Contact Energy finds cheaper power and stronger retail demand in August
Contact Energy’s August operating report shows mass-market electricity and gas sales rising to 550GWh, while unit generation costs fell sharply to $40.90/MWh. Strong hydro storage and higher forward prices add support, although contracted wholesale sales remained broadly flat.
- Mass-market electricity and gas sales rose 21% to 550GWh
- Unit generation cost fell to $40.90/MWh from $57.52/MWh
- Hydro storage remained above average across both islands
- Three renewable projects under construction carry $1.263 billion of approved costs
- Otahuhu Q4 2026 futures rose to $45.50/MWh by 15 September
Generation Costs Fall as Retail Sales Rise
Contact Energy Limited (NZX:CEN) delivered a more favourable operating mix in August, with mass-market electricity and gas sales climbing to 550GWh from 454GWh a year earlier while generation costs dropped sharply. Unit generation cost, including acquired generation, fell to $40.90/MWh from $57.52/MWh in August 2025, a reduction of roughly 29%.
The retail increase was driven mainly by gas. Electricity sales edged up to 383GWh from 380GWh, while retail gas sales more than doubled to 167GWh from 74GWh. Customer netback was broadly unchanged at $148.57/MWh, compared with $148.36/MWh a year earlier, meaning the higher sales volume did not come with a material improvement in the reported per-unit return.
Hydro and Geothermal Carry the Wholesale Portfolio
Contact generated or acquired 1,125GWh during the month, down from 1,174GWh a year earlier. Hydro generation rose to 539GWh from 464GWh and geothermal output was little changed at 457GWh, while thermal generation fell to just 8GWh from 116GWh. Own generation cost was $27.38/MWh, compared with $41.99/MWh in August 2025.
Contracted wholesale electricity sales were effectively flat at 1,087GWh, against 1,090GWh a year earlier. Electricity and steam net revenue was also broadly stable at $164.59/MWh. The wholesale book included 411GWh sold to the Customer business, 204GWh to commercial and industrial customers and 473GWh through contracts for difference.
Storage Conditions Support Near-Term Flexibility
Hydrology was a clear operational positive. As at 13 September, South Island controlled storage stood at 166% of mean and North Island storage at 84% of mean, while total Clutha scheme storage was 138% of mean. Inflows into Contact’s Clutha catchment reached 164% of mean in August, following 132% in July.
Forward pricing also firmed after the end of the reporting month. Otahuhu futures for the fourth quarter of calendar 2026 settled at $39.50/MWh on 31 August, up from $38.50? No, the filing reports $51/MWh at 31 July and $45.50/MWh on 15 September. The September level was therefore higher than the month-end August price, but below the July settlement. New Zealand-wide electricity demand fell 0.3% from August 2025, during a month when the national average temperature was 0.7 degrees Celsius above the long-term August average.
Three Renewable Projects Remain Under Construction
Contact’s approved development pipeline under construction totals $1.263 billion across three projects, based on the disclosed project costs. Te Mihi Stage 2 geothermal is expected online in the third quarter of calendar 2027 at an approved cost of $712 million, followed by the $235 million Glenbrook-Ohurua Battery 2 in the first quarter of calendar 2028 and the $316 million Glorit Solar project in the fourth quarter of calendar 2028. Glorit is being delivered through Contact’s 50/50 joint venture with Lightsource bp.
The August figures provide evidence of lower operating costs, stronger retail volumes and favourable storage conditions, but they do not include consolidated revenue, EBITDA or earnings guidance. The next test is whether the cost improvement persists as wholesale prices, gas availability and construction spending interact with the company’s expanding renewable portfolio.
Bottom Line?
August offered Contact a favourable operating combination, but the earnings significance will depend on whether lower generation costs persist beyond the strong hydro conditions.
Questions in the middle?
- How much of the lower unit generation cost can be sustained if hydro conditions normalise?
- Will higher retail gas volumes continue, or was August’s increase unusually large?
- Can the three projects progress to their target online dates without materially changing approved costs?
