[Foreign language] and welcome everybody to the Mercury 2024 Interim Results presentation. I'm Vince Hawksworth, Chief Executive, and I'm joined by William Meek, Chief Financial Officer. So we'll go to slide three. Our business performance and major events slide. First half, 4.5 TW of renewable generation, and a big contribution there from Turitea full year and Kaiwera Downs Stage One. In fact, hydro representing 46% of our generation in the first half, so showing the importance of our portfolio expansion. Full year, we're forecasting 8.8 TWh. Important event in the first half was the migration of mass market customers under the Mercury brand onto the Gentrack platform. We now have a single retail platform, and this will allow us to continue to grow our position as a leading multi-product utility retailer.
As I mentioned, you know, the reflection of Kaiwera Downs Stage One coming in on time and under budget means that that 43 MG, 147 GWh project made an important contribution in the first half. We also committed to OEC Five, the new unit at Ngātamariki. That expansion will have annualized generation of 390 gigawatt hours and adds 46 megawatts. That commitment being important in growing some base load into our portfolio. We've had some challenges on geothermal drilling, and that campaign has been delayed, and we're currently in the process of, negotiating an alternative drilling contractor.
When you add that all up, what that means for us from an FY 2024 perspective, is we're increasing guidance to NZD 880 million from NZD 835 million, EBITDAF, and, we are announcing a NZD 9.03 per share interim dividend, and maintaining guidance at NZD 23.03 per share, which is the 16th year of, dividend growth. So turning to the next slide, I suppose we, we understand that, a safe, workplace is a productive workplace, and, is an important thing that underpins everything we do.
The graph shows, the data, of which is obviously lagging data, but more important than that, I think, is the work we have initiated and continue to work through that addresses critical risks in the, in the business, those business risks that can seriously harm people, contractors, members of the public. We are currently 36% of our way through a deep dive critical risk program. We have completed all of the outstanding improvement notices that, we have had from WorkSafe, and we are very focused on increasing, our process safety program. As, as you'll be aware, we had an event at Rotokawa, a steam hammer event in July 2021. Recently, we pled not guilty to those charges, but I do want to emphasize that that is in the context of continuing to engage with WorkSafe around an enforceable undertaking.
Safety, coming early in this presentation, I think emphasizes the importance that we and the board see with that. I'll pass to William to take us through the next few slides.
Thank you, Vince. So we're on slide five now. I'll just talk to some of the key financials of the half year. We had a strong trading margin performance, so it was actually a lift of NZD 14 million against the prior period. Trading margin is essentially revenue from our generation and retail business, less direct costs. Our hydro generation, we had a record hydro generation in the PCP. So hydro was actually 663 GWh lower, coming in at 2,072 GWh for the six months. Geo was very similar, just up 11 on the PCP, and but our wind portfolio performed strongly with higher output from our new wind farm at Kaiwera Downs and a full six months from the Turitea South wind farm.
Overall generation volumes were down 331 GWh, but nevertheless, the strength of the portfolio performance showing through in that trading margin uplift of NZD 14 million. Operating expenditure was up NZD 31 million on the prior comparable period, 2/3 of that related to wages and maintenance. I'll come back to that shortly. EBITDAF at NZD 434 million, so NZD 17 million lower than last year's, which was a record performance for the company. Net profit before tax at NZD 174 million, so down again, largely due to higher depreciation, higher interest costs. And we saw quite a significant net change in the fair value of our carbon units held for trading.
Our operating cash flow was also down, pretty much all explained by higher cash interest and tax payments over the period. CapEx was up on the prior year, both same business and growth, so good to see strong progress in terms of the rehabs at Karapiro, our the last station on the Waikato River. The start of a geothermal drilling campaign, which Vince will talk to shortly. Completion of migration of customers in our retail integration project, and turnaround at Kawerau, which saw a new turbine and generator installed, and that's running fantastically. Growth investment up on the back of those completion of the Kaiwera Downs Stage 1, and OEC 5, so the 5th unit at Ngātamariki under construction.
Our dividends at NZD 129 million, so up nine, and with our DRP operating with a 2% discount. Turning to page six. Just a really simple bridge from between the two half years. So really bridging that NZD 17 million, fairly self-explanatory. Generation volumes down 331 GWh, so 0.3 of a TWh. So lower hydro, higher wind. We saw a strong performance in our retail position with higher pricing outcomes in both mass markets and commercial industrial, so adding positive NZD 33 million. We saw electricity derivatives move adverse 11, really due to the impact of higher prices on the sales position. We've seen quite positive LWAP versus GWAP outcomes.
So LWAP matters in terms of what we buy energy from the market for. GWAP is what we're selling from our power stations to the market. So we saw about a 2% movement there, 104-106. That's on quite a big numerator, so essentially that applies to, on an annualized basis, an 8,000 GWh base. So that's also driving our guidance upgrade, which we'll come to. We saw lower trading gains. We did get an increase in transmission charges from the new TPM, but those were offset by improvements in terms of settlements from the loss constraint pool. And operating expenses down 30... sorry, up NZD 31 million, explaining that NZD 17 million bridge.
Slide seven, a bit of a deep dive here on operating expenditure. So, an increase in retail capability, so some of that, headcount driven, a call out there around the, NOW Broadband, acquisition. So there's about NZD 4 million, of that NZD 8 million, due to a, full six months of NOW. Retail integration, is called out well on this deck. So again, celebrating a migration of customers, to Gentrack. We saw an uplift in, in maintenance capability, NZD 6 million of that, due to, new wind operations. So again, at Turitea South and KD 1, and then we saw increases, in our, insurance costs, and on, several landowner agreements, bridging that NZD 31 million. Movement of debt, so really just bridging our uses of the EBITDAF.
We can see that's a big investment uplift both in steady state business and in growth, and those two new power stations. Interest, dividends paid of NZD 157 post-DRP, NZD 19 in other capital. So we saw a NZD 76 million increase in net debt over the period. Back to Vince. Slide 8.
Thanks, William. So Slide eight talks a little bit about where we're at with the generation development pipeline. The obvious project that we've been advancing for a while now is Kaiwera Downs Stage 2. That we still expect to bring to final investment decision in this financial year. We have been working through a site, site optimization process, and that has dropped annualized generation, but we believe that will be the best economic investment that we can make. For some time now, we've been talking about the Kaiwaikawe Wind Farm.
We continue to work that towards a final investment decision, more likely to be early in the next financial year, largely because of delays to the procurement, supply chain issues, and also construction logistics, which are a factor, I think, for development generally in New Zealand as the world gears up to try and decarbonize. We are reviewing our Mahinerangi Stage Two Wind Farm project. We've had that resource consent for a long time, and we're looking at a sort of technology improvement that is likely to require some resource consent amendments. We continue to look at Puketoi and Tararua repowering. We have a number of other prospects in the pipeline, which at the moment remain commercially sensitive as we close out arrangements with various parties.
But we think we've got plenty to do in the short to medium term. If we go to the next slide, I guess that just summarizes on Slide 9 there, the progress that has really sort of changed the portfolio of our generation portfolio as Turitea South added to North with Kaiwera Downs, plus the projects that we picked up through the Tilt transaction, and then with Ngātamariki coming on board. So a much more balanced portfolio than we had three years ago. So going in a little bit more detail on Slide 10. So the Ngātamariki project, still on target for first generation, late in calendar 2025. That will take the Ngātamariki station from having four Ormat Energy Converter units with 86 MW total capacity. That'll add a further 46 MW.
That's a NZD 220 million project, and adds 390 GWh. We're well advanced on this detailed design, and the manufacturer is advancing, and you can see there the completed, called condensers, long lead items, underway. We are currently expecting that to be delivered in the time frames that have been outlined, although we are keeping in close contact with the supplier regarding the situation in Gaza. Kaiwera Downs, Stage 1 , fully operational now. Really pleased with the way this project turned out. The learnings from Turitea were really important in, in how we approached the project, and Stage One is completed. It's up and running.
I think you can see from the photograph there that it looks pretty smart, and we continue towards working towards Stage 2's final investment decision. So moving to our retail business. As I mentioned in the sort of summary up front, you know, a real highlight for us was moving the customers, the Mercury customers, onto the Gentrack billing system and completing that towards the end of the last half year. That did mean that we reduced acquisition activity for a period through that transition. That made sense to us to make sure that existing customers were successfully migrated. We're now in a position where we can recommence acquisition activity. That single technology stack gives us the platform for enhancing choice for customers.
Effectively means that no matter what, platform you were on before, you can now, start to access the products that both the previous, Trustpower brand and, and the previous Mercury brand had. Importantly, we continue to, work diligently towards, getting the synergies that we put in the original announcement, and, we, we remain confident about that process, completing in FY 2025. You know, at present, we expect to spend about NZD 44 million relative to the NZD 50 million forecast, and you've got the numbers there for what we've done to date.
I think, what's really exciting for us is, this is completely, you know, driven internally by our people, and, we've, we've developed a lot of capability in doing these sorts of projects through, through this work, and, it's quite unusual for a technology integration like this and a brand integration to, really deliver very close to the timing we expect and, and to be on track to deliver, the benefits that were described. I suppose if I were to go to the next slide, slide 13. Why is all, you know, why is all of this important? Why does it matter? Well, you know, this table here, or, you know, chart, shows the potential growth in renewable electricity required by 2050 under the BCG report, The Future is Electric.
Of course, it may not play out like this, but it is critically important for the business to have developed strategies that play to this potential. You know, if renewable electricity is to account for 58% of New Zealand's total energy demand, that's how you end up needing 30 TWh. So that really is... When we say 58% of total energy, we're talking obviously about a lot of thermal fuel being converted to electric fuel... This does require a real collective action. It will require disciplined deployment of capital. In this environment, real long-dated options are important. We see throughout the globe real examples of governments and regulators accelerating this investment, whether that's the IRA in the U.S., New Deal in South Korea, or the E.U.'s Green Deal industrial plan. So that does put pressure on supply chains.
I'm gonna pass back to William now, to go into a bit more detail on the market.
Thank you, once. We're on slide 14 now. So there's a couple of charts here, one showing the 3- year forward price. So the futures curve in Auckland, the other, the NZU or the carbon unit price track from July 2021 through to January 2024. So, futures market still elevated, really reflecting, well, a whole lot of variables, but cutting to the chase, the tightness in gas deliverability, feeding through into thermal offers, which are ultimately driving pricing around the NZD 150 per MWh mark. We have seen, we are seeing peaks growing. Demand is up very, very marginally on the PCP, so that's positive.
Certainly, the outlook is for stronger demand growth as that increased electrification, decarbonization theme picks up speed. We see carbon prices, so the carbon auctions last year were quite unsuccessful, so we didn't see any of those clear throughout the year. Certainly this, the new government is looking to the ETS to do heavy lifting in terms of incentivizing moves to more renewable energy. So the March auction for NZUs certainly will be very interesting. There's certainly some quite high carbon inventories out there at the moment across people that hold those. And obviously, the cost to carry for carbon is also high with higher rates, so it will be interesting to see how carbon prices trend.
But what these prices ultimately tell us is that sort of more renewables are required, and ourselves and the sector are certainly moving mountains to bring new capacity to bear, so to ultimately displace higher thermal costs, and see those energy prices come back. A slide around hydrology for the year. So this is familiar to most. So certainly a very different year in the Waikato catchment and at Lake Taupō. For the half year, you can see last year we were bouncing frequently along the top in that dark blue line, getting very close to the maximum controllable level. That's the consented level.
So you saw in January last year us frequently reaching the top. This year, it's been quite different. We can see every single month has been drier than normal, reflected in that lower hydro production. We tracked the mean storage level for Lake Taupō through Q2. We had a wet spell there during the Christmas, New Year's break, so we saw quite a sharp increase in the lake level, really setting us up for the drier months of sort of late summer and autumn, which is good. So we've seen wetter conditions in January and February to date. There's a lot of volatility in futures prices versus spot.
So we saw the start of the year, futures market was predicting prices in the, let's say, NZD 200 range. And given what was happening hydrologically in the South Island, we saw prices fall back to NZD 120 in July and almost NZD 150 in August. We saw futures and spot prices track sort of within kiwi sort of the back part of that year, and then we saw spot prices escalate sharply and diverge away from the futures price three months prior. So some interesting volatility there around futures prices being both higher and lower than actual spot price outcomes, which in the short term are hugely affected by plant availability and particularly national hydrology.
So I'm turning to some of the operational highlights and issues that we're dealing with. As I mentioned earlier, you know, the geothermal drilling program, we have had delays, and we are in the process of rephasing that. We are also in the process of negotiating with an alternative drilling rig contractor. We still intend to complete the 8-well geothermal drilling campaign, and that's important to sustain both capacity and also ensure that we are ready for OEC 5 at Ngātamariki. To date, expenditure's been NZD 46 million, and based on the revised schedule and the costs, we expect the campaign cost to be a further NZD 114 million through to FY 2026. So totaling NZD 160 million. That is a step up.
However, what is going to be important is that the holes are completed and give us the ongoing fuel that we need for our geothermal stations. Turning to the next slide, which is slide 17, I mean, a key thing about our existing assets is ensuring that we continue to invest to enhance and optimize, particularly increasing efficiency and flexibility. We have been investing in control systems at Ngātamariki and Kawerau. This supports our pathway towards centralizing our control room operations, and we've been in the first phase of that by centralizing Ngātamariki and now Kawerau. As we then work through with our operations teams, and working through training and planning, we will bring all of those sites together.
Importantly, we have a long program of refurb work on the Waikato River. The important thing there is that as we do that refurb work, we turn our minds to increased efficiency and increased opportunities with the water that flows. The picture there is a runner from the Karapiro Station refurb. If you were to set that runner against the one that came out, the one that came out would look very agricultural. This has the benefits of computer-aided design and modern technology. When these projects, the three machines are completed, and we're halfway through the second machine, we'll have an increase of capacity at Karapiro of 17 MW, really important in the context of peaking, and average generation will go up by 32 GWh.
As William mentioned earlier, you know, on the completed unit, that's been operating really well and meeting or exceeding expectations. So, we're pretty pleased with how that project's rolled out. Of course, we've talked a little bit about retail integration, so on slide 18 now, we just show that the total connections across all products have increased by 17,000. However, you know, we're now in a position with the integration to really focus on some of the benefits as well as achieving the cost synergies that the program is working on. We can now look at the benefits of providing products to all of that customer base, which gives us opportunities, particularly in the telco space.
So we're pretty pleased to be in this position, and that has helped us. Looking forward, the high forward curve is seen as prices have reset in C&I. We've seen the increase in yields, and that's flowed through, and also our sales yields in mass market. As William mentioned earlier, the challenge in pricing is that transmission and distribution prices will continue to elevate as interest rates and resets flow through for those businesses. So we take a long-term view on how those flow through to customers, as and try to think about that, as a longer-term process rather than too much price and bill shock. So I'll pass on to William to take us through some of the balance sheet stuff.
So now on slide 19, Mercury's capital structure, we're operating at the good end of the 2x, 3x credit band from S&P for a BBB+ entity. Net debt at just below 2 yards, so NZD 1.983 billion, so up 76%. Certainly, having a balance sheet to fund major renewable generation development is important, so certainly, our balance sheet puts us in good stead for that funding of our renewable program. Just to call out there around the DRP being active for the interim period.
Just debt diversity, so quite a very diverse profile of debt with maturities right out to 2052 or 2050 for our capital bonds, if held to their 30-year maturity. We are planning for NZD 300 million capital bond refinance in July this year, so that's in train. So more to come on that, but yeah, again, very happy with those different funding sources, both domestic and offshore, to provide that balance sheet strength. Just a bridge on guidance on slide 21. So we've issued guidance and have confirmed that throughout the year at NZD 835 million. Guidance with these results is up to NZD 880 million. Various components to that.
We're expecting to see our geothermal output down slightly. We've talked to these price outcomes, certainly in terms of time of use, price outcomes in the market, both for energy purchase and generation supplied, contributing over NZD 40 million of that uplift. Stronger outcomes in terms of our pricing to commercial and industrial customers. Settlement residuals relate to loss constraints. The market's been very interesting. I think the FTR option premium settlements for the gross market have been NZD 21 million out of the money. So that's NZD 21 million that effectively feeds back into the LCE pool for distribution back to parties facing wholesale prices. So, that's been pretty interesting with the lower prices, particularly in July and August versus futures.
Then we see an uptick there in operating expenses against what we guided initially at NZD 835 million. But yeah, very pleasing to see EBITDA guidance at NZD 880 million for the full year.
Thanks, William. So to sort of wrap it up, before we move to questions, summarizing the first half, you know, important announcement with Ngātamariki for, you know, our, our future generation, completion of Kaiwera Downs, strong trading margin that is reflective of the portfolio, and, you know, comparing with PCP with much higher hydro, lower hydro, but still a strong trading margin. Challenges in geothermal drilling, however, we'll get that back on track. NZD 0.093 interim dividend declared. Yep, higher operating expenditure, expenditure, inflation, full period of NOW, new wind generation coming into the portfolio, maintenance, and, insurance costs. So some headwinds that I think many are experiencing. Retail integration, done and dusted.
As we look forward, you know, looking forward to being able to move Kaiwera Downs two forward to investment decision, using our single retail platform to now grow our position as a leading multi-product utility player. Getting an alternative drilling rig contractor in place. We continue to work hard at advocating for a whole of system view of the transition. That's, and we will continue to do so. New Zealand can't be successful in this space without the full supply, you know, the full value chain working together to get both distribution, transmission, generation, and customers all lined up, and that is critically important in our view. Dividend guidance unchanged, EBITDAF guidance updated to NZD 880 million, subject to hydrology, as William's just explained, CapEx at NZD 135 million.
So, yeah, good, good, it's a good half year with a lot of work to do, wood to chop in the next half, but we're feeling very positive about that outlook. We'll close and open up for questions. Thanks, operator.
Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your telephone. Again, to ask a question, please press star one one. One moment for our first question. Our first question comes from the line of Grant Swanepoel of Jarden. Your line is open.
Good morning, team. Can you hear me?
Yep.
Yep.
Fantastic. Great uplift in your, your EBITDA, but can you just help us on what is one-off in that and what is more organic? So the GWAP, does that normalize out as we move into the following years? Also, the LCE rental rebate, so that change in the ruling, where the lines companies used to collect that, not just sales, it came through April last year, did you factor any of that into your guidance initially? And does that number, do we get put NZD 4 million-5 million into our forecast into the future for that change in the rulings?
Yeah, I'll have a crack at that question. So, yeah, we have GWAP. It's quite volatile. So it's, yeah, if you look across the last five years, yeah, it does move around quite a lot. This year's been certainly favorable. I wouldn't bank on it reoccurring every year. But we certainly have seen some benefits in terms of you know, the leveraging the hydro system during peaks. The Waikato's done a pretty good job in that, and we certainly have seen on the demand side with customers, their profiles generally don't respond to pricing. They're just driven by temperatures and underlying activity. And so that's...
It's just, you just don't get a correlation between price like you do, with our generation portfolio, so that's been positive. The loss and constraint stuff, yeah, it is a, it is a change in, in terms of the way those are distributed back to parties. We had accounted for some of it, but it's, it's increased. So that call out around the FTRs, that has increased, the sort of loss and constraint residuals, because those premiums, so effectively the people that have bid for FTR contracts have overpaid relative to, relative to settlements to the tune of over NZD 21 million in a half year. So it's quite a, quite a big number. And again, most of those rentals are driven by, losses on the grid.
They are marginal, so when you do get higher prices, then essentially those rentals do expand and contract. So again, they've even got higher volatility than our actual LWAP. So, very, very difficult to forecast. But certainly, in the short term, we can't see drivers for those either the price yields or those loss and constraint rentals to change materially, certainly for the next four months. Which, so we've extrapolated those through into our latest guidance.
Perfect. Thanks. And then the NZD 160 million CapEx for the 8 drill holes, do we now think of your drill program over the longer term at NZD 20 million per hole, and you do about 1.3 over time? So does your maintenance CapEx over the longer term go up, or is there just some sunk costs due to changing supplier or driller?
Oh, I think there's a combination of both. It's yeah, certainly, it's not ideal having to change horses midway, but it was a decision that was necessary. We're still, we're still in the process of negotiating, with, with an alternative supplier, so that's still, still in train. We're certainly seeing price escalation, certainly casing costs, those sorts of things. They do fluctuate. We'll see whether global supply chains, sort themselves out when we, we get some price reductions into the future. But yes, at the moment, based on the current cost of drilling, that will, that will lift, CapEx attributable to our geothermal plants. It's not just drilling. I mean, that includes, that 160 includes essentially connection, so the piping networks to site.
So again, that can vary depending on where on the field you're actually drilling holes, how distant from,
Right
... from the plant, or whether you can utilize an existing pipe system.
Okay. With pulling back the KD 2 output by a few gigawatt hours, can you talk to how wind costs are changing at the moment? Whether it's still feasible to put wind up in this country at the moment?
Well, I think it's still feasible on the better sites. So it is quite site specific. So yields matter much more in a high CapEx environment than in a lower CapEx environment. So I think it does become very project specific, Grant. The issue with KD 2 is simply a layout issue where we can optimize for yield against the amount of CapEx put in. So the incremental benefits of the additional turbines don't make sense against their operating yield in is kind of where we've got to. Certainly on lower yield sites, the current sort of trajectory for wind turbines is pricing is makes them more challenging than they might have been four or five years ago.
Excellent. Thanks. And a final question just on the elephant in the room. How are things going with Tiwai? Are you still prepared to supply a South Island wind farm to them, and is there any timeline on that outcome?
No, no real out information I've got on timeline. I think we've been pretty consistent to say that, we're happy to keep talking with Tiwai. I think one of our competitors was much more effusive yesterday, and I'll probably leave it at that.
Thanks. Thanks for answering those questions.
Thanks, Grant.
Thank you. One moment, please. Our next question comes from the line of Stephen Hudson of Macquarie Securities. Your line is open.
Hi, guys. Just a couple from me. I just wondered if you can give us a feel on the geo drilling campaign. There's a 25% increase in the cost there that you've noted today. Just, just how much of that is scope versus inflation? I've got a couple of other follow-up questions, but if you can give us a feel for that, that would be useful.
I think, Stephen, as we said, we are currently just negotiating with an alternative contractor. I think when that gets a bit more advanced, we'd probably be able to give you a better feel for how those things will play out. And the scope versus inflation-wise is it's probably more the latter than the former, but because of the different approach that comes in in having an alternative contractor, that will have an impact as well. But we'll probably have more to say on that at the full year.
Okay. Thanks, Ben. Just sort of continuing that theme, I guess, we saw Vestas largely pull out of the global EPC market, I think, beginning of last year or late the year prior to that. Are they still out of the EPC market here in New Zealand, essentially?
I probably couldn't really give you a categorical answer on that. Obviously, Kaiwera Downs was not an EPC contract. We're pretty comfortable with the approach that we're taking, which is not EPC. Whether they, whether they or any other supplier would choose to do EPC in New Zealand, we haven't engaged them on that basis.
So, your expectation is that KD two would not be full turnkey or would not be full EPC?
Correct.
Yeah. Just on the decision for KD 2, perhaps to try and ask the question in a slightly different way, is it, is it contingent on an offtake arrangement being put in place?
It'd be contingent on, demand in the South Island not falling through the floor.
Sorry, my question is: Is it contingent on an offtake arrangement being put in place?
Yeah, I heard the question. I just said- I mean, the, the point I'm making is, clearly it won't go ahead if there isn't enough demand, and, we're probably not in a position to talk about the other, part of the question that I think is implied.
Yeah. Okay. No, no, get you. And just on guidance, can you give us an update on what you're expecting for Trustpower Retail? That's my last question.
Sounds like a William question. He says, throwing him below, pass out the scrum.
Sorry, what, but what aspect of Trustpower Retail?
Oh, just what the contribution in your EBITDA guidance is, what you've baked in for Trustpower Retail?
Well, it sort of doesn't, doesn't work like that anymore. It's all, it's all just become Mercury.
Okay
... with the low, so-
No, split out?
No, no. So once they all went into the same pot, they just, they all... Other than those that are in the tech area, you haven't got- they, they just- they're all Mercury customers now. So we're still-
Yeah.
In terms of, you know, the synergies that, that's a huge focus from here on in, in terms of just working through those. We're confident we can deliver the synergies so that of the business case supporting the original acquisition. And then the integration costs, we've signaled at NZD 50 million. Again, we're on track. I think it's 43, I think it was, in the deck, spent to date. So a few more things to do so we can reduce licensing costs, those sorts of things. But, yeah, it's well advanced. We're very pleased to have migrated all those customers and seen no discernible change in churn. So the, you know, the slight reduction in electricity accounts, largely driven by reduced acquisition activity.
It's just difficult to be onboarding customers when you're trying to migrate customers onto a, onto a new stack. So, but we don't have that impediment now, so we're, we're back in.
That's useful. Thanks, Will and,
Thanks, Steven.
Thanks, Steve.
Thank you. One moment, please. Our next question comes from the line of Andrew Harvey-Green of Forsyth Barr. Your line is open.
Hi, morning, Vincent and William. A few questions from me, more around the guidance. First question around the guidance: Are you able to give us an idea how much was baked in or has effectively occurred in the first half versus second half? Or I guess another way to think about it, what were you- what was the first half you were assuming in your original guidance?
I don't actually know. I'll have to come back to you on that.
Okay, it's all good. Second question is just around OpEx. There's sort of, I guess, been another step up there. Is there much of that OpEx increase we could describe as one-off, and I guess, sort of flowing on to what we can think about for FY 2025? It looks like we're heading towards about NZD 390 million for this year.
There's always things that are infrequently recurring. There's not very many examples of things that are just one-offs. So yeah, you can see the key drivers of the change are sitting in two areas, employee compensation and maintenance. So those are two areas that we've got a laser focus on in terms of how we manage those costs and how we get maximum value per dollar spent. So yeah, we're working through how that OpEx trend looks for the future.
That being said, the retail business is well advanced in terms of its planning in terms of delivering the efficiencies from bringing two retail businesses together a year and a half after we acquired them.
Yep. Okay. And last question around guidance. I think at the full year, you talked about insurance proceeds of around about NZD 18 million you're expecting to come in. It looks like that hasn't come in in the first half. I assume that's still expected in the second half, and are we still looking at around about NZD 18 million for that?
... Yeah, it's in that order, 18, 20. Yep. So that's, that's built into the 880.
Yeah. Yeah. And, my last question, I guess, is related. I was gonna ask a question around KD, too, but I think that's kind of been covered. But, similarly, I guess with, Kaiwaikawe, I think, at the full year result, you were talking about offtake agreements being just necessary prerequisites for both of those wind farms. That language has gone here. Does it—do we take it that effectively you have an offtake agreement for Kaiwaikawe, at this stage, and now it's just working through, I guess the, the more fundamentals about getting a wind farm up?
So Kaiwaikawe is obviously taking us a lot longer than we hoped. If you recall, it has an arrangement with Genesis. Neither party has terminated that arrangement. However, we do need to work through, well, you know, what are effectively the consequences of all of the delays that have occurred since we've been underway, whether they were the resource consent delays, the transport route delays, working through the connection arrangements and also reoptimizing from a point of view of the technology. So it is a more challenging project for a number of reasons. But, you know, we would still happily sell that on a PPA basis to Genesis.
There are some issues we would have to work through and issues that they would have to be happy with. But that's, that's a conversation for, when we have resolved some of the issues that we've got.
Okay, great. And last question, just around the Mahinerangi, and it looks like you're reconsenting that. I assume that's mainly because the turbines are much bigger than they under the original consent. Reasonable to assume that you're looking at a reasonable step up in the size of that project? Seems to be the usual trend when you reconsent for bigger turbines.
Look, it's early days yet, Andrew, on that. But you're right. I mean, the issue is, higher tip heights, giving better yield, potentially fewer machines, but better yields. So we need to... We're just working through all of the technology alternatives, the connection alternatives, and how that might turn up across the land use perspective. But we think it's important to dust all of that off, because under certain circumstances, where the smelter stays, where potentially a fiber cable lands in Southland, that draws more load, like data centers.
You know, one could see quite a demand for renewable electricity from offtakers, as a consequence of that over the next decade or so.
Okay. That's great. That's all for me. Thank you.
Thanks, Andrew.
Thank you. One moment, please. Our next question comes from the line of Jamie Gray of NZ Herald. Your line is open.
Hello. I just wondered if you could give us some more detail around the price increases flagged for April first, like the extent of it, and what are the cost increases behind that decision?
Yeah. Thanks, thanks, Jamie. Well, I suppose starting with what, what are the underlying increases, we, we are seeing, a lift in all of the input costs. So if we take, transmission and distribution prices, they are, you know, they are obviously set through the Commerce Commission and regulated, but that whole process brings in the inflationary effects. We are seeing those. Our approach to those is to, is to pass those through, as they occur. So that's part of it. We have seen, reasonably sustained, wholesale prices, and, we've you can see those in the charts, in our presentation. But we are very mindful of bill shock and impact on customers. So the extent of those, it's, the... They will be very regional.
They will only, you know, a certain amount of our customers are contracted, but they are quite region specific. And depending on the region, they will be between 5% and 8% at the highest. Overall, that's everything all in. And I think it's just reflective of the situation that the industry finds with input costs, inflationary costs, and so forth. At the same time, you know, as our presentation shows, we're deploying a lot of capital into new assets to make sure that we electrify to achieve decarbonization, and as that occurs, there is energy for all customers.
I also note that, you know, this sector has reinvested billions of dollars over the last decade, decade or so, and, unfortunately, we're not the water sector or the roading sector.
Great. Thanks. Thanks, Vince.
Thank you. One moment, please. Our next question comes from Nevill Gluyas of Jarden. Nevill is open.
Good morning, team. Three questions from me. The first one, it was impressive to get the retail integration done so quickly. I guess my question is sort of follow on, can we expect new products, and I guess I've got VPPs particularly in mind, sort of to start rolling out? Are they supported by a new system?
Well, thanks. Thanks. We were pretty pleased to get it done as quickly as well. Look, we don't really want to start skiting about new products. We certainly realize that there is a lot of scope when you're the, you know, the largest retail player to bring products for customers to market. We don't subscribe to the argument that it's only the small, nimble players that can do that. We think scale helps. So we would probably say, at this stage, watch this space, but we do have to make sure that we also deliver on the promise we made in the transaction, which was to get the synergies. And those are pretty important as well, is if we're going to maintain the best pricing we can to customers.
But certainly around things, looking at more time of use pricing, at EV pricing, at other things that help, that's, that's important. But what's also important is, more innovation for those who are least able to pay. So, you know, I think all too often innovative products, and people talk about this stuff, it's for the people who've can afford the battery, the EV, and everything else. We think it's pretty important to think about, those that are most impacted by price, and we're doing a fair bit of work in that space.
So, I guess, just to follow on to that, we should expect to see sort of further developments in Globug, sort of product mix?
Yeah, you could expect. We have some work to do with Globug in the sense that that has some integration work to complete. Wasn't in the original program, but it is in a program now. But yes, one could expect to see a Globug mark two roll out over time.
Neville-
Great. Thanks. Okay,
Nevill, the big opportunity-
Sorry
... obviously is just to cross-sell telco products, broadband and mobile, to the legacy Mercury base, which we didn't have that capability. We had a very small scale broadband offer, but there's, you know, there's a lot of customers-
Gotcha
... there that we can, we know a lot about them, can contact them quite easily. So I think that's a big opportunity for us.
Yeah, yeah. Great. Makes sense. Thank you. Second question then, obviously, a feature of recent times, you know, for all the obvious reasons, supply chains, sort of local resource constraints, delays to projects. And I guess I just wanted to focus on that a little bit with the near-term projects. So KD 2, if you did reach FID, when is a sensible time to expect full power, and what kind of time range of uncertainty should we think about on that given the risks?
Depends on the start date, doesn't it?
Yeah
... depends on the conversation we had earlier about demand being there. But I think your question about delays, it rather depends when in the season it starts because of the challenges of certain types of work through winter.
Yep.
We'll certainly, we would certainly expect, with what we learned from Turitea, have applied at KD 1, to have some degree of confidence that, with our contracting strategy, that we would deliver to the time we said at FID. I'm not deliberately being evasive there, but it does rather depend, which side of winter you start.
Okay. Okay, no, that, that's useful. Thank you. And my last question was just to get your views. You mentioned you're sort of advocating for a whole system view. In your view, what are the big gaps right now?
... But I think the situation. So we've had a change of government. That government is now in the process of, you know, obviously doing its first 100 days, and it's repealed the MBA, and it's put the RMA back in, and so on and so forth. It's talking about fast-track consenting. I think we all know that, you know, there's been a significant number of potential new projects announced. There is a queuing process within the transmission system to get in line for those. So I think really, if the landscape has been made more, yeah, better from a point of view of protagonists to go on and get on with the work, I think the question then is: How does the sector work together?
I don't mean that in a Commerce Act situation. I mean that in a way that generators, large like ours, or small players, or the new solar people that have started up, operate with distribution companies and the transmission system. We've got to demonstrate to society, you know, at large, and I think this government, which is trying to get out of the way and focus on the things it needs to influence, that we can deliver. We've got to deliver on the basis that the lights stay on, that the costs are reasonable, and we make the progress towards electrification and sustainability. You know, it's gonna be about people with the right mindset, I think.
Right. Okay, thank you. And just, I suppose it's been one of the efforts of MDAG or one of the highlights of their work is suggesting there's maybe a hole in the contract space around firming. I mean, do you guys have sort of products in development or even working with them now that sort of provide, if you like, firming both ways, sell or buy for independent generators?
Well, in fact, we did - in fact, we made -
The sleeving deal.
We made the sleeving deal is a perfect example of that. Look, we had take a view that we'll price anything that anybody comes to talk to us about.
Right.
Look, the MDAG report has a whole bunch of stuff in it, which no doubt will get worked through over time. I come back to the sort of basic situation that New Zealand has a wholesale market that has, by and large, kept the lights on now for two decades or more, and has done it without a dollar of government money going in, which or with other subsidies, it is becoming increasingly renewable. So I think we've just have to be really careful as we work through those things, that we just don't throw the baby out with the bath water. But it's important that it's important that these new players who, you know, if they're ready to take capital risk, that they can operate in the marketplace.
You know, the EA plays an important role in ensuring that, you know, market accessibility works.
Perfect. Thank you very much. That's all from me.
Cheers. Thanks, Neil.
Thank you. I'm showing no further questions at this time. I'd like to turn it back for closing.
Thank you, operator. Look, thanks, everybody, for coming on the call or, or on the internet. We will close at that. And, thank you for your attention.