Contact Energy’s Unit Generation Cost Drops 34% as Hydro Storage Strengthens
Contact Energy's August 2025 report reveals stable retail sales, a notable drop in generation costs, and robust hydro storage, underpinning its renewable expansion plans.
- Mass market electricity and gas sales steady at 454GWh
- Unit generation cost falls sharply to $52.89/MWh from $80.39/MWh last year
- Hydro storage levels remain strong in both South and North Islands
- Three major renewable projects underway with $1.15 billion total investment
- Wholesale electricity generation and contracted sales slightly increased
Stable Retail Demand Amid Seasonal Shifts
Contact Energy's August 2025 operating report highlights a largely steady performance in its retail segment, with mass market electricity and gas sales holding firm at 454GWh, just marginally below last year's 456GWh. This stability comes despite a slight dip in average temperatures, which were 0.2ºC below the 1991-2020 August average, and a 5.6% year-on-year rise in national electricity demand. The company’s netback price for retail sales improved to $148.36 per megawatt-hour, up from $131.36 in August 2024, reflecting favourable market conditions.
Wholesale Generation Efficiency Drives Cost Reductions
On the wholesale side, Contact Energy recorded an increase in electricity generated or acquired to 918GWh, up from 875GWh the previous year. Contracted wholesale sales, including those to the retail business, were slightly down at 830GWh compared to 840GWh in August 2024. Most notably, the unit generation cost plummeted to $52.89/MWh from $80.39/MWh a year earlier, driven by lower own generation costs of $41.4/MWh. This significant cost reduction enhances Contact’s competitive positioning in a market where wholesale electricity prices have been fluctuating but remain robust.
Strong Hydro Storage Supports Operational Resilience
Hydro storage levels remain a critical factor for Contact’s generation mix. As of early September 2025, South Island controlled storage was at 71% of the mean, while North Island storage was exceptionally high at 97% of the mean. The Clutha hydro scheme storage stood at 64% of the mean, supported by inflows at 72% of average for August. These healthy water reserves provide a buffer against dry conditions and support the company’s renewable generation capacity.
Renewable Projects Underpin Future Growth
Contact Energy is advancing three major renewable projects with a combined approved capital expenditure exceeding $1.1 billion. The Glenbrook-Ohurua battery energy storage system (BESS) is expected online in Q1 2026 with a $163 million budget, while the Kowhai Park Solar project, delivered in partnership with Lightsource bp, targets Q2 2026 completion at $273 million. The largest investment is Te Mihi Stage 2 geothermal project, slated for Q3 2027, with a $712 million cost. These developments signal Contact’s commitment to expanding its renewable footprint and reducing carbon intensity.
Environmental and Integration Highlights
Environmental metrics show progress with greenhouse gas emissions from generation assets down to 190 kilotonnes CO2-equivalent in Q4 FY25 from 250 kilotonnes the previous year. Freshwater use has also decreased, reflecting improved operational efficiency. Meanwhile, Contact continues to integrate Manawa Energy following the July 2025 acquisition, with combined reporting expected in future updates. The August report includes a $15.4 million EBITDAF contribution from Manawa, indicating early positive impacts from the transaction.
Bottom Line?
Contact Energy’s cost efficiencies and renewable investments position it well for evolving market dynamics and sustainability demands.
Questions in the middle?
- How will Manawa integration impact Contact’s full-year financials and operational reporting?
- What are the expected timelines and risks for the completion of major renewable projects?
- How might fluctuating hydro inflows and storage levels affect generation costs and supply reliability?
