Contact Energy: $2B Capital Raise to Fuel Renewable Energy Projects & Infrastructure Investment
Contact Energy is embarking on a significant investment phase, underpinned by a announcement of a $525 million equity raise. The capital injection is designed to accelerate the company’s “Contact31+” strategy, a plan focused on expanding renewable energy generation across New Zealand.
The move comes as the electricity sector faces increasing demand and a need for greater resilience, highlighted by recent dry weather events and gas shortages. In the winter of , wholesale electricity prices surged to $820 per megawatt hour (MWh), a substantial increase from the typical winter average of around $160/MWh, underscoring the vulnerability of the system.
Contact Energy’s first-half net profit reached $205 million, a 44 percent increase, despite a 5 percent dip in revenue. Underlying profit rose 24 percent to $500 million. The results include contributions from the recently acquired Manawa Energy, a deal completed in , with the company reporting it had “landed the synergies” from the acquisition. The company also reported EBITDAF of $500 million, or $522 million excluding Manawa transaction and integration costs.
The $525 million raise will fund several key projects. These include a new 200MW battery storage facility, dubbed Glenbrook battery 2.0 and a joint venture investment in the 150MWac Glorit solar farm near Auckland. Funds will be allocated to drilling at the Tauhara 2 geothermal site, with the potential to expand capacity to 60-70MW, up from the initial target of 50MW.
According to Contact Energy Chief Executive Mike Fuge, the equity raise isn’t simply about securing funds, but about accelerating the execution of the Contact31+ strategy “and going at that with purpose.” He emphasized the importance of building critical infrastructure within New Zealand, stating, “every one of those dollars will be spent here.”
The company’s broader strategy, Contact31, aims to drive growth in renewable energy transition through to . Contact Energy is planning a total of $2 billion to $2.5 billion in investment over the next five years, and is exploring opportunities to expand that pipeline with the proceeds from the equity raise.
The investment in renewable energy is also intended to help customers transition away from New Zealand’s declining natural gas reserves. Contact Energy Chief Financial Officer Matt Forbes noted that new projects would facilitate this shift, enabling customers to switch from gas to electricity.
Contact Energy’s expansion plans aren’t without their challenges. The company recently resolved issues with the Forest and Bird Society regarding the Glorit solar farm project. Previously, a fast-track consenting panel declined the company’s application for a wind farm project in Southland, with a decision on a re-application expected in late or early .
The company is also seeking a joint venture partner for wind power development, mirroring its approach with LightSource BP for solar projects. Fuge welcomed the government’s plan to install a liquefied natural gas (LNG) facility at Port Taranaki, viewing it as a measure to enhance the resilience of the energy sector.
The capital raise follows a period of discussion about potential fundraising among New Zealand’s state-owned power companies – Genesis, Mercury, and Meridian – after the government indicated its willingness to participate in future funding rounds. Analysts suggest Genesis is the most likely candidate for a similar move, with its first-half profit results due on .
Salt Funds managing director Matt Goodson described the Contact Energy result as “fine,” but noted the capital raise was a surprise. He suggested the company could have funded the projects from its balance sheet but opted for a more conservative capital structure. Goodson also pointed out that while We find numerous renewable energy projects planned, not all will necessarily come to fruition, creating a degree of uncertainty in the market.
Contact Energy’s normalized EBITDAF guidance for has been increased by $15 million to $995 million, reflecting the impact of the Manawa acquisition and integration costs. The company’s dividend is set at 16 cents per share, with plans to increase the total dividend to 40 cents per share in the financial year and between 41 and 42 cents per share in .