Genesis Energy ups profit, raises prices, bets further on gas

Monday, 27 February 2023

Genesis has tested burning wood pellets in place of coal at its Huntly power station, to cut its impact.

Genesis Energy achieved a big jump in its net profit shortly before raising its electricity prices this summer, the company’s interim results show.

The majority-state owned power firm said it had also made the “difficult decision” to further invest in gas generation, despite taking some steps towards decarbonisation.

Genesis reported its net profit for the six months to the end of December rose 72% to $145 million.

Its operating profit, which provides a better guide to its underlying performance, rose 42% to $298m.

* Big power companies tipped to increase operating profits by 22%

Genesis has been gradually reducing its reliance on its coal and gas-burning Huntly power station which it once slated for closure in 2018.

* Genesis Energy gives green light for $70m solar power plant in Canterbury

Despite the profit jump, interim chief executive Tracey Hickman said it had raised its electricity prices in December and January to reflect higher costs in its retail business.

A number of Genesis customers on low-usage plans reported an allowed doubling of daily-fixed charges to 69 cents a day flowing through to their bills in January.

All power companies will be allowed to hike the daily charge again to a maximum of $1.03½ from April 1.

“For the first time in two years, we put through some but not all of the higher costs we are experiencing in our retail business to our Genesis residential electricity customers,” Hickman said on a call to analysts and investors.

“We are mindful that many New Zealanders are facing rising costs as well and we've worked hard to strike the right balance in all of our pricing decisions,” she said.

She later added that Genesis appreciated the increase was “a challenge for customers and that was a factor we considered”.

“The counterpoint was that if we continued to absorb costs the margin would be much bigger when they were eventually passed through,” she said.

Genesis' promotional video for its Lauriston solar farm.

Hickman said its results fell “at an incredibly challenging time for many New Zealanders, with Cyclone Gabrielle and the Auckland floods”.

“Genesis continues to offer support to communities and customers affected,” she said.

Genesis kept the rise in its pay-out to shareholders restrained, announcing it would increase its interim dividend by 0.1 cents a share to 8.8c a share.

The company said that represented “continued value for shareholders while retaining capability for future investment”.

Fellow majority-state owned gentailer Mercury Energy raised its dividend from 8c to 8.7 last week after reporting an 86% rise in its operating profit.

Genesis gave the green light in January for a $70 million solar farm in Canterbury, the smallest of three large solar developments that have been confirmed or revealed in Canterbury this year.

Last week, in a possible precursor for further decarbonisation, it tested burning wood pellets at its coal and gas-fired Huntly Power Station.

Genesis has made the “difficult decision” to invest further in the Kupe gas field.

“We are hopeful in the potential of biomass, but we reiterate we've made no final decisions about the role biomass could play for Genesis,” Hickman said.

Genesis also said it had applied for an extension to resource consents that could let it build a 71-turbine 300-megawatt wind farm at Castle Hill, east of Eketahuna in the Wairarapa.

However, it acknowledged there was no guarantee that would go ahead either.

The company secured approval in 2013 to erect up to 286 wind turbines with a total output of 860MW at the site and is understood to have paid some landowners a retainer since then, without ever committing to a development.

“The new consent focusses on the most productive wind sites and gives Genesis the option to develop should we decide to. While this is a useful option for Genesis, no decision on development has been made,” Hickman said.

Genesis’ original consents for Castle Hill are due to expire in June and it has asked councils for an 8-year extension to give it additional time to decide whether to make its pared-down investment.

Chief financial officer James Spence said Genesis had, however, made what he described as a “difficult decision” toinvest in a new well to increase gas production from the Kupe gas field, offshore from Taranaki.

The capital cost of the investment is $75m, with most of that being incurred in its 2024 financial year.

“We are acutely aware of the sensitivity of investing in the well at Kupe,” Spence said.

“We do however, see that gas is an absolutely critical fuel, at least for the short term to medium term in providing thermal backup in an increasingly intermittent system. Others will have different views on that,” he said.

Spence said Genesis believed the additional gas from Kupe would displace coal in the generation mix, meaning carbon emissions would be lower they would be without the investment.

Energy Minister Megan Woods, who has set at “aspirational target” of moving the country to 100% renewable electricity by 2030, has been approached for comment.

Genesis upped its forecast operating profit for the full year to about $515m, an increase of $15m.

The company’s shares were up 1c at $2.86 in lunchtime trading on the NZX.

Analysts at financial services firm Jarden said it believed its shares were trading below their true value, but said risks for investors included greater regulation, an increased carbon price and rising prices for coal and gas.