Why Are Contact Energy’s Costs Rising Despite Stronger Netbacks?
Contact Energy's April 2025 report reveals a slight decline in electricity and gas sales but improved netback prices, with mixed progress on key projects and rising generation costs.
- Mass market electricity and gas sales down to 284GWh from 309GWh year-on-year
- Customer and wholesale netbacks increased to $148.59/MWh and $146.59/MWh respectively
- Te Huka 3 project nearly on target at 99.7% completion; Battery Energy Storage System lags at 66%
- Own generation costs rose sharply to $41.6/MWh from $31.0/MWh in March 2025
- Hydro storage below mean but inflows improving; Q3 2025 wholesale futures prices declining
Stable Sales Amid Shifting Market Dynamics
Contact Energy’s April 2025 monthly operating report paints a picture of steady but slightly subdued operational performance. Mass market electricity and gas sales fell modestly to 284GWh, down from 309GWh in April 2024. Despite this volume dip, the company achieved higher netback prices, with the customer business netback rising to $148.59 per megawatt-hour (MWh) from $137.87 the previous year, reflecting improved pricing power or market conditions.
The wholesale segment mirrored this trend, with contracted electricity sales slipping to 655GWh from 677GWh year-on-year, but net revenue per MWh climbing to $146.59 from $136.76. These figures suggest Contact Energy is navigating a complex market environment where volumes are under pressure but pricing remains resilient.
Project Progress: Nearing Completion and Facing Delays
On the infrastructure front, the Te Huka 3 geothermal project is advancing well, achieving 99.7% of its April progress target, signaling imminent completion. In contrast, the Battery Energy Storage System (BESS) project is lagging, reaching only 66% of its target against a 74% benchmark. This delay could have implications for Contact’s capacity to enhance grid stability and integrate renewable energy more effectively.
Rising Costs and Environmental Footprint
Operational costs are showing signs of pressure, particularly in own generation, where unit costs jumped to $41.6/MWh from $31.0/MWh in the prior month. This increase may reflect fuel price volatility, maintenance, or other operational challenges. Meanwhile, hydro storage levels in both the South and North Islands remain below their long-term means, though inflows into key catchments like Clutha have improved to 106% of average, offering some relief for hydro generation prospects.
Environmental metrics reveal a rise in greenhouse gas emissions and freshwater usage compared to the prior year, underscoring ongoing challenges in balancing operational demands with sustainability goals. Contact’s quarterly ESG disclosures highlight these trends, which investors will watch closely amid growing regulatory and societal pressures.
Market Prices and Forward Outlook
Wholesale electricity futures prices for the third quarter of 2025 have softened, dropping from $335/MWh at the end of April to $271.1/MWh by early May. This decline may reflect market expectations of supply-demand balance or broader economic factors impacting energy prices. Contact’s ability to manage costs and complete key projects on schedule will be crucial to maintaining margins in this evolving landscape.
Overall, Contact Energy’s April report signals operational stability with nuanced challenges. The company’s performance in the coming months will hinge on project delivery, cost management, and navigating fluctuating market prices while addressing environmental impacts.
Bottom Line?
Contact Energy stands at a crossroads where project execution and cost control will define its resilience amid shifting market and environmental pressures.
Questions in the middle?
- What factors are driving the sharp rise in own generation costs and can they be contained?
- How will delays in the Battery Energy Storage System project affect Contact’s renewable integration strategy?
- Will improving hydro inflows translate into stronger generation and better margins in coming months?
