Mercury raises profit forecast as spot market, water levels improve

Friday, 22 January 2021

Karapiro power station, one of Mercury Energy’s hydroelectric power stations on the Waikato River.

Electricity generator Mercury has lifted its full year profit forecast, pushed up by dry conditions and the deferred closure of Tiwai aluminium smelter.

The company told shareholders on Friday that it had upgraded its pre-tax earnings guidance to $535 million, up from $505m.

Mercury, which runs hydro and thermal stations in the Waikato and Taupo regions, said its forecast was heavily influenced by factors in the general electricity market.

Currently on the ‘’spot’’ market, power retailers are paying higher prices due to low lake levels in the South Island and supply constraints for gas-powered thermal generators.

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Meanwhile, on the ‘'futures’' market, power prices have been bolstered by Rio Tinto’s decision to keep its smelter open and continue taking electricity from Meridian for another four years, averting fears that cheap power would flood the market.

In its own area, Mercury said that having experienced record low inflows last year, it had managed storage on Lake Taupo ahead of the usual summer dry season.

As a result, storage in Lake Taupo had increased from 254 gigawatt hours to 456GWh, 21GWh above average.

Higher than expected inflows also meant Mercury was now expecting its full year hydro generation to increase by 200GWh to 3,900GWh, the company told the NZX.

Shares in Mercury were unchanged in morning trade at $6.97, below its year high of $7.38 in early January, but well up on its pre-lockdown high of $5.46 last February.