GNE - Genesis Energy

[Shareguy]

A good article from BD today

Heavy inflows in the North Island increased North Island hydro storage by 32% to 172% of the historical average. South Island storage increased less dramatically by 2% to 86% of the historical average for the time of year, as much of the rain would have fallen as snow.

The other major part of the generation equation – gas-fired generation – is also looking more healthy after the Maui full-field outage finished on June 19.

The importance of thermal generation in keeping the lights on was again highlighted by this week's events. The most important of these remain Genesis Energy's gas and coal generators at Huntly, Contact Energy's Stratford gas peakers and Taranaki peakers owned by Todd Energy.

Despite some urging that these be closed down, the simple fact remains the country would be dealing with weekly blackout threats without them functioning.

Energy Resources Aotearoa chief executive John Carnegie said it showed investor confidence is critical to ensure delivery of the capital investment needed to underpin supply.

This is a fact the government recently acknowledged with energy minister Megan Woods refraining from naming a date to stop using gas. This is because investment in gas is needed to keep the system stable for the foreseeable future and getting the timing wrong could have serious consequences

[Minimoke]

The days of coal fired electricity generation ought not be over. As has been evidenced around the world lately.

Shame we import the filthy stuff from Indonesia rather than keeping kiwis employed digging our own plentiful resource from the ground.

[Shareguy]

Yes.  It seems a real shame to be importing when we have so much of it here.

[Shareguy]

Agree 100 percent. My understanding is that NZ carbon emissions are minuscule at .0017 percent.  Sure we need to do our share but does not make sense importing when we have a great resource in NZ.

[Plata]

The days of coal fired electricity generation ought not be over. As has been evidenced around the world lately.

Shame we import the filthy stuff from Indonesia rather than keeping kiwis employed digging our own plentiful resource from the ground.

I was under the impression that NZ coal was better for steel making (higher value) than for burning. IE we sell our more valuable "coking coal" and purchase "thermal coal" from overseas to burn.

[Minimoke]

The days of coal fired electricity generation ought not be over. As has been evidenced around the world lately.

Shame we import the filthy stuff from Indonesia rather than keeping kiwis employed digging our own plentiful resource from the ground.

I was under the impression that NZ coal was better for steel making (higher value) than for burning. IE we sell our more valuable "coking coal" and purchase "thermal coal" from overseas to burn.

west cost coal is. But there is loads of coal in Huntly and Southland that is used for energy generation.

[Shareguy]

https://www.dailymail.co.uk/news/article-10891127/Anthony-Albanese-calls-coal-power-stations-come-online-climate-change-strategy-shock.html

[Shareguy]

Good news

The Electricity Authority has decided generators can keep an extra $130 million charged on wholesale power prices during the blackout in August last year, while also ruling decisions by Genesis and Contact not to generate power that day were reasonable.

A shortage of power during a period of peak demand on August 9 last year led to power cuts for 34,000 customers.

The market regulator issued its final report this morning on complaints from four power companies alleging Genesis and Contact created an undesirable trading situation causing the blackouts.

[Shareguy]

An insert from bd today

Despite healthy hydro lake levels and a return to reasonable gas supply, wholesale electricity prices are still well above historical averages, with one sector analyst saying the high international coal prices are driving the market up and may do so for some time.

Recent heavy rain events have pushed hydro levels up to near normal after a dry spell at the beginning of the year.

This lack of stored water had pushed wholesale spot electricity prices up beyond the $200 a megawatt-hour (MWh) mark.

The historical average is closer to $80MWh.

After the rain, prices dropped to around $120MWh, but last week at Haywards, prices increased by 44% from $126/MWh to $182/MWh.

This week on June 28, daily averages were $205.86 at Benmore, $215.73 at Haywards, and $238.48 at Otahuhu.

Greg Sise of consultancy Energy Link said high prices in the spot market and the futures market appeared to be now being driven by coal prices.

Despite New Zealand's relative abundance of cheap, renewable electricity, prices tend to be driven by the most expensive component of the mix. For now, that is coal.

Indonesian coal prices in the past peaked at US$125 (NZ$200) a tonne but are now at about US$260.

Genesis Energy, which is the main user of this coal for generating electricity at its Huntly plant, has said it has a good stockpile of Indonesian coal.

[Basil]

https://www.nzherald.co.nz/nz/transpower-warns-of-grid-problems-if-the-situation-worsens/44QYMZIKLTNXZW2FXAAQI7OWNY/

Just as well we still have Huntly !

[Shareguy]

From BD today

Genesis Energy says its plans to use biofuel at the Huntly power station could extend its life to post-2040.

The observation is made in submissions on the government's Emissions Reduction Plan which is currently being considered by Parliament's environment select committee.

Genesis said it supports the government's goal of increasing the renewable share of energy consumption to 50% by 2035.

"However, we consider that the current focus may be too siloed in terms of achieving our transition to renewable energy generation and a 100% renewable electricity goal," the submission said.

Like many in the sector, it warned of unintended consequences of a 100% renewable goal including an insecure and unreliable electricity supply. A recent cabinet paper showed while ministers are keen to phase out gas they understand the problems it might cause.

Genesis said in its submission that during winter, NZ typically needs 2,000-5,000 gigawatt-hours (GWh) more stored energy than hydro lakes can provide.

"The thermal plant at Huntly power station fills most of that storage gap today. It is unlikely that our existing renewable infrastructure can serve the expected demand between 2022-25."

[mcdongle]

What fuel do they mean by Biofuel?

[Raven]

They are trialing some special imported wood pellet to replace coal.
https://www.newsroom.co.nz/genesis-imports-us-wood-pellets-to-fuel-huntly-renewable-energy-trial

[kiwi2007]

Following a decline of about 25% in the past 12 months, shares in narrow-moat Genesis Energy are now reasonably valued, trading at a small premium to our unchanged fair value estimate of NZD 2.50. Genesis shares offer investors an attractive fiscal 2023 dividend yield of 6.6%, mostly imputed for New Zealand residents, and we expect this to remain stable in the midterm. We maintain our fiscal 2022 EBITDA estimate of NZD 438 million, up 5% on last year due to higher prices across all fuels—particularly gas—in addition to good hydro levels and retail customer momentum. We expect EBITDA to remain largely flat in the medium term, with a five-year compounded annual growth rate of 1.5%.

Genesis' lakes finished third-quarter fiscal 2022 with 421 gigawatt hours of hydro storage, 32% above average for that time of year. This sets the generation division up for a strong performance in the fourth quarter, particularly as most of Genesis' hydro lakes are in the North Island where the winter months are the wettest. The Kupe oil and gas field should also have performed well, given strong commodity prices. Our fiscal 2022 EBITDA forecast reflects growth of 5% on 2021.

The ensuing 10 years will see a significant change in the group's power generation with New Zealand aiming to get to 100% renewable power by 2030. The Huntly Rankine coal generation is expected to retire in the medium term and the group is investigating the use of wood pellets which is considered a renewable energy source. Even if successful, we don't think running Huntly on wood pellets would benefit Genesis' earnings in a typical year given pellets are expensive.

Borrowing costs are rising, but we do not expect the impact of higher rates to be material to the earnings outlook overall. In May, Genesis raised NZD 285 million of green bonds paying an interest rate of 5.7%, compared with the firm's average cost of debt of 4.3% in fiscal 2021.


MORNINGSTAR

[Shareguy]

Craigs see it very differently to Morningstar.

Upside in a GNE transition
Sector preferences updated to GNE, MCY, CEN, MEL and MNW
Key Changes
Ticker Recommendation TP % GNE.NZ Overweight 3.80 5.6 MCY.NZ Overweight 7.01 6.7 CEN.NZ Overweight 8.54 -11.4 MEL.NZ Overweight 5.35 -4.8 MNW.NZ Underweight 6.20 0.0 Source: Craigs Investment Partners
Summary Forecasts
 

 GNE is our top pick based on a relative valuation between its current share price and our revised Target Price. We observe the first sign of GNE's portfolio transition in the form of reduced low margin C&I sales volumes, likely to provide some of the flexibility we've observed in CEN's recent performances. Our long-run forecast includes reduced levels of GNE C&I sales, with mass market volumes to be backed by renewable generation and PPA's delivering an uplift in Target Price to $3.80 (prev. $3.60). MCY is our 2nd pick, TP $7.01 (prev.$6.70), its wind development options expected to be executed as the country electrifies, whilst CEN, TP $8.54 (prev. $9.64) drops to 3rd, as we withdraw previously attributed retail price premiums associated with its geothermal generation expansion, however reserve this right if this can be demonstrated. MEL remains our fourth choice, TP $5.35 (prev. $5.62), its valuation not materially impacted by a Tiwai stay vs substitution outcome (dependant on the re-fix price), and MNW fifth, TP $6.20, unchanged.
Sector demand/supply balance suggests elevated prices for next three years, and a Tiwai 10-year stay scenario is our new base case
This report sets out our new base case assumptions for valuing gentailers, where we expect an extended period of elevated wholesale prices, driven by the present supply/demand imbalance and thermal fuel constraints, followed by a Tiwai 10-year stay decision post-2024. In combination with climate change sponsored electrification these inputs result in a tailwind for gentailer build conditions (c.20TWh needed by 2050). Our revised gentailer forecasts include what we think is a conservative allocation of industrial and transport electrification (c.8-8.5TWh of each), well below sector bodies such as Transpower, EECA, and the Climate Change Commission demand forecasts to 2050 however, supportive of valuations. We also provide analysis on the sector's traditional 10-year bond proxy correlations,