Trustpower stands to gain from plummeting electricity prices, according to Forsyth Barr specialist analyst Andrew Harvey-Green – while Contact Energy and NZ Windfarms will be feeling the strain.
Both wholesale spot electricity prices and future Ene
Trustpower stands to gain from plummeting electricity prices, according to Forsyth Barr specialist analyst Andrew Harvey-Green – while Contact Energy and NZ Windfarms will be feeling the strain.
Both wholesale spot electricity prices and future EnergyHedge prices, already low, fell further in September due to heavy rain and high lake levels.
Trustpower, unlike some of its larger rivals, has more retail customers than it can supply from its own power generation. It uses long-term hedge prices to offset the difference so has little to no exposure to volatile wholesale prices.
Falling hedge prices, down 12% last month to an average $53/MWh for the 2010 calendar year and down 7% to $77/MWh for 2011, will have a positive impact on Trustpower’s earnings.
Contact Energy, by comparison, has more generation than customers – particularly after a spate of recent customer losses – and relies on the wholesale market to sell surplus power.
This will be hitting earnings hard at the moment. The monthly average wholesale price for September, at $20/MWh at the Hayward node and $16/MWh at Benmore, is at its lowest monthly average since February 2004.
As a result, the latest Forsyth Barr ‘Electricity Monthly’ states that it looks “increasingly unlikely” that Contact will be able to achieve its first half 2011 guidance.
“Contact continues to go through a tough time and the near-term earnings risk is to the downside. However, we continue to see long-term value in the company,” Mr Harvey-Green writes.
Trustpower remains in a strong strategic position and is described as the “safest bet within the sector”.
NZ Windfarms, the other listed company analysed in the monthly Forsyth Barr report, is the most exposed to low wholesale prices, as all of its generation is sold on the spot market.
Mr Harvey-Green writes that NZ Windfarms appears to have a “reasonable cash buffer” to complete its Te Rere Hau windfarm expansion but may need to find additional short-term finance if wholesale prices remain low for the rest of the year.
He was unconcerned about the Palmerston North City Council’s application to the Environment Court to impose more stringent noise conditions on the Te Rere Hau windfarm, as announced this week.
“In the worst case scenario for NZ Windfarms, they’ll just need to turn off a few turbines in certain wind conditions so it’s not a big issue for them,” he told NBR.
Forsyth Barr’s long-term view of all three listed companies is largely unchanged.
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