Contact Energy Faces Pressure as Wholesale Sales Decline Despite Cost Gains
Contact Energy's September 2025 report reveals a modest dip in sales volumes but improved netback prices and significantly lower generation costs, alongside robust hydro storage and advancing renewable projects.
- Mass market electricity and gas sales slightly down year-on-year
- Netback prices for electricity improved notably
- Wholesale generation volumes and sales declined but unit generation costs fell sharply
- Hydro storage levels remain well above average across New Zealand
- Major renewable projects underway with substantial capital investment planned
Stable Sales with Improved Pricing
Contact Energy’s September 2025 Monthly Operating Report highlights a nuanced performance picture. While mass market electricity and gas sales slipped to 372 GWh from 389 GWh in the same month last year, the company achieved a stronger netback price of $150.12 per MWh, up from $130.58. This suggests that despite slightly lower volumes, Contact is extracting more value per unit sold, a positive sign amid fluctuating demand and market conditions.
Wholesale Generation and Cost Efficiency
On the wholesale side, contracted electricity sales fell to 736 GWh from 814 GWh year-on-year, and total electricity generated or acquired dropped to 820 GWh from 859 GWh. However, Contact Energy managed to reduce its unit generation cost significantly to $35.77 per MWh, down from $52.04. This improvement was driven by lower own generation costs, which fell to $25.7 per MWh from $31.4, reflecting enhanced operational efficiency or favorable fuel costs.
Robust Hydro Storage and Market Outlook
Hydro storage levels remain a bright spot, with South Island controlled storage at 116% of mean and North Island at 120% as of mid-October. The Clutha scheme storage also stands at 120% of mean, supported by inflows at 143% of average for September. These strong water reserves underpin generation capacity and provide a buffer against dry periods, potentially stabilizing supply and prices in the near term.
Renewable Projects and Capital Investment
Contact continues to invest heavily in renewable energy infrastructure. Three major projects are underway – the Glenbrook-Ohurua Battery Energy Storage System (BESS) expected online in Q1 2026 with a $163 million budget; Kowhai Park Solar, due Q2 2026 at $273 million; and Te Mihi Stage 2 geothermal project, targeted for Q3 2027 with a $712 million investment. These developments align with Contact’s strategic shift towards sustainable energy sources and long-term growth.
Environmental and Integration Progress
The report also touches on environmental metrics, noting a significant reduction in greenhouse gas emissions from generation assets compared to the previous year. Meanwhile, integration of Manawa Energy, acquired in July 2025, is ongoing, with combined reporting expected in future updates. The company’s ESG initiatives, including freshwater management and biodiversity efforts, continue to be a focus alongside operational performance.
Bottom Line?
Contact Energy’s cost efficiencies and strong hydro reserves position it well, but market dynamics and integration progress will be key to watch.
Questions in the middle?
- How will the integration of Manawa Energy impact Contact’s future financial and operational reporting?
- What are the risks to generation costs if fuel prices or supply conditions change unexpectedly?
- How will wholesale electricity prices evolve given the recent downward trend in futures settlements?
