Tiwai Point and old Huntly station look set to run past 2018, says MRP
Both the Tiwai Point aluminium smelter and the remaining two gas and coal-fired units at Genesis Energy's ageing Huntly power station will remain in operation past 2018, Mighty River Power's [NZX: MRP] chief executive Fraser Whineray says, based on electricity futures market pricing.
At a media briefing for the Auckland-based electricity generator and retailer's half-year profit, Whineray stressed the judgment was not MRP's but that of the market, as indicated by the current trend in the price of electricity quoted in futures contracts traded on the ASX.
Genesis announced last year that it would close its two remaining 250-megawatt units at the old Huntly coal and gas-fired power station unless there was a substantial change in market conditions. Hailed at the time by environmental groups as the death-knell for coal-fired power generation in New Zealand, the announcement is now being read as code for Genesis only being willing to keep the units operational if market participants were willing to pay a high enough price.
The two so-called "Rankine" units, named after their manufacturer, may still play a role in providing back-up supply in the event of low inflows into lakes serving as hydro-electricity reservoirs, especially in the South Island and particularly if the Tiwai Point aluminium smelter continues in operation.
The fate of both plants was "intimately linked," said MRP slides for its first-half earnings presentation.
Tiwai Point uses around one-seventh of the electricity generated in New Zealand, but its long-term future is unclear as its majority owner, Rio Tinto, battles with a portfolio of Australasian smelters that struggle for profitability but which, for the moment, appear to be cashflow positive and likely to remain open.
Tiwai was "likely cashflow positive in 2016 and ASX futures suggest it remains post-2018", MRP's slides say.
"If the Rankine units close, there may be some pinch points" in times of high electricity demand and low hydrology, although Mr Whineray said he expected the electricity market could find ways to solve those that didn't necessarily require the construction of new generation capacity.
While MRP had a "swaption" contract with Genesis for access to Huntly output, that was due to expire this year and there were potentially other ways to achieve the same back-up.
"We will look to engage with it (Genesis) if there's value in it, but those discussions are not necessarily linked to whether Huntly stays or goes," said Whineray. Genesis might provide back-up through other means, such as its Tekapo hydro scheme in the South Island, or North Island hydro assets such as Waikaremoana and Tongariro.
Genesis has been burning coal in recent months to reduce its stockpile ahead of the planned closure and has cancelled coal supply contracts.
MRP announced a recovery in net profit for the six months to December 31 to $74 million from $8 million in the same period last year when it took a hit from impairments created by withdrawal from international operations.
Operating earnings were flat, falling just $1 million to $257 million on the basis of earnings before interest, tax depreciation, amortisation and changes in the value of financial instruments.
An increased interim dividend of 5.7c per share, up 2%, was declared, payable on March 31, although ebitdaf earnings guidance for the year was lowered and total dividend guidance remains unchanged for the full financial year at 14.3c.
Earnings guidance is affected by lower than average water levels in the company's main hydro catchment, the Waikato River, and chairwoman Joan Withers warned that "hydrology could shift ebitdaf 10%, so based on many years of experience, the company expects guidance to move during the year, possibly several times, as part of business as usual."
Full year ebitdaf guidance is now placed at between $480-500 million, down from a previous range of $490-515 million, assuming average hydro inflows through to June 30.
While impairments on exits from international interests were the main cause of last year's much reduced net profit for the first half, there were still impairments of $18 million in the latest result, reflecting the permanent capping of exploratory geothermal wells in Chile, offset by a $1 million writeback on the impairments associated with the closure of MRP's gas-fired power station at Southdown, in Auckland.
"Pricing and competitive pressure remained intense during the period, in a market that is among the most competitive in the world," Mr Whineray said. "National electricity demand has continued to lift, up 1%, and the broader industry dynamic is positive with an improvement in ASX electricity futures prices."