10 Feb 2020

Contact Energy profits tumble 78 percent from record high

10:55 am on 10 February 2020

New Zealand's biggest power company, Contact Energy, has reported a 78 percent fall in its half year profit after asset sales and lower sales.

Otahuhu Power Station.

Photo: RNZ / Lauren Baker

The net profit for the six months ended December was $59 million, from a record $276m last year, which was boosted by one-off gains from selling assets.

Revenue fell about 19 percent to $1.1 billion.

Contact chief executive Dennis Barnes said repeating last year's record net profit was always going to be a challenge, with scarcity in gas supplies adding to the difficulties.

"The impact of the recent under-investment in New Zealand's ageing gas fields has been acutely felt over the past six months with the supply of natural gas proving unreliable, leading to thermal input costs increasing sharply," he said.

It had secured new gas supply agreements with OMV between 2021 and 2025, and another undisclosed third party, for supply this year.

Contact generates most of its energy from geothermal and hydro stations but has a large gas-fired plant in Taranaki, the economics of which were deteriorating because of the rising cost of gas and carbon.

"The transformational shift has impacted Contact's near-term profitability as thermal costs rise, but over the longer term we are well-positioned to connect our customers with renewable energy," Barnes said.

Outgoing Contact Energy chief executive Dennis Barnes.

Outgoing Contact Energy chief executive Dennis Barnes. Photo: Contact Energy

"We expect to drive reductions in costs and deliver strong returns to shareholders at the same time as we develop our large-scale consented geothermal development at Tauhara."

Fewer sales to industrial customers and the increased cost of thermal generation caused Contact's underlying earnings to fall 21 percent to $221m.

Barnes said there were concerns for the electricity market caused by the current review into the future of the Tiwai Point aluminium smelter.

"A disorderly exit of the smelter would be a poor outcome for New Zealand and we are actively engaged in negotiations for revised terms for electricity supply to Tiwai."

Contact was involved in talks to get revised power transmission costs for the smelter, and was also working with Transpower to free up bottlenecks in the regional power grid.

Barnes is retiring from Contact this year, to be replaced by Refining New Zealand chief executive Mike Fuge.

Contact declared an interim dividend of 16 cents a share.

Get the RNZ app

for ad-free news and current affairs