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Thread: Power shares

  1. #811
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    Just an interesting point (a bit off topic)...My solar power monitor informs me that our household has a total CO2 saving of 6.63 Tonnes to date (installed the panels 18 months ago).
    Admittedly our country emits less CO2 with hydroelectric power generation, but its interesting observing many countries of the world pushing consumers towards green micro-generation (subsidies etc) yet our so-called "green leaning"government of 4 years has been strangely silent..
    Perhaps one of the possible reasons .. After the installation of the import/export meter I questioned why I was only allowed to export a maximum of 3kw/hr back to the grid, only to be told that the run down state of the power lines in our area could not handle a higher amount..I was told I was lucky as if I lived a couple of kilometers further down the road I would have a limit of exporting only 1kw/hr..

    Sounds similar to what happened to our railway system...eh?
    Last edited by Hoop; 28-01-2021 at 11:03 AM.

  2. #812
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    The one thing with power retailers is the annual NZ market churn is ~20% per year, hence you are effectively buying an initial customer base of 231,000, of which this customer base you are expecting to lose 20% of those in the first year (probably higher when the name on the bill changes as people will look closer at them).

    Trustpower won't be the only boardroom discussing splitting their generation and distribution assets into two, however first mover advantage is definitely in their favour.

    With the power companies reselling internet connections, it would be an interesting play for an internet provider to buy TPW's retail customers and start selling power.

  3. #813
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    Quote Originally Posted by Hoop View Post
    Just an interesting point (a bit off topic)...My solar power monitor informs me that our household has a total CO2 saving of 6.63 Tonnes to date (installed the panels 18 months ago).
    Admittedly our country emits less CO2 with hydroelectric power generation, but its interesting observing many countries of the world pushing consumers towards green micro-generation (subsidies etc) yet our so-called "green leaning"government of 4 years has been strangely silent..
    Perhaps one of the possible reasons .. After the installation of the import/export meter I questioned why I was only allowed to export a maximum of 3kw/hr back to the grid, only to be told that the run down state of the power lines in our area could not handle a higher amount..I was told I was lucky as if I lived a couple of kilometers further down the road I would have a limit of exporting only 1kw/hr..

    Sounds similar to what happened to our railway system...eh?

    No sympathy from me regarding your solar panels I'm afraid.

    NZ has some of the cheapest and greenest power in the world. Your panels are more expensive relative to "conventional" energy delivery but also cause issues for network quality. Provided you still have a wire to your house you have the same fixed cost component as all other households. And you also create an additional problem because you'll be exporting power back into the grid at a time when it's not actually needed (hence why most other companies won't pay you much or anything to take it off you).

    The govt in NZ is absolutely right to steer well clear of propping up your private investment.

  4. #814
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    Quote Originally Posted by huxley View Post
    TPW only looking to sell its retail business, which contributes less profits than the generation side. Retail side of power business is arguably more exposed to disruption.
    Retail certainly exposed to disruption and competition. Generation is not insulated from disruption, refer Lake Onslow scheme.

    The announcement is specifically about retail yes but a sale of that segment would possibly open up the residual generation business to sale/takeover too.

    TPW current market cap = $2,650,000,000

    To 31.03.2020 retail comprised $35.3m of $186.5m EBITDAF or ~ 20%. Make a few rash assumptions that market cap is reduced by 20% following a sale of retail leave total enterprise value of the generation business at around $2.1bn. That's a large potential transaction for someone, but achievable for foreign investors or even some of the existing operators with larger balance sheets. It's only around 10% of Meridian's market cap for instance....

  5. #815
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    Quote Originally Posted by Zeitgeist View Post
    Retail certainly exposed to disruption and competition. Generation is not insulated from disruption, refer Lake Onslow scheme.

    The announcement is specifically about retail yes but a sale of that segment would possibly open up the residual generation business to sale/takeover too.

    TPW current market cap = $2,650,000,000

    To 31.03.2020 retail comprised $35.3m of $186.5m EBITDAF or ~ 20%. Make a few rash assumptions that market cap is reduced by 20% following a sale of retail leave total enterprise value of the generation business at around $2.1bn. That's a large potential transaction for someone, but achievable for foreign investors or even some of the existing operators with larger balance sheets. It's only around 10% of Meridian's market cap for instance....
    That’s fair, but it seems likely that Trustpower (and IFT) see more value in the generation side of the business, particularly with possible new renewable power stations etc. By selling the retail arm they can put more capital to work building new capacity?

  6. #816
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    Oh hoorah! Split it up by all means.

    Two boards of directors to be paid instead of one.
    Two senior management teams to be paid instead of one.
    Two IT departments and systems to be paid instead of one.
    And so on.

    Increase the cost base for no apparent benefit to anybody who actually buys the product or uses the service.

    It's the Kiwi way. . .

  7. #817
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    More likely that the retail business, if it sells, will be bought by an existing gentailer or other power retailer. No duplication of management or board needed there.

  8. #818
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    Quote Originally Posted by macduffy View Post
    More likely that the retail business, if it sells, will be bought by an existing gentailer or other power retailer. No duplication of management or board needed there.
    That is the way I interpreted what Trustpower management said too macduffy.

    ------------------------------

    The review will test market interest in its retail business, while also exploring the merits and business case to establish a standalone generation business. (Snoopy note: no standalone retail business was mentioned).

    Significant current and forecast changes in the energy and utility retailing markets are the primary driver of its review.

    “Electrification and decarbonisation, decentralised energy, digital trends in service provision and utilities convergence are all shaking up traditional operating models,” Chairman, Paul Ridley-Smith said. “The Board intends to examine the options available for our market position, given these changes and opportunities.”

    ---------------------------

    I remain puzzled at the thinking behind this though. NZ is a fairly small market and the deindustrialisation of the country means a flat demand, despite the increasing population of recent years. So to me, having a balance of retail customers roughly matching your generation power continues to make sense.

    The chairman mentioned 'decentralised energy'. That sounds like retail customers with solar panel son their roofs wanting to sell power back to the retailer at off peak times when they don't want it. Selling the retail part of the business would offload that problem elsewhere.

    'Digital trends' means sacking customer service staff and forcing retail customers to use the internet to sort their problems. Is having no customer support staff a legitimate business model for a retail company?

    'Utilities convergence' means power companies selling telecommunications products and Trustpower were at the forefront of this trend. Are Trustpower saying this hasn't worked out for them?

    'Decarbonisation' means finding silly American fund managers willing to pay over the top prices for green energy developments. Maybe Trustpower are eyeing up Blackrock to boost their share price to MEL and CEN levels? It all sounds a bit chasing the headline in the headlights though. I mean what are those US Mom and Pop Blackrock fund investors going to say when the find their green fund is paying out triple figure PE ratios for low growth power shares, even if they are 'green'?

    I am fully aware of the increased liquidity being offered by the NZ Electricity Futures market with electricity parcels being traded in Australia. But ultimately if you are going to balance out your lack of retail customers or generation this way you are going to lose. The most high profile example of this was Flick Electric offering spot electricity pricing to customers. It was going well until Meridian manipulated the spot price to one hundred times the normal level, and that destroyed the confidence of Flick's retail base. These days most of Flick's customers are on hedged contracts IIRC.

    I see in the medium term an excess of generation becoming available, with new windfarms from Mercury and a new geothermal station from Contact. It looks to me to be exactly the wrong time to think about shedding your retail customer base. What do these high powered consultants being hired by Trustpower know that we don't?

    SNOOPY
    Last edited by Snoopy; 29-01-2021 at 10:16 AM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  9. #819
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    The above is all correct/accurate analysis. What's missing though is looking into the performance of retail vs the capital tied up in it. Mercury presented the following a year ago, note the graph on the right hand side. The key takeaway is that below a certain spot price it's much easier to make good returns on retail. This was certainty the case over the bulk of the last decade and the profits attracted dozens of new participants. There are now around 50 retailers in NZ. Above a certain spot price however the mix changes heavily in favour of being a long generator.

    TPW saw that coming too of course and tried to create "sticky" customers through multi-channel offerings. This was their way of locking in modest margins, but on a product-by-product basis (ie electricity only) they would be well behind other retailers on price and particularly the new entrants who may or may be pricing at loss making levels.

    Spot prices in the electricity market are now relatively high due to a range of factors so we're in a period where net generators are making decent returns, the market assumption is this will then create the incentive to invest in new generation then bringing prices back down again etc etc

    TPW is typically a net retailer so is somewhat exposed to higher spot prices. Their retail business operates in an extremely competitive environment where margins are shrinking. Mercury's graph below refers to gas market pressure causing high electricity prices. Given the government has banned gas exploration, what is your expectation for electricity prices and therefore the attractiveness of retail over the next few years?

    http://nzx-prod-s7fsd7f98s.s3-websit...381/311931.pdf slide 12
    Last edited by Zeitgeist; 29-01-2021 at 10:48 AM. Reason: wrong link

  10. #820
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    Quote Originally Posted by Zeitgeist View Post
    TPW is typically a net retailer, so is somewhat exposed to higher spot prices.
    Was that situation created by the demerger of Tilt, where Tararua 1&2 and Tararua 3, formerly wholly owned by Trustpower, had their ownership transferred to Tilt?

    SNOOPY
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

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