A review of Contact Energy Limited: startup history, funding, market growth and failure, operations and globalization of the energy market in New Zealand.
(Revised on 14th April 2014)
CONTACT ENERGY LIMITED
Contact energy limited is an incorporated and a diversified company that generates and sells electricity in New Zealand. The company is one of the biggest electric generators in New Zealand with up to 23% of retail generation as of 2012. Contact started as part of the division of the Electricity Corporation of New Zealand in late 1996 (Ministry of Business, Innovation and Employment, 2). It became publicly listed in the year 1999. The highest percentage shareholder of the company is the Origin Energy which is an Australian company.
Contact receives funding in different forms. One of its ways is in investing in retail bonds, which in their new refinancing program had raised 250 United States dollars between the rates of 5.8-6.0% with investors. In its latest bid, it secured a private placement financing with United States institutional investors worth 240 million dollars (Ministry of Business, Innovation and Employment, 2). In addition, Contact gets some of its funding from the government and profits accrued in the business.
Contact energy majors in natural gas wholesaling and retailing and electricity generation and retailing. It has a concentrated competitive market in New Zealand. It is estimated that Contact serves an estimated 567 000 customers in New Zealand. A forecast for the projected company’s market growth revealed that it will outperform the market due to its increased sentiment in investing analysis. The company’s chairman Grant King said that whilst the capital investment still remains high in the future, only little growth will be registered in the company due to high levels of competition in the retail market.
The company has faced several challenges in its business. Due to technical problems experienced in its performance, Contact decided to sell its shareholdings to Origin Energy in the year 2004. As the financial crisis soared in 2008, the company increased its prices to 12% and then improved the director’s fee (Ministry of Business, Innovation and Employment, 2). It led to a loss of close to 40 000 customers in a period of six months. The profits raised in that financial year were half the normal profits. It is the worst the company has faced since its inception. It has also withdrawn from major power projects, citing poor and unreliable market conditions as the cause.
It operates in renewable hydro power stations located in Central Otago and Clutha River. In Taupo, it has plants containing renewable geothermal energy. The four gas-fired natural stations in Waikato, Auckland and Taranaki complete its segment of operations in electricity production and others. As a subsidiary of Origin Energy, it only operates in New Zealand with its headquarters in Wellington. Contact is currently focused on completing The Mihi geothermal station to help solve problems that are customer oriented. In order to hang on with other competitors, Contact has decided to embark on a program that ensures they offer low cost products and services (Ministry of Business, Innovation and Employment, 2). They are also trying to contract other companies so as to manage its demand uncertainty and regulatory policies.
The global aspect of the company is diversified. It gets new ideas from Origin Energy and other top United States energy companies and incorporates in its function. It has enabled investors from the American states to invest considerably in its shareholdings. It also ventured in a project with Genesis Energy to import liquefied natural gas and improve its global participation. It has also sold part of its power plants to Vector so as to maintain and foster its relationship with others in the energy market.
Ministry of Business, Innovation and Employment. Economic Development Information: New Zealand. 2014. Accessed at <http://www.med.govt.nz/sectors-industries/energy/energy-modelling/publications/energy-in-new-zealand-2013>