Meridian lifts earnings but warns year ahead looks ‘challenging’

Meridian says the 2025 year will be challenging due to low hydro conditions. Photo / Supplied

Meridian Energy - the country’s largest power generator - has reported strong earnings in the June year, but says the year ahead looks challenging.

The partially state-owned company’s net profit went from $95 million to $429m - with much of the increase influenced significantly by net gains on hedge instruments of $249m.

In the prior year, the company recorded net losses on hedge instruments of $351m.

The industry’s preferred measure of performance - earnings before interest, tax, depreciation, amortisation and financial instruments (Ebitdaf) were up 16% at $905m - in line with market expectations.

“This is a strong and improved operating result that allowed us to invest $349 million in new and existing generation assets during the year,” chief executive Neal Barclay said.

Meridian declared a final ordinary dividend of 14.85 cents per share, bringing the total to 21 cents - up from last year’s total of 17.90c.

The company said that while the operating result for the last financial year was strong, the operating environment shifted dramatically during May as a drought emerged.

Inflows into Meridian’s hydro catchments from May 2024 through to mid-August have been the lowest on record and, as a result, the 2025 financial year currently “looks to be far more challenging”.

Record low inflows have combined with a shortage of gas and unseasonally low wind, causing wholesale prices to lift materially, Barclay noted.

As a result, Meridian called on hedge arrangements to ensure its hydro lakes were managed within consent conditions to maintain security of supply.

Barclay said the wider sector took several steps to address the situation, including exercising demand response options, buying gas from Methanex for electricity generation and securing access to contingent hydro storage.

“These actions have already resulted in wholesale prices reducing by more than half from their peaks, although they are still sitting above $300/MWh,” he said.

“While a very small number of electricity users have direct exposure to the wholesale market, unfortunately some of them have been significantly impacted.

“It’s a tough economic environment and this is not an outcome this sector wants for any business.”

Less than 0.01% of Meridian’s customers have been impacted by these wholesale prices because the company offers fixed prices to all customers.

Meridian had also taken steps to look after its larger commercial and industrial customers rolling off their existing contracts, by offering to extend their current pricing through to November 1, 2024.

The company said its Southern Green Hydrogen project has been put on hold due to “challenging” economics.

“Markets have been slow to resolve the gap between the cost of producing green hydrogen and potential customers’ willingness to pay for it.”

Meridian was focused on its goal to develop enough new renewable energy to support the country’s transition to a resilient net-zero economy and retain a generation market share of at least 30%.

Harapaki, its 176 megwatt (MW) wind farm in Hawke’s Bay, began generating on schedule and was completed in July.

The 100 MW grid-scale Battery Energy Storage System (BESS) at Ruakākā Energy Park near Whangārei is progressing well and is expected to be online by early 2025.

The company has close to 700 MWs of wind, solar and battery projects at the advanced stage of design and close to being consented.

It expects to invest more than $3 billion in new renewable energy by 2030 - the equivalent of more than 5% of current system demand.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.