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Mercury points to peaking gains as FY production drops 10%

By Gavin Evans

July 18 (BusinessDesk) - Mercury NZ says it relied on the peaking capacity of its Waikato hydro generation to capture high wholesale power prices in the June quarter.

The country’s third-largest power retailer said its hydro dams and geothermal plants earned an average $117.15 a megawatt-hour in the period, up from $79.84/MWh in the June quarter of 2018.

Production fell to 1,527 gigawatt-hours, 21 percent less than a year earlier, as dry weather in the North Island slashed the firm’s hydro output to 796 GWh – 422 GWh less than the near-record levels achieved a year earlier.

Storage in Lake Taupo, which supplies the nine plants Mercury operates on the Waikato River, has been below average since October and neared a four-year low in recent months. In April, the company cut its full-year operating earnings guidance to $495 million, citing the ongoing dry conditions. The forecast assumed hydro generation would only reach 4,000 GWh.

“Despite below-average inflows in the quarter, Mercury was able to finish the year strongly by utilising the peaking capability of the Waikato hydro scheme to benefit from spot price volatility,” the company said in a statement to NZX.

Mercury shares were unchanged at $4.58, taking their gain so far this year to 26 percent.

The company noted spot electricity prices had been particularly volatile due to constrained gas supplies. Futures prices for the 2020 and 2021 years also remain elevated due to industry concerns about longer-term thermal fuel availability.

Despite June quarter inflows being in the lowest 14 percent for the period, based on records back to 1927, full-year hydro production reached 4,006 GWh, down from the record 4,947 GWh reported the year before.

Annual geothermal output climbed to a record 2,896 GWh, 5 percent more than a year earlier. That brought total generation for the June year to 6,902 GWh at an average $138.29/MWh, from 7,704 GWh at $86.19/MWh a year earlier.

Mercury noted that national demand in the June quarter was down 1.4 percent from the year before, mostly due to reduced urban demand and a weaker milk production season than the year before. Excluding the Tiwai Point aluminium smelter, which re-started its fourth potline in December, industrial demand fell by 0.2 percent “possibly due to spot-exposed users responding to high spot prices.”

Mercury ended the year with 373,000 electricity customers, down 6,000 from March and 15,000 fewer than a year earlier. It purchased 5,510 GWh of power from the market to supply them in the June year, down 2 percent from the year before.

It paid an average $144.19/MWh for that supply, up from $91.62/MWh a year earlier.

Mercury said it has reduced customer acquisition activity as retail margins narrowed with the continued rise in forward electricity prices. It instead focused on its existing customers and maximising the value of its book.

Of the customers joining its Mercury brand in the June quarter, only 27 percent received discounted terms, down from 55 percent a year earlier, it said.


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