Kia ora, welcome to the FY23 results presentation for Genesis Energy. I'm Malcolm Johns, it's a pleasure to be presenting the results for the first time alongside James Spence, our CFO. It's been an enjoyable first six months in the role, as you'll hear from James soon, we've had a very strong financial performance in FY23, we are gearing ourselves up for more success to come. This past year has been wet and windy. For many of the communities and regions we work in, this has brought significant impacts to life and property. We have worked with our teams in those communities to provide support where we can.
I would particularly like to acknowledge the work of our team at Waikaremoana to not only provide the majority of electricity to Eastland and Hawke's Bay following Cyclone Gabrielle, but also worked to support the regions around and below our generation sites. James and I would like to now take you through our financial and operating results before touching on the work we are undertaking on the direction of long-term strategy, the details of which we will share more fully in late November. Performance highlights for FY23. EBITDAF of NZD 524 million, a strong result, driven by strong performance across hydro and trading. Net profit was down slightly due to the lower level of valuation gains relative to the previous year. We continued to pay a strong dividend while recognizing the additional investment we have ahead to keep moving the business forward.
We saw our customers grow across all of our brands. Generation costs were lower, mainly due to strong hydro inflows and our ability to flex plant and fuel. Solar gen continued to progress, with Lauriston nearing FID and three significant opportunities in the North Island now in the advanced stage. Carbon emissions were down 1.6 million tons. This was impacted by hydro, the market, and our fuel flexibility. EV plans grew, and we were able to continue to offer innovative products to customers and more than double the number of customers on an EV plan. We opened a regional customer service hub in Turangi to support our main service center in Hamilton. This brought real full-time jobs to regional New Zealand. I will now pass to James to talk through the financial performance.
Thank you, Malcolm, good morning, everyone. Thank you for joining us today. I'm going to talk through the key drivers of our financial performance in FY23, starting with the headline numbers on slide 6. As you can see, revenue was down by 16%, which was driven by the reduction in generation volume and wholesale prices. The exceptionally wet hydro conditions in FY23 meant that significantly less thermal generation was required by the market. Our thermal generation volume was down by around 1.5 terawatt hours to 2.2 terawatt hours, while renewable generation was up 0.9 terawatt hours. Average wholesale prices achieved were also down over a third with the hydrological conditions. EBITDAF of NZD 524 million is 19% up on last year. There'll be more detail on this on later slides.
NPAT of NZD 196 million is down 12%, following a substantial fair value gain recorded in the previous year. Operating expenditure and interest costs have both increased, reflecting current market conditions, and more on both of these items on subsequent slides. The higher profitability also flowed through to cash flow. In FY22, free cash flow was impacted by a coal inventory buildup, not repeated in FY23, with minimal coal purchases in the year. Capital expenditure remained relatively level, with investment in our hydro assets the main focus of the year. We also commenced development of the Kupe KS9 well. Net debt reduced by NZD 68 million, with consequent improvement in credit metrics, which we'll look at further on. Now to discuss the EBITDAF performance on slide 7.
The electricity gross margin was up on lower generation costs and increased retail prices, and you can see that's the main driver of our overall improved profitability. Gas profitability improved with continued price momentum and focus on higher value retail channels. LPG margin is reduced, as the retail price increases have been offset by higher direct cost increases. Other gross margin was down, primarily due to a strong carbon trading performance in FY 2022. Kupe gross margin was also down NZD 9 million, primarily due to lower gas volumes. Operating costs were NZD 32 million higher than the previous year, and I'll cover that on a later slide. Now I'll turn to slide 8, where we look at the gross margin drivers in more detail. The electricity gross margin was up NZD 141 million.
The flexibility of our portfolio enabled us to reduce higher cost thermal generation substantially and replace with a mixture of increased renewable generation and lower cost market purchases. Average portfolio generation costs reduced by 36% to NZD 35 per megawatt hour. We also continued to see revenue growth in electricity retailing. Of note, C&I average unit revenue increased 19% to NZD 169 per megawatt hour as contracts renewed at higher prices. The equivalent increase in mass market was 3%, with the increase coming partway through the year. Electricity derivative settlements contributed an improvement of NZD 55 million on FY22. This was driven by the movement in the position of long-term hedges, the swaptions, PPAs, and short-term trading. Moving on to gas, where Genesis continued to focus on value over volume. Retail volumes remained level, while lower-priced wholesale gas sales were not renewed.
Pricing momentum continued in retail gas sales, with realized unit price up on average 16% versus the PCP. The business was able to use shorter or more flexible wholesale gas contracts to enable better use of thermal plant. This procurement and lower demand overall enabled a reduction in gas costs of NZD 0.80 per GJ. On to LPG. LPG margin was down around NZD 8 million versus the PCP. Retail pricing continued to increase, up 13%, while sales volumes were down slightly. Purchase costs were up, driven by an amendment to internal pricing of LPG purchased from Kupe and higher bulk delivery charges. We also saw an increase in the operating cost environment in LPG, largely driven by delivery costs. Looking at Kupe, where gross margin was down 9% to NZD 91 million, mainly driven by reduction in gas volumes.
There are 3 main causes of this reduction. Firstly, the scheduled November maintenance outage. Secondly, the declining production yield. Thirdly, we utilized the flexibility of the contract to turn down volumes to optimize running of Unit 5 at Huntly in low-priced periods. You can see these last two items clearly on the chart on the Kupe slide later on in this pack. The transfer price on LPG increased from NZD 450 per tonne to NZD 705 per tonne, reflecting market conditions and a catch-up on previous year. Moving to slide 9, where you can see NPAT was NZD 196 million, down NZD 26 million versus PCP.
A key driver is that in FY22, we had a significant uplift in derivative contract valuations due to the reduction in the liability on the swaption contract and the increase in wholesale price outlook in FY22. This year, we're also recording a revaluation uplift on the Rankins of NZD 46 million, which is NZD 37 million greater than previous year. The recent Unit 5 outage means that we're forecasting more output from the Rankins than previously expected. This is recorded in the income statement as we're partially reversing previous impairments. Net finance costs were higher, as higher interest rates impacted the cost of servicing debt, and I'll talk about that more on the cash flow slide. Now moving on to operating expenditure on slide 10.
As discussed previously, we had increases in operating expenditure over the year, with a total increase of 11% to NZD 330 million, as inflation continued to impact staff costs and other items such as insurance. Technology costs increased as we worked through the billing system discovery process and increased costs on IT infrastructure and software. Staffing levels were higher as we filled gaps in LPG delivery and front office call center roles. Higher costs were also seen in maintenance materials and contractors for our wholesale assets. OpEx is a key area of focus for us, with competing pressures of the need to modernize our IT estate while driving long-term productivity improvements, at the same time, managing growth in retail and renewables. Moving to capital expenditure.
We've made some changes to how we present our capital expenditure, as well as outlining our expectations for FY2024, which will be an above-average capital spend year. Firstly, outlining CapEx in FY2023, we continued with major investments to upgrade turbines and generators at our Waikaremoana Power Scheme. Total expenditure at our hydro schemes was NZD 29 million, and these long-term investments will improve efficiencies of the plant by up to 10% and provide longevity for the hydro schemes. As previously disclosed, we also commenced the development of a new well at Kupe to ensure continued supply for Huntly and our customers, and to support the energy transition. Capital expenditure of NZD 10 million was incurred in FY2023, with NZD 65 million forecast through completion of KS9 in FY2024.
Looking at FY24, stay in business CapEx is expected to be higher at NZD 80 million, as major projects are taken on, including the final stage of the Tuai generator upgrades and commencing maintenance work at Rangipo. FY24 growth CapEx is expected to be in total around NZD 87 million, which includes the NZD 65 million for KS9 and additional amounts for technology spend. We're also signaling further investment in associates, which include continuing forestry investment and investing in our solar JV.... When we come to Investor Day in November, we'll talk further about our strategic investments in renewable generation and other capital investment opportunities. Turning to cash flow and balance sheet, the strong performance in EBITDAF and operating cash flow has supported the strengthening of our balance sheet as we look forward to future investment.
Firstly, in the bottom left chart, our net debt to EBITDAF ratio reduced to 2.2 due to the strong profitability and reduction in net debt of NZD 68 million. This provides additional room for future investment, although we're mindful that FY23 profitability has been particularly strong, which influences the metric. Looking at some of the key cash flow movements in the bottom right chart, net working capital increased by NZD 47 million. The key movements related mostly to the delivery of forward carbon purchases, which we're holding due to the lower surrender requirements following the lower emissions in the year. We've also seen an increase in receivables on higher pricing, relatively high June consumption, and a modest increase in overdue accounts, mostly settled in July. Inventory remained level as the coal stockpile remained high, with record low coal burn in the period.
The final item on that chart relates to renegotiation of a long-term lease for 1 of our generation sites and will be incurred over the multiyear term of the lease. After several years of decline, as you can see in the top right chart, funding costs increased due to higher interest rates on the unhedged portion of our debt and the repricing of the capital bonds in June 2022. Moving now to dividends on Slide 13. The board has declared a final dividend of NZD 0.088 per share. This brings total declared dividends for FY23 to NZD 0.176, which is level with the FY22 payout. We've taken this decision on the basis that FY23 results have benefited from above normal hydrology, and we're mindful of the need to preserve balance sheet flexibility for future investment requirements.
We'll talk further about capital planning at our Investor Day in November. With that, I'll hand you back to Malcolm to discuss operational performance and strategic outlook.
Thank you, James. Turning to our operational performance, starting with our customers and the work we're doing to support Kiwis getting into EVs. We are proud of our brand and the products we provide. Both demonstrated strong growth in FY23. Customer growth was encouraging across both our Genesis and Frank Energy brands, increasing over 12,000 customers in the year. While residential electricity consumption per person continues to fall, EVs are a strong growth opportunity, with the average EV customer consuming 40% more kWh per year than other customers do. Pleasingly, the number of customers on an EV plan doubled to over 4,000 during the year. During the year, we ran a successful trial using our EV Sync product, which allowed customers to charge their vehicles using the optimal price carbon mix of their choosing.
Looking at our wholesale market performance, record high rainfall across New Zealand saw Genesis receive 50% or 1.6 terawatt hours higher inflows than average. As James indicated earlier, the higher inflows were obviously a tailwind for our performance. Critical to this success was our ability to be able to be flexible in our plant dispatch and fuel contracting, which minimized use of our most expensive generation options. Looking at the top right chart, you can see that Genesis was able to focus generation in the higher price periods and do so more than other gentailers in the market. Genesis was able to pull back thermal generation through the lower priced summer period, return the generation to market when the prices were higher. Our carbon emissions profile continued a downward trend.
FY23 demonstrated that environmental conditions remain a key driver of carbon emissions in the New Zealand electricity sector. Of course, it is pleasing to see this year's decline, but we want to be clear about what was in our control and what was outside it. To understand this, it's helpful to compare FY23 to FY21. People may remember that in FY21, the market was impacted by a prolonged dry period and unpredictable gas supply. At Genesis, we played our part in supporting New Zealand's energy security, but that meant emissions that year were significantly higher. We flagged then that the emissions were beyond our control, and we're being equally transparent again now about the fact the emissions decline in FY23 was due to a combined impact of Genesis' actions and the weather we experienced.
Almost two-thirds of this can be attributed to hydrology, both from our lakes and those of other generators. Slightly lower customer demand also impacted emissions. What we were more focused on are the things we can control. Our Waipipi PPA supported some carbon reduction, a more significant driver was our ability to source gas to support flexible thermal plant generation. 95% of the gigawatt hours produced at Huntly this year came from gas. This contributed an approximately 500,000 ton decline in emissions over the period, it shows the valuable aspect gas can play as a transitional fuel. If we assumed more normal hydro inflows, we'd expect total emissions to be around 3 megatons in FY23. This is shown on the chart in the bottom right corner. It's been a busy few weeks following the Huntly Five unit, Unit 5 outage.
While the outage has been unexpected, we were not unprepared. Firstly, to talk through what has happened. The damage was due to a fault on the generation circuit breaker. It's a critical component designed to precise specification and expected by us and the manufacturer to last the lifetime of the plant. It was a significant but rare event that occurred with no warning. In fact, the manufacturer has not seen such a component failure internationally before. The machine itself is undamaged, as is the transformer. The key aspect of repair of the existing structure is manufacturing the porcelain components. Manufacturing slots and the requirement for some parts to sit and cure for around 3 months before shipping, are the key drivers of the current timelines. We remain committed to working to the shortage outage, to shorten the outage if we can.
We're mindful of our role in supporting New Zealand's energy security and have ensured that our Rankine units are available for backup generation. As you can see on the right-hand table, we have three Rankine units available, and we are using the gas normally used in Unit 5 in the Rankines. We have already indicated the impact on our FY24 financial performance at between NZD 20 million and NZD 30 million after insurance. We also have substantial energy storage, both with our coal stockpile and in our hydro lakes. These total over two terawatt-hours. Another achievement for the year was the completion of a significant resource consent application for our Tekapo power scheme. Tekapo is a critical asset for Genesis, producing approximately 1,000 gigawatt-hours per annum. The application seeks to replace the existing consent for a further 35 years and retains the existing operating rules.
It is expected that the consent application will take between 12 and 18 months to complete. We have entered into a formal relationship with Ngāi Tahu, Rūnaka, and DOC to work together to positively impact the natural environment and the communities in the area of the new consent. Business to us is about balancing and succeeding across people and planet and profit. We are mindful of the communities we operate in and understand that we are often a critical economic driver in many small towns across New Zealand. A key achievement in community support was the opening of our regional customer hub at our Tekapo site. Genesis has long been a major employer in Turangi and Taupō, and we know the local community well. We are thrilled with the results of our ability to bring real, full-time jobs to regional New Zealand and the community in Turangi.
We also continue to support the communities we operate in through our Ngā Ara Creating Pathways program, which has now offered 32 apprenticeships, internships, and work experience opportunities to Rangatahi Māori in the Huntly region. We continued our support of the Whio Forever for the Tongariro Power Scheme, where we are seeing pleasing results. We have also supported our customer energy well-being through our Manaaki Kenehi program, supplying over 300,000 free hours of power to those in need. Our Curtain Bank partnership is creating warmer homes through upcycled curtains and window coverings. During the year, we continued to invest in our Women in Leadership program, as well as maintain our focus on gender diversity and equity. We continued our focus on building our safety culture, and the focus on hazard identification and management has seen our injury severity rate decline materially.
85% of our team are positive about the culture at Genesis, and our turnover has begun trending downward. The culture at Genesis remains one of our strengths, and this provides the perfect opportunity to talk briefly to our future outlook. As mentioned earlier, we are reviewing and updating our long-term strategy, and we will speak in more detail when we release this in late November. However, allow me to take a, to make a few early comments based on the information we are able to share today. The Zero Carbon Act 2050 was almost unanimously passed into law by all major parties. In achieving that, Net Zero by 2050 is no longer a point of national debate; it is an agreed destination for the country.
There appears equal agreement that the best way to achieve that outcome is to electrify as much of our lives and our economy as we can over the next quarter century. This brings three things to mind: That asset transition must lead the energy transition. New Zealand faces the largest asset transition challenge in our history, at both a household and a business level. New Zealand must proactively move away from assets that operate only on fossil fuels and towards assets that operate on electricity. The asset transition timeline is the critical driver for the energy transition timeline. The sector and the government are now in a close long-term partnership to deliver Net Zero 2050.
We should expect that over the next 25 years, different governments will apply different weightings to the balance, the Emissions Trading Scheme, and the Emissions Reduction Plan provides as they seek to trigger those asset transitions. Regardless of which government is in power, long term, all governments will seek asset transition to secure New Zealand's energy transition. Both of these challenges make the sector an incredibly exciting place to be right now. The next quarter century is about when, how, and where we bring the right mix of new renewable generation into play, alongside what our long-term go-to-market strategy will be for that generation. Genesis has some very strong foundation stones to build off as we look to drive enhanced future total shareholder returns. It has a large customer base at almost 500,000 customers.
It has a premium brand, customer loyalty is high, and it has a highly skilled workforce with a great culture. It cares deeply about it, its, how it approaches the combination of delivering for people, planet, and profit at the same time. As starting points for an updated long-term strategy, we remain committed to the current Future-gen targets of developing 2,650 gigawatt hours of renewable energy by 2030, and to decarbonizing our generation. As a transition step to achieving this target, we will also remain open to contracting some of this volume via PPAs from third-party generation. Looking forward over the next 10-25 years, we see three primary areas of value for Genesis: electrifying more of our customers' lives, building more renewable generation, and in the area of flexibility, both demand and supply side.
These three areas will be supported by ongoing work on future fuels at Huntly, technology-driven productivity growth to control operating costs, and business model and process simplification. I expect our updated long-term strategy to focus on fewer, but more impactful deliverables, that will enable Genesis to positively contribute to the energy transition of our customers and New Zealand, while also enhancing the long-term total shareholder returns. We won't be going into detail on this today, however, we will have more to say when we release the updated strategy in late November. One of the things that FY23 has demonstrated, is that flexibility and security is becoming increasingly important in a more intermittent grid, and flexibility and security are sweet spots for Genesis.
The chart on the right shows the intraday volatility we have seen. It is strongly correlated to the level of thermal generation in the market. We estimate that New Zealand will require up to 1,000 megawatts of flexibility over the coming decade. We see our customers and Huntly playing an ongoing role in delivering this. Huntly is located at the heart of New Zealand's fastest-growing regions and economies. It is consented for electricity, it has vacant consents for further peaking capacity. It has a grid connection of 1,200 megawatts, with options to increase this further. It has diverse existing assets that can operate on diverse current and future fuels. During the year, we successfully completed a biomass trial and have confirmed that 1.5 million tons of biomass will produce around 3 terawatt hours through the Rankines.
This provides an interesting economic dry year cover opportunity under the New Zealand Battery portfolio option. We will remain engaged with government as dry year cover options are evaluated under that project. We have completed engineering reviews for large grid-scale batteries on the Huntly site and are reviewing the flexibility interplay between these and our existing generation assets. We have also explored with manufacturers, future fuel options for Unit 5, confirming that under its current configuration, it can operate on a natural gas hydrogen blend, and with minor modifications, could operate fully on hydrogen. The future of gas, gas flexibility, gas storage, and an economic supply of hydrogen at the required volumes, are key to what options we might have with this unit over the next 10-20 years.
As we announced earlier this week, we continue to progress our development pipeline towards our current target of 500 megawatts of solar. Our partnership with FRV is in great shape, with FRV providing outstanding international experience in managing these projects and having strong global supply chain connections. Genesis brings to the market a trusted brand, large and loyal customer base, and a solid credit rating to build a PPA off. The 50-megawatt site at Lauriston is nearing final investment decision, and we are looking to project finance this development. Finally, as James indicated earlier, as part of our strategy review, we are also looking deeply at how we can simplify our existing operating models. While we will incur some initial costs to invest in new technology, we will be linking any new investment to business simplification and productivity growth.
The culture at Genesis is very strong. The team are rightly proud of the role the company plays in flexibility and securing the grid, and they are equally very ambitious for it to positively contribute to New Zealand's energy transition. This provides an excellent foundation to build a simplified and impactful long-term strategy from. Lastly, I'm very pleased to have been able to attract Claire Walker, Stephen England-Hall, and Ed Hyde as new and experienced executives into the Genesis executive team. Claire is a deeply experienced people and culture executive, who understands how structures best serve strategy and how to build high-performing cultures. Stephen is a go-to-market strategy specialist and understands value-creating brand strategies, deep customer loyalty, proactive channel management, and high-value, low-cost customer service models. Ed has deep experience in introducing technology platforms, data, and AI into businesses to drive deep productivity growth.
All will play key roles in our, in our updated go-to-market productivity and technology plans. Now I'll hand back to James to discuss Kupe and the outlook for FY24.
Thank you, Malcolm. Production at Kupe was lower due to a planned outage in November, reduced gas demand, and declining peak capacity. Genesis and our joint venture partners have committed to invest in the development within the existing permit area to access undeveloped fuel reserves in the development well known as KS-9. Initial drilling remains on target for 2nd quarter of FY24, and a suitable rig has been secured for this process and is expected on site in September. First gas is targeted for Q3 of FY24, and the remaining project CapEx is forecast to be NZD 65 million, with NZD 10 million already incurred in FY23. Turning now to guidance. FY24 EBITDAF is expected to be around NZD 430 million. As previously announced, Huntly Unit 5 is scheduled to return to service in May 2024.
Genesis is actively pursuing options to return the unit to service earlier and has material damage and business interruption insurance cover in place. The financial impact of this event, based on current market conditions, plant and fuel availability, and mitigating factors, is estimated to be in the range NZD 20 million-NZD 30 million net of insurance proceeds. This is included in the EBITDAF guidance. Operating expenditure is expected to be around NZD 375 million, including additional technology spend of around NZD 25 million and increased spend on strategic growth initiatives. Capital expenditure in FY24 is expected to be around NZD 165 million. FY24 expenditure includes the investment in Kupe KS-9 well of NZD 65 million. Other key Capital expenditure projects include completion of the Tuai generator upgrades and commencing the Rangipo turbine and generator overhauls.
Stay in business capital expenditure is expected to return to around NZD 60 million per year from FY25 to FY27. With that, we will now hand over to the call operator for questions on the phone.
Thank you, ladies and gentlemen. If you do have a question, please press star 11 to join the queue. To remove yourself from the queue, press star 11 again. One moment for our first question. All right, it comes from the line of Grant Swanepoel with Jarden. Please proceed.
Good afternoon, James team. Thank you for me. Just on the operating costs, that eye-watering was a jump to. Can you provide a normalized OpEx spend?
Grant, it's James here. I'll take that one. No, we're not providing guidance on that. Our focus is obviously to look at productivity improvements. We see significant opportunities through improving our legacy, IT estate, and we think there are significant opportunities to leverage data and the emerging AI opportunities to improve productivity. We're not guiding on a normalized level of OpEx.
That's calling out to NZD 25 million. Can we assume that's 1 thought?
We're working through the IT spend in the medium term. That is the additional spend that we forecast for FY24. We'll be in FY24, late stage discovery on the billing system work, but there are other legacy systems that we will be working through discovery. We'll use that to inform where our technology spend will be in FY25. We, we cannot, we're not providing guidance today on where that FY25 spend will go to. Grant, we've lost you. Did you have further questions?
He does have questions, sorry. Just wait a second.
Can you hear me?
Can now, yeah.
Yes, we can.
You can just start the question again, Grant.
I think he is, Grant. Just stand by for a little bit. One moment.
Yes, we got some feedback from this invitation before.
Yes, I can hear some feedback. Please proceed to the backup line, sir. Grant, we can hear you. One moment, please. I'm waiting for the speakers.
Yeah, we can hear you, Grant.
Yeah, we can hear you, Grant.
Okay, I'll continue. How do you deliver your cut, the second half the year on the DPS? You gave a comment that before the FY23, and I think that, yeah, that just seems the first thought relative to incremental policy that you ever gave here in captured evidence. I know you asked it in Chris, but how else do you think about dividend going forward? Is this an incremental policy anymore?
Hi, Grant, James again here. I'll take that one. Look, obviously, we look at the dividend each reporting period, and the board makes a call considering a number of factors. We have previously guided to a policy of between 70%-90% of free cash flow, conditional on considering the future needs of the business. Clearly, there are a range of considerations that go into determining the final dividend that is declared. In this case, we have taken into account the significant one-off benefits that we've seen during FY23. We've also considered other factors, such as current yield and the, and particularly the potential capital requirements of the business going forward. We don't have anything further to say today in terms of dividend policy going forward.
We will talk at the Investor Day, more broadly about capital management and funding plans.
A couple of quick ones. Is the Tauhara start up at the end of this year, the start of your contract with Contact Energy, have you factored that into your forecast? Quick question, have you shut down the Unit 1, Unit 5, 1 maintenance out until Unit 5 comes back online, or is there a risk in the Q1 of early day with Unit 1 as well as Unit 5? On the Minister Woods survey, indicating that she saw her bench on an extension renewal, interestingly by 2030. Does that impact your view on collaborating well with government? Final one, on retail pricing, over FY23, it looks like you, you improved your retail price or waited for the others to catch up to you in terms of price point.
How do you think about the price going forward in terms of retail pricing over the two years? Thanks.
The answer to the first question, Grant, is yes. sorry, it's... 25?
1 January 25.
January 25 is the correct start date of that. Yes, it is in our forecasts. In terms of maintenance of Unit 5, our focus on that is to be flexible on how our maintenance program will play out over the next 12 months, with a primary focus on how do we shorten the outage of Unit 5. We have all of our resources dedicated to those two things, and all of our suppliers that we can work with internationally, looking for options to shorten Unit 5. In terms of government, I haven't caught up with those comments from Minister Woods. Our relationship with government remains positive.
My view of government is that we're in a 25-year journey with government. They will-- each government will have its own different peculiarities on how it sees the transition playing out. Our updated strategy will look to the long term. We'll have more to say about that in November. In terms of retail, do you want to take that, James?
I'm happy to take retail pricing. Obviously, we look at our competitive positioning in the market constantly. You know, we, I definitely don't have any comments to make in terms of future retail pricing decisions at this point, which will, you know, take as and when it's appropriate. You'll see that our CNI average rate has increased between FY22 and FY23, reflecting the forward market, forward wholesale price conditions, as you'd expect.
Thank you.
Thank you. One moment for our next question, please. All right, the question comes from the line of Andrew Harvey-Green with Forsyth Barr. Please go ahead.
Good afternoon. I'm happy to hear you, and welcome, welcome to the industry. Thank you.
A couple of questions. Just to start and look, I guess, the Unit 5 outage and speaking about some of the mitigations. It, one of the possible things, and I noticed you discussed the possibility of doing some sort of arrangement with Contact. It's under active consideration, and we think perhaps it's going forward?
Well, we don't talk-
Sorry, Malcolm, are you able to just repeat the question back so everyone can hear it?
Oh, right. Okay. The question was on the Unit 5 outage, and are we having any discussions with Contact? We, we, you know, we don't make public comment on our trading policies, obviously. The Unit 5 outage is... Our focus on the Unit 5 outage is how do we shorten it? That's where our focus and our resources are at, at the moment, and will remain there for the near term.
Okay. Second question is, just in terms of understanding the Rankine operations. Quite often in the 3rd quarter financial year, 3rd quarter of each calendar year, we see the Rankine units are constrained a bit by water cooling issues and the like that. I just wanted to understand, is that an issue, regardless of whether it's running on coal or gas, or is it just a coal operational issue?
No, it's, it's, agnostic to fuel.
Okay. Thank you. Last question, just on you've called out NZD 20 million-NZD 30 million in this impact in midst of insurance proceeds.
When I sort of, do some initial analysis, it does look like those insurance proceeds are going to be relatively significant in the, in the several NZD tens of millions. Is that, is, is that a reasonable assumption to be running with?
If you could just repeat the question back, please, Malcolm.
Well, I think I'll take that, shall I?
James.
Thanks, Andrew. James, here. The question was the scale of the insurance proceeds and whether they will be quite significant. Andrew, we do have insurance and cover. We haven't disclosed the scale of the insurance proceeds, and, you know, that's a discussion that takes place between ourselves and the insurers, and I don't think it's appropriate for us to share those. But it is fair to assume that there is an excess that we would be exposed to, and then there will be an amount above that, that the insurers will bear. Obviously, our focus right now is to mitigate the situation and to look to how we can return the unit to service as quickly as possible.
Nothing further to say on insurance proceeds at this point.
Okay, thanks. Then just, changing tack slightly, and sort of interesting commentary, I guess, around some of the flexibility you're looking at and, doing your work on the battery. I thought it was interesting that you didn't talk about gas peaking plant at all, as a possible solution going forward. Is that something that's off the table now, or is that, still there?
Look, the question is around gas peaking plant at Huntly. As, as I mentioned in my commentary, Huntly is consented for further gas peakers. Today, we won't be going into any more detail on Huntly, but we'll have more to say around current and future fuels and assets on that site at our Investor Day in November.
Okay, thanks. Last question from me is just around your carbon hedging, and I think on Slide 33, you've obviously sort of that set out that you're, you're well hedged for the next 6 or 7 years or so. Just wanted to get a sense of how much of that is coming from forestry. Obviously, you're spending quite a bit going forward. Just be interested in some comments on that in the context, obviously, of the current ETS review and register. It looks like forestry credits may be treated slightly differently going forward, and just your comments around that.
Maybe I'll take the first part of that question, you take the second part. The question that was asked was around the carbon hedging on Slide 33, I think it is, and what's the split between hedges and forestry, and then a follow-up on the ETS. In terms of our hedging, look, it's a mixture, Andrew, between forward hedges and forestry. You know, we have, we haven't broken out the ratio, and frankly, I wouldn't know that off the top of my head. You know, there is a mixture, a material amount of both, but in the longer term, the hedges are related to forestry, primarily. ETS?
On the ETS, the two primary tools that sit in the Net Zero 2050 toolkit for government at the moment are the ETS and the Emissions Reduction Plan. We expect different governments to put different weightings on each of those over the next 25 years. Our call would be that the more stability and long-term view we can have on how governments intend to use those two tools, the better it will be for everybody in New Zealand, frankly. The key here is triggering asset transition, not, not triggering investment uncertainty.
That's great. Thanks very much. That's all from my side.
Thank you. One moment for our next question, please. It comes from the line of Stephen Hudson with Macquarie Securities.
Hi, Malcolm. Hi, James. Just a few from me. Just on your stay in business CapEx of NZD 60 million for 2025 to 2027, does that exclude the forestry associate CapEx that you're now splitting out? If so, is it sort of a NZD 20 million number, a reasonable number to use medium term? Secondly, just back to Unit 5 and the growth costs, excluding insurance, have you had any indication from the insurance company that it will respond to a claim? How will you account for that receivable in 2024? Thirdly, is your DRP discount still operating for the final dividend? Fourthly, can you give us a view for your cost of debt for next year, given the step up this year?
Okay. Stephen, thank you. It's James here. I think most of those are directed to me, so let me try and take them one by one, and I'll repeat the questions as I go through so that everyone can hear the answers. The first question was related to the stay in business CapEx indication provided in the guidance of, for the 25 to 2027. The answer to that was yes, that NZD 60 million is the stay-in-business CapEx. It excludes the forestry and the forestry assumption is, you know, is the best assumption for analysts to use at the moment for, you know, for future investment in forestry. The next question was related to the growth cost. Sorry, Stephen, you said it, and I haven't written down the full question.
I've just written down growth cost. Maybe you could repeat that question, please?
No, that's okay. Yeah, sorry, there was a lot there. Thanks, James. It was just the insurance receivable. Have you had any indication from the insurance company that they'll respond?
Yeah.
Separately, how will you account for that receivable?
Okay. Sure, I can do that. I thought there was a question in between on the growth cost. Sorry, I wrote down... Maybe I got that wrong.
Oh, sorry, I said growth, growth as in, excluding the insurance.
Oh, I see. Growth.
Sorry.
I missed that. Sorry. Got it, Stephen. Okay. In terms of the insurance, I mean, look, we're, we're in discussions with the insurers. Obviously, this is a significant item for them. We haven't, we, you know, we're not gonna give a running commentary on where we are in terms of the insurance, but I can assure you, it's a constructive and helpful conversation, and we're moving forward. You know, in terms of the numbers, I'm not gonna say anything other than what's within the guidance, but, you know, clearly that's an important conversation, and we're, we're working closely with our insurers. And obviously aiming to mitigate the length of time of that outage.
In terms of the accounting, well, Stephen, the simple answer is we'll follow the accounting rules. What that means is that, you know, you recognize the asset if it's virtually certain. So, you know, I, I can't say much beyond, we will follow the accounting rules for accounting for the receivable. So, you know, more as we have more and, you know, when we get to more clarity on where that's landing. In terms of the DRP, we are continuing to offer the 2.5% discount on the DRP. Cost of debt was your final question. The cost of debt, yes, you can see that there's an increase there in FY23.
I think bear in mind that the green bond priced at the beginning of July, and the coupon on that was 6.5%. That was up from, I believe, 4.66%. That's a matter of record, but I think it was 4.66%. Clearly there's some further pressure on our numbers, but obviously, you know, you can see how we're hedging. We've given an indication of how we're hedging interest costs, there on the slide.
That's great. Thanks, James. I'll just sneak another quick one in. Will the credit rating agencies exclude the cost of Unit 5 outage when they're calculating your leverage ratio?
Honestly, we'll need to work with the rating agencies on that. You know, I don't, I don't want to speak for S&P. My experience with S&P is that they tend to be pretty pragmatic at looking at what's, what to normalize, but I, I, you know, I, I simply can't speak for them here. You know, so we'll, we'll see where we get to with that. Yeah, I, I can't really comment further on that, Stephen.
That's all very useful. Thanks, James.
Thanks, no worries.
Thank you. One moment for our next question, please. It comes from the line of Neville Cluyas with Jarden. Please proceed.
Hi, team. A number from me, I guess a lot of the questions I want to ask, sounds like we may have to wait till November to get answers to. To ask in a way, maybe a bit closer to where things are at now, can you give us some idea of where you think your retail portfolio is going to get to? Obviously, some growth in customer numbers. What's your intention for mix and for total size of the retail portfolio at the moment?
I'll take that one. That is one that we'll, we'll speak to in November.
Okay, fair enough. Sort of a detailed question then: Can you give us some indication at the moment of the kind of level of demand response, VPPs, et cetera, that you, that you've got within the portfolio today?
Do you wanna take that one?
Look, you know, you can see that we've published some information in relation to EVs. It, it is early stage, and we're investigating this further. You know, we, you know, this is an area for us that we think has, can be a significant opportunity. We're looking at it as, as an option. We'll talk more about it in November.
Great. Okay. The last one along that retail track. I see, you know, the residential net back now for the latest year pretty much lines up with, that for SMEs, and a little bit above C&I. No reason for us to expect that net back to track to sort of a higher level versus those other two categories, of sort of there or thereabouts from your perspective?
I'll answer that one. The question related to net backs. I mean, look, we look at. There are different dynamics driving the pricing in residential and in C&I. C&I is obviously largely driven by a forward market view. You know, the, the, the way in this industry, C&I contracts, price is based on largely the three-year forward market. Retail is more complex, and there are a number of different factors to consider, such as, you know, obviously, where we sit competitively, you know, is a key driver as we look at that, and obviously, where the costs that we incur specific to residential are. Those are the factors that we consider as we look at residential pricing. Look, I don't equate the two directly.
You know, those are the considerations that, that obviously we have to look at, as we consider how we price those different, go-to-market options.
Okay. moving lastly into the sort of the, the thermal space. I'm interested, can you give us some idea of what the Rankine share of FY23 CapEx was, and what the Huntly share of FY23 OpEx was?
Look, in terms of CapEx, you can see on the slide, on the stay in business, you can see we've I think we've broken out thermal, haven't we?
Yeah, yeah.
Neville. I think that kind of gives you the answer, doesn't it? obviously-
I was wondering about a Rankine split on that one.
sorry, that's what-
The Huntly total-
Oh, okay.
Thermal split.
All righty. Got it. Sorry. Yeah, look, it is primarily Rankines. Okay. There was significant work done on Unit 4, actually-
Right
... in FY23. It wouldn't be all of it, but it would be probably around two-thirds to three-quarters of the total, stay in business CapEx.
Yeah
on the thermal side. Yep, that'd be about right.
Okay.
The OpEx split, I don't have. No, sorry. We haven't provided that.
Okay, okay. Thank you. In terms of... Just 1 question, it's a very specific question about the Unit 5 fault, and it seems unusual. You know, you guys got unlucky to get hit by the meteor on this 1. Is there any suggestion that it might be connected to the way you're operating Unit 5, you know, operating possibly more flexibly than the rest of the fleet around the world? Is that a, a, a line of questioning anyone's following?
I'll take that one. The question is, is the way that we're operating Unit 5 related to the a- to the outage or the fault that occurred? We will undertake our own root cause analysis. We'll get independent investigation on that. The component supplier will undertake their own root cause analysis as well. There is no evidence or indication at this poin t in time that would link the fault to that. Until we've completed that detailed root cause analysis, can't give you a conclusive answer on that.
Great. Thank you. And just one last one from me, if I can recall what it was. Sorry, it has slipped my mind. I'm sure it was a good one, but I don't recall what it was. Oh, sorry, it has come to me. Again, this is a question I imagine you'll answer in November, but it'll be useful to know beforehand. Are you also potentially considering gas storage expansion options amongst your strategy sort of suite?
The question is, are we considering gas storage amongst our suite? What we're looking at is how we bring flexibility into fuels and assets, current and future. We'll have more to say about that in November.
Can't wait. Thank you. That's all for me.
Thanks, Andrew. Hey, I'm just Sorry. Thanks, Neville. I'm just gonna correct or just provide a bit more information on an answer I gave previously, which was related to forestry. Our forestry, I misspoke, our forestry investment runs through FY25 at around NZD 20 million. We expect it to curtail after that. Thank you. Sorry, any more further questions?
Thank you, sir. No, I don't see any further questions in the queue, and thank you all who participated. I will pass it back to Malcolm Johns for final comments.
Thank you all for listening. It's certainly an exciting time to be part of the energy sector, and I'm looking forward to talking to everybody further in November. We're looking to our competitive advantages, such as Huntly and our strong customer base, to deliver electrification, flexibility, and renewables development through to our Net Zero future. We will do this with a more efficient and productive business while rewarding our shareholders with long-term growth. I look forward to seeing some of you on the roadshow, as well as when we launch our new strategy later this year. Kia ora koutou, everybody.