NWF - NZ Windfarms

[BlackPeter]

Q2 financials out.

https://www.nzx.com/files/attachments/228378.pdf

Output basically stable (makes you wonder about the much higher but never reached long term average they computed for the IPO). Availability stable 96.7% sounds ok-ish and is certainly better than it used to be (thank god), however average power price dropped compared with first HY 2015 by 8.4%, resulting in an 8.6% drop in revenue. Ouch.

Only things left for shareholders is to hope for better power prices (and they might come) and a better board ... time will tell, whether the new shareholders suss something out, and whether it is good for all of us.

[Poet]

Some progress

Positive cashflow for 1/2 year
NPAT increased on back of written back impairment charges
Board review completed, new members and new chair.

Unresolved though, are the resource consent issues (although there now seems to be a way forward) and the lease financing arrangements.

Anyway IMO moving in the right direction now

https://www.nzx.com/companies/NWF/announcements/278394

[BlackPeter]

Some progress

Positive cashflow for 1/2 year
NPAT increased on back of written back impairment charges
Board review completed, new members and new chair.

Unresolved though, are the resource consent issues (although there now seems to be a way forward) and the lease financing arrangements.

Anyway IMO moving in the right direction now

https://www.nzx.com/companies/NWF/announcements/278394

True, we have seen worse. Shouldn't however be too impressed by the "one off" profit.

The $1 million full and final payment from Windflow is just that, unless we manage to move into the treatment settlement industry and you can increase the valuation of your plant based on improved futures only so often ...

Their AGM promise to review the lease agreement ended (again) in a "sorry - nothing we can do".

Re the solution of the consent issues ...

We have met with the Palmerston North City Council’s advisors and now expect the Palmerston North City Council to initiate a review of our Consents under section 128 of the Resource Management Act. This process will likely include a hearing before a commissioner and submissions from interested parties.

Sure, it is good that they at least managed to meet with Council advisors ... perhaps they even talked with them? However - the described process does not sound in my view as progress - it is just what the resource management act requires. Don't need to meet the council to find that out.

Similar to somebody caught by the police saying "I met the state attorney and there will be now a process in front of the court probably involving a hearing" ... sure, good this is happening, but is this at this stage really a win for the accused?

[Jantar]

NWF 3rd quater information has been released and includes this statement:
"Electricity output for the third quarter of the 2016 financial year was 29,892 MWh, 30.7 percent above the previous corresponding period ("PCP"). The output was below forecast as it was in the PCP. Revenue from electricity sales was 5.5 percent lower than the PCP at $1.786 million, due to lower spot electricity prices. The average electricity price received from the Wholesale Electricity Market was 27.7 percent lower, at $59.75 per MWh."

When will the NWF management learn that prices and intermittent generation such as wind are inversely correllated. High wind generation causes low wholesale prices. Wind generation up; wholesale prices down; and by an almost equal amount.

https://www.nzx.com/files/attachments/233725.pdf

[BlackPeter]

Quarterly operational data are out: https://www.nzx.com/files/attachments/233725.pdf;

Output up (which is good), availability basically constant - they even managed to achieve (for the first time ever) the (after several post-planning downgrades) "planned for" annual production of 130 GWh pa. Unfortunately are the good operational data accompanied by low electricity prices (bugger), i.e. overall results down compared to last year.

Looks like the operation moves into some sort of steady state with teething problems resolved and the team knowing how to maintain the plant - however, as long as the board does not resolve the outstanding "sore thumbs" (consent issues, huge lease costs, neighbourhood conflicts, expensive management overhead, geographically dispersed team - without operational need or benefits) is the only option for long suffering shareholders probably just the usual: hope and pray!

On the other hand ... how do they say - each company has the board they deserve ... if we would want a better board we would have picked one - wouldn't we ...?

Discl: holding (too many ...) - and didn't vote for the current board ...

[Joshuatree]

NWF 3rd quater information has been released and includes this statement:
"Electricity output for the third quarter of the 2016 financial year was 29,892 MWh, 30.7 percent above the previous corresponding period ("PCP"). The output was below forecast as it was in the PCP. Revenue from electricity sales was 5.5 percent lower than the PCP at $1.786 million, due to lower spot electricity prices. The average electricity price received from the Wholesale Electricity Market was 27.7 percent lower, at $59.75 per MWh."

When will the NWF management learn that prices and intermittent generation such as wind are inversely correllated. High wind generation causes low wholesale prices. Wind generation up; wholesale prices down; and by an almost equal amount.

https://www.nzx.com/files/attachments/233725.pdf

How do they deal with that predicament Jantar; some sort of hedging, pre selling? cheers JT

[BlackPeter]

How do they deal with that predicament Jantar; some sort of hedging, pre selling? cheers JT

They don't. Hard to pre sell electricity if you can't predict whether you are able to generate at the time you sold (is the wind blowing or not) ... and hedging (basically buying an insurance contract) is too dear given the undiversified risk portfolio they have (just wind power and just one location).

A great natural hedge would be to work together with a hydro generator ... but this obviously costs money as well.

Their strategy is to tell share holders regularly that they can't control neither wind nor power prices - so far this strategy worked out for management and the board. They are still in their cushy jobs - its just the share holders who pay.

[Jantar]

How do they deal with that predicament Jantar; some sort of hedging, pre selling? cheers JT

Yes it is through hedging, but not through pre-selling as they seemed to indicate at last year's AGM. Rather it is by forward buying a hedge for around half the energy they expect to generate, and making a price gaurantee (at more than their purchase price of course) to an end user or users for that quantity, say a university or large coolstore etc. Thus there is a continuous income, even when there is no wind, and a fixed price for some of their generation even when there is a lot of wind.

Contact, MRP and Genisis all offered such hedges to the market early last year, and there were no takers. As a result both Otahuhu and Southdown have been shutdown, and it could be a while before such an opportunity is given to the market again.

[BlackPeter]

Yes it is through hedging, but not through pre-selling as they seemed to indicate at last year's AGM. Rather it is by forward buying a hedge for around half the energy they expect to generate, and making a price gaurantee (at more than their purchase price of course) to an end user or users for that quantity, say a university or large coolstore etc. Thus there is a continuous income, even when there is no wind, and a fixed price for some of their generation even when there is a lot of wind.

Contact, MRP and Genisis all offered such hedges to the market early last year, and there were no takers. As a result both Otahuhu and Southdown have been shutdown, and it could be a while before such an opportunity is given to the market again.

Interesting - just wondering where your information about NWF's hedging is coming from. Last time I talked with Chris Saddler as well as with some of the board members (prior to last years AGM) they said that they looked into hedging, but that their was no business case.

[Jantar]

Interesting - just wondering where your information about NWF's hedging is coming from. Last time I talked with Chris Saddler as well as with some of the board members (prior to last years AGM) they said that they looked into hedging, but that their was no business case.

From this quote from the Chairman's address https://www.nzx.com/files/attachments/225473.pdf
"We regularly assess whether to hedge some of our output but our analysis to date has shown that this is not likely to enhance average revenue. Because wind farm output is not controllable, traditional hedging products cannot provide the expected revenue stability that can be achieved from generators with plant that can be controlled or those with a mix of plant types. Offers received for generation following hedges have been at a substantial discount to average prices. Chris will discuss this and provide examples in his presentation. "

It shows that they have only considered "sell" hedges and not "buy" hedges. I.e. They are only looking at one side of the coin. It would never make sense for an intermittent producer to hedge output, but it certain would make sense to hedge input. They have forgotten that hedges work in two directions, but they have only looked at one of them.