Welcome, everyone. Apologies for the slight delay, which I understand was the result of a dodgy link, but hopefully we'll make it in good time. I'm Mark, for those of you who know me as CEO and we've got Chris Jewell, our CFO, who will tic tac with me through this presentation. Just starting on Slide 45 somewhat collectively. On many levels, FY 2021 was a milestone year for the country, the sector and Genesis.
The work of the Climate Change Commission was a dominant presence as the country prepared for the transition to a low carbon future, and we lifted the tempo in executing our future energy strategy and the transformation of the business while persistently low hydro levels and ongoing gas supply issues caused considerable stress to the market. We ended the year in good health with underlying growth and performance strong, which was underlying this morning in our guidance for FY 2022. We had set our sights on delivering more EBITDA for €400,000,000 plus, which we set a target for in FY 2017, but the surprise loss of an arbitration of Beach Energy on carbon liability with high confidence of winning meant that wasn't to be. FY 2021 itself was a challenging one for the sector as a whole, as I've said, with declining gas supplies and low inflows and to the hydro storage systems. But Genesis stepped up to the plate with the Huntley power station doing what it was designed to do, fill an energy hole.
It was an energy hole, not just an electricity one, with large industrial struggling to contract gas as well as electricity. And through this presentation, I hope to give you a better sense of the critical task performed by Genesis people and what you can take away around how we create value cash shareholders with our role at the apex of several synergy vectors. The irony of Genesis unfairly being blamed in the immediate aftermath of the blackout certainly this month was not lost on a company that prides itself in having avoided 10 times more market issues than we saw on the 9th August through the actions we took to support the chronic energy shortages observed this year. Our FutureGen strategy is moving apace with several announcements in several recent weeks. Previously said that we will remove 1,200,000 tonnes of annual emissions from the electricity system by 2025.
It is incumbent on us, however, to have an honest conversation with government regulators and consumers across New Zealand about how the importance of a reliable electricity system to underpin New Zealand's decarbonization journey is important. We've been calling for an energy strategy for a long time now and the 9th August was an early warning of what lies ahead of us if that strategic thinking is not done. Our reported results of $358,000,000 and a final dividend of $0.088 and free cash flow of $191,000,000 the live business with a strong underlying growth driver delivered through a strategy set out in FY2017 when we delivered only SEK 332,000,000 of EBITDA. That year, we purchased an additional 15% of CUPE and an LPG operation off Nova and put in place a number of initiatives to optimize, innovate and invest for the future. At the end of this presentation, when Chris is taking you through the FY 2021 results in more detail and I've talked you through the operational dynamics that drive them, I'll reemphasize how new strategy for the next 5 years is important.
This first communicated to our shareholders in late December and now empowers us towards the mid-twenty 20s. So at this point, I'll hand over to Chris to go through our financial performance. Hello, Mark. That's a
good summary. And I must say well done on your Mark, that's a good summary. And I must say well done on your industry communications over the past few weeks. It was important that the Genasys perspective was well understood. We've always said that the energy transition New Zealand is aiming for won't be straightforward, and there will be some rocky moments, A healthy dose of pragmatism and remaining focused on all legs of the energy trilemma of security, affordability and carbon will be very important.
So just looking at Slide 7, this provides a summary of our performance against all of the key financial metrics. We have additionally presented the results as adjusted for the 2 large one off impacts in financial year 2021 being the decision to utilize the fixed price carbon offer, which was a one off opportunity and the prior year Beach Arbitration results that Mark noted. I would reinforce Mark's comment that Genesis is in good heart. The underlying results continue to be strong, and this is evidenced in the metrics in front of you. And I'll step through a number of these components in the next few slides.
So just looking at Slide 8 in relation to our dividends. So today, we announced a final dividend of $0.08 per share, which took the total financial year 2021 dividend to $0.174 per share. This was the 7th consecutive year of dividend growth and represents a gross yield of 6.7%. Looking through the one offs this year, an adjusted payout ratio of 76% remains sustainable. So Slide 9 provides the EBITDAF trajectory from financial year 'seventeen and also gives a breakdown of how the growth was delivered across segments.
The increase in costs in our review of the ownership of Kupe, the transfer of staff from our retail segment to corporate, Medi Medi B provisioning costs, we took a slightly larger provision to Medi Medi B and higher employee incentives. That is the slightly larger cost base this year than prior years. But as you can see from that chart, we've grown retail, we've grown wholesale and coupe is relatively flat. So on Slide 10, we have continued to deliver EBITDAF growth across our 2 key segments. Kupe has experienced a small decline as production fell away this year.
In wholesale, the thematics of FutureGen, legacy gas contracts rolling off are both evident, and we've been waiting for a number of years for these legacy gas contracts to roll off. These are themes we have signaled for a number of years. FutureGen relates to the full year impact of the volume from Waipipi, offsetting what would otherwise have been thermal generation. And the legacy gas contracts relates to 6 month impact of the OMV contract rolling off. There remains some legacy customer contracts also to roll off in financial year 2022.
The wholesale segment saw some challenging but favorable conditions this year with high spot prices and long thermal volume supporting hydro deficits in our competitor catchments. In FY 'twenty one, we provided a record volume of energy for our swaption partners of 820 gigawatt hours. Offsetting this was a year on year loss relating to our active trading and market making. The absolute loss this year was $12,000,000 and reflects the value that Genesis forgoes to comply with market making obligations and ensure there is a transparent and liquid forward market that provides equal opportunity for everyone to purchase off the market at competitive forward prices. Just looking across to the Retail segment, we've continued to see growth in all three verticals of residential, business and LPG.
We call out LPG separately as it continues to be a key differentiator for our retail offering, and it remains a key vertical through which we are driving growth. Offsetting these was a further $21,000,000 operating costs required to deliver this growth, and we'll break this out a little bit more in one of the coming slides. Just looking to Slide 11. So NPAT was lower this year than in FY '20, which was primarily the result of the recent arbitration decision and the valuation of derivatives, primarily the swapturing contracts that are heavily impacted by short term swings and forward prices. Based on the recent rain events, this would be recalibrated if valuations were undertaken today.
Pleasingly, our average interest rates continue to fall and interest costs were $10,000,000 less this year than last year. Underlying earnings was up $22,000,000 on financial year 'twenty. So just looking at Slide 12. Operating costs are up on financial year 'twenty with monies being spent across a number of categories. Starting at the left hand end of the chart, we continue to invest in our data platforms, business energy services, supporting the growth in the LPG segment and also in our FutureGen activities.
This spend is aligned with our core strategies. We've had some increase in expenditure in our core business, such as software costs, increased insurance costs and costs to bring the 3rd Rankin back into service. Additionally, we spent $9,000,000 this year, partly on the Kupe strategic review, the cost of the arbitration to both ourselves and Beach, and we've taken an increased provision to reinstate Medi Medi site for when that lease is completed and returned to the landowners. So following reduced spend in financial year 'twenty during a period of economic uncertainty, we've also had increased cyclical spend on a number of large generation projects. Additionally, we've started the spend on the billing system replacement, and we expect to see further spend in this area in the coming year.
Pleasingly, these costs have been offset by lower bad debt charges, which is a real highlight during a year that had a higher default risk due to the risk of economic pain caused by COVID. We had taken larger provisions at the end of financial year 'twenty, which did not end up being realized. So just looking at Slide 13. Same business capital in financial year 'twenty one was $55,000,000 with total capital spend $84,000,000 This is consistent with spend over the last 4 years. Larger projects included the Kupe compression project, which is due for completion in September.
Completion of the Tequepo Gate project, nearly $20,000,000 per annum on retail systems and products and the large Unit 5 annual outage. This year, we also moved into our new 6 star building at Kinney on Wynyard. Slide 14, our capital structure. So just adjusting for the fixed price of a Carbon Transaction and the prior year arbitration impact, net debt to EBITDA fell to 2.8% this year, which was anticipated, and we expect this will continue to fall in the coming years as earnings continue to grow and debt is reduced. The highlight this year was the start of the commercial paper program with $260,000,000 now an issue, which continues to allow us to take advantage of low short term interest rates.
This will also mean an increase in current liabilities offset with a decrease in non current liabilities due to the lower revolving credit drawdown for those who had eagle eyes on our annual accounts.
So at
this point, I'll now hand back to Mark to run through the operational highlights, and I'll come back at the end and give you an outlook.
Thanks, Chris. So starting with Slide 16. Across the range of metrics, our retail business continues to perform well. Net backs and sales volumes are up, cost to service down and multi fuel also up. The EBITDA growth over the last year is a combination of all of these drivers and a retail energy business, which is momentum driven.
These results have been driven over time through consistent effort across many facets of what we do. And the next few slides break some of these successes down a bit. So moving on to 17. Engaging our customers to put them in control of their choices has always been a strategic goal. EnergyIQ is a platform and Power Shout is a feature have been how we have sought to achieve that, particularly for residential customers.
Those engaging on a monthly basis with 1 or more tools has grown 15% year over year. Features such as bill insights, usage breakdown and energy saving tips remain popular and customers can now rate their favorite and most useful tip through the app. The newly launched PowerShap Hours, which is which this year really puts control in our customers' hands by allowing them to use free hours when it suits them, not when it suits us, has started to show through in retention stats. As you can see on the bottom left, later this year, NNGI Q will be refreshed with the new interactive graphics, allowing customers to choose the image of a house that most represents their home and we view some of these graphics in the presentation as a teaser. On Slide 18, Tetera Manao Keoh Kenny, the Genesis Customer Care Program has also demonstrated it's not just bells and whistles engagement we focus on, but also supporting those more vulnerable and less able to pay.
After the COVID lockdown last year, we significantly increased our focus in this area, becoming more proactive at recognizing the causes of bad debt. The results of earlier interventions and collaboration with government agencies has been a 40% reduction in disconnections and a reduction in bad debt. The bottom left chart shows the normalized impact of bad debt after moving the higher COVID provision in FY 2020 in FY 2021 that Chris referred to earlier. On Slide 19, another of our key strategic objectives has been to grow the business energy services we offer large businesses to both become more efficient with their energy use and to decarbonize. Our goal this year was to have 20% of our business customers engaging with an energy service offering.
That has been achieved whilst also growing energy sales volumes and netbacks across the segment. Energy services are increasing in importance to our energy supply customers and in some cases have been sold without an energy supply deal as a standalone product. We continue to focus on higher value channels and maintain a margin over the wholesale price curve. On Slide 20 in LPG. When we decided to buy Nova's LPG operation 4 years ago, we knew LPG was the fastest growing retail energy fuel.
New and renovated housing growth and consumers' desire for gas, water and cooking solutions in the home have contributed to strong growth in residential demand alongside growth in commercial users. Genesis' brand positioning and a smaller set of LPG players has seen us achieve customer growth of 45% over 4 years. Also during this time, we have sought to optimize the operation we bought and bring cost to deliver down through an investment in technology, distribution tools and improved customer experiences. As a result, netbacks and sales are up, while our cost to deliver has fallen. We are conscious of climate change related headwinds for LPG and natural gas, but as key components of the LNG pie, we believe they have a role to play as we transition and we intend to give customers the knowledge they need to make their own decisions on which energy fuel best suits them in the future electricity, natural gas or LPG.
Also as New Zealand transitions to a low carbon future, the New Zealand gas industry is actively working on how it transitions itself to low or 0 carbon in the form of bio LPG or green gases such as hydrogen. Genesis is actively involved in these discussions and we will in time form our view as to what role we may choose to play. To a large extent, the market story of FY 2021 was the way thermal generation came to the rescue of renewables. With 5,500 gigawatt hours generated compared to 3,217 in FY 2017 and 4,460 in FY 2020, FY 2021 was a massive year for Humpty as we supported swaptions and other market demand. You can see the impact of high trading margins in the YPPPA on the bottom right driving underlying growth.
And I'll now break down some of these dynamics for you as I just did for the Retail segment. Slide 22 tells the coal story. Coal is a fuel which polarizes views. We all know its climate impact, but the fact it has a high energy density can be stored relatively easy and is the only energy relief valve New Zealand has in a 12 month period when hydro inflows are down, gas is short and wind is what it is. Coal is the only energy fuel for electricity generation that can be imported in times of domestic shortage.
The chart on the left hand side shows the amount of energy in gigawatt hours generated with coal in FY 2021 compared to the last 5 years average and where that demand came from. If there is any doubt that this is an industry challenge, not just the Genesis one, this slide should remove that doubt. The right hand side of this slide gives us hope, however. With Genesis' FutureGen program and other new renewable builds coming online over the next few years, our modeling indicates coal uses peaked for electricity generation. Even in a dry scenario this year, FY 2022, we're unlikely to see the same demand for coal as we did in FY 2021.
The trend is definitely down for the next 5 years. Questions still remain over how New Zealand will back up its highly renewable system and how that backup will be paid for later on this decade, and that's where Genesis plans to put our strategic thinking over the next few months. So flicking over to Slide 23. One of the reasons we can now have confidence in the downward trend in coal use is that the gas purchases made this winter from Methanex and Valens have enabled Genesis to shape a gas portfolio to see us through the next 18 months with a stronger gas book than we'd earlier this year, while new renewables are being built with much more certainty that gas can do the heavy lifting. This slide demonstrates how we use the large tranche of Methanex gas coming to Huntley for 2 months to do 4 things.
First, we ensured Unit 5 and Unit 6's gas turbines could maximize generation. 2nd, we used a little bit of the gas to optimize rank up and running. They obtained a higher heat rate and operating range enabling higher peaking capacity when gas is used alongside the coal. Thirdly, we were able to sell gas to industrial consumers through the rest of 2021, confident that our own needs have been met. And finally, we sold surplus winter gas to competitors and swapped it for future periods that suited our portfolio more.
This is how Huntley has been able to provide an energy backbone for New Zealand this year, not only for the electricity sector, but also gas consumers, not only for this winter, but for future high demand periods too. Would have been very difficult for another market participant to take so much gas and distribute it efficiently to the highest value users. It would also have been difficult for Methanex to play the role Hunt played in shaping the supply contracts to meet different needs. Our forward acquisition is always to run gas through rankings to displace the coal, but that would have been a lower value outcome for Genesis. Taking that risk, we've enabled energy security for several months and created value along the way.
So Slide 24. As we've communicated on a number of occasions, our carbon hedge position is made up of a number of inputs over time. Our stake in the dry land carbon joint venture will start making contributions in the mid-2020s. Earlier this year, we made use of the last opportunities that we used a fixed price option and paid $35 to cover our 2020 carbon liability on the belief carbon prices would rise despite our weighted average hedge position being $24 at the time. The spot price has since risen taking that decision making that decision look like an even better one.
The recent announcement on refinements to the emissions trading scheme settings indicate the carbon prices are likely to continue to rise. Kupe on Slide 25. The story for FY 2021 was Genesis' strategic review. We ran a thorough review and the team now know more about Kupe than we ever did, such as the nature of these processes. If the review had ended up in a sale, Genesis would have still been buying the gas.
I would urge shareholders who told us that a Coupe sale would result in a lower risk profile for Genesis to reconsider what a sustainable energy company looks like in their ESG filters. Gas at Huntley is roughly half the emissions of coal. It's a key transition fuel as we work out how far the renewable curve the market like New Zealand can get, when so depending on the weather. And without nuclear or coal, it's really hard to see how New Zealand can back up a highly weather dependent system without some gas. And yet if we manage the transition well, electricity can do much of the heavy lifting in New Zealand's decarbonizing journey.
The inlet compression project at Kupe is progressing well and the first gas is expected over the next month, bringing Kupe back up to maximum production level of 77 teradoules per day. And longer term developing Kupe East could be critical to ensuring New Zealand has the gas it needs in the second half of this decade. From Genesis' perspective, Kupe remains a high quality gas asset and will continue to play a key role in New Zealand's transition to a lower carbon future. On Slide 26 now. Everything we've achieved over the last 5 years is a credit to the people of Genesis.
We talk internally about our adaptive and engaging culture and this year has certainly demonstrated the need to be adaptive, whether it's supporting our customers through lockdown with LPG deliveries, energy security and supportive customer service or changing shift patterns and canceling holidays in order to bring a third ranking back online or managing complex multi party supply chains from Indonesia to Tauranga, our people have stepped up to be counted. Across the business, we continue to focus on gender equity, diversity inclusion more broadly and the continued safety and wellness of our people. As a result, our people are happier, enjoy working here and therefore our customers are happy and enjoy staying with us. I'd like to shift gears a little now and remind you all the way we're going with our strategy on Slide 28. While FY 2021 was a key year of delivery for our last 5 year strategy, it was also a transition year into a new 5 year strategy.
We laid this out to a range of stakeholders at our Multi Stakeholder Day event last December in Auckland. We introduced our business purpose, which is to empower New Zealand's sustainable future and several strategies we are focused on to deliver more from the core, build for the future and navigate the transition. I won't talk through every one of the 11 initiatives on the right hand side now, but I hope some of you will want to understand more about the MSU roadshow. The next few slides go in some of the recent and future highlights that I'd like to talk about. Our commitment on Slide 29 is intended to put some spine in our back as we work towards a lower carbon future, both within Genesis and support New Zealand outside of Genesis.
You won't get greenwashing from anyone at Genesis. We know better than most the challenges that lie ahead as this transition occurs. The outages on the 9th August are an early warning what is to come if we don't get the market settings right that ensure a stable reliable source of low carbon electricity can help other sectors decarbonize. We think removing 1,200,000 tonnes of annual carbon emissions from our business between 2020 2025 will make us the single biggest company contributor this decade. So we're happy to be challenged on that plan.
So if anyone can do more, please do. You will hopefully have seen with the recent PPAs we've announced and our intention to build solo that we mean it and by delivering on these commitments, it also affords us the right to have an honest conversation with competitors, regulators, government, investors and in time our customers on some of the choices that need to be made. By saying we want to empower New Zealand's sustainable future, we're intending to empower our customers with the knowledge and bias they need to make the choices that matter to them. For investors, we hope you'll increasingly see why backing a company affecting change, while having that honest conversation, not greenwashing and ensuring the transition happens in a measured and central way is far more productive than following a simple ESG tick box filtering exercise that hasn't considered the bigger picture. So on Slide 30, what does the FutureGen mean to us?
Well, that slide summarizes the current state of plan. 3 wind and geothermal PPAs that have already been signed deliver about 1200 gigawatt hours and our intent to build 500 megawatts of solar will deliver another 7 gigawatt hours over the next 5 years. Collectively, that gets us over the goal we set for 2025 of 1800 gigawatt hours, which aligns the 1,200,000 tonnes of annual emissions production. Of course, there is some execution risk in all that. However, we're confident in our competitors and partners to get projects built in that timeframe.
FutureGen isn't just a carbon reduction program though, it is also a generation cost reduction program. As we contract and build more renewables, we are reducing our input costs. The chart on the top right gives some indication of what that means for us versus the alternative, which is modeled here as an $8 per gigafield fuel price and a $70 per ton carbon price. Investors and analysts will make their own view on what that means in their models. So on Slide 31, our solar intentions are to co develop.
We've realized through the future gen RFP process that there's some really good international developers out there with the capability to design solar farms and source great materials through global supply chains. But we've also realized they don't have feet on the ground in New Zealand. In Genesis, we have experience in land access, grid connection, consenting and local eWe and community relationships. Put together alongside our guaranteed offtake agreement, we believe we can create a strong partnership for success. We know there will be lots of questions on where, how much and what and who we'll be working with and those announcements will come in time.
In the meantime, some of the sites we've earmarked on land we already own and some isn't, but we're confident that locations make sense. And once we've made the final partner selection, we will be able to share more. So moving on to Slide 31. As all this baseload thermal is displaced, one thing no one seems to disagree with is that New Zealand will need a way of storing energy to back up the renewable system. The debate is how.
So we're contributing actively to the New Zealand battery project with North Island ideas. We all had another warning last week on what could happen if we rely too heavily on the interconnect between South and North Island, where most of the demand is in North Island, most of the generation is in South Island. So as well as contributing to that government led review, we're also doing our own work on what the role Huntley could play in the longer term, what role Huntley could play. If you were designing the location and infrastructure for large scale energy storage in the 2030s, it would compellingly be Huntley. Located near the demand with good grid connection, a local workforce and a gas pipeline is designed for the job.
We're all reminded that this year and hopefully some of this presentation has made that clear. How low carbon we can make remains to be seen for all the reasons most of you will be familiar with, but we're going to go and explore it and we're working on options. So this year, we will conduct a biomass trial in our ranking unit and there are 3 biomass work streams on the way that will help shape our thinking, including how viable the rankings might be beyond 2,030, what plant modifications might be required and whether the supply chain for biomass could sustain regular demand. This is unlikely to be economically viable in the short term, but as a counterfactual to building Onslow, we think it needs to be taken seriously as an option by the government. So shifting gears again, with all that energy security excitement communicated, I'd like to touch on the retail digital transformation.
We see our digital transformation program as critical to unlocking value growth beyond this immediate horizon. It comprises of 2 parts. The first project in Mahitahi in a new data architecture designed to rearrange our data to accelerate scale and expand the various ways in which we drive value flowing. The second part, Project Rubix is the platforming of our sales service and billing technologies. Our current billing system is reaching its end of life and created an opportunity for us to relook at a wider configuration of customer systems.
We prioritized MyITai given its focus on data and implementation of our new data platform is progressing well. The focus is now on creating the databases and analysis that focuses on specific customer and business problems. We're in the final stages of selecting a partner for Rubix and expect to have started implementation during the second half of this final entry year. So collectively, these programs are expected to substantially improve our agility, productivity and ability to serve customers and we'll see improvements to KPIs such as our cost to serve, speed to market and customer experience scores. Our retail business has probably delivered most of what it can in its current form.
And as we discussed with you late last year, this next phase will truly be transformational. So with that note, I'm going to hand back to Chris to talk about guidance.
Thanks, Mark. So as has been our practice, we've issued year ahead guidance at the time of the annual results. We continue to see EBITDA growth in the year ahead, and we confirm our guidance as $420,000,000 to $440,000,000 EBITDA. It is noted that we've yet to confirm the impact of the IFRIC standard for software as a service, which will see some cash spend currently classified as capital be classified as operating cost and will thus impact EBITDAF. The cash impact is neutral, and we'll update the market at the point that impact is understood.
FY 'twenty two capital expenditure guidance is up to $95,000,000 with the long run outlook for sustained business capital remaining at $50,000,000 to $70,000,000 per annum. So just skipping forward to the next slide in relation to our dividend policy. Our Board of Directors have revised our dividend policy. Our existing dividend policy has served us very well since the IPO with an increase in dividends every year for the past 7 years. We now enter a new chapter for Genesis as both New Zealand and Genesis faces into the necessary energy transition.
We recognize the importance of dividends to our investors, and our aim remains to grow dividends over time in line with earnings growth. However, the aim of the revised policy is to ensure our dividends are more able to reflect the underlying business performance over time, but also provide some flexibility, if required, to continue to invest more fulsomely in a lower carbon future through our FutureGen strategy. The new policy will see Genesis paying a dividend within a range of 70% to 90% of free cash. Today's final dividend represents a payout ratio of 76% of free cash when normalized for the one off impacts mentioned earlier. Just finally, this set of results will be my last at Genesis as the CFO.
And if I reflect over my last eight and a half years at Genesis, I will finish up at a very different business than what I started in. We were once described as a sleepy standard enterprise. Today, you have a very different business to when I walked in culturally, commercially, leadership capability, our ambition and our competitive advantage, which is becoming increasingly apparent with the strongest and most innovative Tier 1 brand and our rapid progress on decarbonizing baseload thermal and finally, as our role as the backup backbone energy provider. I will walk out of a company that is in very good health. It's confident and it's comfortable with who we are, and Mark and our exec team and all of our staff have a lot to be proud of.
I'll leave you with a quote from Mark Carney, who was the Governor of the Bank of England and the Bank of Canada and now the Head of Impact Investing at Brookfield Asset Management, an investment company founded in 18/99. He knows a thing or 2 about investing. His words were, run to where the carbon is. Mark understands the global energy transition requires capital, and there is value in this transition. If ESG investing is your preference, don't forget about this S for social in your assessment.
The world will need to be much more nuanced assessing the balance of rapid carbon reduction and the consequential social outcomes. This is what makes the transition just. Look for companies that have ambition, a track record of progress and a clear social conscience that know how to balance the trade offs. I'm confident that the team at Genesis considers these factors deeply. So at this point, we will open up for questions.
Thank you, and welcome to the Q and A session. The first question comes from Stephen Hudson from Macquarie. Please go ahead.
Hi, Chris and Mark. Thanks for the presentation. Just a couple of quick ones from me. Just firstly, it looks like you've had a reasonably limited carbon trading activity this financial year. I just wondered what you were going to or what you were planning on for financial year 2022?
Secondly, maybe one for Mark. Just on the second phase of future gen around securing gas storage. I just wondered if you could update us on any progress in that regard. And then thirdly, again, possibly for Mark, just the post beach independent expert review, has that been reported back to the board? And if so, what did it find?
I'll start I'll try all 3, Chris, fill in the gaps on the first one, if you'd like. I mean, Stephen, when you say there's been limited carbon trading, you're probably thinking about our active book, I presume. We've gone and purchased a whole lot of carbon at the fixed price offer, so we've probably done more this year than we've done in previous years in total. So I'm not quite sure how to add that, but we don't disclose our intent going forward around carbon trading. It's obviously it's a market and multiple participants in that.
And so we wouldn't want to guide to what our intent might be going forward. Chris, do you want to add anything to that?
Well, the only thing I'd add is we had a pretty good year last year, Stephen. This year, more balanced year and the forward outlook should be more similar to this year than last year.
Yes. I think Stephen, you're referring to an active book upside in FY 2020. In terms of gas storage, it's one of the pillars of FutureGen. FutureGen has 4 pillars and you probably saw that on the slides I showed. It's not been the biggest priority over the last few months as we've been seeking to wrap up some of those PPAs, but we're back onto it.
And as we contract and build more renewables, we are going to need more flexible gas. Where our thinking has probably shifted in the last year is away from 1 big gas storage deal potentially to several small ones. So we might do it iteratively. The challenge for us and I think the sector is with the specter of Onslow on the horizon, if Onslow is going to be built, the economic returns on any new gas storage is going to need to be shorter and that potentially presents problems. So one of the biggest risks to the sector around Onslow is not Onslow itself, it's just the specter that Onslow might be built.
And until we have certainty around that, various participants might struggle to invest in that flexible gas storage. But you'll hear more about us more from us on that in the next year for sure. And then, no, we haven't had the final report on that. There's independent review going on by an individual and that will be presented to the Board in the next few weeks. I expect the findings as we've contributed to that, I've contributed that to myself.
To focus on communication of it, could we have been more visible and transparent with the risk? We were under the belief that it was a high probability of success. So we couldn't make it a contingent liability in our accounts. For example, it ended up with some notes to the contingent liabilities. And there may be some learnings around the communication of it and the process.
But if we had our time again, would we do it again when we were faced with the choice we had, we would. And I'm confident that I don't think the findings would change that outcome.
That's great. Thanks, Mark, and best of luck, Chris.
Thanks, Stephen.
Thank you, Stephen. The next question comes from Cameron Parker from Craig's Investment Partners. Please go ahead.
Good morning, guys. Hope you're well.
Just a couple from me. With regards to the swaption refresh or renewals and dry year risk coming in post-twenty 22, Other participants are suggesting that the tight linkage between carbon exposure and coal is a major hurdle there. Any thoughts about releasing that link and more and more dissolving at a T portfolio in terms of dry air risk rather than that direct link?
I'm having to read a little bit into what you're saying, Cam. What I can say is we're not in any discussions at this point with anyone about swaptions beyond the end of calendar year 2022. So current agreements end then. No one's approached us. We're open to business.
We don't have any discussions. If linkage to carbon is a risk, then we'll always entertain that for anyone who wants to talk to us. But at the end of the day, the cost of that for us, so there'll be a cost that's passed through to them. We're relatively relaxed on whether there are options or not. We know the role that Franklins will need to play for the foreseeable future, and they'll continue to play that role whether they're contracted or not.
Yes, I'll end it there.
Okay. Thanks, Mark. Just with regards to the $50,000,000 in cost savings as future year unfolds in 2025, is that solely around fuel and carbon costs? Or are there other sort of cost savings involved in that figure as well?
That's a comparison in generate weighted average cost of generation. So the difference between the cost we're paying for the future gen gigawatts, gigawatt hours versus what we'd be paying if we're running gas then.
I'll just build a bit on what Mark said. There, Ken, we haven't made any assumptions around retiring any plant and offsetting any operating other operating costs associated at this point. So it's about the variable running costs. And yes.
Okay. Thanks. That's awesome. And lastly, really, Coupe, I was just wondering if you could spell out what's in line for that in terms of CapEx requirements and development going forward post the compression project coming online?
You can turn that, Chris.
Yes. So we the next phase for Coupe is to assess whether or not there's another well or possibly 2 wells to be drilled. That process will occur over the next 2 years. The compression comes on stream in September this year. Parties will sit back and see what the results of that is and how the reservoir performs.
And over the next 18 months, they'll make that decision. Well, they'll do the assessments and make a decision around future wells. If you were to drill a well, it could be up to $100,000,000 per offshore well, of which Genesis is a bit under 50% of that. But that decision is a couple of years away.
Okay. That's great. Thanks very much for that. And congrats on the new role, Chris, and best of luck.
Thanks, Cam.
Thank you, Cameron. The next question comes from Grant Swainful from Jarden. Please go ahead.
Good morning, team. First question for Mark. It's regarding recent staff turnover since Andre Goh then Sean and now Chris. You've hit your 2021 target after a few adjustments. I think this is your 5th year.
How do we think of your role into the future, particularly with papering over these recent holes and longevity?
Great one, Grant. Three questions in one. Look, I think as a team, we've been together for pretty much 5 years. And those of you that followed us know that the executive team has been pretty stable, pretty consistent. And I think it's normal in a business like ours as we progress from one phase to another for some to move on to other things.
And I'm always proud of people that move on to things that are better, where they've built capabilities within Genesis that they can go on and flourish in. So I think that's fine. We've got good depth within Genesis underneath execs and others and people coming through, and I'm confident that you investors now are going to see a material difference in Genesis' performance as a result. From my perspective, I'm here, I'm happy, I'm looking ahead to the future. I'm feeling ambitious for Genesis and myself and this plan to get on with.
So you don't need to read anything into other departures and think that therefore the CEO is back to the park. My priority for the next 6 months is to reestablish an exec team and make sure it's strong and ready for the future. And again, help hit those future game goals and reform and transform the retail business for the next decade. So plenty to get on with.
Next question.
So your recent commitment to PPAs and the 500 Megawatt solar build
that all come
on prior or by calendar year 2025. Does this now assume a lot of TY risk? And is this why the Board has decided to change the dividend policy?
No, there's no connection between TY risk, etcetera, and dividend policy. The TY is always a risk, isn't it? My view is it won't go in 2025, and I really don't think it will. I really am more in control of that. But we look at our FutureGen program as displacing base load thermal, as you know, is our primary counterfactual.
Our total goal for FutureGen is 2,650 gigawatt hours. And at this point, even with all our contracted PPAs of about 1200 plus solar of 750, we're submitting under 2,000 of that. Genesis always has the option in the second half of the 2020s to be short as a retailer if there was a massive drop in demand and the wholesale market fell materially. So we have not yet contracted or committed to building or contracting the full 2,650 gigawatt hours and we will look very carefully now and it will somewhat depend on the speed and success of the solar bills, but we look very carefully on where how far we go with that over the next 5 years because of that TY risk. But now our dividend policy shift is really just we've talked to many investors over time around it.
Everyone loves the dividend, but everyone recognizes the weakness of the policy that was put in place at IPO. And I think it's good for Genesis and good for Genesis investors to see a little bit more flexibility there. It is our intent to keep growing dividend because it is our intent to keep growing the business and our forecast say the business will grow for lots of reasons we've discussed. But the flexibility to invest in solar to transition or pivot if we need to, to something that makes sense for investors, we think is proven at this point in our journey as a company, but not related to TY.
Thanks, Mark. Chance for Chris. Just on electricity netbacks, quite eye watering increases over the last few years. Is this scope for much further netback improvement in electricity side? And then on OpEx, dollars 271,000,000 I think about $10,000,000 of it was non normalized, a little bit of extra IT expense coming through.
How do we think about OpEx over the next 12 months?
Yes, Grant, I think in the resi space, it's going to be quite hard to grow certainly revenues and pricing compared to the netbacks. In the C and I space, you've still got a bit of a hangover of high prices in the next 2 or 3 years. The Ford markets are still trading north of $120 a megawatt hour in electricity. Gas markets are still significantly elevated from where they were 12 months ago. So you could see some netback growth in those segments, but less likely in less likely in electricity.
In terms of the outlook for OpEx, look, we don't guide OpEx. We've obviously got I do expect a little bit more OpEx coming through as a consequence of a switch between the CapEx and OpEx for the IFRS standard. We do continue to invest in some areas. So I think you'll see a slight uptick in OpEx. Well, you will see an uptick in OpEx next year, Grant, but we don't guide specifically on OpEx.
Thanks. And then my final question, with the electricity outage a couple of weeks back and the risk last week, also no real certainty around Onslow or 100% renewable policy. Is there a developing argument that the market should be having a centralized capacity market or somebody who provides a centralized function? And have you changed your thoughts on that yet?
Our thoughts are the same thoughts we've had for a while now, Grant, which is that as we transition further to become more renewable, the sector and our regulators are going to have to face into that. Most mature electricity markets around the world have got a capacity market or some sort of thermal firming market, and we believe that's probably the direction we need to go. We first spooked that about 2 years ago in a renewable energy consultation that ENBRI did. And the events of 9th August have brought that to bear again. So we are in active discussions on that.
And we don't think the sector should be afraid of that. We don't think one of the challenges we've had is that you can swing from one extreme to another is the market broken. Well, we don't think the market is broken, but that doesn't mean the market can't be tweaked and improved to create the right settings for the next decade. And between FutureGen and our competitors' new builds, we're highly likely to be about 95% renewable in the second half of this decade. So we need to start thinking as a sector and as the regulator and government start thinking about what are the right incentives to ensure that the backup will be there when it's needed even though it's going to run less often.
So we're very open to that. That's not new news and we will continue to have discussions with anyone who wants to talk to us about it. There's various ways you can look at it and there's various solutions that can be brought to bear. This morning in the AFR, the Energy Minister in Australia is talking about putting in a capacity market in Australia. So I think it's about time we just had that conversation in New Zealand and don't see it as a negative reflection of the current electricity market, which has done very well for the last 30 years.
That's not further maybe out of the bathwater, but we can still improve it. And that's one of the settings we're interested in talking about. But to grant your word centralized, we the word centralized is not something that we like Sandoz or anyone would. But at the same time, a market mechanism to incentivize backup is probably necessary.
Thanks.
Thank you, Grant. The next question comes from Jeremy Kinkade from UBS. Please go ahead.
Good morning, Mark and Chris. Firstly, just a couple of questions around the gas markets. I suppose, could you give us some color around what the Genesis Health's view is around long term gas prices? Obviously, there's been a few structural changes in the market. And I suppose whether or not your view differed to the view of potential sources of Kupein, whether or not that was an issue in the strategic review process?
I'll start and Chris can turn me once. We don't really disclose a house view on pricing of any market in the forward sense. That would be pretty risky and probably be wrong. In terms of gas supplies, I feel the same way I did 6 months ago and a year ago. We're living through a period of short gas supplies.
Demand is very tight. And unlike electricity, there isn't another unit you can just turn on quickly. So we are physically a bit short gas moves in right now and therefore gas is going to the highest value users. And earlier in the year, that was electricity generation was a high value user and methanol was a less low value user. But we the demand for gas exceeds supply right now.
Over the next 2 to 3 years, we're going to see a bit more supply come online. Pupae itself will be up to maximum again by the end of September because of compression and there's a bit of drilling going on by competitors. And so I think we will see some relief in the 2 to 3 year horizon in the short term. In the meantime, every time we have low hydro levels, low lake levels in New Zealand, we're going to see an inflection in electricity pricing because of that short gas position. So yes, and in terms of coupe, Chris, you can answer this, but the gas price was not the most relevant thing in anyone looking at coupe because we wanted to contract all the gas anyway and we had determined the price of those GSAs.
That wasn't a real big issue when it comes to value of Coupe. The real issue is perspectives on future development opportunity and that's where we're quite positive partly because of what we know about New Zealand's needs for gas over the next 5 to 10 years.
Nothing to add to that, Matt.
A couple of color. Thanks.
Second question, Chris, potentially, could you give us some color around how much headroom there is with your hybrids before you get start breaching the credit rating thresholds?
Well, the hybrids are based on being a BBB plus credit rating company. So if we if that was no longer to be the case, next time they come up for a reset, they could be repriced. So the BBB plus credit rating band is typically 2.4 to 3. On a normalized basis, we're about 2.8 and heading down. So it's not something I'm concerned about.
Right. But is there a limit to how many hybrids you can have before that threshold gets breached? Or am I mistaken?
Sorry. We're at the limit in terms of the hybrids that are on issue at the moment, Jeremy.
Sure. Understood. Okay. Thank you. All the best in the future, Chris.
That's all for me.
Thanks, Jeremy.
Thank you, Jeremy. The next question comes from Andrew Green from Forsyth Baer Investment Services. Please go ahead.
Good morning, Mark and Chris. Haven't been named for a very long time. Hi, Mike. Can you hear me now?
Yes.
Yes. Okay. Just said something in the background, I wasn't sure if it just wasn't live before. First question just around Coupe and got a couple around that. Are you open to, I guess, exploration investment as opposed to development of existing resources, but actually where there are reasonable exploration opportunities there and your, I guess, preparedness to participate in the exploration?
It's too early for us to give you a clear answer on that, Andrew. It's development is the first stage and that's obviously a lot more risk. We're a long way from too long exploration. But if it made sense, if the risk profile made sense and if it was right for Genesis and we saw a market in the positive value case, we'd of course consider it. We don't have to participate.
So if other joint venture partners wanted to, the joint venture agreement allows us to split. So we wouldn't be dragged through. But we'd always look at all investment opportunities in all parts of our business with a commercial eye.
Yes. Okay. And I guess it's kind of linked to that. I'm just thinking about gas needs at the back end of the decade and how much gas, I guess, you're looking to actually contract for given hit the slide here around the decline we're going to see at Rankins. I would expect to see something similar at Unit 5 in the back end of the decade as well reducing your gas needs.
So if you could just sort of provide a bit of color around that?
Well, yes, we can't guide the second half of the decade at this point, but your general thematic is correct. As we deliver more renewables into the system, we'll need less gas when we need it, we'll really need it. So it comes back to flexibility of gas storage and the right market settings and that's all to be worked through. For the next 5 years, we're reasonably comfortable. But yes, you're picking in the right amount there.
Just to build on what Mark said, Andrew, we've got Kupe produces 20 to 25 petajoules a year, and we own half of that Unit 5 at full load. That's at 18 to 20 petajoules a year. So our component of the gas, we're 50% of Kupe's output, call it, 10 petajoules a year, for the duration of the reservoir. We've got choices to contract more, but we're not we're very unlikely to end up long gas just with the gas that we own, before Kupe runs out.
Yes, okay. My last question just on Kupe was just I think, Chris, you mentioned you might need 2 development wells. I think that's the first time I think I've heard that there might be a need for 2 wells as opposed to just one.
Yes. Look, the base case is one well. What I was really referring to is if at that time the joint venture decided to do any further exploration, that's the time to do it. So to Mark's point,
we don't
have to participate and we haven't ruled it out, but it's not our base case.
Yes.
Yes. Great. And last question is just to give a bit of clarity, I guess, around the CapEx guidance, which is obviously a big step up on the underlying number. In terms of that 95,000,000 that does that is all stay in business. There isn't any what you described as a growth CapEx in there?
No. And that's not a big step up. Last year, we well, we've been spending circa 85 ish in the last 3 or 4 years. So yes, it's a little bit higher, but we're leaning into the rubik's the billing replacement in the next year, and we've still got a big program at in the generation fleet. So there's still a big chunk of that is staying business.
Our guidance was $50,000,000 to $70,000,000 So we'll be within guidance of $50,000,000 to $70,000,000 That's staying business and the balance is growth capital.
That's what you described as growth. Yes. Okay. That's good to hear. That's all for me.
Thanks. And I'll join the chorus, Chris. All the best there loads to.
Thanks, Andrew.
Thank you, Andrew. The next question comes from Neville Gluias from Jarden. Please go ahead.
Good morning, team. Several questions for me. Just the first one, simplest, I think. Your legacy gas contracts sort of helpfully in the money now, I would imagine. In your FY 'twenty two guidance, sort of this do you have any, if you like, earnings uplift, uptick out of those contracts?
I can answer that one. So the legacy the way we describe legacy gas contracts is both purchasing gas but also selling gas. So we also had some longer dated gas sales at very low prices, and those are going to roll off this year. And so yes, there will be there's a small earnings uptick as a consequence of those gas contracts rolling off this year as well.
Sorry. No, I mean, to be just to be clear, whether or not they actually contributed to EBITDA as opposed to detract it from EBITDA this year?
Sorry, I don't fully understand the question, but it's factored in this year. We they will contribute to the roll off of those contracts will contribute this year.
The point that is the rolling off of the sales contracts that contributes because they were signed at many prices. Yes.
Yes. So your contracts the point is your contracts were locked in at pricing sort of years ago as opposed to the price seen in the last year or so?
That's right, out to the end of this calendar year.
So as
those roll off, we'll get half of
the year of the year.
Great. Thank you. Okay. Second question, you sort of mentioned you didn't really want to give your view out on gas price or carbon, but I'm assuming that we should read your sort of $70 a tonne for carbon and $8 a gigawatt for gas is sort of roughly approximating your forward view for FY 'twenty five on those?
Well, I think that's the Climate Change Commission's view, dollars 70 by 2025 from memory. That's why we picked that. That's on our view. That's just what they think it should be at by then.
Okay. That's useful. Thank you. And the solar PPA or sorry, the solar development options, just interested to know whether you've landed yet on whether that's sort of 5 PPA or sort of co investment model or just sort of you flagged that there were some different models around that. Can you clarify that, that'd be great.
It'll definitely be a joint venture between us and another party. And Genesis will sign a PPA with the joint venture. So that's one of the strengths of it, that Genesis can back it with guaranteed offtake. But Genesis will also be an equity holder in that partnership.
Great. And so what's the proportions fifty-fifty, any kind
of We'll announce that when we announce the partner.
Okay, great. Thank you. And really the last question or series of questions, which goes, of course, to the item 4 of your future chain strategy. To start off with the main question, I mean, are Unit 5 and the Rankin sort of 2 is the minimum running too large and the time to start too long to fit into the flex generation future? And is that why they need potentially an underwrite from the capacity market?
I think there's different dynamics there. So Unit 5 is becoming increasingly flexible. We've done some good work with Mitsubishi through the last maintenance rounds, where we think we can run even lower and more flexibly than in the past, and that's going to provide some more capability as we go forward. But that's not a topic. The 9th August was an exceptional circumstance in New Zealand.
It was pretty rare. So we've got to be careful we don't overemphasize that in thinking about what's needed going forward. But the truth is, it takes 6 to 10 hours to get a ranking up and running. So if the market signals are not there at the time at which that decision is made, then it's not a solution to a short term supply gap. And so we will need to think about as well as our competitors whether there needs to be more gas peaking than thermal firming, which is really what the ranking is there to do.
Unit 5 can run up and down quite considerably. We've also got Unit 6, which is a 50 megawatt peaker. But that night, which was the highest demand ever in New Zealand, they were all on already. So what we're seeing is a thinner layer of thermal capacity in New Zealand and that thermal layer is getting thinner. TCC was off.
And at the end of the day, we're going to have to work out as a market how much do we need to be available for those moments and what kind of dynamics is it needed to support. But I don't want to confuse a 1 or 2 hour short period with what the rankings actually provide is a multi week, multi month energy security offer. The amount of hydro conserved over 6 months between January July was phenomenal, which enabled more hydro to be able and be available into the beginning of this winter and avoid much bigger problems and that's really what those rankings solve for.
Got you. I presume then you'd be in favor potentially of the HVDC upgrade in terms of increasing that sort of supply security to the North Island?
I don't know at this stage of what that's going to cost at the end of the day. All these things have trade offs. But one thing we do need to make sure we're careful of is putting all our eggs in the South Island basket when it comes to generation.
Right. Okay. That's useful. Thank you. Other ideas and I think I guess what you're flagging and what we're all becoming aware of is this sort of a multitude of ideas out there for setting that role in the second half of the decade and potentially beyond.
What are your thoughts on the potential for LNG import?
It's definitely possibly a solution to New Zealand being short gas. It would be a disappointing outcome for New Zealand when there is gas in the ground to have to build an import terminal. But at the end of the day, if the consequence of not building it is we're going to be short gas, then it's the least worst option. I don't think it's straightforward. I mean, you look at Australia, they've tried to build 2 of those and they've had challenges around consent to getting approval in any projects off the ground.
But it is relatively more cost effective than export. So I think it's a plausible future for New Zealand. But it will need to be combined with gas storage and the ability to have flexible gas supply as a result.
Great. Thank you. And really the last question is for me. Just to clarify a bit more on Grant's earlier question around, if you like, a capacity market. I mean, is your view that this is a capacity market mechanism in some form can emerge, if you like, spontaneously from the market participants now?
Or is that something you think should be rule based and administered by some kind of central agency or mandated by central agency? Or is it something that can happen via market agreements? And just to follow on on that question, that is my last question. Are you involved with the sort of Contact Thermo co engage with that at all?
I'll answer that first. We're not involved in any discussions with Contact. We're open to their ideas, but we're not in a discussion with them on it. Genesis' strategy is to be that thermal co backup provider, so we're open for business. But when you talk about a commercial solution, I don't think there has ever been a commercial solution in New Zealand that has involved all parties.
I find it almost impossible to imagine 5 or more interested parties coming together within the rules of competition to agree a market solution. Even the last round of swaptions, Mercury didn't participate, Trustpad didn't participate. And so if you're meridian and contact, you don't like the fact they're free riding off the back of it. So Genesis will open to is open for negotiations to anyone that wants to contract for the long term. But at the same time, we're not going to spend a lot of time on it if the appetite is not there.
And so for that reason, we're not afraid of any regulatory or government driven solution. It may be the best thing for Genesis shareholders. It might be the simplest thing to implement and it might ensure that everyone shares the cost of that either be through the tax take, through electricity bills or through generators who pay and avoid a really, really complex multiparty solution. So we're open for that idea too and we shouldn't we don't think anyone should be afraid of it. I think there's a bit of fear of that that somehow constitutes government intervention, but it's happened all over the world successfully and sometimes unsuccessfully, but it's not something we should discount as a viable path in New Zealand.
Hopefully, it could be a little
bit more obvious to be
about the market solutions. I've noticed the recent commentary from both Contact and Meridian certainly points to the idea that they think thermals need to be retained for quite a bit longer for that flex roll. So I guess there's more water to run under the bridge there.
But thank you very much. Yes.
It's Howard's paid for. Howard's paid for is the question and no one wants to pay for it and let others have a free ride, so it might require central solution.
Great. Thank you.
Thank you, Neville. We have no further questions. So I'll hand it back over to Mark for any additional or closing remarks.
Thanks for listening. I think we've gone well over our time, but good engagement, good questions. This is the last public moment with Chris. Some of you will see us through the roadshow, but I want to thank Chris publicly for his time at Genesis. He's been an awesome CFO.
We've been a good partnership, and you've all enjoyed the double act we provide as we go around the traps, and you will see that for the next few weeks too. Look, Genesis has a really bright, awesome future. We're really committed to playing our role, decarbonizing New Zealand, decarbonizing our own portfolio and taking our own accountability for that. And we want to make sure that there is an honest conversation and a good conversation with all stakeholders about the direction the electricity sector goes and how this electricity sector can help New Zealand decarbonize. The events of the 9th August, which have probably been overtalked already, are disappointing, but they're also an opportunity for us to all sit up and think about how we help this market work for the next 10 plus years.
And so that's the opportunity that we now have. With that, I'll end and look forward to seeing you all as we go around our roadshow.