Meridian looks to Australia for opportunities

Meridian Energy's chief executive Mark Binns before addressing shareholders in Queenstown...
Meridian Energy's chief executive Mark Binns before addressing shareholders in Queenstown yesterday. PHOTO: DAVID WILLIAMS
Meridian Energy is eyeing Australia for potential growth, but not in the short term.

It is also talking up a quick rebound should the operator of the Tiwai aluminium smelter pull out of New Zealand.

Before addressing about 40 shareholders in Queenstown yesterday, chief executive Mark Binns offered a ``steady as she goes'' message on its New Zealand operation to the Otago Daily Times, talking up the company's steady cashflow, careful rein on spending and steady returns to shareholders.

New Zealand's largest electricity generator, with 32% of the country's generation in the last financial year, mostly from South Island hydro stations, has been faced with anaemic demand since about 2007 and a highly competitive retail market.

``We see New Zealand as being pretty stable,'' he said.

Australia was where the opportunities were, he said, as that country moved from predominantly coal-fired power plants into renewables.

Mr Binns noted Australia's political and market volatility, saying its investment across the Tasman in the next 12 to 18 months would be ``pretty limited''.

But over that time it would sniff out growth opportunities, particularly in solar.

``It's the sort of market that, even though it's difficult, it's probably going to throw up more opportunities for us, in things like solar, than the New Zealand market will.

``Solar's just a better proposition in Australia.''

Meridian would sit on those potential opportunities for up to 10 years, he said, ``and wait for some of the volatility to move out of the market''.

Meridian has invested $450million in Australia. It has two wind farms there: the 64-turbine Mt Mercer farm in Victoria and South Australia's 35-turbine Mt Millar wind farm.

Its Powershop brand is also entering Australia's retail market. It is already in New South Wales and Victoria and is about to hit Queensland.

``We're quite small in Australia. We can nip at the heels of the big boys and find little opportunities.''

Meridian's caution about investing across the Ditch may relate to Mr Binns' time running Fletcher Building's infrastructure arm, given that company's occasional financial pain from its Australian division.

New Zealand Aluminium Smelters, which uses about 12% of New Zealand's electricity and about 40% of Meridian's production, faces a price increase from its Meridian contract on January 1. But on that date the company also gets the perpetual ability to terminate its contract with 12 months' notice.

Mr Binns said improving aluminium prices, combined with a weakening New Zealand dollar, gave Meridian the impression the company would stay, in the medium term.

If it did pull out, Mr Binns said that might force its competitors to close down more thermal plant, which could lead to Meridian making wholesale deals with them to keep up their supply.

``You'd probably see maybe three to four years of weaker wholesale and therefore retail electricity prices.

``But over time, we think inside a five-year timeframe, we'd be back to a stronger position.''

Meridian's share price opened at $2.55 yesterday and is up 12% over the past 12 months.

However that was down from a $3.05 high in September.

Mr Binns pointed out total shareholder returns were up 118% since the 2013 float.

In terms of the recent volatility, he was quick to point the finger at president-elect Donald Trump.

david.williams@odt.co.nz

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