The Mercury NZ Ltd (ASX: MCY) share price could be volatile this morning after the company reported lower hydro generation and customer numbers in its latest Q4 2019 update.
What were the highlights of Mercury's update?
Mercury reported quarterly thermal spot prices in the 90th percentile as thermal fuel constraints, including maintenance outages on the Pohokura gas field, offset above-average national hydro inflows.
The company reported average spot prices for the final quarter of FY19 were $116/megawatt-hour (MWh) at Otahuhu and $95/MWh at Benmore, which translated into FY19 spot prices reaching record levels of $143/MWh at Otahuhu and $123/MWh at Benmore.
Management said the record pricing levels were largely a function of the market's view of future thermal availability, which also affected the long-term outlook of wholesale market prices, increasing futures prices to $114/MWh for FY20.
Mercury's hydro generation was 796 gigawatt-hour (GWh) in the most recent quarter, a decrease of 422GWh from near-record levels in the prior comparable quarter as its Waikato catchment inflows were below average in Q4 FY19.
Despite below-average inflows in the quarter, management said that Mercury was able to finish the year strongly by utilising the peaking capability of the Waikato Hydro Scheme to benefit from spot price volatility.
Mercury's geothermal generation increased by 23GWh to 731GWh in Q4 FY19 from 708GWh in the prior comparable period, which had more planned maintenance outages, and contributed to FY19 geothermal generation of 2,896GWh – the highest annual geothermal generation for the company.
The company also noted lower customer numbers in the quarterly report, citing its focus on value and existing customers resulted in reduced acquisition activity as retail margins narrowed with the continued rise in the electricity futures curve.
Mercury acquired around 4,000 fewer customers in Q4 FY19 compared to Q4 FY18, with the proportion of Mercury brand customers acquired on discounted rates falling from 55% in Q4 FY18 to 27% in Q4 FY19.
This contributed to customer numbers across all brands decreasing by 6,000 across the quarter to 373,000.
Where to now for the Mercury share price?
While the quarterly results indicate a bit of a mixed bag for the New Zealand renewables group, the company's shares could see higher trading activity in early trade.
The Mercury share price is currently trading at $4.35 per share as at the start of trading and has soared 22.5% higher so far this year on strong electricity pricing and steady operational expansion.
Mercury's investment in Tilt Renewables Ltd (ASX: TLT) has also paid dividends for the group in 2019 and the signs are positive for the renewables group heading into the second half of the year.
