GNE - Genesis Energy

[Jantar]

.........
Then I get to the slide that makes me really angry (p23 of 84). A graph of retail power prices steadily climbing from 2000 to 2016 (except for last year). meanwhile the wholesale price looks to have dropped over that period. OK I can't blame the gentailers for all of that as local lines companies and transpower claim their slices. But that slide suggests that there is a lot of room to cut retail prices!

Bring on the competition!

SNOOPY

You have summend up the situation perfectly. As a trader, it is my job to try and keep wholesale prices low, as it is that seperation between cost of energy and netback, that enables the gentailers to absorb some of the network companies' increasing charges.

Retail prices can't realistically keep on rising or customers will move to alternative forms of energy, and already in some areas the lines charges are encouraging many new home builds to seek off grid solutions. But if you want to see what the lines companiy in your area really is, just look at the difference between your retail charge and your suppliers Netback rate. The difference is what is going to Transpower and the network company.

[horus1]

Flick has cut my prices by 20% over 15 months. That is 40% of the energy margin as line charges are fixed. That shows how fat the margins are.

[Snoopy]

Craigs latest update on the gentailers suggest that trust power are the main cause of churn currently and unlikely to stop for 18 months.

And if correct the below is not good.

Flick and Electric Kiwi point the way for product differentiation, billing disclosure and risk premiums
A new threat has emerged, which in our view removes the possibility that historical gentailer premiums will return. New electricity retailer Flick has highlighted the consumer thirst for a spot product and bills customers in a way that clearly defines all the cost components of the bill making comparability easy. Electric Kiwi is a low cost technology driven offering that offers a fixed priced residential contract, covered by the forward ASX hedge curve. This offering caps where risk cover pricing can head. It is our view that any premium for risk mitigation by having a gentailer model will likely be arbitraged away by the combination of technology and clarity of what is being paid by that customer for the risk.

top picks a buy on CEN and MEL Hold on GNE and MRP and TPW.

Flick has cut my prices by 20% over 15 months. That is 40% of the energy margin as line charges are fixed. That shows how fat the margins are.

I am curious about the Flick business model.

From the Filick website, they pass on transmission/distribution at cost, metering at cost, the Electricity Authority levy at cost and a flick Retailer charge which is obviously not at cost, as Flick wouldn't be able to operate if they didn't make a profit on this. The explanation pricing graphic has no scale. But the visual impression is that Flick in house charges make up something like 15% to 20% of your power bill. Can any Flick user out there confirm?

The idea is that customers pay the wholesale cost of electriciy in the power market. This changes every half hour, and the price paid can vary wildly.

"If you switch to Flick and do nothing else, there may be some times that your bill is higher than it would have been if you’d been with another supplier. Past savings are no guarantee of future savings, but over a year, we think you’ll save around 7% if your pattern of energy use is about average. The serious savings (up to 20 – 25%) come when you change the way you use energy, taking advantage of lower prices."

The way I read this, real savings require a consumer to be quite active with their interactions with Flick and change power consumption behaviour. Flick doesn't own any power stations. So it seems like they are merely a consumer conduit. The business model hinges on the idea that consumers can manage their own consumption better than traditional power companies can. But what happens if power prices remain high for an extended period? You might end up being charged $100 to cook your dinner! Wouldn't users be outraged by that and leave on mass? How could Flick survive such an exodus?

Moving on to Electric Kiwi, they buy power on the ASX futures market. But who is on the other side of the transaction selling the power? Power can only be bought from a gentailer (are there any pure generators out there with a guaranteed supply of power to sell?) So what if the gentailers decide not to sell any power to the ASX player to resell on the sell side of the transaction? Electric Kiwi would just collapse in that case as they would have no power to sell to customers!

Both Electric Kiwi and Flick sound good and no doubt would work well 99% of the time. But when that 1% when things are not so favourable goes badly wrong? It looks to me like both companies are finished under this circumstance. How can these companies be a long term threat to an extablished gentailer like Genesis?

SNOOPY

[morphs]

I switched to Flick about 18 months ago from Meridian. We have not changed our habits in any way at all and according to Flick calculations we have saved on average 20% from our previous provider. They do a calculation based on your plan when you changed so you can see the savings. Spot prices overnight are almost nothing so if you wanted to time your dishwasher, laundry etc. you could save more but frankly I can't be bothered.

There was the odd price spike during the winter but it had no material effect on our bills. Because the majority of the bill is made up of other components that are fixed, a doubling of the spot price does not mean that your bill will double. It seems to me that the gentailer rates are set so far above the average spot price that the vast majority of the time you are saving money with flick which more than compensates for the occasional spot price spike. Even if I did have to pay more every now and again I wouldn't switch because I can see the savings over more than a 12 month period.

Very happy with Flick, no reason to use any other provider.

[horus1]

The real issue you are missing is the very high profit margins the gentailers have been taking from the small consumers.Both flick and Electric Kiwi are attacking this very successfully. The hedge product ,EK,will always be dearer than Flick.

[Snoopy]

Hi morphs, and thanks for the feedback.

I switched to Flick about 18 months ago from Meridian. We have not changed our habits in any way at all and according to Flick calculations we have saved on average 20% from our previous provider. They do a calculation based on your plan when you changed so you can see the savings. Spot prices overnight are almost nothing so if you wanted to time your dishwasher, laundry etc. you could save more but frankly I can't be bothered.

Since Flick claim their savings are mainly on the energy part of the bill, is the 20% you are saving:

1/ just on the energy part of the bill, OR
2/ on the whole bill?

And if spot charges at night are 'almost nothing', I wonder if it would be worthwhile putting in a battery storage system to take advantage of that?

There was the odd price spike during the winter but it had no material effect on our bills. Because the majority of the bill is made up of other components that are fixed, a doubling of the spot price does not mean that your bill will double.

The majority of your bill components are fixed? Could you bear to share how much Flick does charge you for using their system!?

It seems to me that the gentailer rates are set so far above the average spot price that the vast majority of the time you are saving money with flick which more than compensates for the occasional spot price spike. Even if I did have to pay more every now and again I wouldn't switch because I can see the savings over more than a 12 month period.

Very happy with Flick, no reason to use any other provider.

OK Thanks. But I wonder if your attitude would be different if the power price spiked to $20,000/MWh, around 200x an average market power rate, over a seven hour period such as happened in 2012?

http://www.scoop.co.nz/stories/BU120...rice-spike.htm

SNOOPY

[Snoopy]

The real issue you are missing is the very high profit margins the gentailers have been taking from the small consumers.Both flick and Electric Kiwi are attacking this very successfully. The hedge product ,EK,will always be dearer than Flick.

Just had a look at the asx hedge market for NZ electricity.

http://www.asx.com.au/products/energ...lectricity.htm

The last trade for Otahuhu base load power for December 2016 was 48.200. This is based on 0.1MW of electricity per hour based on a Base Load profile at the Otahuhu grid reference point in New Zealand. That doesn't make sense because MW is equivalent to MJ/s and already that means it already has a time component in it. So that means the contract is for power acceleration? It doesn't make sense. Can anyone help me out here!

SNOOPY

[Jantar]

Snoopy, you have it correct, the description in the ASX is incorrect. The correct units are MWhr in 0.1 steps.

[freddagg]

Just had a look at the asx hedge market for NZ electricity.

http://www.asx.com.au/products/energ...lectricity.htm

The last trade for Otahuhu base load power for December 2016 was 48.200. This is based on 0.1MW of electricity per hour based on a Base Load profile at the Otahuhu grid reference point in New Zealand. That doesn't make sense because MW is equivalent to MJ/s and already that means it already has a time component in it. So that means the contract is for power acceleration? It doesn't make sense. Can anyone help me out here!

SNOOPY

Very common for the electricity industry to misuse the term Watt when they mean Joule

[Jantar]

Very common for the electricity industry to misuse the term Watt when they mean Joule

It is not normally the industry who misuse, but those on the preiphery of the industry. MW is a measure of power. MJ is a measure of energy, but is a very large and combersome number which does not directly compare power and energy in a manner that a layman can recognise. MWh is a much simpler method of 1 MW generated for 1 hour or 3600 MJ. For some reason it is PR types who want to change MWh to MW per Hr. They don't seem to realize the difference betwee a multiplicatin and a division function.