Welcome to the H1 FY 2023 results presentation for Genesis Energy. Call Tracey Hickman [audio distortion], I am the Interim Chief Executive. This morning, our CFO, James Spence, and I will be discussing Genesis Energy's results for the first half of financial year 2023. Firstly, though, I do want to recognize that this has been an extremely challenging month for many people across the North Island, impacted by the severe weather events of recent weeks and continuing even to today. Our hearts go out to all those affected, in some cases, so tragically.
I also wanna say that I'm proud of our amazing people at Genesis who have continued to work hard to return our plant to service, whether impacted from the weather events itself or on planned outage to get LPG into disrupted areas, to support customers in need in a variety of ways specific to them, in providing extra support to affected communities, and for their volunteering efforts through and outside of their work capacity. We have contributed a total of NZD 200,000 to various relief funds across some of our local communities who have been impacted. In addition, we have ramped up our long-standing Manaaki Kenehi program to provide extra credits, payment flexibility and relief, and wrap around services to those affected by these events.
We have encouraged any of our customers across our Genesis and Frank brands to get in touch with us if they need support, and many are. This is not a one and done support. People will be affected for many months and years, and we will continue to assess how we contribute over the long term in ways that can be most impactful. It is important to reinforce in these times the broader aspects of sustainability for our communities and our country, the importance of building more renewable generation and energy resilience, and the important role Genesis and our assets are playing and will continue to play in helping to decarbonize New Zealand. We continue to challenge ourselves as to how we can do more and where we can invest in new innovative solutions to support this journey.
It's been a privilege to lead Genesis Energy over the past six months as Interim Chief Executive as we perform and transform our way to a low-carbon future. We showed strong growth in customer numbers after a long period of declines. We made progress on our plan to develop solar, concluded a successful trial of biomass at Huntly and launched an innovative new EV product to support our customers in decarbonizing as well. As you'll see today, we've been able to do this while continuing to deliver strong financial results. As you probably know, Malcolm Johns will be joining us as our permanent Chief Executive on the 6th of March. Malcolm has a strong track record as a chief executive and a leader in sustainability.
Personally, I've spent a fair bit of time with Malcolm in recent weeks, I can tell you that I am genuinely excited about the purpose-driven and sustainability focused leadership he will bring to Genesis to further accelerate our sustainability journey and drive ongoing and long-term success for our business. I'm looking forward to supporting Malcolm as he introduces himself to the business, I'm pleased to be able to pass over the reins when Genesis is performing so strongly. After mentioning a few highlights, James will cover our financial performance. I'll then come back on to discuss operational performance and a strategic outlook before James will come back again to provide an update on Kupe and our FY 2023 guidance. Turning to our performance highlights. Slide 4 covers our highlights over the period across financial, operational and sustainability.
Firstly, on the financial highlights, we delivered a very strong EBITDAF of NZD 298 million. The result was supported by favorable market conditions off the back of high inflows into our hydro catchments over many months. I'm pleased we were able to make the most of the opportunities and deliver such a strong result. NPAT was also up, driven by the improved EBITDAF, as well as favorable revaluations of long-term contracts. For dividends, the Board has declared an interim dividend of NZD 0.088 per share. This is consistent with what we've done in the past, with the interim being half what we paid for the previous full year. We've also been able to fully impute this year.
We were also successful in our retail business with growth in electricity, gas, and LPG customers and some new momentum after relaunching our Genesis brand and introducing our new Frank brand to New Zealand. We were pleased to advance our first solar project alongside our partners, FRV, at Lauriston in Canterbury. The project is expected to provide 80 GWh per annum and with land rights, resource consents and transmission agreements in place, we're expecting it to be generating in late 2024. The cost of electricity generation declined significantly across our portfolio of thermal and renewable assets, almost half what it was a year ago. With our unique asset and fuel diversity combined with the benefit of strong hydro inflows, we were able to optimize our fuel portfolio to reduce fuel costs.
Another benefit from the market conditions and our effective use of plant and fuel was a decline in our carbon emissions. Obviously, hydro conditions can be highly variable and broader market conditions can impact our emissions. We're committed to being transparent, and it was pleasing to see a 46% decline on the prior period. We also continued to support our customers through our increasingly popular and unique Power Shout offering. In addition to allowing our customers to save their free hours of power and use them when they are of most value to them, the program also enables Genesis customers to gift electricity to families in need, and then Genesis matches this donation. In this past period, over 300,000 hours of power were donated by our customers and ourselves, and we will ensure they are directed to those customers most in need.
Finally, we were pleased to launch a new partnership with Habitat for Humanity. We've partnered with curtain banks in Wellington and Christchurch for more than 10 years. Now we are proud to extend our support to Habitat for Humanity's efforts in its Auckland and Northland region to help warm up more homes, saving more people money and improving health outcomes. I'm now gonna pass on to James to discuss our financial performance.
Thank you, Tracey. Good morning, everyone. After almost a year at Genesis Energy, it's great to be presenting such a strong first half performance. I'm gonna talk through the key drivers of our financial performance over the past six months. The hydro conditions were favorable, which we were able to capitalize on through flexible operation of our generation units and a strong trading performance. In addition to this, there's also continued momentum across the retail business, which is growing in customer numbers. Starting with some headline numbers. Revenue was down over NZD 200 million relative to the previous half due to the market not requiring backup thermal generation and the consequent reduction in spot wholesale prices which impact our revenues. With the wet hydro conditions, we were able to increase renewable generation, turn down thermal generation, and purchase electricity on the wholesale market at lower costs.
These factors combined to deliver an exceptionally strong EBITDAF of NZD 298 million. This flowed through to a strong NPAT performance, which has also benefited from an uplift in derivatives valuations due to the stronger outlook for wholesale electricity prices. Note the free cash flow of NZD 214 million reflecting the strong profitability, and our net debt position also reduced. I'll go into this on a later slide together with the remaining items in this table. On Slide 7, you'll see the drivers of the improved performance across energy types, Kupe, and operating expenditure. Electricity was the key driver of the improved performance, with generation costs down across the portfolio as we were able to rely on renewables and minimize coal generation and associated costs of carbon.
Gas profitability continued to improve as we delivered on our strategy to exit low-priced legacy wholesale contracts and focus on higher value retail sales. LPG was flat as higher sales prices were offset by higher costs. This was due to purchases made at globally linked prices to provide additional LPG during the Kupe outage and through winter. Other gross margin was down. This is primarily due to strong active carbon trading performance in the prior comparable period. We experienced inflation in our operating costs, which were up NZD 12 million on the previous half, and I'll discuss that more on a later slide. Now I'll go into some more detail on the drivers of our gross margin, turning to Slide 8. As we introduced at our FY 2022 presentation, we're presenting our results across the three fuel types in Kupe.
It's a simple way to understand the key drivers of the company's performance, removing the impact of transfer pricing. To see the retail and wholesale reporting, please refer to the segment note in the financial statements. Looking at the main drivers here. As noted earlier, electricity was the key driver of improved performance, with gross margin up NZD 107 million on the prior period. The hydro conditions were favorable, with renewables generation up 614 GWh or 43% relative to H1 FY 2022. We experienced strong inflows across all our catchments, and we were able to utilize hydro generation and pull back on thermal, which was down by around 800 GWh o r nearly half.
The ability of Genesis to flex generation to market conditions was demonstrated in the period and can be illustrative of how Genesis will operate through the energy transition in a more highly renewable market. Electricity retail sales revenue was close to level, with mass market retail slightly down in volume and average prices slightly up in the SME sub-segment. The C&I average sales price improved up from NZD 140/MWh to NZD 156/MWh as contracts repriced to the wholesale market. Sales onto the wholesale market from our generation assets were significantly down in price due to wholesale spot market conditions. Similarly, as you'd expect, the cost to procure for our retail positions benefited from lower costs in the spot market. The flexible generation was complemented by a strong trading performance. With volatile market conditions, trading is essential for optimizing the portfolio.
Settlement on electricity financial contracts was up NZD 38 million on H1 FY 2022, driven by hedging gains, lower swaption calls, and lower costs in providing liquidity to the ASX. This was partially offset by settlement of fixed price PPA contracts. Looking at our gas gross margin, we saw continued growth in value as we focused on sales through higher value retail channels and away from wholesale. Retail sales prices increased while gas purchase unit prices reduced as expensive contracts rolled off. LPG gross margin follows a similar trend to gas, where we have focused the portfolio on higher value retail channels. LPG unit costs increased as some additional LPG had to be imported to cover the Kupe outage and some customer requirements, while bulk delivery charges were also higher. Kupe was down on gross margin, driven largely by a planned outage in November, resulting in lower production.
The higher oil price achieved partially offset the reduction, although oil sales volumes were down due to the declining oil yield and shipment timing. I'll move to Slide 9 to look at net profit after tax. The higher EBITDAF has flowed through to NPAT, as you'd expect. Also, as we've seen in the past, NPAT has been volatile, driven by derivative valuations, which have added an aggregate of NZD 19 million across the fair value movement and other gains lines. This is driven by the increase in valuation of financial instruments due to changes in long-term wholesale price assumptions. These increases mainly relate to the PPA contracts with Tauhara and Waipipi, which are strongly in the money. The higher wholesale prices meant that Unit 5 was previously valued up in FY 2022, and this has resulted in higher depreciation through H1 of FY 2023.
Financing costs were up. I'll discuss that more on a later slide. Now we'll move to operating expenses on Slide 10. We've seen an increase in operating expenditure over the period due to inflation and investments in digital transformation. The job market remains competitive, particularly in the call center and LPG driver segments in which we operate. Employee benefits increased at a similar rate to inflation. We're also seeing inflation impact other areas such as software costs and insurance. We had some additional costs in the half relating to our digital transformation project, with an additional NZD 2.1 million incurred. Marketing costs, which have flowed through to benefits in both Frank and the Genesis brands. Overall, we're conscious of the OpEx increases and the need to manage cost increases carefully. We're seeing indications that the inflationary pressure in some areas is reducing.
Over the past few years, there's been considerable upward pressure on Genesis OpEx, and we're actively looking at how to manage costs, most likely through medium-term efficiency measures rather than quick fixes, conscious of the need to continue to invest in growth areas. Turning to CapEx on Slide 11. In H1 FY 2023, CapEx was down moderately, and we've seen a switch from CapEx at Kupe following completion of the inlet compression to increase CapEx at the power stations. In the period, Stage 2 of the Tiwai generator refurbishment was commenced. This is the second of three upgrades at the station, with each upgrade expected to provide an additional 2 MW of capacity. We also continued investment in Huntly across Unit 6 and the Rankines. This will continue to support flexible operation of the plants.
Not included in the CapEx number is our investments in associates. While our primary focus in this area is to reduce emissions, and we have several strategies focused on that, we hedge our remaining long-term exposure to the costs of the ETS by investing in forestry. The funding stage of Drylandcarbon has concluded with the capital now fully deployed. Our second long-term carbon offset, Forest Partners, is underway and NZD 8.7 million was invested over H1 FY 2023. Moving on to look at cash flow and balance sheet considerations on Slide 12. Starting with the chart on movement in net debt on the bottom right of this slide, you can see that net debt reduced by NZD 45 million over the six-month period. The strong free cash flow was offset by increases in working capital, including inventory, primarily coal.
We're not planning further coal imports in 2023. As previously discussed, in addition to CapEx of NZD 30 million, further investment was made in forestry to meet our long-term obligations, bringing total investing capital to NZD 41 million in the period. Net debt was also impacted by NZD 29 million due to the capitalization of renegotiated lease obligations in the period. Looking at our interest rate hedging position, you can see in the chart on the top right that we had 73% of current net debt hedged in H1 FY 2023, providing good protection against further interest rate increases. As previously signaled, average cost of funding increased to 4.9%.
In terms of the overall increase in the P&L interest charge from NZD 30 million to NZD 40 million in the period, this is driven by a few factors, including the increased coupon on the capital bonds and the increased interest on the net non-hedged portion of debt, plus the interest charge on the lease liability and the Kupe rehab provision. At 2.2, the debt to EBITDAF credit metric has improved to our lowest level in the last five years due to the strong EBITDAF performance. This will assist Genesis in any future investment opportunities, whilst maintaining the ratio within the target bands. Finally, turning to Slide 13, where we look at dividends. This period end, the Board has declared an interim dividend of NZD 0.088 per share, consistent with our approach for the interim being half the previous year's total dividend. The dividend is 100% imputed.
Our dividend policy remains at a range of 70%-90% of annual free cash flow. We're mindful in setting the dividend of our investment program in future generation. I'll now hand back to Tracey to discuss our operational performance and strategic outlook.
Thank you, James. I'm gonna talk through some of the performance highlights and discuss the progress on some of our key strategic initiatives. I'll then hand back to James again to give us an update on Kupe and provide an update on guidance for the remainder of FY 2023. Firstly, looking at our customers. We relaunched our Genesis brand in the half, introducing Kiwis to George and her family. We've had a great response to this campaign, with high levels of enjoyment supporting our market-leading brand awareness. I'm very pleased to say that in the half, we increased the number of customers we have, including in residential electricity. After a period of flat or declining numbers, it's great to return to growth in a competitive market. Total customer numbers increased by more than 10,000 in the six months.
Our net churn for the period declined to 12%, which is a great sign that customers value Genesis and what we offer and are choosing to stay with us. We continued to ensure that our pricing remained competitive with the market and that our products are appropriately priced. For the first time in two years, we pushed through some, but not all of the higher costs we are experiencing in our retail business to our Genesis residential electricity customers. We're mindful that many New Zealanders are facing rising costs as well, and we've worked hard to strike the right balance in all of our pricing decisions. At Genesis, we continue to work to ensure our most vulnerable customers have the support they need. Our Manaaki Kenehi program continues to develop and proactively engage with those in need.
It's pleasing to see more of our customers supported to stay with us and the things we are doing to help them manage or reduce their debt. Despite the challenging economic conditions, we continue to achieve low disconnection rates, and we haven't seen a significant rise in customer debt. Moving on to electric vehicles. As a company, we are focused on supporting New Zealanders to make sustainable choices. We know that the transition to renewable transport is critical, with transportation making up 17% of the country's emissions compared to the electricity sector's 7%. It is clear that the electricity industry has an opportunity and responsibility to help this happen. As we've seen EV registrations grow in New Zealand, Genesis has been able to grow the number of customers on EV plans at an even faster rate. We launched a product called EVerywhere in September 2022.
This provides Genesis customers the ability to charge at New Zealand's largest charging network at the same rate as their home, all delivered on a single Genesis bill. This is the only EV roaming product in place across New Zealand, and consumers are telling us they love it. We're offering this alongside our half-price overnight rate for EV owners. As well as making EV ownership more affordable, we are also supporting our customers in making more sustainable choices. As you can see on the bottom left chart, by providing the right incentives, we've seen our customers shifting their load to overnight periods when carbon emissions are lower. While we continue to see the amount of energy consumed per electricity customer steadily decline, EV customers consume on average 24% more than the typical Genesis customer. Looking now at the net backs across our sales channels.
We continue to see good value across our SME and C&I channels. With the direct link to wholesale electricity prices, C&I grew strongly. There were also increases in gas net backs for both in SME and C&I. Residential net backs declined as higher lines in operating costs were absorbed by the business. With retailing costs continuing to increase, we have moved to recover some of these with an electricity price increase across both brands in December 2022 and January 2023. Moving on to Slide 18 to discuss the wholesale performance. Since July, we've seen considerable volatility in the wholesale market. As the chart on the top right shows, prices have fluctuated as the market was impacted by higher fuel prices through the winter, then exceptionally wet conditions later in the year.
We frequently saw spot prices exceed NZD 500, as well as fall to zero overnight through December. As we saw in the period, the high volumes of renewable energy could be indicative of the future as the market transitions to more highly renewable. Genesis' assets, fuel portfolio and our people are well placed to ensure our company can play a part in this change. Key to enabling this success is the work we've done and will continue to do to change how we operate our assets, build our fuel flexibility, and work with our people to optimize trading decisions. As the bottom right chart shows in the period, Genesis' portfolio was able to respond to the conditions, whatever they were. During the high-priced winter period, our thermal assets were deployed.
During times of low wholesale prices, the portfolio was able to significantly pull back thermal and purchase lower priced electricity from the market. As you can see, we were able to respond to market conditions much more so than our competitors. Fuel portfolio flexibility is critical in achieving this. In the past six months, we have been able to manage fuel supply, including through a Kupe outage, to ensure that Huntly operation is optimized. The plan of fuel flexibility were ably supported by informed and decisive trading. Understanding the drivers of the wholesale market and making trading decisions to support our assets was a critical component of the strong results in the half. To give an update on our Market Security Option products. Genesis launched the Market Security Option products in August 2022.
This was part of our efforts to find a market solution to mitigate dry year risk by offering any wholesale market participant the opportunity to secure energy security through a transparent cost based pricing mechanism that reflected the underlying cost of procuring energy in the global market. After strong initial interest from a number of parties, a small volume of coal was contracted, demonstrating the product worked well for some players, but the volume is significantly less than previously contracted under the swaption contracts. We continue to assess how we operate and invest in our thermal assets and what the right market setting might be to ensure Huntly is able to play an important role in the energy transition over the next decade or longer. Having hydro assets well maintained, available and reliable is critical to the portfolio flexibility.
We are continuing major upgrades at our Waikaremoana stations to replace turbines and generators, which will further add to portfolio capacity and improve water use efficiency. Key to this is evolving how Huntly operates. As you can see on the chart in the bottom right, with having greater fuel flexibility, Unit 5 is now used frequently to respond to market conditions, including being shut down or started up, or ramped down and ramped up. The unit made almost 90 starts in the period as it was frequently turned off during overnight periods. This is a significant change from where we used to be when the plant was generally run continuously throughout the year, often with the only shutdown or startup being for its annual maintenance outage and a nervousness to turn Unit 5 off for fear of it not restarting.
Now we have a more dynamic fuel portfolio, the plant configuration to flex, and the operational experience and confidence to successfully execute. This gives us greater portfolio optionality and flexibility than we have ever had before, driving more value from an increasingly volatile market. Now turning to sustainability. As a company, we're mindful of the impact we have on society and our stakeholders. Our company purpose to empower New Zealand's sustainable future is focused on three sustainability pillars: a low carbon future for all, a more equal society, and a sustainable business. Our people remain key to achieving these goals. We remain committed to gender equity, and I'm pleased to report that we are leading in our sector with gender balance on our executive, one of the few NZX companies to do so.
Our ongoing focus is not only supporting gender balance across all areas of leadership at Genesis, but genuinely and proactively supporting broader diversity and inclusion across our organization and the wider sector, and leveraging the value of this in terms of the critical role we play for New Zealand. We continue to strive to make Genesis a safe place to work. Workplace injuries were up slightly, but it's important to take a more detailed look. Pleasingly, we are experiencing injuries with a lower level of severity. However, we also experienced some more minor injuries in the half. By far, the majority of our minor injuries occur in our LPG business, where slips and trips and muscular injuries can often occur. We're investing in equipment and an improved workplace culture to further reduce the risk of minor injuries in LPG.
Moving on to update on our strategic initiatives. Since we launched our joint venture partnership with FRV Australia a year ago, we have been busy working to develop 500 MW of solar as part of our Future-gen programme. While the competition for sites is strong, I'm pleased with the progress we are making. Earlier this month, we announced the first development near Lauriston in Mid-Canterbury. The 50 MW development is expected to provide 80 GWh per annum of renewable electricity. It is an ideal site to meet all of the requirements for an excellent solar development. It's closely located to grid connection, and the flat land is easily accessible for development. As you can see in the graph at the bottom right, the local energy demand is also well suited to solar.
There is significant local demand for irrigation, so having local demand correlated to solar generation is another benefit of this location. The site already has land rights, resource consents, and connection agreements in place, meaning we can expect the site to be generating before the end of 2024. We are anticipating taking a 40% equity stake in the development, as well as purchasing 100% of the generation under a power purchase agreement for the first 10 years. The location and grid connection means the economics of this project are favorable. Moving now to progress on Future-gen. Since we announced our Future-gen strategy two years ago, we've focused on building a diverse portfolio of renewable generation to displace baseload thermal running and reach our science-based target by 2025.
While there have been challenges across the market in generation development, we retain options and flexibility to source a diverse portfolio. On solar, we have assessed over 100 sites in the past year and are now focusing on three significant solar opportunities. These are all North Island sites with potential capacity of up to 400 MW. We also have a further 350 MW of potential sites that are being investigated, and we're expecting to be able to confirm further sites before the end of the calendar year. Genesis also applied to extend consent for the Castle Hill Wind Farm. The new consent focuses on the most productive wind sites and gives Genesis the option to develop should we decide to. While this is a useful option for Genesis, no decision on development has been made. Moving on to biomass.
In the last two weeks, we are pleased to successfully complete a full viability trial of biomass generation at Huntly. The combustion trial is the culmination of a lot of research and planning, including discussions with others around the globe that have engaged in similar work. The trial demonstrated that advanced biomass is a viable fuel source for Huntly. We're confident that should a local supply source be developed, biomass could provide an effective alternative to coal. The biomass could be easily stored at Huntly, operated with a few plant modifications, and allow us to generate with potentially a 90% reduction in emissions. Huntly is a key strategic site for New Zealand and the country's energy transition. It's located close to major electricity demand, has access to skilled workforce, and has excellent railroad and electricity connections.
Now that we've proven we can burn biomass material in our Rankine successfully, we'll start exploring the viability of a sustainable economic local supply chain of black pellets. We've launched a partnership with Fonterra as we seek an alternative fuel source to help carbonize our respective businesses and reduce New Zealand's carbon emissions. We'll bring in other industry partners to share knowledge and foster innovation. We aim to have an assessment completed by Q1 FY 2024. We are hopeful in the potential of biomass, but we reiterate we have made no final decisions about the role biomass could play for Genesis. Finally, just to update you on the leadership team here at Genesis. We've had several new faces join our executive team in the past year. Although with three internal promotions, the team has a good balance between Genesis knowledge and outside experience.
Malcolm Johns will be joining us in just a few days. He's been getting his head around the sector and business for several months. I expect he will hit the ground running. We've also announced recently that Claire Walker will be joining us in April as our Chief People Officer, moving from a similar role at SkyCity Entertainment. I'll now pass back to James to give an update on Kupe and to discuss the update on our FY 2023 guidance.
Thanks, Tracey. Turning to Kupe on Slide 26. We're confirming today, subject to final approval by the Environmental Protection Authority, our decision to invest in KS-9. This is a development well planned at Kupe for some time at an expected cost to Genesis of around NZD 75 million to be incurred, approximately NZD 15 million in FY 2023 and NZD 60 million in FY 2024. Gas from the new well is expected early in calendar 2024. We're acutely conscious of the concerns some will have in further development of gas fields, but we have to balance that against the alternative and the need for thermal backup through the transition. Our expectation is the additional gas from KS-9 will enable Huntly Power Station to run less on coal, and therefore lead to a net reduction in carbon emissions.
During the second half of 2022, we had third-party interest in acquiring our stake in Kupe. While we gave these approaches consideration, the values were well below our value and use, and therefore we did not proceed. Finally, to summarize our guidance on Slide 28. FY 2023 EBITDAF has been updated to around NZD 515 million from around NZD 500 million. Subject to hydrological conditions, gas availability, and any material adverse events or unforeseeable circumstances. Guidance includes an allowance in operating costs relating to the implementation of the new sales, service and billing platform, and this is subject to final vendor selection and implementation time frames. FY 2023 CapEx is expected to be around NZD 80 million, excluding the investment in the Kupe well development. Long-run outlook for stay in business capital expenditure is NZD 50 million-NZD 70 million.
CapEx related to the Kupe development well, KS-9, is around NZD 75 million, split approximately NZD 15 million in FY 2023 and the remainder in FY 2024. With that, we'll hand over to the call operator for questions on the phone.
Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile a Q&A roster. Our first question comes from the line of Grant Swanepoel of Jarden. Please proceed with your question.
Good morning, Genesis team. Can you hear me?
Yes, we can. Hey, Grant.
Fantastic. A few questions. First one, just on your solar development pipeline, are you still looking to do 500 MW? If the options do come available, would you push beyond that, assuming you've got NZD 800 million on your slide? 800 MW, sorry. Is the cost about NZD 1.5 million per megawatt that you put down for that NZD 70 million of CapEx indicative of where you think solar is going to land? That's about NZD 90/MWh-NZD 95/MWh , quite a bit ahead of wind. What hydro generation does your guidance assume for the full year, please? If Tiwai doesn't stay, are you gonna able to monetize that coal stockpile and your carbon credits? With that in mind, are you in negotiations with Tiwai, the market you think you are?
My final question on biomass, is that still indicative around NZD 300/MWh for short-term marginal cost? With that sort of elevated price point, do you not think it's better to push forward with some of the larger papers written on the future of the business, pushing towards keeping gas around into the late 2030s a better option? That's it for me. Thank you.
Thanks, Grant. I'll start and then probably hand to James for a couple of the questions. I think your first question was in regard to our ambition around 500 MW of solar. I think we announced that was our target, consistent with our science-based target. And so that remains our focus. Actually, we stay open to the option of developing solar beyond that into the future. You asked about, I guess our estimate of the long run cost associated with solar. I'll start with it, and maybe James can add. Obviously through our partners, FRV, they have some pretty up-to-date and strong supply chain experience with what those costs are. Obviously, we're now in market through our joint venture to test that, but we are reasonably confident with the estimate being up to date.
Want to add anything to that?
Yeah. Look, I'll just add to that, you know, the best information we have is what we've presented here. You can see clearly, you know, we have seen inflation in recent times coming through because of factors that I think we all understand. I think what's gonna be interesting is to see over the next little bit of time, one to two years and maybe beyond, is how supply chains react and how that can affect the capital cost. It's difficult to predict that at the moment. At the moment, we have to, you know, we're looking at what's in front of us, which is what you see in terms of Lauriston. In terms of hydro, maybe I can take that question. Look, we always forecast on P50.
Obviously at the moment, our lakes are fairly full, based on what we've seen recently, but that's the base of our forecasting.
Yeah. I think the next question, Grant, was in regards to Tiwai. If it doesn't stay, what the implications are for monetizing the value of our coal stockpile. Look, I think, you know, obviously our use of coal is highly dependent on hydrological conditions. So we are expecting Tiwai to stay in the foreseeable future, and that coal stockpile gives us the level of resilience that we need, through the next few years, depending on hydrology. We are not in negotiations with Tiwai. Always remain open to conversations, but no negotiations underway. Anything to add on that? I think the last question was in regard to gas, which you might want to answer. Yeah.
Yeah. Look, I think, I think, Grant, your question was going to the longer-term role of gas. I think that, you know, what we see and the announcement we made today in respect of KS-9 is focusing on, you know, here through 2030, where certainly for that period of time, we think it's likely that gas will play a key role in the transition, particularly as the system becomes more intermittent. Gas is the obvious fuel, and as you'll know, the emissions associated with gas are roughly half of those associated with coal. We think that while acknowledging that stakeholders will have different views on the acceptability of investing in additional well at Kupe, we think it's a crucial fuel through the near term.
It's difficult to say beyond that, what will be the role of gas. It'll depend on costs. You know, in terms of comparing it to biomass, it will depend if biomass is the fuel of the future for backup, what the costs are. You know, at the moment it's difficult to predict, but that will be a key determinant of the mix between gas and biomass in the longer term.
Thanks, team.
One moment for our next question. Our next question comes from the line of Cameron Parker of Craigs Investment Partners. Please proceed with your question.
Hi, guys. Can you hear me?
Yes.
Yeah.
Yes, we can. Thanks.
Hi. Congratulations on great result. Just a couple of questions from me. With regards to Kupe, can you, given the work that's to take place over the next 18 months or so, is there gonna be any interruption in terms of getting the wells up and running to gas production, oil and LPG?
Cam, it's difficult to predict exactly what that'll look like. The exact timings are still being worked through. Honestly, I can't give you a straight answer to that at the moment. I would anticipate that there may be some, but we're not expecting anything significantly out of what we've seen in the past.
Okay. All right. Thanks, James. With regards to the MSO, given the uptake is significantly less than the 250 MW, is there any chance of a redesign of that or going back to market? How does that interact with existing contracts that are up and running and future ones?
Yeah. Your point being, Cam, that whilst we did have some uptake, the volume is significantly less than the swaptions that we had in place previously. Look.
Yeah, that's correct.
Yeah. We continue to engage around how we provide that key role that we think the Huntly assets will provide through the next decade or more. Look, we've got conversations across the board with various players around different opportunities for that, including how best we recover the long-term cost of it, the right market settings, and all aspects of those questions that you raise.
Okay. All right. Cheers, Tracey. The last one from me, just really around your solar development that's going to be kicking off shortly. Sounds like you've got some flexibility within the JV. Could you just give us a bit more information on how the JV is set up in terms of is there seed capital involved? Does the CapEx rely on the, I guess, the proportion of take? I assume that you receive all the energy out of your solar developments.
Yep. The equity contributions are in proportion to the equity stake. What you can see is that in relation to Lauriston, we are expecting that our stake will be 40% of the equity. The offtake, however, as you intimate, we will take 100% at least for the PPA period, which is expected to be initial period of 10 years. In terms of the overall funding of the project, we anticipate that this will be project financed. Obviously, the ratio of the project financing, you know, will depend, and we'll work out through negotiation, but you can assume that our equity contribution will be 40% of the non-project financed element. Does that give you what you need?
Yeah, that's great. Thanks, James. That's excellent. That's it for me. Thanks very much, and congratulations on a strong first half.
Thanks, Cam.
One moment for our next question. Our next question comes from the line of Andrew Harvey-Green of Forsyth Barr. Please proceed with your question.
Hi, morning, Tracey and James. A couple of questions from me. First of all, just on Kupe and I guess the sort of the two decisions that you've made in the last half. I'm probably interested in the strategic thinking as much as anything else. One, in terms of investing in the development well, and then secondly, I guess not selling the investment. I guess strategically, you know, there's, I guess, some fairly reasonable arguments as to why you may not have invested, given, I guess you're a generation retailer first and not an oil and gas explorer. Secondly, from ESG perspective, there will be some, I thought, some strong reasons why you might look to sell Kupe.
Can you just sort of, talk through, I guess, some of the strategic thinking, behind your decisions?
Thanks, Andrew, for the question. I'll start with the strategic question. Look, Genesis requires gas for our portfolio. As you know, at Unit 5 and indeed for our retail customers, gas is currently an important part of our portfolio, and we need to procure that. Now, that's not to say we need to own the assets, but we certainly need to have a source of gas. In terms of, you know, you'll be aware that a couple of years back, there was a process to seek buyers, and that didn't conclude in a sale. We have been approached, and we've had some expressions of interest provided to us during the first half of the financial year.
But those proposals were significantly below the value and use that we see from the asset. As such, we chose not to proceed with those expressions of interest. That's not to say that we have to be holders of this asset. We do need the gas, at least for the short to medium term, but we are not gonna sell it at a price that is significantly below the value we see in the asset. In terms of the ESG points, we are acutely aware of the sensitivity of investing in the well at Kupe. We do, however, see that gas is an absolutely critical fuel, at least for the short term to medium term, in providing thermal backup in an increasingly intermittent system.
Others will have different views on that, what we can see both in New Zealand and elsewhere is that with the intermittency of solar and wind, gas is likely to make up the backup. Again, reiterating that the emissions associated with gas-fired generation are approximately half of those associated with coal-fired generation. As such, we see the gas from Kupe as reducing the net carbon emissions from Huntly and therefore for the country. That thinking is why we have taken the difficult decision to go ahead with this development. Does that address your question?
Okay, yeah. Thanks. Yeah, no, thanks. That's, that's good color. Second question was just, I guess, following on from Grant's question with hydro gardens and understand the sort of the P50 assumption. I guess, just to clarify a little bit, does that P50 assumption incorporate the generation that has come in January and February and current storage levels?
Yes, it does.
Is it? I guess it does. Okay. It is above average, I guess.
Yeah. Look, it does. Let's be clear. This is our middle of the road number. There's risk and opportunity associated with this. What we're seeing, and what's abundantly clear from the first half of the year is we're seeing, you know, quite strong variability. And the flexibility of our portfolio enabling us to manage different outcomes here has been, you know, evident if you look at the first half of the year. Clearly that's, like, the risks and opportunities associated with that number.
Yeah. Yeah. Next question, just guidance related, I guess, around your same business, CapEx guidance at NZD 50 million-NZD 70 million. If I look back at the slide I think you had earlier in the presentation, Slide 11, over the last four financial years have been effectively NZD 18 million or above. Then also just overlaying, I guess, the current inflation environment, just sort of getting, is there much pressure, I guess, on that guidance, particularly thinking about inflation, and there always seems to be things to do, whether that might be creeping up a little bit further in the future?
Yeah. Look, I think there are different dynamics here, Andrew, in that on the one hand, inflation is definitely affecting our numbers. There's no doubt at all that we are seeing inflation both impacting capital expenditure and operating expenses. At the same time, as we plan for the remaining life at Huntly, you know, we're conscious on looking at, you know, what are the necessary investments we need to make and, you know, managing that accordingly. There's both upward pressure in terms of inflation, but downward pressure in terms of, you know, seeking to manage these, you know, the capital requirements.
Yeah.
Of the business, efficiently. We think NZD 50 million-NZD 70 million is the right number for the time being.
Sure. Okay. Last question for me, just around the Castle Hill Wind Farm reconsenting. I think from memory, the consented volumes there is the largest wind farm in the country or would be if it was built. Are you able to say what you are looking to reconsent for? How what sort of size wind farm you're looking to reconsent for?
Yeah. We've applied for resource consents for a wind farm of a capacity of around 300 MW, really focusing on the highest wind and high-value sites. That's quite down significantly.
Great.
From when it was proposed some years ago.
Yes.
It's about 70 or so turbines. Yeah.
Yeah. Yeah. That's great. Thanks, Tracey. Thanks, James.
One moment for our next question. Our next question comes from the line of Nevill Gluyas of Jarden. Please proceed with your question.
Good morning to you. I hope you can hear me. Just two questions from me. First one, detail one. What proportion of your NZD 50 million-NZD 70 million long run standard business CapEx really relates to the thermal assets?
Hi, Nevill. James here. Look, I'm sorry, we don't have a breakdown of that here, so I can't provide you with that number today. What I would say is obviously it's a significant proportion, but it is a declining proportion because we have some specific investments we're doing in the near term. Overall, you know, we will see that mix change. No, I don't have a specific breakdown for you.
Okay, thanks for that. In second question, which is sort of that wider theme of the positioning for gas and flexibility in the future. I'm sure you guys are aware of the BCG and Concept Consulting work. I think, in fact, I think Grant alluded to that earlier. Sort of, you know, one of the key takeouts of that is that open cycle, to the extent you need thermal fuels, open cycle appears to be a better fit. You know, the example they give in their estimates is that taken today, median time of operating a thermal plant after you start is about 24 hours. By 2030, they think that will be four hours. Can Units 1-5 sit in a world like that?
You know, what kind of nuances or view do you have about those forecasts?
Yeah, I think we definitely see that high levels of flexibility will be required into the future. We are continuing to look at the prospect of gas peakers. Obviously, we've got a site well suited to them. We've actually got resource consents in place to build gas peakers. That remains a focus for us. Anything you wanna add to that? Does that answer your question, Nevill?
Okay. No, that's good color, thanks.
Yeah.
That's something that potentially is on the table for you guys. The strategy is to potentially repower those sites.
We've got, I mean, the Huntly site gives us a hell of a lot of optionality, so we'll continue to pursue that. Obviously, we're keeping a close eye on other longer term investments on slow and other things.
Yeah, of course.
Yeah.
[audio distortion].
Yeah.
The perennial question. Really, when do you think decisions need to be made about that? I guess one of the other flavors coming through that work, the MDAG work, is the decisions need to be made soon. When do you think, sort of a critical timeframe might be?
It's a really hard question to answer in terms of, you know, what it will take to create the certainty for that level of investment. You know, I think when I read the BCG report, you know, there's a hell of a lot of investment to occur across New Zealand, whether it be from transmission distribution right through to investment in new renewables and potentially greater levels of flexibility around backup thermal. That's why we keep an eye on the existing assets that we've got in terms of improving their optionality with things like investment in biofuel, biomass and ensuring that they remain as, for as long as we think New Zealand needs them.
Great.
Nevill.
Thank you very much.
Nevill, I'll just put a bit more color on this.
Oh, sure, yeah.
I'll just put a bit more color on the stay in business. The stay in business CapEx, I should just clarify is, you know, we don't break it down specifically into how much is Huntly versus other assets. You can assume we're going through a piece of work at the moment on Huntly, which is quite significant. Overall, it's gonna be in what you might call a substantial minority. In the 20%-30% of our overall stay in business CapEx would be at Huntly this year. Going forward, I think, as I said, I think that will change, and we'll see that reduce over time.
Oh, it's really useful. Thanks. Thanks for that, James. Very good.
One moment for our next question. Our next question comes from the line of Stephen Hudson of Macquarie. Please proceed with your question.
Hi, Tracey and James. Just a couple from me. Firstly, just back on the guidance, I just wondered if you can confirm that you've basically built in half a year of swaption premium there. Just on carbon trading, can we just assume another sort of relatively low contribution from carbon trading? I think it's sort of NZD 3 million this half versus the PCP, which may have been sort of 11 from my numbers. Then just on all things debt, does the Crown Minerals Act amendment from late last year change, and the reporting requirements and trading liability change the way the credit rating agencies will view the Kupe rehab provision? Are you expecting any material changes to that rehab provision?
Just on Lauriston, it looks like you've managed to crack the code there and get that debt off balance sheet with the 40% equity. Can you just confirm that that's the case, that all the debt there will be off balance sheet?
Right. Thanks, Stephen. That feels like questions primarily coming my way, so let me have a crack at them. First of all, swaption premiums, yeah. I mean, in terms of our guidance, we look at obviously all the up-to-date contracts that we have. The arrangements in terms of the MSOs would be part of that, so that's a simple one. In terms of the carbon trading, obviously, what we did have in H1 of FY 2022 is we had a particularly strong result there, which wasn't repeated in the first half of 2023. I'm not gonna give any specific guidance on, you know, the results that we may get out of carbon trading between now and the end of the year.
You know, what I would say is that we have had a strong trading performance in the first half of the year. We're certainly not providing specific guidance around our carbon trading for the balance of the year. In terms of the rehab provision at Kupe, certainly the rating agencies are aware of what that looks like. We had a detailed review with the FY 2022 financial results, which was incorporated into our financials, and the S&P review occurred after the FY 2022 results were produced. You know, they are, you know, fully up to, you know, aware of where we're at when they determined their review. I can't remember the exact date of it, but I think it was around December time, a couple of months ago.
Finally, in terms of Lauriston, yes is the answer. At 40% of the equity and a PPA, which is a standard offtake agreement with no capacity obligations, then the expected treatment by the rating agency of that would not be the debt within the joint venture, so long as it's non-recourse, would not, which would be our expectation of project financing, would that not then be considered as debt by the rating agencies. Does that answer your question?
It does answer that one. Just going back onto the Crown Minerals Act, maybe if I just simplify the question, is the rehab provision treated as debt from a credit rating agency point of view?
What happens is S&P bring an element of the debt into our commitments.
Okay.
Their view of our commitments.
It's kind of what I'm sitting about.
It's not 100%. It's less than that. I don't know if that's something we've disclosed previously, which is why I'm not gonna give the number. They don't take 100%. They do consider some of it as part of the obligations of the group.
Yeah. There's a sort of a change in the reporting requirements now. I guess the second part to the question was, you know, are your early indications that there's gonna be any change to the existing provision, as a result of that new act coming up?
I'm gonna have to look at that one. We, you know, we'll look at that and look at the requirements. Obviously, the last time we've looked at this was for the June accounts, and we did have to change the provision at that stage. You know, we'll take that one away. I don't have a view on that at the moment.
No problem. Thanks, James.
Thank you.
Thank you. At this time, I would now like to turn it back to Tracey Hickman for closing remarks.
Thank you, everybody. Thanks for joining us today. I think that's all we have time for. James and I look forward to seeing some of you on the roadshows over the next couple of weeks. Thank you very much.