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Why this renewable energy share price could fall on market update

The Mercury NZ Limited (ASX: MCY) share price could slump this morning after the company revised its FY19 earnings downward and provided an operational update to the market.

Why did Mercury revise its earnings guidance?

Mercury announced that it has revised its FY19 earnings before interest, tax, depreciation, amortisation and other non-operating costs (EBITDAF) guidance from $515 million to $495 million.

This is due to an expected 150-gigawatt hours (GWh) reduction in full-year forecast hydro generation due to continued dry weather in the Taupo, New Zealand area.

Based on hydro generation year-to-date and the current below-average Taupo lake level, this 150 Gwh reduction is forecast to mostly occur in Q4 2019.

FY19 annual hydro generation for the company is forecast to be 4,000 GWh in line with the historic average.

Was there good news in Mercury’s operational update?

The company’s quarterly highlights included record high spot prices due to low hydro storage and national demand up 3% from increases in the irrigation and industrial sectors.

Management also noted that hydro generation decreases were partially offset by improved geothermal availability and higher futures prices increase on thermal fuel uncertainty.

Mercury is continuing to pursue value in the retail electricity market with a 2.6% increase on prior corresponding period (pcp) and market churn falling for the first time in four quarters.

Is Mercury in the buy basket?

The Mercury share price rocketed 8.8% higher to $3.96 per share yesterday but I’d expect it to retrace some of its gains following the revised FY19 earnings guidance.

The company’s equity is up 11.5% in 2019 which is better than can be said for fellow New Zealand renewables stock Tilt Renewables Ltd (ASX: TLT) which is marginally in the red so far this year.

While I’m quite bullish on Mercury in the long-term, AGL Energy Ltd (ASX: AGL) or Infigen Energy Ltd (ASX: IFN) could offer more domestic renewables exposure and I think there’s room for at least one of these Utilities stocks in a well-rounded portfolio.

For those who want to look for growth outside of the mining sector, this top-rated stock could boost portfolio gains as it continues to soar in a $22 billion industry.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.