Highlights

  • Contact Energy's February 2026 operational data revealed a dramatic compression in unit generation costs — from NZD $70.95/MWh in February 2025 to $41.70/MWh in February 2026 (a 41% reduction), with own-generation costs falling even more sharply from $60.30/MWh to $31.0/MWh — reflecting the restoration of hydro system storage toward long-run average levels and the consequent reduction in expensive thermal and acquired generation requirements.
  • CEN trades at A$7.49 on the ASX as at April 1, 2026 — down 6.61% over the past year — against a EODHD/Others consensus buy rating and target price of NZD 10.63, a differential that analysts attribute to the transitional earnings period during construction of four renewable development projects with a combined investment of approximately NZD $1.38 billion currently underway or recently completed.
  • Contact Energy has four renewable development projects progressing simultaneously: the Glenbrook-Ohurua Battery 1 (Q1 CY26, $163 million), Kōwhai Park Solar (Q2 CY26, $273 million), Te Mihi Stage 2 geothermal (Q3 CY27, $712 million), and Glenbrook-Ohurua Battery 2 (Q1 CY28, $235 million) — each adding to the company's renewable capacity and firming infrastructure at a combined cost representing the largest growth investment phase in Contact's recent history.

 

Contact Energy Limited (ASX:CEN) is New Zealand's largest listed energy company by market capitalisation and one of the country's most significant generators of renewable electricity. Dual-listed on the NZX and ASX, Contact operates an integrated business model that spans geothermal, hydro, gas, and increasingly solar and battery storage generation, alongside a direct retail customer business serving residential and commercial customers across New Zealand's North and South Islands. The company's investment case has been shaped in recent years by two simultaneous dynamics: a recovery from a period of hydro storage shortfall that drove up thermal generation costs and compressed wholesale margins, and the execution of the largest renewable capital investment programme in the company's history.

At A$7.49 on the ASX as at April 1, 2026 — a decline of 6.61% over the preceding twelve months — Contact's shares reflect the transitional earnings profile of a company in the midst of substantial growth investment while simultaneously managing the operational impacts of hydro variability. The EODHD/Others consensus buy rating with a target price of NZD 10.63 suggests that analysts view the current share price as reflecting an undervaluation of the company's earnings trajectory once the renewable growth pipeline is complete and the hydro system operates at normalised storage levels.

The February 2026 monthly operating data, released in March 2026, provides a striking and data-rich illustration of exactly the kind of operational improvement that underlies the analyst buy thesis. The numbers are worth examining carefully, because they tell a story about the fundamental economics of Contact's generation business that the annual or half-year accounts, smoothed over a longer time period, can obscure.

The February 2026 Operational Data: A Decisive Cost Inflection

Contact Energy publishes detailed monthly operational statistics that provide one of the most granular windows available into a utility's real-time performance. The February 2026 data, compared to February 2025, demonstrates the magnitude of the operational improvement that has occurred as New Zealand's hydro storage system recovered toward historical mean levels.

The headline generation cost figures are the most immediately impactful. Wholesale unit generation cost — which includes both Contact's own generation and electricity acquired from third parties — fell from NZD $70.95/MWh in February 2025 to $41.70/MWh in February 2026, a decline of 41.3% in a single twelve-month comparison. Own generation cost, which reflects only Contact's internal production without the acquisition cost of externally sourced electricity, fell even more dramatically: from $60.30/MWh in February 2025 to $31.0/MWh in February 2026, a reduction of 48.6%.

These cost reductions are directly attributable to the recovery of New Zealand's hydro lake storage levels. In periods of low hydro storage, Contact — like all New Zealand generators with thermal capacity — must operate its gas-fired peaking plants at elevated utilisation rates and supplement own generation with acquired electricity from the spot market, both of which carry materially higher unit costs than geothermal or hydro baseload. The shift from a low-storage to an adequately-stored hydro environment eliminates the need for expensive thermal operation and reduces acquisition volumes, producing the dramatic cost compression visible in the February data.

The storage data confirms this interpretation. As at March 16, 2026, South Island controlled storage was at 98% of mean and North Island controlled storage was at 164% of mean — positions that represent a very significant improvement from the below-average levels that characterised much of 2024 and early 2025. Contact's own Clutha scheme storage was at 98% of mean, consistent with the broader South Island picture. This storage recovery is the operational foundation of the cost compression and the primary reason analysts expect a meaningful improvement in Contact's wholesale generation economics through the balance of FY26 and into FY27.

Customer Business: Volume Growth and Stable Netback

Contact's customer (retail) business delivered solid volume growth in February 2026, with mass market electricity and gas sales of 295 GWh compared to 237 GWh in February 2025 — growth of approximately 24.5%. This volume expansion reflects both customer base growth and the impact of customer acquisition efforts that have broadened Contact's retail market presence. The mass market netback — the net revenue per MWh received after accounting for the cost of electricity supply and grid charges — remained essentially stable at NZD $160.23/MWh versus $159.57/MWh in the prior year, a marginal improvement of 0.4%.

The stability of the customer netback in the context of significant volume growth is an important signal about the quality of Contact's customer acquisition strategy. Rapid volume growth that comes at the cost of lower per-customer margins is a common risk in competitive retail electricity markets — the growth is less valuable than it appears if the incremental customers are being acquired at unsustainable terms. The maintenance of a stable netback alongside 24.5% volume growth suggests that Contact has been growing its customer base without materially compromising per-customer economics, a more sustainable and valuable form of retail expansion.

The wholesale business also demonstrated strong volume growth, with contracted wholesale electricity sales (including supply to the customer business) of 816 GWh compared to 632 GWh in February 2025, a 29.1% increase. Electricity generated or acquired by Contact reached 809 GWh versus 675 GWh in the prior year, reflecting both the increased customer volumes and the improved hydro availability allowing Contact to generate more from its own assets.

The wholesale electricity and steam net revenue of NZD $122.35/MWh in February 2026 was lower than the $133.15/MWh of February 2025, reflecting the normalisation of wholesale electricity prices as hydro storage improved. When hydro storage is critically low, spot prices spike and Contact's geothermal baseload, which produces at a fixed cost well below spot prices, captures very high margins. The return to normal storage levels brings spot prices down and reduces these exceptional margin moments — but the dramatic reduction in generation cost more than compensates for the revenue-per-MWh compression.

Otahuhu Futures: The Market's Forward Price Signal

The Otahuhu futures prices for Q2 2026 — New Zealand's primary electricity market forward price reference — provide additional context for assessing Contact's near-term earnings environment. As at March 16, 2026, the Q2 2026 Otahuhu price was $220.3/MWh, up from $189.45/MWh as at February 27 and $172.4/MWh as at January 30. This rising futures price trajectory over a six-week period indicates that the market is expecting electricity prices to strengthen into the second quarter of 2026, which encompasses the autumn cooling period as New Zealand moves out of summer.

Rising electricity futures prices are generally positive for Contact's wholesale generation business, as the company's geothermal baseload — which generates at a relatively fixed and low cost — captures higher margins when wholesale prices are elevated. The combination of improved hydro storage (reducing the cost of generation) and rising wholesale futures prices (increasing the revenue per MWh sold) represents an improving earnings environment for Contact's generation segment as the company moves through CY2026.

The gas position is also relevant context. Contact's contracted gas volume (including contracted swaps) for the next 12 months totals 10.2 PJ. New Zealand's gas market has experienced supply concerns given the declining production from the Maui and Pohokura gas fields, and Contact's gas contracting strategy — securing supply through longer-term contracts and swaps rather than relying on spot market purchases — provides a degree of insulation from short-term gas price volatility. Managing gas supply security is an increasingly important operational consideration as Contact's thermal peaking capacity is called upon to supplement renewable generation during hydro dry periods.

The Renewable Development Pipeline: $1.38 Billion of Growth Capital

Contact Energy's current capital expenditure programme represents the most ambitious phase of renewable capacity growth in the company's listed history. Four projects are simultaneously in various stages of construction, with a combined estimated cost of approximately NZD $1.383 billion. Each project adds a different dimension to Contact's generation portfolio and reflects a deliberate strategy of building complementary capacity types that collectively improve the company's ability to serve customers reliably across New Zealand's variable weather and demand conditions.

The Glenbrook-Ohurua Battery 1 project — a grid-scale battery storage facility with an expected online date in Q1 CY2026 and a total project cost of $163 million — is the nearest-term addition to the portfolio and represents Contact's investment in flexible, rapid-response generation capacity. Battery storage assets are particularly valuable in the New Zealand electricity system because they can absorb excess renewable generation during high-inflow or high-wind periods and release stored energy during demand peaks or generation shortfalls, reducing the system's reliance on more expensive thermal firming capacity.

Kōwhai Park Solar, with an expected online date in Q2 CY2026 and a project cost of $273 million, adds Contact's first major utility-scale solar plant to the generation mix. New Zealand's solar resource is less abundant than Australia's, but strategic solar development provides a generation technology with near-zero operating cost, no fuel price exposure, and output characteristics that are complementary to Contact's hydro system (which generates most effectively in winter when inflows are higher, while solar produces more in summer when river flows are lower).

The largest single investment is Te Mihi Stage 2 geothermal — a $712 million project extending the capacity of Contact's existing Taupō geothermal operations, with an expected online date in Q3 CY2027. Geothermal is Contact's most strategically important generation technology: it is fully renewable, operates as continuous baseload (unlike solar or wind), has predictable and stable generation costs, and New Zealand's geothermal resources are among the world's highest quality. Te Mihi Stage 2 will meaningfully expand Contact's renewable baseload capacity, reducing reliance on gas-fired generation and improving the company's long-term cost structure.

Finally, Glenbrook-Ohurua Battery 2 ($235 million, expected Q1 CY2028) adds a second battery storage unit to complement the first, doubling Contact's grid-scale storage capacity at the Glenbrook-Ohurua site. The combination of the two batteries, Kōwhai Park Solar, and Te Mihi Stage 2 geothermal represents a comprehensive investment in renewable generation and flexible storage that will materially change Contact's generation cost structure and revenue profile by the time all projects are commissioned.

Share Price Context: The Discount and the Thesis

Contact Energy's 6.61% share price decline over the past twelve months to A$7.49 on April 1, 2026 needs to be understood in the context of the company's transitional earnings phase. The capital invested in the four development projects totals nearly NZD $1.4 billion — an enormous sum for a New Zealand-scale listed utility — and during the construction phase, each project consumes capital without generating returns, while the associated construction costs and capitalisation begin to add to depreciation once commissioning occurs. This dynamic temporarily suppresses earnings relative to the underlying earning power of the completed business.

The EODHD/Others consensus analyst buy rating with a target price of NZD 10.63 reflects analysts' view that, once the development pipeline is complete and all four projects are generating returns, Contact's earnings profile will be materially higher than the current transitional period suggests. The AUD equivalent of NZD 10.63 (at approximate NZD/AUD exchange rates) implies a target price that is comfortably above the current A$7.49 ASX trading price, confirming the buy thesis at current levels.

The February 2026 operational data provides early empirical evidence that the underlying earnings improvement is beginning to materialise. The 41% reduction in generation costs, the stable customer netback, and the improving wholesale futures price environment each support the analyst narrative that Contact's earnings power in a normalised operating environment is significantly higher than recent reported results have indicated. As the hydro system continues to operate at or above mean storage levels, and as the capital projects come online sequentially through 2026 and 2027, the transitional earnings discount should progressively narrow.

Conclusion

Contact Energy occupies a distinctive position among ASX-listed utilities: a New Zealand-focused integrated energy company with a world-class geothermal asset base, a recovering hydro system, and a construction pipeline that will meaningfully expand its renewable capacity over the next two years. The February 2026 operational data demonstrates that the fundamental economics of the generation business are improving markedly — with generation costs down 41% year-on-year — even as the capital programme continues to consume resources. For investors prepared to look through the transitional earnings period, the combination of hydro storage recovery, renewable pipeline commissioning, and rising wholesale futures prices presents a more constructive medium-term earnings outlook than the 6.61% share price decline over the past year might imply.