Mighty River Says N.Z. Power Demand to Flatten as Economy Grows

Power demand in New Zealand, which is selling stakes in generators, is forecast to remain flat even as construction-led economic growth heads toward 3 percent, said Mighty River Power Ltd.

“I don’t see economic conditions where you are going to return to the same correlation between gross domestic product and electricity that we’ve had historically,” Mighty River’s Chief Executive Officer Doug Heffernan said today on a conference call. “We are in for a period that’s going to keep demand running at relatively flat level for the future.”

Power demand in New Zealand has fallen in four of the past five years after a decade when power consumption grew at about the same pace as gross domestic product, Heffernan said. Subdued power consumption is overshadowing Prime Minister John Key’s plan to raise at least NZ$5 billion ($3.9 billion) from the sale of stakes in government-owned power companies.

About 48 percent of Mighty River, the nation’s fourth-biggest power company, was sold in May, raising NZ$1.7 billion after its shares were offered at NZ$2.50 apiece. Key will offer shares in Meridian Energy Ltd., the nation’s largest generator, next month, and Genesis Power Ltd. next year.

Mighty River shares, which dropped to a record low last week, rose as much as 1.8 percent to NZ$2.23 after the company said full-year net income was NZ$114.8 million, beating the NZ$94.8 million forecast made at the time of the initial public offering.

Construction-led

The current economic recovery is linked to construction and “that is not a leading indicator of electricity consumption,” Heffernan said. It has no new developments planned in New Zealand for at least three-to-five years.

Power demand has declined as large industrial users such as the paper industry have reduced capacity and as appliances used in homes have become more efficient, Heffernan said. Consumption at Rio Tinto Group’s aluminum smelter at Tiwai Point near the southern tip of New Zealand has also declined, he said. The plant uses about 14 percent of the nation’s power.

Meridian this month agreed with Rio to sell it power at a lower price in return for a commitment to keep operating the smelter until at least January 2017.

“The deal announced is better than the prognosis we outlined in the offer document,” Heffernan said. “If the smelter gives notice that will impact on thermal generators, there’s no two ways about it.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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