Contact Energy Cuts Generation Costs by 20% as Sales Drop 12%
Contact Energy's May 2025 report reveals a decline in mass market sales but improved netback prices and generation efficiency, alongside mixed progress on key infrastructure projects.
- Mass market electricity and gas sales down 12% year-on-year
- Netback prices for customer and wholesale businesses increased
- Electricity generation rose with lower unit generation costs
- Te Huka 3 project nearly on target; Battery Energy Storage System lags
- Wholesale electricity prices declined sharply from April to June 2025
Sales and Pricing Dynamics
Contact Energy’s May 2025 monthly operating report highlights a nuanced operational landscape. Mass market electricity and gas sales fell to 365 GWh, down from 413 GWh in May 2024, reflecting a softer demand environment. However, the company achieved a higher netback price of $145.13 per MWh compared to $130.41 the previous year, indicating improved revenue per unit sold despite lower volumes.
On the wholesale side, contracted electricity sales remained relatively stable at 768 GWh, slightly below last year’s 778 GWh. Notably, net revenue per MWh increased to $169.49 from $163.31, underscoring stronger pricing power in wholesale markets.
Generation Efficiency and Costs
Electricity generated or acquired rose modestly to 842 GWh, up from 821 GWh in May 2024. This was achieved alongside a significant reduction in unit generation costs, which dropped to $49.26 per MWh from $61.80. Own generation costs also improved, falling to $42.3 per MWh from $49.1, reflecting operational efficiencies and possibly favorable fuel or maintenance conditions.
Project Progress and Infrastructure
Contact Energy’s flagship Te Huka 3 geothermal project is nearly complete, with progress at 99.7% against a 100% target for May 2025. Conversely, the Battery Energy Storage System (BESS) project lags behind schedule, achieving 70% progress versus a 79% target. These projects are critical for the company’s future capacity and renewable energy ambitions.
Market Conditions and Demand
Wholesale electricity prices have softened considerably, with Otahuhu futures settling at $182.25/MWh in June 2025, down from $335/MWh in April. This price volatility reflects broader market dynamics and may impact future revenue streams. Meanwhile, New Zealand’s electricity demand declined about 6% year-on-year, influenced by a warmer May 2025 compared to the notably cold May 2024, which was the coldest since 2009.
Environmental and Operational Metrics
Environmental indicators show a slight increase in greenhouse gas emissions from generation assets, alongside steady water usage and biodiversity efforts. Contact Energy continues to maintain a balanced workforce gender ratio and active community engagement, aligning with its ESG commitments.
Bottom Line?
Contact Energy’s May report signals operational resilience amid softer demand and volatile prices, but project delays and market shifts warrant close investor attention.
Questions in the middle?
- How will the delay in the Battery Energy Storage System affect Contact’s renewable capacity targets?
- What impact will the sharp decline in wholesale electricity prices have on future earnings?
- Can Contact sustain improved generation cost efficiencies if demand remains subdued?
