QUARTERLY OPERATIONAL UPDATE Three months ended 31 December 2018
>> QUARTERLY HIGHLIGHTS
>$200/MWh OTAHUHU PRICE
RECORD QUARTERLY AVERAGE SPOT PRICE DUE TO HYDROLOGICAL CONDITIONS AND THERMAL FUEL CONSTRAINTS
VALUE FOCUS
LOWER SALES VOLUMES; COMMERCIAL DISCIPLINE LIFTS YIELD
4,150 GWh
FY2019 HYDRO GENERATION FORECAST DOWN 50GWh
>> COMMENTARY SPOT PRICES RISE DUE TO NATIONAL HYDRO CONDITIONS AND THERMAL FUEL CONSTRAINTS Dry conditions, with national hydro inflows at 86% of average 1, combined with limited thermal fuel availability resulted in record spot prices for the quarter. Average spot prices reached $206/MWh at Otahuhu and $175/MWh at Benmore; an increase of $113/MWh and $85/MWh respectively from Q2-FY2018. GENERATION DOWN FROM RECORD LEVELS; GWAP LIFT Mercury's hydro generation during the quarter was 1,002GWh, a 170GWh decrease from record levels in the prior comparable period, with Waikato catchment inflows at 84% of average1. Mercury's full year hydro generation forecast has been reduced by 50GWh to 4,150GWh. The value of Mercury's generation improved as the LWAP/GWAP ratio moved favourably from 1.06 in Q2-FY2018 to 1.04 in this quarter due to the timely dispatch of available generation. This was largely driven by higher hydro generation in October, the highest-priced month in the quarter, and illustrated through the positive movement in the hydro GWAP/TWAP ratio from 1.04 in the same quarter last year to 1.11. Geothermal generation increased year-on-year as output in the previous year was reduced by two-yearly maintenance outages. WHOLESALE MARKET CONDITIONS LEAD FUTURES HIGHER ; LONG-TERM PRICE EXPECTATIONS LIFTED The elevated spot price environment led to a significant increase in short-term futures prices with the FY2019 Otahuhu futures price increasing from $88/MWh to $135/MWh. Longer-term futures prices also lifted with the Otahuhu FY2020 and FY2021 prices increasing to $95/MWh and $84/MWh respectively as market perspectives of the supply/demand balance were adjusted. MERCURY MAINTAINS COMMERCIAL DISCIPLINE IN COMPETITIVE RETAIL MARKET Despite high levels of retail market activity, Mercury has maintained a disciplined approach in pursuing value over volume. Mercury's focus on the customer rather than simply customer numbers contributed to the volume-weighted average price received for Mass Market sales increasing from $120/MWh in the same period last year to $127/MWh. During the quarter higher levels of Commercial & Industrial sales activity occurred on elevated futures prices, however any increase in volumes will be reflected only in future quarters. Market churn remains high, rising from 21.1% 2 at the end of Q1-FY2019 to 21.3%2 as at 31 December 2018. Mercury group churn increased to 20.4%2 at the end of the quarter with churn for the Mercury brand also increasing to 17.6%2 (from 16.8%2 as at 30 September 2018). Group churn was impacted by the transfer of Tiny Mighty Power customers to the main Mercury brand which was completed during the quarter. IRRIGATION DEMAND DOWN; INDUSTRIAL DEMAND RISES ON TIWAI POTLINE STARTUP National demand decreased by 2.9% on a temperature-adjusted basis versus the prior comparable period, primarily due to a signifi cant decrease in irrigation load (-1.6%) as high precipitation in irrigation areas increased soil moisture levels. Industrial demand made a positive contribution (+0.4%) due to NZAS 4th potline being brought online, increasing average Tiwai load from 581MW in October to 611MW in December. Excluding Tiwai, industrial sector demand decreased by 1.6% partly in response to high wholesale prices, and decreases were also seen across the urban (-0.5%), rural (-0.3%) and dairy (-0.6%) sectors. 1 2
For quarters ended 31 December since 1927 12-monthly rolling average
MERCURY NZ LIMITED QUARTERLY OPERATIONAL UPDATE
01
>> OPERATING STATISTICS Three months ended 31 December 2018
OPERATING INFORMATION
ELECTRICITY SALES Mass Market Commercial & Industrial FPVV End User CfD FPVV purchases from market Spot customer purchases
2
VWAP 1 ($/MWh) 126.54 74.25
3
Total NZEM Purchases
211.49
Hydro Geothermal (consolidated) Geothermal (equity accounted)
6
Total
1
3 4
5 6 7
VWAP 1 ($/MWh) 122.14 78.43
299 325 1,118 227 94.93
1,345
Volume (GWh) 1,703 616 586 2,438 412
146.65
2,850
VWAP ($/MWh) 215.27 190.67 157.96
VWAP ($/MWh) 91.34 87.09 89.30
350 43 47 Volume (GWh) 496 Volume (GWh) 1,172 627 49
VWAP ($/MWh) 140.73 135.20 114.05
Volume (GWh) 1,097 Volume (GWh) 2,448 1,357 96
204.21
1,723
89.84
1,848
138.15
3,901
Volume (GWh) 1,734 601 642 2,468 471
97.14
2,939
VWAP ($/MWh) 92.50 86.43 90.89
Volume (GWh) 1,193 Volume (GWh) 2,694 1,317 96
90.52
4,107
1.04
1.06
1.06
1.07
84
86
177
188
416
408
7
METRIX AMI METERS ('000)
2
VWAP 1 ($/MWh) 126.82 78.41
338 43 48 Volume (GWh) 433 Volume (GWh) 1,002 680 41
LWAP/GWAP CARBON EMISSIONS ('000 TONNES CO2)
1,309
Volume (GWh) 759
Six months ended 31 December 2017
393
4
5
VWAP 1 ($/MWh) 120.35 72.79
Six months ended 31 December 2018
381
CONTRACTS FOR DIFFERENCE
ELECTRICITY GENERATION
Volume (GWh) 748 319 295 1,122 187
ELECTRICITY CUSTOMERS ('000) North Island Customers South Island Customers Dual Fuel Customers
Net Sell CfD
Three months ended 31 December 2017
VWAP is volume weighted average energy-only price sold to customers after lines, metering and fees Mass market includes residential segments and non time-of-use commercial customers Fixed-price, variable-volume (FPVV) sales to time-of-use commercial customers Includes Virtual Asset Swap volumes of 151 GWh for the 3 months ended 31 December 2018 and 176 GWh for the 3 months ended 31 December 2017 and of 302 GWh for the 6 months ended 31 December 2018 and 352 GWh for the 6 months ended 31 December 2017 Includes Mercury's 65% share of Nga Awa Purua generation Tuaropaki Power Company (Mokai) equity share Includes carbon emissions from Mercury gas sales, wholly owned geothermals and proportionate emissions from the Mokai and Nga Awa Purua stations
MERCURY NZ LIMITED QUARTERLY OPERATIONAL UPDATE
02
>> MARKET DATA > ELECTRICITY GENERATION BY COMPANY FOR THE THREE MONTHS ENDED 31 DECEMBER Financial Year Q2 2019
MERCURY MERIDIAN ENERGY CONTACT ENERGY GENESIS ENERGY TRUSTPOWER / TILT OTHER
8%
Financial Year Q2 2018
17%
5%
5%
17%
7%
19%
18%
31%
31% 20%
22%
Source: Electricity Authority
> SHARE OF ELECTRICITY SALES (GWh) FOR THE THREE MONTHS ENDED 31 DECEMBER (EXCLUDING CFDs) MERCURY OTHER
Financial Year Q2 2019
Financial Year Q2 2018
14%
14%
86%
86%
Source: Mercury Purchases and Transpower SCADA
MERCURY NZ LIMITED QUARTERLY OPERATIONAL UPDATE
03
> OTAHUHU WHOLESALE PRICE AND NATIONAL HYDRO STORAGE LEVELS FY2018 NATIONAL STORAGE ROLLING 12 MONTH AVERAGE OTA PRICE
4,000
$120
3,500
$110
3,000
$100
2,500
$90
2,000
$80
1,500
$70
1,000
$60
500
$50
0
$/MWh
GWh
AVERAGE NATIONAL STORAGE FY2019 NATIONAL STORAGE ROLLING 12 MONTH AVERAGE BEN PRICE
$40 Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Source: NZX Hydro and NZEM Pricing Manager (NZX)
> TAUPO STORAGE
AVERAGE SINCE 1999
FY2018
FY2019
600
500
GWh
400
300
200
100
0
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Source: NZX Hydro
MERCURY NZ LIMITED QUARTERLY OPERATIONAL UPDATE
04
> OTAHUHU ASX FUTURES SETTLEMENT PRICE AS AT 31 DECEMBER 2017
AS AT 30 JUNE 2018
$84.25
$77.26
$75.54
$80.21
$79.89
$79.81
$77.23
$80
$73.91
$80.50
$100
$88.17
$120
$94.50
$140
$/MWh
AS AT 31 DECEMBER 2018
$134.59
$160
AS AT 30 SEPTEMBER 2018
$60 $40 $20
$0 FY19
FY20 Financial Year
FY21
Source: ASX
> BENMORE ASX FUTURES SETTLEMENT PRICE
AS AT 30 JUNE 2018
AS AT 30 SEPTEMBER 2018
AS AT 31 DECEMBER 2018
$122.45
AS AT 31 DECEMBER 2017 $140
$80.36
$73.33
$69.94
$75.81
$87.44
$73.90
$70.04
$82.93
$77.59
$80
$66.45
$/MWh
$100
$73.65
$120
$60
$40
$20
$0 FY19
FY20 Financial Year
FY21
Source: ASX
MERCURY NZ LIMITED QUARTERLY OPERATIONAL UPDATE
05
> NATIONAL CONSUMPTION (NON-TEMPERATURE ADJUSTED) NATIONAL CONSUMPTION
TIWAI POINT ALUMINIUM SMELTER CONSUMPTION
12,000 10,000
GWh
8,000
1,269
1,252
1,265
1,264
1,263
1,316
8,299
8,550
8,609
8,257
8,541
8,270
Q2 2014
Q2 2015
Q2 2016
Q2 2017
Q2 2018
Q2 2019
6,000 4,000 2,000 0
Source: Transpower Information Exchange
> AUCKLAND CLIMATE SUMMARY ( ⁰C) Q1
Q2
Q3
2019
12.1
16.3
-
-
2018
12.3
17.2
20.7
14.3
FINANCIAL YEAR
Q4
2017
12.1
16.1
19.3
14.3
2016
11.4
16.0
20.6
15.3
2015
11.9
15.9
19.9
14.3
Historical Average (since 1999)
11.9
16.2
19.3
14.2
Source: Met Service
> MONTHLY TOTAL CONSUMER RETAIL SWITCHING (ICPs) NZ MARKET CHURN (LHS)
ANNUAL NZ MARKET CHURN % (RHS)
50,000
25%
45,000 40,000
20%
30,000
15%
25,000 20,000
10%
% Churn
Monthly ICPs
35,000
15,000 10,000
5%
5,000
Jul-18
Jan-18
Jul-17
Jan-17
Jul-16
Jan-16
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
0%
Jul-09
0
Source: Electricity Authority
MERCURY NZ LIMITED QUARTERLY OPERATIONAL UPDATE
06