The MRP risks

Jason Krupp at Stuff reports:

In addition, some energy sector commentators have questioned MRP’s decision to actively pursue geothermal projects in Chile and the United States as opposed to passively investing via an investment fund structure as it has done in the past.

Energy analyst Molly Melhuish said investors needed to be aware the strategy shifts MRP’s risk profile away from a “safe, utility-type investment prospect”, which is how the firm is being marketed to investors.

Countering those negatives is the company’s position within the New Zealand market, with MRP generating and selling about a fifth of the country’s power, a position that gives it fairly defensive earnings.

It is worth making the point that Mighty River Power does have risks around its investment plans. I don’t say that as a bad thing – it is in fact the risk which is one of the reasons the Government should not be sole shareholder.

Some people think running a company is easy. Just produce your product, mark it up, and sell it. Bang – guaranteed product.

Solid Energy is a good example of how quickly things can change. The global price for coal dropped 30% over two years. While power prices are less volatile, demand can be variable and you can end up with over-supply.

I am looking forward to reading the prospectus.