Little growth in power demand


By Jamie Gray 11:00 AM Wednesday Oct 17, 2012

Contact Energy says it expects to see little growth in future power demand. Photo / Brett Phibbs

Contact Energy, which generates about a quarter of New Zealand’s electricity, said it expected to see little growth in future power demand and that the retail market would remain highly competitive.

The company’s chairman Grant King, in speech notes to today’s annual meeting, also said the Contact board would be considering how best to use the significant cash-flow of the business as its capital investment programme neared its end.

King said the company, which is just over half owed by Australia’s Origin Energy, recognised about five years ago the importance of making Contact generation and fuel portfolio more flexible to respond to changes in the energy market.

“At that time we didn’t foresee the impact the global financial crisis would have on global and regional economies, including here in New Zealand,” he said.

“This has led to a material reduction in the demand outlook for energy in New Zealand,” he said.

“Nor could we anticipate a number of years of higher than normal rainfall which has created a surplus of energy in the New Zealand market,” he said.

These factors resulted in a number of challenging years for Contact, particularly in terms of its financial performance.

But he said Contact’s strategy for increased flexibility in its generation and fuel portfolio was contributing to improved financial performance.

Contact’s underlying earnings after tax for the year were $176 million, up 17 per cent from the year before.

Capital expenditure in the current year would remain relatively high, although lower than the prior year, but in future years Contact’s capital expenditure would fall substantially, he said.

“Looking to the future, we expect little growth in demand for electricity and the retail market to remain highly competitive,” he said.

“When New Zealand does experience increased demand for electricity or older, less efficient plant is retired, Contact is well positioned with some of the most competitive development opportunities, particularly in geothermal power generation,” he said.

With the current capital investment programme coming to end, the Contact board would consider how best to utilise the significant cash-flow of the business and how this could best be applied to the benefit of shareholders, he said.

Contact provides electricity, natural gas and LPG to about 567,000 customers nationally.

The company, which is one of New Zealand’s most widely owned stocks with around 75,000 shareholders, listed on the NZX in 1999.

In 2004, Australia ‘s Origin Energy became Contact’s majority shareholder.

Contact shares last traded at $5.37, up 2c, and have traded in a $4.60 to $5.74 range over the last 52 weeks.

By Jamie Gray

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