New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Power Points<br>Wholesale Prices Power On — June 2021</h2>
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<p>Whilst hydro conditions eased in May (lake levels are now ~70% of average vs. ~60% at month start), there has been no wholesale electricity price respite with a record OTA month average price of NZ$295/MWh. Both short-dated and long-dated ASX futures prices rose to record levels, shrugging off news of possible grid-scale solar and industrial plant closure. We are neutral on the sector overall, with our preferred stocks remaining Contact Energy (CEN) and Genesis Energy (GNE).</p>
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<h3>CEN and Meridian Energy (MEL) investor days focus on replacement demand</h3>
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<p>Both of the MEL and CEN investor days held during the month&nbsp;focussed&nbsp;on how they intend to replace NZAS demand, if it were to close at the end of 2024. Process heat, data centres and hydrogen remain the answers. If&nbsp;Fonterra&nbsp;continues to show no interest in converting its dairy factories to electricity, hydrogen will likely be needed. That said, in our view, hydrogen probably only needs to be perceived as a credible alternative to ensure when NZAS seeks the expected contract extension, it can no longer dictate terms to MEL and CEN. With NZAS making ~NZ$1,350 EBITDA/tonne of aluminium produced in May 2021, the smelter is very profitable, especially compared to a year ago when it was losing ~-NZ$100/tonne. We estimate at current aluminium prices, NZAS’s break-even electricity price is ~NZ$125/MWh.</p>
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<h3>Grid-scale solar takes a step closer to reality, likewise industrial closures</h3>
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<p>May 2021 saw the announcement from new market entrant, Lodestone Energy, that it is planning to build five solar plants capable of producing 229MW (400GWh). It is the most credible solar plan we have seen to date. However, May 2021 also saw Refining NZ take a step closer to converting to an import terminal which will result in a ~-300GWh electricity demand from current levels. The market appears unperturbed given long-dated OTA ASX futures prices increased +4% in May 2021 to a record NZ$141/MWh.</p>
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<h3>Big news month ahead</h3>
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<p>June 2021 has several significant electricity sector related news announcements expected. The final Climate Change Commission report should currently be with the Government, with public release expected mid-June. Indications are there will be relatively minor changes, dampening slightly electricity demand growth (albeit demand growth will still be very high). Towards month end several strategic review announcements will either have happened or be imminent. There’s GNE’s Kupe strategic review, Trustpower's (TPW) retail strategic review and Norske Skog’s Kawerau Tasman Mill review.</p>
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<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
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Power Points Wholesale Prices Power On — June 2021


Whilst hydro conditions eased in May (lake levels are now ~70% of average vs. ~60% at month start), there has been no wholesale electricity price respite with a record OTA month average price of NZ$295/MWh. Both short-dated and long-dated ASX futures prices rose to record levels, shrugging off news of possible grid-scale solar and industrial plant closure. We are neutral on the sector overall, with our preferred stocks remaining Contact Energy (CEN) and Genesis Energy (GNE).



CEN and Meridian Energy (MEL) investor days focus on replacement demand


Both of the MEL and CEN investor days held during the month&nbsp;focussed&nbsp;on how they intend to replace NZAS demand, if it were to close at the end of 2024. Process heat, data centres and hydrogen remain the answers. If&nbsp;Fonterra&nbsp;continues to show no interest in converting its dairy factories to electricity, hydrogen will likely be needed. That said, in our view, hydrogen probably only needs to be perceived as a credible alternative to ensure when NZAS seeks the expected contract extension, it can no longer dictate terms to MEL and CEN. With NZAS making ~NZ$1,350 EBITDA/tonne of aluminium produced in May 2021, the smelter is very profitable, especially compared to a year ago when it was losing ~-NZ$100/tonne. We estimate at current aluminium prices, NZAS’s break-even electricity price is ~NZ$125/MWh.


Grid-scale solar takes a step closer to reality, likewise industrial closures


May 2021 saw the announcement from new market entrant, Lodestone Energy, that it is planning to build five solar plants capable of producing 229MW (400GWh). It is the most credible solar plan we have seen to date. However, May 2021 also saw Refining NZ take a step closer to converting to an import terminal which will result in a ~-300GWh electricity demand from current levels. The market appears unperturbed given long-dated OTA ASX futures prices increased +4% in May 2021 to a record NZ$141/MWh.


Big news month ahead


June 2021 has several significant electricity sector related news announcements expected. The final Climate Change Commission report should currently be with the Government, with public release expected mid-June. Indications are there will be relatively minor changes, dampening slightly electricity demand growth (albeit demand growth will still be very high). Towards month end several strategic review announcements will either have happened or be imminent. There’s GNE’s Kupe strategic review, Trustpower's (TPW) retail strategic review and Norske Skog’s Kawerau Tasman Mill review.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Power Points: Wholesale Prices Power On — June 2021