Welcome to Mercury's half year 2022 results. I'm Vince Hawksworth, and I'm joined by our Chief Financial Officer, William Meek. If we turn to slide three on the pack, half year 2022 reflects significant change for Mercury and creates a platform for future growth. We've seen major events occur. Completion of the Tilt New Zealand acquisition, where we have acquired the five operating wind farms, which when you combine that with Turitea North, make up Mercury New Zealand's largest wind generator. Turitea North now in full operating mode, with all 33 turbines generating, and the southern section with civil works well advanced now, looking at a completion in mid-calendar 2023. Of course, the half year also saw us move through the acquisition process of Trustpower.
We are getting close to the completion of that deal, the High Court's decision being positive and now we're in the giving effect to phase, which should see us complete in the second quarter of 2022. All of these things when put together provide that really important platform for the decarbonization of New Zealand. At an EBITDAF level, the NZD 242 million result was obviously down. It reflects a number of moving parts, which we'll go into in some more detail shortly. Lower hydro generation, the outage at Kawerau, and the impacts of the retirement of the Norske Skog plant, all had impacts. Of course, with some offsets by the added wind generation.
Importantly, in a period of extremely low hydro inflows, we were able to maintain our lake storage to be able to deal with higher prices and lower inflows in the second half. That's a notable change from last year. We talk about Thrive as our evolving culture and the way we want to work, but importantly, it also delivers financially. We are on target for our NZD 30 million made up of both revenue and cost elements. The important thing will be sustaining that changing way of work through future years. We're really pleased to be able to confirm guidance at NZD 570 million EBITDAF for the full year. That includes the hydrology conditions that we have set out later in the pack and the Tilt and Trustpower acquisition accounting.
It does not include any settlement for the Kawerau insurance claim. We're confirming NZD 0.08 per share interim dividend and offering guidance of NZD 0.20 per share for the year. Importantly, we have also turned our minds to capital management and are announcing today a dividend reinvestment plan with the intention to underwrite for the interim dividend. We'll go into more detail on that shortly. A really busy first half to the year, but really laying important foundations for the future. I'm going to hand to William now to take us through some of the numbers, and I'll be back to talk some of the strategic issues shortly. William.
Thank you, Vince, and welcome to those on the call. We're now on slide four, and I'll just talk, take us through some of the financial highlights of the year. We did, as Vince has said, the period reflected a significant changes for Mercury. And some of these changes include some pretty complex accounting for some of these transactions. Again, starting with the energy margin, you see it down from NZD 361 to NZD 321, again, largely explained by those factors, lower hydro generation, 25th percentile inflows into the Waikato catchment.
Sort of 20 days of the Kawerau outage in July and the Norske transaction which saw us buy out the remaining term of the foundation hedge with Norske and acquire their portfolio of hedges on-sold to other customers. That energy margin decrease flowed through to EBITDAF and also into our free cash flow results, which were again down on the prior period. OpEx stepped up from NZD 91- NZD 106. There's a pretty clear bridge in the next slide, but really largely driven by the addition of our new wind farm on the back of the Tilt transaction and the commencement of generation at Turitea.
Some outage costs, predominantly related to the Kawerau outage and then some increases in ICT and SaaS related impacts there. NPAT, a very strong increase, up almost NZD 300 million from last year's result. Again, fully explained by the gain on the sale of the Tilt shares back in August. Once you back that through, our effective tax rate rises back to 28%. Probably commenting on same business CapEx, broadly in line with the prior period. Obviously growth investment almost hitting NZD 700 million, again, reflecting the purchase of the ex-Tilt wind farms and then just under NZD 50 million related to construction costs at Turitea.
Vince's touched on our interim declared dividend of NZD 0.8 And NZD 109 million, which will be intended to be underwritten through that DRP. Turning to the EBITDAF bridge on slide five. Again, fairly complex bridge, which I'll quickly run through. It's worth commenting spot prices for the period were lower than the prior comparable period. They started off in July and August quite high. Then we saw some very strong inflows into the South Island through that June-September period and a pretty long lockdown, which saw prices fall away through September through December. You can see the spot price from generation.
That's when we talk about spot generation, we're talking about our hydros and our geothermal. We've broken out the wind portfolio into Turitea, which is essentially the spot wind revenue generation. Then the ex-Tilt assets, which are all subject to either PPAs or CFDs in relation to Waipipi. Obviously Turitea and the ex-Tilt wind farms adding NZD 36 million to that bridge. Our purchase costs, again, benefiting from the lower price. Quite strong yield uplift, particularly in C&I, up 12%. Those were shared with the market with our op stats release in January. A 2.5% yield increase across our mass market businesses.
Again, that C&I yield assisted by the exit and termination of that Norske contract. You can see the Norske contract. The termination of the 15-year contract, which had about two and a bit years to run, was struck at a price of NZD 65 million. That is immediately recognized to P&L. You can see that bridge there at negative NZD 65 million. Derivative settlements were also decreased, given we've got a net short book, and spot prices were lower by NZD 24 million. A strong carbon trading revenue gain, up NZD 15 million, given the series of carbon auctions and a rising carbon price, which is now trading at about NZD 82. The impact of accounting.
The acquisition amortizations, which are detailed in the appendices, between the Norske and Tilt transactions, total NZD 20 million. Again, we're seeing some differences between the accounting and the EBITDA and actually underlying cashflow treatment. Other income was down NZD 8 million, and that's largely attributable to the reduction in Tilt share of profits, 'cause we're no longer, well, one, don't own that, and we're not recognizing it as an associate anymore. We've touched on OpEx giving us that bridge from our half year 2021 at NZD 290 million through to this year's result at NZD 242 million. Now turning to the market. Again, this is a familiar chart. We produce this each reporting period. It's worth just summarizing some of the market situation that was occurring.
This graphs the North Island catchment, and as I said, I think received about a 26th percentile inflow event for the half year. In contrast to the South Island, which was very, very wet. The South Island had monthly inflows between June and September over 90th percentile in each month. I'll come back to that. Cyclone Dovi, which came through a couple of weeks ago, saw us lift the lake by about 100 GWh, and we're currently sitting at about 125% of average for this time of year. Again, putting us in a good position for the typically drier months as we head through autumn and into early winter.
I will call out the difference there and probably the bottom table with the spot prices and futures. The futures prices are what the market expected spot to trade at three months ahead. You can certainly see the impact. The market was predicting much higher futures prices through July, August, and September. Oh, pretty much almost the whole year. Again, it's that inability to forecast extreme weather into South Island catchments. Worthy of note is prices in May and June were in the high 200s, so there was certainly periods there where prices were elevated. Then we came out of Christmas, and again, the futures price three months earlier was indicating a price of NZD 105.
We've seen prices rally quite strongly in spot to NZD 163, with futures predictions, again, quite close to month to date pricing in February, NZD 147 versus NZD 157. Turning the page. Again, we've reported on this slide, around the high wholesale price environment, and obviously that feeding through into futures and C&I type pricing. A series of charts here. We'll start with the coal price. Again, not surprising, coal price is at record highs, you know, sort of close, you know, almost up to NZD 300 a ton. Obviously, that affects the price of running the Rankines at Huntly on coal. Carbon prices have been steadily rising strongly since April 2021, currently trading at 82, again, influencing the generation cost of both coal and gas.
Gas production, again, clearly, the market is much lower than where it was, two or three years ago. TCC hasn't run since August, so that's really, again, a reflection of the current gas state. And right here, right now, two Rankines are online, E3P, P40, which is Huntly six online, the Stratford Peak is running, Junction Road and McKee. So you're actually seeing quite a lot of thermal commitment, which takes us back to the first chart, thermal generation and price. You can certainly see a very strong correlation in spot prices to the level of thermal commitment. If we look back in July 2021, we saw spot prices then of NZD 191.
Certainly as we extrapolate forward to winter this year, we expect a similar level of thermal commitment, and the futures prices for July 2022 are indicating pricing of NZD 190. A lot of that wholesale price can be explained by underlying thermal costs. Certainly with elevated prices, the portfolio risk for hydro generators are also amplified. That potentially leads to that inherently conservative operation to avoid the short squeeze under high prices and the potential for what we saw through the first half. If inflows are strong, essentially spot prices will fall away as thermal commitments drop, and you'll get a divergence there between futures expectations and spot prices. Now turning to slide eight in the retail market, it certainly remains competitive.
We certainly have seen with the high wholesale price that that's certainly creating some challenges for some of the independents in the market. We're seeing transactions over a longer period to actually supply hedges to independent retailers. From Mercury's perspective, our sales position's been relatively consistent on a half-year basis, so sitting around the 3,000 GWh sales mark. We can certainly see the mix shifting there from mass market to C&I. That's a pretty long-running trend, again, coinciding with this phenomenon of elevated prices, which is clearly indicated in the general yield chart to the right. We saw our ICP volume stabilize in this half with essentially losses over the six months of only 1,000 customers.
That certainly attenuated strongly from the trends we had seen in prior periods. Certainly looking forward to that Trustpower transaction concluding and becoming New Zealand's number one energy retailer. I'll hand back to Vince.
Thanks, William. Turning to those sort of regulatory and policy areas, the context for all of this, of course, is 2050 and net carbon zero, and really requires a sort of focus on joined up policy and regulatory responses. In the period we're discussing, you know, the advice from the Electricity Authority that effectively wholesale market volatility wasn't part of a gentailer initiative, but does reflect the underlying issues that William has touched on. That is, more generation is required as thermal fuel costs rise and New Zealand moves to decarbonize. The question has to be in that context is, what's the industry doing about that? It's already responded to those price signals with both Turitea, ourselves, Harapaki by Meridian, and Tauhara by Contact.
That will bring on new renewable generation and will start the further exit of thermal fuels. Of course, it's really important, though, that in order to continue that journey, more investment occurs. The most important thing to occur really there is to have clarity around future policy. When we look at the emissions reductions plans that came out of the Climate Change Commission's work, it is a big lift that needs to occur. Those economy-wide changes that are in that plan, including transport and process heat, also require the electricity sector to do some heavy lifting. The regulatory focus on that transition has to focus on 100% renewable energy as opposed to just 100% renewable electricity. That's where we have to be traveling towards.
The New Zealand Battery project is an interesting piece of development in that space, and we note that the recent OECD report cautions that it could undermine least cost abatement. In the really near term though, the transition from the RMA to the NBA, the Natural and Built Environment Act, is essential if we're going to support rapid deployment of new generation build. One of the things that we know is that delays in the consenting process change the economics of projects really quickly. One only has to look at the current inflationary pressures around steel, aluminum, copper, and other supply chain issues associated with builds to know and understand that. That then leads me to what Mercury is doing, which is this next slide.
As I said at the start, the Tilt transaction puts Mercury in a position to really respond to the decarbonization challenges. We have, since that transaction completed, continued to work hard to bring some of the pipeline to fruition. With Puketoi, which we already owned, we have extended the consent period to 2031, and we're active in understanding the constructability and consent enhancements required to progress the project. We're taking the learnings of the Turitea project, another, you know, which was also a big project, and applying those to our thinking on Puketoi. Kaiwaikawe, the recent resource consent hearing has completed, and there's a decision pending.
As everybody knows, we have a PPA with Genesis, and we're advancing all of the, I guess, investigation work around and the procurement chain to be able to move that project forward. We have 160 MW, sorry, at Mahinerangi Stage 2. Kaiwera Downs Stage 1, which is 40 MW, we're into constructability work there as well. We have a further 200 MW consented at that project. We've also started exploration and initial feasibility work for a fifth unit at Ngā Tamariki. That would add a further 35 MW to that site. When you look at that, we're really active. What we need to be able to respond to the challenge is to get those projects to a point of final investment decision.
The challenge in final investment will be procurement and construction cost pressure. I don't need to explain all of those to you, and the appropriate policy settings. We are very active in pushing for a coordinated response with government. Turning to now to the strategic framework, which we shared last year. Many of you are familiar with our 2030 longer-term horizons, where we consider the pillars of customer, commercial, people, Kaitiakitanga, and partnerships. Clearly, you know, some of the things that we have done over the last 18 months, both with Tilt, Trustpower, Turitea, and Thrive, all lend themselves to a platform for that destination. Our three-year objectives, though, try to give focus to us and our people thriving today and shaping tomorrow. We believe we're well-positioned to achieve the NZD 700 million EBITDAF, as set out in our three-year objectives.
The work we're doing on people transformation and systems and enhancing our license to operate, working with stakeholders sets us up well. The goal of shaping tomorrow and playing the leading role in New Zealand's transition to a low-carbon economy is incredibly important. The execution of the options for growth that I just described will help support that destination. Of course, as we've all learned through the last two years of COVID, being adaptable and resilient is critical to success. I'm really pleased with the way that our culture is developing and our engagement with our team on our challenges is improving. The next slide gives a bit of detail on the action of that. You know, importantly, our safety performance continues to improve.
We all know that we're only one incident away from that turning back, so culture is incredibly important in this space. We have been talking with stakeholders, and our stakeholder audit tells us that we are making good progress, and we need to keep up the work on communication. We've talked a lot this morning already about value creation. Whilst the shareholder returns have seen some headwinds, maintaining our dividend and growing our base through Tilt has set us up well for the future. Our culture index has improved, and our culture program is paying dividends. As we look into the future, you know, we've described the challenge of meeting New Zealand's transition to a low carbon economy, and we've described how we're progressing that.
Including, I might add, the trial reinjection of CO2 at Ngā Tamariki, which will bring down our own generation of carbon dioxide. I guess when I look forward for the options for new growth, the platform is in place, we now need to push to further execution. Part of that execution is completing Turitea. We've already noted the situation with Turitea North. The picture there shows what it looks like on a beautiful day in the Tararuas. I think, you know, we can be really proud of what's been achieved by the collective team. Of course, we still have challenges. The challenges are to complete Turitea South. I think the picture there at the bottom of the page really gives focus to the civil challenges.
You know, there was a lot of dirt to move. We are well advanced, though, as that picture shows. We have some commercial issues to resolve, and those conversations are ongoing. We remain convinced that we end up with a project in mid-calendar year 2023 that really everybody involved can be proud of. Trustpower retail acquisition is clearly the next step in the journey. We're nearly there, as they say, and we expect to complete in quarter four of the financial year. The time that we've been waiting has not been wasted. There has been a massive amount of work done by both the people who will be joining us from Trustpower, from both Tauranga and Oamaru, but also work on the Trustpower side so that we can make that change seamlessly.
We're pretty excited about the fact that as we make that change, it releases a whole bunch of capability to deliver for customers on a integrated system and technology stack, and we get the benefits of joint capability. The fact that we've been able to deliver all of this in a virtual environment, I think there's been perhaps only one or two face-to-face meetings between the two teams, also puts us in a great position for new ways of working. We note the contribution and likely accounting effects. We talk a lot about continuous improvement through our Thrive and thriving programs at Mercury.
The fact that we have been able to make real progress despite all of our Auckland staff being locked down for something like four months in this half year, it says a lot for our resilience and purposeful attitude towards this development. In fact, it's all about the Mercury attitudes of curious and original, share and connect, and commit and own. We've built more commercial capability. We are supporting people to make better decisions. We're leveraging our data, and we have seen real improvements in the way that we think about deployment of our assets on the Waikato River. We've also seen real improvements in the way that we communicate with our customers with significant automation and data insights driving better customer communications.
We've also discovered that, if you can get everybody to lift through improved ways of working, you build sustainable change. We are intending to invest in ways of working over the second six months and through into the next year. A couple of other issues that we should just talk to before I hand back to William. One of the things that's really important when you're a geothermal operator is your drilling campaigns and the renewal of your geothermal resource. One of the reflections that we've had over the last year or two is that a just-in-time approach rather than having certainty and clarity about your program is not the way to go. We've done considerable thinking about how we approach building capability and also dealing with stressed procurement chains and inflationary pressures.
That's resulted in us determining to have an eight-well program across FY 2023 and 2024, with the associated stay in business CapEx. It does allow us, though, to plan purposefully and not be buffeted by the change of a more just-in-time approach. We also note that we expect partial payment of the insurance claim on Kawerau. That is excluded from FY 2022 guidance just due to the exact timing and exact amount. However, we remain positive that that will occur. We note here as well that part of the consequence of all of that is that we will have an outage in calendar year 2023 to put the new parts in that will have arrived as part of the refurbishment of Kawerau after the event last year.
Lots going on and in order to fund that, of course, we need a capital structure that is flexible. I'm gonna hand to William, who's gonna talk about our initiatives in that space.
Thanks, Vince. We're on slide 17 now. As it says there, we're expecting our debt to EBITDA ratios to peak this financial year following the acquisition of the Trustpower retail business for NZD 440 million. We closed the period at with net debt at NZD 1.61 billion. Certainly high, but as S&P confirmed back in November, certainly within our current rating targets of 2x-3x debt to EBITDA. We've got the capacity to fund those transactions. Looking forward in terms of those generation development options and Mercury being very keen to support the decarbonization of New Zealand, wanting to ensure we've got a balance sheet that essentially enables the funding of further generation development.
As flagged by Vince, we have announced a DRP effective for this interim dividend. We plan for that DRP to be underwritten also, and we are considering a capital bond issue, and that obviously would attract a 50% equity credit. Just a little bit more on the DRP. An NZD 0.8 fully imputed dividend declared, up 18% from the prior period. It's about NZD 109 million of cash. We have indicated a discount of 2.5% for the DRP.
It will be underwritten, so essentially shares not taken up by existing shareholders will be placed with an underwriter on identical terms. Those shares will be sourced from treasury stock currently held slightly north of 37 million treasury shares. Key dates in that table on slide 18, with dividend paid by 5th of April. Finally, to guidance for the full year. We guided NZD 570 million in January with the release of our operating stats. Guidance remains unchanged at NZD 570 million, although the construction is slightly different. Hydro forecasts below average at 3,750 GWh.
Clearly, hydrology is quite volatile, and we've been in a dry series up till very recently. The ordinary dividend guidance of NZD 0.20, again unchanged, and we hold our state business capital guidance at NZD 70 million. The bridge there for guidance from our initial guidance at the start of the year at 590 down to 570. Probably the key callout there is the impacts of the acquisition accounting relating to Tilt, which we expect to be NZD 15 million positive for the year, again, non-cash. Then a callout there on the Trustpower acquisition accounting. Assuming that transaction concludes with a few months to run, we're looking at an adjustment there negative of NZD 25 million.
The appendix does flag a pretty hefty discount or amortization in FY 2023 of over NZD 100 million. Again, that will be dependent on the forward curve on the day the deal is ultimately struck. Essentially what's happening is the embedded CFD with Trustpower or Manawa is essentially fair valued on our books. It's clearly in the money, and that amortizes through time. Our amortization is largely taking place over the next two to three years. Quite a significant divergence there between accounting and cash flows of that transaction. With that, we'll open the phones for a Q&A. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Our first question comes from Grant Swanepoel at Jarden. Please go ahead.
Good morning, Mercury team. Can you hear me?
Loud and clear, Grant.
Fantastic. First question, just on Norske Skog. Is that about 100 GWh contract you guys exited?
It was actually an 80 MW CFD, so much larger than that.
Okay. Can you give some sort of idea of what a normalized 1H would have looked like if it hadn't had that exit included in it? NZD 242 adjusted for C&I uplift and knock off the initial hit from Norske?
Yeah, it's a good question. I'm just trying to find the appendix, 'cause there's some sort of quantity data in there. On slide 21, you can see some information. You can see there's essentially the net effect of terminating the CFD and picking up their sales portfolio. You've got a 375 GWh reduction in 2022, 500 next year, and then a stub period of 160 in 2024. All those contracts have essentially got a similar strike price of circa 80. You essentially see a baseload 80 MW contract, what's that? 640 GWh would've stayed at the spot price. I haven't done the calc. You effectively halved that.
Essentially for net proceeds of NZD 32 million, we've essentially gone longer by those quantities in 2022, 2023, and 2024.
Oh, thank you. Second and final question, just on Trustpower acquisition. Your assumption, is that a couple of months, only two months, that you're using there in terms of the NZD 10 million of EBITDA generated? Have you shifted any of your plans around, separate IT systems for two years before you do an IT overhaul? Any ideas on what that IT overhaul would cost, Mercury?
When we undertook the transaction, we gave indications to the market around sort of core EBITDA, which is around NZD 4 million-NZD 5 million a month. The amortization's laid out here, so it's pretty hefty. You can see in 2023 related to that CFD, which has got at the moment, based on the forward curve, a NZD 260 million asset value. We guided integration costs of NZD 50 million. Embedded in that would be the cost of implementing the IT changes, among other things. Then a synergy realization of NZD 30 million, essentially a three-year program to deliver synergies and that integration.
Well, does that NZD 50 million integration cost cover moving to a single IT system over time?
Yeah, that was the intent. That work's still in progress. Obviously, with the transaction's taken probably a little bit longer than we thought. We do need to have some pretty serious engagement with the other side before those decisions are made. Certainly, we've been doing a lot of background work around some of the options and what that might look like in terms of ultimately IT stack. Again, there's certainly a lot of duplication across the two businesses, particularly in terms of IT and rationalizing that onto a common platform is, you know, a huge part of that synergy.
Thank you. Thanks very much. That's it from me.
Our next question comes from Andrew Harvey-Green at Forsyth Barr. Please go ahead.
Morning, William and Vince. A couple of questions from me. First of all, just in terms of the guidance around maintenance CapEx for FY 2023, FY 2024. I'm right in thinking that NZD 65 million is an addition to current, I guess, maintenance CapEx. When we add in the Trustpower transaction as well, we're sort of looking at NZD 140-NZD 150 all up for standard business CapEx for those two years?
Yeah.
Great. Next couple of questions, just in terms of your outlook on the development pipeline. The Ngā Tamariki units that you're looking at, do you have additional steam resource consented? Or are you able to use, I guess, existing steam consents, and you've got capacity, you just need the plant on top to sort of take advantage of those existing consents?
No. You'll require additional steam type, which will require.
Yeah.
A consent. Yeah.
Yeah. Okay. Secondly, in terms of the Mahinarangi/Kaiwera Downs, the megawatts that you're talking about there, I'm just going back to the sort of Trustpower days when they were on the books. Of those megawatts, does that assume new turbines or is that based on the old sort of plans and there's potential for uplifts if you think about sort of technology changes over the last decade?
That's based on what you would call historical scale technologies. Bear in mind, Mahinarangi consent was given effect to through the smaller project. It would require. If you want to use different technology, you would have to look for a consent variation. The Kaiwera Downs consent has an envelope that we believe can deliver those projects. There is potential for uplift if we wanted to go through that process.
Yeah. Okay. Lastly, I know you haven't given formal numbers at all, but are you able to just give us a sort of a rough ballpark estimate of what we might be looking at around the insurance on the Kawerau geothermal?
Yeah. This is in the deck, we're signaling an interim settlement, so that's not a final settlement. Insurers have accepted there's an insurance claim. We're expecting a number in the order of NZD mid-20s after retentions, that will be recognized as other income, so we'll flow through P&L, even though most of that will actually be related to property.
Yeah. Okay.
'Cause obviously you'll end up having to buy the replacement gear.
Yeah. Okay. Okay. That's great. That's all from me. Thank you.
Our next question comes from Adrian Atkins at Morningstar. Please go ahead.
Hi, Vince. I noticed the cost of the Turitea South development has increased, but by a pretty small amount. Just wondering if that's actually indicative of how much development costs have risen if you were starting a new project? You know, just wondering, you know, it's not just high commodity prices and labor shortages, but bond yields have also gone up quite significantly in the past year. Is that materially increasing the electricity price needed to justify new wind farms?
First part first, Adrian. Look, I don't think you should make any linkage between the Turitea change and the structural inflationary pressures that we see on a global basis. It's associated with some quite small issues that have had to be dealt with. That's not a linkage.
Okay.
To the second part of your question, we would have to say that everything we're seeing around commodity prices is flowing through into pricing that we're seeing coming from equipment manufacturers. It reflects the lift in steel prices, aluminum, copper, et cetera. Also the other supply chain issues associated with actually transporting is flowing through. That does put reasonably significant headwinds on investment. I guess that does lift the sort of pricing that one needs to see to invest. That said, when one looks at the wholesale prices that we're seeing and one looks at the outlook when, you know, we've seen some commitment from New Zealand Steel, we've seen I think pretty bipartisan commitment to a decarbonized future.
We're seeing electric vehicles, you know, being taken up and government support for that. You add all of those stuff, add all of those things together, we still believe that there will be projects that can get away. We'll test that as we get to final investment decision. In the meantime, you can't test that until your project's ready to go. We are spending money on being ready to go and yeah. That's the environment we're in. I think businesses like Mercury have to stand up and be counted.
Okay, thanks.
As a reminder, it is star one to ask a question. Our next question comes from Eamon Rood at Energy News. Please go ahead.
Good morning, Vince. Going back to Ngā Tamariki, can you explain what prompted this feasibility study into a potential fifth unit? Can you give any indication of perhaps what the CapEx requirement and development timeline might be for that?
Yeah. Well, I mean, I guess the first part of your question is that goes to this long-term decarbonization goal. If we're going to be successful, we believe that New Zealand needs a suite of technologies. Mercury has, if you like, got itself into a position where we have geothermal, hydro, and wind. We see those technologies as playing long-term roles to get to the outcome. The Ngā Tamariki site and field seem to have the ability to support further investment. Obviously in Mercury's portfolio, it builds a bit more base load as we add the intermittency of wind and the storage and peaking capability of the Waikato River.
It's you know, it helps keep all of those things balanced as we move through our growth ambitions. As to capital cost, I think basically too early to say.
Right. Do you have an idea when the study will be wrapping up, or is it also too early to say?
Look, we're sort of pretty well advanced, but as one of the earlier questions said, there will be some consenting things we need to work through. I know, and I have to say that's one area I never like to put a timeframe on. Experience seems to say, and that goes back to my commentary on regulatory, you know, you put time frames on consenting processes at your peril.
Right.
I think what I would say is, geothermal development is slightly different to the other technologies, and that confirmation of the fuel resource underground is really important. The Ngā Tamariki commissioned in 2013, so we're nine years down the track from that. Certainly got a lot of confidence around the sustainability of the resource and the ability of the field to produce sufficient steam. What you don't want to do is commit to assets above ground and then find that essentially the steam field is incapable of supplying the fuel. No one wants an Ōhākī or Ōhākī scenario where you've got a large plant that's running at seriously derated capacity. We're still early days.
We've got a lot of stakeholder engagement to work through, which we'll do. Certainly our desktop studies indicate it looks promising.
Great. Thank you.
Our next question comes from Nevill Gluyas at Jarden. Please go ahead.
Good morning, team. Two questions from me. First one, just, I'm interested in what you had to say about Mercury participation and sort of peaking capacity. I'm interested in sort of what kind of form you thought they might take, whether that's sort of direct investment, sort of contracts, i.e., you know, peaking contracts or swaptions. If you could just sort of add a bit more color to that'd be great. Thanks.
Yeah. Well, thanks, Neville. I think, I mean, I think in that sense, Mercury has always sort of talked about its use of the Waikato River chain. One of the key things for us is the reinvestment program in that chain, which allows to get a few more peaking megawatts by the type of plant change-out we're doing, plus also get a few more gigawatt hours at the right time. And that then leads to the work that we've been doing on the sort of data investment on the chain and optimizing the use of each machine. You know, that's entirely within our control, and we all know that hope is not a strategy.
Our discussion with other parties is, you know, we're always open for business with respect to swaptions and, you know, we've said publicly, or at least I've said publicly and would continue to say publicly that, you know, gas does make a good transitional fuel. We're not gonna be investors in gas. That's not our space. Certainly, we would continue to look to support some gas peaking as a transition over the next 15-20 years. In that sense, you know, be a willing purchaser of products that support those investments.
That's great. Thank you. Very clear. I'm gonna stretch a little bit on the potential new investments as well. I think you've kinda given a pretty clear answer about the reliance or the dependence on how the commercial kind of outcomes and consenting outcomes could dictate FID on those projects you've named. I just wondered about other factors. I mean, how significant would Tiwai, sort of whether or not we see heat conversions, whether or not Lake Onslow proceeds, or whether there's any sort of major dependence on transmission do you think would be significant in that sort of FID process as well. Are any of those sort of major roadblocks or enablers?
I think look, I think the Tiwai cliff or headwinds or speculation sort of wears a bit thin. I think with the projects we're looking at, we're gonna have to you know, sort of muscle up and commit. Obviously, transitions in the EV and process heat space are encouraging. I think you know, the investments that are being made that are beginning to see those changes occur are good. I think the New Zealand Steel announcement is positive. You know, we're not close to the hydrogen thing, but you know, I note that you know, if that were to occur, that would also be net beneficial.
I do think there is serious interest in data centers occurring, and I've always had the view that the investors in fiber, you know, larger scale fiber networks around the globe would see New Zealand as a place where data centers should be housed. I think there's evidence of that occurring. I think all of those things are positive. Of course, at the end of the day, it's always a bit trickier in the South Island than it is in the North Island. We'd be the first to acknowledge that.
However, I would also say if there was a time for the industry to step up and play its part, if we wanna get to that decarbonization position, the next five to 10 years is the time.
Great. That's useful things. Lake Onslow, would that-
No, probably.
If announcement came out tomorrow that they, you know, they committed to it, do you think that would change?
Probably.
Your investment decisions for those projects?
Probably my lack of dealing with Lake Onslow has said something about my view of it. Look, I still think it's the wrong tool for the wrong problem and the lack of problem definition. I think it would be. It's the one thing that it's impossible for, I think, to scale around. A decision to go ahead, I don't think would come with a clear timeline, how it would operate in the market, the chances of it being successfully built in that timeline. All they do is add massive uncertainty. That would probably be the one thing that is really difficult to navigate around, for all sorts of reasons, which you would understand as much as I do.
I do think, though, that, you know, the best response that Mercury can make to Lake Onslow other than bleating is to get up and show we're ready to do our bit and share the heavy lifting.
Very good. Very clear. Thanks, Vince.
Thank you, everyone. We have no further questions. Vince, I'll hand back to you for closing comments.
Thank you. Look, well, thanks, everyone, for coming on. Thanks for the questions. You all know how to find us, and William and I are always happy to talk to you. We appreciate your time this morning. Look forward to seeing you all in person at some stage.