MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

To predict the consequences of the future behaviour of the operators of Onslow, I am going to rely on Jantar's vision (espoused in the Contact Energy thread) on how this might occur

Onslow would not pump, or generate, based on the season, but rather it would do so based on the wholesale price. It is likely that it would be pumping when prices are less than around $50 per MWh, and generating when prices are above $100 per MWh. Because it can bid (for pumping) and offer (for generation) there would be a number of price bands, not a single price in each direction. It is likely that it would do both: Pumping overnight when prices are low, and generating during the day when prices are high on many days.

Returning to my quest trying to figure out how the profitability of Mercury Energy would be affected if Onslow is built....

Mercury provides the market with quarterly operating reports, and for the purposes of this discussion I am looking at their June 2022 quarterly report. The 'Otahuhu Wholesale Market Price and National Hydro Storage Levels' graph (misnamed because it contains wholesale price information on the Benmore node as well) contains:

a/ A trailing twelve monthly price trace of 'Wholesale Electricity Pricing' at the OTA (Otahuhu) and BEN (Benmore) nodes, based on a 12 month average 'rolling price' PLUS
b/ An accompanying trace of national (hydro) energy storage for both the current year, the previous year and a longer term historical average.

If we now move back to the 'Mercury Operating Statistics' page and cast our eye over the 'Electricity Generation' section, then we get a breakdown in unit terms of:

i/ How much energy Mercury has generated from Hydro, Geothermal and Wind generation respectively.
ii/ Into which customer classifications that energy was sold.

Of those three energy generation sources, I suspect it is only hydro that can be 'ramped up' to meet peak demand. This is consistent with the VWAP received for hydro energy in the table below being the highest of the three energy generation operational groups.

With hydro-energy, opening and closing the turbine gates are part of normal operations. So the timing of exactly when the water moves through the turbines will not affect the wear and tear on those turbines. IOW there will be no 'incremental depreciation' at the Mercury dams because of Onslow. Neither will Mercury's interest on debt change according to when Onslow operates. So IMO it is more correct to think about Onslow affecting profits at EBITDAF level, and not NPAT level.

Nevertheless, when determining peak demand pricing, it will be a thermal generation asset from another generator provider that sets the price benchmark. The price figures in the table provided are retail, which is inconsistent with the accompanying graphed wholesale prices - very annoying! This means I have to guess what the equivalent wholesale prices are using a formula estimate (1). I have repeated some information on p3 of the June 2022 quarterly report in my own table below.

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June 2022 Quarter	Power Sold (GWh)	Power Generated (GWh)	VWAP Retail ($/MWh)	VWAP Wholesale ($/MWh) (1)
Mass Market	636
Commercial & Industrial	594
Line Losses	58
CfD sell contracts (total)	685
Hydro		925	$199.82	$193.83
Geothermal		647	$182.46	$176.99
Wind Power Purchase Agreement (Genesis) (2)		252	$72.14	$72.14
Wind Spot Generation		103	$169.07	$164.00
Buy CfD (Financial contracts)		676	$287.92	?
Total (2)	1973	2351

From this we can work out the net power generated to be: 2351GWh - 1973GWh = 378GWh

Calculation Notes

1/ Wholesale calculation prices are retail calculation prices multiplied by: 1/1.035= 0.97. This is based on the average EBITDAF margin for Mercury Energy over the last four years (2019 to 2022 inclusive) (see 'Power Shares' thread post 1120).
2/ This is not spelt out in the report. But I believe the PPA referred to is the long term agreement between Genesis Energy and Tilt Renewables (now Mercury) where the full output of the 133MW Waipipi wind farm in South Taranaki has been agreed to be purchased by Genesis Energy for twenty years. The information as tabulated by Mercury suggests this is a retail arrangement. But this is not true. It is clearly a long term wholesale arrangement. This generation figure has therefore been not added to the power generation total, as it is outside of the day to day Mercury operational business model.
3/ The Mercury table explanatory note 7 on the 'Net Position' number states that this total "Includes all physical and financial buys and sells except spot customer purchases." I believe this note is at best misleading, because it doesn't mention that the net totals do not include wind generated under the PPA agreement with Genesis. But the net total does include wind spot generation.


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Operational reporting by Mercury has been affected by the 'tyranny of averages'. If we believe Jantar's proposition that wholesale prices above $100/MWh will be capped, and all of Mercury's wholesale prices are above that level for the three month June 2022 quarter, then what does that mean for any future scenario profits? One word - disaster! Or to quantify that, the EBITDAF reduction that Onslow would have trimmed from Mercury's profits for the quarter if such hydrological and market conditions were to be repeated in the future would be:

($193.83/Mwh-$100/MWh)925,000MWh + ($176.99/MWh-$100/MWh)647,000MWh + ($164.00/MWh-$100/MWh)103,000MWh
= $86.8m + $49.8m + $6.6m = $143.2m

To put this in context EBITDAF for the full year FY2022 was $581m. Multiply that quarterly loss over four quarters and all of Mercury's profits disappear! Fortunately I do not believe such a scenario would come to pass, and this is where my 'tyranny of averages' remark becomes important. Average prices can be affected by very high short term peaks. So if, for example, wholesale electricity prices spiked to $2000/MWh for one day in a month, while on the other 30 days the price was $80/MWh, then the average price for the month would be:

(30 x $80/MWh + 1 x $2000/MWh) / 31 = $142/MWh

Taking that average figure as typical, you would expect Onslow to crash profitability for Mercury for a whole month. But if you look at the individual daily figures, you can see that in fact Onslow would only affect the profitability of Mercury on a single day of that month. The lesson here is that judging what Onslow might do to profitability of Mercury based on an 'average price for the month' would give *completely the wrong impression* on what might occur when looking at electricity pricing on a day to day basis.

Finally to return to my original question:
"How would the profitability of Mercury Energy be affected if Onslow is built?"

The answer is that from the information published by Mercury, this is unknowable. That is because we don't have any information of frequency and duration of the wholesale power price peaks, and how high the wholesale power prices rose during those peaks. Extremely disappointing. It is almost as if the quarterly operational reports were written in such a way as to deliberately obscure the prospects of the company.

SNOOPY

[Sideshow Bob]

https://www.nzx.com/announcements/407035

Significant investment to increase scale and strong generation underpinned Mercury’s financial results for the six months to 31 December 2022.

Hydro production was up 852GWh to 2,735GWh after Lake Taupō experienced its highest ever inflows for the July to December period. Wind production was also notably higher (up 201GWh to 788GWh), reflecting a full six months of generation across Mercury’s wind farms including from the newly commissioned Turitea North wind farm.

“Wet weather has defined the period, in sharp contrast to a dry FY2022. In addition to producing the highest hydro generation volume in our company’s history, another 675GWh was spilled to maintain lakes within Resource Consent operating limits,” said Mercury Chief Executive Vince Hawksworth.

The result also reflects a significantly larger retail business, primarily due to completion of the Trustpower retail acquisition in May 2022 and a full six-month contribution at increased scale. Mercury also acquired the outstanding shares in the broadband company NOW NZ in December 2022.

“Mercury is a much larger business than it was this time last year, and it shows strongly in our result. We added 440,000 more connections from those two transactions alone,” said Mr Hawksworth.

The company has recently embarked on a major period of growth, having spent more than $1.7b acquiring Tilt Renewables’ New Zealand operations in 2021, Trustpower’s retail business in 2022 and building New Zealand’s biggest windfarm at Turitea.

While operating earnings (EBITDAF) were up $223m to $451m for the period, net profit was down $197m to $230m with the previous period including the one-off net gain made from the sale of Mercury’s shareholding in Tilt Renewables when Mercury acquired Tilt’s NZ operations in August 2021.

The early exit of a long-term hedge with Norske Skog in HY2022, which reduced revenue by $65m in that period, also contributed to the lift in EBITDAF in HY2023.
Operational expenditure was $54m higher than the prior comparable period while stay-in-business capital expenditure was up $11m, reflecting increased scale and activity across the business.

RECENT WEATHER EVENTS

While the country’s generating assets were largely undamaged by recent weather events, the scale of destruction for distribution and lines networks has been significant.

“Resilience of critical infrastructure needs to be one of New Zealand’s biggest priorities. We know that weather events will become increasingly severe, and we need to adapt,” said Mercury Chair Prue Flacks.

“Keeping the lights on for New Zealanders is a collective goal and so collective action will be vital. Whole-of-system thinking about the investment and delivery of critical infrastructure is our best hope for a reliable and affordable system in an uncertain future.

"This has undoubtedly been a challenging time, and our thoughts are with those impacted by the devastation caused. Across the country many people have lost access to electricity and telecommunications, which has been hugely disruptive.”

“Like all of New Zealand, we responded quickly to support our customers and communities. Our team have been making welfare calls, providing financial support to those who are worst affected and staying connected to communities to help hard-to-reach customers where possible.

DELIVERING THROUGH HEADWINDS

Both the retail and generation business encountered significant headwinds over the period including an inflationary environment, access to technology and a tight labour market.

“These challenges are not confined to Mercury alone, with businesses around New Zealand facing similar challenges. We expect these to continue into the future and have factored these into our business planning,” said Ms Flacks.

CARING FOR CUSTOMERS

Ms Flacks said regardless of the drivers behind the results, it was still coming in a high cost of living environment.

“Recent events aside, we understand the cost pressures many families are facing, and we are focused on our extensive programme of support for those customers experiencing hardship.”

This includes working with the sector, other essential service providers and community organisations to create a more comprehensive approach to supporting those in hardship. Mercury’s role will be to trial a capped electricity product that helps contribute to overall wellbeing for these households.

Last year mass market customers’ prices increased by an average of 2% across lines and energy and will be limited to between 3% and 5% for the coming year.

“This is despite costs to our business increasing over and above this, which we are absorbing on behalf of our customers.”

Ms Flacks also noted that in addition to targeted support, Mercury was delaying price changes (including lines increases) for at least six months for those adversely impacted by recent weather.

EXECUTING ON RENEWABLE GENERATION PIPELINE

The first half of the year saw tangible progress in the delivery of Mercury’s substantial renewable generation pipeline, consistent with the goal to play a leading role in the low carbon transition.

Commissioning of the 103MW Turitea South wind farm will begin in April with completion taking longer than expected due to construction and delivery challenges.
“Once complete, Turitea will be Aotearoa New Zealand’s largest wind farm and materially shifts the dial on our decarbonisation ambitions. That’s a win not just for Mercury, but for the Manawatū region and New Zealand as a whole,” said Ms Flacks.

In September Mercury also announced the construction of Stage 1 of the Kaiwera Downs wind farm (43MW), expected to cost $115m excluding capitalised interest. Construction started in October 2022, with all turbines operational by October 2023.

“We’re advancing several other wind farm projects through prospecting, feasibility, consenting and business case phases and we want to get the next cab off the rank as quickly as we can.”

OTHER OPERATIONAL HIGHLIGHTS

• Cross-sector work on the low-carbon transition including supporting an independent report by the Boston Consulting Group to provide a whole-of-sector view of the transition; inputting into a winter peak product proposed to the Electricity Authority.

• Lodging consent for the expansion of an additional unit at Ngā Tamariki geothermal power station, with Mercury currently in the process of engaging with iwi partners.
• Progressing the carbon reinjection trial at Ngā Tamariki (8,000 tonnes of CO2e successfully reinjected so far). Mercury is currently assessing expansion to other units at Ngā Tamariki and researching options for technology development at Kawerau geothermal power station.

• Piloting a number of customer care initiatives including a trial to secure access to basic needs like food, water and electricity; and another which caps energy bills for customers.

• Building health, safety and wellbeing maturity with a suite of initiatives to facilitate this. TRIFR (Total Reportable Incident Frequency Rate) for the half year was 0.58.

INTERIM DIVIDEND

The Board has declared a fully imputed interim dividend of 8.7 cents per share, representing a 9% increase on HY22 dividend and will continue the Dividend Reinvestment Plan for this dividend.
GUIDANCE

Mercury’s full year EBITDAF guidance remains at $795m.

The uplift in forecasted EBITDAF compared to prior year reflects a lift in the FY23 hydro production forecast to 4,900GWh (from 4,500GWh), with additional hydro mostly generated at a time of low spot electricity prices and the active management of Lake Taupō within consented operating limits.

This increase in generation margin has been eroded by higher operating expenditure including Trustpower retail integration costs that have been bought forward into FY23 with the project running ahead of schedule.

Guidance may change and remains subject to any material events, significant one-off expenses or other unforeseen circumstances including changes to hydrological conditions.

[xafalcon]

What on earth happened in the last 6 months? Trustpower onboarding obviously. But what a shocking FY result

[shareman]

They paid too much for Trustpower and Tilt

[xafalcon]

They paid too much for Trustpower and Tilt

Very succinct and to-the-point summary . Thanks

I don't follow this one on a day to day basis. But HY forward guidance vs FY result were miles apart. Good to know the reasons why without a heap of research

[stoploss]

I just installed Solar and as a long standing customer called to see what sort of a deal they would offer . Their buyback rate is 12 cents . Meridian will do 17 cents and guarantee it for 5 years . I asked if Mercury could improve and she said “ I know we are not competitive we haven’t got anything to offer you at this time “

[xafalcon]

I just installed Solar and as a long standing customer called to see what sort of a deal they would offer . Their buyback rate is 12 cents . Meridian will do 17 cents and guarantee it for 5 years . I asked if Mercury could improve and she said “ I know we are not competitive we haven’t got anything to offer you at this time “

Sometimes it is not the highest buy-back rate that gets you the best deal

Some offer several hours of free power overnight, which when coupled with daytime solar can make a big difference if you don't have a battery. Genesis (who we are with) offer solar + EVerywhere, where "on the road" rapid DC charging of your EV is at retail power price rather than the charger price = one third the cost. There are probably others

If your solar install is new, I suggest you think twice about a long lock-in period until you have 12 months of data to make an informed decision. You really need to know (don't believe the salesman) how much power you will be selling over a 12 month period. FYI we have 15kW solar and 30kWh of home made (nissan leaf) house batteries running for 4 years. About to install another 5kW solar and increase battery storage to 60kWh

[stoploss]

Sometimes it is not the highest buy-back rate that gets you the best deal

Some offer several hours of free power overnight, which when coupled with daytime solar can make a big difference if you don't have a battery. Genesis (who we are with) offer solar + EVerywhere, where "on the road" rapid DC charging of your EV is at retail power price rather than the charger price = one third the cost. There are probably others

If your solar install is new, I suggest you think twice about a long lock-in period until you have 12 months of data to make an informed decision. You really need to know (don't believe the salesman) how much power you will be selling over a 12 month period. FYI we have 15kW solar and 30kWh of home made (nissan leaf) house batteries running for 4 years. About to install another 5kW solar and increase battery storage to 60kWh

Yes I have been wondering what is best .
found this company , they will pay out any credit once a year in August if you have a surplus.
https://poweredge.nz/power-shield-be...-export-rates/