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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances. Wholesale electricity prices are

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Speaker 1: incredibly high. How it may help or hurt our major

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Speaker 1: power companies.

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Speaker 2: These companies run a gentile model, so they hedge a

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Speaker 2: lot of the expected load lending it and leave a

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Speaker 2: little bit of extra load to cover for these sort

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Speaker 2: of situations. But this is quite agressive situation relative to

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Speaker 2: a normal winter cycle.

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Speaker 1: Hydro lakes are at record lows and gas supply is

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Speaker 1: falling short, sending the wholesale price of electricity to new heights.

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Speaker 1: It had above eight hundred dollars per megawatt hour this week.

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Speaker 1: The last time it rained properly to fill our hydro

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Speaker 1: storage lakes was four months ago in mid April. Dams

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Speaker 1: in the North Island are thirty two percent full compared

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Speaker 1: to average for this time of year, and dams in

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Speaker 1: the South a sixty one percent full. So supply is low,

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Speaker 1: but electricity demand is increasing. It was up by two

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Speaker 1: and a half percent in July this year compared to

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Speaker 1: last year.

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Speaker 3: I've not seen it that bad.

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Speaker 1: These are unprecent enter type prices, so if the market's right,

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Speaker 1: then we're in your state of some distress. That's leading

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Speaker 1: some manufacturers to shut up shop, with og Fiber Solutions

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Speaker 1: announcing the potential closure of its Auckland paper mill due

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Speaker 1: to high energy costs. It follows Winston Polp's fourteen day

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Speaker 1: shutdown of two of its Central North Island mills. Meridian

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Speaker 1: Energy has already asked the t Y aluminium spelter to

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Speaker 1: cut production, reducing total electricity demand across the country by

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Speaker 1: four percent. Meridian is only contractually allowed to ask tea

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Speaker 1: Wy to do so four times over twenty years, so

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Speaker 1: this is significant. Meanwhile, Energy just announced a surprise shock

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Speaker 1: to earnings due to the repurchasing of electricity at extremely

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Speaker 1: elevated prices and a retailer it supplies to defaulting on

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Speaker 1: its contract. All four of the major power companies are

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Speaker 1: reporting their financial results this month. We're just how much

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Speaker 1: this situation is affecting them will be revealed. Graumt Swanopolas

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Speaker 1: Jarden's energy analyst. He says some gent tailors may be

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Speaker 1: managing this better than others. Grant thank you, so much

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Speaker 1: to Doma. It's always good to see.

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Speaker 3: You made, always good to see you too.

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Speaker 1: It's a bit of a complex picture this power industry

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Speaker 1: right now. And I know that our listed power companies

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Speaker 1: there's no direct winners and losers. But can you paint

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Speaker 1: the picture for us about who benefits most and least?

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Speaker 2: Well, it's really around who's got a bit of gas

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Speaker 2: and who thought there would have some gas at this

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Speaker 2: point in time. So you've got Genesis, which had its

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Speaker 2: coupe cutback and means that it's running its big unit

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Speaker 2: five at a lot lower pace than all leaders. But

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Speaker 2: you salk about winners and losers, well, Genesis has got

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Speaker 2: all three rankings up and running, so they're using a

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Speaker 2: lot of call at the moment, so it off.

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Speaker 3: Sets some of that risk.

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Speaker 2: So Genesis appears to be okay from that perspective, but

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Speaker 2: more complicated when you talk about the others. You've got

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Speaker 2: Contact at Lissa's gas storage, So while there might be

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Speaker 2: short gas over the next twelve months, they've got the

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Speaker 2: ability to use a lot of gas.

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Speaker 3: At the moment if they need to.

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Speaker 2: And they are running their Taranaki combined cycle plant quite

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Speaker 2: quite aggressively, not as aggressively they'd like to, but quite aggressively,

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Speaker 2: and they share about twenty five percent in that TI

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Speaker 2: demand response contract that Meridians benefiting from. Some Meridian would

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Speaker 2: normally add sixty percent to lake levels. Be struggling a bit,

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Speaker 2: but they've got that big demand response they've pulled quite aggressively.

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Speaker 2: It's the level four demand response that gives them some

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Speaker 2: respite to these higher prices, so they might be okay

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Speaker 2: coming through it. And then you've got Mercury, which I

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Speaker 2: suspect it's probably struggling against a thirty percent damnules in

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Speaker 2: the North Island. But Mercury are really good at risk mitigations,

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Speaker 2: so the downside for them is probably limited because of

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Speaker 2: the risk mitigation strategies.

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Speaker 3: But they're probably the ones hurting the.

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Speaker 2: Most out of all of this, other than Manua, which

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Speaker 2: came out with a profit warning.

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Speaker 1: What are you expecting to see across all of their earnings?

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Speaker 1: Are we expecting it to be higher or lower across

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Speaker 1: the board? And how much will this situation actually play

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Speaker 1: into that or are there other things that may cover

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Speaker 1: it up on the top line.

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Speaker 2: Yeah, well, there's a couple of companies that actually got

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Speaker 2: one off New new generation coming on or ty contract

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Speaker 2: changes that are going to have material uplifts to the earnings.

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Speaker 2: So you take Meridian, they're adding about hundred fifty million

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Speaker 2: to the earnings from the ty contract change, so there

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Speaker 2: was a nice decent momentum coming through on their earnings front,

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Speaker 2: even if there's a little bit of hurt through this

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Speaker 2: current crimp on the on the wholesale price recovery contacts.

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Speaker 2: Also got to Hire and to Hooker coming on over

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Speaker 2: this coming year, so they've got a good one hundred

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Speaker 2: and fifty million guidance uplift on their numbers, so they've

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Speaker 2: got it a momentum coming through. Genesis had a torrid

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Speaker 2: effor four and their outlook for twenty five is for

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Speaker 2: decent earnings growth as well, so they're all right even

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Speaker 2: if there is a little bit of hurt coming through.

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Speaker 2: It's Mercury that for the first time in three or

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Speaker 2: four years hasn't got one or four new benefits coming

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Speaker 2: through to enhance the forward looking earnings for the first

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Speaker 2: time and potentially could post a number that's slightly behind

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Speaker 2: this year's earnings. So they all all have good momentum

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Speaker 2: behind them, except for maybe Mercury.

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Speaker 1: With wholesale electricity prices where they are right now. Grant

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Speaker 1: is the any positive price price effects from any of

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Speaker 1: these power companies.

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Speaker 2: It's very hard to tell because these companies run a

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Speaker 2: gentile model, so they hedge a lot of the expected

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Speaker 2: load that we get and leave a little bit of

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Speaker 2: extra load to cover for these sort of situations. But

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Speaker 2: this is quite an aggressive situation relative to a normal

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Speaker 2: winter cycle, so it's hard to tell how they've hedged

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Speaker 2: or haven't hedged through the cycle. But I think Genesis

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Speaker 2: are probably well positioned to make some money once we've

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Speaker 2: moved through this cycle or this's this winter period, because

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Speaker 2: they do have the ability to run those rankings with aggression.

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Speaker 2: And I think the market is it's not too concerned

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Speaker 2: with coal burn at the moment.

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Speaker 3: Because we know we need it.

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Speaker 1: We've already seen some manufacturers reduced demand on the system

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Speaker 1: in the case of Ty because they were asked to

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Speaker 1: by their power supplier and others because they can't afford

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Speaker 1: to What do you think this means for the sector?

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Speaker 1: If we start to see more manufacturers pull out of

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Speaker 1: the system, how much could that reduce electricity demand.

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Speaker 2: By This is an issue. I think it is a

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Speaker 2: short term issue that will get through. And I think

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Speaker 2: companies that can pull back if the cost of electricity

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Speaker 2: is meaning that they're not making a return on the

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Speaker 2: products they're producing, that they should be doing it win

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Speaker 2: prices if they haven't edged their generation, if they haven't

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Speaker 2: edged the electricity bill. Sorry, while we have eight hundred

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Speaker 2: two thousand dollars prices, but when they normalize again, and

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Speaker 2: there's not forget through twenty fifteen sixteen seventeen, wholesale prices

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Speaker 2: were well below long run numbers, and SEELI customers were

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Speaker 2: getting costs well below what the residential customers playing and

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Speaker 2: never heard anybody complaining back then. So now that you're

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Speaker 2: pinging on the other side, suddenly they are complaining. But

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Speaker 2: let's go back the root of the problem. The root

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Speaker 2: of the problem is a.

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Speaker 3: Lack of signals.

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Speaker 2: So the ty deal took so long to take place

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Speaker 2: that you couldn't commit to new bills because you don't

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Speaker 2: know whether the TY would be around or not be around.

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Speaker 2: Because the previous government had set a aspirational target of

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Speaker 2: unobsenting yourble electricity market by twenty thirty, even though they

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Speaker 2: never really walked away from it, they still left it

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Speaker 2: as a threat. It meant the gas industry couldn't get

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Speaker 2: on with it. It meant that the electricity market couldn't get

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Speaker 2: on with creating a capacity solution that allowed for gas

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Speaker 2: be around for longer. So a lot of the issues

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Speaker 2: you're facing now are outside the electricity industry's domain, and

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Speaker 2: maybe they'd be going to be unfair really pinged for it,

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Speaker 2: But you know, it's just where prices are right now.

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Speaker 2: And I don't think CNI is going to have to

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Speaker 2: face this sort of dilemma for more than a few months,

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Speaker 2: and then we should have a more normalized market developing

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Speaker 2: for next year.

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Speaker 1: What about renewables, grant? All of these big power companies

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Speaker 1: are spending billions of dollars on these forward looking wind

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Speaker 1: and solar renewables projects. Have any of them come online

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Speaker 1: and when could we expect them to help out this

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Speaker 1: current situation.

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Speaker 2: Well, we have quite a few coming online. So this

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Speaker 2: coming year, we've got Tarat Paki from Maridian coming on.

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Speaker 2: It's just been turned on a month or two ago

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Speaker 2: into commission a couple of months ago. You got to

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Speaker 2: hire which is already on running a little bit soft

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Speaker 2: at the moment as they fix a little rattle in

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Speaker 2: the system, but should be at one hundred and fifty

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Speaker 2: three megawatz, which is a big chunk of extra duice.

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Speaker 2: You've got to hooka coming on into this year, and

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Speaker 2: a couple of little solo projects coming on at the

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Speaker 2: back end of this financial upcoming financial year, so there's

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Speaker 2: quite a lot of generation coming on. The problem is

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Speaker 2: the gas shortage means that even when in FY twenty

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Speaker 2: four there was about five thousand, five thousand, five hundred

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Speaker 2: gigwood hours of thermal being produced over the next twelve

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Speaker 2: months because it's extra renewable, let's me cut back to

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Speaker 2: about three thousand and five hundred, so it's pushing gas out.

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Speaker 2: But even at three thousand and five hundred, it'sid enough

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Speaker 2: of a demand on the gas market to mean that

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Speaker 2: you're worrying about the fuel supply, keeps wholesale prices up

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Speaker 2: into the following years. You get this extra thousand gig

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Speaker 2: WHATD hours expected to come on from renewables, the gas

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Speaker 2: market is pushed down to a more workable level of

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Speaker 2: about two thousand to two thousand and five gigod hours,

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Speaker 2: which means you no longer have the gas industry hurting

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Speaker 2: the wholesale prices as much as they are for the

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Speaker 2: next couple of years. So it's going to take eighteen

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Speaker 2: months to two years to work the gas industry problem

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Speaker 2: out with renewable build coming on. But there's enough renewable

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Speaker 2: coming on that we are working towards the goals that

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Speaker 2: we set a few years ago of probably getting to

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Speaker 2: about nineteen ninety five percent renewable in the next three

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Speaker 2: or four years.

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Speaker 1: So this situation currently worth high wholesale prices where they're at,

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Speaker 1: it's not about eighteen months until we might see some relief,

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Speaker 1: is that what you're telling me now?

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Speaker 2: I think in the next eighteen months you will see

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Speaker 2: certainly not it's eight hundred to one thousand dollars level.

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Speaker 3: You know. Really, if we come pretty quickly.

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Speaker 2: As soon as we move out of this high demand

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Speaker 2: period of winter, as soon as we get in another

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Speaker 2: water bomb, et cetera, we will move out it quite quickly.

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Speaker 3: For the two hundred dollar.

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Speaker 2: Dollar level Holso prices that we've seen over the last

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Speaker 2: eighteen months, we've probably not get much respite on that

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Speaker 2: for the next eighteen months.

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Speaker 1: If wholesale prices coming down relies partly on these renewables

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Speaker 1: projects coming online, but we know that some major power

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Speaker 1: companies those projects haven't actually received FIT final investment decision status.

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Speaker 1: So how much do we need those decisions to be

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Speaker 1: made to help out?

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Speaker 3: The answer is.

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Speaker 2: Wind resources can sense are taking longer than people are expecting,

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Speaker 2: and there's not a lot of wind that has been consented.

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Speaker 2: There's a lot that's in the consenting process. So going

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Speaker 2: to food is taking time, and it takes two to

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Speaker 2: two and a half years to build wind, so once

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Speaker 2: you go into FID, you sort of wait two two

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Speaker 2: and a half years before that juice comes on. What

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Speaker 2: it's easier to consent is solar. So we're a seeing

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Speaker 2: a lot of solar fits coming up and getting to

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Speaker 2: fit because they can come on within eighteen months. So

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Speaker 2: the fit process, well, what the resource consenting process is

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Speaker 2: probably holding up some of the speed that market that

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Speaker 2: companies want to go to fit, but there's enough coming

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Speaker 2: on that in an orderly process, we should have the

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Speaker 2: market back in balance by twenty three seven.

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Speaker 1: Okay, if they do decide to go with all of them,

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Speaker 1: how much of a risk is oversupply and us eventually

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Speaker 1: having the opposite of the situation, too much power and

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Speaker 1: superlow prices.

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Speaker 2: I think oversupply becomes critically negative to investors when this

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Speaker 2: gas crisis isn't it less of an impact on the market,

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Speaker 2: which are only foreseeing about FY twenty seven. So if

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Speaker 2: you're getting closer to a balanced market with a balanced

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Speaker 2: fuel supply into it, the market is quite sensitive to

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Speaker 2: small changes in supply relative to mind growth. So I

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Speaker 2: do see some risk of oversupply and being sustainably oversupplied

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Speaker 2: for a few years from about FI twenty eight onwards.

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Speaker 1: So we could be looking at a situation, granted about

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Speaker 1: three to four years time, where and Vistas actually see

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Speaker 1: earnings drop for these power companies because prices are the

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Speaker 1: opposite of where they are now.

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Speaker 2: You did write in saying power prices probably coming down,

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Speaker 2: but let's not forget these are gentailors for a purpose,

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Speaker 2: and what they do is they contract out longer terms

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Speaker 2: than just what's right in front of them in terms

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Speaker 2: of retail customers, C and I customers and at will

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Speaker 2: and just generally that they keep their heads position for

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Speaker 2: what they're setting further beyond just the short term wholesale price.

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Speaker 2: So investors will still do all right out of them,

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Speaker 2: and hopefully the downturn into an over supplies market isn't

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Speaker 2: too extended to creator a hole in their earnings sometime

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Speaker 2: in the future.

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Speaker 1: There's another risk right now regulation. When a system has

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Speaker 1: all of these questions being raised around it, it kind

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Speaker 1: of looks like from the outside looking in, that the

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Speaker 1: system may be broken. We know the Commerce Commission is

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Speaker 1: looking into any industry where situations like this are occurring.

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Speaker 1: They're about to finish one report. Do you think energy

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Speaker 1: companies could be the next one to draw a spotlight

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Speaker 1: from regulators?

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Speaker 2: I think politicians will always jump over the opportunity to

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Speaker 2: get a good SoundBite out of helping consumers with elevated pricing. Now,

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Speaker 2: retail customers generally don't have their prices changing too materiity.

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Speaker 2: CNI customers do, particularly those who haven't put it a

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Speaker 2: contracting place. So CNI customers would not be paying eight

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Speaker 2: hundred dollars a meg with hour because that I have

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Speaker 2: contracted at one hundred and thirty hundred and forty dollars

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Speaker 2: whatever the price point is over a medium term period.

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Speaker 2: So I think that you're trying to protect those that

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Speaker 2: haven't edged and to regulate a market, you end up

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Speaker 2: breaking price signals that stop the companies from committing to

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Speaker 2: building into the future. So you actually open a big

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Speaker 2: can of worms if you want to start playing around

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Speaker 2: with capacity pricing without a capacity market having been created.

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Speaker 3: So, while I think there's a lot of.

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Speaker 2: Talk about regulation and how we help the poor CNI customer,

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Speaker 2: and I'm sure there are tweaks that could be done

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Speaker 2: to the system, I see it's very unlikely that you

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Speaker 2: make material changes without causing long term negative impacts on

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Speaker 2: the ability to build a renewable platform into the future.

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Speaker 1: Well, as we know, we are moving into that clean

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Speaker 1: energy renewables type future. The power companies are spending billions

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Speaker 1: of dollars to ensure that we get there as soon

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Speaker 1: as possible. They may get crucified for this Christian grant.

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Speaker 1: But do you think it's time we had a conversation

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Speaker 1: about nuclear and its potential role here?

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Speaker 3: No, I don't want to go there.

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Speaker 1: You don't want to go there?

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Speaker 3: No, no, don't.

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Speaker 2: I don't have any answer to that question because it's

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Speaker 2: a political hotcake in that I personally believe nuclear is

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Speaker 2: a good science solution to a lot of people's problems.

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Speaker 2: But in a country that has fault lines, maybe it's

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Speaker 2: just too high oddle to get the general public around.

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Speaker 2: Never mind that the word nuclear is probably a word

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Speaker 2: that people have more fear than the reality of the

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Speaker 2: science behind it, and a lot of what goes on

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Speaker 2: in New Zealand is driven by sentiment as opposed to science.

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Speaker 3: So Yuka's a conversation. I don't think new synams are

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Speaker 3: going to

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Speaker 1: Have thank you so much for to put waste your

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Speaker 1: time