GNE - Genesis Energy

[Basil]

Good points Plata and yes I have noted the timing of generation from my friends flash new solar system with Tesla Powerwall and they're very different to peak electricity demand times in the evenings!  Gosh...more than $30,000 for a really good home solar system, not cheap!

Worth remembering, we will see a significant ramp up in EV charging demand over the 2020's and 2030's and maybe instead of cheap night nates to charge like we have now it ends up being flipped on its head and there's cheap rates during the day at times of maximum solar generation?

With regard to retail customers its possibly worth noting that based on the change to internal transfer pricing in FY23 to $125 per Mw/hr GNE lost money on retail.  I presume this transfer pricing change has something to do with the future pricing of the new offtake agreement for geothermal coming into effect in 2025.

I think Winner has made a great point about the declining premium to the 10 year Govt stock rate, but also I wonder if it wasn't too good in the past, (and not just for GNE), and more relevant now is consideration of what GNE's gross yield might be on a sustainable basis going forward, say 14 cps 80% imputed = 18.04 cps gross / $2.40 = 7.5% relative to the other gentailers current yield?

Anyway...that's enough far-reaching pondering about the 2030's for me, (might not even get there with my health lol).  One thing right in front of us, it's going to be very interesting to see where this settles as the index exit takes effect on Thursday.

[Glenorchy]

I am looking to nibble a few I think they're still, despite the issues raised, a decent add to an income portfolio. However, I think I'm probably a bit late if it comes into effect 31st I would expect all those effected have had time to sell out of their positions by now and other factors may be holding the price lower for the moment. I'm not certain we'll see huge volumes on the last day? Has anyone purchased a share coming out of an index before and has any experience with how it goes? I can't say I ever have before.

[Plata]

T

I am looking to nibble a few I think they're still, despite the issues raised, a decent add to an income portfolio. However, I think I'm probably a bit late if it comes into effect 31st I would expect all those effected have had time to sell out of their positions by now and other factors may be holding the price lower for the moment. I'm not certain we'll see huge volumes on the last day? Has anyone purchased a share coming out of an index before and has any experience with how it goes? I can't say I ever have before.

To my knowledge the extent of MSCI Small cap ownership of GNE is pretty limited. Expecting some big off market trades at around current prices or a very large volume closing auction. Lets not forget when this happened with CEN and the clean energy index something like 70 million nzd moved in the closing auction at a higher price than what it opened at.

[Plata]

1. Worth remembering, we will see a significant ramp up in EV charging demand over the 2020's and 2030's and maybe instead of cheap night nates to charge like we have now it ends up being flipped on its head and there's cheap rates during the day at times of maximum solar generation?

2. With regard to retail customers its possibly worth noting that based on the change to internal transfer pricing in FY23 to $125 per Mw/hr GNE lost money on retail.  I presume this transfer pricing change has something to do with the future pricing of the new offtake agreement for geothermal coming into effect in 2025.

1. I think that will definitely play into it to some extent, I reckon that solar buildout will be much more aggressive than EV uptake this decade though. Quite hard to guestimate how that battle will play out.

2. That was an interesting little fact, took me a bit to find it in the report. I'm very doubtful GNE is paying anywhere near $120 per MWH for the CEN power given thermal costs ~96 per MWh inclusive of carbon credits (for which they are hedged to the eyeballs). Do you think this metric is important? I was thinking that GNE is probably incentivised to move profits away from retail into wholesale given all the depreciable assets are there?

[Basil]

I agree the rate of new solar generation is likely to outstrip new EV demand for quite some time.  I don't think there's going to be a massive EV uptake until they're the same price as ICE cars.

Maybe they are transfer pricing it based on where they see a normal year, fair value average generation cost, normalizing their in the money carbon hedges and pitching it at a level that gives a certain percentage return on generation assets, say 8%?  I guess saying they are losing money on retail is one way of justifying higher charges and I note one of the brokers said they'd lagged the market with price increases last year.  I guess GNE customers can expect price increases.

[Buzz]

I agree the rate of new solar generation is likely to outstrip new EV demand for quite some time.  I don't think there's going to be a massive EV uptake until they're the same price as ICE cars.

I think you'll find that the uptake of BEV/PHEV has been quite substantial since the CCD/CCS legislation. A definite spike, the stats are available.

What's more, the low end is priced well into the range of average ICE/Diesel vehicles, a number are under $50k, some even lower, and with the discounts on that, they are an attractive proposition. Used imports are even lower priced, even with low mileage.

Things have moved swiftly towards conversion of the national fleet of used and new cars. This will likely continue as the incentives are compelling, however both National and ACT have said they'll can at least the CCD. ACT want both CCD and CCS canned.

Anecdotally, since buying a PHEV (a very nice used very low mileage BMW300e), my running costs have absolutely plummeted. Last time I checked, I got 1100-1200km per tankful of petrol, which was under $100 to fill up, currently about 3-4 weeks between fills. It's been a truely eye opening experience to have bought into the electric. My electricity bill has gone up a bit, but nothing like what it would have cost to fill my petrol tank weekly prior.

The truely surprising thing is, on electric mode, apart from being silent which is pretty cool, the power delivery is way more impressive off the low-mid range than even the turbo'd 2.0l. Go figure. Instant torque and power, it's quite a different experience.

I do like my new (used) car, it's been the best vehicle for money that I've ever bought. Luxury sedan at a ridiculously low import price, including government discount, and massively less cost to run.

Head out of sand is the best way to explain my experience.

[xafalcon]

Apologies for the typo, its 16,278 MW's in total of new solar, wind and geothermal under review (not GW's) and consideration / current development at various stages, by all industry participants according to a broker report.  They give a full breakdown by company, location and type of project including where in many cases...far too extensive to post here and any mo

Somewhat more realistic figures

But.....

Current generation capacity is 9GW, of which 2GW is thermal

The idea that 16GW of extra capacity is being considered is still OTT. Given intermittent generation up-time is approx 25%, but limited to daylight (solar) or concentrated in spring & autumn windy periods (wind). The only true baseload renewables are hydro and geothermal (which is not zero carbon)

So what fills in the solar and wind generation gaps? Lake Onslow is the obvious answer, but the blue team have stated they will stop this project. Leaving only chemical batteries (extremely expensive) or gas. So gas is the only viable option, making GNE ideally placed with both gas supply and gas generation consented and permitted

National have also stated they will re-allow gas prospecting offshore. This may attract some prospecting activity, but probably will not (as NZ has now proven to be a risky political area to drill oil/gas wells). However I believe that electricity generation will be the last major industrial gas user in NZ, for the purposes of electricity security. So not all 2GW of thermal generation will be retired,  probably just the 750MW of coal, once the coal stockpile is gone and the biomass takes the Rankines to their end of life

Increasing intermittent generation also needs to be backed up by "secure" generation to avoid the lights going out in non-windy  winter evening demand peaks. Chemical batteries could fulfil this function, but are very costly

So there is really only 750MW of generation to replace (which the already planned extra geothermal will do), some time in the 2030's. Plus natural growth through electrification of transport and process heat

It looks like about half of the 16GW would be needed (based on 25% up time)

It would be interesting to compare the build cost for this 8GW of wind and solar against the $16B cost if Lake Onslow. I reckon it would be cheaper to build Lake Onslow, and get a better result as well....

But we will probably never find out

[Basil]

Good post xafalcon and its funny you suggest that only about half of the proposed projects will actually get built as I was thinking the same.

GNE are talking about $1.5m per mw/hr capex for solar so assuming half of the total planned in the industry gets built in due course that about 4.5 GW/hr's and assuming an average cost the same as GNE's that's $6.8 Billion.

Going purely off memory here which may not be right, I recall one report estimated wind at $2.9m  Mw/hr, roughly twice the cost of solar but it has roughly twice the effective production envelope so if half = 3.3 GW/hr's gets built that's about $9.6 Billion.

In total ironically enough that's about the same $16 Billion last reported estimated cost of Lake Onslow but it must be remembered that Lake Onslow is a battery for emergency dry years whereas the wind and solar is actual generation all the time within the limitations of course of when the sun shines and the wind blows.

My biggest concern with Lake Onslow is that the original budget of $4B was quadrupled recently and who is to say the real cost is not going massively more than $16 Billion?
I guess you could say the same about the solar and wind projects planned by the Gentailiers but at least they are evaluating them around, hopefully, thorough cost benefit analysis whereas I think Lake Onslow as a back up is more ideologically driven around CO2 reduction.

Buzz- Sounds like you are enjoying your BMW, good for you.  Couple of thoughts on what you posted.  Yes you can now pick up a cheap small EV hatchback made in China for under $50K and grab the $7K incentive before its gone but apples for apples you can also pick up a very similar sized cheap small ICE powered Chinese made hatchback for about half that price e.g. https://www.trademe.co.nz/a/motors/cars/mg/3/listing/4215797955
We had a good look when we replaced, my wife's vehicle that got waterlogged in the Auckland weather events earlier this year and found the price was double further up the scale to go electric.  We picked up the multi award winning best in class medium SUV the Kia Sportage diesel as a demo for a little under $40K.  The equivalent EV was $79,990 plus on roads less the incentive, about $73K on the road.

Very recently I read we just surpassed the 2% mark for the National Fleet, this after 13 years of availability of EV cars.  Sure they will get cheaper and battery technology will improve too but on the other hand both main political parties are saying expensive road user charges are coming for EV's from 1 April next year and maybe plug-in hybrids too and the current incentives for these sorts of vehicles look like they might have a short remaining life.

Zooming out and looking at the big picture for context, If the amount of solar and wind generation I've talked about above gets built over say the next decade, after adjusting for 20% effective output from solar and 40% from wind that's the equivalent of 4,462 Mw's of new capacity, albeit intermittent generation but still's that's equal to more than 5 times the maximum output from our biggest hrdro station at Lake Manapouri and that's assuming Manapouri runs at 100% capacity all the time, which it doesn't.

I think if half this solar and wind gets built, we are going to be "swimming" in excess intermittent generation capability.

[Shareguy]

Craigs said this morning as part of bakers dozen

GNE – Bashed this month (-11%), drops out of MSCI today. Final DPS 8.8cps ,21 Sept. Wait for rebound.

I'm waiting....

[Basil]

Not sure its going to get down to my price or Winners.

[winner (n)]

Not sure its going to get down to my price or Winners.

Just a bit of irrational exuberance today

Patience is required Basil.

[Basil]

No worries...I am taking a last minute, so to speak, very "dogged" approach.

[snapiti]

fortune favours the brave, been hovering them up this week, add a nice divi collect just around the corner.....even got some more @ $2.415 this morning

[xafalcon]

A couple of corrections to your reply Basil (I hope you don't feel picked upon [not my intention], I just think it's important that we all understand what the facts actually are)

$1.5M/MW (not $1.5M/MWh, big difference). I assume it's actually MWp, but this is only an extrapolation of how solar generation is usually described

Lake Onslow primary function is (and was always) daily energy arbitrage, not dry year coverage (a very useful secondary function that is due to the sheer size of lake Onslow 5TWh). The media for some reason seem fixated on dry year coverage, so I'm guessing this is where you picked it up. But if you read the reports, it's primary function (like all other pumped hydro batteries) is daily energy arbitrage. This is why the electricity generators are so opposed to it. = Buy electricity during sunny/windy/wet periods when wholesale price is almost zero and use it to pump uphill. Then generate and sell power when wholesale price is high - morning and evening peaks

This allows more intermittent generation in the grid, as the big battery soaks up any excess power and makes up for power shortages, thus stabilising the grid

[Basil]

A couple of corrections to your reply Basil (I hope you don't feel picked upon [not my intention], I just think it's important that we all understand what the facts actually are)
Thanks for putting it like that

$1.5M/MW (not $1.5M/MWh, big difference). I assume it's actually MWp, but this is only an extrapolation of how solar generation is usually described 
Not sure and there's no way I'm diving back into those reports to read through them again.

Lake Onslow primary function is (and was always) daily energy arbitrage, not dry year coverage (a very useful secondary function that is due to the sheer size of lake Onslow 5TWh). The media for some reason seem fixated on dry year coverage, so I'm guessing this is where you picked it up. But if you read the reports, it's primary function (like all other pumped hydro batteries) is daily energy arbitrage. This is why the electricity generators are so opposed to it. = Buy electricity during sunny/windy/wet periods when wholesale price is almost zero and use it to pump uphill. Then generate and sell power when wholesale price is high - morning and evening peaks

This allows more intermittent generation in the grid, as the big battery soaks up any excess power and makes up for power shortages, thus stabilising the grid

Effectively that would undermine the returns in the whole sector so yes, its clear why all the Gentailiers are against it.  With the polls where they are as it's not on National's radar, it's looking increasingly unlikely Onslow will see the light of day anytime soon.
Surprising strength in GNE's share price today consider it was MSCI small companies index exit.  I'm honestly not worried I didn't buy any back, I'd prefer to invest in companies with a good yield and very strong prospects of dividends increasing over time, not decreasing. I still have a "nursery" sized stake so I'll see what they have to say at the investor day in late November and go from there.