MEL - Meridian Energy

[bunter]

Not sure why the price spiked yesterday on no news. .

Some sort of capital return due in Feb, I seem to remember.

Slightly overvalued now - fair value $1.62, by my model, which is 46th best value of the 70 stocks I follow.

[xafalcon]

the key short term question for Meridian must be what happens at Tiwai. Does anybody have a view in light of global commodity prices and demand for aluminium.

This question is relevant to all electricity generators. While Meridian holds the supply contract, if that extra electricity is released to market it will reduce returns of all generators and sp will follow.

[Jantar]

This question is relevant to all electricity generators. While Meridian holds the supply contract, if that extra electricity is released to market it will reduce returns of all generators and sp will follow.

Not true. Because of line constraints that extra energy cannot be transferred out of the lower South Island. So the only stations affected will be Manapouri, Roxburgh and Waipori hydro (and Clyde to a lesser extent), and White and Mahinerangi wind farms. Contact owns the Clyde and Roxburgh stations, but also has significant geothermal and thermal plant in the North Island. So overall it would only be Meridian that would be adversely affected in the short term.

Once Transpower upgrade the circuits to all more of Manapouri's generation to flow north, then that would co-incide with the scheduled progressive shutdown of genesis's remaining Huntly coal fired units, the net gain to the nation in energy by adding Tiwai's demand and subtracting Huntly's generation is only 85 MW.

[Harvey Specter]

Once Transpower upgrade the circuits to all more of Manapouri's generation to flow north, then that would co-incide with the scheduled progressive shutdown of genesis's remaining Huntly coal fired units, the net gain to the nation in energy by adding Tiwai's demand and subtracting Huntly's generation is only 85 MW.

Is the contrait just around Manpouri or is it the whole south Island. I though there was a phase out for Tiwai exit which would give Transpower time to make the upgrade.

[MAC]

the key short term question for Meridian must be what happens at Tiwai. Does anybody have a view in light of global commodity prices and demand for aluminium.

One should not forget that a certain percentage of thermal generation is required to hedge weather dependent generation. Research shows that both hydro and wind seasonal dry year events correlate closely. So it is not a simple as weighing up a hypothetical demand exit with thermal decommissioning.

Meridian does not own any thermal plant for marketing reasons, but they do instead heavily hedge contract for thermal generation as they must.

Personally, I don’t see Tiwai backing out fully anytime soon, they may continue to offload potlines during cyclical commodity cycle lows, as much of their product is high purity value added stuff it does very well during cyclical highs. They may routinely threaten to leave when they think they are being screwed on power price negotiations and have done so off and on for the last twenty years.

They have also looked at building their own generation plant in the past which I understand would be competitive, even a little cheaper, than the Meridian contract pricing structure, this would be more of a concern to Meridian, and to electricity wholesale prices in general.

A build option would only practically tenable though when existing contracts with Meridian require renewal, and they didn’t take up the option last time around.

Just relax the status quo will continue for a few years yet.

[horus1]

Tiwai is heavily subsidised on power price. It has the highest security of transmission in the country. With the technology changes which are becoming available in the electricity industry building or upgrading any transmission lines is not economic, . you cannot rely on a 40 year economic life any more, more like 20 years. As it is a number of very expensive Transmission upgrades built in the last 10 years will have to be written off. i.e. 400KV from AK to Whakamaru.

[Jantar]

Is the contrait just around Manpouri or is it the whole south Island. I though there was a phase out for Tiwai exit which would give Transpower time to make the upgrade.

The constraint is the lines between Roxburgh and the Waitaki River stations with the ROX-NSY circuit being the main issue. Transpower do have a plan to upgrade the circuit should it be needed, but it would take a couple of years to get resource consent then another 3 years to replace the line.

[MAC]

Tiwai is heavily subsidised on power price. It has the highest security of transmission in the country. With the technology changes which are becoming available in the electricity industry building or upgrading any transmission lines is not economic, . you cannot rely on a 40 year economic life any more, more like 20 years. As it is a number of very expensive Transmission upgrades built in the last 10 years will have to be written off. i.e. 400KV from AK to Whakamaru.

It's a common public saying in NZ isn't Horus that Tiwai are subsidised, I'm sure Tiwai would have never seen it that way, particularly ever since the government screwed them over so overtly shortly after the get go in the early 1970's.

Two high efficient F class units in combined cycle sitting at Tiwai right now (800MW) with gas prices where they are might just make Meridian look comparatively damned expensive for base load demand. They have the switchyard and wharf infrastructure on site, only thing holding them back is the contractual commitment to MEL and whatever backdoor agreement they reached with the government last time around.

[horus1]

for years Tiwai paid 4.5c per Kwh , and this included 1.5c for the transmission. I believe from what is in the papers that they are paying about 5c now for energy. I have read the original contract and it was watertight . They were and are heavily subsidised. Domestic customers in NZ are paying 24-26c . The electricity reforms in NZ have been a di

[MAC]

for years Tiwai paid 4.5c per Kwh , and this included 1.5c for the transmission. I believe from what is in the papers that they are paying about 5c now for energy. I have read the original contract and it was watertight . They were and are heavily subsidised. Domestic customers in NZ are paying 24-26c . The electricity reforms in NZ have been a di

Different perspectives from different commercial standings.

The thing about base load demand is that it matches base load generation with, well one could say 100% utilisation. If hypothetically Tiwai were to build their own generation station as a viable commercial prospect that would set the market price for base load demand, and because of that it roughly sets the market price Meridian will ultimately ever get.

So there is no formal subsidisation is there, it's a public perception of a market reality.

Generally though, just my opinion, the government are still beholding to Tiwai for having screwed them in the 70's, they teased Comalco to New Zealand with the promise of cheap power and then once Tiwai was built they reneged and raised the price.

I don't think Tiwai would have stuck with Meridian if the politics during the last two negotiations would have been more favourable for them to have gone their own way with thermal plant build. It's not been politically easy to get a resource consent for coal or gas fired stations for some time now.

I’m sure they must see regulation, SOE politics and the Labour party as one of the biggest risks to their business, they have been screwed over by the government in the past after all.