Good morning. [Non-English content] That is as international as the day will get, because today is about New Zealand. It's about the opportunity here we have here in this country. It's about the opportunities below you. Right now, it's the opportunities with the group of people in this room. That is what we're excited about. It's about an opportunity that is here and now and is an opportunity in front of us. Without further ado, let's get underway. Welcome to Capital Markets Day 2021. I'm Mike Fuge. I'm the CEO. I feel incredibly privileged to be here. It is a privilege for all of us to be here given what's going on in the rest of the world still. Welcome and let's enjoy the day. One of the feedback from the CCI is that you guys felt you didn't know me.
We hope to rectify that over the next 24 hours. You had a sense that I was maybe too grandiose in our ambition. I hope to correct that in your underestimation of what we're about. I don't think we're thinking big enough, but the opportunity is here and now and it is in New Zealand. We flip to the next slide. Sorry, I'm in control. Wow. Right. What we got today? You've got me up first, and then James is going to give you a bit of an insight into what we see in the grow demand. It's a question you all fed back to us. You're curious. You are understandably a little agnostic, and by the end of the day, what we hope to give you the confidence that this is a here and now topic. We're going to talk about our renewable development pipeline that we've got.
We do regard that as a distinguishing feature of Contact Energy. Over the last decade, in a decade of flat demand, one of the gifts I got was this company managed to keep hold of its development pipeline, and we are very much poised to grow with a fantastic portfolio of some of the lowest LMC opportunities in the market, let alone for firmed electricity. Jacqui's going to then talk about our announcement earlier in the year and what we're doing around decarbonization. Then Matt Bolton will talk about our customer experience and how we intend to grow in that space. Enablers.
Catherine, Jacqui, and Jan will then talk about the additional asset, about ESG, operational excellence, and what we call T-WoW, not TY, T-WoW, which means Transformed Ways of Working, which we've already seen have a huge impact on the company, and again, we regard as a key strategic strength. Dorian will wrap it all up. I would ask that you hold your Q&A. There's a couple of opportunities for Q&A as we go through. I would ask because we've got a truckload of stuff to get through. We are going to make you drink from the fire hydrant as we go through the day. Hold those questions. You'll have plenty of time at the end, and you'll have plenty of time as we go on the bus to the sites and everything like that. Okay. Right.
More than anything else today is about you guys. I say guys, I want to see females in the room. We'll talk about that later. It's about you getting to know us. Me, James, Jan, Dorian, Jacqui, Catherine, and Matt. We'll seat it over here. Beyond that, the broader team, because one of the hidden strengths of Contact Energy is the profound talent they have working on this stuff and I hope you get a sense of that. We've got some other people over here, Jack Ariel, who just joined us, Major Projects Manager. Probably some of you know him. He delivered Te Mahi at the refinery. Carl, Western Energy Services. Welcome. We're very proud of that acquisition. Andy Sibley, Simply Energy, just to name a few. Take the opportunity, get to know these people over the coming days.
It's these people, much more than myself, that will give you the confidence that we are truly able to seize the opportunities in front of us. Just recap 2021, and give you a bit of a inkling of where the strategy's heading. Let's just go 2021. Despite COVID, we have not been idle. We took 100% ownership of Simply Energy in July. We took FID on Tauhara, New Zealand's largest private investment post-COVID, which the government we're very thankful for. We have introduced transformed ways of working, and Jan will talk about that, both the hard benefits but the soft benefits. I feel slightly embarrassed. The 480 clearly, when I came into the company, we were sitting around 450. We thought we'd take a couple of years to get back to the mythical 480. We've got back and as you're all probably aware, we'll go past that number.
We've supported over 1,000 households on energy hardship support. Our NPS, our customers have fallen from being extremely agnostic about us to absolutely falling in love with us and to Matt and his predecessor, Vena, we owe a debt of thanks. Western Energy, as a former oil and gas guy, I'm very proud of this acquisition. They talk a language that I understand, which is great, and we see profound opportunity. We are actually the owner of New Zealand's largest number of well penetrations. We have over 300, and we see the opportunity in getting more out of the existing business with maximizing the enthalpy we get out of the steam. If you do not understand that phrase now, you will by the end of the day.
We have reduced our carbon emissions 7% year- on- year. We have got into a partnership with the best wind development experts in the country Roaring Forties over the last year. The year's not up yet. We have been busy. What we do want to introduce today, because one of the things we roundly get criticized for, what is the path ahead? If we think about the past, this is what I inherited. The company should be extremely proud of this. We have had an incredible focus on efficient operations and use of capital for the last 10 years. We've got ourselves to a position where our operating cash flows per megawatt hour are the best in the business.
We have got a strong record of cash conversion, and we do have a very strong record of reducing both our operating costs and our stay in business CapEx, which we're extremely proud of. That has positioned the company incredibly well. One of the things, the passions I have, there's no point in talking about growth if you do not have a solid foundation and track record to demonstrate that you're not going to grow at all costs. You're going to grow prudently, sensibly, with the most capable people. This track record is incredibly important in that regard. I know you guys and ladies in the room, you live and die by your spreadsheets. This is my innovation and time liberation for you all. You don't need them.
You can see our cash conversion over the last four years with our 12-month rolling EBIT there. You don't need the 700 line spreadsheet to get there. We have been remarkably consistent in our delivery despite the volatile wholesale markets and rising fuel costs. You can also see it ticking up. For those of you who haven't been bothered to update your forecast for year end, you can take the opportunity to do so now without going back to your spreadsheet. We have been remarkably consistent and reliable in that regard. You can see that this year is heading to a strong year. At the same time, we've acquired some distinctive capabilities.
Today, in particular, we'll be showing you our geothermal capability, where, one, Jacqui and the team have a strong track record of year-on-year cost reduction, which puts us well ahead of our peer and peers in this country. We have acquired strategically, the partnerships over the last 12 months. Those partnerships, quite frankly, have been in existence for a very long time before we acquired full ownership. They are the fruition of a long relationship. You see that NPS score, which I talked about earlier, how that has been turned around over the last six years, where customers genuinely value the service they get from Contact Energy. Given all that, it's not about what's behind us, it's what's in front of us that counts. There are two fundamental shifts in the electricity market ahead of us.
One is New Zealand, possibly more than any other Pacific Rim country, is getting on the journey of decarbonizing the economy, and they're getting on it at pace. I think for those visiting the country, as you go around and listen to the conversations, whether you're at the stakeholder event, you will get an overwhelming sense that this is not a debate anymore. The pure question now is pace. The country is very much behind this, and the country is very much going to do it. I use the analogy of our response to COVID. There was a little bit of debate about the response prior to, but once the country, to use the infamous phrase, "Team of 5 million," decided that was the way it was going to happen, it happened. I suspect or my sensing is the country has taken a very similar view of decarbonization.
If we're going to do it, let's get on with it. The second thing which is going to happen at some point, we don't know when, is that New Zealand Aluminium Smelters will come to the end of its life or to the agreement. At the moment, that's 2024. Obviously, it caused a bit of a debate around the time, that as we go through this today, I think that is a thing of opportunity. James will talk further on that. Those two events are big and they're in front of us. It's not about the gain behind us, it's what's in front of us. Decarbonization, incredibly important. We are going to see, the Climate Change Commission have been absolutely clear that electricity will become the fuel of choice.
There is an increased focus on climate change globally, as you're well aware, and you're seeing the passion of the New Zealand government. Strangely, particularly the Labour government have decided to occupy this space. You see increasing carbon and gas prices. It's an interesting winter, to say the least. You see our electricity costs, the costs of particularly solar and wind have come down, and they are now very much competitive against any alternatives, and that's a global trend. You've seen the technology costs. You've already seen it in wind. You're now seeing it in solar. Geothermal is already there. You see it in the other innovations ahead of us, electric boilers, EVs, batteries, electrolyzers.
All those what we regard as new technologies are very much on what I call the technology curve, and I think we can only stand back, and we're not going to stand back, but watch this space. They are on the curve, and the cost of those will drop faster than we think. The Climate Change Commission expects electricity demand to grow by about 1.3% per annum. Some of that's going to be quite naturally driven by EVs. Industry is a big one. We think that we can get industry there faster, and I'll talk a bit about that. About 20% of it is from buildings. That graph changes slightly if NZAS exits in 2024 with no mitigation or no extension, but the trend is still the same.
Our imperative is to deliver on our commitment to decarbonization and to make sure that that dip doesn't happen quite like that or is much improved. For that reason, rather than being a passive supplier, one of the changes in direction is that we're going to get alongside our customers and help New Zealand decarbonize. That is very much the focus of the team in the room that you'll talk to over the coming 24 hours. 2030, what's it going to look like? We're pretty sure that NZAS will be gone by then. I think that plant has its life is about 2030. You'll see baseload thermal gone, and you'll see very low utilization for the remaining thermal assets, which Jacqui is going to talk to you about later. You'll see intermittent renewables dominating generation mix. You'll see far more wind and solar. We get that.
Yeah. You'll see geothermal as the only effective baseload in the country. That's great. Geothermal, I was talking to a couple of people before, is effectively New Zealand's nuclear power of the future. It gives us that 100% or near to 100% uptime baseload and allows us to decarbonize without having to take on unpalatable alternatives that other nations may have to. You'll see batteries and large-scale demand flexibility supplementing existing hydro reservoirs, and the remaining thermal peaking plant. You will see a change in the way the industry funds itself with emphasis on longer term PPAs to make sure that heavy capital investment gets an appropriate return. For those of you who were at the stakeholder event the other night, you'll recall that final challenge I gave to industry. It's going to be bumpy. You're going to see increased volatility.
The winners, quite frankly, will be those who can attract new demand with those long-term PPAs securing a long-term income to enable the recovery of that heavy investment. Quite frankly, Contact Energy is best positioned to enable that decarbonization. We have a proven decarbonization growth platform combining Simply Energy, and you see some of the toys that Andy's brought along today. Our deep market knowledge, and I'll pay credit to the team. The position we are in today is a credit to their anticipation of events and against even some fairly significant challenge, they made a decision to drop synchronous inertial response over a year and a half ago because they saw what was coming. You'll see a strong retail brand and that improved customer experience, and you'll see our capability to lead the energy transition. I alluded before, we have New Zealand's best renewable development pipeline.
It's sitting beneath you now. We have the best part of 3 TWh of high-quality, low-carbon geothermal ready to be developed. Our intent is to develop that over the coming decade. We will lead New Zealand's thermal decarbonization transition. We've led or replaced almost 3 TWh over the last 15 years, closing the New Plymouth and the Ōtāhuhu power stations. We intend to continue with that leadership position as we work out what we do with the thermal assets that we have to ensure a smoother transition for New Zealand. I use that term of leadership because that is our track record, and quite frankly, with our place in the market as an intermediary, it's something that we can do. We do have low cost of operations. I've already talked to that. We do have New Zealand's largest electricity brand.
We have well and truly gone past Genesis now. We're very proud of that. That was done through sheer hard work and a credit to the team. We do have future-focused capabilities. Over the last year, in particular, the acquisitions that you've seen and James' own efforts in building up a brains trust to help with that demand growth and renewable development, and hopefully you'll meet some of those over the coming 24 hours. We are ready for that. That is quite simply where we are today. Contact Energy, Contact 26. I think by the end of the day, you'll be truly excited about what we have in front of you. What's the strategy? Four strategic themes. One, grow demand to attract new industrial demand through New Zealand's unique endowment of globally competitive renewables. We believe that is a here and now.
It is not something to be done passively. We have to get alongside industry and government to make it happen. We passionately believe that. Number two, grow renewable development. We have New Zealand's best development pipeline. We're proud of it, and we're going to build it. Number three, decarbonize our portfolio. We have to do this sensibly to ensure as smooth a transition as possible to protect the interests of our stakeholders, our shareholders, and New Zealand Inc. Number four, we're going to create outstanding customer experience, whether it's mass market with Net or Simply Energy. We want to help New Zealand, ordinary Kiwis decarbonize. Sitting below that are the enablers. You'll see the increasing focus on ESG, which will create long-term value. Yeah. You'll see our focus on operational excellence. You'll actually get to touch it over the next 24 hours, with a continuous business improvement end-to-end.
It is a unique capability both here in New Zealand but globally. You'll see transformative ways of working. We're quite frankly happy to use my chair's phrase, lean in to the opportunities that this presents. We won't get it right all the time, the key, what distinguishes us from our competition is that if we make mistakes, we learn from them, and we move on. That is the way we've approached transformed ways of working. COVID gave us an opportunity. We've taken it. We've run with it. Jan will talk about the lessons we've learned on the way and what are some of the things we see ahead. What you'll see, you'll see growth. Yeah. You will see growth of this company. You'll see resilience. You'll see us delivering sustainable shareholder returns.
You will see demonstrable commitment to our ESG principles. You will see a step change in performance with materially growing EBITDA through these strategic investments. Here are some of the ambitious measures of success. You can test this by it. You'll see the building of in-house capability for attracting industry support for industry demand. You will see 100 MW of new commercial industrial demand by 2025. You'll see the market-backed demand opportunities maturing to replace NZAS. Renewable development, you'll see Tauhara online by 2023. Thank you, Jack. You will see us taking FID on new renewable build, whether it's Whirinaki and/or solar and/or wind. We recognize competition. We see competitions between these technologies as incredibly healthy for our own portfolio. You'll just see a decision on the North Island battery by 2023, early 2024. You'll see 100 MW of demand response capacity by 2025.
I asked earlier, we are at 11 as we sit today. You will see the thermal review completed, TCC decommissioned by end of 2023. As you see Tauhara come on, you will see our Scope 1 and Scope 2 emissions reduce from the 2018 baseline by 45%. In customer, we want to be a top 10 most trusted brand by 2025, moving from Simply Energy retailing to being a retailer. We are very proud of the platform we have created, both with our people and the IT platforms. We think we can go further. That will mean we are over 650,000 customer connections by 2025. We will continue to lead the market on cost to serve, getting below NZD 120 per connection, and 75% of our customer interactions will be digital by that stage. The three key enablers, you will see our commitment to ESG play out in real life.
You will see continued operational excellence, where we use innovation to improve our business efficiency. You will see our continued prudent management of our capital. We realize it is a privilege, and we will continue to manage it carefully with the utmost prudence, and you will see us driving towards economies of scale and further digitization across the whole business, not just customer, but in our generation space as well. You'll see us transform the way we work, where we continue to use technology to modernize our operating model. We will redesign the way we work. We will increase our employee engagement. This will become, if it is not already, the workplace of choice for Kiwis, for our youngest and brightest in particular. Right. On that note, and spot on time, I'll hand over to James. Remarkable. I finished on time. None of us had that.
We ran a poll. No one had that. Okay.
[Non-English content] Good morning and welcome. My name is James Kilty. I am the Deputy CEO here at Contact. Welcome to everyone dialed in online. What I just said there was a very short mihi welcoming everyone to this region, acknowledging Ngāti Tūwharetoa. They are the indigenous Māori people of this area. This is their rohe. We are in their part of the world, and it's important we acknowledge that every time we come together here in Taupō in the beautiful central North Island of New Zealand.
In these parts, I'm known as Hemi Piupiu. My name is James Kilty. Hemi and Piupiu is the grass skirt that Māori wear, kiltie. I get called Hemi Piupiu around these parts. I also get told these days, [Non-English content] which is an old face because I've been around so long and well-known around here. It's really nice to be here to talk with you today, and thank you all for making the effort. Particularly on Budget Day coming to see us instead of listening in to the budget. Perhaps a little scheduling error. I'm not sure Owen would have done that, Matt. Too soon? For those who don't get that little in-joke, our wonderful Mr. Matt Forbes, our Investor Relations head, was up for an award earlier in the week as the Investor Relations Manager of the Year, and came obviously an extremely close second.
I think that's not because of anything he's done, but more that we haven't given him the material to win the prize. Hopefully today we can resolve that. Thanks for organizing today, Matt. Look, it is fantastic to have this time to talk to you. I want to talk to you, of course, about our strategy. The two pillars of our strategy that I'll focus on are growing demand and the pipeline of renewables that we'll bring forward to meet that demand as we grow it. There are a couple of themes I want to plant with you. Mike's already mentioned them, and they are long-term deals. The market will change. To enable the decarbonization of our energy sector in New Zealand, we will have to see customers working more closely with us to create long-term deals that underwrite the investments that are needed.
We are seeing some interest in that. We are seeing some changes, and I can talk about those as we go and take some questions towards the end. The other element and theme that I think is really important is around partnerships. Partnering without ego. Partnering in a way, and we call it our Tikanga, in a way where you leave your ego at the door and you do what's right and what's necessary to get things done with an open mind. The capacity, the ability to build partnerships is a really important capability and something we have focused on in the last few years. Some of the acquisitions Mike mentioned are the outcome of that sort of capability we have built. The last theme is one of integrated thinking.
A lot of the things we talk about, I will talk about as individual slices, I guess, of how we are looking at the market going forward. It is all connected. There is a butterfly effect in this market and this industry, and we are very mindful of that. It's why we value so highly the deep market expertise that we have. We do perceive that as a difference. Our ability to connect the dots and put ourselves and our resources in the right place at the right time, and the way we do that through our tikanga, gives us an edge. That partnership approach is one, is a Māori phrase, [Non-English content] moving forward together. We think as we decarbonize energy, we are going to have to all be very conscious of how we work together and partner, because no one entity can do it alone.
The entities that win, that do the best, will be the ones who are willing to work with the right people, who can attract the right capability to get things done. That's Contact. Okay. There are a lot of predictions of demand growth, accelerated demand growth. You'll have seen the chart on the left, probably in publications from the Climate Change Commission's draft report, and you'll have seen the numbers on the right-hand side of this chart as a consequence of the estimation of the acceleration of electricity uptake required to meet the draft Climate Change Commission report. That is very material growth, as Mike said. 3 TW hours out of buildings and space heat, 5 TW hours from industry and heat, and 6 TW hours out of transport by 2035.
The trick here, as Mike alluded to, is in that 5 TW hours of industry, we do assume NZAS replacement. That's what we talk about down the bottom of that slide, the emergence of a new industry. New industry to New Zealand to replace NZAS as it exits. We also see a material opportunity in data centers. I'm going to talk about all of these opportunities this morning. Going out on a limb here, the draft Climate Change Commission report does reflect a continuing deindustrialization of our country. It says we meet our Paris targets through large-scale industry, over time, exiting New Zealand. It seems completely at odds with a global push to decarbonize supply chains. In a nation with an abundance of renewable resources available for development, it seems completely at odds to hit goals by shrinking.
The opportunity set for New Zealand is to attract business to our green fuel, to attract foreign investment into New Zealand, to secure access to a green supply chain. We are seeing very real interest in that as a consequence of NZAS' recent announcements of exit. That, I think, is a message to land with you. This is demand led. We are hearing from people here and overseas a strong desire to come to New Zealand and utilize our clean, green supply chain. As Mike alluded to, we have positioned ourselves extremely well to be ready for this moment. We launched our decarbonization strategy internally three or four years ago. It's from that strategy that we started gathering to us the capabilities that we thought we would need to be able to execute, because we knew decarbonization would come. It was a matter of when, not if.
We have been out in market creating partnerships, securing the capabilities ready for this moment in time where we see an inflection point, possibly and actually stimulated by NZAS's announcements of last year. That has stimulated the interest that we were trying to stimulate ourselves. We of course, have a wonderful existing renewable asset base. We have New Zealand's best renewable development pipeline. I'll talk about that later in the piece. We have developed electrification partnership with Simply Energy, and we have demonstrated again our willingness to partner in our partnership with Meridian to look at the hydrogen opportunity for New Zealand. The other point there, that other theme, long-term partnerships. Long-term relationships that enable customers to decarbonize over time and underwrite new investment.
Here's the five things that I'll run you through for the next half hour or so, and then we'll stop and have some questions. We were going to have a panel for Q&A of myself, James Flannery, Andy Sibley, who is here, and Murray Dyer. James is very busy working on the hydrogen project, and so hasn't made the trip. Murray got a call yesterday from a customer wanting some help with some decarbonization thinking, and so Murray is elsewhere in the country, talking to both a network and a customer on how they make a change. The panel will be myself and Andy. I'm not sure what you're a duo, a dynamic duo. I'll take you through our hydrogen thinking. There's a limit to how much I'm going to talk to you about hydrogen.
We are working in a partnership with Meridian, and we will release together our joint report in due course, but I'm happy to field some questions on that in the Q&A. Talk to you about process heat, and the conditions we think that are emerging that enable growth in our electricity consumption from process heat. Space heating, the data center opportunity. I have a short video from a business we've been working with who are bringing a data center to New Zealand. We've just got a couple of conditions left to tick off before that gets underway. Of course, our capacity here in New Zealand to decarbonize road transport, a well-known, and yet still challenging opportunity. I think we start with why hydrogen.
Why would we be looking at something that a few years ago we were all saying, and I think 2018 we had a conversation about our decarbonization strategy up at the Te Mihi Power Station, and at the time I was asked about hydrogen, and I said, "It looks distant at this time." That has changed. There is no doubt the context has changed on hydrogen. Again, a big thanks to our friends in the deep south for announcing their exit because it has stimulated unprecedented demand. I spoke two or three weeks ago, Zoomed into Japan at the Japan New Zealand Business Council on a joint study we're undertaking with Meridian. We have been swamped with contacts since then from potential customers, from potential suppliers. This is something that's real. There are many countries out there who do not have our abundance of renewable resources.
Japan is the obvious one. I'll talk about that a lot in this discussion today. They need to find solutions to the importation of fossil fuels. They are enormous electricity consumers, Japan and South Korea both, and both have struck on hydrogen as a key part of the solution for them. Countries around the world are tweaking to this. The investment going into hydrogen is phenomenal. NZD billions around the world. At the moment, it all sorts out. There's a lot of technology hurdles to jump through, a lot of challenges in the way. The only question I can't get an answer to from anyone who starts saying, "Well, it's not going to be hydrogen," is, "Well, if not hydrogen, then what?" The answer is, we have to solve the technology problems.
We have to solve the commercial issues and make it work, because actually there's no other alternative for many of these nations. If you're a country with abundant renewable resources, shrinking to meet your national climate change goals, shrinking your economy rather than bringing investment in and growing your economy and exporting your renewables in whatever shape or form seems an unusual step to take. Those other nations are crying out for the opportunity set that we have here. They do not have the natural physical advantages that we have. We are an obvious target for their thinking. We don't know whether it will be hydrogen, liquid hydrogen that is exported or whether it will initially start out as ammonia. Ammonia, of course, has the advantage of having existing supply chains, existing shipping technology, ports and infrastructure around the world.
Over time though, we think in the fullness of time, liquid hydrogen technology will advance to the point where we will be shipping liquid hydrogen around the world. We are undertaking a NZD 2 million study with Meridian into this opportunity. We've appointed an advisory board from people around the world. We've got strong hydrogen engineering capability, strong markets capability, shipping capability, advising us and guiding us on how we take our study forward. The study is being undertaken in three parts. The first of which has been largely completed. It's in editing mode, trying to demystify some of the language. It's fairly dense. A wonderful piece of McKinseyisms. We've worked with McKinsey and Meridian, and as guided by our advisory board to examine the market. How will the hydrogen market evolve?
One of the observations I would make is that it looks very similar to the initial stages of the LNG market. If you can get to market first, and if you can secure an offtake, we wouldn't invest our money unless there was an offtake, then you will get an initial premium. If you can secure that offtake for term, then you can hold that premium, and that can underwrite a facility. There's still plenty of work to do to get our heads around all of that. The market scan says demand is there and it will grow, supply is short, and countries have announced targets that suggest they have no choice but to follow this path. The second part is the technology and engineering assessment. That is scoped and underway. Mike mentioned the brains trust.
We have secured some of New Zealand's leading talent into the business in hydrogen, and they are now examining this in conjunction with their workmates at Meridian, and advised by the advisory board. By August, we will have done, I guess, a brief technical feasibility study to identify the challenges that need to be worked through before making any form of decision on investment. Finally, part three, the dry year role. The benefit of hydrogen, I'm going to talk to you a bit about demand flexibility, both from Simply Energy and other forms of demand flexibility like data centers. The benefit of hydrogen is there is a degree of flexibility, potentially quite a significant degree of flexibility.
A large-scale hydrogen facility could act as a structural relief valve for a highly renewable industry, peaking when there's more supply than is being consumed in New Zealand and interrupting when we have our dry years, which we, of course, do have from time to time. The next stage in that process is actually a really important moment in our market. We will issue in early June a registration of interest process. It will go far and wide around the world. People are already registering their interest in receiving that document. It will be accompanied by the McKinsey report so that participants can see how we're thinking about the market. That will stimulate interest, we believe, from customers, from potential purchasers of hydrogen, purchasers of ammonia, purchasers of electricity. They may be existing participants in our market. They may even be thermal generants, who knows?
It will be far and wide, enabling us to understand what the best use of all of that renewable electricity in the Lower South Island is post-NZAS. Here are a few of the initial findings from the McKinsey report. I am permitted to reveal some of this. The high points are there is a developing international market for hydrogen, and it's going to grow very rapidly. There are announced about 50 GW, I think, on the next slide, but 50 GW of projects announced to supply. It's nowhere near the required demand. Japan alone, earlier on, I think two or three slides ago, I had Asian demand by 2030. That's the 2019 target. In the next month or two, that 2 million tons of imported hydrogen will go to 10. The Japanese government will announce that within the next month to six weeks. A significant increase.
To give you some context, if all of the electricity that currently gets consumed by the smelter went into a hydrogen facility, created liquid hydrogen and shipped it, that would be 70,000 tons. Japan alone wants 10 million tons by 2030. The market's going to grow. At the Japanese Business Council the other day, I would say this market is set to explode. Which created the same stir. Not the term. It's going to be exponential growth, not explosive growth. Hydrogen is, of course, very safe and a known technology and able to be managed. There is the opportunity for New Zealand to take a place in the supply chain. The water that comes free of NZAS in the Lower South Island from the 1st of January 2025 is an extremely scarce resource globally.
Over time, the deserts in Saudi Arabia and Chile will be covered in solar panels, and they'll create their own version of. The challenge for them will be their version of low-cost electricity supply will be intermittent. The supply at Manapouri is one available from the 1st of January 2025. There's nothing else of that scale on the globe that comes free at that time, and it's base load or very, very high capacity factor electricity. It is a single unique element that other nations do not have. There is the opportunity for something quite transformational. There is the opportunity to continue our own path to decarbonize our sector here and grow a new industry in New Zealand as opposed to following a path of shrinking in order to hit our decarbonization targets.
It's an opportunity we believe we should take. The utilization of that electricity as Genesis leaves down in the lower South Island where it is produced is the most efficient use of it rather than transporting it north. We have a pipeline of renewable development up here in the North Island that Mike's alluded to, and I'll talk to you about later, that can play its part in displacing base load thermal. Where we can bring that to market and displace the base load thermal in the North Island, as well as utilize the green electricity in the lower South Island to create a new industry, whether it's hydrogen, data centers, some other green metal. We'll find out in our ROI process what interest is out there formally. A hydrogen facility can offer a dry year solution, I think.
In the Meridian Investor Day, Grant Telfar took you through some fairly dense analysis on dry years. I read that with a great deal of interest. We've got a joint study out, and some of that work's been peer-reviewed to make sure that we are comfortable with it. It's getting peer-reviewed now to be ready to be inputted into the final report. We think the uptake of a hydrogen future is going to require a solutions focus. There are plenty of technical challenges. There are plenty of economic challenges. The thing that gives us a little bit of comfort and I don't want to get too evangelical here, there are a lot of challenges to jump through. The thing that gives us comfort is, if not hydrogen or a derivation thereof, ammonia, then what?
Green energy needs to be exported from some countries and imported by others or the globe can't hit its targets and countries can't hit their targets. If not hydrogen, then what? No one's been able to answer that for me. Government support will bridge gaps. The Japanese government has acknowledged that the importation of liquid hydrogen will come at a cost 126% higher than the current cost of importing LNG, and that it will play its part in enabling business in Japan to adopt that as a fuel. Not 126% of, but 126% higher, more than twice the cost, in its initial stages.
That will fall as electrolyzer technology improves and as more renewables come to market around the world, that cost difference will fall, and in the interim, governments appear to be aware that they're going to have to play their part to bridge that economic gap if they're to hit their targets. This is what I referred to earlier. This is the supply side. You can see between June 2019, June 2020, and March 2021, the announced projects just seem to be exponentially growing. These are announced. Some are in development, some aren't. They're just announcements. This is a global stock take, if you like, of what people have said they're going to do in terms of electrolyzer supply to produce hydrogen. That's not enough to meet the projected demand, where 572 MW of that, a tiny portion way down the bottom there, readily available.
On hydrogen, we are cautiously optimistic. We think there's something to it so far. We've got a lot to learn, and the study is designed to enable us to learn that. The market scan will be far better informed by the registration of interest process that I talked about earlier. It'll be far better informed by the technical assessment that's still underway, and it'll be far better informed, and the economics will be better informed by the conclusions on the dry year risk analysis that is out for peer review at the moment. All of that will come together in time for our full year results in August. A somewhat false time frame.
It's one we've created to put some pressure on ourselves to deliver and to put Mike in a position, and Dorian, when they're doing their rounds with you with our full year results, to talk to you about what we've learned, and to talk to you about what, if anything, we're thinking of doing going forward with it. Next steps. Complete the study, seek the expressions of interest for offtake and other partnerships, and then make a call on what, if anything, we will do going forward. At this stage, as I say, we're cautiously optimistic. We believe there's something in it. I'm sure you'll have questions on that in Q&A time. We are seeing more interest from forward-thinking industry in New Zealand looking at managing their future carbon exposure by decarbonizing their supply chain. Electrification of boilers is starting to become more and more real.
We've done one, of course, with Open Country Dairy, 13 MW boiler, large scale boiler. We've done a few much smaller ones. We have a pipeline at the moment. We're in discussions on another 39 MW of potential boiler electrification over the next wee while. The economics remain challenging. There's no doubt about that. As companies start to see go towards the end of the life of an existing coal boiler or want to expand a facility, they only have to look ahead at the potential rising cost of carbon to make a decision to invest in a 20-year asset based on a future carbon price as opposed to today's. We are seeing genuine interest from many, many customers. This is New Zealand's heat and process heat industry in terawatt hours. Look at the top end of that stack is prime use.
Things like metals, petroleum, chemicals refining. Those hard-to-abate sectors are actually prime targets for a hydrogen facility. Prime targets. That's where hydrogen fits in this industry. It doesn't fit down the bottom of that stack, which is prime for electro boilers, lower heat utilizations. That's where electro boilers fit and will thrive. We believe that there are 5 TWh of additional targets to go after in the electro boiler space, largely in food processing. 5 TWh is, of course, a significant amount of new demand for our country. It, on its own, could replace the smelters exit. That's the assumption that the Draft Climate Change Commission report makes.
The difference between what I'm talking to you about today and the Draft Climate Change Commission report is simply that their view is that 5 TWh that comes free from industry gets replaced over time as boilers electrify. We think that happens as well. We agree with that. We also see an opportunity for something quite transformational down there in the lower South Island. Here's the economics. I think, Grant, when we were up at Tauhara a few years ago, you asked me what the point is at which people will start to electrify their boilers when they are developing new boilers. I said at the time, NZD 70-NZD 80 carbon. That is being borne out. The economics still remain in that region. You can see here, the zone where we think large scale uptake will start to occur, as that carbon price increases.
The difference now that we're seeing is that as people come to their decision points on either extending the life of an existing boiler or expanding a facility, they're looking ahead at where they think the carbon price will go because they're making a 20-25 year investment. They're doing a trade-off. That's how Open Country Dairy came about. They can see a carbon price rising. We worked in complete open book partnership with them on the economics, and they elected to go with an electro boiler. We're seeing that the opportunity for more of that as more and more people become aware of their significant carbon exposure. Not so long ago, carbon was NZD 2, then it was NZD 20, now it's nearing NZD 40 with a cost containment reserve at NZD 50, which we assume will increase through time.
We are seeing our customers, and we can probably talk to you a little bit more about this in Q&A. We are seeing our customers seeing this risk to their business and wanting to do something about it. Space heating. Not that exciting, to be honest. It's a bit boring. Heaters. Actually switching out coal and gas boilers in small to medium enterprise and hospitals and schools, and switching in electrical heat pumps is a significant opportunity. This is real and is happening now, through government funds. They're starting through hospitals and schools, and we are seeing, again, SMEs start to think about their future, and starting to look at electrical heat pumps. I had a lunch a couple of weeks ago with ECA and some fairly interesting and influential consultants who advise our customers, and they are pushing hard on heat pumps.
They told me they're swamped with people seeking their advice on when and how they can install electrical heat pumps to heat their space. As I say, not very exciting, but a significant opportunity. The team at Simply are working quite closely with some of the property groups around the country on the opportunity in their buildings, on not just this, but on demand flexibility and Sapient load optimization plugs, which Andy can take you through. All sorts of tech that enables the efficient uptake of increased electrical consumption for space heating. Same story on switching point. The economics say you wouldn't do it immediately, but if your old boiler starts to rattle or if you're looking ahead 10- 20 years and you can see a rise in carbon price, pretty soon the switching point will come.
If you're making an investment now, you're probably minded to install an electrical heat pump, and that's what we are genuinely seeing out there in the market. One of the reasons Mike mentioned our acquisition approach, and I go back to our partnering approach. We look for the best capability in whatever we're doing. We don't bring an ego to it. If it means we partner with someone rather than bring it in-house, that's all good. Out of our work in this space, starting three or four years ago, we identified Simply Energy as the best in the business. We initially invested as a minority holder, and in the last year, we've taken the business 100% because we believe it has a particular capability set and a series of relationships with large industry, with property businesses that we can leverage to accelerate this uptake.
Darsh, are you pressing the play button on this? Just before you do, we are in discussions on data centers. Here's a little clip. It's got Murray, who is not on our panel but will be in the video, introducing this topic. Then you'll hear from a business called Lake Parime, a high-performance data center business on their objectives, and we are working with them right now on their options here in New Zealand. Darsh, if you wouldn't mind. Thank you.
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Some uplifting volume at the end there, wasn't there? Look, that's a really exciting project. There are some conditions still to fulfill, a resource consent being a fairly crucial one. The first stage is small, but these guys are fairly serious. They're very well-funded, and they are looking at expansion well beyond the scale mentioned here. The thing that they can offer us as an industry, and this goes again to partnering with the people who can help solve our problems, is interruptibility. Our arrangements enable many times a year, I won't give you the numbers, but many times a year to interrupt them for four-hour blocks, so to manage peaks, 75% interruption. The relationship also enables us to do once every three years, a six-week block, 75% interruption.
As we look ahead at New Zealand's dry year risks, we need to be thinking of demand response, demand flexibility, be it a hydrogen facility that can back off, large-scale data centers that can back off. Demand participation is critical at a low cost, getting to close to or at 100% renewable electricity. It has to be an integrated system of participants. These guys are an early sign of what we think is needed. Data processing's gone explosive. No, it's another exponential growth period. Data processing around the world is growing rapidly. That's a look back, that chart, a little bit of forecast of it. You can see a continuing trend. We've had Microsoft announce that it is bringing data centers to New Zealand cloud storage. New Zealand has some of the characteristics for these data centers, not all.
We have some of the most important ones, and in particular, latency. the sort of data centers that will come here will be those that are looking for deep storage, high-powered processing, but deep storage. It doesn't need to be instantaneously accessible in the U.S. or Asia or Australia. that's what we're seeing. we of course, can offer up reliable green electricity supply that's gone well beyond the hygiene factor for these businesses. It's a must. They're looking for it around the world. we have a lovely cold climate in the lower South Island to reduce cooling costs. The other point I would make there is that this load is summer-weighted because it's cooling load. it suits New Zealand's hydrological makeup very well, and in particular, our hydro catchment. Okay.
We see this as a real opportunity, and well, I'm looking forward to being able to make an announcement of having met the conditions and get that project underway. That's stage one. We will move quickly beyond that to stage two, finding another place on the grid where there is capacity to install a large-scale data center, high-performance data center. Electric vehicles. Look, this is a curve that comes out of the Climate Change Commission's report. We know there's a supply issue, so we're not kidding ourselves here. There is a global supply issue, which I think tells you something. People are starting to buy them. The fact that the manufacturing system is failing, it's that the manufacturing system currently can't keep up with demand, and so it's being expanded. Be it Tesla, Hyundai, anywhere else in the world, Volkswagen, they are all expanding their manufacturing facilities for EVs.
Over the next few years, we expect many, many more models to come to market. The challenge in talking to the vehicle companies here in New Zealand is actually it's not demand, it's getting hold of the vehicles and getting them into New Zealand. Down here at the bottom of the world, we're not as an attractive market as North America, funnily enough, so we do tend to have to wait our place in the queue for supply to come down to the car yards down here. again, we are seeing more demand than supply, so it's a great place for this story. to close out this section on demand and open up for questions, this is what we're working on.
We do see the opportunity now with NZAS's announced exit to take the momentum from the inquiries we've had from around the world and look at what options there are for New Zealand. What new industry can come here and green its supply chain? The scale opportunities lie in the ones I've touched on, hydrogen, boiler electrification, and data centers. We're seeing good progress. From all of those relationships, we are seeking to capture the value of flexibility and demand response. That integrated systems thinking is crucial going forward to avoid high-cost solutions. We've also invested in the capability we need to be able to bring all this together for customers. With our investment in Simply Energy, some other capability we've brought into Contact, we have a very strong team looking at all of these opportunities for New Zealand and for Contact.
We are increasingly confident while still cautious. We're not about to wildly invest in a large hydrogen facility if it doesn't make sense. We are increasingly confident that some of these opportunities are or will become very real in the near future. Okay. Now, we've got about seven minutes until morning tea, and so here's the panel. It's whittled from four to two. Andy, would you like to come? We'll move across and you can fire some questions.
This is Andy Sibley. Andy is the Chief Business Officer at Simply Energy, not Sibley Energy. He'll be talking to you over lunch about some of their tech. Andy's out there real time with customers, hearing their stories, hearing what they want to achieve, and helping them to chart a path to a lower carbon future.
He's a good man to be talking to about these topics. With that said, we'll take some questions. Andy, you can have the mic here, so if you just want to Any specific questions around decarbonization, how we're going to get there, what customers are saying, feel free to fire away. People, wait for the mic.
All right. I'll open it. Everyone else seems reluctant. Maybe just start with the carbon price view too. You're dealing with some customers. Can you give us your view of what carbon price you think we'll see mid-decade, end of decade?
Yeah. Look, we have a view. We don't know if we're right, of course, but we have a view that it will climb through NZD 70-NZD 80 in the middle of the decade. The Climate Change Commission's estimation or requirements to follow that path was NZD 140 by 2035. We think it'll climb a fair bit over the next five years or so. It'll get into that gray zone, very comfortably into the gray zone.
Yeah
Is the most important point. Customers have the same view, don't they?
Yeah. Generally, if you're looking at these investments around electrification, we allow the customers to do their own analysis around the carbon price so that they feel comfortable that it's not something we've modeled to get the deal over the line. What we're finding, it's in some cases is a lot higher than what we believe will be and working together around getting that. That's very much the customer-driven view of the carbon price.
Yeah.
What risk they're dealing with for their own internal processes.
I sense from that answer that you actually have customers who are getting close commitments or looking at reasonably sized commitments.
Yes
Over the decade.
Yeah.
Yeah.
That's right.
Just one more from me. Leave the floor after that. The lesson of TY is that a large single buyer, no matter how long the contract you've got, is not really a contract with a fixed price. Do you have a mechanism? Is that in place in your thinking around the hydrogen study and data centers to make sure you've got more than one counterparty for the load?
Yeah. Look, diversifying that risk is top of mind for the team that are working on the hydrogen ROI. I talked a lot about the opportunity of a large-scale single point facility. That may or may not be the right outcome to manage that particular risk. We are absolutely open-minded. We are very conscious of that. Our expectation, to be honest, from that ROI is that we will be absolutely swamped or we know we will.
Yeah.
Go back to the point I made earlier. The scarcest thing in the creation of a hydrogen market is immediately available baseload renewable electricity. That's the scarcest thing. New Zealand's in the fortunate position, thanks to NZAS, of having that.
Yeah. Just a couple of follow-up questions, I guess, on hydrogen. To be honest, could probably talk all day on it. If all goes according to plan, what would you see as actually the first time we'd actually be producing hydrogen in New Zealand? When would you have a supply contract actually started? This is obviously known.
Yeah. If all of the technical hurdles and commercial hurdles and risk management hurdles get ticked off, I would refer you to a wonderful slide in the Meridian investor pack. Whoever wrote that slide is a genius.
Yeah.
We agree with that timeline, about 2027 first production.
Yeah.
An investment decision. Around about the time that the Inges contract concludes on its current timeframe, a two-year build. The two-year build feels quite solid at the moment from the technical advice we get because it's modular.
You wouldn't commission it all on day one, you'd commission it over time. The wheel's starting to narrow down on the right modular scale of an electrolyzer. It's not 10 MW. It's bigger than that, but it's probably not 100 MW either. It's somewhere in the middle. yeah, 2027 production and shipping is tough but achievable.
Just a couple of follow-on questions then. One is there's obviously a three-year gap between when smelter closes in 2027. What's your thinking over that period?
Well, I think, as always, the market will solve that. This ROI process is really critical. If there are people out there who see a need for some renewable electricity between the end of 2024 and the start of 2027, they should participate fulsomely in that process.
Lastly from me, you alluded to in terms of what capital Contact might be putting in, it sort of sounds like you might be prepared to go into a hydrogen plant. Is that correct? are you just looking at supplying electricity and maybe building some extra generation if that was required?
Yeah, look, our starting position is we're an electricity business and we supply electricity. However, we are open-minded if we can see a commercial opportunity to enter into a global energy market with secure cash flows to underwrite the investment, we will look at it. We're open-minded. Sorry, just one clarification on that. Apologies. It's not something we could do alone. It would require a consortium, and we think that's best for New Zealand.
Okay.
A consortium of investors, partners. I'm sure they'd be curious about the same thing. Some other schemes around the country may be thinking about long-term investment. Times Fenua may have a desire for long-term investment. We think there's probably an important role for a customer, the person who's going to underwrite the investment and their involvement. Again, we're open-minded. Our starting position is we're an electricity company, but we're open-minded.
Hi, James.
Hello.
The other one on the road seems to be energy affordability. Your predictions are quite bullish with industrial load looking away from EVs and what's happening down south. How do you sort of calibrate what's going on at the moment with the likes of the refinery in Whakatane, Sword Paper, and also Steel Tasman? How do you sort of calibrate all that together and draw a view on destruction along the way to growth?
Yeah, look, the short-term conditions are unhelpful. No one electrifies at NZD 200 a megawatt hour. The short-term conditions are not conducive to decarbonization. I emphasize the short term. The life cycle of the investments that we're talking about here are 20, 30, 40, 50 year investments. In the case of geothermal, it's a 60-year investment on the supply side. We think the investment we've made in Tauhara, the pipeline we have, other wind investments, I'll talk about this a little bit later in the renewables piece. We'll see the market revert to type, as it were. What is type? The long run cost of renewables firmed. The cost of firming going forward as it goes from thermal to renewable or other sources of flex, that's the bit that's an interesting puzzle, and we're still working on a view on that.
Jacqui will talk a bit later about our ideas for the thermal fleet for the nation, our own thermal fleet and the nation, and how you get the lowest cost transition. Through the cycle, it's always the same. The long run cost of the next renewable project plus the cost of firming so that the electricity is reliable. Long answer, but the short point is it'll revert over the long term and become viable. I think the other point is go back to the long-term partnerships. If we can get a long-term transaction in place, then those arrangements at that long-term price become available now. We have already PPA conversations, long-term PPA conversations underway, some nearing conclusion for large scale offtake based on that kind of thought process, the firmed cost of renewables over the long term. You can't do them for two to three years.
You have to price off the ASX. If people are willing to commit long term, then we can think differently, and we are thinking differently. You'll see, I hope, some news on that in the not too distant future. Apologies. Long answer again.
James, just staying on the hydrogen. Is this, in your view, similar to what Rudy was saying last week about a 750 MW opportunity, NZD 2 billion of CapEx? Nodding head. On that, in their numbers, it did look like it was some sort of solution for Onslow. Is this the way you're thinking of hydrogen? Always a just to suck up the GI demand?
No, I think we're thinking about hydrogen in a more optimistic way than that. We see it as a potential growth project for New Zealand. It will also suck up the excess demand if we can make it work, and it will also enable more demand-side participation in our market. It has those other benefits, but if we were to invest in it, we'd want the investment to make sense as an export investment, not for those other purposes. It does have those other benefits.
With just I think the biggest one that's ever been built to date is a 20 MW. For us, distance from market, construction shortage, skills. Is this really something Contact should be walking into when you consider Mercury's debacle with offshore geothermal?
Honest question. Look, I want to emphasize when we talk about open-mindedness, our starting point is we're an electricity provider. That's what we do. That's what our core is. We're really good at it. Anything beyond that will require a significant amount of risk management and understanding on our part before we go there. The starting point, we're an electricity provider. We'll be taking an extremely robust risk management approach to any move outside that scope of business.
I can see that you're going to hold onto that one. There you go. Yeah. It sounds like you're hell-bent on TI getting out of here. How much South Island demand do you think you need to stimulate to actually encourage that exit where they can't come back and hold the country to ransom?
I didn't want to leave you with the impression we're hell-bent on their immediate exit. There's an ROI process, and they could participate should they choose to, for an extension. That's their choice. What we've been doing is making sure we've got other options available at or better than the price of the old TI deal, not the transitional deal that's in place. The data centers that we've been talking to, the border electrifications are at or better than the old TI deal. There is no more transitional electricity for TI's offer. We will be pushing ahead with alternative customers to diversify that risk, as Nigel asked earlier. That when we approach 2024, if there's a conversation, there's a different commercial position.
Last question. That first, second slide that Mike put up of that 100 MW of industrial demand stimulation, can I take it that's your South Island target by 2025?
Yeah.
That's your optimism to go.
That's what we're going after. Yep.
Yeah.
I think we'll be very confident.
Yeah.
Yep.
Thanks all. We might just stop for tea. We've got 10 minutes for tea, and then we're back to it, and I'm sure there'll be some ability to ask questions over tea for those of us who are staying. Thank you very much.
[Break]
Thank you. Good morning, all. I think we're going to start the session soon, so you can make your way back to your chairs.
Okay, everybody, can you please take a seat? We need to restart. Sorry, everyone. We've got people dialed in from around the world, so let's sit down and continue our discussion. Good to see that our earlier conversation has stimulated a fair amount of chat over morning tea, and I'm sure that will continue throughout the day. Just give you a moment all to retake your seats. Welcome back to the people dialed in from around the world. [Non-English content] . Welcome back to [Non-English content], New Zealand. Great to have you with us. For the next 15 minutes or so, I'll have a chat to you about our renewable development pipeline and our capability set.
Jacqui will step up and take you through our thinking on thermal transition. Fascinating piece of work. Really interesting work. We've been thinking about it for a long time now. It is one of those ideas whose time has come, and I am delighted that we get to talk to you about it today. After that, you will hear from Matt to talk to us about our outstanding customer experiences and then our enablers, as Mike mentioned earlier. At the end of that, we will do Q&A. Please hold your questions because we are going to rattle through these subjects a little more quickly so that there is time to talk about everything together at the end. I think we might have more than two of us on the panel at the end. No surprises on this slide. I am sure this is a story you are very familiar with.
Falling renewable technology costs. We do see an acceleration of demand growth. We see it coming soon, as we've just discussed, it's important we're ready to meet that opportunity. We see that the government's focus on its renewable electricity aspiration. We think the solution, of course, is that new renewables and low-carbon flexibility sources are required. That integrated thinking is really very important to enable a low-cost transition. In terms of a thesis, the market, I mentioned earlier, through time, the market reverts to the long-run cost of renewables firmed by whatever the firming cost is. We think that is potentially quite a bouncy transition. The work we're doing in the thermal flexibility or thermal review that Jacqui will talk to you about is really important. Our capability set, you're going to have to suffer through me bragging about this a little bit.
We have 3 TWh of geothermal development. It is the only base load form of renewable generation. We're very lucky at Tauhara and at Wairakei in particular, that the carbon footprint on those plants are very low. Very low. Wonderful opportunity to bring base load, very low carbon, renewable electricity to market to displace base load, high carbon fossil fuel generation. We have world-class geothermal operations, end-to-end capability. Quite rare globally. I was digging out a pack for a conversation from 2008 where we articulated the capabilities we would gather and retain. Pleasingly, we have achieved that in the low growth period we're coming out of. We turned that expertise, that reservoir and well maintenance expertise that's critical to creation of value in geothermal, we turned it to continuous improvement.
We turned it to working with Western Energy and developing new technology. Carl from Western Energy is here. The acquisition we completed about six weeks ago. We see not only the improvements we've seen to date in our geothermal business, a huge cost reduction in the extension of well life and well maintenance. We see an opportunity for that to go further and faster. We're delighted to have you here, Carl. You and the whole Western team to join the Contact [Non-English content]. We've also recognized that other technology costs are falling. We don't actually expect them to fall below the cost of geothermal. It is a firmed renewable. There is the potential for that to happen. We need to restart our wind development pipeline.
We looked around the market, recognized we didn't have all of that capability in-house, so we found the best in Roaring Forties. They are out there doing their thing right now. We also have a conversation underway with a very credible, large scale international solar development expert business. We are looking at what capability we can leverage from there. Again, recognizing without ego that we are not solar experts or solar developers, but that in due course, if New Zealand is to meet its decarbonization targets, there will be solar as part of the mix. Here's what we'll talk about. We'll talk about Tauhara. We'll talk about the other resources that we're looking at. We'll talk about batteries.
If prices will revert to the long run cost of renewables firmed, then we need to understand firming, and we need to find low carbon versions of firming through time. We'll talk to you about demand flexibility as part of that firming. We have broken ground on Tauhara. I hope you all bought jackets and jerseys. It's an extremely cold part of this region. You will have the benefit of a trip up there, those of you who are with us physically today to the site this afternoon. You'll also see the rig, the rig is operating and drilling a well right now. I think Dr. Mike Dunstall will take you through the drilling program and how we're thinking about that and some of the results so far, which are simply outstanding.
I think probably Alan Devine or Jack himself, Jack Ariel over the back there, will take you through a discussion on the power station construction project memorandum at the site. The difficult hydro conditions in this part of the world have not been helpful for hydro generation. They have created an unbelievably good construction season. That picture there, it demonstrates, you can't tell because you don't know the schedule, but that it's well advanced. We really have thrown everything at it. When you get the unbelievably settled and dry conditions that have persisted here for some time, you can see that from the amount of beach down at the moana. We have thrown everything at it and taken advantage of it fulsomely to get the project off to a great start.
I think you'll be quite surprised at just how advanced all of the earthworks and enabling works are when you head up there. The project's off to a great start. Lots still to do. We expect completion in mid 2023. These slides always worry me because we can't see inside other people's projects, we take external sources, other people's views, put them together and try and create a comparison. I want to call out at the start that comparisons are challenging. We cannot see inside other people's businesses. This is our assessment of the relative economics of recently announced and recently committed projects with our own Tauhara, Wairakei opportunities. I think it demonstrates really the capacity factor that geothermal brings. The benefit of that long life and that much higher capacity factor when you look at the economics.
It is a very unique resource. We are lucky. We are privileged to have access to it. It's not like our team up here in Wairakei and Taupō have worked very hard over years to get access to this wonderful resource that's world-leading, it's world scale. We get contacted from people around the world very regularly to talk to us about their projects and what they can learn from what we're doing here. This is that capability that's incredibly important and unique to Contact. We do have a very long-standing operational capability in the business. We said to LT the other day, we don't have anyone who was here in 1958 when the plant was commissioned, but we do have someone who has been with us for 50 years.
That sort of deep capability and experience, learning from the mistakes of the past, knowing how to solve things, is fairly unmatched in the operational space in geothermal, and Jacqui may talk a little bit about that during the operational excellence session later in the day. That work we did in 2008 on the capability we would gather, we wanted to bring in-house all of the IP on resource management itself, on the reservoir understanding, on the understanding of where to target wells, on the understanding of how to optimize fluid once it comes out of the ground and send it to the right kit. We operate a very complex steam field system. Optimization is critical to the maximization of every drop of fluid we have access to. That's the capability that we really put our time and effort into developing and maintaining, less so construction itself.
We've built capability to manage construction, but we outsource and pass off the risk of construction to expert EPC contractors. that's how we've approached Tauhara. We do believe we are New Zealand's lowest cost geothermal operator, and we're confident in that. some of our recent developments, you won't be seeing these today because we'll stay on the Tauhara side of the river. many of you have seen these projects in the past with Te Huka we may drive past on our way out to the Tauhara resource. Here's what I mentioned earlier around the flexibility in the geothermal development pipeline. We have options that enable us to do things at different times, bring projects to market at different times to meet market conditions. It's a very well risk managed investment opportunity. We're obviously pushing for the high demand growth scenario. We've just spent time talking about that.
That will enable us to bring to market another round of several investments, to be honest, to bring more geothermal fluid, more geothermal energy to market, a significant growth path on the right-hand side of that chart. If market conditions change, if some of the conditions we've discussed so far don't eventuate, there are other paths available. As always, we'll be looking at long-term partnerships to help us support new build. If we can't secure those long-term partnerships, then we may moderate our investment expectations. What's important to note is that geothermal is the only baseload source of renewable electricity. It's the only thing that can reliably replace baseload thermal generation. There is nothing else. Wind. A great deal more wind will have to come to market over the next 15 years if we are to follow that Climate Change Commission path.
If we add in a hydrogen facility or large industrial user in the lower South Island, even more so. We are delighted to have partnered with Roaring Forties. They are well underway. We have one site secured so far. They bought six sites with them that are being assessed and filtered. Along with 15 sites they're filtering at the moment to decide which are the best wind resources to secure. That time in the early to mid 2024 is really important. It's about that time that we'll be making a call on what we're going to do at Wairakei. If I go back here, you should see in this chart, where is it? Wairakei A and B color.
You start to see the end of the consents for the Wairakei plant, and we'll have a decision to make in about early 2024 as to what we do at Wairakei. Do we build an extended Te Mahi site up at the top end of the steam field there? Do we extend the life of the existing plant? Do we do nothing? We want to be in a position to compare that with a consented wind site so that we're doing the most optimal project available. That puts a bit of pressure on the geothermal team here to make sure they continue to drive down cost. Western Energy is now part of that process. Good luck, Carl. Get that cost down. It is something of a race against wind. What will be the best project in 2024 for us to apply our capital to? Flexibility.
We've talked a lot about the need to find sources of flexibility that are green and low cost or as low cost as possible. We do believe that a thermal storage trial needs to hit the market. Jacqui will talk about that shortly. We believe there's an optimized path for that Jacqui will talk you through. We do see volatility increasing. It can't help but increase. As more intermittent generation comes to market, we expect a peakier market, and so the value of flexibility will increase. Likewise, falling technology costs are telling us that batteries will, in the near future, become viable. The battery we were talking about a year or so ago, that we thought we may invest in this calendar year, was benefiting at that point from the potential sudden exit of Tiwai and the associated grid support earnings that would come with that scenario.
We've pushed that out to 2023, 2024, again, aligned with the potential smelter exit. However, over the next five or six years, and possibly sooner, we do think a battery without that grid support revenue may actually make sense in a more volatile market. We're watching that very closely. We are engaged heavily with the world's largest battery manufacturers. It doesn't take a rocket scientist for you to work out who that is, who they are. We continue to monitor the improvements they're making in their technology and how we might bring that to market in New Zealand. Here's some rough estimates of the trajectory of where we see volatility going. You can see an increase in volatility in recent years.
We think through time, again, without the benefit of large chunks of base load firm generation, as that gets displaced by intermittent renewables, we will see a peaking market. You can see roughly there our estimates of the CapEx for a battery. They're still evolving. Those are very much big, round numbers as opposed to something that you should insert immediately into your models. In the demand flexibility space, and before we press go on this one, we've been working with customers for some time. I think as Mike mentioned, Andy and the team at Simply Energy have got 11 MW signed up so far, and more demand currently than we can meet. Andy's trying to beef up the team to grab more of this more quickly.
We do want to have that 100 MW of interruptible demand on board by 2025, and we are well and truly on track for that. One of our demand flexibility customers is going to talk to you about that now.
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Our demand flexibility platform is connecting with customers at both a commercial level, hard-nosed commercial level, which Andy can front, and also at a level of doing the right thing. Every megawatt we can get in demand flexibility is a megawatt of fossil fuel that doesn't burn in a peak, and that's actually the sales pitch that works. Believe me, we're at 11 MW, and we have more demand than we can supply at the moment. Andy and the team have already taken version 1.0 and taken the cost of that down per installed unit. It's now 10% of what version 1.0 was. version 2.0, 10% of the cost of installation. The next challenge is make it version 3.0, get it 10% of that, and then it probably works in residential houses.
There's a really interesting opportunity here to create that integrated system enabling the transition to a lower carbon future. Here are the targets. Looking at building that. We've got line of sight on FY 2021. We will likely hit that target. FY 2022, Andy will hit that target and beyond. To be honest, the next couple of years, there's a genuine pipeline that those targets will be met. That draws us to the end of the renewable development pipeline conversation. I'll now ask Jacqui to come up and take the reins and take you through how we will decarbonize our own portfolio and support the nation to transition off thermal plant.
[Non-English content] Hi, good morning. My name's Jacqui Nelson. I'm the Chief Generation Officer for Contact Energy. As James just said, I'm here to talk us through our strategy to decarbonize our portfolio. Before I start, I would like to take this opportunity to call out Mr. Matthew Clayton at the back of the room, I'm eyeballing him here, who is our General Manager of Wholesale Markets. I have to acknowledge, he is doing a large proportion of the heavy lifting in this work stream. Just acknowledging that. Thank you, Matt. Right. The role of thermal generation is changing in New Zealand, and an orderly transition to 100% renewable grid will benefit all stakeholders. Now, this role of thermal is changing very quickly and is driven by three particular aspects.
The first chart that we have there clearly demonstrates the increasing cost of gas and carbon. If you look over the last five years there, very significant impacts to fueling your thermal plant. In the middle section, and I'm sorry, there's a bit of repetition on previous presentations here, but as more renewables come online to the market, gas firming assets are likely to be required in the short to medium term due to the very intermittent nature of those new renewables. That will drive price volatility and possibly threaten security of supply. The third driver that we've got is a government that is ambitiously pursuing 100% renewable grid. Alongside that, we also have a significant societal shift, where New Zealanders want exactly the same thing. What does that mean for us?
Basically, an orderly transition is required to achieve that renewable goal, without jeopardizing security of supply or the cost of electricity. Now, we've got a pretty good track record in this space. We've led the decarbonization in the sector. You can see our yellow line there is pretty clear about that. Mike mentioned this in his opening speech. In 2009, we closed our New Plymouth 300 MW base load thermal plant. In 2015, Ōtāhuhu, 400 MW, again, base load thermal. We've got a track record. That graph picks or represents a reduction of our emissions liability, from around 2.5 million tons to where we are currently, 1 million tons. When we talk about decarbonizing our portfolio, we think of it from two different perspectives.
The first one is the decommissioning of TCC, and we expect to see scheduled operations of TCC as soon as Jack down the back delivers me a wonderful Tauhara project. That's the plan there. For B, is a bit more complex. Our objective is to find the optimal operating model for the remaining thermal assets we have in our portfolio to meet the market's requirements, to facilitate that quarterly transition to 100% renewable, and also to capture value for our shareholders. This is basically the premise that sits behind our thermal review. What does success look like? 2026, TCC is well decommissioned. We've reduced the regulatory risk in the market, and we've also reduced our own emissions, meeting our science-based target, as it was mentioned before, of a 25% reduction in carbon emissions by 2026 off a 2018 base.
For the first point around the decommissioning, here's some economics that are pretty compelling. On the left-hand side, we've got the long-run marginal cost of TCC. We've assumed a gas price of NZD 10 per gigajoule, carbon NZD 40 a ton. On the right, you can see a much more compelling case for renewables. That is what we're experiencing at the moment, is that pushing of the base load thermals off the cost curve by new, cheaper renewables coming online. We've been pretty clear publicly that we will not be spending the NZD 80 million that's required to keep TCC running beyond 2023. That's a significant capital investment. When you look at that compared to the low-cost option that we have in our Tauhara investment, it really doesn't stack up at all.
Hence the clarity around that decision. We currently are exposed to both fuel price and supply risk, and that has been very apparent this year with the curtailment of gas supply contracts. In combination with the current dry hydrology sequence, we're seeing increased prices significantly. That really underpins that need for an orderly transition to de-risk the New Zealand energy supply. The displacement of TCC base load thermal with Tauhara's base load geothermal will improve our earnings, deliver a better return on capital, reduce that fuel supply price and supply risk. Offer the New Zealand energy market a low-cost, renewable base load electricity supply. When we come to that second strand of our strategy, things are a little bit more complex. There is definitely an important role for flexible thermal generation to keep the lights on, basically.
On the left-hand side, we've got Transpower's forward-looking North Island winter capacity margin looking forward. You can see there as TCC and the Huntly Rankine units retire, that line comes down. It's not catastrophic at all. We certainly have sufficient energy in the grid to meet demand. We could experience some periods of suboptimal levels of capacity to meet intra-day peaks, again, as we've got that renewable energy coming online. There will be a need for thermal peaking. To link back to James's point that he's just made, there's also a place as the technology evolves for large scale demand flex and batteries to remedy that issue. I think the middle graph is far more interesting, or for us as holders of thermal assets.
It depicts the actual gas asset utilization that is forecast going forward, and there's a bit of a cliff edge there. That means, holders of gas, of thermal assets will struggle to cover their fixed running costs. As such, we expect that they experience far higher and higher prices as they attempt to recover those fixed costs. What does all that mean? I think it just basically reinforces the very real need to reassess the role of thermal in New Zealand electricity market. We strongly believe the need for an orderly transition to minimize the negative impacts on security of supply and customer pricing. Again, on that second tranche of our strategy, we've thought about the five pillars that underpin our approach, if you like, or we've come up with five pillars that underpin our approach.
We'll start off with basically, we must act on our ESG commitment, helping New Zealand to decarbonize and ensuring that New Zealanders have access to affordable energy. Second one, we've been pretty clear about that security of supply for the New Zealand market and also for our Contact customers. Our third point is we actually want to be capturing the value and importance that thermal flexibility offers to the market as we transition around and maintaining that security of supply. Our fourth point, and this is pretty integral I think, is that we'd like to come up with a solution that will provide risk cover for a broader market base, including all retailers, to reduce that price volatility, and with the appropriate investment in renewables, also reduce the regulatory risk. Finally, there's a piece around synergies.
That's around operating assets efficiently, and perhaps where there is fuel, making sure it's going through the most efficient kit. This is the big reveal. What are we doing in this space? We are engaging with stakeholders to explore the establishment of what we're calling Thermal Co. To retrieve a return on assets and facilitate that energy transition. Here we've sort of got a bit of a straw man of what things could look like on the ownership piece. We're pretty open-minded about that possibility. That could include our peers, private equity, upstream fuel providers. I think basically what we're saying is anything is open. All options will be considered. What assets would be put in Thermal Co? Again, pretty broad. Thinking peaking plant that provides reserves, gas storage, existing and future gas supply agreements, upstream assets. Again, quite wide ranging.
A really pivotal piece in this whole concept is we think for this entity to be successful, it would have to have a very clearly defined mandate. In regards to that, we're thinking along the lines of providing risk management products, which has been discussed previously in the previous presentation, long-term PPAs that derive value for both providers and suppliers, as well as probably some midterm risk mitigation agreements as well. The entity would have the mandate to operate to meet those risk management contracts only. To that final point, we operate collaboratively to achieve the best, most efficient outcomes with the fuel and plant that is available. On the right-hand side, we've got a bit of a rough sketch of what the process looks like. I'll skip through that, but it involves engaging with key stakeholders, achieving buy-in, and agreeing some high-level design concept principles.
We think it's a pretty compelling issue to bring in an independent third party to provide advice on the actual ownership structure and operating model for Thermal Co as an entity. That then would have to be agreed by both owners and regulators. Finally, you would be spinning off your assets into Thermal Co and purchasing PPAs off the back of it to manage your risk. That's our thought process at this stage. I'll finish just with a point that we feel pretty strongly about, and that is we're advocating a market-led approach to this because we believe a competitive market delivers sustainable outcomes and will benefit in the cost of thermal. Now I'm going to pass on to Matt Bolton, who is our acting Chief Customer Officer at the moment.
Good morning. Thank you, Jacqui. We might just take a wee bit of a pivot from hydrogen and thermal supply, something a bit more interesting, which is the customer business. Look, my name is Matt Bolton. It says up there I am the acting Chief Customer Officer. I'm not acting. I'm truly here. It is my day job. Mike will remove the acting sometime soon, hopefully. You've got to pitch for it when you get a chance. Look, the reality is, they only gave me 10 minutes. Look, over the next 10 minutes or so, really just wanted to step you through how the team and I are thinking through the opportunities and the challenges of what is a pretty competitive retail market.
I think the first question or observation anyone gives me when I say I'm in retail, they go, "Jeez, that must be tough right now." It's been tough all the time, but certainly if you look ahead, it's not getting any easier. Before we get into the opportunities, I think it's always useful to understand the attributes that we have today. If you're going to think about growth and success, you sort of have to wonder what the foundations you're going to build that on. Behind me are sort of three key attributes of what would make a successful business in our heads. The first is our footprint. We hold market share of about 20% in just about every one of the key regions that we want to operate in.
That market share has grown over the last five years, and we're looking to grow that further into the future. The second one, and probably the most important, again, for you in the room, is cost to serve. When I stood up here not very well probably five years ago, our cost to serve was probably last in market. We were overweight. We hadn't focused on that as an attribute to be a successful retailer. Pleasingly, over the last five years, we believe we now have the preeminent cost to serve in the market. Now that's a reflection of a deliberate action into operational excellence. It's a deliberate action into digitization. More importantly, it's a deliberate action via our culture. We want to be a successful retail business, but we know a clear attribute of that is managing our cost to serve.
Thirdly is our NPS, and it's probably the one that the team and I are probably the most proud of. To shift the NPS by about five points in any one year is a success. To move it 43 points over five years and double it in a year is just an outstanding result. for those that don't know, NPS is a simple question: Would you recommend such a product or a company to a friend or a neighbor or colleague? Give it a score of zero to 10. It's ubiquitous across any industry, any retailer, and for us to have a score of 30 odds, 36 right now, is just an outstanding result. With all the success, you still need to look forward into the challenges.
As we think about the challenges ahead of us, we've tried to distill them down to three key themes. The first, as you'll all appreciate, is the margins aren't great. They're getting tighter. We had a great question before around energy affordability. We've touched on the current price of the wholesale market. That will put sustained pressure on near-term retail pricing. We have to respond to that, and we've got a couple of levers that we can actively use beyond talking to our customers around passing that through. The first is to be more functional and more deliberate around our cost to serve journey. I just talked about operational excellence. We can't step away from that challenge. We have to do our 50% for our customers by reducing our cost base where we can.
Secondly, we are an active bundler of services, so we need to continue to innovate away from energy into more bundled services, more value-adding services for consumers in both their homes and small, medium businesses. Thirdly, we need to use data to target the right customer at the right time through the right channel to get the most value for us and for them. Those things will push us into the headwinds of the high wholesale prices today. Secondly, is sustainability. I think James and Jacqui have both talked about the impending, well, it's here today, the challenge of sustainability and of being a sustainable retailer. All retailers in all categories are facing their plastic bag moment. What are you going to do to shift the dial for sustainability for me as a consumer?
As Contact, we have some work to do in this space when it comes to serving up new products and services into the home. James has outlined the fantastic work we've done and are continuing to do to decarbonize New Zealand Inc. That decarbonization journey needs to go from large enterprise and government all the way down to us and our households. finally, it's experiences. We need to manage and give amazing experiences to our customers. Internally, we talk about liquid expectations, and for you all in this room, your expectations for us as an energy retailer or as a broadband provider is really driven by your engagement with your bank. It's driven by your engagement with your airline. It's driven by your engagement when you go to the warehouse.
Those products and services give you a feeling of how you want to engage with a supplier, and we need to be at the forefront of that if we want to be a successful retailer. If you take our footprint and then you take the challenges, you've got to go, "Where can we be in the next five years?" By 2026, where would we like to be? Again, we'd like to focus on three themes. They're the ones at the bottom. The first is to build more trust. We're a nationwide provider of services. We're in most communities, whether it be through our assets or through our electricity supply. What we need to focus on is building trust with our stakeholders, with our partners, and our customers. Right now, we do well, but we need to do even better.
Our aspiration is to get to a top 10 most trusted company by 2026. Now, we've got some work to do because as of last year, we were number 38. You have to set your aspirations high to move the dial. Secondly, we're looking for growth. Mike touched right at the start of this morning on we're a company that has an ambition for growth. Now, we're very mindful with the margins we've got about sensible growth in our retail business, and I'll come to a little bit more of that later on. We're categorically looking for growth, more likely from adjacencies rather than our energy business, but how do we couple on products and services to create value for our customers and ourselves between now and 2026. Finally, we'll continue to focus on operational excellence. Our cost to serve can come down further.
We'll get some synergies as we scale from a large fixed cost base, but we need to focus on further automation, further digitization, and just getting rid of the wrong stuff as of today. If you've got to grow, I guess you've got to look at your business and say, "Do we have the DNA and the capability for growth?" Again, three or four years ago, if we'd presented to you would've seen the chart on the left-hand side and said, "Probably not, Contact." You're sort of flatlining your energy business. In fact, at that point, if we'd gone back, we'd gone negative on our energy business. We'd sort of started to talk to the market about growing our broadband connections. Roll forward four years, we're growing our energy business in the spaces that we want to.
We're managing our gas book with the gas supply and gas pricing, but more importantly, we've now grown our broadband business to 50,000 connections. By our math, that would sort of set us towards the top of a tier 2 supplier and knocking on the door of the tier ones or the incumbent big five when it comes to supplying broadband services into the homes of New Zealanders. Now, that hasn't come without challenge. We've made a few mistakes along the way, but they've been hugely valuable to build a DNA about how you would grow into the next vertical or next adjacency. We can stand here and go, our cost to serve has come down as we've added about 60,000 connections, and we're also building a DNA about how to work into new verticals.
We think that's a really important attribute as we step into the next part of our growth journey. If you think about growth, you go, where would you go to next? Well, clearly, we're in energy. We are an energy supplier, as James touched on earlier. We have great capability from Simply that we can take commercial ideas into the home. That's a natural vertical for us to continue to play in. Secondly, we're in telecommunications. Let's be honest, we've been there for some time, but let's embrace that we are truly into the telecommunications space. We think there's more growth to come in there when we think about extending our broadband offering, when we think about plays into content, and we think about plays into MVNO.
Those are still all being having a look at, but that is a sensible vertical for us to look at. Green homes. I've touched on sustainability a few times now. We think there's more work for us to do in that space. Now, that may be an asset play through a partner, or it may be a data play to provide more information to the household. Finally, transportation. James touched on the 6 TWh of transportation coming to market via EVs between now and 2030. To state the obvious, we need to be at the table when consumers make those decisions, and that is a great growth opportunity for us. In fact, as we think about those new verticals, the team are busily working away on two concepts between now and the end of the year, which will take us into wireless broadband.
Our expectations and understanding of the market is that you can see Vodafone and Spark quite clearly wanting to agitate in that space, and Contact needs to be there. Our customers will expect that we can provide an offer in the wireless space for them in the very near term. We're also looking at how we can use smart tariffs to help support our customers through peak energy, how we can help our customers minimize their peak consumption, as James and Jacqui have touched on, to help reduce the need for thermal. Also, how do we use smart tariffs to help EV owners lower the full cost of ownership of an EV to lower the overall share of wallet and spend in that space. I've touched a few times on cost to serve because it is important, but it's also embodied through our digitization program.
Digital will become or is the frontier on which the battle for retail will be won. We know that the customer expectation will, as I've touched on, will be driven by others. What are we doing about it? We've spent the last 12- 18 months basically deconstructing and then reconstructing a lot of our customer journeys. It's fair to say we're an analog business playing in a digital world, and the digital front end our customers were experiencing wasn't replicated in the back-end systems. Over the last 12- 18 months, we've systematically pulled apart our high touch point journeys or high friction journeys with the idea of basically removing cost to serve, improving the customer experience, and then improving our staff experience through those journeys.
One such example, just to make this candidly obvious or real for you, is an onboarding journey for our frontline staff, our CSRs, up until four months ago, used to take 42 screens for them to work through to onboard a customer. If you can imagine, as you're talking to someone and you're punching your way through 42 screens to tell them, "Please sign up to a commodity," which should be relatively straightforward, takes a hell of a lot of time. Your average handle time is quite high. It's pretty frustrating for you as a consumer, so your NPS is pretty low. That's not a great onboarding experience. Following the digitization work, we've now been able to crush that down to one screen.
A CSR can now abolish all of that work, have a far more engaging conversation, hopefully shorten the time on the phone, give a better experience, lower the cost to serve. That program will carry on through until 2022 and 2023 as we think about technologies like voice-to-text, where we can take the 600,000 odd calls we get today, crush it through an algorithm, pick out the true themes and friction points for our customers, and then go back and redesign the journey so that that doesn't happen again. We're seeing a really good yield as a result with nearly 60% of our customers now engaging with us via digital means. Which means over the last five years, we've gone from about 1.1 million phone calls to about 600,000 calls a year. At the same time, remember, is adding 60,000 connections.
We know we're getting this equation right and that our customers are engaging with us. Finally, our sales funnel. We've moved from about 10% online sales to nearly 50% of our sales come in through an online channel. Again, if you were standing here a few years ago, we would've said it was about 10%. The rest was filled with legacy channels like door-to-door. Quite expensive to run, quite a lot of risk. We've now been able to move out of door-to-door and truly embrace a truly digital journey. Look, I think that's nigh on my time, but if I leave you with three thoughts or three concepts of which we are working hard to prove in the coming months and years, is that we will continue to focus to grow. Growth will be our friend. We want to be really clear.
Growth will be our friend where it provides mutual value for Contact and for our customers. Those decisions will clearly hold up against other investment decisions we have across the company. We'll continue to focus on cost out through automation, digitization, and a culture of excellence with that aspiration to get to under NZD 120 of cost to serve per customer by 2026. Finally, we want to be a trusted brand. We are a trusted brand today, we need to do some more work in that space. If we want to be a partner of choice for both our customers and large-scale providers and our stakeholders, we've got more work to come. It will see us being a top 10 trusted brand by 2026. Thank you for that.
I will now move on to Catherine, who's going to come down and talk to us about enabling our strategy. Thank you.
[Non-English content] Catherine Thompson, from TNA. I'm the Chief Corporate Affairs Officer and General Counsel at Contact, and I'm just leading off on probably a bit of a shorter section that we're going to do about our enabling services. I'll be followed by Jacqui, who'll be up again, and then Jan. I'm sure you're all familiar with environmental, social, and governance factors. Before I head into the detail, I just wanted to give a bit of context. Contact, as you know, is a significant New Zealand company, and there's a huge expectation for us to pull our weight. I know that many of you in this room have children. I've got three children. I've got three teenagers, in fact, and they have high expectations of companies like ours, as they should.
Our families, our teams, and communities expect us to be actively demonstrating that we're a good corporate citizen who cares about Aotearoa, New Zealand. We need to live and breathe these things and contribute to making Aotearoa a better place. We know that these days, many investors are looking at non-financial metrics right alongside the traditional financial measures that you plug into your models every day. Although ESG factors can be labeled as non-financial, how they're managed, or if they're not managed, undoubtedly has measurable financial consequences. You see this in how reputation is managed, risk is managed, and access to capital. I'm going to talk about this shortly. For Contact, the rising tide of ESG expectation is important because we know being good at it will help us create long-term value. It will also ensure we're focused and we're not spread too thin.
We need to be deliberately pursuing some things and deliberately not pursuing everything. There's been a renewed effort on ESG at Contact over the last 12 months. It's been fantastic to be part of it. To be clear, though, we're in a really good place. We've got many ESG factors already built into our DNA. It starts with our tikanga, which has been mentioned earlier today. It's our commitment to being a responsible organization. It also includes tangible activity. You're just going to have to bear with me. I am going to reel off a few things that we've done pretty well, but we maybe haven't talked about enough. There's our decarbonization strategy, which isn't new today. There's integrated reporting. NZX recognized us as being a leader in this space. We're the trailblazer on science-based targets. We've got early adoption on carbon disclosure.
There's been thoughtful work on inclusion and diversity. I might make a couple of comments about diversity today, which I'm going to enjoy. One of the things that's really important, and I'm sure you've all noticed, is our board. One measure of diversity is the women on board, and we've got more women than men on our board, which is fairly unusual in the NZX. There's our green finance program. You will recall when we launched that back in 2017, we were the first, and then we're still kicking along with our sustainability-linked loans. When I say there's a renewed effort, it's been around adding rigor and resources to the things that we've been doing for many years. It's being clearer, more deliberate, and it's seeing ESG factors integrated into Contact's priorities.
It's why I'm standing here today, you wouldn't have seen me before, alongside operational excellence in the way we work. We want to continue being a leader and recognized as a leader. What are the things we're focused on? You've heard our strategy is grounded in sustained conscious effort to lead decarbonization. For Aotearoa, New Zealand, it means we're acting as good stewards for our environment and helping Kiwi communities to thrive. We do this by being a responsible asset manager, lowering our carbon emissions, and investing in our communities. In practical terms, it means we make good things happen. I'm going to give a recent example, which is the opening up of the Central Otago Bike Trail.
Not sure if many know, but we've given access to what's called the true right of the river, apparently, to the public for the first time, so people can cycle from Clyde through to Bannockburn. A not so recent example, and you saw a photo earlier on James' slide, is the bioreactor at Wairakei. That was innovation from our people that's reduced our environmental impact on the river. Sometimes it means making tough calls as we embrace the shift to renewable energy. I was at Contact a few years ago when we closed down Ōtāhuhu. That was our gas-fired power plant. It was the right thing to do, but there's no question it impacted our people, their families, and that community. Sometimes we actually don't get it right. Some people in our communities feel let down.
It's not far away from here that the incident at Katikati happened a couple of years ago. We aren't perfect, but we do commit to listening and seeking to understand. We're doing this right now in Cromwell, if any of you were listening to Radio New Zealand yesterday morning. For our customers, a focus on ESG means giving them access to affordable, clean, and reliable electricity to power their homes and businesses. It means we work to ensure their needs are met and that they're treated fairly. A real-life application of this is the development of our customer pricing principles. When that team make a decision about price changes, one of the factors they consider is making sure that the gap between what our loyal existing customers pay and what our new customers pay is reasonable. For our Contact people, they want to be part of a successful organization.
No matter where they live and work, they want to feel proud that they can say they work at Contact Energy. Our strategy is to decarbonize New Zealand, and that provides a really exciting challenge for us all on that front. For our investors and shareholders, it means significantly growing shareholder value by aligning with long-term sustainable resources of value and reducing risks inherent in our business. There's five ways we think about that, about ESG creating value for our shareholders. On the right-hand side of this chart, we talk about growing our revenues. We do that by improving reputation with customers, as Matt said, and creating a platform for growth by providing clean electricity. We reduce our costs by our sustainability-linked loans and our lower cost generation. We're maintaining our license to operate and reducing risk through strong governance and contributing to New Zealand's future.
We're engaging our employees and enhancing their productivity through a sense of purpose, and we're optimizing our capital allocation to ensure our investments produce sustainable returns. We're currently working up a comprehensive set of metrics which we'll use to track our ESG performance, so you'll see more from us on this. There's lots of people at Contact at the moment, head down, completing the very extensive Dow Jones Sustainability Index questionnaire as we look to get into the Asia Pacific Index over the next couple of years. We only missed out by a few points last year, but the bar keeps rising. I want to highlight a couple of goals we've set ourselves. You've heard a few of these today, so I'm not going to repeat our emissions reduction targets.
On the left-hand side here, under the environment pillar, you'll see that by 2025, 95% of our generation will be renewable if Jacqui delivers. We will reduce our impact on the Waikato River system, and we're electrifying our vehicle fleet. 50% of the passenger fleet's already electric. By 2023, it'll be 100%, and the total fleet should be zero emissions by the end of the decade. Examples of our commitments under the social pillar, we've got a commitment to support 100 community initiatives a year. Currently, for this financial year, we're only at 37, but we've looked at ourselves and we noticed we are not good at recording what our people do in their community. we're going to get better at that. We've committed to understanding modern slavery and removing it from our supply chains, and we're embedding our sustainable supply chain processes throughout the organization.
Finally, I'm going to move on to governance. Shifting the dial on inclusion and diversity is why I come to work every day. The irony of talking about this six expectation on inclusion and diversity is not lost on me when I look around this room. Diversity has many aspects, and Jan's going to detail some of the initiatives that we're doing across the broader diversity set. To be honest, we still have a lot of work to do on basic gender metrics. You can see here that we're working towards a minimum 40%- 60% gender split through the organization. Actually, if I gave you the data, we're at 46%- 54%. Great work. However, it's in clumps. Depending on your role, there's some really good results and not so good results.
Elevating the proportion of women in engineering and leadership is on our radar. We're going to remove bias in our recruiting procedures and continue to seek out diverse talent. We're going to work to maintain our Rainbow Tick accreditation as an inclusive workplace for LGBT+ people. Visual signals are very important. One small thing, separate from the wider program of work we do in that space, is to have the rainbow flag flying at our sites. When the team at Clyde noticed that the Central Otago weather was playing havoc with the polyester rainbow flag, they've decided to go one better, and they're going to give the transformers the rainbow treatment. Over the next few years, as you drive past Clyde, you will notice a bit more color.
We will convert all our bilateral lending facilities to sustainability linked loans and certify all debt as green. We're targeting the end of the financial year, which is not very far away for the team on that. I look forward to talking more about what we're doing and answering your questions today and over the years ahead. It's exciting to see us build on our ESG activity. We've formalized it and seen it become more integrated into what we do. It isn't a job of one person, it's a job of many, and it's my privilege to be part of this work and hopefully make my children proud. Making a genuine difference to our environment, communities, and the way we run our business is why the Contact team come to work. [Non-English content] Two females in a row. Miracle.
I'm going to briefly talk about the operational excellence aspect as an enabler of our strategy. Now, operational excellence is basically about people, and we have some freaking awesome people that we work with in this company. Hopefully, you'll meet some of them this afternoon. It is, to Catherine's point, what gets me out of bed in the morning. Yeah. Operational excellence is also about our culture, and we have a culture that is safe, innovative, and brave. It's around fostering an environment where it's safe to challenge, safe to innovate, and safe to fail, evolve and learn, and move on to the next challenge.
As part of that, we've really embedded a continuous improvement focus across the business in the last five years. I think those metrics that have been up several times point to the delivery of that piece. Now, I think we're now at the stage where everyone's wilting and we're at risk of death by 100 slides. I haven't got any slides apart from this one. I just thought I might talk about some little anecdotes of examples of operational improvement that we've done in the last 12 months and what we're looking at moving forward. I know Dorian's got another 50 slides. That's a joke. In the thermal space, since we had a bit of a thermal theme going, the guys, the engineers and the maintenance teams up at Taranaki, working on that big baseload plant, are doing some awesome work.
We are flexing that machine like you would not believe, how it's not meant to be flexed, but in a very safe way, I might add. To the extent that we've got its minimum load down to 160 MW, maximum load 330 MW. That's a feat that doesn't happen with baseload thermal plants. Something that adds considerable value to us in our portfolio management. Also in the thermal space, Matt's done a fabulous job in securing third-party tolling arrangements for gas, which we've announced those. That is around ensuring that what of the gas is available is being used in the most efficient way, and freeing up the gains that we make in that space to industrials. In the geothermal side of things, this year, you will have noticed our volumes are down a bit. We've had a whole year of back-to-back planned geothermal outages.
It's been full on. We've developed in the technology and digital space. We're just sort of dipping our toe in there, following along behind Matt's great examples in customer. We've developed a real-time outage dashboard with a focus on quality assurance. Now, I think anyone who knows anything about operating generating plants is, it's that coming back into service, that reliability piece, as you come back up is a real issue. We've focused on that, with an objective to improve reliability and availability. That has seen us bring back Te Mihi, which is a big station, several days early. In fact, nearly a week early from its planned outage and one of our 30 MW plants at Wairakei is saying both returned to service well ahead of time. As I say, that's revenue, and awesome work.
I'm going to touch into Jan's space on the transformative ways of working. At Wairakei we are piloting a different type of working with the geothermal people up there. It's really busy there. We've got about 150 people on site, five power stations, two steam fields. Everyone's busy being busy and preparing for Tauhara. We've sort of split ourselves up into outcome-based teams with an agile approach, where our delivery model is one where work is visible, prioritized, and the system of work is fit for purpose. We've taken that from direct feedback, some really good analysis that we've done. I think we did something like 72 interviews with people. That model, if successful, really sets us up well to drop in the Tauhara team to operate that new station. In the fueling space, Carl's getting a lot of highlight today.
We've been working really closely with Western Energy over a long period of time, in developing mechanical and chemical well clean outs using different technologies. That we've really improved the reliability in that piece. Again, Dr. D, Mike Dunstall might talk about that this afternoon, to the extent that we've made savings of around 60% compared to our prior methodology of using bringing a rig in. That's a huge amount of savings. We've also experimented in the robotics piece. Again, we've stolen Matt's people from the customer side of business to do that, where we've automated processes that are very manual and repetitive. Tracer flow testing is measuring well outputs of mass flow and enthalpy, and we've just managed to facilitate that data, or optimize the data to our steam field performance, if you like. We even have an app. It's quite groundbreaking.
Looking forward, we've set ourselves a really, really ambitious target for next year, in achieving the first zero-emission geothermal plant at Te Huka. We have got a whole initiative going on there around carbon capture. That's very exciting. I think the next step change in our efficiency in operational excellence is in the technology and digital space on the generation side of the business. That's where we're heading to optimize, again, reservoir performance and asset performance. We've done some experiments with voice-to-text in both actually in customer and generation, which deliver huge operational efficiencies in time. Instead of relying on people with bits of paper and then coming and entering them, it's all done in a mobile way within the field. We're looking to expand upon our actually COVID experiences with virtual reality.
We were forced to go down that way when we couldn't get global experts in country. We went to Hamilton, spent two and a half grand on a headset, and off we went with real time rotor inspections and whatnot. We're building upon that to use for our competency and training and also some of our safety risk reduction work. Tauhara, as a new build, offers a plethora of digital opportunities to reduce operating costs. That's sitting there. There's the normal building upon what we're already doing in condition monitoring, predictive maintenance, all that side of stuff to just improve our performance.
In the trading side of things, we have something like, Matt will be able to correct me, 80 years of hydrological data that we can put into models, and it gets some pretty cool hydrology outputs or predictions coming in that space, market simulations, portfolio optimization, and really looking at improving our demand predictions in that trading space as well, which will be helpful. Yeah, that's a little sample. I'm going to hand to Jan, who's going to talk about transformative ways of work. Midget front of the room.
[Non-English content] Everyone. My name's Jan Bibby, and I am extremely proud to be the Chief People Experience Officer at Contact. It's a role I've been in for about 18 months, which is considered to be pretty short tenure in this organization, it would be fair to say. I think Jan's referred to being an old face.
I consider I'm an old face, but a new face. There's a reason I chose people experience as my job title. It's the reason I get out of bed every day. You've heard a few people talk about that, but creating a great experience for our Contact whanau is really important to us. Our tikanga and our purpose, you've heard that talked about today, is what guides all of us at Contact. Having a culture that's based on respect and deep trust is part of our DNA, and it's part of what drives the human kindness I see our people demonstrate multiple times every day. They demonstrate it to each other. They demonstrate it to our customers, our communities, and our stakeholders. That deep trust is also the key ingredient that allows us to embark on our transforming ways of working journey.
Having highly engaged people and productive people, having a sense of commitment to delivering our strategy is critical to our success. As we all know so well, the world has changed. The way in which we live and work today is fundamentally different to what it was just 12 or 18 months ago. Rather than gravitate back to that pre-COVID world, and I don't know about you, but I can barely remember what that was. Our aspiration now is to become an organization that constantly reimagines and redesigns itself in an attempt to deliberately go towards the next normal. For us, though, it's not just about working from home versus working from the office. At Contact, we have the choice. We can choose whether we work from home, from the office, or from anywhere else, so long as we can do so safely and securely.
I about two weeks ago, just returned from spending a month in Melbourne where I worked full-time, but also provided an extra set of arms and legs to my daughter and son-in-law who just gave birth to their first child. I was able to continue to work for Contact while doing that. We realize, though, it doesn't work for all jobs, and there are just some jobs that you have to be on site for, and that's the reality. We try and allow those people to have choices as well. For some of those people, they are working a nine-day fortnight, or they may be working from home every now and again because they just need a quiet place to do some work, or they may be working different hours. For us, it is about allowing our people as much as possible to make choices.
It's not just about flexible location, though. T-WoW, as we call it, for us, is as much about redesigning what we work on, who we work with, how we work, as much as it is where we work or what the workplace is.
It's about having the right people with the right capabilities, working in the most optimal way possible. In order to achieve our strategy, we know we're going to need some new capabilities. We're focusing on what those capabilities are, whether we can build them from within, and where and when we might need to go should we need to find those capabilities elsewhere. Research indicated to us that embracing flexible work practices are likely to be well-positioned to sustain their operations, attract a more diverse talent pool, future-proof their culture, create competitive advantage, and succeed into the future. So far, we're finding that's been our experience too. We've hired people to come and work for Contact who do not live where we have a presence today.
We've had people inside Contact choose to go and live and work somewhere else in New Zealand and continue to work for us. they've gone for a range of reasons, either because they simply couldn't afford to buy their own home in a major city and have been able to do so in another city in New Zealand. We think that's great for New Zealand Inc. In essence, we've moved from having two contact centers, one in Levin and one in Dunedin, to almost 300 contact centers as our CSRs choose to work more from home. we still have a hub in Levin and Dunedin, but we have a number of other hubs around New Zealand as well. By becoming location-agnostic, we believe we open a bigger pool of talent from which to draw from. It doesn't matter anymore where in New Zealand you choose to live.
Our March engagement survey are telling us we're doing the right things. Our engagement score is 7.7 out of 10. We use Peakon, so it's not a percentage in using this tool. Our eNPS is at +29, and one of the drivers we scored most highly in was our people having the ability to work in a more flexible way, where we scored 8.6 out of 10. We think we're moving in the right direction. We're constantly watching out for unintended consequences, and one of those can be the lack of connection people sometimes feel, and we as humans need to connect. We've established contact communities where people can come together in a geographic location, either just for a coffee or whether they want to collaborate on a piece of work.
People tell us they've met people at Contact that they've worked for the organization about the same time, but they never met them before. Maybe because they were just on a different floor. We know technology and digitization underpins what we're trying to do, and we've recently completed a highly successful upgrade of our platform, moving to Windows 10, and in many cases, providing new equipment that allows our people to work more efficiently. Leadership is also a critical ingredient. We've launched a new leadership framework called Shaping Our Contact Community, and one of the areas we're focusing on is helping our leaders to connect and lead their people even if they don't see them every day. For those of you who like hard facts and numbers, let's not shy away from the fact that this is delivering us some financial benefits.
During the course of the last 12 months, we are delivering or have delivered recurring benefits giving us up to NZD 4.9 million in cash benefit. We've reduced and are reducing our property footprint in Auckland and in Wellington, and our Dunedin and Levin hubs are smaller. We know that people though still want to come to a place to connect and collaborate. For some of our people, they just simply like coming to the office every day. We will continue to have those locations. We just don't need the space we used to have. We see T-WoW as leading decarbonization from within. We are focusing on reducing the amount of business travel that we need to do in order to reduce our carbon emissions. This isn't a social experiment for us. This is our new way of working.
Diversity is the what and inclusion is the how. Diversity focuses on the makeup of your organization to ensure that you have a balance of gender, race, ethnicity, sexual orientation, age, physical location of where you live. Inclusion is the measure of culture that enables that diversity to thrive. In my view, this is one of the biggest symbolic things we can do, to demonstrate inclusion. This allows our people to bring their whole selves to work and to make choices that work for them, for their families, for their communities, for Contact, and for their pets. [Non-English content ] I'll hand over to you, Dorian.
Just looking at the timing, I'm probably just gonna have to introduce myself and then say goodbye if we're going to stick to the agenda. We are gonna overrun a little bit, I hope that's okay with everyone. I think I'm Dorian Devers. I'm the CFO. It's great to see everyone here today, actually including a few of representatives from the capital markets in Australia. I think it's the first time I've physically met some of our Australian shareholders since about March last year. It's great to have everyone here. First up, we've actually presented this slide a few times, and it is pretty deliberate. We've got a 20% upstream market share, so maintaining that supply and demand balance is incredibly important to us.
We do realize there's a bit of a tension there, because also having access to fuel and then being able to invest into generation to bring that to the market as electricity is the biggest path to value. You've got to be able to see a use for that electricity, either the way that we've done in the past, where you turn off less efficient plants, like what we did at Ōtāhuhu, like what we're going to do with TCC, or you can see that the market is growing. If you can't see either of those two things, then you shouldn't be bringing new electricity to market, because you're going to oversupply the market, and that's going to destroy value for shareholders. That's not something we're interested in.
That's actually why we spend a long time at Contact analyzing the market before we make big investment decisions, like we recently did with Tauhara. We have been challenged a little bit on this as to whether or not we are too conservative. Because on the other end of that scale, if you are too conservative, you do run the risk that others will just come in front of you while you're procrastinating and build wind farms in this instance. you'll have seen a bit of a change in posture from us, and that's because, as we've said a number of times, we have got the best quality renewable development pipeline with the lowest firm long-run marginal costs. We've now got into a position where we can fund that.
We want to ensure, we feel there's an obligation on us to actually ensure that these do get brought to market first, but they get brought to market when the market needs them. I'll just probably just highlight some of the things that my colleagues have already talked about today, on this slide. The whole point of our business model and strategy is how do we get the market into a position where we can actually bring those renewable projects to the market. That is why we've spent the lion's share of today talking about new demand, because growing the market is going to be the biggest driver of us being able to do that. We've talked a bit about Simply Energy and the skill set that that has brought into Contact.
That deep market intelligence that Simply Energy have got, coupled with those very innovative commercial constructs, which will allow us to lock in PPAs with customers in those sectors, and actually build generation into that. We think you'll see a bit of a change in how the market operates, that you will see simultaneously new demand and new generation announced at the same time, and we see that as being very positive for us. In terms of growing renewable development, we are very privileged. I think James and Jacqui have talked about it a few times in our geothermal position. James showed a slide and did put a lot of caveats on that slide. I really like that slide, being a financial person.
It did show that our estimation, and there was four sub bar, Andrew was also referenced on that slide as well, was that Tauhara is delivering returns significantly higher than what we see wind being able to deliver. If you actually think about that, it makes a lot of sense. What we've got in terms of geothermal is very difficult to replicate. Unlike wind and solar, which is a bit easier, which is why you have so many more people actually doing it. The good news in that space is, as we've said a few times, we've got 3 TWh of this geothermal that we are looking to bring to market. The first parcel of that is Tauhara, which, more pressure Jacqui. Mid-2023 when we expect that to come to market.
In terms of decarbonizing our portfolio, which Jacqui talked about, the interesting thing here is we have to demonstrate visible leadership. We are talking to customers and potential customers about them shifting out of more carbon-intensive energies into renewable electricity, so that we have to make sure our own backyard is in order. Jacqui had a fantastic slide that showed over the last 15 years, we've reduced our carbon emissions from electricity generation by more than twice what the rest of our market has done added together. What we will do with Tauhara coming to market, we will then bring the whole of our industry down another 10%, so that's 450,000 tons of carbon. We have no issue. We are definitely demonstrating visible leadership in this area. sorry, lost my train of thought there.
I guess, we're not going to get on our high horse about renewables going up to 95% renewables when the rest of the market is going to be operating below that. Because we do recognize thermal has a key part to play. It doesn't matter whether you're a 0% renewable or 100% renewable, you're guilty by association. The market can't actually operate without it. That's the whole point of our strategic thermal review. We actually want to get the best outcomes here for the industry. As renewable generation is going up, we're going to see thermal assets dispatch less. You need to make sure you're able to rationalize and deliver those fixed cost savings. Also, it's really good for reputation, because you want to make sure that firming has got the lowest carbon footprint possible. That'll be good. The EA will like that.
The government will like that. It's good for consumers because we want to ensure that that cost of firming is as low as possible because that will ensure the cost of firming is lower, which will flow through to consumers. We have already started to make inroads into this. If you actually think about our bilateral agreement we've got in place with Nova, that is akin to a thermal consolidation because we're leveraging the heat rate benefits and the carbon efficiency of TCC relative to peaking. In terms of creating outstanding customer experience, this is in our retail area. I think it's fair to say, and everyone would agree, the fixed costs for retailing electricity are very high relative to profits. There's a great opportunity here to actually get scale to create value.
We see that being a particular opportunity for Contact because as Matt showed, the cost to serve per ICP for Contact is lower than all of the other gentailers. Profitable growth is a real opportunity for us. The broadband pilot, and we call it a pilot, but the fact that we took 2% market share in just 12 months means it's probably a bit bigger than a pilot these days, has really demonstrated that value that you can get from scale, leveraging our existing fixed costs and leveraging our platforms in order to get good profitable outcomes. On to a bit more of the financial stuff.
We see ourselves as having a unique combination of capability, but also great renewable development opportunities, which we think puts us in one of the best positions to lead decarbonization and demand growth, but also therefore to get the value from it. In terms of deploying strategic capital, that's a key thing. You've actually got to be able to attract the capital as well. Our recent equity raise that we did, I think some of our peers were looking at us a little bit enviously, based on market structures and shareholdings. That's a serious point because if we're going to do what the Climate Change Commissioner is saying and build significant amounts of renewable generation, that is going to require a significant amount of capital, and a lot of that will have to be equity as well. That's a key point.
We need to be able to deploy it. I talked already a little bit about supply and demand. That's important because when you're deploying that capital, you want to ensure you're getting returns for your shareholders. One thing that we've got, which James mentioned, is our Wairakei option. There is a little bit of potential discretion around the timing as to when we reinvest in Wairakei, and there's certainly discretion around the size of that plant. That means we can use that potentially as a bit of a lever, to ensure the market does remain a supply and demand balance, which is obviously important for shareholder returns. Operational excellence, Jacqui's talked about that. Very, very important. Making sure that we maintain that really. It's got quite a large gap at the moment, but that positive gap in terms of geothermal, our geothermal versus wind.
We know wind technology costs are going to continue to come down. We need to continue to innovate within geothermal. The Western Energy acquisition that we've done will continue to help, in that area. More broadly around operational excellence. Some companies will pivot for growth and then forget about all of the good work that they've done around productivity and efficiency. That's not what we want to do at Contact. The best companies in the world are able to run growth programs and productivity programs in parallel. You get a doubling down on your cash flow effect there because your cash flows are growing through a combination of growth and productivity. As you all know, our dividend policy is linked to operating free cash flow. If our operating free cash flow is going up, the dividend is going up as well.
It all ties neatly. It's very easy to say all of those things, but we actually think we've got the foundations in place to deliver on it. Clearly with our dividend reinvestment plan that we've recently launched, it does mean that if you like what you see, you have the ability to seamlessly reinvest those dividends back into Contact without incurring any transactional costs. I won't run through this in detail because I sort of talked about it already, but I will just touch on that point around attracting capital. We're in a capital-intensive industry, and in particular, when you think about a geothermal investment, it's about eight times the amount of EBITDA that it throws off. When you think about our borrowing capacity, if we're maintaining our S&P investment grade credit rating, we've got about three times debt to EBITDA that we're allowed.
There is a gap there that has to be made up, and it has to be made up by support shareholders and equity. That relationship with the capital markets is super important. It's a bit of a virtuous circle. We deliver, and I'm sure the capital markets will then deliver for us. On our commitments, we've listed the four of them there. I said you can sum it up into one. We will deliver on our promises. If we do that, I think everything else sort of resolves itself. I should just highlight one thing on this slide. Because we're in a high wholesale price environment, our risk tolerance for actually losing production has dropped drastically. We are looking at some investments in hydro and some strategic spares around geothermal to sort of reinforce our production.
We're working through that at the moment for our five-year plans, but at the moment, it's looking like about NZD 100 million cumulatively over the next five years, so NZD 20 million a year. As I said, we are doing that in response to the high wholesale prices at the moment. We've talked before about the NZD 1.4 billion and what we're looking to spend it on. What we haven't spent as much time is actually how we're going to fund that. Clearly, the NZD 400 million equity raise will play a big part in that. thank you for those of you who participated in that. It was heavily oversubscribed, which is great because it means our investors can see what we can see, which is a fantastic opportunity to invest in some great projects. clearly, that's not going to cover all of the funding.
We will be gearing up our balance sheet. We will expect to be able to gear up our balance sheet more because when Tauhara comes online in 2023, that will uplift our EBITDA as we save on fuel costs, thermal fuel costs of TCC. There is a bit of a balance there, which probably your eyes are drawn to. That is an assumption around capital coming in via the dividend reinvestment plan. We benchmarked that by looking at other companies who have got dividend reinvestment plans with 0% discount and what percentage of those dividends got reinvested. Also, as you're aware, our dividend policy is to pay out 100% of our operating free cash flow. Some of that operating free cash flow can be reinvested.
Obviously, if we're in an upside case and we need more capital because we're seeing more demand than expected, clearly if we're living up to our promises, I don't think accessing that will be a problem. This slide, I've mentioned supply and demand a few times. This is our view of where the net supply and demand for the market is going to go over the next five years, starting from really today. The capital markets have been asking for someone to present this for quite some time. I think we're the only ones brave enough to actually put something down on paper. Bear in mind, it's a competitive marketplace, so there is a lot of stuff within here that's not fully within our control.
We do think it's prudent to plan for the worst, so we're planning for a Ty exit and then not all of that South Island demand immediately being replaced. The good thing is you can see from the chart is the market does remain in balance because that Ty exit provides a decarbonization opportunity for generation with thermal generation being switched off. That's not our ambition. Our ambition is actually lower South Island demand is at least maintained at the level it is now. That means you don't incur those location losses of all that electricity in the lower South Island having to flow north. If we start off at the top, as you'll all be very aware, there is issues around availability of natural gas. There's not enough natural gas at the moment to service the market in the way that there has been historically.
Not only is that putting risk and uncertainty, which you can see in the wholesale prices, it's also meaning that a more expensive mix of imported fuels with high carbon intensity, such as diesel and coal, are being used for firming. We actually think if hydro storage levels were actually back at mean, you would still see elevated pricing. Our view is you'd need about 1.5 TWh of increased generation coming to market to bring those risk settings back to normal levels and ensure that firming costs came back down to normal using lower cost and lower carbon intensity fuels. That's get to resolve because you've got 3.1 TWh of new generation coming to market or recently come to market with YPP.
You've got the 1.5 TWh of new demand growth for the Lower South Island that the market is going after. We've talked about today. I think Meridian had a similar number in their presentation as well. Based on all the pipeline of opportunities that we see in front of us, we think that that's achievable from the market perspective. You have Tiwai exiting. That's the 5 TWh there leaving the market. We have been prudent and actually assumed another industrial leaves as well. That's the 0.6. Obviously, we hope that doesn't happen, but we're planning for one. What happens is you see the thermal generation in the North Island turn off, so TCC and Huntly, and 4 TWh of generation comes out of the market and is replaced by that water flowing north.
You can see the line losses in there as well, the 0.8. That's the location losses as all that electricity flows from the Lower South Island into the North Island. Underlying demand growth, which is one and a half terawatt hours. That's 0.75% per annum. The Climate Change Commission is assuming 2% per annum. We've taken a little bit of a haircut on that to be prudent. As the market doesn't quite balance, we replace Wairakei, and we have to expand it, and that's the 600 GWh of increased supply coming back to the market there just to give it space.
In balance, the assumption is it would be Wairakei that would get built because that would have the lowest long-run marginal cost of all the projects around New Zealand, which are in the development pipeline at the moment. That's our base case. That's not our ambition. Our ambition is that there's three and a half terawatt hours of additional demand in the Lower South Island, which means to add to the one and a half that we're already planning for to fully offset Tauhara. Sorry, too many Cs. That in its simplest form, coincidentally, is a 400 MW smelter. That's pipeline one or two. It could be anything. It could be new demand, but that then keeps you going until 2027, when that's the expectation of hydrogen coming in and starting to consume electricity.
If you do those things, what happens, maintain Lower South Island demand, the water isn't available anymore to substitute thermal generation on the North Island, and you've got 3.5 TWh of new renewables that has to come to market to economically substitute out that thermal. That's good for us because, as I said, we've got the best quality pipeline of renewable development opportunities, so we would be expecting to get our unfair share of those opportunities. This is the financials. We couldn't present that we're looking to invest NZD 1.4 billion of capital but not give any indication as to what we thought we were going to get to that. This is showing the EBITDA that we expect to get from deploying that capital in FY 2024 and FY 2026.
FY 2026 is on a run rate basis because we want to show the full year impact of Wairakei within there. Remember, this is assuming that base case, which has Tiwai exiting, and they're not being fully offset by increased demand in the Lower South Island. That ambition case that I talked about, if that happens, the numbers will be slightly higher because there'll be a bit more tension in the price in the Lower South Island, and obviously, there'll be additional income streams flowing in there as we build more renewables to cover that 3.5 TWh of retirement of thermal in the North Island. You can see the FY 2024 number, the large bit of thermal there is Tauhara coming to market. Then in FY 2026, you've got Wairakei coming in. That's the full Wairakei plant, the 1.4 TWh .
We thought it's appropriate to show that because that's what the capital is there at NZD 1.4 billion is actually buying. Remember, 60% of that is actually replacement of the existing plant, and so it wouldn't be incremental EBITDA. You can see M&A. That's not new M&A. That's us delivering on our business cases around the Simply Energy and the Western Energy acquisitions. We've got productivity in there. That number's a little less ambitious than what others have announced, but remember, we've already done a lot of hard work in terms of getting our OpEx down and improving our capital efficiency. A lot of that is just about offsetting cost inflation. Through complementary products, that's building within our retail space, on our broadband offering, and maybe offering a couple of extra products in there as well.
The last slide, which I won't go through into detail in the interest of time, but I'll just explain the purpose of it. We wanted to be able to set out exactly what's going to be happening as we operationalize our strategy going forward based on certain time periods across our four strategic themes. We wanted to share that with this audience, so you could hold us accountable for it because you now know what we're planning on doing and when. Clearly, if you notice that we're going off course, then you know that you can hold us accountable for that during investor meetings and the like. With that, I've covered a lot of the stuff that my colleagues have already talked about today, but summarized it a bit more and tried to provide a bit more of a financial lens on that for you.
I'll finish there in the interest of time and hand back to Mike, who will close out, and then we'll do Q&A. Thank you.
Okay. I'll be very quick. I'll end as I started. New Zealand faces a point of inflection. You've seen that in the numbers and the graphs you've been presented today. There are four things I want to get across. Number one, we'll do our bit. We will decarbonize our portfolio. We have a track record of doing that, and we will continue. Secondly, we will help New Zealand decarbonize. We have the renewable pipeline that is quite frankly unique in this country and unique in the world. We are ready and able to build it as and when market conditions allow, and we'll continue to keep a very close watch on that. We have off-ramps on the growth strategy, as has been outlined today. The third thing is that we will help New Zealanders decarbonize.
The electricity industry in this country has been very much its own talk shop. They have their own prize giving. They have had their own dinners. We have to learn to look outside, to get alongside industry, to understand industry. That's been very much the focus of James over the last 12 months, building a capability beyond ourselves. The third thing is that we will help New Zealand's renewable generation resource that goes to wind and solar geothermal to help decarbonize globally, to establish an industry in New Zealand that will provide investment opportunities and jobs well beyond the generation and working lives of the people in this room. With that, I will end. I apologize for going slightly over time. We'll take a bit of time for Q&A because I no doubt that knowing you guys in the room that you'll have a few.
We'll break for lunch. On that, Dorian, James, why don't you come up and we'll take some questions.
Hi, guys. Just thinking about part of your decarbonization in the, in Thermal Co.
Right.
How should we be thinking about retirement of TCC? Is it part of a Thermal Co as, TCC retired, it's gone, and then Thermal Co is simply your gas storage and then other peakers or?
The intent is that TCC retires.
Yeah.
Thermal Co is a concept that would be pan-industry. The assets that get in there would be. Well, we obviously have our peaking plant. We have our storage contracts. We don't own the storage anymore. Others have other assets. The fundamental premise is that New Zealand has the gas reserves and resources to ensure an orderly capacity. It has the assets to ensure an orderly capacity. What we need is for the human beings who operate that to have an outbreak of common sense to ensure an orderly transition.
Yeah. We don't want to be in a situation with what happened in Australia yesterday, where the government's intervening and building peaking plants, for example.
Great. Thank you.
Grant, you'd have to.
It's all in my filter.
Yeah
The other questions. That's a long Post-it, Grant.
Sorry. Mike, will Thermal Co be a capacity market or is this still an unregulated market?
Look, I've worked in capacity markets. I see I'm not a big fan of them. I see the potential for overbuild. As I said, the premise is we've got enough resources and reserves, we have enough kit and equipment, and it's a sensible way for the current market structure to efficiently and effectively deliver reserves and security of supply into the market.
Yeah. I think it would be likely a contracted market bilateral to underwrite the fixed costs, and the falling fixed costs as plant closures occur through time, as renewables come to market and other forms of flexibility come to market. I would expect Thermal Co to think about, for example, listing a capacity product on the ASX. The costs need to be recovered from all retailers, not just a few.
I would expect Thermal Co to have a real focus on that, ensuring there are products available for all participants.
The elephant in the room, Genesis. You said you've started discussions. Are they inside the circle?
Couldn't comment.
Okay.
We can't comment at the moment. Yeah. Obviously there are a number of thermal operators. We'd like to have discussions with all thermal operators about it.
Thanks. then in terms of your demand growth assumption in the South Island, you put 1.5 TWh there. That was what Meridian was trying to do on their own. You guys seem to have about 860 MW. Is that additive or is that included in the 1.5?
1.5 TWh is roughly 200 MW, right, of new demand. We're targeting a hundred. We're confident of that. If Meridian achieves more than that, then it's additive. That'll be, what, 2.3 TWh, thereabout.
Thanks. Final one before I pass on. You show your low road, pushing out Wairakei. Have you guys got approval to do that yet? Is that still at the CapEx of NZD 100 million? Because I see you only put NZD 480 million into your CapEx program. Do I add NZD 100 million to that in your low road?
You can answer the CapEx question, Dorian, but we don't have approval yet for that option. We will lodge resource consents for that at the end of this year, I believe.
Yeah.
We're still doing the scientific work on the river, to be able to measure our impacts and demonstrate a massive improvement as a consequence of the bioreactor investment.
In the CapEx program, we've got the NZD 700 million as part of our growth program for Wairakei. If we were able to extend it out to five years, that would mean the 700 would come down to.
Yeah
100 or whatever it happens to be to get our five-year extension.
Okay. Just so your low road had just the Tauhara One spend, not the extra NZD 100 million. That's you assuming Wairakei stays around. Is that correct?
Yes.
Thanks.
We can leave it at that.
Yep.
Thanks for hosting today. I mean, globally, some of the largest energy companies are pursuing these decarbonization projects in solar, wind, offshore wind, with ROIs of 3%, 3.5%. Surely it makes sense for you to pursue what you put up here pretty aggressively. What, sort of, ROI do you think we'll get out of a hydrogen project, A. B, as you look at geothermal, getting a 10% IRR, why aren't you pursuing it even more aggressively now?
Well, I think it's important to ensure we maintain balance within the market. Obviously an oversupply has a material impact on your incumbent business as well. We do need to manage that. As soon as we see that we're comfortable that demand is coming to market, we're ready to go. There probably is a timing thing there as well because, you may not be wanting to wait for the demand to be a hundred percent there. This goes to that posture change that we talked about, before you invest. Remember, I think we're in the best position because we're involved with a lot of conversations with industries around demand growth to make that judgment call as to when to invest, as opposed to other counterparties who aren't looking to build, who aren't involved so much with those conversations.
That's a really important.
Yeah
Part of the rationale for the investment, and simply
Yeah
They can see when these things are coming. Dorian and I sit on the board, we can see them coming and be lined up and ready, and invest just that margin ahead of where others might. On hydrogen, it's too early to give any sort of indication of an ROI. We've got technical work to do. Electrolyzer scale's gonna have to increase over the next couple of years to get a large scale one off the ground. Hence the timeframe we talked about earlier. Probably through the next 18 months, we will extend the technical feasibility in working with people who have responded to the ROI and understand the economics a great deal better, and also work more with customers. I would hope that in 18 months' time, we have a far better view for you.
Yeah. I used to work in the sector in industrial gases, which obviously has a big hydrogen component to it. I'm getting calls from people I used to work with, from people within the industry around, "I remember how good we are at these things," and when you're making decisions about who to involve in the process. That actually gives us some comfort that you've got incumbents who are within that sector and are looking at what we've got to offer. They're ringing up to make sure that we're considering them, and that they can be part of the solution.
We take that as being quite positive as well.
Thanks. I have too many questions. I'll try and hold myself to three. Just the first one, a segue perhaps from the previous question. If you can generate a 10% IRR on something you're investing in now, there are others who are willing to put capital into projects of that ilk at 2%. Have you considered the idea of capital recycling? That all of these things are standalone, can perhaps be financed through other sources and-
Project finance?
Come directly to the.
Project finance.
Yeah.
Which we're very comfortable, so we obviously hold that as a consideration. The equity raise was a first step. It was an obvious step. If you've got a quality project like that on your balance sheet, why not? As we get to tougher decisions, you may want to bring in partners who are more willing to accept a 3% ROI, and you stand back and provide the electricity to them. It's horses for courses. Absolutely, because of the balance sheet flexibility that Dorian talked to, we can make choices.
The other thing I'd add on that, Neville, it's the type of projects as well. The standalone projects like wind farms with PPAs and batteries and things work, I think, quite well with project finance and SPV. Hydrogen might as well. Geothermal, I think it's a little bit more tricky because it's so integrated within us, and it's a core part of our operations. It's difficult to convince a bank that we'd be prepared to walk away from that if things were to pear-shaped.
That's great. Thanks. Second one on Thermal Co, and perhaps you could call it waiting to die co. Your demand supply charts there, it's useful to see how that stacks up. One of the key determinants in our market really is how much spare capacity and the cost of that capacity is available because of the underlying hydrology. How would Thermal Co work in terms of deciding when it dies and how it removes assets, which is key to really sustaining high prices? Second on supply demand you've got there. If no thermals retire, even though the baseload's gone, if no thermals retire, you're looking at a crash in prices. On the flip side, the outfit you're perhaps creating is a monopoly with a very important segment of the market. I'm just wondering how your thinking is navigating through those issues.
Okay. I'll answer the second part of the question, and I'll let James maybe give some of the deeper thinking, and even Jason perhaps, the deeper thinking on that. Second part of the question is, and it's unique to New Zealand. When you've got a challenge ahead of you like that, think rural broadband, where the parties came together to create a monopoly. The key thing is that they were, one, they collaborated, two, they were totally transparent, and they got Commerce Commission. Given the challenge ahead of us, not the competition behind us, I think the conditions are right to indeed create a monopoly that behaves and operates in a totally transparent fashion. Think outside the industry, the analogy I get to is the way rural broadband was very successfully introduced to this country and rolled out because the industry players did collaborate.
As to how decisions are made on retirement of plant, James, it's speculation, but way you go.
Yeah. We'll take a stab. Look, there's a lot of work to do to understand how to set that up, and there are obviously core competition issues to address to be able to have those conversations. There needs to be an independent business, and it needs an investor or a set of investors who understand that they'll get a return on their capital over a reasonably well-defined period. It will need to be created with a mandate to get smaller, which is an unusual investment proposition, but it is the only way that it will work. Investors will need to understand they've got a 10- 15-year window to make a return on that capital, and whether it's an ASX product, a bilateral CAP product, or other PPAs will need to be shaped to deliver that return, or it will not work.
You wouldn't restrict it to nine years, so that you hit the 2030 decarbonization target the government set for us?
No.
No.
No.
Very clear. Thank you. Last question then. Really just looking on to retail and your goals there. What's your view on build versus buy? Are you talking about organic competition for those targets, or are you including some potential acquisitions in that view?
That was an organic growth target we put out there and was based off a very successful entry into broadband that we've achieved.
Great. Thank you. You're doing very well to still have questions after such a long session. We've tried to really tire you out.
Just a couple of questions. First, just on that hydrogen thinking. when you're sending out information, are you looking, obviously, there's demand for hydrogen, so are you looking for hydrogen buyers, or are you looking for a hydrogen expert to develop a project to provide the capital? are you saying, "We'll build it, and can you provide the capital?" Because I suppose from an investor point of view, if you're asking for capital for a geothermal, it's different to coming to me and asking for capital for a hydrogen plant because it could be quite different discussions.
Yeah, we'll be looking at all elements of the supply and demand chain. The ROI has a generic description of what is available in the lower South Island, and then participants will delineate which part of the supply chain they want to respond in. There'll be a schedule to fill in a set of information for participants about their level of interest in each part of the supply chain. Many participants will only be in one part. Some may be in several. We're trying to keep it as open as possible, recognizing we will get overwhelmed with responses. It'll create a fair bit of work, but we need to see the life of land.
It is a very scarce thing, readily available from one day to the next, a large amount of baseload renewable electricity, and so the process needs to be sufficient to capture the best possible outcome.
Thanks, James. Now, just one for me around the dividend policy. Clearly, you guys have done a bit of modeling which suggests the balance sheets can potentially manage the NZD 1.4 billion worth of spend, assuming there's enough DRP. If you decide to do something else, obviously there's strategic reviews on at the moment. Do you think you'd change the dividend policy? Would that be the first port of call or-
No, definitely not. No. We've got lots more to do. Is that clear?
Just to reiterate. No. Question online. Question from Jason Hamilton. What carbon price is assumed in the estimated IRR for Tauhara? What about the wholesale electricity price?
It'll be ramping up over the 35- 40 year projected valuation period. The wholesale electricity price reflects the base case scenario that we laid out in terms of the supply-demand balance.
Yeah.
You can think through how those various bars moved through time and the pace at which wholesale prices return to the long run cost of renewables.
Yeah. Not one price.
Okay, and that's all the questions for the formal panel session. Thank you everyone for attending. We'll break for a quick lunch break. It's a working lunch, so take a couple of minutes to stretch your legs, sit back down, and we'll have a bit of interesting show and tell from the two strategic acquisitions that we've made over the week one. Thank you.