Welcome, everyone. I'm Mike Fuge, I'm the CEO of Contact Energy. A very warm welcome to you to Papamoa. For those of you who have traveled far, in fact, I think just about everyone has traveled, thank you for making the effort to be with us today, and I hope that you find over the day that you find some interesting things out about us and our ambition for the future. A warm welcome also to those online. We are being live-streamed. The usual disclaimer, I won't read it in detail, just take it that we have plausible deniability on everything we say. You can take the beautiful slide pack that's been prepared as absolute gospel.
Agenda today, first part of the morning, there's myself, and then Chris Abbott, our Chief Corporate Affairs Officer, is gonna get up and tell us a little bit about himself, but also the journey we're on around decarbonization, which is so important. Chris has been in the role almost 2 years now. Hails like myself from Te Tai Tokerau, the north, which don't hold that against either of us, please. Has certainly made an impact in his role, and we look forward to his contribution. Beyond that, Philip, part of one of the authors of the now famous or infamous BSW report.
After morning tea, we're gonna get probably into the meat and veggies of the presentation, with Brynjar and Dorian, the fireside chat, with Andy and Nathan from New Zealand Steel. Welcome. Jacqui, what she's doing in the renewable energy space, and then we'll have some breakout sessions to talk about wind and solar. Matt's gonna tell you what we're doing for ordinary Kiwi families, in the customer space. And then Louise and John are, and Jan and Chris and Ty are gonna talk about how we enable those things to happen, how we keep, or they keep the wheels on the business as we do transform. And then Jack's got a bit of a story to tell around major projects, which is wonderful. Welcome, Jack.
Dorian will give you a bit of a overview on what all that means with financial. Okay. First of all, welcome to the team. I mentioned most of them as we went through. John, I probably didn't mention, John Clark, Chief Generation Officer, source of 80% or 90% of our revenue, so a very important individual. I think everyone else, Matt, Ty, Dorian, Jack, Jan, Jacqui, Chris, the team have been embedded now for the most part, two years. They're well-established, and as you'll see today, they're really starting to kick and go. We're delighted for you to all have the chance to get alongside them during the day, and this evening, just to pick their brains about where they see the future.
We're on track to deliver our promises. One of the things about Contact Energy is that the profitability from our existing asset base has lifted from what we had advised, three or four years ago, at NZD 480 to around NZD 550. We expect this year to land at around NZD 530. We live in very unusual times with the North Island hydrology sequence, unprecedented in recorded history. What that means is that with an average in the South Island, exactly average, as Matthew Forbes keeps reminding me, that will lead to one of the highest post-market years for the national hydrology. What that leads to is some very interesting conditions, lower wholesale spot prices than what was anticipated by futures.
Lower thermal generation and higher price separation, but we have been able to deliver higher retail channel yields. It's actually a bit of an interesting conundrum, because what we've experienced over the last six months is what the country is going to look like when we do reach 95% renewable. We are cutting new ground as a nation, in the way the market behaves, and so the conditions we see, and both the incredible volatility we see, but also the value of firming when it's needed, is one of the conundrums which has been coming out loud and clear in the last two months in particular. It's worth all of us just being a little bit curious about what these conditions mean, because it is a harbinger of things to come. Look, FY23, big year.
Final investment decision on Te Huka 3, our cheeky little binary, as we call it, that Jacqui and the team got underway, and Jack has picked up. Took FID on that. You'll see some of the site today, that's progressing really well. The Growing your Whānau Policy, market leading, in the war for talent, we just saw that as an incredibly significant step forward. We've joined the DSI, we got in with style, panache, number two in New Zealand, and we will continue that journey. Tauhara, you'll see today, that 94%, that's a little bit out of date. Well, you won't wander around the site today, it's pouring with rain. It is progressing well.
We have learnt a lot on the way, we'll take that journey as it comes. Selected from a standing start to build New Zealand's biggest solar farm at Kōwhai Park, Christchurch Airport. Energy Retailer of the Year. Got the resource consent for the Wairakei field for the next 35 years. That's a huge testament to the good relationships we do have with iwi and the hapū groups here, and to the contribution they bring. I do want to acknowledge that. There is a very pragmatic attitude to what it is, a valuable resource, and how that is developed for the benefit of Aotearoa. The $550 million of green bonds and launching the EV owners Dream Charge.
There's a few more surprises along the way today, but we'll let those come out as they come out with the speakers. We've deepened the execution of the strategy, and grow demand, grow renewable development, decarbonize the portfolio, create outstanding customer experiences, with the key enablers of the ESG, operational excellence, and transformed ways of working. It's one thing to talk a good story, it's quite another thing to walk it. You particularly see this with development pipelines, or vaporware, as they might call it. What you'll see today is real. It's a lot of hard mahi to get a program of NZD 1.1 billion of investment underway. Another potential NZD 1 billion in the pipeline, to grow our renewable output by the equivalent of 3%-5% of New Zealand's total electricity demand.
It's not a promise, it's not a handshake with a farmer. It's real, it's consented, and it's underway. I do want to talk about some of the challenges that that means. Because what that comes down to is culture. I want to spend a bit of time around this, about the journey we have been on, because as part of our transformation program, we spent a lot of time around the mechanics, like, do we actually have the resources to execute this? Can we actually build the execution muscle? One of the things that Tararaina Te Hana 's husband, as well as gifting us Tarea, as our Head of Corporate Relations, he also gifted us a whakataukī, which you'll know a Whakataukī means a saying. A whakataukī is a saying, of course, written for us personally.
What it says something like this, "mau taniwha, mau tūmatau, mau te rongo, mauri ora" and very politely, it was translated as, "mau taniwha, harness the energy." I don't know many of you that grew up in rural New Zealand, but I grew up thinking the taniwha genuinely was a monster in the river, and it scared me shitless. What mau taniwha actually means is actually, "Front up, face it. Don't ghost it," as the kids do. "Don't pretend it's not there, and, 'Oh, golly gosh, we finished the project, and it's double the cost, and we're 6 months late or 1 year late.' If you can't do it, front up, face up, grab the monster by the tail. Step 2, mau tūmatau. Be persistent, don't give up. Keep working it. Don't lose your backbone.
mau te rongo, because eventually you will get into clear blue air. You will arrive at a place of clarity. mauri ora, and you'll have a good life." Just to give you an example, and Jack will go into this even more, we set out 2 years ago or 3 years ago, ambition to grow renewable development at Contact Energy. Oh, it's going to be easy. You just get a few contractors in, they know what we're doing, we shove out the money. Easy. Bullshit. Look, after 10 years of no major capital project activity, we had run very mean and lean, and we'd lost the muscle strength and the capability. We believed that we could contract out that capability, and the reality is you have to do the opposite.
You have to be really interested in what people are doing when they're building stuff. Because if they come back from a day, a 12-hour day, and they have not achieved the things they were meant to be achieving, if they didn't have the materials, if they didn't have the drawings, if someone got in their way, your job is to get those things out of the way the next day. Not the next week, not the next month, the next day. We've had one or two setbacks, we've had COVID, we've had weather. Jack's going to talk about that. You might have seen some of that on the video. They've faced into it. They have faced the taniwha, and they have been persistent, and they are getting to a place of clarity.
With the plans to deliver the new asset classes, you can take that culture that we have developed, which is based around that Whakataukī, that will continue in the go forward. Yes, we've had setbacks, but if you face into those setbacks and taking action to make sure that we dealt with them, and when we didn't know how to do things, partner. Adam's in the room. Welcome, Adam. On solar, we all thought solar was gonna be easy. Well, how hard can, you know, couple of pegs in the ground, a few panels from China, off you go? No, it's not that easy. Where we didn't have the capability, we partnered. We've got Roaring Forties in the room as well. They'll be up on stage later. Welcome. We aligned the organization to that portfolio growth....
If you are persistent, good things happen. That is a fundamental belief we have. Tauhara, when we started, 152 megawatts, 1.2 terawatt hours of output, NZD 680 million. Yes, the cost went out, but what are we delivering today? Between Tauhara and Te Huka 3, 225 megawatts, 1.9 terawatt hours. Tauhara will be on stream before the end of this year. Te Huka 3 will be on stream by the end of the next calendar year, and the team are getting ready to take FID on GeoFutures, the Wairakei replacement. And that learning and that ability to front up to the monster, to actually tackle it head-on, has paid real dividends in shareholder value. And now, look, we're not stopping there.
We have even greater ambitions, I just want to run a few of these, which are important for today. When this company was founded, we emitted 2 million tons a year of CO2 Scope one, two, and 5 million tons a year of Scope one, two, and three. Where we stand today, we emit between 600,000-700,000 tons a year of CO2. By 2027, we'll be down to 300,000 tons a year. We think we might have a way through another 200,000 tons of that. We haven't done any dodgy financial instruments. We have not peeled off the dirty carbon emitting parts of our portfolio. We have faced the monster. Yeah?
I pay tribute to those that have gone before me in fronting up and not running away or turning away, but actually fronting up and tackling this issue of climate change and carbon emissions. We will grow demand, there's three things here. There's the 100 megawatts of new demand. We have a fundamental belief that electricity is the fuel of the future. We have a fundamental belief that New Zealand has a fantastic undeveloped pipeline of renewable energy, we believe that we have the ability to help New Zealand industry and ordinary Kiwi homes decarbonize through adopting electricity as a fuel. We will reach 100 megawatts of demand flex, the other part of that is demand response. Demand flex, we participate in the reserves market. Demand response is when you respond to fluctuating market signals on the prices.
We will get a new green chemical channel established by 2027, and Dorian will talk a little bit about that soon. Renewables, 10.3 terawatt hours by 2027, from geothermal, first and foremost, but solar and wind. When you see us in 2027, we've gone past 10.3 almost by accident, because by then, we'll be looking at Tauhara South. We will be looking at further wind and solar because our ambition doesn't stop in 2027. We will have a battery up and running. The customer, we will be cracking on towards 700,000 customers. Cost to serve a global benchmark of NZD 80 a connection, which when you convert to EUR or USD, converts very nicely to what the best in class are achieving.
We will have grown the EBITDA from the non-energy lines of business adjacencies. We will be top quartile for sustainability in the business. We have fought hard for that position at the top of New Zealand listed companies. We're not going to give it up easily. The ambition is to go beyond Australasia and beyond to become world-leading. With that, I'll hand over to Chris. Thank you.
Cool. Thanks, Mike. Kia ora koutou. Ko Chris toku ingoa. He Kaiwhakahaere Matua o au i te Matahiko. Good morning, everyone, and thanks heaps for coming to Taupō today. My name is Chris Abbott. I'm the Chief Corporate Affairs Officer, and I'm privileged to lead our sustainability and ESG practice. As Mike's just talked through, one of the four pillars of the Contact26 strategy is to decarbonize our portfolio. I'm pleased to say that we've made considerable progress in the last 2 years, which we'll outline today. We've also accelerated our ambition to decarbonize the generation portfolio. Contact's renewable generation output will increase, as Mike mentioned, from 87% in FY 22 through to 95% in FY 27.
We now have a clear path that will allow us to achieve net zero emissions from our energy generation, scope one and scope two, by 2035. When we set Contact26 strategy, we said that we'd decommission the Taranaki Combined Cycle Plant, otherwise known as TCC, which is base load thermal generation. We've confirmed that TCC will run its remaining operating hours, but we're not going to invest any further, in any further upgrades. The confidence to retire TCC, is a result of new renewable investments such as Tauhara coming on stream. Secondly, we said that by 2026, we would reduce our greenhouse gas emissions by 45%, using 2018 as a base year. We're on target to exceed this goal. Our gross emissions will reduce to less than 450,000 tons by 2025.
Contact Energy, we were the first New Zealand energy company to set verified targets using SBTI or Science Based Targets initiative framework. We originally set our SBTi target at, sorry for the numbers, 648,000 tons of CO2 by 2026. Our current trajectory will exceed our SBTi reduction target by 200,000 tons. Our third ambition, which is shown in yellow, amber on this slide, was to move thermal generation assets into an aligned industry business model to support New Zealand's collective ambition for a fully renewable energy system. Our proposal was to establish an industry-owned ThermalCo, which would take a coordinated approach, bringing together the industry thermal assets. It would deliver an efficient, low-cost transition while minimizing market volatility.
Unfortunately, while there was significant interest in ThermalCo, ultimately, the proposal hasn't got legs and hasn't progressed because of limited industry appetite. As a result, Contact will continue to own and manage our thermal assets, which allows us to optimize our portfolio performance and continue to play a key role in security through the energy transition. It's 2 years since we set the Contact26 strategy. I just want to talk you through our thinking and how it's developed. We remain confident that thermal substitution strategy is the right one, and it's necessary to manage the energy trilemma, the so-called 3-legged stool of affordable, reliable, and renewable energy. The government has set ambitious climate targets to meet New Zealand's Paris commitments, and the emission reduction plans have bilateral support across political parties.
This includes a target, 50% of all energy consumption is sourced from renewable electricity by 2035. That's a significant increase from 28% today. Similarly, all political parties recognize the key role that electricity will play in decarbonizing sectors, including process, heat, and transportation that Dorian talked about earlier. While supply shocks, COVID, and inflationary pressure continue to impact the economy, the government's fundamental direction on sustainability and decarbonization has not changed, and similarly, nor have Kiwis. These challenges are impacting the medium-term outlook for thermal generation, and it reaffirms our strategy of sensibly decarbonizing generation portfolio as the right one. At the same time, we're seeing increased volatility around carbon prices.
You would have seen it declining recently under the ETS, with the government setting aside Climate Change Commission advice and announcing a review of the ETS, which they are seeking basically to politically moderate the short-term impact of market-based carbon pricing. At the same time, in the market, we're also seeing constraints in gas availability, including gas field declines and volatility in storage facility. As a result of this, the marginal cost of electricity generation now sits around $150 per MWh, which is above our long-run wholesale price expectations with the investment in renewables. Again, kind of supports our premise that rapid and orderly exit through thermal generation and accelerated investment in renewables is the right approach. At the same time, there's an ongoing focus in government around the security of supply and a fully renewable energy system.
The Electricity Authority, industry, and government are exploring how to address these issues. This includes the nature of intermittent generation for wind and solar. The so-called Dunkelflaute day is delightful German term, which basically means a dark, windless day where wind and solar don't generate, pretty much like today. After two years, we remain confident, despite changes in the environment, that the industry will solve the transition challenges without need for government or regulatory intervention. Decarbonizing our portfolio in a rapidly changing environment continues to be the right one, not just for our Contact's business performance, but also for New Zealand's wider decarb ambitions. We've got a clear path now, over the last two years to fully decarbonize our generation. In Horizon One, our focus has been removing base load generation.
We will remove all base load generation with the closure of Te Rapa Cogeneration in the coming days and a decision not to invest in TCC and run out the remaining operating hours. We will continue to own and operate our existing thermal peaking generation, which can fire up quickly to meet urgent short-lived peak demand. In Horizon Two, our focus then turns to solutions about how we wean ourselves off and ultimately retire our remaining thermal peaking plants. We'll achieve this by four solutions, which the team will be talking about today. The first is demand flexibility, which works to flatten the demand curve at times of peak demand, where thermal peaking is currently necessary. And a great example is the recently announced New Zealand Steel deal, which will be talked about in more detail by Andy and Nathan later on today.
Secondly, grid-connected batteries store electricity off-peak and release during periods of peak demand, similarly reducing the need for thermal peaking, and we expect to make a final investment decision on battery storage in 2024. Thirdly, Jack and Jacqui portfolios with our current renewable development investments at Tauhara and Te Huka, coupled with a significant pipeline, which Jacqui will be talking to you across geothermal, solar, and wind.... will increase, as Mike mentioned, our total renewable portfolio will be 10.3 terawatt hours by FY 2027. Finally, Matt will talk this afternoon about retail innovation, including products such as Good Nights and Dream Charge, which incentivize Kiwis to use off-peak power, flatten peak demand, and ultimately further reduce the need and wean ourselves off faster thermal peaking.
By FY 2027, we forecast greenhouse gas net emissions from our electricity generation will reduce to 300,000 tons. If we consider the closure of Ōtahuhu in 2015, closure of Te Rapa in the coming days, and the retirement of TCC, our generation emissions will have reduced by more than 70% in a decade. That's quite impressive, in my view. This puts us well on track to meet our 2035 net zero ambition. In the coming year, as mentioned, we'll progress investment decisions around additional carbon capture, which I'll talk to in a minute, capture and reinjection at our geothermal stations, and also expect to make a final investment decision for a grid-scale battery. As Mike mentioned, we were also really pleased to be part of the Dow Jones Sustainability Asia Pacific Index this year.
That's a recognition of our ESG focus and decarbonization leadership. This year, we'll continue to strengthen our rankings and performance against global best practice. It's a really good metric for us to measure and compare ourselves against. Everyone loves a waterfall diagram, and here is one. I just want to step you through in a little bit more detail about just how we will achieve net zero for our generation activity. This is scope one and scope two emissions by 2035. Starting on our left, our FY 22 emissions were 788,000 tons. As Tauhara and Te Huka come on stream in the next 18 months, there will be new emissions from these low-carbon renewable geothermal sites of 92,000 a year.
By closing Te Rapa in the next couple of days and retiring TCC, that will remove approximately 494,000 tons. Further reductions will then be achieved through the capture of carbon from geothermal generation. Finally, investment in forestry partnerships with Drylandcarbon and Forest Partners will provide sustainable offsetting units. This means, as Mike mentioned, our expected net emissions in FY 2027 will be around 300,000 tons. This puts us then in a really strong position to nail the rest of the 300,000 tons and achieve net zero by 2035, which will occur through further investment in carbon capture, offsets from our forestry partnerships, and additional initiatives that we're continuing to assess. I should also note that this is a static and quite a conservative view.
As we discussed, we expect further reduction in Contact's reliance on thermal peaking. As we grow renewable generation, we increase our demand flexibility, we invest in batteries, and we innovate new retail products. All that will flatten demand peaks, reduce the need for thermal peaking. I just wanted to quickly talk through geothermal emissions. Geothermal emissions, geothermal is a low-emission base load generation, as you know. The ability for us to capture carbon and either reinject or repurpose resolving CO2 will reduce our total emissions impact. It has the potential for us to move geothermal from a low-carbon to a no-carbon generation source. Last year, we successfully completed a trial and have now implemented carbon capture and reinjection in Te Huka. Essentially, CO2 is captured, and then it's dissolved back into water and then reinjected back into the reservoir.
The composition of geothermal fluid does differ by field, and the capture and potential reinjection technologies similarly differ by plant, we're continuing to evaluate the feasibility and business cases for each of our sites. Somewhat ironically, New Zealand is facing a shortage of commercial CO2, that's a result of a closure of the Marsden Point refinery. As a result, New Zealand's having to become an importer of CO2 to meet commercial demand. Think flat beer, for example. As Dorian will discuss, we're also exploring opportunities to capture and repurpose the CO2 to support that demand and a potentially efficient and monetizable byproduct from geothermal operations. Irrespective of these options that we pursue, we remain confident that we'd still be able to achieve net zero by 2035.
Our strategic focus on decarbonizing our portfolio is one of the four enablers of our strategy, is supporting a Contact26 goal to lead New Zealand's decarbonization. As I've mentioned, we're retiring our thermal base load generation. We're innovating and investing to reduce our reliance on thermal peaking. We're capturing emissions from geothermal generation, and we're offsetting residual emissions through sustainable forestry partnerships. We're well on track to be net zero from our generation activities by 2035. At the same time, we also recognize the position that we have in supporting New Zealand's secure, affordable, and highly renewable generation. We believe we can do both carefully and in concert.... We won't stop there. Through the Mō Taniwhā program, we'll continue to explore opportunities where possible to go harder and faster on these goals.
With that, I'll conclude the presentation, which also means we'll now be pausing our live stream. For online viewers, we'll resume our live stream at 10:45 A.M. Ngā mihi nui. Thank you.
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I'm gonna start while the stragglers at the back still get their coffees. They've let me out of finance, I'm now talking about growing demand, this is actually quite exciting for me. Growing demand is clearly very important because it allows us to build out our renewable development pipeline. It's also very important as well because it reduces the amount of energy that's coming from from fossil fuels, which is actually one of New Zealand's key climate change targets: to grow the amount of energy that's coming from decarbonized sources from 29% to 50% by 2035. It also very much aligns with Contact's values and our primary customer, which is the environment. We haven't really said that before.
You know, your primary customer is generally, one of your employees, your customers, or your shareholders. For us, it's the environment. I know that's dangerous saying it to this group, because it's not the shareholders, but you need to trust that if we are supporting the environment, actually, all of our other stakeholders are happy as well. For example, it gives us the opportunity to build out that wonderful development pipeline that we've got to help decarbonize the environment we're in. The other thing I should say about growing demand is, we want demand to grow, we want the market to grow. We're not particularly fussed about supplying that marginal demand to the market.
We're interested in supplying the demand that offers the most amount of value, be it through flexibility, or through price. There's been a few major changes with the environment over the last couple of years since we originally came up with these targets back in 2 years ago, when we launched Contact 2026, actually, to this group. The first is that, you know, we've realized that exporting hydrogen offers the lowest netback for our electricity of all the options available in the lowest down finance, so we've discounted that. We've also seen the outlook for green aluminum improve significantly from where it was 2 years ago. As we've said before, you know, we have an opportunity here.
We expect the New Zealand Aluminium Smelter to stay in the long term. Therefore, we're not so concerned about mitigating a Tiwai exit, which is what a lot of the grow demand stuff was about, 2 years ago. The world has, in effect, moved on. I think it's fair to say the electrification pipeline hasn't formed quite as quickly as we'd have hoped. We've had a couple of headwinds. The first one is we have seen higher electricity prices, and also what we mentioned earlier, the cost of carbon has dropped, particularly of late, with the government prioritizing reining in inflation and ignoring the advice of the Climate Change Commission. That obviously makes the economic switching costs from fossil fuels into elect renewable electricity a bit more stretched.
That's what's been with that. Flexibility has performed very well. Demand flex is now up at 50 megawatts, we have, you can see we're building flexibility into more of our PPAs with the New Zealand Steel PPA. Good example of that, we'll talk about that later. How we moved over the last couple of years. Although the demand out the cap accelerated as quickly as we would have hoped, it's definitely incrementally improving every year. I won't talk about the aluminium smelter. We've done that already. In spite of those, high sort of short-term electricity prices, we are seeing a lot of interest from major electricity users.
With the high commodity prices, most of those major users are exposed to those, they're a lot more financially secure, and therefore, we are seeing a sort of appetite to sign long-term PPAs and to use the flexibility that they have within their own production to actually get a cheaper PPA price to reduce their own scope to emissions. Again, you know, referencing New Zealand Steel, that's a good example. There's been a flurry of activity in data centers. I mean, is it me, or is there a new data center announced on energy news every week?
We still believe this is gonna be about 200 MW of data centers, which is about 2 TWh of base load, new demand to the market, and about 100 MW of that we think will be online in 2024. Some people have asked, is this actually just substituting out existing smaller data centers in New Zealand? We, you know, we talk to Spark and companies like that, and the answer is no. There's 2 major macro trends going on at the moment. You've got data sovereignty, so bringing data that's stored overseas back to New Zealand, and then you've just got this exponential growth that's going on in data and processing, which needs more data centers.
If you want more information on that, you should look at the Intel or Spark Investor Days, or go into chapter of the kind of megatrends. The data centers also have very strict renewable electricity requirements, and what I mean by that is their consumption needs to align to a renewable PPA on a half-hourly trading period. Remember, their consumption is base load, so it aligns very much with geothermal, which is base load and renewables, making that the ideal partner for them. You'll have seen some developments in that space with our announcement with Microsoft. Electric vehicles, you've seen we are starting from a low base, but they are starting to pick up in terms of the percentage of registrations we're seeing.
I think there's two things that are driving that. The retailers, electricity retailers are introducing EV products into the marketplace, which give consumers cheaper off-peak electricity, so that supports the business case for switching. Obviously, you've got these government subsidies as well, which can be up to NZD 8,000 per vehicle, which help. I think that all, I mean, that all sounds pretty rosy, but, I mean, if you listen to James Shaw, as a country, we're still not where we need to be in terms of to get onto that trajectory to hit our climate change targets. I do suspect that whoever's in government from October this year, you're gonna see more mechanisms being put in place, whether they're carrots or sticks. I think there'll be a combination of both.
You know, carbon prices will definitely go up, in my view, I think you will get more subsidies coming through. I guess the extent and the nature of those subsidies will depend on whether it's National or Labor that are in government. In terms of our ambitions, FY 24 is really important for us. We need to get a long-term agreement in place for the New Zealand Aluminium Smelters. We owe it to the people who work at that plant, either directly or indirectly. We also owe it to our environment. It is one of the greenest aluminium smelters in the world, and with a lot of that green aluminium being required for renewable activities like EVs, I think we need to play our part as a country.
It also removes the shadow that a smelter exit has been casting over the industry for God knows how many years, and opens up the opportunity to build more renewable renewables in the South Island, and there is a very good resource down there. The other topic that we're working on in the short term, which Chris alluded to, was actually working through the feasibility of taking the CO2 from our geothermal steam, and using that to support the New Zealand and Pacific Island food and beverage industry, where there is a shortage of food-grade CO2, and it is being imported in from Asia, and I'll talk a bit about that later. In terms of our longer-term targets, I'm gonna talk about what we're looking to do around green chemicals.
couple of slides. Demand flex, we're looking to grow that from 50 megawatts, where it is at the moment, up to 100 megawatts. Now, remember, as Mike Fuge said, that actually plays within the reserve market, so it adds to the security of the energy system, and it provides us an income stream and our customers an income stream. But what we really want to do is actually get that into true demand spots, where customers are turning their production up and down based on price signals from the market. That is incredibly valuable. 100 megawatts is worth the equivalent of a $150 million grid-scale battery
It's actually probably more valuable because a grid-scale battery's got about two hours worth of discharge, whereas demand response has got a far longer duration. That's quite an exciting space to be moving into, and it's one that's gonna be essential as more intermittent renewables come to market, 'cause that's gonna be a key source of firming for the market. Partnerships are gonna be key. We've talked about our partnerships already, and we'll talk some more about that in terms of renewable development. In terms of growing demand, they're also key. Picking the right partners is key to success, and with global decarbonization happening, we're seeing a sort of proliferation of applications for electricity, renewable electricity.
It's important that we have the right partners to actually get the deep market insights that we need before we make any firm decisions on anything. You can see our five partners there are all high-quality ones, and I should also say that we're actually working with other partners as well, which are pretty high profile, but we're bound to confidentiality on that at the moment. I wanted to finish off just by talking about a couple of examples around flexibility and growing demand. The first one is obviously this New Zealand Steel PPA. I'm not gonna go into too much detail on this because we're lucky enough to have Nathan here, who can talk about it from a customer's perspective. The real innovation around this PPA is the flexibility of it.
there's a neat chart here on the right-hand side, which shows how that works. It's got a 4-hour knockout period over the morning peak, and then a 4-hour knockout period over the evening peak, and that happens for several months of the year over winter. So during that time, New Zealand Steel are exposed to the spot market, so we'll take market price signals to determine how they run their electric arc furnace. The key is the electric arc furnace is flexible enough to turn up and down at short notice. They get the value of that in terms of that flexibility in terms of a cheaper PPA price, which then would have facilitated an investment decision around the electric arc furnace in the first place.
From a Contact Energy perspective, we get the value of it in terms of having a shape of load that better aligns to our generation profile and portfolio. It is a true win-win. The next example is green chemicals, and I mean, interestingly, geothermal has got all of the building blocks that are required for green chemicals. You can run geothermal generation, use it for electrolysis of water, to produce green hydrogen. You've got a naturally occurring carbon stream within geothermal steam, in the form of CO2. You then have the building blocks for green hydrocarbons.
You can bang them together with the right technology in any combination to form whatever green chemicals you like, and that's where external partners become key for this, because you actually want to understand which green chemicals offer the best net back from an electricity perspective. One of the green chemicals that gets talked about a lot is sustainable aviation fuel, which is definitely something that we're looking at. We have a more immediate opportunity, though, as I said, around our CO2 and our geothermal steam. The New Zealand food and beverage industry needs about 50,000 tons a year of food-grade CO2.
Problem is, the refinery produced about 45,000 tons of that. With it shutting down, that gap had to be plugged. We're now importing about 30,000 tons per year of food-grade CO2 from Asia, which clearly is not good for the environment. There's a lot of emissions associated with that type of shipping and that distance. The other issue is there's a global shortage of food-grade CO2. Can you guys see the irony in all of this? We've been looking at options around this. We've been working with the market, with customers. There's not actually that many customers, but the ones that they are big and consume a lot of this stuff.
We've been looking at the purity of the CO2 that comes out of our geothermal steam, and also the consistency of it, because that's key. If you're gonna put a purification unit in place, you need to know that the composition of that CO2 is gonna be very consistent. We've been working through that with a view of a purification unit being installed, and then us stepping in and plugging the gap in the market that's been left by the refinery exiting. We're not looking specifically to deploy material amounts of capital into this. We would look to the potential customers to do that. Just to put that into perspective around the capital, a purification unit would probably cost about $100 million. We're not talking about building an ammonia plant or anything like that.
This is small, relatively small sums of money. Interestingly, actually, if the refinery had been pricing the CO2 based on the willingness of the market to pay, i.e., import parity, they might have come up with a different conclusion about whether they shut it or not. You know, different topic. And as Chris said, there's a big social imperative to us on this and a huge ESG kicker, because no one wants flat beer in New Zealand. This is a critically important opportunity for us. That's it for this part of the presentation. I think we're gonna end the live streaming now, Meg. It's all done? All good. Look, I'm gonna introduce Andy-
... Two seconds?
Yep.
Good to go. Kia ora tātou ko Jacqui Nelson ahau. Mōrena, and welcome. It's a pleasure to have everyone here. And I today first of all, move us on a little bit, which would be a good start. I'm Jacqui Nelson. I'm the Chief Development Officer for Contact Energy. I've worked for Contacts for 19 years. I guess appropriately for this forum, started my days as a treasurer, and have worked across most disciplines of the business except maps-based retail, I haven't covered. I've been Chief Development Officer since the end of 2021, and I can confirm it's the best job in the company. We're having a lot of fun.
The development team forms basically support for two of the pillars of our strategy to decarbonize lead the decarbonization of New Zealand, both the grow demand piece and also building new renewable energy into that demand. Two years ago, we set a very ambitious strategy in place. I think a point to make is we've held firm to that strategy. We haven't gone off piste, and that's been really helpful. In the development space, I would say we are well and truly sitting on that taniwha. We've been on steroids, and we've got things under control. It's been pretty exciting.
Our results have far exceeded our expectations, and I thought I'd touch on a couple of highlights in this space, which have been covered, but I'll provide a bit of context. The first one was bringing forward the Te Huka 3 geothermal development. For context, we had previously planned to build Tauhara, then GeoFutures, which we refer to as the Wairakei replacement, and then we were going to bring on this additional binary plant. Last year, the middle of last year, we sort of looked at things and thought, "Oh, there's a very small gap of opportunity here at the start of the line. Jack could release some of his team, his design team, off Tauhara, and we could have a crack at this." We nailed it.
We achieved final investment decision in August. Did some bold moves. We went sole source with Ormat as a supplier, which, you know, is not in our nature. When that plant is completed, it will be the largest single unit binary plant in the world, the 51 MW. We're generating five years, that volume of generation is coming five years early, so it's very valuable. That was an awesome piece of work. I'm pretty proud of that, and my team. The second thing, I'd like to call out is the consenting process around GeoFutures. That Wairakei replacement was exceptional. Again, for some context, our consent process, our application, we received five submissions. Three of those were neutral, two of them were in support of the project.
Back in the early 2000s, when we re-consented Wairakei, we had 197 submissions, and they were all against the project or extending our operations on that field. Just quite incredible. That process also took 7 years, very painful. I guess this is a reflection of how we've moved things, that moved the dial in our relationships with key stakeholders in this community. It's an awesome piece of work. Finally, I'd like to call out the fact that we sensibly delayed our final investment decision on a battery. We were close to pulling the trigger on that. Mr. Flannery over there was in charge, and we had those lithium prices just escalating, 500% increase in a very short period of time.
We, we again, a bold move, we went, "Let's pause on that." Particularly, our suppliers were not willing to take on that lithium price risk, and that was a position we were not happy to take or a risk that we weren't willing to bear at that point in time. We went idle, while we did that pause. In the meantime, we've consented at Stratford, where we have all our thermal plant. We have been granted a consent to put in a 100-megawatt battery there, so we're good to go. To Nathan's comments, we have an imminent option, a second option for a battery site at Glenbrook. We're good to go.
I guess in summary, we have the battery, GeoFutures, solar and wind projects that we will all be bringing forward for final investment decision in FY 2024. As I say, we've been on steroids. Jack is gonna have Tauhara up and running in the final quarter of this year, this calendar year, and at a higher output than it was originally modeled. What's happened in the development environment over the last couple of years? Plenty, well, I'd say, in a word. I call this slide my geothermal is gold slide because I think the value, the impact of these changes has been very positive for geothermal sitting in our development portfolio and our existing portfolio, for that matter. Price path has remained robust, the forward price path.
We've got really good demand, Dorian talked to that, coming both domestically and internationally. Buyers, I think, most importantly, finally looking to lock in long-term energy supply agreements, which is positive. From a global perspective, we're seen as very affordable and highly renewable, which is not obtainable elsewhere. The technology curves two years ago were coming off, but I think we've seen all sorts of interruptions that have halted that, particularly out of Europe with the Russia side of things. We've recently been in Europe, and there's some incredible subsidies happening there. We're offering 250 EUR per megawatt for long-term PPAs. It's driving a huge amount of demand for renewable build, as is obviously the U.S. Inflation Reduction Act, with what have they got?
$370 million U.S. dollars floating around, and some of that will go into the energy sector. Yes, the demand has increased, and also, I think we've touched on this, the cost of firming has increased. Geothermal as a baseload renewable has become far more competitive. In the construction space, we've absolutely seen this. I think everyone's aware of it, the supply chain constraints. Labor is difficult to get, commodity prices. I think a key change that we've seen, and particularly recently, is a real shift in the contracting model. Suppliers or providers are no longer willing to go, say, a full rack, which we would call EPC, so engineering, procurement, and construction.
They've been burnt in this environment, and we need to take a far more collaborative approach around sharing of those risks when they can't be mitigated. Batteries, I've just talked about, so I'll skip through that. Finally, there's been a plethora of developments announced. Transpower forecasting 7 GW of solar alone by the end of the decade, and our peer group, including ourselves, has announced more than 5 GW of new developments coming along online. It's significant. I would point out a lot of those developments are very early stage and not consented and, you know, more of a concept. Internally, we as a team call it the brigawatts, which I think is quite an apt label, so... We've been guilty of that ourselves. Yeah.
It puts in context the fact that we have a whole pipeline of geothermal development consented, how well-positioned we are around that. What does delivery look like? I think really all I can say is, like, we've accelerated, and we've nailed it, and really been on task and hit those targets. In the coming financial year, so FY 24, we will be bringing a final investment decision on GeoFutures, so 1.4 terawatt hours of geothermal baseload renewables, beautiful thing. Geothermal is gold. Kōwhai Park, it's a solar farm down at Christchurch, with Christchurch International Airport, in conjunction with Lightsource bp. That's another 0.3 terawatt hours and the battery. Fast coming alongside those as we have further very real options in solar.
North Island solar, another 0.3 terawatt hours, and down south at Wind Farm, that's sitting around 1 terawatt hour. And I guess Mike talked to this in his opening. Significantly, in this space, we've given ourselves a real stretched target of that 10.3 terawatt hours of renewable generation in place by the end of FY 2027, as well as a battery. There's a lot to do. How are we gonna do it? I think the key reason we've been able to move at pace is that we have changed out our operating model and in the development space and partnered with global experts in the areas we're interested in. It's a real shift, I think.
I've been at Contact a long time, we historically would have the mantra, you know, "We can do everything ourselves, and we'll do it better," and we can't, is a learning. In geothermal, we're pretty established. We've got outstanding operational capability. The Wairakei field has been operating, the Wairakei plant, for 65 years. For those who aren't aware, it's the 2nd oldest plant in the world, and not far behind the plants in Italy. In our subsurface team, so the reservoir guys, they are continually innovating, adapting, and to lower the cost of accessing fuel and subsequently the operational costs of those plants.
There's some pretty globally recognized people in that team, quite outstanding, and they work very nicely with our recent acquisition of the Western Energy team, who are leading downhole, downwell, specialists, and they are both working here and offshore, so pretty nice little mix there. In wind, we've partnered with the Roaring Forties. We have Paul Bouza here, who's gonna be speaking to you later. They bring, well, proven capability. They've done nine wind fields, wind farms in New Zealand. I think... Well, I've been out with these guys last week, actually. They, what they bring is great connections. They know everyone. They have the technical knowledge. They know where the good sites are with good grid connections.
They know the landowners. It's just given us a real leap ahead in that space. We had some community stakeholder sessions last week down in Southland, as I say, which I attended. The two teams complemented each other brilliantly. We had the Roaring Forties guys with all the technical details, wind heels, how big are the blades gonna be? What is this gonna look like outside my kitchen window? How much noise is it gonna make? Our team on, you know, the market side of things, and both of them exceptional in that stakeholder engagement piece. It was pretty cool. Finally, on the solar front, we have partnered with in a JV arrangement with Lightsource bp. We have Adam Pierce from Lightsource today. I sort of laugh about this.
Matt Cleland led our due diligence in this space. It was like being on Tinder for a year. We inspected each other's profiles for quite a long time before we hooked up. We're very happy now that we have. Lightsource has just been announced as the largest solar developer globally. They've done 8 gigawatts already and have a pipeline of further 55. They're also an experienced owner and operator, which we're not. That the scale that they have absolutely brings us access to supply chains, which is critical. We bring our reputation, our market knowledge, and transmission's been quite critical in that space as well, as well as being a creditworthy off-taker.
Together, we're pretty nicely partnered up to be positioned for project financing those projects, solar, and that's something that Contact Energy hasn't done before, and Lightsource bp has plenty of experience in doing it. Moving quickly. Here's our 10.3, starting off a base of 7.2 in FY22, and that is made up of assuming mean hydrology, 3.9 in hydro, 3.3 geothermal. If you take the middle section and net that off, you get about 2.1 additional TWh of geothermal to take us to a total of 5.4 in our portfolio, and then that all adds up to 9.3.
We've sort of got over a terawatt hour to hit, and as I say, I think we're gonna knock it out of the park with those projects. Kōwhai Park, the second solar park in the solar project in the North Island, and the Southland wind farm. That's us. We're confident we're gonna hit it. I'm gonna skip through these next two slides because these are covered in the breakout area, but very excited to have a wind farm progressing very quickly into consenting stage in Southland. I grew up in Southland, so it's nice to be back home. And then there's been a fair bit of coverage on the Lightsource Kōwhai Park field. Pretty exciting, gonna be a whole ecosystem hub, all sorts of opportunities there for all sorts of industry, including all those green fields as well.
I'll quickly finish on Geo Futures. We're seriously heading into final investment decisions there. As I said, we've got the consent. We've just issued our tenders, actually, out to suppliers, so that's a huge piece of work, and we'll see how that goes. I think we've given them 17 weeks to get their bids in. We have interestingly kept our technology options opened on that field. We haven't gone that we'll be steam flash or binary. We've kept them both open, so they both look very viable options at this point in time. Third end of this calendar year, beginning over Christmas, the Christmas deal. We're good to go.
Dorian's done a great job in positioning us balance sheet-wise so that we have capacity to be able to finance all these projects. I thought I'd finish with the Whakataukī, which was relevant to my opening, to cover off where I think some key development's at, and it goes, "Waea te ihi, kaha te rangi, ki te tuahu, koe mahe maunga teitao." That simply translates... Well, it's all about ambition, aspiration, perseverance, and I think we're demonstrating that in spades at the moment. It literally translates, "Seek the value you value most dearly, and if you bow your head, let it be to a lofty mountain." That's me. I'm going to finish the live streaming at this point, bye.
All right, are we ready to go on Teams Live, and are you happy at your end? Right. Okay, cool. I'll ask for Matt Bolton up to the stage. Thank you very much. Yeah.
Thank you. Did you want me to kick off?
Sorry, go ahead.
Yep, that's all. Kia ora koutou, my name is Matt Bolton, and I am the Chief Retail Officer here at Contact Energy. Been in this role now 2 and a half years, and had the pleasure of working at Contact for the better part of 14. Much like Jacqui, I have actually worked right across the business. I spent a number of years in finance, then in operations, and moved into the retail space in 2014. Over the next 15 minutes or so, I really just wanted to step through an update with where we're at with the retail portion of the Contact26 strategy. I know you're all super excited about this piece. The morning piece on development was great, retail is outstanding. That's where we'll start, is around creating outstanding customer experiences.
At the core of our Contact26 strategy for retail was absolutely anchored in the customer. Fair to say, at that point, we'd done a great job of turning around our business inside the building, but what we were serving up for the customer could have improved. Our success for us really looked like reinforcing the value of our brand. At the time when we created this, we'd probably spent the previous 10 years spending little to none on our brand, and in fact, you probably would have struggled to know what Contact did pre the enlightening of this strategy. We also talked about growth and scaling. It's a muscle that we hadn't really worked on at all. Coming into this in 2021, for the prior 5 years, we'd actually flatlined.
We had not grown at all, and we stood here two years ago and said, "How about we get to 650,000 connections?" Finally, we've been on a bit of a journey on cost to serve. In fact, when I started in retail, our cost to serve was about NZD 220 a connection. We're well on the way south of that, and we targeted to get under NZD 90 a connection. We see that as a key enabler for us, not only to show operational effectiveness when we invest money, but also to be credible when we talk about price changes with our customers. It's my view that unless we do the work in-house, we can't be credible with our customers when we ask them to shift their pricing. Where are we at?
This time-ish last year, we were announced as the Energy Retailer of the Year. A super proud moment for the team. I know it's not all about awards, but in 13 years of that, of the Energy Awards being in place, we've never once been asked to even submit an entry form to be in the Energy Retailer of the Year. Here we were last year, we were asked to submit. Not only did we make it to a finalist, but we won the category. For us, that was just a huge reflection that we were doing more right than wrong when it came to looking after our customers, and we were balancing the equation of economic returns versus customer satisfaction. A huge outcome for us.
As an aside, we'd like to go back-to-back this year, but we'll have to wait until August to see that. Growth, I talked about it before, we're about 57,000 connections bigger than 2021. I'll go into those a little bit further shortly, but working that muscle of growth is really tough. In retail, you're either growing or you're shrinking. You can't stay installed, by and large. To stand here now and say we're well on the way to that outcome is we're just hugely proud. Then finally, the digitization program, and Ty and team might talk about this shortly, but it's been a four-year journey to get to where we are in our digitization space.
Again, I'll deep dive it shortly, but the key attribute for me is that we've, again, learned to understand what digitization can do for the business, and we've now been able to cross-pollinate that across the rest of Contact and particularly into John's space in the coming years. With that in mind and the success we've had, we've kind of had to stand back a few months ago on what's changed in our environment. Obviously, you can read the slides up there. Probably just touch on two or three that have been picked up this morning. The first is around consumption or demand in the home. Post-COVID, when we drafted this strategy, we're unsure what working from home would mean, how businesses would evolve with their energy consumption. Quite simply, working from home is a thing.
It's real, whether you like it or not, but the world's moved on where people are sitting at home and working. Businesses are opening later, shutting earlier. They've moved to online models, and so their energy demand curve has changed, and it will continue to evolve. We're also seeing, much to the conversation from BCG, that the use of EVs or the uptake of EVs has hit that true inflection point. I remember when I started Contact in 2009, we were talking about EVs taking over the world by 2015. It's taken a little wee bit longer than that, and I think that parallel with what we've seen in Norway is a really great one for what will happen in New Zealand.
When we presented this, we were at about 20,000 EVs on the road back in 2021, 20,000-30,000. We're at 70 now. You can see that easy jump to 500,000-700,000 by the end of the decade. A very real trend. We've got to play in that space and help consumers through that journey. In parallel with that, though, we're seeing that we're experiencing this cost of living crisis. The OCR at 5.5%, we've got inflation at 7%. We've got near to mid-term wholesale prices reflecting the cost of renewable, must-run, intermittent renewable generation being built, and we need to traverse our customers through that if we want a retail business the other side of 2026 and 2027.
We're really proud that we've been able to hold our average price increase around the level of inflation. We feel that we'll continue to track that number in the next 2 to 3 years. Clearly, what happens with the resets with the network companies in 2025 will shape those decisions. We're mindful that as we move through to the other side of what this, the new energy market will look like, we have to look after those most in need, as well as those that can afford energy. Finally, competition. When I stood here again 2 years ago, competition was rife. 40-odd retailers, and it's great. We love it.
They keep us on our toes, they innovate, they bring forward ideas, both in journey management and product design, customer experience, that we hadn't thought of, which is awesome. You can cut, paste, apply to your customer base. The market shift for us in the last 2 years is, 2 years ago, we were talking about the tier twos. In the last 2 years, I've had to really reassess, in my view, their business model to how to counteract a rapidly changing wholesale price, cost to serve models that may not be as digitized as it may look from outside in, and are feeling the pressure of getting their businesses back to a fair economic return. Conversely, I'm standing in front of a market now where we're seeing mass consolidation.
You've got Trustpower and Mercury paying half a billion dollars to get a few more connections. You've got Focus and 2degrees joining forces and coming into the energy market with vigor, and the likes of Genesis and Meridian really rebranding to push their credentials into the market. Competition's still here, but two years later, it looks materially different to who we might think as our key competitors, materially different than it did back in 2021. If you take all that and have a look at our report card, go a little bit deeper. I've talked about the top right or top left on screen view there, that we are showing this ability to scale our business. By and large, it's come from our broadband adjacency, but we've also been very deliberate about growing into energy and gas, where those market conditions are right for us.
However, more pleasingly, as we're seeing our multi-product attachment rate nearly double, that's a critical factor for us that says our customers believe in what we do, not only to purchase 1 product or service, but to purchase multiple ones. That's turning up on the far right-hand side, where our brand trust scores have gone from 5th equal in the energy market to 2nd equal as at the end of March. If I took that number back 3 or 4 more years, we probably wouldn't even be in the top 10. We're really pleased that not only have we been able to scale, our customers are buying more products and services from us.
They're rewarding us with believing in the brand. That brand is not just a retail brand, it's a brand that turns up in the communities across New Zealand through the work that Jacqui and John and others are doing on behalf of Contact. Our NPS score continues to improve. It's a +43 there. At times, we get into the 60s, and we know when we get that right, our churn obviously has a correspondingly decreases. The bit in the middle, though, is the bit that you guys are probably all interested in, though, is how are we going with our net backs? We're really mindful that it's a juggling act to get the magic pudding right of growth versus keeping our customers happy and making sure you get fair shareholder returns.
You can see up there from 2020, what, 2020 through to 2023, we're looking at about a 21% expansion there. As I said earlier, that's about a really targeted focus on cost reduction within Contact. It's a deliberate use of technology and AI and whatnot, which I'll touch on shortly, to ensure that we get fair customer pricing to our customers at all times. With that in mind, you go, where to next, and did the strategy hold water? We think it did, but we've actually made a few tweaks to where we think we can see growth in the coming years. What we've been able to do is we think the 650,000 connections can move slightly north to 685,000.
We're actually at nearly 590,000 today. We're seeing good sensible growth, largely through adjacency work in the near term. Cost to serve is great, under $90 felt within reason, but we're actually pushing that a little bit further to go sub $80 cost to serve by the end of the plan period. We think we can get sensible up to 3x returns on our adjacency business, and we're seeing that play through off the back of broadband. Finally, we want to hold on to being the number one. We want to be the number one trusted energy brand in market. We also feel Contact needs to sit in the top quartile of the Kantar Sustainability Sector Index, which is a small shift from how we would have positioned this back in 2021.
The next few slides, I really just wanted to deep dive where we think we have some magic sauce, where we think we, the investments are playing out to generate better returns for both, our customers and our people, as well as our shareholders. The first is, which is around digitization. Touched on it a few times, but we're seeing a really clear, in our world, competitive advantage from that investment. We've almost doubled the interactions that we have via our digital channels with our customers. That's great for them, but ultimately, what it means for our people is that they can focus on the high-value, low-volume transactions. Those are the real proof points of when you're under stretched, 'cause it doesn't always go right. We don't always solve it the first time. You can't always digitize it.
If you can provide the capacity for your people to be at their best, you'll solve those problems and keep the customers, albeit, I've yet to solve your broadband question in the corner there with the batch plan. Finally, it needs to turn up somewhere, and cost to serve is where we kind of watch that number. You'll see up there that we think we're at about NZD 120 a connection. I mentioned before we started this journey at NZD 220. You can take a guess at the peers up there, who they are, but it would suggest that we are head and shoulders above the rest of the market. The next phase is around using data to basically enact better price changes.
If you're tracking our operating stats at the moment and our net back through the retail channel, this is about Contact balancing a price increase in line with the cost inflation, but actually rebalancing our book in line with some pretty clear pricing principles. 2 years ago, it was a pretty analog process. Today, it's a very digitized process, very, very insight-driven, to ensure that we get a fair value exchange with those customers. More importantly, we can keep them through a price change cycle. We're looking at scaling and a couple of markers up here. We have been able to scale our broadband business. When I started this journey, we thought 2,000 connections in 6 months was a success. Here we are now standing, knocking on the door of 100,000, 5.5 years later.
It would make us probably the fifth-largest broadband provider in New Zealand, and we have good intent to carry on on that journey. It's very much driven by our customer expectations. They asked us for the product, and we continue to evolve it. We've also been able to evolve that product into wireless, which is where one in four consumers in New Zealand will actually buy their broadband from in the future. We actually can cover fixed and wireless, and we're watching both of those sensibly scale. More importantly, though, it's leading to lower churn, and so we know more products per customer does lead to lower churn and ultimately, higher CLV. The where to next? Look, we are really clear that the market continues to be acceptable for utility providers or energy providers to sell into the telco space.
We can help you with your data conversations within your four walls. We are looking at options, whether we can help you with your data and connectivity outside the four walls through Contact Mobile. We're also looking at opportunities within dynamic load controls, where we can work through into hot water systems and ensure that ultimately, we can lower the cost of energy bills for consumers, as well as lower the cost of supply for Contact, and ultimately, lower the carbon footprint for New Zealand Inc. Both of those we're actively pursuing at the moment. Then finally, where do we see the future, and where do we think we'll be by the end of the decade? Well, we wanna be the preeminent supplier or utility provider of choice into the home.
We think we've got the formula that works for us today to sensibly scale, continue to sit within the framework of the utilities that I've described earlier, and we'll back that up with a hell of a digital journey, which will drive lowest cost to serve, but ultimately, the best experiences for our customers. That in itself feels pretty obvious. There's two key themes which I believe will actually are starting to unfold and we're seeing globally. The first is around energy mobility. That's something that, again, to the BCG report, we haven't had to think about the structural shift of your engagement with electrons ever. What I mean by that is, you would normally go out, you'd hop in your car, and you'd drive it to your local petrol station, and you'd refuel.
In a new world, which is now not far away, is that you'll be taking your engagement with electrons with you from beyond your doorstep, you'll want to engage with multiple suppliers through out-of-home charges, your traditional fuel charging stations, as well as charging across New Zealand. We think there's a real space that we can leverage technology to join that conversation up and platform that back into Contact, which is something that we haven't had to think about at all in my time in this industry. The second part is around energy independence. We saw it not only through Cyclone Gabrielle, but through the closing economics of where solar pricing and battery pricing is relative to getting it off the grid.
You could run from that and say, "It's a challenge," but much like Mike's described at the start of today, it's like grabbing a taniwha. We think there's a real opportunity in there that actually by leveraging technology, by leveraging the likes of VPPs, our time of use plans, this is some really clear white space for us to play with our customers, not only in an energy mobility space, but also in an energy independence space. With that, I believe I might be getting close to time. I am around later today, for taking other questions and through the Q&A session. I would now like to hand over to Lou Wright and the team and my colleagues to come up for a panel discussion on the key enablers that are actually making the magic happen here at Contact.
With that, I'll hand to Lou.
Kia ora toto. Welcome to Contact Energy Enablers session today. My name is Lou Wright or Louise Wright, and I'm the Head of Communications and Reputation here at Contact. Joining me today, I have Tighe Wall, who's our Chief Digital Officer, John Clark, Chief Generation Officer, Jan Bibby, Chief People Officer, and my boss, Chris Abbott, who you heard from this morning, Chief Corporate Affairs Officer. In preparing for today, we're going to talk about macro trends and how they affect our business and some of the insights that we can share with you. You may recall a few weeks ago, we reached out to you and said: "What would you like us to talk about? What are you thinking about? What would you like to know from us and how it affects the way we run our business?" Thank you for all that feedback.
That's definitely enabled and has provided the questions that we are going to come back and answer for you today. We're going to talk about government, the upcoming election, digitization, the war on talent, and also about BCG. Without further ado, let's get stuck into this question session. Chris, we might start with you, seeing you're there in the lucky seat. How's that? We're seeing rising government intervention, and there were some questions about that earlier today in the energy sector, globally as well as locally. What do we think is going to happen here in New Zealand with the coming election in October?
I think, you know, if you look at New Zealand in the against global comparatives, look at most metrics around the energy triangle. You know, we are highly, we are highly renewable, we are, you know, very affordable and, also, you know, in the, in the energy triangle, we do really well, and across all metrics. From a government perspective, they go, "Well, you do well, but we need more from you." That's really around expectations, not only about decarbonizing our industry but, you know, Steve talked about today how we simulate and lead to private demand growth. The BCG report has some quite astounding figures. NZD 42 million is required to be spent by, in the 2020s, for us to deliver on the, on the expected path.
The actual problem is not generator retailers such as Contact Energy. The real challenge, NZD 22 million of this expenditure that needs to happen is actually in the distribution networks. Trouble with distribution networks, a lot of them are community trusts or owned by councils, they actually have limited access to finance. That we think will be quite a big challenge, and the government ultimately looks at the BCG report and goes, "You guys are doing really well." With the kind of opportunity also comes with expectation. If we don't deliver, the government will intervene, I don't think at risk here in Australia. I guess the other thing I'd say is that, you know, we engage with all political parties regularly. Jack's been telling me to stop sending politicians to visit our site.
They all want to be associated with new development, so that's really positive. They are really listening to us. And they're listening to us on things like RMA reform. Mike's got a delightful quote about a dripping roast. You know, we've had really good cut-through on RMA, I do recognize in the projects that Jacqui is looking at, that we will be investing. We've actually seen some material changes within the present reforms and particularly the national environmental standard around renewable development. We are having real cut-through, and that's because we're investing, we're decarbonizing this. The one gotcha, I think, for this election is around cost of living, and while we know well what a center-left or center-right government would look like, it will really depend on the coalition parties.
If they have to form coalitions with further right and further left, we might see some unexpected outcomes around energy as well.
Thank you, Chris. Speaking of cut-through, new technology. New technology is transforming rapidly the way we operate our businesses and what we do. What have you identified that you could do better, Ty?
Thanks to everyone who joined the earlier session. You'll hear some stats repeated, but we'll stay on the same fun trend, I guess. I'll start with what's working really well. Matt touched on a few of them in the retail space. For the past 4 years, we've made a concerted effort to dive in and digitize our retail business. You can see that through some of the numbers Matt showed. Over three-quarters of all of our customer interactions are done via digital channels. We have the lowest cost to serve of any Tier 1 retailer in New Zealand. A lot of that is, it's through a lot of hard work, but it's also where we're positioned in the world.
A lot of the things we're doing in Contact have been explored and billions of dollars have been spent trialing this stuff in other parts of the world. We have the opportunity to take a lot of that and apply it to New Zealand. A year into the generation and trading digital plan, we're also finding some really immediate and successful returns in the trading space. We'll keep pushing retail, keep driving down that cost to serve and doubling down in trading. The biggest opportunity for us and where we can do the most going forward is in the generation space. We talked a little bit about the digital twin and some of the stuff we're doing in generation.
Focusing on digitizing our assets, so how we're aligning our outages, how we're lining up our maintenance plans, doing predictive maintenance, how we're maintaining and managing our fuel, getting the most out of our fuel and our assets, and the highest production possible in the most efficient way. Empowering our employees to have the data they need at their fingertips when they're making decisions and doing actual work. Finally, how we connect this up with our trading operations, so that we're in the strongest possible financial position, and getting the most out of all of our investment in our people and our assets.
Thank you, Ty. Yes, Ty said, we did identify there was good opportunity in generation and trading, particularly if you think if you can make more megawatts efficiently and then trade it better, then there's more to chase. Particularly, we focused in the trading space first. One example, this is our trading optimization project, which improved how we model our portfolio. This works through using proprietary software to conduct scenario analysis. We have a list of scenarios that our trading experts want to test, and we conduct 900 model runs per scenario. These consider price, outages, hydrology, all the things that could potentially happen within the market. This provides a comprehensive, improved data set that leads our teams to become more data and insight-driven, while helping to manage risk and the downside.
Modeling that used to take a week, now takes 2 hours at most, which means we can use it daily, we're faster, and we can assess risk much quicker. This has improved our ability to see where we should be placing our electricity to get the best bang for our buck. We will continue to improve as we dig further into that data and look for further ways to optimize. This may include the use of machine learning, AI, to pick up trends that aren't apparent to the human eye. The next important step forward is using that modeling to seamlessly integrate all the new developments that are coming towards us, such as solar, PPAs, demand response, wind.
Just to add a couple other things, that beyond trading, we can do a bit better. One is that we can become faster as an organization, but certainly digitally and using digital tools. Taking advantage of our relatively small size of 1,100 employees to move as quickly as we possibly can. The other one, as mentioned earlier, is from a talent perspective. Having conversations with really highly qualified candidates is infinitely different now than it was when I started in Contact. Leading with the decarb story and market, some of the changes to our employee value proposition and some of the success we have under our belts is really making us more attractive to candidates than we were 3 years ago when I kicked off Contact.
Thank you, Ty. Speaking about people and talent and what makes Contact so special, Jan, there is an aging workforce and a bit of a war for talent. It's no secret about that. How are you most impacted, and what are you doing to really make sure that we can address this?
Thank you, Lou. I might tackle that question with two separate items. There is no doubt that there's a real war for talent, and as Ty just alluded, that means you need to have a really strong employee value proposition so that you attract and retain the very best of people. We have an aspiration to be one of Aotearoa's most sought-after workplaces, so we need to make sure we do really create that great proposition. The fact that our people inside Contact today and the people who are seeking to join Contact really do connect with our strategy and our purpose. As Ty said, it's definitely much easier than it was probably two or three years ago. Through our transforming ways of working journey, we operate a pretty high trust model of flexibility.
We allow our people, where practicable, to be able to choose where, when, and how they work. To demonstrate that commitment to sort of creating that workplace, we've launched quite a number of initiatives over the past, probably two years, since we were all together in a room together. Most proudly, our Growing your Whānau Policy, which is fantastic to see so many other organizations follow suit. We have just recently been awarded the Wellbeing Tick for our first year, which has been fantastic. We've launched and developed a Contact University, and we pay all of our people a Good to be Home wellbeing payment every year. If you go on to the aging workforce, there's no doubt that it's an issue for everyone, actually.
We have significantly lifted our investment in our graduate program, our intern program, and this year we are reintroducing, at a small scale to start with, an apprenticeship program. It would be fair to say in our generation business in particular, we remain challenged by the lack of diversity. It's kind of interesting as I look around the room. We really are trying to take that seriously. We're focusing on really increasing the number of women, the number of Māori and Pasifika people in our business, so that we more accurately reflect the communities in which we reside. We're doing that through the UV program as well as through recruitment as a whole.
Thank you, Jan. Speaking of communities, we are living in a really highly inflation-ridden environment, how is this impacting across Contact, and how does it change the way we go about our business? Ty.
The first thing that comes to mind is the Motanika program that Mike mentioned earlier. How we're aligning our people and our assets to the highest value, most strategic initiatives, and this also plays a role in the technology discussion. How we're allocating that scarce talent we have to the highest value initiatives. From a digital perspective, it's squeezing in Matt's example, the retail business, to give our customers as much value as we possibly can and flexibility in the pricing we offer them. Doing that in a really smart, data-driven way, so that we're down to a specific customer instead of, you know, I almost used the term zip code. I'm falling back on my old language, excuse me, my postcode.
You're looking at individual customers and how you can target pricing for them. That data-driven insights also flows across the generation business. Looking at our different fuel types, water, for example, how do we get the most out of every cubic of water we possibly have? All of our assets. We have our asset management plan on an annual basis, making sure that we're focusing on the highest value return, the highest risk things, and the things that will contribute the greatest to health and safety. Obviously, across trading and the data-driven insights we can get from that. The digital program as a whole is optimizing and making Contact more efficient every single day.
John and Jan, do you want to...?
Like many New Zealand businesses, we are seeing the impact of inflation on our operational costs, particularly for things such as chemicals and where there's a commodity line behind the price pathway for them. One way, as Ty mentioned, is looking for efficient operations, such as plant efficiency gains. We have set up an optimization team with dedicated experts in fields of process engineering, reservoir engineering, reliability, and project delivery, who identify and then deliver on opportunities quite successfully, and I'm quite proud of what the team's managed to accomplish. One example is what we call the Te Mihi Spray Riser project, I won't bore everyone with the engineering detail there.
Whereby that team identified that through changes in plant process, we could both reduce the amount of fluid which is going to our holding pond, which correct, is a constraint, and also increase the steam flow to the turbine. That unlocked about an extra 7 to 8 MW from Te Mihi Power Station for using exactly the same amount of fuel. They also identified we could utilize our geothermal massively on the Wairakei field between the three stations, Wairakei, Ohaaki, and Te Mihi, in a way that we could shift load on a seasonal basis, so from periods of low demand to high demand, when prices are higher and that the electricity is more needed.
With our large development program, it's also particularly important in geothermal that we ensure we don't directly compete with ourselves for key skills and contractor resources, particularly between operations and the major projects team. This has meant we've ensured the timing of major works don't compete with construction activity, we also look further afield now to other parts of the country to source those contractor supports for our activity. For geothermal, we also have key capability in Western Energy, which is integral to us at a group level, controlling our fueling costs for geothermal. We've also been revisiting the way we are partnering models with contractors and suppliers, with a dedicated procurement team to ensure, 1, we have access to ongoing support that we're required, and 2, we are controlling those costs.
Chris, do you want to go ahead?
Yeah, maybe just touch on retail. Obviously, a lot of New Zealanders are doing it hard. I think one thing we've been really successful in that, in that area, is actually controlling our debt book, and that's come at the same time as we've seen reduced disconnections. The government's very, you know, obviously very concerned about the cost of living. I think the reality is that in a highly competitive environment, we want to be as low cost as we can, but inevitably, we do have to pass through price increases to customers. Matt's done set up an energy wellbeing team, and that's really about getting around involved debt early, sorting out early repayments. If you get into it early, you don't let it linger. Actually, our experience is that disconnections, it's a big tension and concern, and customers reduce.
We have a lot of focus around that, focus and attention on energy wellbeing. That's paying dividends for us as well as we face the reality of increasing energy costs.
Thank you. Pass the microphone now, Chris. I'm about to ask you about ESG. Can you explain how you use ESG to make decisions in your business on a day-to-day basis?
Yeah, look, I think ESG is a financial metric, which you'll all be in a mixture which you use. Most New Zealanders could care less about it, frankly, and we think about it in terms of sustainability. But we actively, you know, have internal work programs about ESG, which are communicated in that way outside. I think one of the key things that I've really noticed lately, and it goes to the work that Jacqui, and her team are doing, is around engagement. That's consulting really closely with our communities. That's something I think we're really good at. Jacqui was talking about the consent grant for Geofuture, so the placement for Wairakei.
Also with our iwi engagement as well, we are far placed and have far better, stronger relationships, which will endure. They'll endure for the long, long term investment and will definitely happen.
Thank you. Well, Jan, how does it fit your way in?
Yeah, look, the social license to operate is an important part of how we behave at Contact. For example, as we transition away from thermal, we know that that has an impact on our people, and so we actively work really closely with them to either redeploy them, retrain them, or relocate them to one of our other sites, if possible. We're also, as Chris said, we really are conscious about looking after our communities in which we live. Nationally, you see that we support Women's Refuge. You will have seen that we supported quite closely the Cyclone Relief Fund. More importantly, we see our people every single day out there, either doing local community events that are relative or relevant for their communities.
We give time off for people to volunteer and to do work in their communities. We're pretty proud of the culture that we have at Contact. We talk about human kindness. Every single day, we see our people taking care of one another and taking real care of the communities in which they live. We're very proud of that.
... Thank you, Jan. I think we're out of time now. Just had the wee wave, but yes, you can see that Contact, it's very much about community at the heart of everything we do, whatever type of community it is, which we interact with. Without further ado, I'd like to now invite Jack Ariel, who's from our Major Projects office, to come up and present to you. Thank you.
Yeah. Take note those. Yeah. Well, thank you. Good afternoon, everyone. I will not introduce myself in Maori. I'm still a little bit lagging behind there. My name is Jack Ariel, and I am the Major Projects Director. Before you ask me about my accent, I was born in Argentina. I grew up alongside the huge river that runs from Brazil all the way to the River Plate, through the waterfalls in Iguazu. You have seen pictures of that, I'm sure. I started my career with Shell.
I worked with Shell for more than 30 years. I remember when I joined Shell, there was a little tick in the recruiting form that says, "Are you prepared to travel abroad?" I said, "Yeah, what the hell?" I mean, I was young and everything. I never stopped traveling for Shell, and in that way, I've been working across the world, doing different projects, every kind of thing that Shell asked me to do. That was extraordinary, the kind of experience you get there.
Although I always was on the owner side because I was with Shell, and one day I said, "Well, I would like to see how the other side of the equation works." I went to the US and worked there for Worley. I'm sure you know, it's a big global engineering company. I worked for about six years there, and then when Mike offered me this job, my hairs were darker at that time, and I say, "Yes, this is beautiful." I mean, helping decarbonizing New Zealand and the world, leaving a better world for my kids and my grandkids, it was beautiful. I didn't think it twice, and here I came.
When I was asked to put together this presentation, I didn't know very well what to put together. I thought that perhaps the best to do here is to walk you a little bit through the process of what is that we have been doing, how we started the journey, and how we build capability for the future, which is very, very interesting. I want to show this one because it's a reminder for John, what is that we are giving them, yeah? It's a nice, shiny piece of turbine that I hope is remaining like that for a while. You promise, huh? All right, projects. I'm sure you know this curve. This is how we project people measure progress in projects.
It applies to any project. A big infrastructure, a plant like we are building, or you building your own house. Yeah? It always do the same thing. This is how you measure progress. Each curve has a beginning, a middle, and an end. The middle can be steeper, slower, I mean, but there is where you build stuff. In the beginning, coming again to the point of building a house, you know that things do not happen for a while because you get into the speed of developing the project. In the end, again, you know what happens, you never finish, but you have to do that very consciously, do what you need to do to finish. In the middle is where you really make things happen.
We are currently in the project in Tauhara, near the top end of the curve. We are very close to that. We started with this, it was working well, it was moving ahead as you expect. 2021 and 2022 happened, and we all know what happened there. A lot of extreme externalities, things that happened like a global pandemic. We have a global supply chain that practically collapsed. I cannot say that started here, because I think the supply chain was very constrained, it happens that this ship got stuck in the Panama Canal, everything started to fall away. The pandemic came, everything collapsed.
The supply chain was incredibly difficult, and we are at the end of the world. Who would like to come here, and that was just very complicated. The commodity prices skyrocketed. They went to, I mean, numbers that we haven't seen before here. Immigration was done as well because of the pandemic. Well, New Zealand was closed, so we didn't have people coming in. The rain, well, you have seen a little bit of a rain today, but this has been extremely uncharacteristic, even for this area. With respect to the pandemic, another thing that impacted us very badly was in the beginning when Auckland was locked down.
We had our engineering company in Auckland, and they had to start working remotely, and that is something that took some time. We couldn't be together with them, so there were some mismatches and things like we couldn't see, and we couldn't control. Finally, that had an effect on more complexity that we needed to work out later on. All these kind of things happening there and impacted the project. We started to progress, and we saw that this was not moving the way we wanted to progress. We rescheduled the project. We started to look at different ways of doing. We continued progressing, and this didn't come up because of all these things that I mentioned before.
All the challenges that we had there were even worse than we expected. Hey, Houston, we have a problem. We needed to do something. Yeah, I had Dorian breathing on my neck. Come on, guys, we need to do it. I don't want to say about Mike as well, but. Then we started to work in a plan, in a recovery plan that would bring it back to what we needed. This is what is happening today. The red one was the recovery, the blue is what we achieved, and we are currently at 94%, 95% of the progress. We expecting two or three Sundays from now to start pushing some steam, getting it from the ground, and the commissioning is already there.
We are working on commissioning activities. We are livening systems, but it's a process that takes time, and we are moving through that. If you look at Te Huka, for example, which is the other project that is on the way, we are currently at about 40%. We are in that part of the curve, the middle, where we are delivering. Tauhara is at the back end when you need to finish. These are the characteristics of the project right now. The report, the recovery plan. What did we do? We had a lot of challenges there, and because we needed to recover without compromising safety and quality, we started by reshaping the organization.
That was the first thing we did. We flattened the organization. We cut some reporting lines. We had more clarity. I had all the project managers reporting directly to me, we had a much closer interaction with everyone. We really defined roles and responsibility. We made it more clear for everyone, what was the scope on what they had to do. Also we went for more people as well, because the organization that we had was more geared up for lump sum contracts, where you bring one company, you just oversee what they do, and that's it, into something that, as a consequence of not having enough resources in New Zealand, we couldn't find one company that could do that for us.
We needed to go, instead of 2 or 3 contractors to do the job, we needed to go to 9 contractors to do the job. For doing that, well, one person doesn't suffice, so you have to go and get more people. You have to put a structure in place, which is more difficult, and with more, more detailed involvement in everything. That was, I would say, an enabler. We moved into setting up a project acceleration office because we said, "Well, we are late. We need to recover." What kind of things we can do to recover? Not only recovering, but also holding whatever we were recovering.
That was the setting up of this organization, where we had initiatives, where we thought about different kind of things that could be done differently, and we progressed them. One of the most important things there in that process is that you start counting days and not weeks or months. Today we have to achieve something. We start the day, we say, "Well, what do we have to do today? At the end of the day, what we have achieved." Whatever you didn't achieve today, you have to do it tomorrow, plus what you had to do tomorrow. Getting to that pace of delivery and cadence was very important to get things done. For me, this was a kind of a game changer in the process.
Then we started to work with our partners, in collaborating and working together. We worked with the supplier of the turbine, and as I don't remember who said that before, but we ended up with a plant that is producing 22 MW more than what it was designed for. We did this because we started to work with our supplier and say, "Well, what can we do here? Can we improve this or the other?" We engaged as well with all our contractors to simplify the design. Remember that I said that the design was a little bit complex because we couldn't participate with engineering contractor, and then we ended up with a design which was perhaps too complex.
Then we worked with our suppliers to see how we could improve that, and that is something that we also achieved. We redesigned piping structures, so everything. In fact, we converted somehow, a problem that we had into an opportunity, and we delivered something which is better than what we started delivering for. How we did it? I would say that is a little bit back to basics and trying to see, for example, the intention. What was our intention? Defining well our intention. Defining a strategy, having a vision there, working on clarity of what is that we wanted to achieve, and then having a clear plan, which is execution.
One thing is the intention, and the other one is the attention, so you have to achieve both of them. The link in between is basically leadership, because otherwise, without the leadership in the middle, you cannot get there. We had our tiny fail there. We still have it, and we are fighting it, and I think we are winning, and that is great. This, when I talk about leadership, is very important because in my career, very rarely I've seen a project failing because of technical issues. Normally, they fail because of all the soft issues that are around coordination, engagement, the collaboration with contractors or whatever. That is why it's so important, what we did in there.
You've been hearing about the pipeline of projects and the amount of projects that we have. This is something which is also very important. We have moved from having our last project 10 years ago to having 3 projects, more or less, in 5, 6 years time. This is a huge change for an organization, because you are somehow geared up for doing your day-to-day job, and then you come with these massive projects. We have in Tauhara, 650 people working every day, and that changes the dynamics, changes your needs, and everything. We have now 3 projects basically running together. We have Tauhara, which is at the point that we will be seeing steam very soon.
We have Te Huka, which is in the ramp-up part, where we are really delivering, and we have GeoFutures, where we are starting to work on and defining the project. The whole team, which are 45 own people and another 20, perhaps, consultants working with us, are working in these particular areas. When we started with this project as well, and I came in, and I was put in charge of the major projects department, we started to think about, well, what are the things that we need to build for the future? How can we make sure that we build the capability for all these projects that we want to do?
We started to think about what kind of things we have and what things we could do for the future. Things that we see here that are very important is, we talk about the contracting strategies before. I think Jacqui mentioned something about the contracting strategies. This is not. Well, now it's landed in New Zealand, but for the last few years, we have seen around the world that less and less contractors are willing to take a risk of going into an EPC lump sum.
That is coming into these shores now, and you can see, you talk to anyone, and they will say, "No, no, you don't do an EPC because it's too risky." It's not only about where you place a risk, it's also about how you can manage those different type of contracts. That was one of the things, the most important things that we wanted to build when we came in here. That capability for us to be able to manage this different structure of contracting with respect to what we used to have before. Also, the design is something very important because we are very high technical people in Contact Energy, but that is an enemy sometimes because you need to be able to simplify as well.
We started a path of simplification, which is very important. What is that we learned? We learned that the pace of delivery is very important, that having KPIs and tracking is very important, because you measure what you do and you deliver to that, and do a lot of front-end work. Do a lot of front-end work. That is something that when you go into a project, you need to know exactly what are you fronting, what is the size and the shape of your planning file out there. That is something which is extremely important.
For us, that's been very important as well in this, in this, in this delivery model that we have now in place, that we are doing the three projects somehow in a tandem, is that it's not institutional learning what we are having, it's personal experience of the people doing the job. The same guy that has been learning something today in Tauhara is applying that to Te Huka and GeoFutures. It's much bigger than what we call the lessons learned, the institutional learning. This is people learning how to do it in a proper way. Basically now, we have developed the capability. We have a very, very, very strong organization. We are approaching design in a different way.
We have built up the capability on teams and processes and the construction piece as well. We are working together with our contractors, getting into alliances and getting into collaboration, which is something which is so important to be successful. I see Shelley that he's waving his, her hands there. She wants me to finish and walk away. I would like to reintroduce Dorian now to the podium, which will talk about the disciplined investment and growing returns.
Thank you, Jack. Thanks, Jack, and this isn't actually scripted, but I actually think it's one of the most important things that Mike's done when he come into Contact as CEO, to identify that gap and bring Jack in, because he certainly specialized the area around construction that you would have seen there and also filled a gap. He also mentioned his changing hair color. Did you know Jack's actually the youngest person on the leadership team? Right. What am I talking about here? Disciplined investments and growing returns, right? It actually sort of brings it all together. You know, everything that my colleagues have talked about, sort of how do we bring this together in terms of the financials.
I did want to start off just by talking a little bit about investor relations. You know, the key to investor relations, as everyone in this room will know, is about trust and transparency. I guess one of the issues that we had at Contact Energy with thermal assets within our portfolio, does make this a little bit more complicated relative to 100% renewable generators. We do try, and hopefully you realize this, simplify things as much as possible so that you can see the transparent way of performance. We don't try and hide behind that complexity so that you can actually hold us accountable for that. We've also got a very high standard, or a high integrity, in particular around ESG topics.
That does actually mean, ironically, we lose ESG points with less sophisticated investors and market commentators. Obviously, there's none of those in this room, clearly. It does build trust with everyone else. A good example of this is our thermal assets. We will retain our thermal assets to ensure that there is a smooth transition close to 100% renewable, to the extent that the system security needs it. You're not gonna see us do any knee-jerk reactions and going, "For ESG reasons, right, we're getting out of thermal. We're gonna shut all of our assets down and make it someone else's problem." I think it's important that the people actually understand that. That's what I mean around the integrity that we have around that.
It's also incredibly important when you actually consider what's happened in Europe, you know, with the Ukraine and all the Russian gas disappearing. Immediately, system security becomes an issue, the climate change is deprioritized, and that's not what we want to see happen in New Zealand. We want to see climate change remain the number one priority, and that's why we will always see to do that. We will always forgo ESG points until those less sophisticated investors move up the curve to where you guys are sitting. There's five sort of topics that we've done to sort of initiative or innovate around how we report to make it less complex around us as a business.
I won't go through them individually, but one that I chuckle about a little bit is reporting return on invested capital. I wouldn't really call that an innovation, I was quite surprised, you know. I come from a capital-intensive industry, industrial gases, that no one in this industry did report that. You know, it should be a standard KPI for capital-intensive businesses. Maybe if it was a standard KPI for us, we wouldn't leave ourselves open to hobbyist accountants having a go at calculating it and then overstudying it and reporting it to the media, which has been known to happen. Thinking about the new work, by the way, Laura.
just wanted to talk a little bit about our capital allocation process and how that's worked, 'cause the environment that we're in, as we've talked about, has changed a lot since we did the last invest day and how our investment decisions have shifted around that. You've seen we've had elevated electricity pricing, and we've talked about what that's meant. We've brought forward, Jacqui talked about this, the investment in to Te Huka 3, even though we're actually doing that in a situation where there was elevated risk around global supply chain issues and things like that. We did that knowingly, because we'd learned a lot through the Tauhara process.
We've talked about we're gonna take a final investment decision on GeoFutures in early 2024 at the latest, hopefully even earlier. That is regardless of what happens with the aluminium smelter, and that's because that investment in terms of replacing Wairakei is economic in all scenarios for us. What this means is you've got that great program in terms of geothermal with Tauhara, Te Huka 3, and then GeoFutures. You put in place those partnerships, those with those contractors, and then continually learn and adapt as you go through that process, which is key.
We've worked with our partners, Roaring Forties and Lightsource bp, to look at our wind and solar investments. We're trying to accelerate solar in particular to get some exposure to those high or elevated ASX prices that you can see at the moment. As Jacqui mentioned, we delayed our investment decision on a grid-scale battery. That's proven to be very wise. That was because lithium prices were high. They've now dropped 60% from their peak about 6 months ago. That saved us about NZD 30 million on a 100-megawatt grid-scale battery, which is pretty significant. We are intending to build one. We said earlier on today, we've already got a consented site at Stratford. We've got an option now on one at Glenbrook as well.
It does provide a Tiwai exit, mitigation, not that we think they're gonna go. Meridian are already building one. It's in the North Island. We build another one, you've got 200 MW of reserves that can be offered up to the HVDC to run that harder, get more water across. What that does is it increases the price of South Island-generated electricity relative to North Island. It's just a left pocket, right pocket thing there between generators. Really, us at Meridian are the right side of that. We've announced the closure of Tauhara. That we won't reinvest in TCC with the C6. We've been saying that for a long time.
With thermal fuel costs high and only likely to get higher, there's no economic case for base load thermal generation anymore. It will be substituted out by our geothermal that we're bringing to market, Tauhara and Te Huka 3, so we're not putting the market at any extra fuel risk around that. The interesting thing is there's about 3.8 terawatt hours of new renewables that are coming to market between 2020 and 2024, and the only thermal closure that's been announced is Te Rapa. I'm expecting there to be a bit of a shakeup in terms of thermal assets over the next few years, because otherwise, you're gonna have a lot of thermal assets sitting around there and not being dispatched.
The next slide gets a little bit technical, but actually, it sort of aligns to some of the questioning that we've had earlier on today. What we're doing here is we're looking at where we see the relative returns of different types of renewable investments going over the next few years. It's underpinned by our view, our belief that wholesale prices will be between NZD 100 and NZD 110 real in 2022 terms. I'll talk about the midpoint of 105. I'm gonna use technical language, but I'm sure you guys are all aware of what a long-run marginal cost is, what TWAP is, and what GWAP is. If not, I can tell you in a break.
If you look at the chart here, geothermal has got a long-run marginal cost of $75 per megawatt hour, doesn't need to be firmed because it's base load, and you can sell it for $105 into the long term, real, you can make above WACC returns. When you look at wind and solar, it's got an LRMC of $80 and $85, respectively. Does need to be firmed, but there's latent hydro flexibility at the moment, it gets firmed for free. You can make above WACC returns because you can sell it for $105, real. The question is, how much spare firming capacity is there in the system?
That's the billion-dollar question, 'cause once that's all gone, you're actually getting, merchant pricing, for those, for those investments. The issue you have with merchant pricing, is the more, you invest in wind and solar, the more the merchant price, the GWAP, drops relative to TWAP, which is what the chart on the right-hand side is showing. These numbers come from EnergyLink. As solar moves up to 10% market penetration, it drops from 100%, of TWAP, down to just 77% of TWAP. As, wind moves up to 20%, it drops from 95% to 82%.
What that actually means when you get to that position for the merchant price you're getting for off these intermittent investments, the investments that you're making, is wind drops to about $85. That's the merchant price you're getting, which you can see is still within the LRMC range, so you're still getting economic returns. Problem you've got, though, is solar drops down to about $80, which is below the LRMC range. You're not actually getting an economic return unless you've got firming capability. Some conclusions for this around investments. Geothermal, our view, offers the highest return because of that lower LRMC and the fact that it's base load.
Wind and solar in the short term offer good returns, particularly solar, which you can build and bring to market quickly and get exposure to those high ASX prices, and the fact that there's that latent firming potential at the moment within the hydro schemes. As more wind and solar, though, gets built, the value of renewable flexibility increases, because if you actually have the ability to firm wind and solar, you can bridge that widening gap between the falling merchant prices and the base load price, which is what you can see on the chart here. Renewable flexibility becomes a more attractive investment than intermittent renewables in our view. Overall, on the right-hand side, these are what we're sort of expecting around returns. Geothermal remains above 10% now and into the future.
Wind falls closer to WACC as the merchant price drops, and there's latent firming potential is exhausted. Solar drops as well, but in a lot of cases will actually drop below WACC. There is still the opportunity to project finance solar, which is what we're doing with our partner, Lightsource bp, which still generates good equity returns. The value of flexibility, so grid-scale batteries, improves and actually starts to get above WACC. At the moment, it's below WACC, and people are doing it to build capability for strategic reasons. If you're clever, you're building your wind and solar in geographically diverse places, and then you're getting those sort of uncorrelated benefits within your portfolio, which allows you to firm off each other. Those shouldn't get passed through to the market.
Those should be retained, in our view, and then that gives you another option to generate returns a little bit above WACC. With the geothermal returns looking so attractive, obviously, you'd expect us to be deploying all of our capital into geothermal. I'm just gonna talk a bit about that now. Clearly, that is where we are deploying a large chunk of our capital. NZD 2.4 billion of capital going into geothermal between FY19 and FY27. We'll have spent about NZD 1 billion of that by the end of this financial year. I wanted to do this to provide some transparency around this part of our business.
It's such a huge amount of money going into it, but because of the baseload nature of it as well, it's got very different characteristics from the rest of our business. It's got no weather dependency and minimal fuel risk. The cash flows and the financials are relatively stable, more akin to an infrastructure-type business, and it's 100% renewable. These financials here assume there's an internal PPA with the rest of Contact, which is priced at NZD 85 real in FY 2019 terms.
It's got the external PPAs, which we've already got in place off Tauhara, with Genesis, Pan Pac, and OG, and we assume about 10% of the volumes are linked, are merchant volumes, and that provides a bit of a buffer between the generated volumes and the contracted volumes that we've got with our PPAs to cover statutory averages, but to provide some exposure to spot pricing. The characteristics of this business actually allow it to be backed by long-term, inflation-linked, baseload PPAs, which we know there's actually a growing external market for as well. You can see the direct costs of this business are very low, NZD 10 per MWh. They're very stable, very predictable.
There is some exposure to carbon, but not much because the emission factor is so low, at 0.043 tons per megawatt hour. Remember, gas is 10 times that, and coal is 20 times that. Also remember, we've got our investments into forestry, which hedge that, and you can see the impact of those coming through on the other income line. With the success that we've had on carbon capture and reinjection onto Te Huka, and the intention to roll that out across all of our geothermal fleet, you know, we're aiming to actually get our geothermal carbon emissions down to basically zero, and none of the impact of that is actually reflected in these numbers. Not a particularly complex business, this one, it's got very little corporate overhead.
Most of the corporate overhead still remains the other part of Contact. You've got this inflation-protected business, which is very stable, and then it's growing rapidly because you're deploying capital that's earning over 10% returns into it. And you can see there the impact, the EBITDA, roughly going up by double to NZD 549 billion by 2027. And the operating free cash flow contribution of this business, relative to Contact shares, so on a per-share basis, is going up by 130% because there's a capital leverage with stay-in-business capital. It's not going up so much when you've got multiple plants being built. I know what you're all asking yourself: How do we get exposure to this amazing infrastructure-type business with a renewable development pipeline?
If you hold Contact shares, you're already exposed to it. Right. I just wanted to talk about this is the rest of Contact. This is a vertically integrated business. It sells through the C&I and through the retail channel. It also sells CFDs, and on the ASX, it's backed by a baseload PPA that I just talked about from the geothermal business. It's got hydro flexibility and peaking, which provides a seasonal and daily shape to match our load. It's got peakers to cover for dry year risk. The complexity of the business, in particular, linked to selling through retail and C&I channels. There's more technology and regulatory topics you need to deal with associated with this, means it's got most of the corporate overheads linked to it.
It has got a solar and wind development pipeline, and that's firmed by the generating assets themselves, but also geographic diversity, demand flexibility as well. Ultimately, you'll be building grid-scale batteries or we'll be building grid-scale batteries to replace the peak business and move up to being 100% renewable. Because of the effects of hydrology and the exposure to thermal fuel costs, its EBITDA does vary a lot more than the geo business that I just took you through. It was NZD 246 million was the average EBITDA over the last 4 years, but that's ± NZD 50 million.
With the closure of Te Rapa and then later TCC, this business will be getting 98% of its volume through generation of renewable PPA. That's the renewable component of the business, a highly renewable. Look, I've just done this, not because we're about to start splitting Contact's operating segments up. It really is just to demonstrate, in line to all the investment that we're putting into geothermal, the value that's gonna come through associated with it, but also the different characteristics around it. Remember, the geothermal business will be driving a lot of the near-term growth, but then we would expect a lot more value to be coming through later on through things like wind and batteries into the other business that I just talked you through this month.
In terms of capital, at the last Investor Day, two years ago, we talked about, you know, we have our normal steady business CapEx of NZD 65 billion a year, and that hasn't changed. We're still at that level. Last Investor Day, we said we were going to have elevated steady business capital for five years because we needed to invest into our renewable assets to improve their resilience, and then we also had the small issue of an SAP upgrade to deal with. This Investor Day, I'm going to tell you, it's gone up a little bit. I guess the trick is we need to stop having Investor Days, and then our steady business CapEx won't go up again. I just wanted to take you through what's driving that up.
It's gone up by another NZD 50 million. We've had an unplanned outage at one of our peakers, which you'll be aware of, but a major one. We had to replace some power turbine and the engine. That was covered by insurance, but there's about NZD 11 million of that, which is the non-deductible element that we've had to fund ourselves. The Espejo upgrade has gone well. We're actually live a bit, so it's working, so that's great, but unfortunately, it has cost us NZD 11 million more than we were expecting it to cost us. We've also kept a powder dry on upgrading the CRM system. We'll take our time over that and work through what are the best options. We're investing NZD 9 million in a trade deal capture system.
So making sure we've got a robust system and the controls around that is incredibly important. Also, this new sort of state-of-the-art system will allow us to buy intermittent PPAs from our Lightsource bp joint venture as well, which is pretty key. We're investing another NZD 9 million in our carbon capture and reinjection. So we've done Te Huka. Te Huka 3 is taken care of by the growth CapEx. This is to look at Poihipi, and also, to support the food and beverage opportunity that we talked about earlier on. Then there's NZD 10 million more spending around the sort of relight of hydro.
Originally, we were just gonna replace the transformers that died, but we're now going to do the ones that rocks as well. With all of the stuff going on internationally around renewable development and the strain on resource, you know, with things like the Inflation Reduction Act and what that's gonna do, we will keep a close eye on this because supply chains are getting longer, so we wanna make sure we've got the right strategic spares in place. Because the last thing you wanna do is have an outage and then be waiting months on end to get assets in to replace those. We'll be keeping a watching brief on that. Now on to the grand finale. It says aspiration up there, but it's not actually an aspiration.
This is just how the numbers fall out, actually. As we'll get into it, I actually think based on some quite balanced assumptions. We've talked about the geothermal element coming through here. I mean, there's not too many numbers you need to tie together to get to that. It's 2.2 terawatt hours of new base load generation coming online. I've said the direct operating costs are NZD 10 a megawatt hour, so you can put whatever price you want into it. Take the ASX, you can take PPAs, but you're gonna get a big number. That's what that NZD 267 million is that's flowing through there. The rest of the business goes up by NZD 21 million.
What you're seeing is price increases are just about covering cost inflation. Within the price increases, you've got what we call our market channels, which is CNI, CFDs. They're actually remaining relatively flat because the net backs or the net price on those are quite renovated at the moment, you know, because of what we're seeing with the ASX. We assume that they revert to our long-term view of 105 real at Ohaaki in 2022 terms. The longer-term channels, which is our retail business, our longer-term PPAs, and actually, we've chucked in Tiwai in there as well, that escalates with CPI.
In terms of the other income, you've got the loss of steam from Te Rapa, which is replaced by the additional geothermal growth that we've got coming through in the NZD 267 million. Offsetting some of that, you've got all of the additional EBITDA that we've got coming through from the new adjacencies that we've got within the retail business and continuing to grow broadband. Then you've got some value coming through from our solar uplifts, and that relates to the 2 solar grid-scale solar investments that we're making, so getting grid-scale batteries and solar bundled up. Look, when you There's definitely upsides and downsides to this. We don't expect TY to go up with CPI. We'd expect that to reprice, so that would be upside.
Downside risk, although we said that we think it's incredibly unlikely, Ty will leave. I think Matt mentioned earlier, there's a regulated WACC reset on the networks that kicks in in April 2025. We're assuming here that that gets passed through to the market, so that's definitely a risk around this, a downside risk. We think, you know, market prices, market channels remaining roughly at the same level, and long-term channels just going up with CPI doesn't sound particularly aggressive. I think that's a relatively balanced way of looking at it. We think that NZD 815 million of EBITDA is a sort of fair reflection of where we'll end for FY 2027. That's the end of that section.
We're on to Q&A now, so I'll invite Mike back onto the stage, and we can take some questions. I mean, we do have the entire leadership team here today, so I know you guys always go easy on me and Mike, apart from you lot at half year results, the full year results, so you can ask us the really difficult questions now that we've got the LT here.
Happy to take questions.
We see some.
There's a question over there. Yeah, sure.
Just on RNT.
Yeah.
What are the risks, key risks for the commissioning period, and risks that you generate from the same time?
The key risk is always the mistakes that have already been made and which you don't know about. That's what commissioning is all about. It's the risks that someone's put something in you or a supplier's given you a defective part. The commissioning phase we're now in is just about stepping in and testing each of those. We expect to have a pre-commissioning run, a warranty run, which runs for 30 days prior to declaring victory and saying, "John, it's all yours. Don't mess it up." Yeah, that's your biggest risk in commissioning. If there's a problem, it's already there. The whole idea of your commissioning runs, your A and B checklists and all that good stuff, are just making sure that you find those things and you deal with them.
You do get generation, for the 30 days prior to, declaration of victory.
Just, yeah, just an update on costs and...
We expect from the experience of Idaho, that it'll be cost neutral. We still see the site and its connection as having phenomenal value.
We're staying on the site, so we're not actually having to decommission the whole site, our experience in the past has told us that you can get enough money through the scrap to actually offset the actual decommissioning of the plant by itself. We've got a tax write-off as well, which is a benefit, so there's still some tax written down value, which we still, we'd expense when the plant gets decommissioned, which should be favorable to our cash flow.
Last, on the same business, can be exposed to the climate period.
It's back down to $65 million, but in real terms. We'll keep checking in on that. There's a lot going on with our portfolio. Obviously, we've got, you know, Wairakei is going to see CapEx going up a little bit. I suspect as it gets closer to end of life in 2026. You've got new plants coming on as well. You've got inflation. Overall, I'd expect our standard business CapEx per megawatt hour to be going down because ultimately we're going to end up with pretty new fleets of geothermal assets in our portfolio.
a very refurbished hydro set-
Yeah
as well.
Yeah.
Thank you.
Okay. Just looking back, since you gave that long term price, and I'm interested in looking at is sort of the North Island versus South Island price, which is that one to...
I'll give you my view. I expect the price to be more coupled with the installation of batteries, as Dorian alluded to. You know, in terms of that, I think there's a primary. The LSI upgrade that you saw, Transpower installed, it removed a lot of the risk of South Island Transmission generation unable to be able to get north. The second issue is the reserves in the North Island. Batteries will solve that, as does the demand fleets. Ultimately, I'm expecting a far closer coupling, preceded by, of course, the upgrade eventually of the DC link.
Yeah. Yeah, it's, the NZD 105 is an overdue price. It's a very difficult question, and to answer at a high level what we know. Yes, I agree with what Mike Fuge said. The topic here is as the market grows, it's what's happening to transmission and is it keeping up? I think there's gonna be, if you're gonna get transmission constraints popping up against places that you don't have them at the moment, I think that's gonna be one of the key things that's gonna cause sort of different separation between those, things like that, we need to keep an eye on. Yeah, it's a difficult one to answer, Andrew, as you know.
These couple of questions are sort of like, you know, the supply and demand. First part is, let's say now, this is what we continued with a couple of years ago, and we wanted to look at the impact that we were doing. The second part, which is, if I be on each board of decisions, do you actually see that supply and demand as that kind of climate become better than that, but mark is not going to be in place by-
Yep. To answer the second part, absolutely, yes. We live and breathe that supply-demand balance every day, and we're constantly reassessing. I think the two big surprises, post, given the minor detail of COVID, was the closure of the refinery and Marsden Point. We were concerned at one point that this government had no interest in retaining heavy industry in this country. I personally had deep concerns about that, about what our children and grandchildren were actually going to end up doing for a living. It appears this is why the New Zealand Steel, apart from just being a cracking deal, with great opportunity and on a great site, that's why it was so important that it actually signaled, no, actually, there is some commitment there that this country won't deindustrialize.
The surprising thing about demand is despite that loss of 0.5 terawatt hours, it stayed remarkably robust through that period, counterbalanced by, for instance, EV, credit.
All that work we did a couple of years ago, the investor day, Andrew, I think, was highlighting where, what would happen to the Tiwai exit, which, you know, how the volume would flow north and what would be displaced. I think our sort of firm conclusions from that were the big losers would be the upstream gas, and obviously, coal would stop, and you would have, obviously no gas really going into the electricity market. Anyone with sort of gas exposure was gonna be the sort of the loser around that. I mean, as I said, we are now comfortable. We can't see Tiwai adjusting it would be a travesty for climate change if they did. Yes, we absolutely do assess the market every time we make a major investment decision.
It's still the number 1 risk on our risk register, is market oversupply, and I suspect it would be the number 1 risk on all the incumbent risk registers. You've got to get yourself comfortable with that. You know, we have the firm belief, though, that the electricity demand is gonna grow. It hasn't grown quite as quickly as we were expecting, but it has to grow, and we think it will do.
I think the thing there with electricity demand, it's a bit like Philip's decarbonization graph, is that for years, people were wondering, "Why the hell aren't New Zealand's carbon emissions finally coming down?" You've got to be persistent. They have started finally to decline, and I think there's a similar lag with the demand growth. I think you will see the conversions of EVs and homes and process heat over the coming years.
In the last couple of questions, just actually on the system. In the slides, you know, talked about price, you said price would be better.
Yep.
When you talked about the current price.
Matthew's right next to you.
Price.
Yeah. Yeah. About price?
Price, yeah.
What's that, what the price is gonna be?
I can tell you.
I'm not allowed to say.
You can give me my think envelope. No, the price in all our accounts is there is a fair and reasonable expectation of price. That's as much as we can say. We're committed to supplying our share of that, which is went up around the 100 megawatt mark. We're not, and it's not even whether you're on the same bus, you're on a whole lot of different buses. We're on a little minibus at the back here. There's a couple of big buses in front of us that have to go first.
Last question on that, the link between itself and the project.
You can.
Yeah, yeah.
Yeah.
In terms of volume,
Too early to say. Obviously, with intermittent renewable developments like that, certainty of supply around PPAs, we're going to be looking for PPAs. We can look at that. I think the two messages, one is, of course, we hope the snow stays. If it doesn't, we're ready for that, particularly with the LSI upgrade and the installation of batteries. Absolutely, it would be tough. It would be tough for everyone, but we're ready and would mean a delay in projects like that wind project. As I've continually said up front, get those intermittent projects off the ground here. Good quality PPAs are the way to go. Jacqui. By the way, it's not the police that are coming in the van.
You've got a lot of margin of buffer for wind, just assuming you're in the, in the world, added to the country. You're NZD 8 there, you're in 0.102. That's really good to 97. How do you get this one out of five? Are you assuming some sort of incremental firming costs in the market, and including the price of biofuels and gasoline?
Biomass, biomass. Yeah.
We're assuming biomass at whatever price that is. I mean, honestly, you've struck, absolutely hit it spot on there, Grant, is that we have a fundamental belief that everyone has underestimated the value of firmed electricity. Whether you look at our own jurisdiction or internationally, it's either burn dirty coal and pay a fair and reasonable exorbitant carbon price, or burn gas and pay the carbon price, or burn biofuel. The reality is, the cost, a fair and reasonable cost in a free market is much more than anyone estimated and shouldn't be taken for granted.
Just staying on, with Geo and the 75, you know, instead of sending kilowatt hours there to supply us resource. Why are you even considering them? Considering all that?
Um-
You're not focusing on some more as well.
I can answer it. We need to test the reservoir. Because when Tauhara comes online, that's gonna be a big amount of volume coming out of the reservoir, the Tauhara field. We've been on the field for a long time with Te Huka, but that's a lot smaller, so we need to give it a little bit of time to see how the field, the reservoir is working before we then make a call on the south, you know, the location and everything else. In terms of our capacity, within Contact Energy, we've got different areas of the business focusing on different things, so it's within our gift to be able to do these things in parallel.
You know, with the quality of that resource down there in the lower South Island, subject to T1, obviously staying, you know, we think it would be a valuable addition to our portfolio.
Thanks. Just the last one, finally. This Microsoft deal, it looks like somebody's paying you just to have, you know, extra renewable report. Probably about, like, NZD 4 million or NZD 5 million for, as I looked at, and should we expect to have similar to this for all the other renewable assets that are not coming in line in the next many years, and you should boost that into the number already?
Look, your cynicism is noted.
Mm-hmm.
What I can say is that in the States and in Australia, renewable energy certificates are a thing. They see them as incredibly valuable. They see them as a path to demonstrate, first, the path to 100% renewable electricity on an annualized basis, and the half-hourly basis that Dorian was talking about, the way that those companies see the way through to that is through the renewable energy certificates. Are they a thing? Yes, they are absolutely a thing. In terms of Microsoft taking the attributes of Te Huka 3 to help with the economics of project, absolutely, it helped get it across the line. Do we expect to sell more? Absolutely, because if anyone wants to claim 100% renewable electricity as their supply, they're gonna have to...
If they really want to guarantee it, they're gonna have to buy the attributes.
Yeah.
You know, we were surprised, you know, someone takes 100% of New Zealand's tallow, turns it into bio- diesel, and sells it to Californians, and we just sell them tallow. Someone sees high value in that, let's go for it.
The market, there will need to be some more regulation around the market, because what that actually means is the Scope 2 emissions that everyone else has got, where they're just buying directly from the grid, are actually gonna be slightly higher than just the natural, reported ones because someone's already claimed the rights to the renewable aspects of different plants. All that stuff's gonna really need to be, bottomed out.
Such a variety of where the questions come from each time we do this. It's wonderful.
Some of them, Matt, but pleased to see that this largest retail over market, overlay from ECP.
Yep
... solution. Dorian, you commented earlier around keeping with PowerDrive.
Yep.
What they're doing there. Can you talk about this, the heavier the functionality of SCP, what options you're looking at and what you're thinking about there with this one or anything else?
Yeah. Let me give you the straight-up answer to that, is that when we started the SAP upgrade, S/4HANA, we started with an intent to upgrade the CRM. Very early days, we shut that down and put it on hold. One, because of the challenges we were encountering internally, it was clear that SAP did not have quite what they thought they had. Number two, it was clear the rest of market was developing at pace in the CRM space. Certainly what we experienced on the European tour, the likes of Octopus, they are now do VPPs with electric cars and home-installed batteries and solar as a matter of course. You see also interesting developments with the likes of Salesforce as well.
In a way, what turned out to be a misstep has turned out to be actually a damn good opportunity for this wonderful, evolving world of innovation that's coming right at us at a rapid pace of knots. That doesn't answer your question directly, but put it this way: I am glad that we were able to stop because a world has opened up to us.
Yeah. Those are our lessons learned.
... I'm sure this has been challenging. Obviously, for specific science and safety. I think, there's 2 aspects to that, is the world has changed. Rio have got serious about their sustainability credentials, about controlling the carbon emissions, and about the value of the aluminum, which only produces 2 tons of carbon versus-
Sixteen.
16 tons of carbon. There is a real moral imperative to keep that smelter going. From the perspective of PPI, well, this is something just fundamentally we put out. We believe that the price should be NZD 105 real, is that we are moving to a period where these renewable projects will move from a short-run marginal basis to a, "No, it's a subscription basis." That is the basis of the deal we've done with New Zealand Steel, is that these things, believe it or not, don't come for free. Any deal with the smelter will be underpinning both existing and new renewable generation. That has to be paid for, and a PPI or CPI-linked PPA is the way that that will get paid for. Will that lead to problems further down the track?
It could, but the reality is, it will be supplied with high quality, near 100% renewable electricity for a very long period, and that needs to be funded and paid for. Okay, first of all, can I get a round of applause for Shelley and the team who have done an absolute cracking job? Huge ngā mihi nui, for all the hard mahi that went into it. This, that has just been awesome. Look, I hope you got a flavor of Contact today, and two things I hope in that: one, it was the Contact you recognize, but also the Contact of the future, where clearly we have ambition, and we have an ambition for growth that is not just... What was the term you used, Jacqui? In terms of brigawatts.
These are real and hard, and you're about to see them. I hope you'll also see in that a transparency and honesty. Look, we're happy to front up to issues, and whether it's the story that Jack told you about the journey we've been on with Tauhara or where it's fronting up to the issues we've had with AGS, it's to be transparent, it's to be honest, it's to grab hold of the taniwha's tail, face up to it, and move forward. With that comes an exciting future, and the wonderful thing about this is that for all the people in the room who are with Contact, we get to turn up to work and deliver real and growing shareholder value in a way that is completely consistent with our internal value set. Because we are genuinely reducing carbon emissions.
We do it with good intent. We are genuinely growing the next generation of New Zealanders who will deliver the next wave and the next wave beyond that of renewable energy projects. We also saw today, Matt and his team, the way they connect with half a million ordinary Kiwi households each and every day. Our hope is that we can join them, too, on that decarbonization journey. I hope that Dorian's presentation at the end gave you some insight into value, which, quite frankly, we see as underrecognized. This is a cracking company with a cracking portfolio and with a cracking future in front of it. With that, I won't take up any more of your time. Thank you for your questions. Thank you for your attendance. Thank you for coming down here on what the Scots would call such a dreich day.
As you can see, even on these dreich days, we are perfectly capable of delivering outstanding value. Thank you.