Power shares

[Snoopy]

Any retailer without at least some of their own generation will get a hiding in the electricity market. If they under hedge then they will get hit heavily everytime the wholesale price spikes, and if they over hedge they will be paying too much for their energy and have to cut their margins.

Does a similar argument not apply to the generators without any retail customers? Sole generators have to:

A/ sell their power at rock bottom price on the futures market, because, if they don't, they have no control over their wholesale power margin and can't guarantee to the banks that they will be able to pay their interest bill, and no control over dividend levels to shareholders either. OR

B/ The alternative: sell power at spot prices. But that relinquishes all control on the wholesale price received. In a worst case you would have to shut down your power station or risk overloading the grid as power supply exceeded demand (I imagine Transpower would take a dim view of that).

Life is not easy being a 'sole generator'?

SNOOPY

[macduffy]

Do we have any "sole generators" who haven't signed long term contracts for their generation?

[Zeitgeist]

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

No, even the "old Trustpower" was a net retailer. 2011 to 2015 for example TPW's total NZ customer sales were around 3500 GWh and total NZ generation was around 2300 GWh. The wholesale market has shifted in the last few years to favour net generation.

Does a similar argument not apply to the generators without any retail customers? Sole generators have to:

A/ sell their power at rock bottom price on the futures market, because, if they don't, they have no control over their wholesale power margin and can't guarantee to the banks that they will be able to pay their interest bill, and no control over dividend levels to shareholders either. OR

B/ The alternative: sell power at spot prices. But that relinquishes all control on the wholesale price received. In a worst case you would have to shut down your power station or risk overloading the grid as power supply exceeded demand (I imagine Transpower would take a dim view of that).

Life is not easy being a 'sole generator'?

SNOOPY

The third option is what Tilt has done by selling their Waipipi output to Genesis via a power purchase agreement.

The fourth option is some combination of PPA, spot, futures, OTC. The futures market is currently signaling prices above $100 MWh which exceeds the cost to construct new generation. Point being now is the time to be a net generator and its likely to continue based on market outlook, especially with the smelter sticking around

[Zeitgeist]

If TPW was no longer a retailer, would that clear the way for IFT (or even TPW itself) to buy distribution assets? I don't quite understand how the rules work, but Top Energy is both a distributor and generator now, so it seems to be possible.

There is a 50MW generation limit for distributors. Top Energy are allowed to exceed that at the moment only because they have a time bound exemption. In future they'll need to seek another exemption, seek legislative change, or they'll be forced to structurally separate Ngawha. Distributors are already allowed to be retailers but there is a volume limit on how big they can be. Infratil can theoretically already buy distribution assets but this would probably be subject to any control issues owing 50%+ of Trustpower. Trustpower cannot and will not be able to buy large distribution assets even if the retail arm is sold.

[peat]

I know its on the ASX but AGL is on my list of power companies. And it announces half year on 11/2

It recently lowered its forecast guidance down to $500 m underlying for this FY. (ending June)
But this is still something around $.77 per share and it has div policy of 75% of underlying and it has mooted paying special dividend up to %100 of underlying profit for the next couple of years since it is cash rich.

so .77 / 11.55 = nearly 7% yield

[Snow Leopard]

I know its on the ASX but AGL is on my list of power companies. And it announces half year on 11/2

It recently lowered its forecast guidance down to $500 m underlying for this FY. (ending June)
But this is still something around $.77 per share and it has div policy of 75% of underlying and it has mooted paying special dividend up to %100 of underlying profit for the next couple of years since it is cash rich.

so .77 / 11.55 = nearly 7% yield

Nice yield, horrible downtrend.

[Norwest]

I know its on the ASX but AGL is on my list of power companies. And it announces half year on 11/2

It recently lowered its forecast guidance down to $500 m underlying for this FY. (ending June)
But this is still something around $.77 per share and it has div policy of 75% of underlying and it has mooted paying special dividend up to %100 of underlying profit for the next couple of years since it is cash rich.

so .77 / 11.55 = nearly 7% yield

Hi peat,

At first glance AGL looks "OK", here is a recent review of their power generation assets I did:
agl.jpg

Attachment 12276

Their renewable assets initially look substantial, even if it is only a comparatively small proportion of their portfolio, the problem is that when you look closer into the ownership structure of their renewable assets, you will find that QIC Global Infrastructure Fund actually own 80% of most of their renewable assets and AGL only own 20%.

This makes my initial pie graph above incorrect as AGL's power generation assets "owned" by them are actually more like the below graph:

agl3.jpg

AGL is basically a coal/gas power generator with diminishing returns, I believe AGL is a value trap if you are going long, especially with their upcoming large generation asset closures. However, there is potential for a short term trade on a confirmed reversal of trend which I am waiting for.

[Snoopy]

Their renewable assets initially look substantial, even if it is only a comparatively small proportion of their portfolio, the problem is that when you look closer into the ownership structure of their renewable assets, you will find that QIC Global Infrastructure Fund actually own 80% of most of their renewable assets and AGL only own 20%.

Here is a question to ponder. If you owned an electric car on Tuesday, then you sold it and leased it back, would you be 'less green' on Wednesday?

SNOOPY

[Snoopy]

Snoopy wrote:

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

Does a similar argument not apply to the generators without any retail customers? Sole generators have to:

A/ sell their power at rock bottom price on the futures market, because, if they don't, they have no control over their wholesale power margin and can't guarantee to the banks that they will be able to pay their interest bill, and no control over dividend levels to shareholders either. OR

B/ The alternative: sell power at spot prices. But that relinquishes all control on the wholesale price received. In a worst case you would have to shut down your power station or risk overloading the grid as power supply exceeded demand (I imagine Transpower would take a dim view of that).

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

The third option is what Tilt has done by selling their Waipipi output to Genesis via a power purchase agreement.

That third option looks suspiciously like 'Option A'.

The fourth option is some combination of PPA, spot, futures, OTC. The futures market is currently signaling prices above $100 MWh which exceeds the cost to construct new generation. Point being now is the time to be a net generator and its likely to continue based on market outlook, especially with the smelter sticking around

PPA is a Power Purchase Agreement. That sounds very like 'Option A'. But the market making middle man is left out. 'Futures' is 'Option A'. OTC or Over The Counter contracts seem to be futures contracts that are not centrally cleared. That is another version of 'Option A'..

So when it comes down to it, the simplified version is either hedge (Option A) or don't hedge (Option B).

Personally, if you are a Generator only, I think you need to hedge. Unless, that is, you are debt free and can gamble on some volatility. But if your generation is purely from wind, that means you don't know when you can supply power nor how much. That sounds like a pretty weak supply contract. A contract you could only get away if you sold at a 'rock bottom price'.

SNOOPY

[Zeitgeist]

I think we are broadly saying the same thing Snoopy. But note you wouldn't have to supply 100% spot or 100% 'hedge', you might decide that a 50-50 split works better. A Tilt style PPA which is financed reasonably heavily with debt is obviously better suited to a full offtake deal to keep the bank happy. A smaller player like NZ Windfarms might take a different view and use a combination of 1 year hedges and spot market sales. Meridian obviously does a similar thing with Tiwai/NZAS.

I took issue with your earlier point that a futures price would be at "rock bottom prices". That's definitely not the case, and the futures market is generally a contango market.

With respect to wind, hourly outputs may vary wildly. However over the course of a year things tend to average out. PPA deals will typically reference this annual output, with a tidy up for under/overs