Normalizing Rainfall and Lower Thermal Fuel Costs to Support Genesis' Medium-Term Earnings Growth

Genesis operates a mix of thermal and hydro generation, with total annual production of approximately 7,000 GWh. The firm's thermal power plants use a mixture of coal and natural gas for fuel. The company's hydro generation provides it with low-cost generation during times when there is sufficient rainfall and/or snowmelt. Conversely hydro generation can fall sharply when inflow to the firm's lakes recedes because of insufficient rainfall. During such times, production from its thermal power plants can be ramped up to make up for the shortfall in hydro generation. Spot prices can increase dramatically during periods of low rainfall, reflecting the demand-supply mismatch caused because of lower nationwide energy output. Such times tend to favour Genesis as the excess generation is sold at higher prices. Consequently, Genesis's profitability and margins can increase during periods of low rainfall and high electricity prices.