Boom times are forecast for the electricity industry.
The big four generation and retailing companies have experienced the largest ever one year rise in earnings, according to the broking and analysts' firm, Forsyth Barr.
The companies are Mercury, Contact, Genesis and Meridian Energy.
The Forsyth Barr analyst Andrew Harvey-Green says the four will experience an 18% increase in their collective Earnings Before Interest, Taxation, Depreciation, Amortisation and Financial Adjustments (EBITDAF).
That will give them earnings of $2.7 billion.
Hervey-Green has provided these forecasts ahead of a series of full-year results from the power companies over the next three weeks.
"In many ways it was the perfect year with acquisitions, new generation, record high hydro generation, strong retail margin growth and one-off gains lifting earnings," Harvey-Green says.
He says there will be further growth in the 2024 year but nothing like that of 2023.
There will also be muted dividend growth relative to earnings growth, given capex obligations for new aspirational power developments, as well as uncertainty over the future of the Tiwai Pt aluminium smelter (NZAS).
"Whilst we maintain our view that a deal will be done and NZAS is here for the long-term, negotiations have been ongoing for over a year," Harvey Green says,
"And with the longer negotiations, it is understandable that companies will become more nervous about the outcome."
Harvey-Green says record North Island hydro generation and pushed Mercury and Genesis to the top of the pile, with growth of +39% and +21% respectively.
But the other two grew as well.
Harvey-Green says one of the key drivers of sector earnings growth has been the long-term effect from rising wholesale electricity prices.
"Whilst wholesale electricity prices started rising in 2019, there is a lag effect on retail prices, more so for mass market pricing than commercial and industrial prices," he says.
"We estimate that the long-term effect of higher wholesale electricity prices has added $265m to the big four's EBITDAF, which equates to an average increase of ~+NZ$11/MWh.
"We expect this momentum to continue for the next three years."
11 Comments
Energy will be one of the last money-makers standing, but the work we can do with the renewable portion of our grid is perhaps 30% of our total work, currently.
Then there's the triage problem; to build the Onslows and the windfarms takes energy - and globally all FF energy is bespoke; we're tapped out. So some other project/use has to be displaced.
Then there's the problem that there will be less future work done, so less debt-repayment ability. Preservation of wealth may be more important than looking for a 'return'; and the ultimate preservation is to buy now, what you know you will need in the future. Ironically, the best personal move might be to invest in energy-efficiencies (they repay forever) and energy-production at home.
We have the crew who scoff at solar and EVs etc. But I put solar on the roof four years ago and it's been marvellous.
Got two houses 250km apart on the same bill. Combined bill for both is less than a grand a year.
The New Zealand cartels, electricity, banks, supermarkets, petrol, local and central government make the Mexican ones look ethical.
You can't avoid them much, but anything you can do pays off well.
Just shows they had no justification to increase their prices then. I suspect they could also be making extra margins with the phase out of the low daily rate charges, as mine was increased but they also increase the unit rate, which wasn't supposed to happen according to the info and tables on the authorities website.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.