial instruments on Meridian's balance sheet.
Meridian declared a maiden dividend of 4.19 cents per share, 90 percent imputed, to the 49 percent of shareholders who took instalment receipts in its partial float in October, payable on April 15.
"With hydrology inflows 122 percent of average in Meridian's catchments, the company was able to maintain a high generation market share (36 percent) during the period," said Binns. The completion of the new Cook Strait cable connection, known as Pole 3, in November, had also assisted.
"In December, the upgrade resulted in the highest northward flows since 2007."
Reflecting competitive retail market conditions and low average wholesale electricity prices, Binns said Meridian "does not foresee energy prices increasing until at least June 2015" although cost increases from the national grid and local monopoly lines networks would be passed through.
Meridian instalment receipts listed in late October at $1, traded up to $1.11 in the following days and then sank as low as 89.5 cents in early December, but have recovered since to close yesterday at $1.035
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