Power shares

[Airw0lf]

So, do you think that a 16% reduction in demand, if sustained, won't have an effect on profits, cash flow, dividends?

Depends how sustained - if it's a month or two then gentailers might try to get short in the wholesale market and save fuel by not generating as much (be it coal, gas, water) for higher demand periods when wholesale prices are stronger. If indeed a gentailer is running short during these lockdown weeks and net buying power at low prices then it might actually bolster its retail margins, certainly on the domestic segment side anyway. Some gentailers may even have certain hedge contracts with large industrials that are for fixed quantities of consumption (not variable volume) and might be making easy money on those.

So I guess all I'm trying to say is that if demand is lower for a couple of months it isn't actually automatically doom and gloom depending on the portfolio of the gentailer.

[k14]

Depends how sustained - if it's a month or two then gentailers might try to get short in the wholesale market and save fuel by not generating as much (be it coal, gas, water) for higher demand periods when wholesale prices are stronger. If indeed a gentailer is running short during these lockdown weeks and net buying power at low prices then it might actually bolster its retail margins, certainly on the domestic segment side anyway. Some gentailers may even have certain hedge contracts with large industrials that are for fixed quantities of consumption (not variable volume) and might be making easy money on those.

So I guess all I'm trying to say is that if demand is lower for a couple of months it isn't actually automatically doom and gloom depending on the portfolio of the gentailer.

Nice theory but looking at overnight spot prices I would say that not many gentailers are running short. Overnight prices of ~$90 is certainly not going to be sustainable for long if you are short, all gentailers would be able to cover their own load for less. The retailers (flick, electric kiwi etc) however, that is another story. Have a look at pricing here https://www.em6live.co.nz/ if you want to look at it live.

[blackcap]

Nice theory but looking at overnight spot prices I would say that not many gentailers are running short. Overnight prices of ~$90 is certainly not going to be sustainable for long if you are short, all gentailers would be able to cover their own load for less. The retailers (flick, electric kiwi etc) however, that is another story. Have a look at pricing here https://www.em6live.co.nz/ if you want to look at it live.

Not sure what you are on about with overnight prices of $90. The best predictor of prices would have to be the futures markets. They are coming down in anticipation of less demand in the future. https://www.asx.com.au/asx/markets/f...EA&type=FUTURE
Quarterly prices for September are $95 (Otahuhu) which indicates that the demand has dropped. Not long ago these were at $130 plus.
The June quarter is at $73 which really is at odds to the $90 night statement.

[blackcap]

Nice theory but looking at overnight spot prices I would say that not many gentailers are running short. Overnight prices of ~$90 is certainly not going to be sustainable for long if you are short, all gentailers would be able to cover their own load for less. The retailers (flick, electric kiwi etc) however, that is another story. Have a look at pricing here https://www.em6live.co.nz/ if you want to look at it live.

Just looking at your em6live data. Currently prices are $0.51 (yes 51 cents) for 8:20AM.

[k14]

Just looking at your em6live data. Currently prices are $0.51 (yes 51 cents) for 8:20AM.

Yes, I picked a bad time to post. But looking back at the last week of pricing, they have ranged predominately between $60-150. I can assure you that absolutely no gentailers would be choosing to run short at those prices. The morning ramp up is all screwed up at the moment with people starting work/getting out of bed later so what would typically currently now be a morning peak is not and the traders/transpower are finding it very difficult to predict demand (hence a 50c price at 8am). However, the overall trend is for pricing to hold up reasonably well.

Yes the ASX prices have dropped but I'm not sure how that relates to my post? I was responding to the post I quoted mentioning gentailers running short now to save fuel for when prices recover. I am quite curious to understand how the current situation will effect longer term dividends of the big four gentailers. You would assume both loss of commercial/industrial load (high volume low margin) along with higher rates of default in both business and residential accounts will have a flow on effect to cash flow. But how much of an effect, who knows?

[Jantar]

Just looking at your em6live data. Currently prices are $0.51 (yes 51 cents) for 8:20AM.

Yes, I picked a bad time to post. But looking back at the last week of pricing, they have ranged predominately between $60-150. I can assure you that absolutely no gentailers would be choosing to run short at those prices. The morning ramp up is all screwed up at the moment with people starting work/getting out of bed later so what would typically currently now be a morning peak is not and the traders/transpower are finding it very difficult to predict demand (hence a 50c price at 8am). However, the overall trend is for pricing to hold up reasonably well. ….

The morning peak prices have been screwed up for a long time, not just during the current Covid-19 situation. The morning ramp up is so fast that 30 minute offers cannot keep up, so generators offer their generation in such a way that they will be at their desired output by the end of the trading period. This means that at the start of each trading period there is much more generation offered at a particular price than is needed, so the wholesale price drops down to very low levels, often cents. 5 minutes later that generation that is dispatched is on line and the frequency keeping station is often at the bottom of its band. A further 5 minutes on and demand is starting to pick up towards the level where some of those low priced bands begin to fill up. By the end of the trading period demand is outstripping the available generation and prices rocket up. Just what the final price will be for TPs 15 - 19 is anybody's guess until well after the fact.

Now that Daylight saving is finished we are once again seeing a larger evening peak compared to the morning one. It is probably exaggerated at present due to less retail business being carried out. In the past as retail shops closed for the day the timing matched the increase in domestic load, that is not happening at the moment and hence we are seeing more pressure on the system for TPs 35 - 39 with associated higher prices.

The ASX is an indication going forward of what the internal transfer pricing within companies is going to be, but is really a very poor indicator of the future wholesale price.

[blackcap]

The ASX is an indication going forward of what the internal transfer pricing within companies is going to be, but is really a very poor indicator of the future wholesale price.

It may be as you say a "poor indicator of the future wholesale price", but these are real contracts with many $millions on the line so it is still the best predictor out there of future wholesale price. Just like the exchange rate today, is the best predictor of the future exchange rate.

[Joshuatree]

Rio Tinto Qrtly out, still no decision on Tiwai.Aluminium price actually up 2.7% in the last week after a 5 year decline, maybe blip.

"We announced strategic reviews of our interests in the Tiwai Point smelter in New Zealand in October 2019 and in the ISAL smelter in Iceland in February 2020. Work on these reviews is ongoing. This will determine the viability and competitive position of these operations and will consider all options, including curtailment and closure."

Rio Tinto releases first quarter production results

[Jantar]

…..but these are real contracts with many $millions on the line.....

Yes, and those buying would love it if the wholesale price ends up higher than the ASX contracts, while those selling would love it if the price was lower. As you say, many millions on the line, yet the whole thing about futures trading is that it both a gamble and a form of insurance.

[Joshuatree]

Youve been missed on these threads Jantar, welcome back. Any thoughts on the loomimg late Tiwai decision and the effects on our power companies.Im betting on Tiwai staying myself.