Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Meridian Energy Ltd (MDDNF, Financial) delivered a record $667 million in operating cash and $905 million in EBITDAF for FY24.
- The company successfully completed the Harapaki wind farm on budget and on time, with excellent initial yields.
- Meridian Energy Ltd (MDDNF) has a clear line of sight to $3 billion in renewable project investments through the remainder of the decade.
- The company has lodged a reconsideration application for the Waitaki hydro scheme, which is essential for New Zealand's low carbon future.
- Meridian Energy Ltd (MDDNF) has implemented a demand response agreement with NZAS, which has proven valuable during recent drought conditions.
Negative Points
- Global inflationary pressures have led to the decision to put the Southern Green Hydrogen project on hold.
- Drought conditions have resulted in the lowest hydro inflows on record, leading to unprecedented low storage levels and high wholesale prices.
- There is a scarcity of domestic gas, which has driven up electricity prices and created challenges for the sector.
- Operating expenses have increased significantly, driven by salaries, contractor spend, and ICT investments.
- Transmission and distribution costs are expected to rise significantly, potentially impacting customer bills by around 9%.
Q & A Highlights
Q: Just one question from me. If you there's announcements you say kind of from the government there's few bullet points, one of them in there was the transmission line companies been up to potentially develop generation. Just more of a broader question kind of leading from that in terms of as you think about just comment about generation is capital actually a constraint or (inaudible) these contracts more in other places like consenting supply chains, people, et cetera. Is bringing more capital in our players actually benefit?
A: (Neal Barclay, Chief Executive) More players doesn't hurt, but capital is not a constraint. There's plenty of money globally looking for high value renewable projects. We've got a well-positioned balance sheet to contribute most of the other (inaudible) as Mike indicated. We've seen other parties come into the sector as well. So capital is not a constraint. The key constraint in this country at this moment in time is your ability to get things consented in a timely and efficient manner, and that's being worked on clearly by the government. So the improvements in that consenting regime from a New Zealand perspective, I think will be the key catalyst to unleashing investment at a faster rate than what we've seen today.
Q: Are we getting close to a cost out program, that's going (inaudible) or is there something in the $308 million (inaudible) costs coming down?
A: (Michael Roan, Chief Financial Officer) I think you'll see ongoing lifts in salaries. There are -- we're always trying to run the business as efficiently as we can. But our focus -- if you go back over those last three years where that money's gone has gone into the development team and really trying to accelerate our investment pipeline. Outside of that, the corporate costs have largely and outside of salaries as the corporate costs have held reasonably flat. So I think you'll see it plateau as opposed to coming back. But I do agree, you know, those cost increases have been significant over the last three years, that's what I point them out to people. But there been for very good reason. You come back to what we're talking about generally today is being able to and actually investing in new facilities. There are consents which is typically the hold up. But as Neal mentioned, we need good people to deliver those assets. And so we've invested in that capability to make sure that we can do it.
Q: When you talk about hydro inflows being done (inaudible) is that from May or from July 1?
A: (Neal Barclay, Chief Executive) So that was from May, Grant. So May, June, July, through August, mid-August, I think, was when we took that measure.
Q: Just firstly on Harapaki, can you give us an update on what you're expecting the capacity factor for that farm to land at? It seems to be traveling a little bit ahead the numbers that you were giving sort of a year or two back.
A: (Neal Barclay, Chief Executive) I mean, it's early days, so we wouldn't revise the business case assumptions. But what we are seeing is that wind farm maxing out capacity in recent times. So it is performing exceptionally well. And then, (inaudible) might add -- so yeah that the signs look good, but we wouldn't call a change in our long term assumptions around that until we've actually seen some -- at least a year of real life experience.
Q: Just on contingent hydro, obviously there's some temporary relief in the offering that I just wondered whether or not you foresee any permanent changes to the trigger levels there?
A: (Neal Barclay, Chief Executive) Yeah. Well the government called that out in their announcement earlier in the week, and we need to work with the consenting authorities. But from my perspective, like PÅ«kaki is a hydro like it was created purely for hydro generation is not used for any social amenity. We can actually stretch the lake. It's got currently got a standard operating range of 14 meters. But if we can extend that to create an standard operation range of around 19 meters, it will mean on average, we will produce more hydro generation in this country. And that will also go towards reducing price pressures over time. So I think there's a strong case to normalizing the consented level and bringing the contingent back into the standard lake levels. So that's the conversation we want to progress with -- we're not only consenting authorities, but also government to the extent that they can help facilitate that end outcome.
Q: Just a question on clarification. When you talk about hydro inflows being done (inaudible) is that from May or from July 1?
A: (Neal Barclay, Chief Executive) So that was from May, Grant. So May, June, July, through August, mid-August, I think, was when we took that measure.
Q: And that 800 gigawatt hours of covers that also from May was that from July 1?
A: (Neal Barclay, Chief Executive) That's kicked in more recently from about July.
Q: Can you just give us an idea of what hydro inflows are down from the July 1?
A: (Neal Barclay, Chief Executive) No, off the top of my head, they're the lowest on record run, and there on that slide. There's a slide that we've got.
Q: Just wondering if you could talk to the transmission and distribution price increases we're expected to see it come through and also the impact on your underlying customer increases? And also in the context of what your intentions are growing into the North Island, given your supply arrangements are growing and in that geography as well?
A: (Neal Barclay, Chief Executive) Kim, I mean, we've laid it out in the pack. The ComCom are looking at distribution pricing across the whole sector. I've come out with a proposed set of proposals that see those costs increasing reasonably dramatically. And in fact, the increases into next year on the current proposals looked like about 23% on average across our customer base. It will depend on who your customers are, but that's how we've modeled it. Now they do have a smoothing mechanism. Because those cost increases would be more rapid than that if they didn't move it. But when we take that 23% and spread it across the whole customer bill, the increases are between your north of 8.5% to 9%. So that's pretty -- I mean, that's significant. We haven't quite worked out exactly how we're going to manage that with our customers. Obviously, we're doing a lot of work on new product sets and Lisa will be talking a bit
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
