Contact Energy Faces Demand Uncertainty Despite Cost Gains and Renewable Investments

Stable Sales and Improved Pricing

Contact Energy's July 2025 monthly operating report paints a picture of steady operational performance with nuanced shifts in key metrics. Mass market electricity and gas sales totaled 456 GWh, a slight decline from 472 GWh in July 2024, yet the netback price improved to $148.69 per megawatt-hour from $133.38 the previous year. This suggests the company is capturing better margins despite marginally lower volumes.

On the wholesale front, contracted electricity sales reached 812 GWh, down modestly from 834 GWh a year prior. However, net revenue per megawatt-hour rose to $188.71 from $174.20, reflecting a favourable pricing environment. These figures underscore Contact’s ability to navigate market dynamics effectively, balancing volume and price to sustain revenue growth.

Significant Reduction in Generation Costs

One of the standout highlights is the sharp decline in generation costs. The unit generation cost, which includes both owned and acquired generation, fell to $42.45 per megawatt-hour from $59.05 in July 2024. Own generation costs dropped even more dramatically to $29.5 per megawatt-hour from $46.1. This improvement likely reflects operational efficiencies and possibly favourable fuel or maintenance conditions, enhancing Contact’s competitive position in the wholesale market.

Hydro Storage and Market Outlook

Hydro storage levels remain robust, with South Island controlled storage at 79% of mean and North Island controlled storage exceeding mean levels at 118%. The Clutha scheme storage was at 69% of mean. These water reserves are critical for hydroelectric generation capacity and provide a buffer against dry conditions, which can impact supply and pricing.

Forward electricity prices at the Otahuhu trading hub have risen steadily, with the August 2025 futures settlement price climbing from $133.05 per megawatt-hour at the end of June to $151 by mid-August. This upward trend signals market expectations of tighter supply or increased demand in the near term.

Renewable Projects and Capital Investment

Contact Energy continues to invest heavily in renewable infrastructure, with three major projects under construction – the Glenbrook-Ohurua battery energy storage system (BESS) expected online in early 2026 with a $163 million budget; the Kowhai Park Solar project slated for mid-2026 at $273 million; and the Te Mihi Stage 2 geothermal expansion targeting late 2027 with a $712 million investment. These projects reflect Contact’s commitment to decarbonisation and long-term sustainable growth.

The company’s joint venture with Lightsource bp on solar development also highlights a strategic partnership approach to expanding renewable capacity. As the integration with Manawa progresses, combined reporting will provide clearer insights into the consolidated operational footprint.

Environmental and Demand Context

On the environmental front, Contact reports a reduction in greenhouse gas emissions from generation assets compared to the previous year, alongside steady freshwater usage and ongoing biodiversity initiatives. These metrics align with growing investor and regulatory focus on ESG performance.

Electricity demand in New Zealand was slightly down by approximately 0.5% compared to July 2024 but up 1.8% relative to July 2023, reflecting a complex demand environment influenced by factors such as industrial closures and weather variations. The nationwide average temperature was 9.2ºC, warmer than the historical June average, which can also affect consumption patterns.