Contact Energy Sees 30% Drop in Generation Costs Amid Rising Netback Prices

December Performance Overview

Contact Energy’s December 2024 Monthly Operating Report paints a picture of operational resilience and improving cost efficiency despite a marginal dip in mass market electricity and gas sales. The company recorded 274 GWh in mass market sales, down slightly from 279 GWh in December 2023. However, this was offset by a notable increase in mass market netback prices, which rose to $156.56/MWh from $145.23/MWh a year earlier, reflecting stronger pricing power in a competitive retail environment.

On the wholesale front, Contact Energy demonstrated growth with contracted electricity sales climbing to 699 GWh, up from 692 GWh in the prior year. This increase, combined with a rise in electricity and steam net revenue to $98.75/MWh, highlights the company’s ability to capitalize on market opportunities and secure favorable contract terms.

Generation Cost Efficiency Gains

One of the most striking aspects of the report is the significant reduction in unit generation costs. Including acquired generation, the cost fell to $30.68/MWh from $40.03/MWh in December 2023. Own generation costs also decreased markedly to $26.3/MWh from $37.2/MWh. These improvements suggest enhanced operational efficiencies and possibly a more advantageous fuel mix or procurement strategy, which could bolster margins going forward.

Electricity generated or acquired increased to 765 GWh, up from 692 GWh, indicating higher output capacity or better resource availability. This increase in generation volume alongside cost reductions positions Contact Energy well to meet demand while maintaining competitive pricing.

Project Progress and Market Conditions

Contact’s infrastructure projects are progressing close to schedule. The Te Huka 3 geothermal project reached 98.5% of its December target, while the Battery Energy Storage System (BESS) project was at 39% completion against a 41% target. These projects are critical for future capacity and grid stability, reflecting Contact’s commitment to sustainable and flexible energy solutions.

Market conditions remain dynamic, with Otahuhu futures prices for Q1 2025 rising sharply from $124/MWh at the end of December to $174/MWh by January 20, 2025. This surge signals tightening supply or increased demand expectations, which could further enhance Contact’s revenue potential.

Environmental and Operational Metrics

Contact continues to monitor environmental impacts closely, reporting greenhouse gas emissions from generation assets and freshwater usage consistent with prior periods. The company’s focus on biodiversity and community initiatives remains steady, underscoring its ESG commitments amid operational growth.

Electricity demand in New Zealand was down 1.4% compared to December 2023, primarily due to reduced consumption by the New Zealand Aluminium Smelter (NZAS) following demand response activation. Excluding NZAS, demand actually rose slightly, indicating underlying strength in the broader market.

Looking Ahead

Contact Energy’s December report reflects a company navigating market fluctuations with operational discipline and strategic project execution. The combination of rising netback prices, reduced generation costs, and near-target project progress suggests a solid foundation for future growth, though market volatility and demand shifts will require continued vigilance.