Electricity generator Mercury lowers its full-year profit forecast

Tuesday, 23 February 2021

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

Electricity generator Mercury lowered its full-year profit guidance as it expects dry weather to crimp its hydro generation while wholesale prices remain high.

On Tuesday, Mercury pulled down its pre-tax earnings guidance for the year to the end of June to $520 million from the $535m it expected in January. Still, that remains above the $494m it reported last year.

Mercury, which operates hydro and thermal stations in the Waikato and Taupo regions, said it expects its hydro generation to fall by 100GWh in the full-year to 3800GWh as a result of dry weather in the Taupo catchment since mid-January.

“We have carefully managed our way through a difficult period of low inflows into the Waikato hydro system, following sustained record low inflows beginning September 2019,” said chief executive Vince Hawksworth. “Lake management will continue to be key as we head into winter.”

In February, the Climate Change Commission recommended ending new connections to the gas network in 2025.

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Upstream gas supply constraints are having a pronounced effect on the wholesale electricity market, he said.

Mercury expects wholesale electricity prices to remain elevated for the remainder of financial year, based on indications from electricity futures on the ASX.

Futures prices have lifted across the next four years following confirmation of electricity supply arrangements for the Tiwai Point aluminium smelter and the release of the Climate Change Commission’s draft report, he said.

“This signals considerable pressure on electricity retail businesses with likely upward price pressures for end users,” Hawksworth said. “However these same dynamics create confidence for new investment in low-cost renewable generation.”

Mercury increased its first-half net profit 57 per cent to $130m in the six months to the end of December. The result was boosted by a $41m gain on the sale of its interest in the Hudson Ranch 1 geothermal power station in California in November.

The company will pay a 6.8 cents a share dividend on April 1, up 6 per cent on the same period last year. The payment represents 40 per cent of its forecast full-year dividend of 17 cents, which is 7.6 per cent higher than last year’s payment.

Mercury shares last traded at $6.38 on Monday, and have slid 2.3 per cent this year.