Genesis Energy signals January price rise despite 600% profit jump

Friday, 19 August 2022

Genesis chief executive Marc England says its coal and gas Huntly power station can provide “security” to the renewable electricity system.

Genesis Energy plans to increase its electricity prices for residential customers in January despite posting a 600% increase in its annual profit and signalling a further increase in its operating profit ahead.

Chief executive Marc England said it hadn’t yet decided how much prices would go up, as it would consider that strategically and make a call on that later this year.

Genesis posted a bumper $222 million profit for the year to the end of June, which was six times higher than its $32m profit the year prior and almost four times its $46m profit in 2020.

Fellow state-controlled ’gentailer’ Mercury Energy reported earlier this week that it had more than tripled its annual profit to $469m, with the largest of the gentailers, Meridian Energy, due to report its annual result next week.

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Genesis’ operating profit rose a somewhat more modest 24% to $440m, despite a 12% drop in revenues to $2.8b.

The company forecast a further increase in its operating profit to $455m in the current financial year, subject to “hydrological conditions, gas availability, and any material adverse events or unforeseeable circumstances”.

Genesis Energy chairwoman Barbara Chapman and chief executive Marc England dismiss the idea of nuclear power in NZ at the company's annual meeting in October 2021.

It increased its dividend to shareholders for the eighth year in a row, by 0.2 cents to 17.6c a share.

England defended its plan to raise its prices, saying Genesis had not increased its residential electricity prices this year despite a lower profit last year and high inflation.

It had instead absorbed an increase in line charges for customers, he said.

“That was a decision based on where we believed we sat versus everyone else in the market,” he said on a call to analysts.

Chief financial officer James Spence said it had, however, increased its prices for small business customers.

Genesis’ employee-rated expenses rose by $9m during the year, he said.

Consumer NZ chief executive Jon Duffy said Genesis’ decision not raise residential prices this year had been a “great gesture”, whatever the reason.

“[But] it does send a mixed message to consumers, particularly their longstanding and loyal customers that at a time when they are making a pretty significant profit they would be putting prices up.

“Any increase should be proportionate to their costs and it is incumbent on them to be able to show a pathway back to cost increases to justify price increases,” he said.

England said its rise in net profit was largely attributable to an upwards revaluation of its derivative contracts and other assets, that had flowed from a higher wholesale price curve.

He agreed that increases in wholesale electricity prices suggested that generators had been late to invest in new generation but said a major reason for that had been uncertainty over the future of the Tiwai Point aluminium smelter, which accounts for about 13% of the country’s electricity demand.

England forecast that the Government would not achieve its “aspirational target” of moving to 100% renewable energy by 2030.

Instead, he said its forecasts suggested 96% to 98% of electricity generation would be renewable by then.

“There will still be times when it doesn’t rain, the wind doesn’t blow, and the sun doesn’t shine,” he said.

England said its coal and gas powered Huntly power station could “continue to provide security to the renewable electricity system day-to-day for the country’s energy consumers to decarbonise over the long term”.

However, the security Huntly provided needed to be supported by appropriate commercial agreements and market settings, he said.

England said Genesis had been forced to push back a trial that will see it burn imported charcoal pellets at Huntly, because of international shipping issues and a lack of availability of the raw material “after the global energy crunch hit”.

But Genesis was still optimistic the trial would take place some time before the end of June, he said.

Genesis generated 2.2 million tonnes of carbon emissions in the financial year, which was down by 1.7mt from the previous year, but little different to its average emissions between 2016 and 2020.