Is Accelerating Shift to Renewables Posing Challenges to Energy Players?

  • Nov 14, 2019 AEDT
  • Team Kalkine
Is Accelerating Shift to Renewables Posing Challenges to Energy Players?

Energy players these days are facing increasing expectations from investors, customers and communities and increased focus on environmental performance. In early October, New Zealand government announced its decisions on the report of the Electricity Price Review panel, wherein, it acknowledged the benefits of the current competitive retail market but found room for improvement in energy hardship and consumer advocacy.

Australia’s energy sector continues to undergo disruption, driven by technology change, an accelerating shift to renewables as well as due to increasing customer engagement. Customer choices are transforming the energy supply chain and energy consumers now have unprecedented opportunities to participate more actively in the sector.

In the light of the above-mentioned scenario, let’s look at the few energy players operating in New Zealand and Australia.

Contact Energy Limited (ASX: CEN)

New Zealand has a reliable, affordable and environmentally sustainable electricity system. New Zealand is at the start of a transformation from reliance on fossil fuels to renewable electricity. New Zealand's leading energy player, Contact Energy Limited (ASX: CEN) has released its October month operating report today.

The company has revealed that during October month, the electricity demand in New Zealand was up 1.5% on October 2018, taking the cumulative 12 months demand from November 2018 to October 2019 to 41,503 GWh (Gigawatt hours).

Total national demand (FY18, 19 and 20) (Source: Company’s reports)

During the month, the customer business recorded mass market electricity and gas sales of 379 GWh and Mass market electricity and gas netback of $87.32/MWh. The Wholesale business recorded Contracted Wholesale electricity sales of 644 GWh with Electricity and steam net revenue of $73.02/MWh.

On the environmental front, the company is continuing to make reductions in its carbon emissions and is focused on helping its customers to do the same. The company recently became one of the first power companies in the world to have its carbon emissions targets verified by the Science Based Targets initiative (SBTi).

In the last one year, CEN stock price has increased by 16.55% as on 13 November 2019, however, in the last three months, the stock has declined by 19.37%. At market close on 14 November 2019, CEN stock was trading at a price of $6.690 with a market cap of around $4.69 billion.

AusNet Services Limited (ASX: AST)

AusNet Services Limited (ASX: AST) owns several electricity distribution networks in Australia. The company recently reported its half year results for the period ended 30 September 2019, wherein, it announced that its financial performance during the half year was slightly down as compared to pcp, but was consistent with expectations, noting there are a number of one-off and pass-through items that have impacted the results.

HY2020 Financial Summary (Source: Company’s Reports)

AusNet Services is focused on running its networks efficiently and safely, whilst investing selectively in growth opportunities. The company believes that it is well poised to capitalise on the opportunities the energy transition presents and intends to deliver sustainable and growing returns to shareholders, through continued investment in regulated and contracted asset base, with an ongoing focus on cost management.

In the last one year, AST stock price has increased by 9.94% as on 13 November 2019. At market close on 14 November 2019, AST stock was trading at a price of $1.825 with a market cap of $6.94 billion.

Mercury NZ Limited (ASX: MCY)

Emerging New Zealand Energy company, Mercury NZ Limited (ASX: MCY) is on its path to New Zealand’s largest wind farm at 222MW, producing 840GWh annually. The company recently announced its intention to build the remaining 27 consented turbines at Turitea, at a cost of $208 million, contributing further to New Zealand’s sustainable, low emissions future.

Mercury’s Chief Executive, Fraser Whineray Commented:

“The combination of long-term electricity demand projections, synergies from already committed transmission infrastructure, construction and operations on site, and co-benefits with the Waikato hydro system mean completion of the Turitea wind farm makes sense”

The company already generates around 6,800GWh of renewable electricity each year, approximately 17% of New Zealand’s total electricity generation, from its hydro and geothermal stations located in the central North Island. Mercury owns almost 20% of Tilt Renewables and operates solar business Mercury Solar.

Notably, in the last one year, MCY stock increased by 44.75% as on 13 November 2019. At market close on 14 November 2019, MCY stock was trading at a price of $4.740, up by 1.066% intraday, with a market cap of $6.39 billion.

Spark Infrastructure Group (ASX: SKI)

Known for delivering reliable and affordable electricity to consumers, Spark Infrastructure Group (ASX: SKI) is focussed on delivering long-term value through capital growth and distributions to Securityholders from its portfolio of high-quality, long-life essential services infrastructure businesses

The company recently confirmed its distribution guidance for FY2019 of at least 15.0cps, subject to business conditions

SKI Outlook

  • Spark Infrastructure expects its future cash flows to align more closely with the five-year regulatory periods of its major investments, primarily SA Power Networks and Victoria Power Networks;
  • Distributions to Securityholders will be funded from standalone operating cash flows after tax payments;
  • Taking into account these regulatory and macro-economic headwinds and notwithstanding the best efforts of the company’s Investment Businesses to mitigate these impacts, the Directors expect distributions to Securityholders will need to reset to a lower base for the next five-year regulatory periods.

In the last three months, SKI stock decreased by 13.30% as on 13 November 2019. At market close on 14 November 2019, SKI stock was trading at a price of $2.050 with a market cap of $3.43 billion.

Genesis Energy Limited (ASX: GNE)

Diversified New Zealand energy company Genesis Energy Limited (ASX: GNE) recently released an update on its Q1 FY20 (three months ended 30 September 2019) performance.

Q1 FY20 Highlights

  • Retail- Genesis’ gross churn declined further over the quarter, down 1.6 ppt on the prior year, with net churn down marginally, by 0.6 ppt;
  • Wholesale- The fuel constraints observed in the prior year continued over the first quarter FY20 driven by gas outages, declining gas production at Kupe and lower than average inflows in all hydro catchments;
  • KUPE- Kupe operated at 97.2% of available capacity over the period, up from 95.8% on pcp, although included two short unplanned maintenance outages in late September.

At market close on 14 November 2019, GNE stock was trading at a price of $3 with a market cap of $3.12 billion.


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