CAPEX reduction effect on Dividend
Quote:
Originally Posted by
Snoopy
8.2PJ x $9.73m = $79.8m (before tax) = $79.8m * (1-0.28) = $57.4m (after tax)
There are 718.67m CEN shares on issue. So if the dividend went up incrementally by $57.4 / 718.67 = 8cps, that should be sustainable in years with a reasonable rainfall profile.
Final dividend last year was 12cps, so 12cps + 8cps = 20cps
Sounds like a nice round final dividend number to me :-)
The FY2012 result presentation details a rapid projected fall off in capital expenditure going forwards. Last year it was $583m, this year forecast as $380m. Then it decays like this: $290m, $200m, $120m, $100m, in the ensuing four years.
Some have speculated that this will allow even higher dividends in the future. Bank debt at EOFY2012 was reasonably significant in relation to earnings, standing at $1.303billion. ROE was only 5.2%. So I would argue that the safest way to improve earnings going forward would be to pay down debt. Granted interest rates are low now, but this may not be the case five years out. And there is the spectre of the Labour/Green coalition putting a halt to some of the revenue CEN might otherwise expect.
In my judgement CEN will not want to increase dividends above their core earnings gains simply because the whole power sector is living in uncertain times. As a shareholder in it for the dividends however, I do hope that other sharetrader contributors can convince me that I am wrong!
SNOOPY
Labour/Green Plicy threat to Contact overblown?
Quote:
Originally Posted by
Lizard
... but in a regulatory environment, a "fair return on capital" seems to be considered a basis for determining acceptable pricing.
A few years ago, New Zealand was tight for capacity and the opening up of markets encouraged private investment... now that capacity fears have been allayed, there will be temptations for governments to regulate pricing again and damn the investors that provided for the capacity growth. So it's hard to get too enthusiastic.
I have run some back of the envelope calculations on what might be regarded as 'fair value' for Contact's assets.
The station that has just finished construction is Te Mihi, a new standalone generator site that plugs into the Wairakei geothermal field. Cost all up was $623m, for a power station rated at 166MW. Generally the higher the power rating of the power station the more individual gas turbine units will be contained within it.
When it comes down to it, all of Contact's power stations can be reduced to 'something' driving a turbine. In the case of geothermal that 'something' is usually steam containing some level of mineral impurities. A turbine working in those conditions is IMO unlikely to be a cheap one. Perhaps special alloys are needed that would boost the turbine cost well over and above something that would operate at ambient temperature with purer water (as in a hydroelectric dam)?
Another factor that would make a hydro turbine cheaper to run over the long term would be that when replacement time comes the old one could theoretically be unbolted and a new one put in. With a geothermal field it is more likely that further drilling will have to take place to find the optimum 'hot spot' and that a whole new station will have to be built at a new location.
The greens/labour have been trumpeting excessive profits being generated by overvalued assets. But I think there is an argument that says turbines do eventually wear out. So I am of the opinion that the turbine equipment needs to be thought of as carrying it's replacement value on the books for power pricing purposes. This is necessary to ensure that when a replacement is eventually required the capital replacement budget exists that will ensure the power station can keep running.
Using these ideas I now present my current replacement cost valuation of CEN generation assets:
Te Mihi (geothermal) 166MW $623m
Remaining Wairakei (geo) 120MW $300m
Ohaaki (geo) 104MW(design capacity) $400m
Te Rapa Cogeneration (gas) 44MW $100m
Otahuhu B (gas) 400MW $600m
Clyde (hydro) 440MW $600m
Roxburgh (hydro) 320MW $450m
Note that the book value of Clyde and Roxburgh relate to the turbines and their immediate containments, not the dams themselves and any associated stabilizing earthworks.
I get a total turbine cost of $2473m, say $2.5b round figures.
The cost of building the Clyde dam was around $4b including $1b of overruns. However it was transferred to Contact at around $1.7b. The cost of the Roxburgh earthworks was possibly $2b in Clyde terms, which probably reduces to $200m in 1962 dollar equivalents.
So if we add that $1.9b of historic adjusted earthwork costs to the turbine assets I get $4.4b. Property plant and equipment assets are valued at $5b on Contact's books. I think one could easily make a case for $600m plus of inflation adjustment dam construction value to be added to the historic cost dam figures.
So I would argue that even if the labour greens form the next government, the book value of Contact Energy assets will be unaffected by the new power policy. Given Contact produced an ROE of under 6% in 2012 based on book value, which translates to an ROA of some 5%.... How can that be regarded as excessive?
OK I am sticking my neck out. I don't believe a labour/green power policy if implemented will have any effect on Contact Energy.
SNOOPY
Can I clarify a few technical things
Quote:
Originally Posted by
Snoopy
I...Generally the higher the power rating of the power station the more individual gas turbine units will be contained within it....
The more individual turbines maybe,
but in the power industry a gas turbine [power generation set] is essentially a jet engine coupled to a generator which is used at times of peak demand as they:
a) can be fired up from off to full load quickly;
b) are expensive to run.
Quote:
Originally Posted by
Snoopy
When it comes down to it, all of Contact's power stations can be reduced to 'something' driving a turbine.
which drives a generator
Quote:
Originally Posted by
Snoopy
In the case of geothermal that 'something' is usually steam containing some level of mineral impurities. A turbine working in those conditions is IMO unlikely to be a cheap one. Perhaps special alloys are needed that would boost the turbine cost well over and above something that would operate at ambient temperature with purer water (as in a hydroelectric dam)?
For geothermal the hot water/steam from the ground which has you say is full of stuff does not directly drive the turbines. It is passed through a heat-exchange unit to heat a more benign liquid/gas in a closed system that then drives the turbine.
Quote:
Originally Posted by
Snoopy
Another factor that would make a hydro turbine cheaper to run over the long term would be that when replacement time comes the old one could theoretically be unbolted and a new one put in. With a geothermal field it is more likely that further drilling will have to take place to find the optimum 'hot spot' and that a whole new station will have to be built at a new location.
If you heat source depletes then yes you need to re-drill but replacing a turbine is straight-forward at a geo-thermal site.
Best Wishes
Paper Tiger
I could get really technical here but won't
Quote:
Originally Posted by
Snoopy
Paper Tiger, I believe you are correct. I wrote 'gas turbine' but was actually thinking more 'turbine' in general. However, although gas turbines are expensive to run they are (relatively) cheap to build. And you can build them anywhere, and that means close to NZs largest market (Auckland). So taking into account all costs, I would not say that gas turbines are necessarily expensive. Indeed Contact's Otahuhu B was designed as primarily a base load station. But of course that was in the days of the Maui gas field in full production, and Contact having take or pay contracts to buy gas from Maui and nowhere to store it. Otahuhu B has four individual gas turbine / generator sets IIRC.
SNOOPY
Sorry, when I saw gas turbine I just thought peaking set, my bad.
Otahuhu and similar are more complex beasts designed to achieve a higher efficiency, look up ?combined cycle? gas turbines if you are interested.
Wish I could provide information with regard to construction and operational costs for different types of generation for you.
Best Wishes
Paper Tiger
Disc: In a past life I have been involved with many utility companies including electricity generation, transmission and distribution in both New Zealand & Australia