GNE - Genesis Energy

[winner69]

Update GNE exercise on trading GNE as a quasi bond or whatever you want to call it

GNE shareprice at Dec 31st at $3.62 gives divie yield of 4.7% (not gross).

This is the lowest it has ever yielded

No doubt driven by low interest rate environment.

The spread (or difference) with 5 Yr Govt Bonds is a measure of perceived market / company risk. Currently the spread is 4.4% which is below the long term average. One could say that punters are taking on more risk at the moment but not as much as they were in the middle of 2019.

Maybe more profits to come on this trade (esp if a decent increase in divie finally eventuates) but watching that line on the yield chart closely

The option value of cash is an interesting subject

[Snoopy]

Update GNE exercise on trading GNE as a quasi bond or whatever you want to call it

In the interests of diversity of opinion: From those in the 'non bond theory' camp.

Intermittent wind and solar cannot stand on their own,” the brief concludes. “They must have some form of back-up power, from reliable coal, natural gas, nuclear units, storage capability from hydroelectric facilities, and/or batteries. Batteries of the size and scope needed for 100-percent renewables are unproven and not cost effective.

Source:

"Researchers Say Renewable Energy Mandates Cause Large Electricity Price Increases"
Anthony Watts / 1 hour ago May 2, 2019
By Tim Benson

The quasi-bonders believe Genesis will be able to 'muddle along' with their ever decreasing ownership of a dying basket of 20th century generation assets. (Genesis won't even own 'their' new Manwatu windfarm). The quasi-bonders, acknowledge that change is coming for Genesis. Even Genesis management have acknowledged that their evolution away from being primarily a fossil fuel burning company will be sped up. But the quasi-bonders believe such change won't really affect the company before 2030.

I think Genesis will be affected much earlier than that, possibly from this year. When the new Mercury windfarm, 'Turitea' comes on stream, the Waikato powered hydro-stations will become an even better battery storage unit. The casualty in all this as I see it will be Genesis's Unit 5 at Huntly. The more reliable the supply of renewable energy in the North Island becomes, the worse it gets for Huntly.

The older Huntly Rankine units are effectively Huntly's 'battery' today. In engineering terms (because they are old) and economic terms (because they can't compete on energy cost with renewables) it could be this is the last year those Rankine Units will operate. Thus Genesis will lose their 'battery' and lose their ability to manage their energy generation portfolio under their own operational control. There is a way out. Genesis could play the power futures market on the ASX.. They have proved adept at doing this in the past. However other market players can play the same ASX power game. Despite Genesis's good record in 'power trading', I can't see how they won't trip up on their path of success eventually, as their ability to adapt 'in house' becomes weaker. At that point Genesis might be forced into a merger with a stronger market player. And I don't see that 'stronger market player' having to pay much of a premium for what otherwise might be seen as a rag tag of stranded assets.

There is another possible light on the horizon. If Genesis could get a good price for their controlling stake of Kupe, that might provide them with the capital they need to build their own new power stations going forwards.

SNOOPY

discl: sold out of GNE a few years ago.

[winner69]

Snoopy - I’ve always disclosed I know squat all about the energy industry

The sector to me is just a collection of codes like GNE, CEN, MCY etc etc

From what you say it’s just as well GNE quasi bonds are pretty liquid eh

[Jantar]

…..
The older Huntly Rankine units are effectively Huntly's 'battery' today. In engineering terms (because they are old) and economic terms (because they can't compete on energy cost with renewables) it could be this is the last year those Rankine Units will operate. …..
SNOOPY

……

Genesis do have another battery in the short term. Their Waikaremoana stations, 132 MW in total, are fast start, and the lake can hold some weeks worth of water so is a medium term battery. The Tokaanu station, 240 MW, only holds a few hours water in Lake Rotoaira, so acts as a very reliable intra day battery. These two assets should see at least one of the Rankine Units going to 2024, but chances are one will be permanently shut down late this year or early next year.

Genesis do have another option: They could be the company that builds and operates Onslow. If that were to happen they would control the battery for the whole country.

[Snoopy]

Genesis do have another battery in the short term. Their Waikaremoana stations, 132 MW in total, are fast start, and the lake can hold some weeks worth of water so is a medium term battery.

Fair point Jantar. So right now Genesis has:

1/ Huntly Unit 5 as a 403MW 'base load' and
2/ Waikaremoana as a 132MW 'hydro battery' and two x 250MW Rankine Units as 'thermal batteries'.

Compare that to Mercury which has:

1/ 466MW of Geothermal Station total 'base load' capacity.
2/ 1059MW of Waikato River 'hydro battery' capacity.

Genesis will soon lose one of their 250MW Rankine 'batteries', and gain access to the Waipipi wind farm with 133MW capacity. That will put more strain on their smaller remaining 'battery back up' of (250MW + 132MW=) 382MW.

Mercury will have their new Turitea 222MW wind farm. That will also put more strain on their 1059MW 'Waikato Hydro battery'. But because the Mercury battery is much larger, this won't present the operational balancing difficulties that Genesis might face.

The Tokaanu station, 240 MW, only holds a few hours water in Lake Rotoaira, so acts as a very reliable intra day battery.

How much difference does an intra day battery make though, in the big picture? I know there was the case against Meridian 'spilling water' in order to keep the wholesale power price up to the detriment of pure retailers. But do such incidences matter in the annual picture? This is why I didn't include the Tokaanu 'battery' in the Genesis battery calculation above.

These two assets should see at least one of the Rankine Units going to 2024, but chances are one will be permanently shut down late this year or early next year.

Translation:

"The skinny coverage that Genesis's 'battery' gives will require a Rankine unit to keep going until 2024. If for engineering reasons this doesn't happen, then Genesis could be in trouble."

SNOOPY

[Jantar]

...
Translation:

"The skinny coverage that Genesis's 'battery' gives will require a Rankine unit to keep going until 2024. If for engineering reasons this doesn't happen, then Genesis could be in trouble."

SNOOPY

Intraday storage makes a huge difference. Wind generation can be 200 MW over generating at one part of the day and 200 MW under at another part. That is where Tokaanu is ideal.

Love your translation, and pretty accurate. The change I would make is that if they can't keep at least one Rankine unit going that long then the NZ grid could be in a difficult situation.

[Snoopy]

Intraday storage makes a huge difference. Wind generation can be 200 MW over generating at one part of the day and 200 MW under at another part. That is where Tokaanu is ideal.

Yes, I had temporarily forgotten how volatile wind generation can be. Thanks for pointing this out.

Love your translation, and pretty accurate. The change I would make is that if they can't keep at least one Rankine unit going that long then the NZ grid could be in a difficult situation.

Will pushing the button on Contact's consented new Tauhara geothermal station be the 'fix' that the NZ North island grid needs? It could probably be up and running by 2024.

SNOOPY

[Jantar]

….
Will pushing the button on Contact's consented new Tauhara geothermal station be the 'fix' that the NZ North island grid needs? It could probably be up and running by 2024.

SNOOPY

Not really. It may help with straight out energy replacement, but geothermal is entirely base load and therefore also needs intraday storage that can back off overnight and generate during the day. Geothermal is also great for supplying steady industrial demand, like at Tiwai or Glenbrook. It was the Tiwai announcement that caused the delay in Tauhara.

[Snoopy]

Not really. It may help with straight out energy replacement, but geothermal is entirely base load and therefore also needs intraday storage that can back off overnight and generate during the day. Geothermal is also great for supplying steady industrial demand, like at Tiwai or Glenbrook. It was the Tiwai announcement that caused the delay in Tauhara.

From a 27th June 2019 press release by Contact Energy:

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"Contact has secured 4.5PJ of gas for this winter and access to new Maui gas until the end of 2024 as the field is progressively invested in. Our perspective is that gas is getting more expensive and less reliable at a time when it’s facing increased competition from renewables. To maintain its share of energy production it should be doing the opposite. This unreliability has also impacted our ability to call on energy under a long-standing insurance product which has significantly devalued its future worth. On a more positive note the Ahuroa Gas Storage facility expansion is progressing well with completion expected in early 2020 and we understand there is a long term contract with another user imminent.

The increased price and reducing reliability of gas is accelerating the case for the long-term economic substitution of thermal plant with new baseload geothermal."

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Sounds like Contact's Tauhara Geothermal Station would be an excellent replacement for Genesis's Huntly 'Unit 5'. The next stage in the 'shrinking' of Genesis Energy?

SNOOPY

[JohnnyTheHorse]

Looks like a flow of money from people selling their massively overpriced clean energy into dirty energy? All time highs being made.