Contact Energy’s Generation Costs Drop to $49.26/MWh as Sales Slip 12%
Contact Energy's May 2025 report reveals a decline in mass market sales yet highlights improved generation efficiency and rising netback prices, alongside steady 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
- Hydro storage levels mixed but generally near or above historical averages
Sales and Pricing Dynamics
Contact Energy’s May 2025 monthly operating report paints a nuanced picture of its operational landscape. While mass market electricity and gas sales fell to 365 GWh from 413 GWh a year earlier, the company benefited from higher netback prices, with customer netback rising to $145.13 per MWh from $130.41. This suggests that despite lower volumes, the company is extracting more value per unit sold, a critical factor in a competitive energy market.
Generation Efficiency and Cost Improvements
On the wholesale side, electricity sales remained relatively stable at 768 GWh, slightly down from 778 GWh in May 2024. However, electricity generation increased to 842 GWh, up from 821 GWh, with unit generation costs falling significantly to $49.26 per MWh from $61.80. This improvement was driven by lower own generation costs, which dropped to $42.3 per MWh, reflecting enhanced operational efficiency and possibly favorable fuel or maintenance conditions.
Project Progress and Infrastructure Development
Contact Energy’s infrastructure projects show mixed progress. The Te Huka 3 geothermal project is nearly complete, achieving 99.7% progress against a 100% target for May 2025, signaling imminent commissioning. Conversely, the Battery Energy Storage System (BESS) project lags behind expectations at 70% completion versus a 79% target, indicating potential delays or challenges in this critical storage technology deployment.
Hydro Storage and Market Conditions
Hydro storage levels present a varied picture – South Island controlled storage stands at 87% of the mean, while North Island storage is robust at 139% of mean. The Clutha scheme storage is somewhat lower at 79% of mean. These storage levels, combined with inflows at 100% of mean for May, suggest stable water availability for hydro generation, a key component of Contact’s renewable energy mix. Meanwhile, Otahuhu futures prices for the third quarter of 2025 have softened from $335/MWh in April to $182.25/MWh in June, reflecting market volatility and possibly changing supply-demand dynamics.
Environmental and Demand Insights
On the environmental front, greenhouse gas emissions from generation assets increased in the latest quarter, alongside higher freshwater use, underscoring ongoing challenges in balancing operational growth with sustainability goals. National electricity demand declined about 6% compared to May 2024, a colder month historically, while remaining flat year-on-year versus May 2023. This demand softness may influence future pricing and generation strategies.
Bottom Line?
Contact Energy’s operational gains in efficiency and pricing are tempered by sales declines and project delays, setting the stage for a critical period ahead.
Questions in the middle?
- Will the Battery Energy Storage System project meet revised completion targets?
- How will softer futures prices impact Contact’s revenue outlook for the remainder of 2025?
- What strategies will Contact deploy to address rising greenhouse gas emissions amid growth?