GNE - Genesis Energy

[PSE]

I am just reporting what the notes in the accounts say PSE. I do note that between the 2009 accounts and the 2014 accounts the maximum life of generation assets has been extended to 80 years. I wasn't aware the accounting standards had changed in that regard. Would anyone like to speculate how certain assets lives suddenly got extended? 80 years is probably more realistic I agree.

SNOOPY

None of us are speculating Snoopster, all three of us have varied experience in the industry to inform our comments.
Neither have I disputed the accounts but you need to understand a hydro station is different to a gas turbine and the difference does not relate to an accounting standard but should be included.
I do wonder though if the depreciation that MEL reports is the same as GNE or is more of an accounting fiction. I haven't looked into it.
As you know I own a windfarm designed for 20 years at which time gearboxes will need replacing. I suspect the towers and footing will prove longer lasting. Presently this is another 20 years when I think the transformers will need replacing or at least a bit of attention.
It all depends on how things are designed operated and maintained as well as the type of plant.

[bull....]

just changed my electricity from genesis to another supplier saved $60 mth according to switch me.

[PSE]

Because Genesis are extracting the natural gas fuel from Kupe, I don't think you can say that Genesis's Unit 5 'runs at a loss'. If Genesis charges a high enough price for the fuel they could make it run at a loss for sure. OTOH they could reduce the gas price by any amount and let Unit 5 run at any level of profit they choose.

SNOOPY

We are in agreement then as this is just semantics.

[PSE]

Assuming peak in winter is about 3 hours from say 6-9, then why not. The home based, solar charged ones may not have much charge in them but the large commerical ones could easily store this energy from your geothermal which is producing electicity at 1am - 6am when no one is using it - my guess is you could buy at 5c and sell at 20c.

As I said, its not going to put anyone out of business but it will effect investment/pricing decisions.

Pumped hydro is still going to be much more cost effective than batteries for a long time yet. Very little energy from the panels in winter, we have a lot of hydro and can run it at real times.
Why not turn off the hot water cylinder from 6-9pm with a cheap and cheerful updated version of the ripple relay. There's 3kW off the peak - whammo.
As I say look at the difference between north and south island demand and you may get the picture.

[PSE]

Assuming peak in winter is about 3 hours from say 6-9, then why not. The home based, solar charged ones may not have much charge in them but the large commerical ones could easily store this energy from your geothermal which is producing electicity at 1am - 6am when no one is using it - my guess is you could buy at 5c and sell at 20c.

As I said, its not going to put anyone out of business but it will effect investment/pricing decisions.

Pumped hydro is still going to be much more cost effective than batteries for a long time yet. Very little energy from the panels in winter, we have a lot of hydro and can run it at real times.
Why not turn off the hot water cylinder from 6-9pm with a cheap and cheerful updated version of the ripple relay. There's 3kW off the peak - whammo.
As I say look at the difference between north and south island demand and you may get the picture.

[Jantar]

......
Neither have I disputed the accounts but you need to understand a hydro station is different to a gas turbine and the difference does not relate to an accounting standard but should be included.
I do wonder though if the depreciation that MEL reports is the same as GNE or is more of an accounting fiction. I haven't looked into it.......

Reminds me of a financial analysis I saw comparing one of the countries larger hydro stations with a large CCGT. The accounts showed that the hydro station was uneconomic at any earnings less than $200 MWh, while the CCGT was economic at $60 MWh. On disputing the data I found out that both had been given an economic life of 25 years and that the fuel cost of the CCGT had not been included in the calculations as all fuel was regarded as take or pay and therefore a sunk cost. Maintenence costs had been assumed as the same for both plants.

As a result, depreciation for the hydro plant was massive, and it was impossible to convince the economist who wrote the report that hydro stations do not depreciate, but actually increase in value over time.

[Snoopy]

I do wonder though if the depreciation that MEL reports is the same as GNE or is more of an accounting fiction.

Have just checked the Meridian prospectus. Generating assets have a life of up to 80 years. Of course this doesn't mean those assets will have no value after 80 years. At Genesis at least (but not Contact) the generation assets are revalued every year based on expected future cashflows. Once the assets values are reset then for presentation purposes, you can take 1/80 th off the value of the new value. Thus thanks to annual revaluation, the valuation of those hydro generation assets will never actually go to zero.

Of course the accounts presented to the IRD will show a different picture. If one company does own a dam for 80 years then it will show in the taxation books as valuation zero after 80 years. But that is only because the company is required to do that as a bookkeeping exercise to satisfy the IRD. The valuation in the annual report will reflect the real value of the dam, based on discounted future cashflows.

SNOOPY

[Snoopy]

We are in agreement then as this is just semantics.

We agree? Under what circumstances do you see Unit 5 making money? Or do you consider that because it will depreciate faster than a hydro asset and because you have to pay to fuel it it never will?

SNOOPY

[PSE]

We agree? Under what circumstances do you see Unit 5 making money? Or do you consider that because it will depreciate faster than a hydro asset and because you have to pay to fuel it it never will?

SNOOPY

If they sell gas to themselves for less than it is worth then they are just shifting the loss. Same stuff different label - semantics.
As they have customers (unlike some other companies we may mention) the overall situation has never been a loss.
But if you say the gas makes less profit to cover the CCGT or there is less profit on the retail customers they sell to it's all the same isn't it.
I never said the whole company made a loss, just that thermal stations are the least desirable of assets to own because off their short life and high capital/gas costs. You can't shut off the CCGT overnight and with take or pay you have to run it at low wholesale prices, anyone who has worked for CEN or GNE knows this I don't understand why you would argue the contrary at such great length when you never had a leg to stand on.

[PSE]

I mean depreciation and maintenance not capital sorry. I see the CCGT making money when wholesale prices are above $70 more or less depending on how much they pay for gas etc as per the various EA spreadsheets - there is one online for e3p somewhere on the EA website.
When I was working for gentailers recently this was the figure bandied about. You will note the wholesale price is not infrequently below this and future expectations are widely varied and as you say included in GNE's yearly evaluations of the value of assets which I have not disputed.