Are electricity stocks immune to interest rate moves?
"In our view, no. The electricity sector has been a yield play for several years and that should not change just because interest rates are rising.
"Whilst there has been some softness in electricity share prices over the past month, they have not moved materially despite the jump in interest rates.
"Although the spread between the 10-year interest rate swap and electricity gross dividend yields has been trending down for several years, the step change downwards in the spread over the past two months has taken it well below the trend line.
"This highlights the potential downside pressure on electricity stocks, as we believe it is unlikely the spread will remain at record lows."
Forsyth Barr said Genesis was the least exposed to a re-rating driven by interest rates, given its high dividend yield.
I disagree with this Forsyth Barr logic. A high dividend yield generally indicates more risk. So why with interest rates rising, would you suddenly decide to put your money into a share that is higher up the risk scale? Personally I would look for more security from the better business and take the lower yield. Thus I see the likes of Meridian, Mercury and Contact being less affected by rising interest rates than Genesis.
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The Contact idea seems worth exploring a little.
Put all the thermal generation on one company. Company is owned by all the generators.
The proportion is set by .....?????
Their revenue ?
Their generation capacity ?
Some formula.
And then colllectively they have to keep enough Thermal going in NZ to keep the lights on. And can collectively phase it out as more renewables are commissioned.
Not straightforward.....but could equtably share the load of needing to keep Thermal going ?
With all those EV's its going to be needed....now...whats wrong with that picture ?
Allot of these renewables aren't cheap to develop..How can they get a decent return?
Someone has ultimately got to pay for it..The shareholders probably
Allot of these renewables aren't cheap to develop..How can they get a decent return?
Someone has ultimately got to pay for it..The shareholders probably
Even Genesis admit renewable generation is now the cheapest option, hence their scramble for solar and wind. Burning coal takes a lot of increasingly expensive carbon credits.
The intermittent generation issue is real and will need investment to deal with it, from increasing ripple signals to control demand to batteries or pumped hydro to fill the generation gaps. Not easy but obviously we'll need to do it eventually if we keep on burning finite resources.
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