MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

What is ROIC (I assume return on invested capital or return on assets)
Correct me if I am wrong but with a 5.1% return on assets and interest of 9.4% doesn't that mean any debt is reducing value for shareholders.

As assets are being revalued every year. Should I look at the discount rate used on their DCF model to revalue assets. It all gets confusing for a simple person like myself.

It isn't sexy. But some relief from debt is on the horizon with those high interest loans rolling over.

From p63 of AR2017

"The company's relatively high average interest rate of 8.7% on net debt of $1.038 billion reflects interest rate hedges put in place in 2008, prior to the global financial crisis and subsequent decreases in interest rates, ahead of the company's significant geothermal development program. These hedges mainly mature at the end of 2018 financial year. From that time the estimated net cash flow benefit at current rates is approximately $20m per annum."

$20m in interest payments saved should see $20m (1-0.28) = $14.4m flow through to the bottom line after tax.

$14.4m / 1,400m = 1.0cps

That may not sound game changing, and it isn't. But it is five times more than the profit gain I expect to see from the incremental energy Mercury will sell to power EVs after four years (to the end of FY2021).

SNOOPY

[Jantar]

....... Replacing a turbine that is 50 years old, you will find technology has moved on. The very act of replacing a turbine and hence creating a fifty year technology leap will in itself create an operational performance improvement. And I dare say you could say the same on the electrical side of the business. Thus in my view, Investment capex and SIB capex becomes blurred.

SNOOPY

Technology has not moved as much as you may think. Hydro turbines in the mid 1950s were already quite advanced and achieving around 90% efficiency at 80% wicket gate opening (around 90% of maximum generation), but with a fairly wide operating range. Minimum load without cavitation or rough running was generally 50% load.

Modern turbine design does allow for either greater efficiency at around 92% with a narrower operating range, or slightly less efficiency but with a much greater operating range hence reducing cavitation. Generally there is little extra generation achived by replacing turbines, but large gains can be made in reducing maintenance costs and/or increasing flexibility.

[fish]

thanks jantar for your expert and clear explanations.
Sometime again you pointed out that pumped hydro is a possible way of storing hydro and contact is best placed to do this.
This has intrigued me but I would have thought storage of whatever nature is best near population centres hence I like mcy experimenting with tesla-location in auckland-cost around 1 million.
You might be interested that TILT(infratil) are building storage in Adelaide-using a disused quarry near Adelaide-but the cost is $400 million.
We know that battery storage is getting cheaper but the cost of building pumped hydro will not.
IMHO we need to explore storage but mcy have a great advantage in controlling generation and as they improve ways of doing it the cheapest way to store is reducing release of water from their numerous dams.
Have they got any ideas about increasing the height of any dams in the waikato system?

[Jantar]

.......
Sometime again you pointed out that pumped hydro is a possible way of storing hydro and contact is best placed to do this.
This has intrigued me but I would have thought storage of whatever nature is best near population centres hence I like mcy experimenting with tesla-location in auckland-cost around 1 million.
You might be interested that TILT(infratil) are building storage in Adelaide-using a disused quarry near Adelaide-but the cost is $400 million......

Have they got any ideas about increasing the height of any dams in the waikato system?

For pumped storage to work there needs to be a reservoir (lake) at both the top and bottom of the scheme. There are no such lakes anywhere near any population centers in NZ. The Adelaide proposal will only give a small amount of intra-day storage. It will provide 300 MW (about the size of Roxburgh) for 4 1/2 hours, and on that basis is much better than a battery. However that short duration does not allow it to replace any thermal generation as the shut down and start up times for thermal plant is much longer that that. It will allow Tilt to smooth out their wind generation, and that would be a big help to South Australia.

Ass Prof Bardsley from the University of Waikato did look at a small projec,t like this one, at Kinleith using water from Lake Maraetai, but in the end was uneconomical.

For a similar cost to the Adelaide scheme we could have the Lake Hawea scheme running which could provide a month's worth of additional storage as apposed to Adelaide's 4 1/2 hours.

As for raising the heights of any of the dams on the Waikato, that would be a win/lose proposal for MCY. Except for Arataia to Ohakuri, the outflow from each dam is already directly into the lake for the next dam, so raising any lake level simply decreases the net head on the station up stream. What is gained on the station where the dam is raised is lost from the station imediately upstream.

[fish]

thanks jantar
I can understand how raising the head of one dam reduces the head of another but wouldnt that also enable more storage of power by being able to store more water which can then be released at periods of high demand?

[Joshuatree]

We've got Lake Taupo for that fish and we would never get resource consents etc anyways.

[Jantar]

....but wouldnt that also enable more storage of power by being able to store more water which can then be released at periods of high demand?

Yes it would provided the operating ranges were also extended. However it would only be a very small amount. I can't remeber just what the storage values were for many of the Waikato lakes, but it would not be very much overall. Ohakuri was around 5 MWh per cm and it probably has the greatest potential gain from raising.

[couta1]

Excellent half year result, cannot for the life of me understand why it was being sold at $3.22 yesterday when upgraded guidance had already been issued ,should be trading at at least $3.40, rational market, yeah right.

[couta1]

HaHa, still trading at $3.22, finest display of market dumbness I've seen in a while.

[blackcap]

Maybe because there was an expectation earlier on that Taupo was full and Pukaki was going to empty out but now with all the rain and Pukaki being full and power prices being low it does not help MCY as much as earlier? Or is my thinking far too short term?