Good morning. 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 a group of people in this room.
That is what we're excited about. It's about an opportunity that is here and now, and there's an opportunity in front of us. So 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. So welcome, and let's enjoy the day. One of the feedbacks from the CCI is that you guys felt you didn't know me.
We hope to rectify that over the next 24 hours. And 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 flick 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 growing 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 a 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 LRMC opportunities in the market, let alone for firmed electricity. Jackie is going to then talk about our announcement earlier in the year and what we're doing on decarbonization. And then Matt will talk Matt Bolton will talk about the our customer experience and how we intend to grow in that space. Enablers, Kasher and Jackie and Jan will then talk about additional asset about ESG, operational excellence and what we call T Wow, not T Y, T Wow, which means transformed ways of working, which we've already seen to have a huge impact on the company.
And again, we regard as a key strategic strength. Then Dorian will wrap it all up. I would ask that you hold your Q and A. There's a couple of opportunities for Q and A as we go through. I would ask because we've got a truckload of stuff to get through.
We do 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 get on the bus, visit the sites and everything like that, okay? Right. More than anything else, today is about you guys getting and I say, guys, 1 or 2 females in the room.
We'll talk about that later. It's about you getting to know us, me, James, Jan, Dorian, Jackie, Catherine and Matt, all seated over here. But 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.
He probably some of you know him. He delivered to Mahi Oh up at the refinery. Carl, Western Energy, welcome. We're very proud of that acquisition. Andy Sibley, Simply Energy, to name a few.
So 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 an inkling of where the strategy is heading. So let's just go 2021. Despite COVID, we have not been idle.
We took 100 percent ownership of Simply Energy in July. We took FID on Tehada, New Zealand's largest private investment post COVID, which the government very, 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 4.80, clearly, when I came into the company, we were sitting around 4.50.
We thought we'd take a couple of years to get back to the mythical 4.80. We've got back and as you all are 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 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 and we have got into a partnership with the best wind development experts in the country, Roaring Forties over the last year, and the year is not up yet. So we have been busy. What we do want to introduce today because one of the things we roundly get criticized for, well, what is the path ahead? So if we think about the past, and this is what I inherited, and the company should be extremely proud of this, we have had an incredible focus on efficient operations and use capital for the last 10 years. And 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. And 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.
And this track record is incredibly important in that regard. Now 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 4 years with our 12 month rolling EBITDA, and you don't need sort of the 700 line spreadsheet to get there.
We have been remarkably consistent in our delivery despite the volatile hostile 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, and you can see that this year is heading to a strong year. At the same time, we have acquired some distinctive capabilities.
And today, in particular, we'll be showing you our geothermal capability where, 1, Jackie 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 do we have acquired strategically the partnerships over the last 12 months. Those partnerships, quite frankly, have been in existence for a very, very long time before we acquired full ownership. They had a fruition of a long, long relationship. And you see that NPS score, which I talked about earlier, how that has been turned around over the last 6 years, where customers generally value the service they get from Contact Energy.
But given all that, it's not about what's behind us, it's what's in front of us that counts. And there are 2 fundamental shifts in the electricity market ahead of us. 1 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 if as you 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 us 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 5,000,000 decided that was the way it was going to happen, it happened. And 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 aluminum 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 debate around the time that as we go through this today, I think that is a thing of opportunity. And James will talk further on that.
But those two events are big, and they're in front of us. It's not about the game behind us. It's what's in front of us. So decarbonization, incredibly important. We are going to see and 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. And strangely, particularly, the Labour government have decided to occupy this space, yes? You see increasing carbon and gas prices. It's an interesting winter, to say the least, yes? 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. And you've seen the technology costs, particularly for you've already seen in the wind, you're now seeing it in solar, geothermal is already there. But you see it in the other innovations ahead of us, electric boilers, EVs, batteries, electrolyzers. All those what we've got 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 we can get industry there faster.
We're going to talk a bit about that. And about 20% of it is from buildings. That graph changes slightly if NZIS exits in 2024 with no mitigation or no extension, but the trend is still the same. So our imperative is to deliver on our commitment to decarbonization and to make sure that that dip doesn't happen quite like that or as much improved. And 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.
And that is very much the focus of the team in the room that you'll talk to over the coming 24 hours. So 2,030, it's going to look like? We're pretty sure that NZAS will be gone by then. I think that plant has its life as about 2,030. You'll see baseload thermal gone, and you'll see very low utilization for the remaining thermal assets, which Jacky 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, yes? 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 base load 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. And you will see a change in the way the industry funds itself with emphasis on longer term PPAs to make sure that those that heavy capital investment gets an appropriate return. And for those of you who are 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. And the winners, quite frankly, of those who can attract new demand with those long term PPAs securing a long term income to now the recovery of that heavy investment. Quite frankly, Contact Energy is best positioned to enable that carbon decarbonization. We have a proven decarbonization growth platform, combining simply energy and you see some of the toys that Andy has 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 CNO load over 1.5 years 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, New Zealand we have New Zealand's best renewable development pipeline. It's sitting beneath you now, Jan. We have the best part of 3 terawatt hours of high quality, low carbon geothermal ready to be developed, and we our intent is to develop that over the coming decade.
We will lead New Zealand's thermal decarbon generation transition. We've led or replaced almost 3 terawatt hours over the last 15 years, closing the New Plymouth and the Otahou 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. And I say that 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, yes?
We do have low cost innovative 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. And we do have future focused capabilities. And over the last year, in particular, the acquisitions that you've seen and James' own efforts and 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. So that is quite simply where we are today.
Contact Energy, Contact 26, and I think by the end of the day, you'll be truly excited about what we have in front of you. So what's the strategy? Four strategic things. 1, 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 2, grow renewable development. We have New Zealand's best development pipeline.
We're proud of it, and we're going to build it. Number 3, decarbonize our portfolio. We have to do this sensibly to ensure a smoother transition as possible to protect the interests of our stakeholders, our shareholders and New Zealand Inc. And number 4, 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 will see the increasing focus on ESG, which will create long term value, yeah? You will see our focus on operational excellence. You will 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.
And you'll see transformative ways of working. We're quite frankly we're happy to use my chair's phrase, lean in to the opportunities that this presents. We won't get it right all the time, but the key what distinguishes us from our competition is that if we make mistakes, we learn from them and we move on. And so 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, yes?
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,
and
you will see a step change in performance with materially growing EBITDA through these strategic investments. So here are some of the ambitious measures of success, and you can test this by you'll see the building of in house capability for attracting industry support for industry demand. You will see 100 megawatts of new commercial industrial demand by 2025, and you'll see the market backed demand opportunities maturing to replace ZAS. Renewable development, you'll see Tehara online by 2023. Thank you, Jack.
You will see us taking FID on new renewable build, whether it's for an AKI 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 'twenty three, early 'twenty four, you'll see 100 megawatts of demand response capacity by 'twenty five. I asked earlier, we're at 11 as we sit today.
You'll see the thermal review completed, TCC decommissioned by the end of 'twenty three, as you see Tehada come on. You'll see our Scope 1 and Scope 2 emissions reduce from the 2018 baseline by 45%. In customer, we want to be in the top 10 most trusted brand by 2025, moving from simply energy retailing to being a retailer. We're very proud of the platform we've created, both with our people and the IT platforms. We think we can go further.
That will mean we're over 650,000 customer connections by 2025. We will continue to leave the market on cost to serve, getting below $120,000,000 per connection. And 75% of our customer interactions will be digital by that stage. The 3 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 will 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. And on that note and spot on time, I'll hand over to James.
Remarkable. I finished on time. None of us had that. We were unappalled. No one had that.
Okay. 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, very short mihi welcoming everyone through this region acknowledging Ngati Tuwharetoa. They are the indigenous Maori people of this area. This is the Rohe. We are in their part of the world. And it's important we acknowledge that every time we come together here in Taupo in the beautiful Central North Island of New Zealand.
In these parts, I'm known as Hemipu. My name is James Kilty. Hemipu and Pukui is the grass skirt at Maori, we are Kilty. So I get called Hemipu around these parts. And when I did this, I also get told I'm these days Kanohitahitok, 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. 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? 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 Investor Relations Manager of the Year and came obviously in extremely close second. And I think that's not because of anything he's done, but more that we haven't given the material to win the prize. So hopefully, today we can resolve that. Thanks for organizing today, Matt.
Look, it is fantastic at this time to talk to you. I want to talk to you, of course, about our strategy. The 2 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.
So the capacity, the ability to build partnerships is a really important capability and something we have focused on in the last few years and some of the acquisitions, Mike mentioned, 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, in this industry, and we are very, 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 1 is a Maori phrase, mihai rinatahi tato moving forward together. And we think as we decarbonize energy, we are going to have to be or 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, and 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 a very material growth, as Mike said, 3 terawatt hours out of buildings and space heat, 5 terawatt hours from industry and heat and 6 terawatt hours out of transport by 2,035. Now the trick here is Mike alluded to is in that 5 terawatt hours of industry, we do assume Ensis replacement. And 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 Ensis as it exits. We also see a material opportunity in data centers, and I'm going to talk about all of these opportunities this morning. Go 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. And we are seeing very real interest in that as a consequence of Enes' recent announcements of exit.
And 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 3 or 4 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. So 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 Enesys' 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. And the other point there, that other theme, long term partnerships, long term relationships that enable customers to decarbonize over time and underwrite new investment. So 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 of for Q and A of myself, James Flannery, Andy Sidley, who is here and Murray Dyer. James is very busy working on the hydrogen project, and so he hasn't made the trip. And 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 the network and a customer on how they make a change. So the panel will be myself and Andy, but I'm not sure what you a duo, it's dynamic duo.
So 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 and A. Talk to you about process heat and the conditions we think that are emerging that enable growth in 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. And 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 Tamihi 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. And again, a big thanks to our friends in the Deep South for announcing their exit because it has stimulated unprecedented demand. I spoke 2 or 3 weeks ago, zoomed into Japan to the at the New Zealand Japanese Business Council on a joint study we're undertaking with Meridian, and we have been swamped with contact since then from potential customers, from potential suppliers.
So 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.
And countries around the world are tweaking to this. So the investment going into hydrogen is phenomenal, 1,000,000,000 of dollars around the world. At the moment, but also it's hard. There's a lot of technology hurdles to jump through, a lot of challenges in the way. But the only question I can't get an answer to from anyone who starts saying, well, it's not going to be hydrogen as 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. And 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 set 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. And so we are an obvious target for their thinking. And we don't know whether it will be hydrogen, liquid hydrogen that is exporter 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 when we're shipping where we will be shipping liquid hydrogen around the world.
We are undertaking a $2,000,000 study with MRIdium into this opportunity. We've appointed an advisory board from people around the world. We've got strong hydrogen engineering capabilities, strong markets capability, shipping capability advising us and guiding us on how we take our study forward. The study is being undertaken in 3 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 Mackenzieisms. We work 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. And if you can skew 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. But 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.
We have secured 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. So by August, we will have done a, I guess, a brief technical feasibility study to identify the challenges that need to be worked through before making any form of decision on an investment. And finally, Part 3, the dry year roll. The benefit of hydrogen, I'm going to talk to you a bit about demand flexibility, both from Simple 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. Our large scale hydrogen facility could act as a structural relief valve for a highly renewable industry. Peaking when there's more supply that is being consumed in New Zealand and interrupting when we have our dry years, which we, of course, do have from time to time. So the next stage in that process is actually a really important moment in our market. We will issue in early June registration of interest process.
It will go far and wide around the world. People are already registering. They're interested in receiving that document. It will be accompanied by the McKinsey report so that the participants can see how we're thinking about the market. And that will stimulate interest, we believe, from customers, from potential purchases of hydrogen, purchases of ammonia, purchases of electricity.
They may be existing participants in our market. They may even be thermal generates, who knows? But 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 Ensis. 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 gigawatts, I think on the next slide, over 50 gigawatts of projects announced to supply us nowhere near the required demand. Japan alone, earlier on, I think 2 or 3 slides ago, I had an Asian demand by 2,030, that's the 2019 target. The next month or 2, that 2,000,000 tonnes of imported hydrogen will go to 10. The Japanese government will announce that within the next month to 6 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, tried to look at hydrogen and shipped it, that would be 70,000 tonnes. Japan alone wants 10,000,000 tonnes by 2,030. So the market is going to grow. At the Japanese Business Council the other day, I said this market is set to explode, which created the same steroid, 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 Envis in the Lower South Island from the 1st 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 1 available from the 1st January 2025.
There's nothing else of that scale in the globe that comes clear at that time. And it's baseload or very, very high capacity factor electricity. It is a single unique element that other nations do not have. So 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 Denzus 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 baseload thermal. We can bring that to market and displace the baseload 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 EOI ROI process what interest is out there formally.
Hydrogen, a hydrogen facility can offer a dry air solution. I think in the Meridian Investor Day, Grant Telfer took me through some fairly dense analysis on Dreyes. I'll read that with a great deal of interest. We've got a study out, a joint study out being and some of that was being 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. 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. But the thing that gives us comfort is, if not hydrogen or a derivation there of 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. So if not hydrogen, then what? No one's been able to answer that for me. And 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.
So not 126 percent 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 that hit their targets. This is what I referred to earlier.
This is the supply side. And you can see between June 'nineteen, June 'twenty and March 'twenty one, the announced projects just seem to be exponentially growing. These are announced. Some are in development, some aren't. They're just announcements.
But this is a global stocktake, if you like, of what people say they're going to do in terms of electrolyzer supply to produce hydrogen. And that's not enough to meet the projected demand. We have 5 72 megawatts of that, a tiny portion way down the bottom there, readily available.
So,
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 will be far better informed by the technical assessment that's still underway, and it will 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.
And 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.
And I'm sure you'll have questions on that in Q and A time. We are seeing more interest from forward thinking industry in New Zealand, looking at managing their future carbon exposure by decarbonizing this supply chain. Electrification of boilers is starting to become more and more real. We've done one, of course, with Open Country Dairy, 13 Megawatt Boiler, Large Scale Boiler. We've done a few much smaller ones.
And we have a pipeline at the moment. We're in discussions on another 39 megawatts of potential boiler electrification over the next wee while. The economics remain challenging. There's no doubt about that. But as companies start to see the life of 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.
And so we are seeing genuine interest from many, many customers. This is the New Zealand's heat and process heat industry in terawatt hours. Look, 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. So we believe that there are 5 terawatt hours of additional targets to go after in the electro boiler space, largely in food processing. 5 terawatt hours is, of course, a significant amount of new demand for our country. It on its own could replace the smelter's exit.
And 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 the 5 terawatt hours that comes free from me just 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. And here's the economics. I think Grant, when we were up at to me, 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, $70 to $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 of where they think the carbon price will go because they're making a 20, 25 year investment. And so 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 a metro boiler. We're seeing that the opportunity for more of that as more and more people become aware of the significant carbon exposure. Funny, not so long ago, carbon was $2 then it was $20 now it's nearing 40 with a cost containment reserve at $50 which we assume will increase through time. So, we are seeing our customers, Andy can probably talk to you a little bit more about this in Q and 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. But actually, switching out coal and gas boilers and 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, 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 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. And 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. And 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 to 20 years and you can see a rising carbon price pretty soon, the switching point will come.
And if you're making an investment now, you're probably minded to install electrical heat pump, and that's what we are genuinely seeing out there in the market. One of the reasons we 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 someone rather than bring it in house. That's all good.
And out of our work in the space starting 3 or 4 years ago, we identified Simple Energy as the best in the business. We initially invested as a minority holder and then in the last year, we've taken the business 100%, because we believe it has particular capability set and a series of relationships with large industry, with property businesses that we can leverage to accelerate this uptake. Dasha, are you pressing the play button on this? Just before you do, we are in discussions on data centers. And here's a little clip.
It's got Murray, who is not on our panel, but will be in the video, introducing this topic. And then you'll hear from a business called Lake Pareen, a high performance data center business on their objectives. And we are working with them right now on their options here in New Zealand. So Darsh, if you don't mind. Thank you.
Simply Energy are delighted to be working on a number of innovative new pricing solutions using some of the technology we've got around demand, Flex, and then linking that back into our renewable generation portfolio. One of those projects we're most excited about is Lake Pareen. They're a large high performance computing data center company out of the U. K, which is focused fully on renewable energy supply in the data centers. We've signed an agreement with Lake Pareen to evaluate and build out data centers in the Lower South Island.
With demand information and dependence on the Internet at an all time high, users for high performance computing continually demand energy to store, process and distribute data. Worldwide, this requires a lot of energy and is crucial across a number of fields from machine learning to animation to blockchain. At late pre, our mission is to provide planetary scale computing to sustainable earth. And by this, we mean we want to address this global growing demand of power, but by using green sustainable energy. This year, we'll be partnering with Contact Energy and Simply Energy to bring our modular data center solution, Powerbox, to New Zealand, helping to bridge the gap between supply of renewable energy and high demand of power from HPC users.
Powerbox will sit on-site at the energy source in Lower South Island, transforming undervalued energy into high value computing power and delivering results over the Internet. By autonomously ramping power draw up or down to match available energy in real time, Powerbot becomes a flexible load with minimal impact on the grid. This means that any energy produced by local grid demand is low, no longer needs to be curtailed or stored, but could be put to use behind the meter, creating additional revenue stream completely decoupled from the energy market. New Zealand's abundance of renewable resources make it an ideal location for Powerbox. And with our shared commitment to decarbonization, we can't wait to launch our project with Contact and Simply Energy.
Some uplifting volume at the end there wasn't there. That's a really exciting project. There are some conditions still to fulfill, 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 interoperability. Our arrangements enable many times a year, I won't give you the numbers, but many times a year to interrupt them for 4 hour blocks, so to manage peaks, 75% interruption. The relationship also enables us to do once every 3 years a 6 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 in at a low cost, getting to close to or at 100% renewable electricity.
It has to be an integrated system of participants. And these guys are an early sign of what we think is needed. Data processing has gone explosive. It's another exponential growth. Data processing around the world is growing rapidly.
That's a look back that chart, a little bit of forecast of it. But you can see us 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, but we have some of the most important ones and in particular latency. So 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 instantly instantaneously accessible in the U. S. Or Asia or Australia. And that's what we're seeing. And 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. And 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.
So it suits New Zealand's hydrological makeup very well. And in particular, our hydro cash flow cash flow. Okay. So we see this as a real opportunity. And I'm looking forward to being able to make an announcement of having met the conditions and get that project underway.
That's stage 1. We will move quickly beyond that to stage 2, finding another place on the grid where there is capacity to install 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. It's not the fact that the manufacturing system is failing, it's 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, VWAP, they are all expanding their manufacturing facilities for EVs. And 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 getting hold 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. But again, we are seeing more demand than supply. So it's a great place for this story.
So to close out the section on demand and open up for questions, this is what we're working on. We do see the opportunity now with Ensis' 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, oil electrification and data centers. We're seeing good progress. And 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, very strong team looking at all of these opportunities for New Zealand and for contact. And so we are increasingly confident, while still cautious. We're not about to wildly invest in large hydrogen facility if it doesn't make sense.
But 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 7 minutes until morning tea. And so here's the panel. It's whittled from 4 to 2.
Andy, would you like to I think we sit over here for the we'll move across and you can fire some questions. This is Andy Sibley. Andy is the Chief Business Officer at Simply Energy, not Simply Energy. And he will be talking to you over lunch about some of the tech, but Andy is 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. So he's a good man to be talking to about these topics.
So with that said, we'll take some questions.
Mike 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.
All right. I'll open it. Everyone seems reluctant. Maybe just now with the carbon price view, to you're dealing with the customers. Can you give us your view of what carbon price you think we'll see mid decade, end of decade?
Yes. 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 $70 to $80 in the middle of the decade. The Climate Change Commission's estimation or requirements to follow that path was $140 by 2,035. We think it
will climb a fair bit over the
next 5 years or so. And we'll get into that gray zone very comfortably into the gray zone, which is the most important point. And customers have the same view, don't we?
Yes. 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. And what we're finding, it's in some cases, it's a lot higher than what we believe will be and working together around getting that. So it's very much the customer driven view of the carbon price, yes, and what leverage they're dealing with for their own internal processes.
I sense from that answer that you actually have customers who are getting close to commitments or looking at reasonably sized commitments in a decade? Yes. Yes. That's right. And 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? And you're thinking around the hydrogen study and data centers to make sure you've got more than one counterparty for the
low? Yes. Look, the 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 the large scale single point facility. That may or may not be the right outcome to manage that particular risk.
We are absolutely open minded and we're very, very conscious of that. Our expectation, to be honest, from that ROI is that we will be absolutely swamped where we know we will. Go back to the point I made earlier. The scarce thing in the creation of a hydrogen market is immediately available, baseload renewable electricity. That's the scarce thing.
And New Zealand is in the fortunate position, thanks to EASIS of having that. Just a couple of follow-up questions,
I guess, on hydrogen. And to be honest, we probably talk all day on it. But if all goes according to plan, what would you see as actually the first time we would actually be producing hydrogen? And you said when would you have a supplier contract actually started? This is obviously
known. Yes. If every 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. So we agree with that timeline about 2027 first production.
It's an investment decision around about the time that the Engis contract concludes on its current timeframe, a 2 year build. That actually feels the 2 year build feels quite solid at the moment from the technical advice we're getting because it's modular. So you wouldn't commission it all on day 1, you'd commission it over time. The world is starting to narrow down on the right modular scale of an electrolyzer. It's not 10 megawatts.
It's bigger than that, but it's probably not 100 megawatts either. It's somewhere in the middle. And so, yeah, 2027 production and shipping is tough but achievable.
I guess and a couple of follow on questions then. So one is, there's obviously a 3 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. And 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.
And lastly from me, you alluded to in terms of what capital contact might be putting in, it sort of sounded like you might be prepared to go into a hydrogen plant.
Is that correct? Or are you just looking
at supplying electricity and maybe building some extra generation if that was required?
Yes. Look, our starting position is we're an electricity business and we supply electricity. However, we are open minded if there is what we 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. So we're open minded. I think, 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 Zealanders, a consortium of investors, partners. Meridian, I'm sure, would be curious about the same thing. Some other schemes around the country may be thinking about long term investment. Tungstenui may have a desire for long term investment.
And we think there's probably an important role for a customer, the person who's going to underwrite the investment and their involvement. So again, we're open minded. Our starting position is we're an electricity company, but we're open minded. Hi, James. Hello.
So the elephant in the room seems to be energy affordability. So how do you 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, Foxtane, Swami's Paper Sees, North Westfield, Tasman? How do you sort of calibrate all that together and draw a view on destruction and on the way to growth? Yes.
Look, the short term conditions are unhelpful. No one electrifies at $200 a megawatt hour. So the short term conditions are not conducive to decarbonization. But 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. So we think the investment we've made in Tohono, 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. Jackie will talk a bit later about our ideas for the thermal fleet for the nation, our own thermal fleet in the nation and how you get the lowest cost transition. But 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.
So we think it will the long answer, but the short point is it will revert and over the long term and become viable. And I think the other point is going 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. And 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 2 to 3 years.
You have to price off the ASX. But if people are willing to commit long term, then we can think differently and we are thinking differently. So you'll see, I hope, some news on that in the not too distant future.
James, just staying on the hydrogen. Is this, in your view, similar to what Rudin was saying last week, run about a 7.50 megawatt opportunity, dollars 2,000,000,000 of CapEx? So 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 adjust to suck up the TUI 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 ENSIS demand if we can make it work and it will also enable more demand side participation in our market. So it has those other benefits, but we want the if we were to invest in it, we want the investment to make sense as an export investment, not for those other purposes.
It does have those other benefits.
And then with just I think the biggest one that's ever been built to date is a 20 megawatt. For us distance from market, construction shortage, skills. Is this really something contact should be in walking into when you consider Mercury's debacle with offshore geothermal?
I think that's a good 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. So 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 on to that one. And I'll let you go.
And then it sounds like you are hell bent on T. Y. 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?
Look, 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 TY deal, not the transitional deal that's in place. And the data centers that we've been talking to, the boiler electrifications are at or better than the old TY deal.
There is no more transitional electricity for TY Snobber. So we will be pushing ahead with alternative customers to diversify that risk as Nicole asked earlier. So that when we approach 2024, if there's a conversation, there's a different commercial position.
So sorry, last question. That first second slide that Mike put up of that 100 megawatts of industrial demand simulation, can I take that that's your South Island target by 2025 Yes? It helps mitigate.
That's what we're going after. Yes. And I think we're very confident.
Thanks, Phil. We might just stop for tea. We've got 10 minutes for tea and then we're back to it. I'm sure there'll be some ability to ask questions over tea for those
that are still outside.
Thank you very much. Thank you.
Good morning, all. I think we're going to start the session soon, so you can make your way back to the 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 or 2 retake your seats. Welcome back to the people dialed in from around the world. Welcome back to Aotearoa 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. And then Jackie will step up and take you through our thinking on thermal transition. Fascinating piece of work, really, really interesting work. We've been thinking about it for a long time now. It's one of those ideas whose time has come.
And 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 and A. So please hold your questions because we're going to rattle through these subjects with a little more quickly, so that there's time to talk about everything together at the end. And I think we might have more than 2 of us on the panel at the end.
No surprises on the slide. I'm sure this is a story you're 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, and it's important we're ready to meet that opportunity. We see that the national the government's focus on its renewable electricity aspiration.
And we think the solution, of course, is that new renewables and low carbon flexibility sources are required. That integrated thinking is really very, 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 costs is, we think that that is potentially quite a bouncy transition. And so the way we're doing in the thermal flexibility or thermal review that Jack had talked 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 terawatt hours of geothermal development. It is the only baseload form of renewable generation. We're very lucky at Tohara and at Wairake in particular that the carbon footprint in those plants very, very low, very low. And so wonderful opportunity to bring baseload, very low carbon renewable electricity to market to displace baseload high carbon fossil fuel generation. We have world class geothermal operations, end to end capability, quite rare globally.
I was digging up a pack for a conversation from 2,008 where we articulated the capabilities we would gather and retain. And 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. And Carl from Western Energy is here.
The acquisition we completed about 6 weeks ago. Because we see not only the improvements we've seen today 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. And so we're delighted to have you here, Carl, you and the whole Western team to join the Contact Whanau. 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 firm's renewable, but there is the potential for that to happen. And so 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 40s. And 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.
So 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. So here's what we'll talk about. We'll talk about Tohono. 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. And we'll talk to you about demand flexibility as part of that firming. We have broken ground on Tohara. You will all have the joy. 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, and the rig is operating and drilling a well right now. And I think Doctor. Mike Dunst 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.
And I think probably Alan De Lima or Jack himself, Jack Ariel over the back there will take us through a discussion take you through a discussion on the power station construction project when we're 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. And so that picture there demonstrates and you can't tell because you don't know the schedule, but 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 in 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 the earthworks and enabling works are when you head up there. So the project's off to a great start. A lot still to do, and we expect completion in mid-twenty 23.
These slides always worry me because we never we can't see inside other people's projects. And so we take external sort of their sources, other people's views, put them together and try and create a comparison. And so I want to call out at start that comparisons are challenging. We cannot see inside other people's businesses. But this is our assessment of the relative economics of recently announced and recently committed projects with our own Tohara, wider arcade opportunities.
And I think it demonstrates really the capacity factor that geothermal brings. The benefit of that long, long life and that much, much higher capacity factor when you look at the economics. It is a very unique resource. We are as I say, we are lucky, we are privileged to have access to it. It's not like our team up here in Wairarake and Taupo worked very, very hard to have worked very, very hard over the years to get access to this wonderful resource.
It's world leading, it's world scale. And 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. And this is that capability that's incredibly important and very unique to Contact. We do have very long standing operational capability in the business. We said that 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 Jackie may talk a little bit about that during the operational excellence session later in the day. That work we did in 2,008 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 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 fuel 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. And that's how we've approached Toehara. We do believe we are New Zealand's lowest cost geothermal operator, and we're confident in that. And some of our recent developments, you won't be seeing these today because we'll stay on the Tohutta side of the river.
But many of you have seen these projects in the past. With Tohuca, we made dry pass on our way out to the Tohutta 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. But 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 throw in add in a hydrogen facility or large industrial user in the Lower South Island, even more so. And so we are delighted to have partnered with Roaring Forties. They are well under the way. We have one site secured so far. They bought 6 sites with them that are being assessed and filtered and along with 15 sites they're filtering at the moment to decide which are the best wind resources to secure.
That timing in mid early to mid-twenty 24 is really important. It's about that time that we'll be making a call on what we're going to do at Huarake. If I go back here, you should see in this chart, whereas at Huayake A and B color, you start to see the end of the consents for the Huayake plant. And we will have a decision to make in about early 2024 as to what we do at Huayake. Do we build an extended Tometi site up at the top end of the steam field there?
Do we extend the life of the existing plant? Do we do nothing? And 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.
So 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, Kyle, get that cost down. It is something of a race against wind. What is the best 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. And we do believe that the thermals will through timings at the market, Jackie will talk about that shortly, and we believe there's an optimized path for that that Jackie 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 peak year 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, in this calendar year was benefiting at that point from the potential sudden exit of TY and the associated grid support earnings that would come with that scenario. We've pushed that out to 'twenty three, 'twenty four, again aligned with the potential smelter exit.
However, over the next 5 or 6 years, and possibly sooner, we do think a battery without that grid support revenue may actually make sense in a more volatile market. So we're watching that very closely. We are engaged heavily with the world's large battery manufacturers. It doesn't take rocket science for you to work out who that is, who they are. And we continue to monitor the improvements they're making in their technology and how we might bring that to market in New Zealand.
And 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 baseload thermal generation, we will as that gets displaced by intermittent renewables, we will see a peaky market. And you can see roughly there our estimates of the CapEx for a battery. They're still evolving.
Those are very much the ground numbers as opposed to something 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. As Mike mentioned, Andy and the team at Simply Energy have got 11 megawatts signed up so far and more demand currently than we can meet. So Andy is trying to beef up the team to grab more of this more quickly. We do want to have that 100 megawatts of interruptible demand on board by 2025, and we are well and truly on track for that.
And one of our demand flexibility customers is going to talk to you about that now.
Wana New Zealand is 100% Maori owned Kaingwana and Kaewa company. Our sustainability journey is designed to ensure we go above and beyond what's required of us.
Moana is proud to live by the traditional values of kaitiakitanga, guardianship and whakatipuranga, prosperity for future generations. With these principles in mind, contact, together with Transpower, offers something almost as powerful, demand flexibility.
Not quite as eloquent, but still brilliant.
It's a way that a business like Moana's Palmerston North Kaioa and Kaimoana facility offers a helping hand to the grid by powering down during peak demand. This means sustainable power generation is maximized and fossil fuel generation is minimized. Moana's refrigerators don't lose their ability to keep the wild power cold, but they gain the ability to earn extra revenue as an incentive for being flexible with their energy use. With more businesses on contact's demand flexibility, they'll become a virtual power plant, helping meet energy needs across the country in a sustainable way. And of course, this type of best practice could have profound implications for New Zealand's carbon reduction.
So our demand flexibility platform is connecting with customers at both a commercial level, hard nosed commercial level, and which Andy confronts, 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 megawatts, 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, so 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. So there's a really interesting opportunity here to create that integrated system, enabling the transition to a lower carbon future. And here's the here are the targets, looking at building that. We've got line of sight on FY 'twenty one.
We will likely hit that target. FY 'twenty two, Andy will hit that target and beyond. That's to be honest, in the next couple of years, there's a genuine pipeline that those targets will be met. So that draws us to the end of the Renewable Development Pipeline conversation. I'll now ask Jackie 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.
Good morning. My name is Jackie Nelson. I'm the Chief Generation Officer for Contact Energy. And to as James has just said, I'm here to talk us through our strategy to decarbonize our portfolio. But before I start, I would like to take this opportunity to call out Mr.
Matthew Cleland at the back of the room, my mind bawling, I'm here, who is our General Manager of Wholesale Markets. And I have to acknowledge he is doing a large proportion of the heavy lifting in this work stream. So just acknowledging that. Thank you, Matt. Right.
So the role of thermal generation is changing in New Zealand. And an orderly transition to 100% renewable grid will benefit all stakeholders. This role of thermal is changing very quickly and is driven by 3 particular aspects. The first chart that we have there clearly demonstrates the cost of the increasing cost of gas and carbon. And if you look over the last 5 years, there are 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 renewable new renewables. And that is driving also will drive price volatility and possibly threaten security of supply. The 3rd driver that we've got is a government that is ambitiously pursuing 100% renewable grid. And alongside that, we also have a significant societal shift where New Zealanders want exactly the same thing.
So 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. And 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 Megawatt Baseload Thermal Plant. Then in 2015, Otahahu, 400 Megawatts, again, baseload thermal. So we've got a track record. And that also that graph picks or represents a reduction of our emissions liability from around 2,500,000 tons to where we are currently, 1,000,000 tons.
So when we talk about decarbonizing our portfolio, we think of it from 2 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 Tahara project. So that's the plan there. For B, it's 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. And 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 targets that was mentioned before of 25% reduction in carbon emissions by 2026 off a 2018 base. So to 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 $10 per gigajoule, carbon $40 a tonne. And on the right, you can see a much more compelling case for renewables.
And that is what we're experiencing at the moment is that pushing of the baseload terminals off the cost curve by new cheaper renewables coming online. We've been pretty clear publicly that we will not be spending the $80,000,000 that's required to keep TCC running beyond 2023. So that's a significant capital investment. And when you look at that compared to the low cost option that we have in our Tahara investment, that really doesn't stack up at all. So 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. And in combination with the current dry hydrology sequence, we've seen increased prices significantly. And that really underpins that need for an orderly transition to derisk the New Zealand energy supply. So the displacement of TCC baseload thermal with Tohara's baseload geothermal will improve our earnings, deliver a better return on capital, reduce that fuel supply price and supply risk and offer New Zealand, the New Zealand energy market, a low cost renewable baseload electricity supply.
When we come to that second strand of our strategy, things are a little bit more complex. There is definitely a role and an important role for flexible thermal generation to keep the lights on basically. And on the left hand side, we've got Transfast forward looking North Island winter capacity margin looking forward. And you can see there, as TCC and the Huntley Rankin units retire, that line comes down. And it doesn't it's not catastrophic at all.
We certainly have sufficient energy in the grid to meet demand, but we could experience some periods of suboptimal levels of capacity to meet intraday peaks again as we've got that renewable energy coming online. So there will be a need for thermal peaking. And to link back to James' 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 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. So that means holders of gas of thermal assets assets will struggle to cover their costs, cover their fixed running costs. And as such, we expect that they experience far higher and higher prices as they attempt to recover those fixed costs. So what does all that mean? I think it just basically reinforces the need, the very real need to reassess the role of thermal in New Zealand electricity market.
And we strongly believe the need for an orderly transition to minimize the negative impacts on security of supply and customer pricing. So again, on that second tranche of our strategy, We've thought about the 5 pillars that underpin our approach, if you like. We've come up with 5 pillars that underpin our approach. It will 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. 2nd one, we've been pretty clear about the security of supply for the New Zealand market and also for our Contacts customers.
Our third point is we actually want to be capturing the value and importance of the thermal that thermal flexibility offers to the market as we transition around and maintaining that security of supply. Our 4th 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. So that's around operating assets efficiently and perhaps where there is fuel, making sure it's going through the most efficient kit. And the big reveal.
So what are we doing in this space? We are engaging with stakeholders to explore the establishment of what we're calling thermal coal to achieve a return on assets and facilitate that energy transition. And 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 coal? Again, pretty broad thinking, peaking plant, plant that provides reserves, gas storage, existing and future gas supply agreements, upstream assets. So again, quite wide ranging.
And a really pivotal piece in this whole concept is we think for this entity to be successful, it would have to have a very clear clearly defined mandate. And 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. Then the entity would have the mandate to operate to meet those risk management contracts only. And to that final point, we'd operate collaboratively to achieve the best most efficient outcomes of the fuels 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 we it involves engaging with key stakeholders, achieving buy in and agreeing some high level design concepts, principles. Then we think it's a pretty compelling issue to bring in an independent third party to provide advice on the actual structure, ownership structure and operating model for ThermoCo's as an entity. That then would be agreed had to be agreed by both owners and regulators. And finally, you would be filling off your assets into thermal co and purchasing PPAs off the back of it to manage your risk. So 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 as we believe a competitive market delivers sustainable outcomes and will benefit in the cost of firming. So now I'm going to pass on to Matt Bolton, who is our acting Chief Customer Officer at the moment.
Good morning. Thank you, Jackie. We might just take a wee bit of a pivot from hydrogen and thermal supply to 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.
Look, you've got to pitch for it when you get a chance. Look, the reality is, look, I've got they only gave me 10 minutes. So 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. But before we get into the opportunities, I think it's always useful to understand the attributes that we have today. And 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. So behind me are sort of 3 key attributes of what would make a successful business in our heads. And then 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 5 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 5 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 5 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. And thirdly is our MPS, and it's probably the one that the team and I are probably the most proud of. To shift the MPS by about 5 points in any one year is a success. So to move up 43 points over 5 years and double in a year is just an outstanding result. And for those that don't know, MPS 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 0 to 10. So it's ubiquitous across any industry, any retailer. And for us to have a score of 36 right now is just an outstanding result. But with all the success, you still need to look forward into the challenges.
And as we think about the challenges ahead of us, we've tried to distill them down to 3 key themes. The first, as you'll all appreciate, is the margins aren't great, and 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.
So 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. And 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 smallmedium businesses. And then 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 set us and will push us into the headwinds of the high wholesale prices today. Secondly is sustainability. I think James and Jackie have both talked about the impending, while 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? And 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.
And then 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. So if you take our footprint and then you take the challenges, you've got to go where can we be in the next 5 years. So by 2026, where would we like to be? And again, we'd like to focus on 3 themes.
They are 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. And 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. So 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 38. But 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. But 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? And then 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. So if you're going to grow, I guess you've got to look at your business and say, do we have the DNA and the capability for growth? And again, 3 or 4 years ago, if we presented to you, you would have 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, and we had sort of started to talk to the market about growing our broadband connections.
Roll forward 4 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 all math, that would sort of set us towards the top of a Tier 2 supplier and knocking on the door of the Tier 1s or the incumbent big 5 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.
So we can stand here and go, our cost of service come down as we've added about 60,000 connections, and we're also building a DNA about how to work into new verticals. So we think that's a really important attribute as we step into the next part of our growth journey. And then if you think about growth, if 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.
So 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, that we are truly into the telecommunications space. And 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. And then finally, transportation. James touched on the 6 terawatt hours of transportation coming to market via EVs between now and 2,030.
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. And in fact, as we think about those new verticals, the team are busily working away on 2 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 Jackie have touched on, to help reduce the need for thermal and also how do we use smart tariffs to help EV owners lower 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. And digital will become or is the frontier on which this battling the battle for retail will be run won, sorry. We know that the customer expectation will, as I've touched on, will be driven by others. So what are we doing about it? We've spent the last 12 to 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. So over the last 12 to 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. And 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 4 months ago, used to take 42 screens for them to work through to onboard a customer. So 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, so your average handle time is quite high. It's pretty frustrating for you as a consumer, so your MPS is pretty low, and that's not a great onboarding experience.
Following the digitization work, we've now been able to crush that down to one screen. So 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. And that program will carry on through 2022 and 'twenty three as we think about technologies like voice to text, where we can take the 600 odd 1,000 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. And 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 5 years, we've gone from about 1,100,000 phone calls to about 600,000 calls a year at the same time, remember, as adding 60,000 connections. So we know we're getting this equation right and that our customers are engaging with us.
And then finally, our sales funnel. We've moved from about 10% online sales to nearly 50% of our sales come in through an online channel. And again, if you're standing here a few years ago, we would have said it was 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.
So look, I think that's nigh on my time, but if I leave you with 3 thoughts or 3 concepts of which we are working hard to prove in the coming months years is that we will continue to focus to growth. Growth will be our friend, and 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 grow 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 $120 of cost to serve per customer by 2026. And then finally, we want to be a trusted brand.
We are a trusted brand today, but we need to do some more work in that space. So 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, but it will see us being a top ten trusted brand by 2026. Thank you for that. I'll now move on to Catherine, who's going to come down and talk to us about enabling our strategy. Thank
you.
Kathryn Thompson, tenei. 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. So I'll be followed by Jackie, who'll be up again and then Jan. I'm sure you're all familiar with environmental, social and governance factors. But before I head into the detail, I just wanted to give a bit of context.
So Contact, as you know, is a significant New Zealand company, and there's a huge expectation for us to pull our weight. So I know that many of you in this room have children. I've got 3 children. I've got 3 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 nonfinancial metrics right alongside the traditional financial measures that you plug into your models every day. But although ESG factors can be labeled as nonfinancial, how they're managed or if they're not managed, as undoubtedly has measurable financial consequences, you see this in how reputation is managed, risk is managed and access to capital. So 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 has been a renewed effort on ESG contact over the last 12 months, and 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, but it also includes tangible activity. And 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 that 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 were trailblazer on science based targets, and 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. But 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 men more women than men on our Board, which is fairly unusual in the NZX. And there's our Green Finance program. You'll recall when we launched that back in 2017, we were the first, and then we're still kicking along with our sustainability linked loans. So 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 seen ESG factors integrated into context priorities. That's why I'm standing here today. You wouldn't have seen me before, alongside operational excellence and the way we work. So we want to continue being a leader and recognized as a leader. So what are the things we're focused on?
You've heard our strategy is grounded and 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 makes we 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 the 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 Waiake. That was innovation from our people that's reduced our environmental impact on the river. And 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 Otahuhu.
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 their community. And 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 cutapici 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 anyone was listening to radio in 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'll 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 Matt's 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 play and what our new customers pay is reasonable. For our contact people, they want to be part of a successful organization. And 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. And 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 5 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 for 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 in contact at the moment, head down, completing the very extensive Dow Jones Sustainability Index questionnaire as we look to get into the Agent 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. But on the left hand side here, under the environment pillar, you'll see that by 2025, 90 5% of our generation will be renewable, if Jack delivers. We will reduce our impact on the Waikato River system, and we're electrifying our vehicle fleet. It's at 50% of the passenger fleet is already electric. By 2023, it will be 100%, and the total fleet should be 0 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. So we're going to get better at that. We've committed to understanding modern slavery and from removing it from our supply chains, and we're embedding our sustainable supply chain processes throughout the organization.
And 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 investing expectation on inclusion and diversity is not lost on me when I look around this room. But diversity has many aspects, and Jan is going to detail some of the initiatives that we're doing across the broader diversity set. But 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% to 60% gender split through the organization. And actually, if I gave you the data, we're at 46% to 54%. Great work. However, it's in clumps. So depending on your role, there's some really good results and depending on and not so good results.
So elevating the proportion of women in engineering and leadership is on our radar. We're going to move remove bias in our recruiting procedures and continue to seek out diverse talent. And we're going to work to maintain our rainbow tick accreditation as an inclusive workplace for LGBT plus people. Visual signals are very important. So 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. So over the next few years, as you drive past Clyde, you will notice a bit more color. And 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. So 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 1 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.
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 frigging awesome people that we work with in this company. Hopefully, you'll meet some of them this afternoon.
And it is, to Catherine's point, what gets me out of bed in the morning. But yes, but operational excellence is also about our culture. And we have a culture that is safe, innovative and brave. And 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. And as part of that, we've really embedded a continuous improvement focus across the business in the last 5 years.
And 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. So 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. And I know Dorian's got another 50 slides.
That's a joke. So in the thermal space, since we have 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 a minimum load down to 160 megawatts maximum load, 330 megawatts, and that's a feat that doesn't happen with baseload thermal plant. So something that adds considerable value to us in our portfolio management.
Also in the thermal space, Matt's done a fabulous job in securing 3rd party tolling arrangements for gas, which we've announced those. And that is around ensuring that what other gas is available is being used in the most efficient way in freeing up the gains that we make in that space to industrials. So in the geothermal side of things, this year, you will have noticed that our volumes are down a bit. We've had a whole year of back to back planned geothermal outages. It's been follow on.
And 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 and customer. We've developed a real time outage dashboard with a focus on quality assurance. Now I think anyone who knows anything about operating plant, generating plant, as they're coming back into service, that reliability piece as you come back up as a real issue. And so we're focused on that with an objective to improve reliability and availability. And that has seen us bring back to Mickey, which is a big, big station, several days early, in fact, nearly a week early from its planned outage.
And one of our 30 megawatt plants at Wairake is saying both returned to service well ahead of time. So 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 Wairake. We are piloting a different type of working with the geothermal people up there. It's really busy.
We've got about 150 people on-site, 5 car stations, 2 steam fields. Everyone's busy being busy and preparing for Tohara. So 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 set for purpose. And 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.
And that model, if successful, really sets us up well to drop in the Tahara team to operate that new station. In the fueling space, Karl, getting a lot of highlights today. We've been working really closely with Western Energy over a long period of time and developing mechanical and chemical well clean out using different technologies. And that we've really improved the reliability in that piece. And again, Doctor.
D, Mike Dunstell 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. So 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.
Trace of flow testing is measuring well outputs of mass flow and enthalpy, and we've just managed to facilitate that data and optimize the data to our steam field performance, if you like. And we even have an app. So it's quite groundbreaking. Going looking forward, we've set ourselves a really, really ambitious target for next year in achieving the first zero emission geothermal plant at Tohoku. So we have got a whole initiative going on there around carbon capture.
So that's very exciting. And then to 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 of voice to text in both actually in customer and generation, which deliver huge operational efficiencies and time. So instead of relying on people with bits of paper and then coming and entering them, they 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 use to go down that way when we couldn't get global experts in country. We went to Hamilton, spent $2,500,000 on a headset and off we went with real time rotor inspections and whatnot. So we're building upon that to use for our competency and training and also some of our safety risk reduction work. Tohara is a new build, offers a plethora of digital opportunities to reduce operating costs. So that's sitting there.
And then there's the normal building upon what we're already doing and condition monitoring, predictive maintenance, all that sort 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, predictions coming in that space, market simulations, portfolio optimization and really looking at improving our demand predictions on that trading space as well, which will be helpful. And yes, that's a little sample. And I'm going to hand to Jan, who's going to talk about transformative ways of work.
Pool. Kia ora, everyone. My name is 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. So I think James 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. And 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. And 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 2 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. But I was able to continue to work for contact whilst doing that. We realized, 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.
But we try and allow those people to have choices as well. So for some of those people, they are working a 9 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. So 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. So 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 companies do that 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. And 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. And 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 2 contact centers, 1 in Liven and 1 in Dunedin, to almost 300 contact centers as our CSRs choose to work more from home.
So we still have a hub in Lebanon, 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. So our engagement score is 7.7 out of 10.
We use PECON, so it's not a percentage 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. So flexible way where we scored 8.6 out of 10. So we think we're moving in the right direction. But 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. So 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.
And people tell us that meet 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, 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 $4,900,000 in cash benefit. We've reduced and we're reducing our property footprint in Auckland and in Wellington, and our Denizen and the VIN hubs are smaller. We know that people, though, still want to come to a place to connect and collaborate. And for some of our people, they just simply like coming to the office every day. So we will continue to have those locations.
We just don't need the space we used to have. And we see T Wow as leading decarbonization from within. So we are focusing on reducing the amount of business travel that we need to do in order to retain to reduce, sorry, 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. So 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. But inclusion is the measure of culture that enables that diversity to thrive. And in my view, this is one of the biggest symbolic things we can do to demonstrate inclusion. This allows our people to bring their wholesales to work and to make choices that work for them, for their families, for their communities, for contact and for their pets.
Nama Hino I. I'll hand over to you, Dorian.
Just looking at the timing, sir. I'm probably just going to have to introduce myself and then say goodbye if we're going to stick to the agenda. So we are going to overrun a little bit. So I hope that's okay with everyone. I think so I'm Dorian Davis.
I'm the CFO. It's great to see everyone here today, actually, including a few of representatives from the capital markets in Australia. So I think it's the first time I've physically met some of our Australian shareholders since about March last year. So great to have everyone here. First up, we've actually presented this slide a few times, and it's pretty deliberate.
We've got a 20% upstream market share. So maintaining that supply and demand balance is incredibly important to us. But 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. But 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 Odahue, 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.
So that's not something we're interested in. And 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 Tohara. 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. So you 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. So 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. So I'll just probably just high spot some of the things that my colleagues have already talked about today, but the on this slide. But the whole point of our sort of 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. So and that is why we've spent the sort of 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.
So we've talked a bit about Simply Energy and the skill set that, that has brought into context. So 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 Jackie 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. But it did show that our estimation and there was 4 sub bar, Andrew was also referenced on that slide as well, was that Tohara is delivering returns significantly higher than what we see wind being able to deliver. And if you actually think about that, it makes a lot of sense. What we've got in terms of geothermal is very, very difficult to replicate, unlike wind and solar, which is a bit more a bit easier, which is why you have so many more people actually doing it.
So and the good news in that space is, as we've said a few times, we've got 3 terawatt hours of this geothermal that we are looking to bring to market. And the first part of that is Tohara, which more pressure Jack mid-twenty 23 when we expect that to come to market. In terms of decarbonizing our portfolio, which Jackie talked about, the interesting thing here is we have to demonstrate this full 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. And Jackie 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. And we have the what we will do with Tohara coming to market, we will then bring the whole of our industry down another 10%. That's 450,000 tonnes of carbon. So we have no issue. We are definitely demonstrating physical leadership in this area.
Sorry, I just lost my train of thought there. So 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 at 0% renewable or 100% renewable. You're guilty by association. The market can't actually operate without it.
And 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. So 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 will be good. The EA will like that. The government will like that. And 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. So 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 sort of consolidation because we're leveraging the heat rate benefits and the carbon efficiency of TCC relative to Peekers. And then in terms of creating outstanding customer experience, I mean, 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. So there's a great opportunity here to actually get scale to create value. And we see that as 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.
So profitable growth is a real opportunity for us. And 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. So 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. And that but that's a serious point because if we're going to do what the Climate Change Commission 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. So that's a key point.
We then need to be able to deploy it. And I talked already a little bit about supply and demand. That's important because when you're deploying that capital, you want to ensure that you're getting returns for your shareholders. And one thing that we've got, which James mentioned, is our Wairaki option. So there is a little bit of potential discretion around the timing to when we reinvest in Wairaki, and there's certainly discretion around the size of that plant.
And 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, Jackie has talked about that, very, very important. Making sure that we maintain that really well, quite 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, so we need to continue to innovate within geothermal. So the Western Energy acquisition that we've done will continue to help in that area.
But 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 cash flows are growing through a combination of growth and productivity. And as you all know, our dividend policy is linked to operating free cash flow.
So if our operating free cash flow is going up, the dividend is going up as well. So 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. And then 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've 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 8x the amount of EBITDA that they that it throws off. When you think about our borrowing capacity, if we're maintaining our S and P investment grade credit rating, we've got about 3x debt to EBITDAX that we're allowed. So there is a gap there that has to be made up, and it has to be made up by the support of shareholders and equity. So 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. And on our commitments, we've listed the 4 of them there, but you can sum it up into 1. We will deliver on our promises. And 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. So 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 through our 5 year plans, but at the moment, it's looking like about $100,000,000 cumulatively over the next 5 years, so $20,000,000 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 $1,400,000,000 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 $400,000,000 equity raise will play a big part in that. And 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.
But 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 Tohara 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 you probably your eyes are drawn to, and that is an assumption around capital coming in via the dividend reinvestment plan. We benchmarked that by looking at other companies.
So we've got dividend reinvestment plans with 0% discount and what percentage of those dividends got reinvested. And also, as you're aware, our dividend policy isn't to pay out 100% of our operating free cash flow. So 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. So this slide, we've had a lot of I've mentioned supply and demand a few times.
This is our view of where the sort of net supply and demand for the market is going to go over the next 5 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. But 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 self island demand immediately being replaced. But 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 thermogeneration being switched off.
So but that's not our ambition. Our ambition is actually lower cell phone and demand is at least maintained at the level it is now, and that means you don't incur those location losses of all that electricity in the Lower South Island having to flow north. So 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. And 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 higher carbon intensity, such as diesel and coal, are being used for firming.
So 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 terawatt hours 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 sort of lower costs and lower carbon intensity fuels. That gets resolved because you've got 3.1 terawatt hours of new generation coming to market or recently come to market with YPP. Then you've got the 1.5 terawatt hours of new demand growth to 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.
So 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 then have TY exiting. So that's the 5 terawatt hours 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 1. And then what happens is you see the thermal generation in the North Island turn off, so TCC and Huntley. And 4 terawatt hours 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.
You then have underlying demand growth, which is 1.5 terawatt hours. We that's 0.75% per annum. The Climate Change Commission is assuming 2% per annum. So we've taken a little bit of a haircut on that to be prudent. And then as the market doesn't quite balance, we replaced Wairaki, and we have to expand it.
And that's 600 gigawatt hours of increased supply coming back to the market there to assume it stays in balance. And the assumption is it would be Wairaki 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. So that's our sort of base case. We that's not our ambition. Our ambition is that there's 3.5 terawatt hours of additional demand in the Lower South Island, which means to add to the 1.5 that we're already planning for to fully offset Tohara sorry, T Y, too many Ts.
That, in its simplest form, coincidentally, is a 400 Megawatt smelter. So that's potline 1 or 2. But it could be anything. It could be new demand. But that then keeps you going until 2027 when that's the expectation of Hydstream coming in and starting to consume electricity.
So if you do those things, what happens and maintain lower self-service demand, the water isn't available anymore to substitute thermal generation on the North line North Island, and you've got 3.5 terawatt hours of new renewables that has to come to market to economically substitute out that thermal. And 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. So this is the financials. We couldn't present that we're looking to invest GBP 1,400,000,000 of capital but not give any indication as to what we thought we were going to get to that. So this is showing the EBITDA that we expect to get from that deploying that capital in FY 'twenty four and FY 'twenty six.
FY 'twenty six is on a run rate basis because we want to show the full year impact of Wairaki within there. Remember, this is assuming that sort of base case, which has TY exiting and then 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 terawatt hours of retirement of thermal in the North Island. So you can see the FY 'twenty four number, the last year's thermal there is Tohara coming to market.
And then in FY 'twenty six, you've got Wairaki coming in. That's the full Wairaki plant, the 1.4 terawatt hours. We thought it's appropriate to show that because that's what the capital is, the 1.4 $1,000,000,000 is actually buying. But remember, 60% of that is actually replacement of the existing plant, and so it wouldn't be incremental EBITDA. You can see M and A.
That's not new M and 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 is 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. And 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. And 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 4 strategic themes. And we wanted to share that with this audience so you can hold us accountable for it because you now know what we're planning on doing and when.
And 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. So with that, what I've I've covered a lot of the stuff that my colleagues have already talked about today, but summarized it a bit more and try to provide a bit more of a financial lens on that for you. So I'll finish there in the interest of time and hand back to Mike, who will close out, and then we'll do Q and A. Thank you.
So I'll be very quick. As I well, 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. And there are 4 things I want to get across.
Number 1, we'll do our bit. We will decarbonize our portfolio, and 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. And we are ready and able to build it as and when market conditions allow, and we will continue to keep a very close watch on that.
We have off ramps on this growth strategy has been outlined to date. 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, and that's been very much the focus of James over the last 12 months, building a capability beyond ourselves. And the third thing is, 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. And with that, I'll end. I apologize for going slightly over time. We'll take a bit of time for Q and A, so no doubt that knowing you guys in the room that you'll have a few, and then we'll break for lunch.
So on that, we'll get, Dione, James, why don't you come up, and we'll take some questions.
Just thinking about part of your decarbonization in the in thermal coal, what how should we be thinking about retirement of TCC as a part of thermal coal as TCC retired, it's gone And thermal co is simply your gas storage and then other peakers? Or
The intent is that TCC retires. Thermal co is a concept that would be pan industry. So the assets that get in there would be 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 at an orderly capacity. It has the assets to ensure an orderly capacity. And what we need is for the human beings to who operate that to have an outbreak of common sense to ensure an orderly transition.
Yes. We don't want to be in a situation with what happened in Australia yesterday, where the government's intervening, building peaking plants, for example.
Graham, you'd have to.
Probably my thoughts on the questions.
Yes. That's a long post, yes, Graeme.
Sorry. Mike, will Filmco be a capacity market? Or is this still an unregulated market?
In an idea, 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.
Yes. I think it would be likely 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 ThermalCo 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. And so I would expect ThermoCo to have a real focus on that, ensuring there are products available for all participants.
And the elephant in the room, Genesis, you said you've started discussions. Are they inside the circle?
Couldn't comment.
We're going
to comment, yes. But obviously, there are a number of thermal operators. We'd like to have discussions with
all thermal operators about it.
And then in terms of your demand growth assumption in the South Island, you put 1.5 terawatt hours there. That was what Meridian was trying to do on their own. You guys seem to have about 8 60 megawatts. Is that additive? Or is that included in the 1.5?
1.5 terawatt hours is roughly 200 megawatts, right, of new demand. We're targeting 100 megawatts. We're confident of that. If Meridian achieves more than that, then it's additive that it'll be 2.3 terawatt ounce, thereabouts.
And then final one before I pass on. You show your mid I mean your low road pushing out Wairaki. Have you guys got approval to do that yet? And is that still at the CapEx of $100,000,000 because I see you only put $480,000,000 into your CapEx program? Do I add $100,000,000 to that in your low road?
So you can answer the CapEx question, Dorian, but the we don't have approval yet for that option. We will lodge resource consents for that at the end of this year, I believe.
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 investor investment, sorry. And in
the CapEx program, we've got the €700,000,000 as part of our growth program for Wairaraki. If we were able to extend it out to 5 years, that would mean the 700,000,000 will come down to 100,000,000 or whatever it happens to be to get that 5 year extension.
Okay. Just so your low road had just the Tahara 1 spend, not the extra 100,000,000 that you're assuming Wairaki stays around. Is that correct? Yes.
Thanks very much for your day.
I mean, globally, some of the largest energy companies are pursuing these decarbonization projects in solar wind, offshore wind. The 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 will get out of a hydrogen project, a? B, as you look at geothermal, getting a 10% IRR, why are you pursuing it even more aggressively now?
Well,
I think it's the it's important to ensure we maintain balance within the market. And obviously, an oversupply has a material impact on new incumbent business as well. So we do need to manage that. But the as soon as we see that we're comfortable that demand is coming to market, We're ready to go. And there probably is a timing thing there as well because you may not be wanting to wait for the demand to be 100% there.
This goes to that posture change that we talked about before you invest. But 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 are looking to build, who aren't involved so much with those conversations.
That's a really important part of the rationale for the investment in SIMPLY. They can see when these things are coming. And Dorita 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. Got technical work to do.
Electrolyzer scale is going to have to increase over the next couple of years to get a large scale on off the ground. Hence, the time frame 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.
I used to work in the sector in industrial gases, which obviously has a big hydrogen component to it. And I'm getting calls from people I used to work with and people within the industry around, remember how good we are at these things and when you're making decisions about who to involve in the process. So 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, and they're ringing up to make sure that we're considering them and that they could be part of the solution. So we take that to be quite positive as well.
I have too many questions. I'll try and hold myself to 3. Just the first one, segue perhaps from the previous question. If you sort of can generate 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, 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 the 3% ROI, and you stand back and provide the electricity to them. It's horses for courses. So absolutely, because of the balance sheet flexibility that Dorian talked to, we can make choices.
The other thing I'd sorry to add on that, Neville, is the type of projects as well. It's stand alone projects like wind farms with PPAs and batteries and things work, I think, quite well with PPI's with project finance and SPVs. Hydrogen might as well. Geothermal, I think, is 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 the bank that we'd be prepared to walk away from that if things were in fair shape.
That's great. Second one on thermal co, and perhaps you could call it waiting to die co. The your demand and supply charts there, it's useful to see how that stacks up. But I mean 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 high and cost of that capacity is available because of the underlying hydrology. So how would thermal co work in terms of deciding when it does and how it removes assets, which is key to really sustaining high prices.
It's even on the supply demand you've got there. If no thermals retire, even though the baseline is gone, if no thermals retire, you are 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.
So I'll answer the second part of the question, and I'll let James maybe give some of the deeper thinking and even Jackson perhaps on the deeper thinking on that. 2nd 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 that they were 1, they collaborate 2, they were totally transparent, and they got commerce commissioned. So 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. And 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 where you go?
Yes. We'll take it should we 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. But 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.
And so it will need to be created with a mandate to get smaller, which is an unusual investment proposition, but one it is the only way that it will work. So investors will need to understand that we've got a 10 to 15 year window to make a return on that capital. And whether it's an ASX product, a bilateral cat product or other PPAs will need to be shaped to deliver that return or it will not work.
I mean you wouldn't restrict it to 9 years so that you hit the 2,030 decarbonization target, the government. Is that fair?
No. No. No.
Very clear. Last question then. And really just looking on to retail and your goals there. I mean, 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 that we put out there and was based off a very successful entry into broadband that we've achieved.
You're doing very well to still have questions after such a long session. I tried to really tire you out. Just a couple of questions. I was
asking about the just on that hydrogen thinking. So when you're sending out information, are you
looking obviously, there's demand for hydrogen.
So are you looking for hydrogen buyers?
Are you looking for hydrogen expert to develop a project and provide the capital? Or are you saying all the builders? And can you provide the capital? Because if you I suppose from a the best point of view, if you're asking the capital for geothermal is different to come to me and ask capital for a hydrogen plant, it could be quite different discussions. Yes.
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 sort of delineate which part of the supply chain they want to respond in. And there'll be a schedule to fill in a set of information about for participants about their level of interest in each part of the supply chain. So many participants will only be in one part.
Some may be in several. We're trying to keep it as open as possible, recognizing it will create we will get overwhelmed with responses, create a fair bit of work, but we need to see the light of the land. It is a very scarce thing, readily available from one day to the next, a large amount of base load renewable electricity. And so the process needs to be sufficient to capture the best possible outcome.
Just one for me around the dividend policy. Clearly, you guys have done a bit of modeling, which suggests the balance sheet can potentially manage the $1,400,000,000 worth of spend, assuming there's enough DRP. But if you decide to do something else, obviously, there's strategic reviews on at the moment. But do you think you'd change the dividend policy? Would that be the Q1 call or
No, no, definitely not. No, no.
We've got lots of options.
Is that clear?
Question from Jason Fammilton. What carbon price is assumed in the estimated IRR for Tehada? What about the wholesale electricity price? It'll be ramping up over the 35 to 40 year project evaluation period.
And the wholesale electricity price reflects the base case scenario that we laid out in terms of the supply demand balance. So 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.
So not one price.
Okay. And that's all the questions for the formal pilot session. So 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 2 strategic acquisitions that we've made over the wee while. Thank you.