17 Aug 2015

Hot competition hits Contact's profit

5:51 pm on 17 August 2015

Contact Energy's profit has fallen by nearly half, due in part to intense competition for customers.

140814. Photo Contact Energy. Te Mihi power station

Contact's Te Mihi power station. Photo: Contact Energy

The power generator and retailer made $133 million for the year to June, a decrease of 43 percent compared with the previous year.

It will also close the gas-fired Otahuhu power station at the end of next month.

Gross earnings fell 11 percent to $525 million due to increased discounting to attract users.

Contact chief executive Dennis Barnes said it focused on maintaining sales volumes, with a rise in sales to small business and a colder winter offsetting fewer retail customers.

Mr Barnes said the company also experienced higher network and operating costs, while energy costs also rose slightly despite a shift to using cheaper geothermal production.

The company declared a dividend of 76 cents a share, which included a 50 cent special dividend.

It will shut down its gas-fired Otahuhu power station at the end of the month saying cheaper geothermal is displacing more expensive gas fired power.

Mr Barnes said the market for thermal generation was oversupplied, and his company never fired its two baseload plants, at Stratford and Otahuhu, at the same time. And he said there would not be any risk in electricity security.

Closure welcomed by environmentalists

Environmentalists are welcoming Contact Energy's plan to close down its gas-fired Otahuhu power station.

Otahuhu power station

Otahuhu power station Photo: Creative Commons

The demise of the south Auckland plant comes just two weeks after Genesis Energy said coal burning at Huntly would have stopped by 2018.

Climate Justice Taranaki researcher Catherine Cheung said it was a very positive step.

"It's a sign that the fossil fuel energy industry is over - we shouldn't be depending on the fossil fuel industry any more. It's time to move on to sustainable systems.

"It is far better for our health, for the climate, for the planet, and even communities."

The change will increase Contact Energy's renewable electricity output from 69 percent to 76 percent.