Good morning, everybody, welcome to this presentation. I'm joined by William Meek, our Chief Financial Officer. I'll move through to slide three, which outlines the highlights of the first half of the FY 2021 year. We've had a positive first half that's largely been driven by a strong trading performance and by a lift in yields across all of our sectors. At the same time, overcoming some headwinds due to continued low hydrology, which we continue to face into the future. Wholesale prices have remained elevated, obviously, the New Zealand aluminium smelter decision has firmed those prices alongside the gas constraints and the hydrology that we have seen. The positive thing about all of this, of course, is that we do have a clear pathway to the transition to a low-carbon economy, and this pricing sends strong signals for new investment.
Our customer segment yields have improved. Competition has remained fierce, and we expect that to continue through the coming period. We've been very focused on operational improvement programs. Those programs, which we've called our Thrive Initiative, are focused on process, performance and culture. We've signaled that we are looking for an improvement in EBITDAF of circa NZD 30 million in the FY 2022 year from that program. Our investment into Turitea continues to face some headwinds and difficulties. We do now see that the north section of the project will likely be completed in October 2021. That is largely about overcoming the access arrangements for the blades. We do see a pathway to completion. The southern section, we still remain challenged by the physical nature of the terrain. The civil engineering issues are providing some challenges.
We're confirming our interim dividend of NZD 0.068 per share, which is a 6.3% increase on the same period last year. Full-year guidance at NZD 0.17 is also confirmed. This will be the 13th year of ordinary dividend growth. If we turn to the next slide, we can see the breakdown of that financial performance. Energy margin reflecting the yield story that I mentioned before. Our operating expenditure reflecting less planned outages compared with the previous period and the focus on operational excellence. That giving us the uplift in EBITDAF. At NPAT level, the gain on Hudson Ranch sale, our U.S. geothermal investment, has provided us with an uplift. Free cash flow has improved and remains positive. Prudent management and post-COVID issues have meant that our stay-in-business capital expenditure is lower than the previous period. Our growth investment reflects Turitea capital investment.
I'm now going to pass to William, who will take us through the next slide.
Good morning again to those on the call. We're now on slide five with the earnings bridge. For half year 2020, starting at 258 million and fiscally bridging to this year's result at 294 million EBITDAF, an increase of 36 million. A good bridge where most of these steps go up rather than down. Certainly the period saw slightly lower generation, lower hydro, but higher geothermal performance. About 108 gigawatt hour, a downward swing against the PCP. We saw higher prices in this period versus the prior half year, and so that benefits generation and obviously is the detriment of the retail portfolio, which is shown in the chart. We did see an easing back in volumes, and a benefit there in terms of prices as yields across all segments lifted strongly.
7% in mass market to NZD 138 a megawatt hour , and in the C&I segment, up almost 9% to NZD 94.60 megawatt hour . Vince has called out the trading performance. You can certainly see that strongly with a NZD 14 million delta in derivatives there, and those are bridged more exhaustively in slide 20 of this deck. OpEx was down six, and other up again on the back of recognition of our share of profits in Tilt Renewables and from the sale of our interest in the HR1 plant in California, leaving us with a half-year EBITDAF of NZD 294 million. I'll hand back to Vince for slide six.
Thanks, William. Just looking at these key performance indicators, on the customer line, our brand remains strongly positioned, and we continue to be pleased about the way that that performs in the marketplace, especially in the construct of the second line, where the Climate Change Commission draft report is supportive of electrification and the government's commitment to vehicle emission standards really is very strongly aligned with the Mercury brand and the Mercury brand story. Turning to Kaitiakitanga, we continue to look at our emissions intensity, and we'll continue to try and drive that down as part of doing our job for a net carbon neutral future. Turning to people, I guess it was disappointing for us to have an increase in TRIFR, Total Recorded Incident Frequency Rate. That has got some explanation around it, given the high levels of activity on the Turitea site.
We've worked closely with both Vestas and Downer on process controls around injury risk and hazards on that site. I'm pleased to say that we are seeing a significant improvement in the way that site's being operated. From a commercial line perspective, as we've said, we announced the dividend of NZD 0.068 per share as the interim dividend, and are continued to stay on track for our progressive dividend increases. Stay in business CapEx is lower, and that reflects both the effects of COVID and our focus on maintaining our positive cash flows. I'll hand back to William for the next few slides.
Thanks, Vince. We're on slide seven now. A very familiar scatter plot here, graphing delta to national storage averages, so those New Zealand lake levels versus the Auckland spot price. Certainly, again, the first half of this financial year, again, seeing elevated prices. Again, a lot of dots in yellow scattered with those black and blue, really coinciding with elevated prices since the Pohokura outage in 2018. Certainly, issues with the gas market and tightness of supply definitely feeding through to spot prices throughout the country. TCC essentially has gas just for winter, hasn't run for some months. During the summer months has been offline. We're seeing high commitment now with the Huntly Rankines. A lot of that, I suspect, on coal. Gas definitely feeding through to high prices.
Hydrology nationally has been challenging over the last four months. New Zealand is running a 6 percentile inflow. That's largely driven by the South Island, which traditionally would be in its wettest inflow period over those summer months. Very acutely dry in the South Island. Obviously, carbon outlook on the back of the Climate Change Commission report released at the end of January. Certainly outlook there for carbon prices to continue to rise as the government looks to its net zero carbon targets in 2050. The second chart here on slide seven really showing the decline in thermal generation. It singles out the Huntly Rankine units, which certainly in recent years have been running at much lower levels than they were at the beginning of last decade.
Then you see a very acute step up there in the Otahuhu futures price with the calendar year 2021 now pricing at around an average of NZD 180 a megawatt hour , then falling back slightly to NZD 140 and then NZD 120 by CY24. Phenomenal step change in energy costs relative to the relatively modest prices for most of the last decade. It's sort of sitting in the NZD 80 a megawatt hour range. Turning to slide eight, a slightly different representation of similar data. A number of price curves here. The yellow line showing the spot price, we can see that big step-up in terms of rolling price from late 2018. The blue line showing the Otahuhu futures price, which has steadily risen from 2018 then gap very, very strongly from February this year. Again, essentially, Mercury's adjusted mass market energy yield.
Certainly again, spot prices and against futures prices, those yields on a cost-adjusted basis, well underwater relative to underlying energy costs if benchmarked to futures and current spot. Certainly, that price is, as Vince has already mentioned, the commitment for the smelter to remain in operation through to December 2024. Certainly shoring up demand. Demand generally pretty resilient in the face of COVID-19 impacts, with only very slight reductions. Again, New Zealand performing fairly well there in regard to demand. Certainly, we are seeing and expect to see further generation development announcements to essentially look to bring supply on to, one, decarbonize New Zealand's electricity sector. Two, to certainly introduce supply to bring those power prices back from these elevated levels. Turning to our customer business on slide nine. Again, a very familiar chart in terms of net gains and losses.
We do continue to focus on customer value, looking to optimize that value across all our sales channels. That's into spot markets, the commercial, industrial, and mass market, that's residential and SME. The strategy has seen a lift in sales yields across all those segments, which I've already referred to. Power switch comparisons are very interesting. When we look at those across networks throughout New Zealand, we certainly can see quite a disparity in pricing between Mercury's offers and the cheapest offers from other major gentailers. Those deltas are quite large, ranging between NZD 20-NZD 60 a megawatt hour . A very large gap, with a note calling out that based on segment reporting, retail operating costs running at about NZD 25 a megawatt hour . Certainly again, on the chart on the prior page, you're seeing some quite large negative gross retail margins against that.
When we look at our strategy, our losses have been largely flat once normalized for the decision to exit the Farm Source contract. What you can see very distinctly there is that Mercury's acquisitions have been similarly declining over that 2018 to essentially early 2021 period. In terms of fixed price sales, fixed price sales commitments across C&I and mass markets have actually lifted. The company's actually selling more fixed prices to end user customers, with a reduction in mass market sales volumes of 117 gigs, with C&I increasing by 172 GWh . On slide 10, which looks at lake management. Clearly, management of Lake Taupō, which feeds the Waikato River catchment and hydro chain, very important.
We can see in the yellow line, a good performance in actually dry conditions to bring the lake up to near its particularly normal operating consent upper bound at 357.25 m above sea level. We're getting pretty high, almost 600 gigs. You've seen a sharp decline as essentially the drought thickened. Again, from January, February, with us slightly below mean levels at this time. Certainly in a fairly strong position going into the autumn months. We would expect to see Taupō Lake levels continue to decline. Again, inflows running for the year to date at around the lower quartile. Again, dry in the North Island, which has been a thematic over the last couple of years. More acutely, you're seeing very dry conditions starting to emerge in the South Island. I'll hand back to Vince.
Yeah, thanks, William. Looking at slide 11 here, I think you're all aware that the Climate Change Commission draft advice has come out, and it can only be seen as positive for the sector, with renewable energy being the key driver for decarbonization. I guess from a Mercury's perspective, we support the view that it's the adoption of renewable energy rather than 100% renewable electricity. However, in reality, the direction is net positive for the sector anyway. I think we need to be careful about focusing purely on any individual target, but more the market conditions and the environment for continued investment. That strong support for transport electrification and for process heat decarbonization is really important. I also note that there was a UTS with subsequent actions to correct, and Mercury is unlikely to be materially impacted in that process. Turning to Turitea.
As I say, not without challenges. However, looking at it from a positive perspective, the transmission and grid connection works are largely complete and are available for energization as soon as we have an operating wind turbine on the northern section, where we have 14 base towers and 10 nacelles installed. The photograph there shows the Black Hawk helicopter delivering the top of a transmission tower and a crane lifting a nacelle. Of course, blade access has and remains a critical element. We have increasing confidence that that problem will be overcome, and on that basis, expect completion of the north section in October 2021. Obviously, the shape of that and pace to that time will be dependent on blade delivery.
The southern section does provide a much more significant challenge with contracted delays and knock-on impacts from the late completion of the northern section. Whilst the latest schedule shows a significantly later commissioning and a large delay, we continue to work with our EPC contractor, Vestas, to try and find ways to bring that date forward. As I noted on the earlier slide, health and safety has been a major focus on what has proven to be a pretty challenging site from a civil construction perspective. We are pleased with the latest audit we've done and with the positive way that Vestas and their subcontractor, Downer, have sought to ensure that hazards are well managed. Turning to the next slide. Like all businesses, I think COVID-19 caused us to take stock and think about how resilient and efficient we are as a business.
It has been fantastic to be able to use an in-house review team of the brightest and smartest within Mercury to look at opportunities for us to work smarter, faster and better, but also importantly, set a culture of improvement that will stand us in good stead for many years to come. None of that happens without obviously setting some targets. We've come to a view that there is a NZD 30 million EBITDAF benefit to be achieved. Importantly, in achieving that we will be able to focus on new ways of working, using data better across the business, more digitization, looking at what customers value, improving our capability.
We've proven that already to ourselves through a Thrive Initiative, which was looking for opportunities that emerged from the business and taking those through to fruition, in a more deliberate, purposeful, and faster way than we perhaps would have in the past. That's all about being fit for the future, but also being resilient to change. Looking at slide 14. Our issue of the green bonds, we were really pleased about because it proved once again that our business reflects what investors care about, a sustainable, better world. Our sale of Hudson Ranch was a great outcome after many, many years of hard work, by a very small team to, I guess, get out of some quite complicated arrangements. We have retained a small interest in a technology looking to extract lithium from geothermal brine.
We obviously always looking at M&A opportunities, clearly there are two well-canvassed strategic reviews going on at the moment. I will be making absolutely no comment on the Tilt process. I do confirm that Mercury is participating in the Trustpower strategic review of its retail business. We're now turning ourselves to think about what happens after Turitea and the great asset that we have in the Puketoi Wind Farm. We firmly believe that that is not only Mercury's next best generation development opportunity, but amongst the best new generation opportunities in New Zealand. We'll be looking to progress that and understand both the economics and the pathway to a decision on build.
Simplification is a bit of a theme that we've got going through our business at the moment, we note there are two things that we have done to reduce complexity, getting out of Mercury Solar through the sale to ChargeSmart, and the consolidation of the Bosco brand. To wrap up, we did review guidance again, we've revised that to NZD 520. That really reflects the significantly dry conditions that we have seen through late January and into February. Also reflects the fact that wholesale prices in the ASX remain significantly elevated for the remainder of the year. Of course, as we always say, a change in the weather may result in a change in the guidance.
We do confirm, though, that our year for FY 2021 dividend guidance is maintained at NZD 0.17 per share, and that stay in business capital guidance has been revised down from $80 million- $70 million. With that, thanks for your attention. I think we can head back for questions, operator.
Thank you. Ladies and gentlemen, we will now begin that question and answer session. Once again, if you wish to ask a question, just please press star one on your telephone, wait for your name to be announced. If at any time you need to cancel your request, it's just by pressing the pound or the hash key. Your first question today comes from Grant from Jarden, please ask your question, Grant.
Good morning, Mercury team. First question on the EPC contract delay. I think at the start of the year, we were looking for about a NZD 5 million EBITDA from Turitea in this fiscal year. Is that the sort of damages we'd be expecting to be incorporated in your guidance for FY 2021?
No, there's no LDs in the 2021 guidance.
Is that how the contract works in terms of what you're expecting to earn? You'd recoup that from the provider?
Yeah. The way liquidated damages would be treated for accounting purposes, they're like an insurance contract payout, so they need to be fiscally certain. Essentially, until you get through that process and essentially either strike an arrangement, and clarify those, that they're gonna be paid, then you won't recognize them.
Thanks, Rob. The NZD 30 million of continuous improvement benefits, it sounds very much like a cost out program. Can you give some sort of split between revenue opportunities and cost out in that NZD 30 million?
Look, Grant, it's Vince here. I think, at this stage, we're probably not ready to give you that guidance. There's still quite a few projects that are in early stages. It is across revenue and cost. Yes, part of it is improving doing business with ourselves. Like all organizations, over time, you can look at opportunities that simplify things, and you could take a bit of a steer from the executive structure changes that I've made as an example of where that opportunity is. The move to consolidating generation, for instance, provides opportunities to reduce friction in the business. Look, we'll talk about that some more at the full year.
Thank you. As you still have four months left in this fiscal year, are we expected to see any of that benefit this year, or is it all accruing into FY 2022?
Any benefits that we see this year are still built into our guidance as it stands today.
Thank you. My final question, just on your commentary that you are looking at the Trustpower retail opportunity. Could we also consider you guys looking at maybe buying the New Zealand assets out of the Tilt process, or is it too early to tell there as well?
You obviously didn't listen to the no comment bit, Grant.
Okay. Well, thanks for answering my questions.
Okay, your next question comes from Andrew Harvey-Green from Forsyth Barr. Please ask your question, Andrew.
Oh, good morning, team. A couple of follow-up questions, from what Grant was asking. First of all, just on the NZD 30 million benefit for FY 2022. I just wanted to confirm that that is all, I guess, incremental, on top of any sort of yield increases and, obviously, sort of Turitea benefits that will come through.
Yes.
Yes.
Yep. Okay. Secondly, are there any costs likely to actually deliver those benefits?
Well, there's obviously gonna be investments in multiple places to improve processes and systems and things of that nature. We've made it an EBITDF target for a reason. That's because that's the level of uplift we want to see.
Okay. The uplift is net of any costs to deliver, in essence?
It's at the EBITDAF level. Yep.
Yep. Okay. Second question, just in terms of the Turitea delays and just confirming, that there are no financial implications for yourselves other than, I guess, the delayed earnings, which will get off in due course by any LDs.
It's best to talk about Turitea in the two parts. The North, as Vince says, we expect that to complete in October. The South is definitely more challenged. You're looking at an almost two-year delay.
Yeah.
We need to work through that with the contract investors.
Okay. Is it possible that it may end up having some higher CapEx associated with that then?
Too early to tell. It's just time. It's mostly driven by time.
Yeah. Okay.
Time obviously does have BI consequences.
Yeah. The second sort of Turitea question is, just I understand that some of the blades were on the Napier ship that caught fire earlier. You didn't mention any sort of implications from that.
It wasn't blades, it was nacelles.
Nacelles, right. Yeah.
No, that won't cause any delays. They will get remanufactured and delivered before they're needed.
They're not on a critical path, Andrew.
Yep. Okay. Next question was just in terms of the drop in OpEx and the drop in the maintenance. Is that just more of a timing thing, or is that sort of an ongoing step change? It was a reasonably chunky step change in the first half.
Largely a timing issue from a perspective of one half year to the next and influenced by the fact that these things do occur partly and partly influenced by obviously reframing what we do under the sort of COVID world that we were living in. However, it's fair to say that as we've worked through all of those things, that's some of the opportunity that we've also seen in the way we approach OpEx is that will lead into that NZD 30 million.
Yeah. Okay. I think the last question from me is just, I guess, around Puketoi, but a more broader question in terms of looking at, we've seen a number of new developments announced. I suspect there might be one or two more coming in the next couple of days. What is your thoughts, I guess, around the balance in the market once all of those things go through and concerns around overbuild or potentially even underbuild and how then Puketoi fits into that?
I suppose a starting position from my perspective is that in any market situation, the most valuable projects should get built first. Obviously, there's a competitive overlay to that, so people will make decisions based on what they can influence. The next thing when I think about Puketoi is, its location and wind resource is exceptional. It is a project that will get built. Timing, obviously, we still need to work through.
I suppose at the moment, the risks of overbuild are, whilst they're real, the environment we're in at the moment is, it's, I think, really important that the sector steps up and shows a pathway that will take us past this very challenging transition we have over the coming years with uncertainty around gas and with the fact that we do need to see coal burn reduce if we are going to meet our targets for decarbonization. It's something that has to be navigated, that we have to be aware of all the time. However, I think it's far worse if the sector sits on its hands and doesn't start to deliver real sustainable change.
Great. Thanks for that. That's all from me.
Thanks, Andrew.
Your next question comes from Cameron Parker from Craigs Investment Partners. Please ask your question, Cameron.
Hi, guys. Hey, well done on a good first half and a shame about Turitea, but I'm sure that'll come along. Hey, look, can you give me a feel for Turitea generation coming on in terms of gigawatt hours over the financial years over the next FY 2022, FY 2023?
2022, based on the timing for Turitea, October full commissioning will be, so you can just take essentially a pro rata of the 470 gigs for an annualized-.
Yep
output. Given the date of July or mid 2023, you'll end up with the south coming on for a full year from FY 2024.
Okay. Thanks, William. Just looking at your residential customer numbers and volumes there coming off, what sort of level of concern do you have there? Are you going to be putting through any residential price increases over the next 12 months or so?
Well, I would say I don't think I ever like losing one customer, to be honest. Equally, we have to accept that there is a very competitive environment out there. As William indicated, there are some pretty varied views of what appropriate netback is for residential customers. I guess we're getting increasing visibility of how people think about that transfer pricing. In this environment, I think we have to think about where we place all of our volume, and obviously we have chosen the C&I market as a much more of a market which responds over a shorter period of time to changes in price. In terms of residential price increases, well, ultimately, our price increases will reflect the underlying costs. I think any sensible retailer passes through those costs as they come through, whether they're transmission, distribution, or other underlying costs.
We will pass those through. That's currently what we're doing and what we will continue to do.
Okay. Thanks, Vince. You mentioned C&I. What sort of level of C&I volume should we think about for Mercury going forward? It's been increasing markedly over the last six months, so it'd be interesting to see where it ends up, what level in the portfolio.
Look, I think at this stage, it's a little bit dependent on the timeframes for Turitea coming on board. We ultimately, we're responding to the trade-off of opportunity to secure forward revenue and forward customers versus the risks that sit in the marketplace that we've talked about with respect to hydrology and gas and some reasonably high levels of volatility in the marketplace. Just picking a number is probably not that helpful.
Okay. Lastly, I was just wondering what your view is on, there's been a bit of noise in the sector recently around carbon emissions from geothermal plant. What are your thoughts on that and what's your approach to cost mitigation as the carbon price is increasing substantially?
Well, I suppose, if you accept the thesis that carbon has to be paid for, then it's just a fact that there's some carbon emissions, and they have to be paid for. That will just simply, like many other technologies, mean that some fields will be better than others. I think this idea that it just means you should just close things when there is a process for mitigation is probably not such a bright idea. I think the other thing that we think this will drive is, it will drive people thinking about carbon reinjection. That's an interesting technological opportunity that Mercury's interested in. That's what you want. You want people to innovate to overcome the challenge. I would say geothermal is a fantastically good resource for New Zealand Incorporated if you take the view that it's the overall transition to a low-carbon economy that's important.
Okay. All right. Cool.
We are investigating trialing reinjection at Ngatamariki on one of the OECs there.
Okay.
That's very positive. If that works, obviously that can be extended across the wider fleet. The biggest opportunity is at Kawerau, given that geothermal plant's got the highest CO2 concentrations. It would require a much bigger investment. Certainly, in terms of outlook on carbon prices and sequestration, the economics of that look pretty positive, which would massively reduce the carbon footprint and save Mercury money. We do have carbon inventories and carbon contracts that essentially on our carbon footprint will take us through to 2031. We're actually pretty long-dated in terms of our existing positions, but we're always looking for opportunities around carbon to lock in prices that will be below where carbon prices might trade in the future.
That is great. Thanks, William. All right. Thanks, team. That's all from me.
Your next question comes from Stephen Hudson from Macquarie Securities. Please ask your question, Stephen.
Good morning, Vince and Will. Just a couple from me. Just firstly, on the guidance, Will, can you confirm that the NZD 6 million benefit you got in OpEx as a result of reduced planned outages in the first half will reverse in the second half? Are you expecting that sort of run rate to continue? Are you expecting any sort of carbon trading or non-recurring items for the full year? Maybe one for Vince. I can't remember if you said you were prepared to comment on the Trustpower restructure. If you are, is your expectation that the proposal to convert that consumer trust to a charitable trust, is your assumption that that is going to be successful this time?
On your first question, so your full-year forecast for cost is what, Stephen?
Oh, sorry. I think you got a benefit of NZD 6 million in the first half for low plant outages. Are you expecting that sort of reduced level of OpEx to continue in the second half or sort of normalize higher?
Oh, you mean it's going to double and carry through? No.
Yeah.
No, you're not going to get a NZD 12 million benefit worth the full year. No.
Okay. That will normalize largely?
Yeah.
Sorry, the other part of the question was whether or not you're expecting any sort of non-recurring type items, sort of carbon trading gains or other sort of non-recurring gains in that full-year guidance.
Yeah. The guidance takes account of any mark to market that exists today. That obviously is a function of where price is ultimately set over the next four months, too. That's built into guidance, so no.
Okay. Thanks, Will.
I think the next one was for me, Stephen. Look, will the trust's proposal to restructure get through this time? Well, they've managed to exile one of the biggest thorns in their side last time around, put him out to grass somewhere else. Look, my feeling on it is, yes, I think it's more likely to than not. I think there's been a lot of soul-searching go on at the trust about how to present this, and they're presenting it a different way. Clearly, as the trust proposal says, they were made aware of the form and approach that Trustpower wanted to take to its strategic review and have had the chance to consider that and what they're putting forward as a result of that. Notwithstanding that there may be people in the Tauranga, Western Bay community who still feel that it's the wrong thing to do.
I think clearly last time, that voice had the full support of Trustpower. That won't be the case this time. It seems to me that it looks much more probable. It also appears that they won't have to go in the way they've done it this time. They won't be going for a vote. It'll be consultation and a decision by trustees. All of those things would lead you to say that it will get through.
That's useful, Vince. Sorry, just while I've got you, I'll sneak in one more. You mentioned that there's sort of quite a variation across the mass market on what sort of price increases are seen as achievable. Sort of one retailer talking about CPI and another, if my experience is anything to go by, sort of talking sort of two or three times that kind of level. Why do you think that is? Why do you think retailers are taking such a different approach?
Well, I suppose, you could come up with your own views of that. My view is that, if retailers take a view that they're not going to pass through the real costs that come to them, it catches up with you eventually, and then you face some big upward step changes. For some, maybe they see the ability to increase market share as a reason for keeping those prices lower. You still, as we've all seen over many years, one day that comes home to roost and you then face the necessity to put prices up again. We are seeing distribution charges largely across the board in New Zealand go back up again. I think if you don't respond to those, well, you end up in a very difficult place from a sustainable retail business point of view.
That's useful. Thanks, Vince. One more.
Okay, your next question comes from Jeremy from UBS. Please ask your question, Jeremy.
Good morning. I just have one question for myself. We're obviously seeing some operators who are happy to sign PPA agreement or are in the market for PPA agreement. I'll just be curious around what Mercury's view is on that and whether or not it would impact a decision to build or encourage or support building at Puketoi.
Well, my view is it's very positive when people are prepared to support projects by signing PPA agreements. If that enables change to occur, and if anybody wanted to do a PPA agreement with Mercury, we'd be open for business.
Relative to the levelized cost to build Puketoi, would you be happy to sign a PPA at that price or slightly above? Or what's your thinking around that?
I mean, I didn't think this was a sort of Dutch auction. My thinking is if someone wants to put a proposal to us, we're open to discussion. Had you got a price in mind?
No, just trying to get my head around things.
No, look, I mean, ultimately, I think we will be rational builders, and we'll be rational investors. Obviously, anybody signing a PPA also who is taking the capital investment risk and construction risk, has to get a fair return. One would hope the people buying the PPA are happy that it represents good value to them in the market against other choices they could make.
Understood. Thanks, Vince.
Once again, just a reminder, star one to ask a question. Your next question comes from Nevill from Jarden. Please ask your question, Nevill.
Good morning, team. Thanks. Just three from me or three areas. Just the first one on the Turitea delays. I'm just trying to think through what that might mean for Puketoi. If the terrain is difficult, are there any sort of implications to your Puketoi timing? I guess really two questions there. Your FID decision-making on Puketoi, is that in any way constrained by having to have Turitea completed first? The second part of that question is, would you expect the timeframe for construction of Puketoi to be nearer your original Turitea timeframe, or is that likely to take longer as well from FID to completion? Just number one. Thanks.
That sounds like three questions in one anyway, Nevill. There are a lot of lessons, I think, to be learned out of the Turitea program. Yes, clearly, the connection back into Turitea substations from Puketoi is a factual thing. Yes, there's a transmission line. I think some of the lessons learned are about thinking about the terrain. Probably the biggest challenge with Puketoi is the length of the transmission line and making sure that we understand how that works. There's obviously access to the site for these rather large pieces of kit. The actual hills and design of the Puketoi wind farm is significantly different to Turitea. Whilst one wouldn't say we want to be complacent about the civils on the hill itself, effectively it's a ridge with a long line of turbines on it.
In terms of FID, well, I don't think we're in a position to even say when that might occur. Clearly we have to make sure we're able to get the product to market, which is all about the transmission system. That's probably as much as I'd say about that. William, anything?
No.
You wouldn't expect to have to show delivery of Turitea South until 2023 before you were ready to bring Puketoi to completion. You don't have an artificial constraint about that?
No, I don't think there's a relationship between those two things because the transmission line will be built. It'll be more about sensible timing and making sure that all of the project risks are well understood and well managed. The lessons that we are learning and have learned from the Turitea project are built in, so that when we say we're going to build something by a certain time, it happens.
Perfect. Thank you. Second question, just following on a bit your comments about some of the potential CapEx in Ngatamariki. Obviously, in the Climate Change Commission review, they talked about high carbon emission geothermal plant. One presumes they're really just referring to Wairakei. Do you think Kawerau, which is sort of somewhere towards the wrong end of that list, it looks well short of CCC's. Do you think they were including Kawerau when they were talking about limiting emissions from geothermal projects?
I think the correct answer is we don't know. It's not clear. There's no denying that all geothermal plants have a carbon footprint. Again, against coal or gas, significantly lower in most cases. Ngawha probably being the biggest exception.
Okay. Yeah, exactly. My last question really just goes to thinking about your portfolio for the years ahead. Obviously, you've talked about a bit of a switch towards C&I in the past. As a strategy, it looks like it'll continue while prices remain elevated and the mass market remains constrained. From our perspective, looking at your whole portfolio, it does seem like the CFD channel probably has the, if you call it a channel, has the highest net back relative to, say, C&I and mass market, and that would seem likely to continue. We shouldn't expect, and this is the question part, we shouldn't expect mass market and C&I combined to grow very much over the next few years in your portfolio?
Yeah. Given there has historically been a link between generation and sales, that puts you in a holding pattern. If you're gonna move beyond that essentially means you are gonna be buying spot energy or wholesale energy from market and selling to customers. It's gonna be pretty challenging, I suspect, given where acquisition pricing is currently sitting to buy futures and then on-sell that to acquisition mass market at current prices, which are NZD 180, NZD 140 and NZD 130 for calendar years 2021, 2022 and 2023.
Yeah.
Total sales commitment. We'll be broadly consistent. We're up slightly this year on the prior year, but it's in the round.
Great. That's useful. Thank you.
Thank you.
Thank you.
There are no further questions at this time, so I'll hand the call back to your presenters for any concluding remarks.
Thank you, operator. Well, thanks everybody for your attendance and the questions. Always good to share where we're going and what we're trying to achieve. Once again, thank you from William and I.
Thank you.
Ladies and gentlemen, that does conclude today's conference call. Once again, thank you all for participating today, but you may now all disconnect.