Contact Energy’s July 2026 operating report demonstrates a compelling combination of operational efficiency gains and favorable market conditions that should provide positive earnings momentum. The most significant development is a dramatic 22% reduction in unit generation costs to $36.99 per MWh, down from $47.40 per MWh in the prior year period, reflecting hydro-favorable conditions and improved hedging outcomes across the wholesale book.
The retail customer business expanded meaningfully with mass market electricity and gas sales reaching 579 gigawatt hours, a 27% increase from 456 gigawatt hours in July 2025. While the netback per megawatt hour declined modestly from $148.69 to $147.19, the volume growth more than compensates, suggesting Contact is gaining market share in a competitive consumer energy market. The wholesale business similarly showed strong momentum, with contracted sales totaling 1,079 gigawatt hours compared to 987 gigawatt hours a year earlier, while revenue per megawatt hour improved slightly to $179.17 from $178.62.
The cost improvements stemmed partly from favorable hydro storage conditions. South Island controlled storage was tracking at 137% of mean levels as of August 11, while Clutha catchment inflows for July ran at 132% of mean, creating an environment where Contact could access cheaper hydro generation rather than relying on more expensive thermal or acquired power. The company’s own generation cost fell to $27.11 per megawatt hour from $30.66, highlighting the operational leverage embedded in Contact’s hydro-heavy generation portfolio when water conditions are favorable.
Forward electricity prices represent a more mixed picture for the company. The Otahuhu futures price for Q4 2026 jumped significantly to $73 per megawatt hour from $51 per megawatt hour on July 31, suggesting market expectations have shifted sharply higher. This 43% spike likely reflects tightening supply expectations and market concerns about hydro conditions heading into spring, presenting both upside and downside considerations. Higher forward prices support wholesale margins but may pressure the retail business if retail tariffs cannot be raised commensurately.
Contact’s capital deployment program remains on track with four major projects under construction totaling approximately $1.5 billion in approved costs. The Kōwhai Park Solar project (Contact’s 50/50 joint venture with Lightsource bp) is expected online in Q3 2026, while the much larger Te Mihi Stage 2 geothermal facility and Glenbrook-Ohurua Battery projects are targeted for 2027 and 2028 respectively. These additions will diversify the generation portfolio and provide growth optionality.
Investors should watch how forward electricity prices evolve in coming months, as the recent spike to $73 per megawatt hour signals changing supply dynamics in the market. Additionally, the timing and operational performance of the first major project completion (Kōwhai Park) will provide early visibility on Contact’s ability to execute its capital program. The company’s ability to maintain cost discipline while growing volumes will remain critical to delivering earnings growth. This announcement is price sensitive and has been classified by the ASX as a material announcement.
View the full ASX announcement (PDF)
About Contact Energy Limited (ASX: CEN)
Contact Energy Limited generates and sells electricity and natural gas in New Zealand through both wholesale and retail segments. The company owns and operates hydro, geothermal, and thermal power stations that produce more than 25% of New Zealand’s electricity, and retails these services along with broadband to nearly half a million customers.
If you would like to discuss this announcement or how it might affect your portfolio, request a callback or call us on 1300 889 603.
