Contact Energy - CEN Chart

[fish]

Repeating the above exercise for Mighty River Power, which has the same balance date as CEN.

Electricity Sold FY2012 10,257GWh. That translates to a 1171MW average power demand.

Average power actually produced by combined MRP hydro dams was 489.9MW.

Average power actually produced by combined MRP geothermal stations was 368.4MW.

That makes a total of 858.3MW.

This 'free fuel' total represents 73.2% of underlying demand.

This doesn't represent the full story of course.

Nevertheless I would argue that on an 'overarching underlying basis', Mighty River Power are in a better position than Contact Energy.

SNOOPY

Snoopy -if you produce only 73 % of your demand-admittingly all very cheap production and you have a very dry summer/autumn-as we have just had-you have to buy in at very expensive rates . This year much may have been hedged.Next year those hedging contracts will be much more expensive.
What provision have they should growth happen ?

[Snoopy]

Snoopy -if you produce only 73 % of your demand-admittingly all very cheap production and you have a very dry summer/autumn-as we have just had-you have to buy in at very expensive rates . This year much may have been hedged.Next year those hedging contracts will be much more expensive.
What provision have they should growth happen?

You have framed your question around MRP. However, Contact Energy has exactly analogous issues so I will answer on this thread.

To answer your last question first, if growth happens to the extent that you are required to buy energy in at very high prices to satisfy your retail demand, then you put up your retail prices. If some customers leave because of that, then that may help your energy supply/demand balance!

Otherwise if the power price is high enough you will be able to make money by firing up your gas powered power station. MRP has Southdown which can produce 175MW.

Add that to the 853.8MW of renewable power and you get 1029MW. That totals 87.9% of the underlying power load. So we now have just under 12% to make up.

As you said fish, this can be made up by buying power at a hedged rate on the power futures market or buying on the spot market. Or, as a last resort paying some of your big industrial customers not to use power! The cynic would argue this problem has been fixed for the future because the Kawerau pulp and paper plant has given notice they will halve in size.

My contention is that how well a power company does in this current environment is how it manages the costs bridging the gap between 'free fuel' energy and what they need to purchase to bridge the gap.

SNOOPY

PS I am of course writing this with the benefit of hindsight. While you are in the middle of a year, you don't know what the final annual demand will be.

[Snoopy]

snoopy-do study the monthly operational figures-the may report was released last week.
CEN appear to be doing well-"netback" is improving .
They are going for high value customers and profitability is increasing and my guess is that churn will not be as much a problem.
They are going for more flexible and cheaper generation and upgrades in cook strait transmission will help delivery .
With the above,vast gas storage facility and te mihi operational expect less buy in power.
Future demand is an unknown-so many factors involved. Increased population,use of airconditioning and electric cars make me feel optimistic.
Generational change in use could be a be big growth-my sons use massive amounts of power.

I am trying to take one step back from those monthly reporting figures Fish. I don't disagree with any of the points you make. All I would add is that all the other power companies are going after high value customers and trying to minimize churn just as much as Contact Energy. Given we have a competitive electricity market, I can't see one power company gaining a long term upper hand in this area.

The upgrading of the cook strait cable will be very good for CEN, given their hydro generation is in the south and geothermal energy generation is in the north.

The gas storage facility definitely gives CEN an advantage over MRP in terms of having better control of the gas input price. Then we have Contact's Rockgas subsidiary selling gas directly to customers to burn. That gives an alternative path to market for Contact's gas which the likes of MRP does not have. I am still figuring out how direct gas selling affects the overall profitability picture.

As for intergenerational change driving power use, it could be that consumers use more but energy intensive industry uses less, the industrial loss more than offsetting any gain from power hungry consumers. That is one interpretation of actual overall power consumption flat lining since 2008.

SNOOPY

[CJ]

Snoopy - why only look at supply side. I know MRP is short compared with its customers demand. Therefore, while It makes 73% of its power cheap, it is a net buyer of power, which I assume is expensive power.

[troyvdh]

Ok Im biased...but why would one sell CEN..at low $4.90 ......CEN pays nearly 5 % div and have indicated it will increase to whatever....Am I missing something...

hold about 8k

[Snoopy]

Snoopy - why only look at supply side? I know MRP is short compared with its customers demand. Therefore, while It makes 73% of its power cheap, it is a net buyer of power, which I assume is expensive power.

I look at the supply side CJ because I believe that is where a company's management can have most influence. Perhaps I am wrong in thinking this, and in absolute terms I am talking about simplifying the real picture. My quest is to look for a simplified picture that is nevertheless good enough to give some predictive cues.

I do believe that it would be easier to shed customers than grab new ones, so perhaps being a net buyer of power is a good thing?

It is unlikely that any power bought in will be cheaper than in house generated hydroelectric energy or geothermal energy. But I would guess that if another industry player has surplus hydro energy in a wet year, they might be willing to sell that surplus hydro very cheaply?

SNOOPY

[Snoopy]

To get a better understanding of CEN in an overarching way, I looked at last years (FY2012) power supplied, listed at 8280GWh or 8280GWh per year. Then I transform this figure as follows:

a/ Multiply that by 1000 to get MWh per year
b/ Divide by 365 to get average MWh
c/ Divide by 24 to get average MW drawn.

I get 945MW as an average customer demand.

Now to the supply side.

Average daily power available and supplied consisted of 330.6MW (hydroelectric) and 270.7MW (geothermal). So what I consider as the "baseload capacity with no fuel cost" was 601.3MW.

This amounts to 63.6% of power sold by CEN.

The balance is made up by running gas powered generating capacity, and buying in power from other generators.

So there is a 'benchmark' with which to measure CEN against other generators. Now how does it compare?

Contact had a poor hydro year in FY2012, so one of the best comparisons that we can make would be CEN in FY2011

FY2011 power supplied, listed at 8254GWh or 8254GWh per year. Then I transform this figure as follows:

a/ Multiply that by 1000 to get MWh per year
b/ Divide by 365 to get average MWh
c/ Divide by 24 to get average MW drawn.

I get 942MW as an average customer demand.

Now to the supply side.

Average daily power available and supplied consisted of 440.6MW (hydroelectric) and 259.7MW (geothermal). So what I consider as the "baseload capacity with no fuel cost" was 700.3MW.

This amounts to 74.3% of power sold by CEN.

That compares very closely to the "baseload capacity with no fuel cost" of 73.2% achieved by MRP in FY2012. So it seems the relatively poor generation performance of CEN in FY2012 must be blamed on the weather, not CEN management.

Put another way, I believe it is reasonable to assume that CEN will generate an extra 110MW in hydro generation in FY2013 as opposed to FY2012.

SNOOPY

[Snoopy]

First a bit of energy unit revision.

We are told the amount of gas used in power generation over FY2012 was 38.7PJ (source investor presentation for FY2012, p35)

Gas storage is quoted in Petajoules (PJ), with the joule being the metric unit of energy. 1PJ= 10^15Joules
1MJ= 10^6Joules. So 1PJ=10^9MJ

The 'Watt' (W) is the amount of energy units (Joules) produced in one second.

So if we can find the average amount of power produced by the gas powered power stations (Taranaki Combined Cycle and Otahuhu B) in MW, we can multiply this figure by 60 (to find the energy produced per minute), by 60 again (to find the energy produced per hour), by 24 (to find the energy produced per day) and by 365 (to find the energy produced per year), we have the total electrical energy produced over a twelve month period.

Total electricity produced from gas was 4665GWh. I calculate that as equivalent to an average production of 532.5MW

532.5 x 60 x 60 x 24 x 365= 16.8PJ. 16.8PJ is the energy generated over 12 months. Divide that by 38.7PJ (the energy input) and we have the gas fired plant efficiency:

16.8/38.7= 43.4%

For thermal powerplants, I believe that is a stunning result, almost too good to believe. Did I make a mistake in my calculation, or are modern gas turbines really that efficient?

SNOOPY

[Snoopy]

Stage 1 of Contact's gas storage plans is complete and has an estimated capacity of 15PJ of gas. Total gas used in FY2012 for power generation was 38.7PJ. 2012 was a bigger gas generation year that usual. But it is clear from these figures that at best Contact can store around 6 months worth of gas in their Ahuroa reservoir. This means that CEN does not have the capacity to store a couple of years worth of gas as I had naively assumed. CEN have the ability to expand Ahuroa's capacity but have no immediate plans to do so.

In the FY2012 report, we find the 'gas inventory' is listed as being worth $115.8m. On page 34 of the 2012 annual result presentation we find the amount of gas in the Ahuroa reservoir is 11.9PJ. From this we can do a simple division and find out that each 1pJ of reservoir gas is on Contact's books valued at $9.73m

SNOOPY

[Snoopy]

In the FY2012 report, we find the 'gas inventory' is listed as being worth $115.8m. On page 34 of the 2012 annual result presentation we find the amount of gas in the Ahuroa reservoir is 11.9PJ. From this we can do a simple division and find out that each 1pJ of reservoir gas is on Contact's books valued at $9.73m

OK, here is why the above figure is important.

The main shift in generation that I predict for CEN for FY2013 will be a reduction in average gas power generated of 110MW and a corresponding increase of 110MW of hydroelectric power. The money save for not having to pay for gas to burn should flow straight into Contacts FY2013 profit.

110MW x60 x60 x24 x365 = 3.5PJ (output energy)

Divide that figure by the gas turbine average efficiency ( 43.4% ) and I get 8.2PJ of gas being the required to operate 110MW of gas turbine generation over a year. Work out how much Contact doesn't have to pay for that amount of gas and we should have a good stab at how much more profitable CEN will be in FY2013 on an underlying basis.

8.2PJ x $9.73m = $79.8m (before tax) = $79.8m * (1-0.28) = $57.4m (after tax)

There are 718.67m CEN shares on issue. So if the dividend went up incrementally by $57.4 / 718.67 = 8cps, that should be sustainable in years with a reasonable rainfall profile.

Final dividend last year was 12cps, so 12cps + 8cps = 20cps

Sounds like a nice round final dividend number to me :-)

SNOOPY