Thank you for standing by, and welcome to the AGL Energy 2023 Full Year Results Briefing Conference Call. All participants will be in listen-only mode. There will be a presentation followed by a question and answer session. I would now like to hand over the conference to Managing Director and Chief Executive Officer, Mr. Damien Nicks. Please go ahead.
Good morning, everyone. Damien Nicks speaking. Thank you for joining us for the webcast of AGL's full year results for the financial year 2023. I'd like to begin by acknowledging the traditional owners of the land I'm on today, the Gadigal people of the Eora nation, and pay my respects to their elders, past, present, and emerging. I'd also like to acknowledge the traditional owners of the various lands from which you are all joining from, and any people of Aboriginal and Torres Strait Islander origin on the webcast. Today, I'm joined by Gary Brown, Chief Financial Officer, Jo Egan, Chief Customer Officer, and Markus Brokhof, Chief Operating Officer. I'll get us started, and we'll have time for questions at the end.
Before I cover the results, I wanted to recap our refresh strategy and our accelerated decarbonization plan, which we announced last September, discussed in greater detail at the Investor Day in mid-June, which has collectively reset market confidence and the outlook for AGL. We have a clear strategic plan to connect our customers to a sustainable future, helping them to decarbonize the way they live, move, and work, as well as to transition to a lower carbon energy portfolio, underpinned by an ambition to add approximately 12 GW of new generation and firming by the end of 2035. AGL has a leading and trusted brand, and our customer markets business is positioned well to navigate, grow, and thrive in a complex energy retailing market, pursuing the focus areas outlined on the left-hand side of the slide screen.
Importantly, the delivery of our 12 GW ambition of new renewable and firming assets is underpinned by strong development optionality, the near-term focus for integrated energy will be the execution of our expanded 5.3 GW development pipeline, all while delivering operational and trading excellence and maintaining safe operations. This is all supported by robust financial stewardship, most notably our refreshed capital allocation framework to prudently allocate capital to the transformation of our business, strengthen core operations and drive shareholder returns. First and foremost, I'd like to talk about our customers and address how we are supporting them through the current period of cost-of-living pressures. As Jo Egan, our Chief Customer Officer, mentioned at the Investor Day, we've committed to increasing our customer support funding to at least AUD 70 million for the next two years.
This is in addition to the Government Energy Bill Relief Fund and includes up to AUD 400 of bill relief for our most vulnerable customers on the Staying Connected hardship program. We're using proactively engage with our customers, offering them guidance and support, referrals to relevant government and consumer. We are also investing in specialized training, improve the effectiveness of communications, hardship. Our strong collections performance in recent years, earnings from the past, we have seen how to support our customers and carefully manage our costs. Second half, due to increased plant availability as we forecast at the half year. Underlying profit after tax was 200% higher than the prior year. The stronger financial result reflects higher wholesale electricity and gas pricing realized in earnings, partly offset by increased operating costs and lower generation volumes.
A, unit two, which was caused by a generator rotor defect and also the closure of the Liddell Power Station in April 2023. Our statutory loss of AUD 1.264 billion was impairment charges due to the targeted early closure dates of our thermal assets and a negative movement in fair value financial instruments of AUD 890 million. A final ordinary has been declared, unfranked, bringing the total dividend for the 2023 financial year to AUD 0.31 per share, an increase of 19% on the prior year. Pleasingly, customer markets recorded strong organic growth across both energy and telecommunications in a challenging year for the energy retailers. Up 56,000, net promoter score remaining in a healthy position of +5.
Despite the challenging start to the year in terms of fleet performance, we've certainly had a much stronger performance across the portfolio for the remainder of the year, recording an equivalent availability factor of 76.8%, which is higher than the previous 2two financial years. The benefit is now clearly evident. At our Investor Day in June, we announced an expected uplift in earnings. We've maintained FY 2024 earnings guidance. I'll discuss this further at the end of the presentation. I'll also touch on market conditions in my closing way. We are certainly building positive momentum across the business and the market as we forge ahead with the transformation of AGL. This slide demonstrates key highlights and achievements since we announced the outcomes of September last year. I won't speak to all of these, but will highlight some key milestones.
Starting from the left, last September, we announced a refreshed strategy in one of the most significant. This included the accelerated closure of Loy Yang A, together with our ambition to supply 12 GW of new generation and firming capacity by the end of 2035 nation portfolio. Our inaugural Climate Transition Action Plan was endorsed by shareholders at the 2022 Annual General Meeting, and the board renewal process was completed following the election of four new highly experienced non-executive directors. Our executive team is also settled, and all permanent appointments finalized following Executive General Manager of Corporate Affairs. In April, we successfully consisting debt facilities and priced new long-term debt in the U.S. private placement market.
A key point to note is that these facilities included an AUD 500 million green CapEx loan with five and seven year maturities, which will be used to fund existing and future low-carbon projects. Our weighted average tenor of debt increased between group of both domestic and offshore banks. Late April also marked the first key milestone of our key decarbonization pathway, with the safe and respectful closure of the Liddell Power Station after almost 52 years of operation. For emissions reduction of eight million tons of greenhouse gas emissions. Finally, at our Investor Day in mid-June, we had the privilege of sharing further detail on our business strategies and our accelerated decarbonization plan, driving market confidence in AGL's direction through the transition.
We also announced an over 60% increase in megawatts, a new 15 year power purchase agreement with Tilt for almost 180 MW from the Rye Park Wind Farm, as well as competitive gas agreements with Cooper Energy, Senex, and ExxonMobil. With our ambition to help customers decarbonize, we were excited to share a new e-mobility partnership with BP Pulse, providing EV customers with a convenient and integrated smart charging experience at home and when they're on. Just how our leading position in commercial energy solutions is enabling us to capture value through energy as a service at scale in a rapid- almond farm in New South Wales is a great example where AGL designed a low-carbon microgrid, and once constructed, will help lower the customer's energy costs, provide price certainty, and help improve their reliability and their sustainability outcomes.
Overall, we're in a strong position to deliver on our long-term ambitions for AGL, supported by the strength of our underlying business, defined business strategies and decarbonization plan, and highly experienced. Moving metrics. Disappointingly, our total injury frequency rate increased to 2.8 per million hours worked, reversing a downward trend since FY 2020. This was largely driven by an increase in low-impact injuries. As always, the safety of our people and the safe and reliable operation of our assets is our number one priority, and in response to this increase, we've bolstered our focus on preventing common injuries before they occur and continue to encourage our employees- events have the potential to cause an injury.
I've already spoken to our strategic NPS score, which remains in a strong po-. Encouragingly, we've had a material improvement in our employee engagement score across the business as we pursue a refreshed strategic objectives and improved operational performance. Turning now to a more detailed discussion on customer markets performance, which was underscored by services growth, a focus on value, and improved customer experience. 56,000 to 4.3 million, delivered through both energy and telecommunication services growth. Pleasingly, disciplined management and scaling of growth business areas, including telecommunications and business energy solutions, delivered an AUD 96 million improvement to gross margin. We've also maintained our number 1 brand awareness position in energy and launched our new brand platform, Join the Change. Looking forward, we'll con- whilst prudently managing margin and carefully responding to anticipated increase in customer activity in a high inflationary environment to cost of living pressures.
We also delivered improved retention with our churn spread improving points and excellent results from experience, evidenced by the leading digital app. Encouragingly stable, excluding the impact. Looking forward, as Gary will discuss, overall operating costs associated with higher expense and the transformation of inflation. One of our key ambitions is to electrify and decarbonize. Significant future value pools for our residential customers. We've seen a material increase in carbon neutral services and continue to Australia's largest demand response program, actively unlocking access to e-mobility. I've already mentioned our partnership with BP Pulse, which will provide charging solutions for our customers, whether they are at home or on the go. Our largest of its kind in Australia, and we are facilitating smart charging trials to learn more about the flexibility management and capture home charging consumption.
We're also driving commercial decarbonization and market leadership in the commercial solar space, delivering three times more solar than the nearest competitor. Beyond solar, we've seen a material increase in our commercial assets under monitoring and management. We've also executed multiple energy-as-a-service arrangements, entered into long-term renewable supply deals, and commissioned a 2-megawatt-hour battery for Essential Energy. In our customer base, our operations, and our decarbonization objectives to build a future-ready business. Decentralized assets under orchestration is 47% higher, and the power of technology and automation is being harnessed with over five million transactions managed by artificial intelligence. Additionally, with customer markets, green revenue now representing just over 20% of total customer markets revenue. Moving now to fleet performance and operations, headlined by stronger overall availability across our generation fleet.
Starting on the left-hand side, commercial availability of our thermal fleet was up over 5 percentage points, despite the impact forced outage. This was driven by a reduction in forced thermal outages compared to the prior year, a testament to the ongoing investment to improving thermal fleet availability and reliability, preventative maintenance on mills, precipitators, and boilers. We've also completed minimum load testing at Bayswater and Loy Yang A, which I'll speak to shortly. Volatility captured through trading was broadly flat in the prior year, as to by significant market disruptions and weather events, driving forced thermal outages across the NEM. Volatility captured in the second half was first supported by improved coal fleet availability. Normalized for the Liddell Power Station, which closed in April, generation volumes were down 4.5% due to forced outages across the remainder, offset by high solar and hydro generation volumes.
As mentioned at the beginning, we achieved an equivalent availability factor across the fleet of 76.8%, 2.3 percentage points higher than FY 2022. A good achievement overall, considering the impact of the prolonged Loy Yang A Unit Two outage. As you can see on the right-hand side of the graph, fairly by a reduction in thermal unplanned outages in FY 2023, particularly in the second half, denoted by the purple shaded bars. I'll now take a moment to discuss our flexibility upgrades at Bayswater and Loy Yang A, which are delivering operational, environmental, and financial benefits for AGL. Intermittent renewable generation progressively enters and enables us to manage the impacts of lower customer demand or negative pull peak solar generation. This is illustrated by the graph on the right-hand side, which shows a duct curve, New South Wales, with high solar generation during daytime hours.
Importantly, our Bayswater and Loy Yang A units can be flexed down approximately of their nameplate capacities, and we have plans to lower the minimum generation levels of the Loy Yang A units by a further 50 MW each in FY 2024. Flexibility upgrades at dollars of gross margin benefit in FY 2023. Through lower coal use, approximately 60 kilotons of carbon emissions were also abated. A key point I'd like to highlight here is that we are getting a units beyond their original design parameters, but rather investing in the technology and the assets we have to operate more efficiently as a response to the transition and renewables entering the market.
We stand today in relation to our four-year targets ending in FY 2027, which we shared at our Investor Day, into our strategic NPS score, which remains in a strong position, and we are progressing well to achieve our digital-only customers and our green revenue targets. Please note that the speed to market metric is measured against a May 2023 baseline, hence, we didn't report a pick for 2023. Similarly, the cumulative customer assets installed metric covers installations from FY 2024 onwards. Turning to the bottom row, I've already discussed our strong EAF result, we'll be aiming to step this up to 88%. The 478 MW reported for the next metric comprises the 250 MW Torrens Island battery, 50 MW Broken Hill battery, and the 178 MW Rye Park wind.
Commissioning has commenced for the Torrens battery, and the Broken Hill battery is also to be expected to be operational soon, and we look forward to both batteries coming online and contributing to earnings in FY 2024. Finally, centralized assets under orchestration includes our contracts with the Portland and Tomago Aluminum Smelters, which both have demand response mechanisms and provisions attached. Now, over to Gary.
Thank you, Damien. Good morning, everyone. This slide shows an overall summary of our financial result, which I'll cover in more detail on the following slides. However, we are pleased to announce underlying profit after tax of AUD 281 million, 25% higher than. We are announcing that a final ordinary dividend of AUD 0.23 per share has been declared, unfranked, bringing the total dividend for the 2023 financial year to AUD 0.31 per share on the prior year. The statutory loss of AUD 1.264 billion included AUD 680 million of impairment charges due to the targeted early closure dates of thermal assets in line with our accelerated decarbonization plan, as announced in the September 20, 2022.
Fair value of financial instruments of AUD 890 million, primarily reflecting the impact of a drop in the forward prices for electricity on a net buy position. Let me first take you through group underlying profit in more detail. The stronger customer markets performance was largely driven consumer and commercial and industrial portfolios. The increase in consumer margin was a result of focused customer value on growth businesses and higher demand for gas customers. The improved C&I performance, which includes large business customers and sustainable business energy solutions, reflects growth in this business segment and an improvement in project delivery. Operating costs was predominantly due to increased net bad debt expense, which I will talk about in more detail on the next slide. Turning now to integrated energy, where there were some material movements in portfolios.
As discussed at the half year, we had a challenging start to the year with the confluence of planned and forced outages across our coal-fired fleet, including the prolonged outage of Loy Yang In short generation position, compounded by significantly higher pool prices. Both FY 2022 and 2023 were impacted by generation outages during market volatility, with additional investment in availability and reliability margin in future years. We have also highlighted the earnings in Liddell Power Station, with the first unit closing in April 2022, and the remaining three closing in April 2002.3 TW hour reduction in generation and approximately AUD 70 million worth of net reduction in margin and OpEx savings.
Looking forward, once Liddell's workforce has been fully speaking, we are expecting to see a similar dollar per megawatt reduction to earnings on the remaining five terawatt hours generated in FY 2023. Turning to the net electricity portfolio, availability of our generation fleet in the second half of the year, along with hedging and trading gains, was a key driver of the first half. The strong performance of our gas portfolio, consistent with the first half, reflected higher global commodity pricing, which increased the revenue for our gas portfolio. AGL's prudent trading performance during this period of high oil prices and AGL's net long hedge optimization is reflected in the $92 million positive movement. I will address the movements in operating costs in more detail on the following slides.
Higher finance costs were largely driven by a combination of an increase in rehabilitation provision, interest costs, and an increase in rates, and more specifically, the impact of the increase in base rates, partially offset by a reduction in onerous liabilities. There would be an increase in operating costs for FY 2023, roughly in line with CPI. Pleasingly, we have managed operating costs across the business, broadly consistent with CPI increases, adjusted for the two non-recurring items on the left-hand side. As I did at the half-year results, I'd like to call out the small, yet prudent uplift in cybersecurity spend to operations and customers in an ever-involving cyber environment. Looking forward, we expect an uplift in operating costs in FY 2024, in line with CPI, plus the three key items highlighted on the right-hand side.
Firstly, we anticipate that the impact of increased competition and higher revenue from pricing outcomes will increase variable costs, such as net bad debt expense, as well as channel and marketing spend, coupled with additional costs associated with our customer support program. I'd like to emphasize, however, that our bad debt to retail market activity is broadly in line with FY 2018 and FY 2019. Affordability challenges arises, as Damien mentioned, our strong collections performance in recent years should position us well to manage this challenging period. The second item relates to the ongoing transformation of our business. More ability to deliver upon our ambition to add 12 GW of new renewable and firming capacity, the transformation of our coal-fired power sites into low-carbon industrial energy hubs, and the implementation of phase two of the retail transformation program, which is expected to be approved later in the year.
The last item relates to our continued investment to maintain the reliability, flexibility, and availability of our thermal generation fleet. It is imperative that we continue to invest in our cash-generating fleet to ensure we are available when the market and our customers need us most. Turning to CapEx, focusing on our FY 2024 CapEx forecast, marginal uplift in our thermal sustaining CapEx forecast. This is primarily driven by additional spend to strengthen the flexibility, availability, and reliability of our thermal asset fleet to support the energy transition. Approximately AUD 70 million commissioning of the Torrens Island and Broken Hill batteries.
As I mentioned at the Investor Day in June, in the near term, AGL expects to deploy up to AUD 1 billion over the next two financial years, focused on the development of the 500. As you can see from the gray shaded bar, we're forecasting to spend approximately AUD 200 million. Now, please note that this forecasted growth spend is contingent on a targeted final investment decision in FY 2024. As indicated on the right-hand side, medium-term assets is forecasted between AUD 400 -AUD 500 million per annum, which will fluctuate each year subject to asset management, the availability, and flexibility of the fleet. Additionally, customer-sustaining CapEx over the medium term is forecast to include 40 to figure ongoing spend on customer markets technology, plus one-off technology and transformation programs.
Overall, we are prudently deploying capital towards the transformation of our business, while options in line with our refreshed capital allocation principles. This investment in the transformation of our business is expected to amortization over the medium term. On the left-hand side of the graph, you can see that depreciation and amortization for FY 2023 was AUD 11 million higher due to the increased investment in our thermal assets and the earlier closure of the Bayswater, in line with our accelerated decarbonization plan, partly offset by the impairment impact resulting from this earlier closure date. In FY 2024, we amortization by approximately AUD 40 million-AUD 50 million, and overall, high depreciation and amortization expense over the medium term, driven by the accelerated closures of Loy Yang A and Bayswater, resulting in the shortening of the useful lives of these assets and reliability upgrades.
As expected, there will be additional depreciation from the investment in the Torrens Island and Broken Hill as well as the retail transformation program. Flow generation in the second half of this year, which lifted the full-year cash conversion rate, excluding margin calls above 80%, reflecting an improvement to 118% in the second half, in the first half. Pleasingly, we saw stability in the second half. Overall, of AUD 912 million was 26% lower than the prior year, driven by working capital outflows due to significant volatility and market price movements in the first half. Looking forward, we will continue to monitor cash conversion closely. Cash conversion will be impacted as our rehabilitation programs broaden over the next two to three years, and as we enter a period where revenue uplift and affordability pressures impact the market....
In particular, we call for an increase in working capital to support higher receivables, which is effectively a timing difference. We also note that rehabs in FY 2024, following the closure of the Liddell Power Station in April, as well as decommissioning, well plug, and abandonment works at Camden. Asha, our cash conversion rate, excluding margin calls and rehabilitation, was 86% for FY 2023. Please note that this will be the key metric that we will be monitoring and reporting going forward, that is normalized for lumpy nature of rehabilitation spend. We completed a successful partial refinancing of our existing debt and priced new long-term debt in the US private placement market. In the coming months, our focus will turn to refinancing our six maturities and targeting additional green capital.
In terms of rating and headroom, we have maintained our Baa2 stable investment-grade Moody's rating and hold a significant headroom to covenants. Additionally, our weighted average from 2.9 years to 4.3 years following the refinancing process. As at 30 June, we have a healthy liquidity position of over $1.2 billion of cash and undrawn committed debt facilities available, and our net debt was marginally higher, driven by the movement of margin call obligations. The borrowings component of net debt was broadly flat, which was a good result, considering the reduction in op spend on improving generation asset fleet of availability, flexibility, and reliability. Overall, our balance sheet is in a strong and robust position as we head into FY 2024.
Before I hand back to Damien, I'd like to reiterate our refreshed capital allocation framework, which we announced at the investor, includes a more flexible and sustainable dividend policy of 50%-75% of underlying NPAT, noting that our FY 2023 final dividend is based off the 75% of underlying NPAT policy. We believe this framework will help maintain our strong credit profile and enable us to continue to invest in our existing business, whilst allowing prudent capital allocation as we connect our customers to a sustainable future and transition our generation portfolios and importantly, drive strong. Thank you for your time, and I'll now hand back to Damien.
Thanks, Gary. Taking a closer look at market conditions, forward curves currently observable in the market for FY 2025 are broadly in line with FY 2024 pricing levels, noting that these are subject to market conditions and may change. Lies through a contract book comprising consumer, large business, and wholesale customers, as well as hedging arrangements in place. The two horizontal lines denote our weighted average wholesale realized electricity price across the portfolio for FY 2022 and FY 2023, and the broken orange line indicates our expected realized price for FY 2024. Through our prudent risk management approach, broadly speaking, the realized wholesale price for a given year should reflect the average of up to 24 months of forward prices preceding the start of the financial year.
Rate of business, we are well positioned to benefit from any sustained periods of strong wholesale pricing, supported by the Bayswater and Loy Yang A power stations, which are the lowest-cost base load generation, respectively, on a short-run marginal basis. I'll now conclude by talking to FY 2024 guidance and our outlook. As mentioned at the beginning, we've maintained our FY 2024 earnings guidance ranges, as announced at the Investor Day on the 16th of June. Expect a material uplift in earnings for FY 2024, based on the drivers you can see on the screen. Firstly, sustained periods of higher wholesale electricity pricing, which have been reflected and recovered in pricing outcomes and reset through contract positions.
Seeing the expected improvement of planned available fleet, including the commencement of the Torrens Island and Broken Hill batteries, as well as the non-reoccurrence of forced outages and market volatility impacts from July 2022, which total approximately a hundred-. As Gary discussed, this is expected to be partly offset by the closure of the Liddell Power Station and higher operating costs, mainly attributable to the four key drivers. First, higher revenue from pricing outcomes, increasing variable costs such as net bad debt expense and channel and marketing spend. Secondly, ongoing investment in growth and transformation of our business. The third driver being increased maintenance spend to improve asset-. Finally, the ongoing impacts of inflation we are seeing. Broadly speaking, we expect underlying net profitability for FY 2024 to be split broadly evenly between the two halves.
I'd also like to note we've certainly seen a warmer start to the weather in July, which has contributed to reduced gas consumption and low-. Thank you for your time, we'll now open to any questions.
We will now open for questions. To ask a question, press the star key followed by one. Can I please ask you to mute any other devices before asking questions over the conference line? We will take time permits, we will circle back for any further questions. First question comes from Tom Allen with UBS. Please go ahead, Tom.
Hi. Morning, Damien, Gary, and the broader team. I was just following your comments at the end on the outlook, where you've guided that average futures prices over two years will set AGL's average realized electricity portfolio price, liquidity in the current New South Wales futures for mid-calendar year 2025, which would reflect the potential closure of some capacity from the Oraring Power Station. Towards the end of this calendar year, as futures move into that 18 month liquidity timeframe, futures should better reflect that possible market event?
Let me, let me try. What we're trying to do in that chart is demonstrate where we see the forward prices between 2024 and 2025. Clearly, what we're saying right now, they are consistent. There's a long way still to play out over the next year. You know, clearly, you know, huge number of factors, whether it be weather, plant availability, and so forth. What we're trying to do right now is stay consistent between the years, is, is what that chart's trying to do, and we'll continue to monitor that as we go. The other thing I'd say is we have seen, you know, as you saw my comments towards the end there, lack of volatility in July. We've seen a much warmer start to July, and that's
Okay. Then given AGL's reported really strong performance over the second half in the gas portfolio, how should we expect the gas portfolio margin to perform into the near future, particularly if you partner with an LNG import terminal, as you noted at the June Strategy Day, where you're bringing in higher-cost gas to the portfolio?
Yeah. So for, for 2024, there is, is clearly no LNG in the portfolio for 2024. We've of gas with Exxon, CNX, Cooper, for that sort of outer years, which is gonna be important to support our customer base. What we hear just gone is, you know, the team's done a huge amount of work to improve our haulage, our haulage costs through optimization. We also saw in the retail space, higher customer numbers and a colder winter. Then the other thing I would just say is what we saw was long in the market, where we saw oil prices rising, so we saw a benefit there as well.
Thanks, Damien.
Thanks, Tom Allen. Next up, we have Dale Koenders from Barrenjoey. Go ahead, Dale.
Morning, Damien and team. Just coming back to the electricity price commentary for slide 25. Am I right to assume that if the forward curve doesn't change and everything else all equal, what you're inferring is the, the flat in '25 on '24 just purely for electricity prices?
Let me make it really clear on this call. We won't be giving 2025 guidance. What we're just trying to show is, at the moment, what we are seeing is consistency between those forward curves. Huge amount still to play through over the next 12 months.
Okay. Thanks. Then comment that you said to that the milder start to winter, reduced gas consumption. Is that a headwind to FY 2024 guidance, or is that really taking away from the top end of the range at all?
Look, it, it will ultimately depend how the whole year plays out. I mean, what the reason I'm calling it as I am now. Yes, we had saw lower gas volumes, so yes, that is a small headwind, but through summer. If summer becomes a very hot summer, as is being predicted, then, you know, that could be the other side, the upside to it. Again, very early in the year, I wanted to call it. I think we've all seen the warmer start to the year. You know, we'll continue to, you know, utilize that gas across our portfolio.
Okay, thanks so much. I'm back in the queue.
Next up, we have Anthony Moulder from Jefferies. Go ahead, Anthony.
Good morning, all. I just wanted to ask about retail 23. That churn remained low relative to the market, but wondered if you'd start to see the retail market becoming a bit more competitive, given that wholesale pricing consistency?
Jo, you want to take that one?
Yeah, sure. Yeah, look, we certainly have seen, last few months, and I think particularly in response to recent price increases. What I would say is that's not unexpected or unusual. We've planned for that, we place, and we do expect that to stabilize as, as we move throughout the year.
All right, thank you. If I can still one more about coal flexibility. Obviously continuing to invest into coal flexibility this year, but I wondered where your emphasis is now already in place?
Mark, do you want to take that one?
No, I think, you know, we will further test, particular, the min generator and also of Loy Yang. We will check what kind of additional investment we need to do in order to even lower and maybe get another 400 MW generation. It's also fair to say, with the closure of Liddell, I think, some of the generation which we are lacking in New South Wales, there may be also a bit stronger running of Bayswater, so we have to see how the market plays out. Today is a typical case where we have all around min generation, our fleet at Loy Yang, at Bayswater.
It's, it, it's fair to say you'll continue to see that, the, you know, the benefit of us doing that, and that's why very deliberately, we had that slide in there. You know, Bayswater 45% and potentially take Loy Yang to another 50 MW a unit is the work that we're doing. Largely the spend has been done. It's now continuing to optimize in the market.
Understood. Thank you.
Thanks, Anthony. Next up, go ahead, Mark.
Thanks, everyone. This year, you provided guidance for 2024 in June. Typically, you've, you haven't provided guidance until August, so it's sort of three months early. How conservative or otherwise you've been with that guidance provision and where what areas of the business could result in risks to the upside or downside in terms of fiscal 2024 numbers?
Yeah, sure. Thanks, Mark. Look, you're right. We haven't provided guidance that early in the past. We had Investor Day, was the rationale for doing that. Clearly, we provided a broader range in the guidance to allow for the potential ups and the downs. You know, what I would say is, you know, the key factors for me when I think about performance of this business will be, you know, one, plant performance, and again, we've seen a real positive step up, and we're, we've planned for further step up in availability over the course of this year and then over the next three to four years. Weather will play into and in summer, you know, so again, there's, there's lots of commentary around where the weather is, and where the weather will be for summer.
That will be obviously, you know, will play a part as well. Then I would say, as one of the earlier question, just around market competition, you know, we are well placed, as Jo said. We've planned for this. We expected this. We've seen it in the past. We've got a lot of proactive measures underway to manage that. They're the three key drivers in terms of the positives and the negatives.
Okay, specifically, have you, have you allowed for planned outages that you generate a fleet?
Oh, look, we always have an allowance for unplanned measures. I might get Markus to talk to how we think about that across the fleet. Yes, we always have unplanned outages, forecasted. Markus, you want to talk to that?
Yeah, I think we have always assumed sectoring in our budget and then also in our guidance. I think that's included. I will not contemplate now the number, but there is a provision in for forced outages. This is related to historical performance, and I think that's what we are factoring in.
Okay. If I could just sneak in a really quick one. How much of your electricity?
You should assume that maybe around the level of 10 TW hours is not sold.
Is not sold. Okay. Thank you.
Thanks, Mark. Next up, we have Gordon Ramsay from-
Thank you. Just a question on CapEx outlook. If you go ahead with the Liddell Battery, you've indicated that you could spend AUD 200 million in FY 2024. Does that imply the spend in FY 2025 would be AUD 800 million?
Let me just take that question. Will it be AUD 800 million with total cost? It wouldn't be up to AUD 800 million. No, it wouldn't be that high. I think AUD 200 million in this year and then a further maybe, you know, we'd be looking at. Again, we haven't got to FID on that number yet, and then that might spread across the years. We'll come back once we hit FID on that battery.
Okay. Because I think in the, in the commentary, you said you expected to deploy up to AUD 1 billion over the next two financial years.
that's, that's not-
On the battery, that's why I made that-
Oh, yeah, sorry. That's not just on that battery. It's across the breadth of what we're doing in the market in terms of that growth and whether we bring on any other batteries over that period of time as well, but 800.
Okay, thank you. Just lastly, just on variable costs, you're saying that they will go up on the back of net, net bad debt expense, channel marketing, and additional customers, customer support kind of evenly split, or is one higher than the other, just in general terms?
Net bad debt expense would certainly be higher than what we call customer market activity. At, at the organization, when we go back to sort of 18, 19, where we saw market activity, you know, on, on the back of pricing, we saw the debt rise at the same sort of % level as, as revenue. Which across the revenue, that's the sort of lift you'll see. From a market activity perspective, in our forecast and in the guidance we've got today, we are assuming, because of market activity stepping up, we'll have additional spend to manage that market activity.
Okay. Thank you very much.
Thanks, Gordon. Next up, we have Rob Koh from Morgan Stanley.
Good morning. Thank you, and congratulations on the result. I'm just looking at your 31, and just looking at the provided costs for Loy Yang A, which seem to have gone up about AUD 1.2 billion year-over-year in real terms. Just wondering if you could give us a bit of color on that one, please?
Rob, let me take that one to start with, then I'll hand over to Gary. I'm not sure where the 1.2 has come from. We did increase the rehabilitation by bringing forward the closure dates at the half year, so that certainly happened. I might need to take on notice, unless you've got it in front of- Certainly, the rehabilitation did go up, and we did that at the half when we brought forward Loy Yang by that sort of 10 years. We also saw back then, when we looked at it, we had a look at, you know, because of the change of, of the way the mine would operate, that also increased the rehabilitation, that space as well. Again, that way I can, Rob, and come back to you on that, on that number. Gary?
Yeah, I don't have too much more to add to that. There's obviously nominal and real dollars in there as well, Rob, but there's obviously impacts on discount rates, as well as the actual cash flows and the shortening of the life of those assets and the impacts on rehabilitation as well.
Yeah. Yeah. Okay. Thank you. All right, and then, my second question, I guess, when you gave us your new flexible, DPS, policy, but, you have a, a payout range, 50% to 75%. Just wondering if you could elaborate on what are the kinds of things that, that would higher end of that DPS range? A nd, if you've got an eye on progressivity and, and things like that, please.
Yes. Obviously, the historical dividend there, Rob, was 75% of underlying NPAT. Obviously, today, we've announced an increase on the actual size of that dividend compared to the prior year. It was important, as part of the transition that we're going through, where we'll be deploying between AUD 8 billion and AUD 10 billion between now and 2035, that we retain as much flexibility on our balance sheet as possible. As a result of that, we thought it was prudent to have that 50% to 75%. It really will depend on what we're looking at that at that point in time throughout that transition, where our balance sheet is sitting, how our cash flows are looking, how much we're gonna need to deploy in the following few years.
We'll always make, you know, decisions that are in the best interests. Having that range gives us flexibility to make sure that we're, you know, looking at both our shareholder returns as well as deploying that capital back into the transition.
Cool. Thanks. Sounds good. Appreciate it.
Thanks, Rob. Next up, we have Ian Myles from Macquarie. Go ahead, Ian.
Hey, guys. One which, looking back to FY 2022, your CapEx sort of, maintenance applied closure of Loy Yang was gonna reduce the expense, expenditure. We now come to FY 2023, and it would appear that your CapEx spend is actually, or that maintenance level is probably AUD 50 millionto AUD 100 million higher. I was just wondering if you could give us a bit more color on what shifted your thinking over the last 12 months that you're gonna have to spend to keep them operating?
Yeah, Ian, I'll, I'll come back on your first part of your question. In 2022, we didn't have any CapEx related to Liddell. That was all through OpEx because of the closure date. Anything we would've spent would've gone through OpEx there. In terms of the spend today, and I'll get Markus to sort of go a bit deeper, but, you know, we have been spending AUD 100 million around both availability to ensure the plant is up, and Markus spoke to that at Investor Day, but also the flexibility, that's where that spend's been. I think going forward, it will continue to be around ensuring our plant availability is up where we need it to, and therefore, continuing to hit that target by 2027 of 88%. Markus, maybe just talk to, you know, some of the...
I think, Ian, I think we wanted to minimize, and I think we were successful, to minimize the derates of our power station because we had quite some issues with mill, with precipitators, and so on. That was one root cause where we said we have to invest more in this space. Also, I think with supply chain issues, we wanted to stock on spare parts at our sites. Particular, I think at the moment we have two rotors in Germany and one for refurbishment. I think we want to have our clear target and what you see also next year and the years after, we want to increase our equivalent availability factor. This has led to a decision that we want to invest more.
It should generate a positive NPV, and that was the main driver.
Nicks, as a longer-term perspective, do you see maintenance CapEx across the broader business as sitting at that sort of AUD 550 to AUD 600, or are we, like, are some of these things just temporary, that it goes back down to maybe a lower number?
I think while the key plant is in place, you know, those, those assets, both Loy Yang and Bayswater, while that key plant is in place, that's the sort of level of spend, that AUD 400 tp AUD 500 million. We'll continue to update the market each year, because the other thing that changes, Ian, is depending which years you're doing your major outages and where those outages are falling. Sometimes it can move between the years. Recently, looked deeply at the, you know, the plant availability, plant maintenance in the run between now and when we close the plant. Again, we'll optimize that to ensure that those major outages, when they're happening, you know, are done at the right time so that when, that, you know, you're not overspending it closer.
Okay. On the consumer side, you sort of flagged 40 tp 50. Is there any risk that actually starts to go higher, in the sector as more technology is being implemented, to engage consumers?
I think over time, Ian, we'll probably see more of a shift to OpEx. A lot of the future platforms are, are more SaaS provided solutions. Yeah, over time, I think we'll see more of a shift of that sustaining CapEx come down and, and, and increase to OpEx.
When that does happen, Ian, and when that switch is happening, we'll obviously provide an update in what's happening there. I think the other piece that we're obviously looking at and flag through here is, you know, the next phase of the retail transformation. That's something we'll update the market on, on over the next 12 months as well.
Okay. Look at that.
Thanks, Ian. Next up, we have Reinhardt van der Walt from BAML. Go ahead, Reinhardt.
Good morning, folks. Thanks for taking my question. Just got a question on retail comp-- Is this... You mentioned that, you know, it's a, it's a challenging or normal kind of tier one retailer competition, that we always see, or are we talking about smaller retailers maybe, becoming more competitive in the market? I suppose related to that, are you expecting this kind of very limited discounting to the DMO to continue into FY 2024-2025?
It's been quite an interesting, competitive market over the last few months, particularly since July 1, you know, price reset. We've seen a really broad spread in discounting across the market, and it's been very dynamic, with offers changing across retailers. I would say, though, in the last week or so, it's started to stabilize. We're still seeing a couple of outliers, tier two retailers discounting quite heavily, but as we did anticipate, there seems to be a bit more headroom in Victoria than in the DMO states. And yes, as I said earlier, it is, it is really normal around the time of price change to see a lot of activity. This is very similar to what we saw in 2018 2019, when retail prices were high and we, you know, we have our customer support package in place.
We're driving that really hard, along with retention, to stabilize in the next couple of months.
Got it. Thanks, Jo. That's very helpful. Can I just check that big discounting that we're seeing in, I think, almost about a 20% discount to the VDO there, and I presume that the likes of EnergyAustralia would also be discounting similarly. Is that just because of the sort of early, relatively flat generation cost curve in Victoria, or, or what's driving that increased discounting?
It's, it's really just the competitive market, at, at that, place at the moment. You know, we see that change throughout the year, depending, depending on competition and what campaigns retailers have in place. As I said, we did see a, a little pricing than the DMO.
Got it. Perfect. Thanks a lot.
Thanks, Reinhardt. Next up, we have Tom Allen again from UBS. Go ahead, Tom.
I'm gonna take another question. Just thinking about AGL's return on capital employed into the future, can you provide some color on whether reinvesting in those sites with big batteries can materially reduce the liabilities against those sites? Whether there's an opportunity to outperform AGL's current decarbonization path with a staggered retirement plan that see emissions at those sites as batteries are installed?
At first, I would like to say, yes, we try to optimize our rehabilitation, but, you know, we will not-- that will be not change, fundamentally our re-rehabilitation obligations. I think a typical example, we are looking to, plant on our ash dams at Liddell, but, you know, still, you know, the ash dams have to be, at a certain point of time, rehabilitated and so on.
Yes, we try to optimize the rehabilitation, but at the end of the day, there will be slight savings, but not, not, not, not huge savings.
I think the other thing, Tom, you've probably heard us say before, we'll continue to optimize that. You know, what we saw, you know, Liddell as an example, you know, the scrap value of steel right now, it makes sense for us to go as quickly as we can, because scrap metal prices are almost going to offset some of that demolition cost, as an example. We'll continue to optimize rehabilitation. It is a big spend for this organization. We have a large team that is working on Liddell, and we'll continue to drive that across the org.
Thanks, folks. Just on the second part there, about the opportunity to outperform the decarbonization path by taking individual units down as batteries are installed?
I think we are speaking about different things. For me, batteries are providing firming and flexibility. Our thermal general energy, yes, there will be a bit of portfolio effect between these different generation assets, but I don't believe that at the moment into the grid is replacing our base load generation.
Thanks, Markus. Appreciate it.
Thanks, Tom. Next up, we have Dale again from Barrenjoey. Go ahead, Dale.
Hi, guys. Thanks for the second question. Just, I guess, digging into the details on the, the strong performance on customer margin through the period, which you've called out. Just wondering if you could provide more detail on what that specifically means, how sustainable you've assumed it will be into FY 2024 guidance, and what's the opportunity to sustain it longer term?
Thanks. Yeah, thanks, Dale. Yeah, look, we were, we were really pleased with that result, and it's a combination of improved margins on the energy side and through our growth businesses. I would say, you know, we, we were coming off years of, you know, quite low retail margins level, and it's been through a combination of a focus on increasing customer lifetime value, as well as continued growth in customer services. We do definitely see this as a more sustainable level.
When you say services, bundling in with, with EVs, demand management, everything else that's likely to continue going forward, or?
Yeah, absolutely.
Just some tangible examples there.
Yeah, and also just overall, growth in energy services throughout the year. We saw, you know, an average increase in services throughout the year, increase in some demand through gas, as Damien mentioned, and as well, value management through the portfolio in our recontracting strategies.
Just the other add, maybe I'll to Dale, that is we're really happy about some of the growth businesses continuing to improve in that space around telcos or commercial industrial business. We saw that step up through the year. That's, again, where we'll continue to drive the growth through Jo's area also.
Okay, thanks.
Thanks, Dale. Next up, we have Max Vickerson from Morgans. Go ahead, Max.
Yeah, thank you, guys. Just wanted to ask about electricity prices again. Volume weighted, do you might look? I think you gave the time-weighted number in that, that slide. Then just secondly, I appreciate New South Wales and Victoria are probably your biggest markets, and don't want to be too prerequisite here but given you're talking about the summer outlook, how are you positioned in Queensland?
Max, your first part of your question broke up a bit. Others didn't also. Could you just repeat the first part and then I'll... I've got your second part of your question.
Yeah, sure. Sorry, Damien. Just curious to know how the volume-weighted view on futures would look. I think you gave the time-weighted view on your, your slide there. The FY 2024 probably is pretty solid, but just curious to know how FY 2025 looks, is there a difference between time, time-weighted and volume-weighted?
Markus, have you got a view on that one you can, you can talk to? If not, we might take that one offline.
He takes it as well.
We'll take that one away, Max, and come back to you. In terms of... Just remind me again, your second part of your question. That was?
just about later, maybe other states, particularly-
Yep.
if you're looking at a potentially warmer summer and the...
Yep.
The GOCs up here don't have a great performance history. I just wanting to know how you're, how you're covered.
Yeah, look, we are, if I think about the Queensland as from a customer point of view, we are well positioned there from a supply perspective. We've obviously got both Cooper's Gap up there and other contracts and financial arrangements in place, Queensland comfortable there. On an SA perspective, that's the other thing, state I think you mentioned. We've obviously got the portfolio of assets down there with both, you know, Barker and La Paz station, and we're going to have the Torrens Island battery coming online as well. Obviously, you know, eventually, the interconnector will come through.
Then if I think about the volatility, I think, you know, over summer for our plant is up over that period of time, and, you know, continuing to, to, to, to drive that availability of plant over that period. You know, ultimately, it will come down to just how volatile, you know, that summer. It's not necessarily one warm day, it's a number of warm days that normally create the, the issues.
Max, coming back to your question, it's a time-weighted price.
Did you hear that, Max?
Yeah, I know. I, I got that. I was just wondering if the volume-weighted number might be different to the time-weighted, but that's, that's okay.
Okay, thanks, Max. Next up, we have Reinhardt again. Go ahead, Reinhardt.
Hi there, folks. Thanks for the second question. Just very quick ones. Just on battery EPC costs. I know 6 to 12 months ago it was around quite a fair bit. Have you seen pricing stabilize a little bit in recent months? Then just, just a quick second question. I know it's a while away, Bayswater Coal recontracting, when do you think you're going to go into the market to, to start doing the work on, on recontracting coal?
Maybe let's start with the first one. I think, yes, you are fully right. EPC contracts or EPC pricing for batteries have stabilized, so maybe even slightly decreased compared to the hype which we have seen before. The second market, to look for opportunities to recontract or to looking who can offer, what is the competition in the market? What is the pricing? What is the flexibility in the contracts? Yes, we are already there.
Got it. Thanks, Markus.
Thanks, Reinhardt. Lastly, we have Rob Koh from Morgan Stanley. Go ahead, Rob.
Hello again. Thank you. I'm just looking at the remuneration report and just noticed the long-term incentive, the target includes a 30% weighting to the Climate Transition metrics, one of which is a gigawatt deployed type metric, which is obviously linked to your installation targets. I'm just wondering how does that work? Is that based or and how does the return on investment flow through to that, please?
Yeah, thanks, Rob. What, what you, what you can see there, there from a LTI perspective, we increased the component linked to, if you like, the transition to between emissions, between deployment of assets, as you said, and also, you know, those, those assets under management. When you think about those assets we deploy, clearly, you know, it won't be anything that doesn't meet the required hurdles of this business, so it will always be hurdle-driven. It won't be us simply deploying assets into the marketplace, and obviously, when we come out with FID at that point as to, as to those assets.
What's important is, for us, is about building both our pipeline, a pipeline of assets over, over the coming years and continue to develop that out, but then actually seeing the reality of that pipeline being delivered into the marketplace.
Is the criteria is FID or being in-
Yes, operation. Thank you.
Okay, great. Thank you very much.
Thank you, Rob. As there are no further questions, this concludes our question and answer session. Thank you all for joining.