That got silent. Excellent. Welcome, everyone. We appreciate you coming and spending some time with us. I know the team has been very keen to show you our latest wind farm development. You will see the bottom half of it. Having been up there this morning, it's a perfect advertisement for the site. It was blowing a gale, certainly. Obviously, we're very keen to give you a bit of a strategy update as well. Firstly, some necessary housekeeping messages. In the event of a fire or an emergency, the doors on the left are where we exit to, then you proceed along the terrace to the car park. That is the assembly point. In an earthquake, drop, cover, and hold. Common phrases. Again, when it's safe, you proceed to the assembly point, which is out to the left.
There are bathroom facilities over here and also through close to reception. They are not hard to find. If there are any smokers, I'd be surprised if there were, but smoking is outside on the terrace. You're going to get quite a lot of material today. Certainly, if you have any questions as we go through the presentations, please raise your hand, and I'd ask that you would wait until you're handed a microphone before speaking so everybody can hear the question and then obviously the answer. There are three themes that you will hear that permeate today's presentations and underpin indeed the context for our strategy. The first is New Zealand's future decarbonization and electrification opportunities.
The Climate Change Commission, as we know, issued its draft advice to government at the end of January and presented the first three of six five -year budgets through to 2035. Their report set out a suggested direction of policy. I think it's important to bear in mind that it was a view, a first view at this point. It's not gospel, obviously, they included various aspects that they fully expected to get tested, and they will. I hear that they've had in excess of 10,000 pages of submissions, it'll be interesting to see whether they can meet the deadline of the end of this month to produce the next report. I wouldn't be surprised if that slipped a bit. The government's first emissions reduction plan is due at the end of December.
Of course, we're all keenly aware, and we've seen it in other sectors, dare I say it, that the government can come up with its policy advice at any time. So we've got to be cognizant of that. A key point for us, and we see it as an opportunity, is that the abatement of carbon in New Zealand can really only happen obviously with electrification. The industry has a huge role to play in delivering a low carbon future for New Zealand through the use of renewables. The second theme that you will hear permeate the day is the need for us as an industry to find future dry year solutions. Energy generation will move progressively to a higher level of renewables. No surprise there.
The latest tranche of developments that have been announced by ourselves and others in the industry will push the renewable percentage up beyond 90%. Obviously, inevitably, we will see a retirement of thermals over time, which will reduce the immediate availability of dry year cover. The extent of the reduction may further be impacted by government policy. For example, at present, as we know, the government introduced this commitment to be 100% renewable by 2030. That has an impact as well. Government's focus has been on putting forward an Onslow-Manorburn Pumped Storage notion, and it's obviously got potential use just beyond dry year cover, which could disrupt the current electricity market model. Something that, again, certainly at Meridian, we're very conscious of.
We view it as very much it being up to industry to find a better solution for future dry year management than an investment of billions of NZD taxpayer dollars with, again, the risk of market structure change. We'd far rather see, and we think it would be a better use of public finances to see government funding directed more at the abatement of carbon-intensive transport and industrial processes. The third theme, obviously, we signed up a revised deal with Tiwai and we have them exiting or that contract terminating in 2024. We introduced a series of initiatives. Again, the team will take you through a number of these today. In return for a lower price for the next three years, we have time to plan for their exit in 2024.
You would expect to see these load sources layering in over time. The pleasing thing is that Transpower's project to upgrade the Upper Clutha Waitaki lines is running ahead of schedule. The need to replace the whole five terawatt-hours of NZAS consumption with as much new load. Our modeling suggests that about one and a half to two terawatt-hours of new load, coupled with increased Southland export capability, should be sufficient to achieve better prices for us. We will talk a little bit about our retail strategy. Retail growth is very much a part of our longer term strategy and a value play for us. We're not going to back off that anytime soon. Are we, Lisa? No. These three themes, New Zealand's decarbonization and electrification, solving for dry year risks, the industry solving for dry year risks, and our response to the Tiwai exit.
Just a very quick update on a couple of things. You're not going to hear anything on dividend policy. We're not changing our current mode of not commenting on our dividend policy or giving guidance. There's certainly, at this point, no intended change to our policy, subject always to things that we can't control. In terms of the current board, in the last year or two, we've had a bit of refreshment go on. We took on three new members in the last 12 months. We've introduced some significant digitization skills. We're planning for the future in that we brought on a younger engineer from the sector, from a lines company, who also has considerable health and safety experience. We've augmented our investment and financial capability around the board table.
You will see a couple of further retirements this year, and we're in the throes of processes for board refreshment there. Further planned changes around that. I wasn't intending to speak anymore so that we can get into the meat of what you're here to view and also talk about and question us on. I'll hand over to Rory Blundell, our Group Strategy Manager, to take us through the next phase. Thanks.
Good morning, everyone. Rory Blundell, Group Strategy Manager here at Meridian. I've got about 10 minutes to give you an overview of the things we are looking to achieve in the medium term, which we call our five-year targets, and I'm also going to set things up for the speakers that follow. As Mark touched on, the five-year goals largely fall out of the three themes that he described earlier, and they're the things that we feel will need to put the group in the best position possible for the future and deliver on the strategy. I'll also provide a bit of a high-level state of play of how those are going, and then I'm going to briefly touch on the business initiatives that sit underneath these.
I'll only touch on those briefly because you're going to hear from a lot of people today who are actually going to deliver those. Meridian has aligned its business around an all-encompassing focus on climate change and decarbonization. Clearly, this isn't a new development. We've been doing this for the last 20 years or so, and it's part of our DNA. It's what drives how we see the world and how we operate. While there's a bunch of important things happening around the world in the electricity market, I and other people feel that the speed at which New Zealand transitions to a low emissions economy, that's going to have the ultimate bearing on the company's value and the country's value. It is worth noting, though, we are at a bit of a juncture.
Electricity demand growth and all the opportunities that come from that soon to take off hasn't arrived just yet. We need to prepare because it could happen quickly. Having a good pipeline of generation options like Harapaki is key. In the top row, those are the strategic initiatives that we often talk about. Champion, optimize, and grow. They're largely the general themes about how we frame up the world. Underneath those, the blue boxes, they are the five-year targets. They're that bridge between the longer term planning and the shorter term planning, which is the typical one to three-year budget cycle type planning. In this way, they help the group keep a right track on opportunities and challenges down the road. The first one there, you'll recognize the 5,000-hour renewable generation opportunity target. This is clearly in response to the Tiwai exit.
Ensuring that we've got credible alternatives to Tiwai is a focus. The team's working largely across three main themes, being data centers, hydrogen, and process heat. It'll come as no surprise that reliable renewable generation is a sought-after commodity. So far, we've identified roughly about 1,500 GWh of substitutes. A pretty good start. We've got a bit of runway left. Guy Waipara will give a bit more detail on that later today. In retail, it's all about scaling and making sure we maintain high customer satisfaction at the same time. The target I just touched on before is about growing the market. For retail, it's about growing share in the market. The two are clearly connected, though, because I think we're underrepresented in retail in any respect. Any growth we can do in retail will further mitigate any downsides from a Tiwai exit.
I see we overtook Mercury the other day. We currently sit third largest by ICPs, yet we're the only one of the large retailers growing at the moment. Powershop is going extremely well, We're supporting some of our larger customers who are rolling off contract during this time of market stress. We're also fifth in customer satisfaction, which is a great result, and Lisa Hannifin, our next speaker, she'll expand a bit more on that. You'll see Flux there. That's now a core part of our retail operations, both in New Zealand and Australia. Our dream is to scale that business because we think it really needs more customers to make the whole proposition work.
The 3 million customers on Flux, it represents the kind of scale we think you need, where you have that virtuous cycle of revenues generating enhancements, which delight customers, attract new customers, create revenues, and so on. At present, we've got about half a million or so customers on Flux, and in FY 2022, their focus will be towards customer acquisition. You've got Nic Kennedy here who will expand and give more thoughts on that. Clearly, sustainability is a core focus for Meridian, the target really is about walking the talk and doing more in this space. Nothing speaks louder than delivering great outcomes. It's a pretty big area for us, spanning policy, regulation, and how we're delivering on that fairer part of our purpose. It also covers how we're going to be perceived by other customers and stakeholders.
It's no surprise we've got aspirations to be top of the tree when it comes to sustainability credentials. I've been working on Meridian, working outside Meridian rather, for all but the last year or so. Looking from the outside, I think it's been a real area of strength for Meridian. Recently, we got fifth place in that Colmar Brunton Better Futures report, and I think that shows there's widespread acknowledgment that we're doing pretty good in this space. Underpinning all this, of course, is our people, and the target here is to have a resilient wellbeing and safety culture focused on what matters. I think working there, the pleasing thing is there is really high engagement in Meridian across the board.
The recent engagement survey, which asked health and safety-specific questions, that asked people's sentiment towards health and safety, how well that's regarded by the company, and leaders' attitudes towards that. That's currently sitting at 90%, and it's extremely good. The total recordable injury frequency rate, TRIFR, that's a widely used measure in health and safety. It is a lagged measure, and it doesn't capture all of the company's performance. Nonetheless, our TRIFR rate is not improving, and that is an area of concern. Standing back, people recognize our efforts in this area, but more to do in this space. That's the five-year targets in a nutshell. I'll just now turn attention to the business initiatives that sit below that. Here they are. The ones in Powershop pink, which I learned is a color after all, they're going to be explicitly covered today.
As I said before, they're that bridge between the long-term and the short-term planning. Five-year targets, though, they're often too big to be eaten in one course. These things, they break it down into smaller pieces. I'll start with Harapaki, the reason we're here today. Now the decision's been made, the goal for the team is to deliver that ahead of our expectations. By that, I mean across that time, cost, quality trade-off. Harapaki is really important for New Zealand's decarbonization and as well as for Meridian's portfolio. It's North Island based, and we'll be looking to grow retail load across the country. This provides some cover for that. Another generation development initiative is about preparing for that growth from decarbonization. By that, I mean making sure we've got sufficient quality and quantity of generation site options, be they wind, solar, or batteries.
We also want to get better at the speed at which we can bring those to market, surely we welcome any legislative changes, especially in the RMA space that enable that. The wholesale team will continue to be instrumental to making sure any retail growth we have keeps the company within acceptable risk bounds, and it's done in a cost-effective manner. The business has to stay really coordinated on this. This is not a trivial execution, especially given the stress we're seeing in the market right now, which most commentators and the ASX futures curve suggests will be with us for some time. You'll see the South Island demand options mitigation there. It pretty much comes across one-for-one from the five-year target.
The reason is we know what needs to be done and when we need to do it by. I won't labor that anymore, except to say there's various layers and scales and timings to achieve that, and we need to make sure they all arrive at the right time so the portfolio is coordinated. As I touched on before, Flux is our specific goal of adding new clients in FY22, and we're fully behind them on this. Retail continued to target best-in-class digital data analytics infrastructure. That involves things like future-proofing the ability to deliver products and services to our customers, the ability to provide greater proactive and self-service, and greater insights into consumption profiles. Of course, any efficiency gains from this initiative are very welcome. They'll keep pressure on cost to serve which as you know, key part of remaining competitive in this market.
Attached to the sustainability target is our regulatory work. Near-term focus being on how we can bring more renewable generation onto the grid. I think New Zealand's got one of the best electricity sectors in the world when you judge it across those three things that everybody's trying to balance: affordability, reliability, and sustainability. I think it's really important the industry manages this in a way that preserves all the wins we've all banked this far. We'll be making sure we have a clear voice and view in that space. There's a bit on future work, but I'll leave that to Neal, who's going to touch on that in his wrap-up. There you have it. You can expect us to see this kind of framing when we report in the future on progress and other communications.
Next, for the rest of the day, you'll hear a lot more detail about those ones in Powershop pink. I've nailed the timing, Owen. Look, I'm happy to take a question or two. Otherwise, we'll crack into it, and we'll bring up Lisa Hannifin, head of retail. Thank you. Let's grab a question down here. Someone pass the microphone.
Hi. Just a question on your target of growing ICPs and Mark's comment that you will continue aggressively hoovering up retail. How does C&I fit into that? Where do you see your load position getting to in the next three or four years, particularly considering you don't get that Tiwai load back until then? How do you keep risk cover to make sure you don't burn up cash?
Thanks for that. Is there something you want to answer, Lisa, or do you want me to take that?
Obviously, retail at the moment. What we know in retail is that you can't just turn it off. We're very committed to keeping the momentum that we've got going with growth. What we are doing is working, as Rory Blundell said earlier, very closely with wholesale to make sure that we can always back up our retail load with that wholesale demand. Our wholesale team has been really innovative in finding solutions for that, and Chris might want to just expand on how he's doing that.
Yeah. Hi. Thanks. We'll cover it a bit more when I take to the stage. There are a number of risk management products out there that we can utilize to manage that gap as we transition through from current day through to the end of 2024. Optionality is key, particularly with the uncertainty of what demand might look like post-2024.
Is it just an ICP target, or is it a load target? Does it include C&I, the target to be a lot bigger than where you are now?
Yes. At the moment, we're extracting great value from our C&I load. Over time, we know that it's really important to build our mass market block. That's why we're going to be focusing on ICPs as well as volume.
Okay. Thank you.
Hi, I'm Lisa Hannifin. I'm the Chief Customer Officer for both brands, Powershop. That isn't very pink. I'd say that was red. Actually, orange. Disciplined execution of our retail strategy is delivering sustained results. Our retail sales volumes have continued to outpace our competitors across multiple periods, and we've managed to do so at a margin that balances the needs of both our customers and our shareholders. Sales volumes continue to rise, driven predominantly by C&I and our irrigation load. As wholesale prices lift, New Zealand retail gains more scale. Despite NZ Retail experiencing significant growth and cost pressure, fixed OpEx has been well controlled and remained relatively flat over the last six years. This has resulted in our cost per ICP and megawatt hour declining as we scale the retail business efficiently.
The focus of NZ Retail is on balancing the performance of our business today with the need to transform to continue to drive great performance into the future. We're conscious that our retail business has many structural similarities to other categories that have seen large-scale disruption from aggressive new entrants in recent years. Our focus is squarely on being ready to compete with the new generation of competition as well as our legacy brands. One of the biggest areas continues to be using data and technology to optimize our business. This is how we'll continue to offer our customers an exceptional experience whilst finding new ways to innovate and run our business more efficiently. One of Meridian's key strategic differentiators is operating NZ Retail as one team with two distinct brands.
Whilst the Meridian Group has had two retail brands for a long time, it is only in the last year that we've brought those two brands closer together, legally amalgamating the two companies, instructing the team to have a very clear, distinct multi-brand focus. There are many advantages to this model, including shared learnings, targeted deployment of the right brand to the right customer segment, and unlocking economies of scale. As you can see from the graph, the ICP count of small and medium retailers continues to grow rapidly in New Zealand. For NZ Retail, having the Powershop challenger brand competing in this space has been a real advantage. At a group level, we've been able to deliver net growth in all segments. At a brand level, Meridian Residential has declined slightly, but the Powershop growth has more than compensated for it.
It's important to note that this reflects a deliberate strategy, those customers that have left the Meridian were by and large lower value than the rest of the brand's customer base. It's through effectively executing our multi-brand strategy that we have recently become the third largest retailer in New Zealand. Another recent milestone is that Powershop has now passed the 100,000 ICP mark and is having one of the fastest growth periods on record. We believe it has the growth path to become the largest retailer outside of the gentailer group in the very near future. A critical element of our multi-brand strategy is to consolidate our core enterprise technologies. At a core platform level, this means bringing Meridian into one proprietary Flux platform that is already in use by our Powershop.
NZ Retail has worked closely with our colleagues at Flux to build out the functionality required to service the Meridian customer base and ensure a smooth transition of these customers. Business led with significant management focus and an iterative approach has paid dividends in this complex process. We have now almost completed our residential and small business migrations with no significant customer impact events. This is nearly unheard of with projects of this magnitude, and we will continue to work through this project with the focus needed to maintain that record. Platform migrations always face the risk of causing customer disruption. As you will see from our customer satisfaction and retention metrics, this risk has been well managed with migrations communicated to our customer base as an upgrade, given the new features that became available, including the use of the mobile app to manage their power needs.
While the program's not yet finished, the productivity benefits are already beginning to be realized. We're seeing an improved ratio of customer care agents to ICPs, driven by lower contact volumes for customers on the Flux platform. In addition, thanks to the intuitive nature of the Flux platform, the time to competency of training new agents to service customers has reduced from a three-week formal facilitated classroom induction to just one week multi-channel and multi-customer segment approach with agents taking live calls. As I mentioned on the previous slide, we have managed our migration program with minimal disruption to customers, and as a result, we've continued to see strong performance in customer satisfaction metrics. In the Powershop brand, NPS has been stable, and customer satisfaction has been retained at second place. That's despite our aggressive customer base growth and keeping flat costs.
In the Meridian brand, the UTS that played out in the media undoubtedly was a driver of the variance you'll see through year. A concerted effort from our team has managed that back to pre-UTS levels as quickly as possible, in turn, helping to maintain that growth momentum. Our focus on being ready for the next generation of competition sets us up well to maintain these trajectories. While we do not expect to get everything right, we believe that we're on the right pathway. I would like to reiterate how hard it is to achieve stable CSAT during a big platform transformation and acknowledge the dedication of our teams in the efforts in achieving this. Retention is just as or even more important as acquisition. There's no silver bullet to improving customer retention rates. It's the cumulative impact of lots of little things.
It's a game of inches, but if you maintain discipline and focus, you can drive great outcomes. NZ Retail's continued improvement in performance is driven by data, analyzing a multitude of data sources to understand the triggers of churn, small-scale tests to assess the impact of certain actions to prevent churn, and scaling successful tests across larger customer groups to maximize the benefit. Initiatives can be bespoke to a particular brand, recognizing that customer segments are different in each of our brands or shared where the learning can apply to both brands. Another example of our multi-brand strategy delivering value. An example of this is we've recently reviewed the Powershop postpaid product called Lite and made significant changes to the availability of this product based on retention performance versus the rest of our customer base.
In doing so, we've improved customer experience for our shoppers, as well as simplifying the experience for our agents and support team. We've deployed resources to constantly focus on optimizations and have seen positive results that outpace market average performance. It's worth calling out here that both our brands are in very good health. Since our amalgamation, we've leveraged the experience across brands effectively to address key measures in Powershop that are seeing it achieve some of its fastest growth on record. Despite challenges in the past year to the wider group, the Meridian brand remains in exceptional health relative to competitors, being the only gentailer brand to meaningfully grow customer numbers. Meridian's purpose of clean energy for a fairer and healthier world is a big driver of performance in NZ Retail, and we're continually looking for opportunities to tangibly demonstrate this.
We continue to support our longstanding partners, KidsCan and the Kākāpō Recovery program, while also undertaking a number of innovative new initiatives to accelerate decarbonization and build demand. We've recently announced our intention to build our own EV charging network and are progressing conversations positively for some major installations. As with all participants in the market, progress has started slowly, but is now accelerating in a way that makes us confident in the coming periods. Earlier this year, we launched our Process Heat Electrification Program. We're working closely with our first three customers, whose process heat conversions will be roughly the equivalent of taking 8,000 cars worth of carbon off the road. We have a strong pipeline of opportunity and will continue to grow this program to help more of our customers make the switch to electricity and assist New Zealand in its decarbonization ambition.
Both the EV and Process Heat programs provide the opportunity to partner with customers and deliver solutions that go beyond just electricity supply. They both also help to stimulate demand, which is important for the growth of our business, at the same time as genuinely partnering with customers to help them be more sustainable and, in the long term, more efficient. Due to customer demand, our certified renewable energy product has moved from strength to strength since launch, with many global customers taking part. This will become a natural source of funding for our further decarbonization efforts. We have plans to expand this offering further in the coming year. After a brief hiatus, as we evaluated a potential Tiwai exit, our commercial solar program is now looking at additional new opportunities of scale, and we're progressing positively with this work.
More broadly, we are keeping a watching eye for distributed generation and storage opportunities and believe our data and technology focus will position us well to move quickly at the appropriate time with new products and propositions to meet and exceed customer expectations. Finally, our way of working continues to evolve. The program to migrate customers onto Flux was always more than just technology. It's a broader transformation of how we operate our retail business. We've changed the way we work in NZ Retail and seen benefits across the spectrum, ranging from improvements in the way we service customers, efficiency gains, and the engagement of our people. Two key areas that have had the biggest impact are firstly, building capability to allow people to work in a more progressive and cross-functional manner.
This has driven better business outcomes as well as providing the resources we need to accelerate the ongoing innovation and performance that we know is required to ensure our business can continue to scale efficiently. Secondly, our approach to having a broader frontline capability. The Flux platform has allowed our frontline people to have the tools and capability to deliver a better and more seamless frontline experience, which means that our customer satisfaction has strengthened, as well as our efficiency as we move to one-call resolution. Our people are the most critical component to executing our strategy, and the development of our new way of working ensures that we can retain and attract the best talent in New Zealand. Thank you, and I'm happy to take any questions you might have.
Yeah, just a couple of questions in terms of the transition to Flux. Can you just give us an update on when that program will actually be completed?
Yeah.
The savings. I think you had that OpEx chart up there. What sort of impact we can expect on the savings side?
Yeah, great. We're 80% of the way through our mass market migration, so that's all of our residential and small business customers or non-half hour customers. We're expecting to have the development for that finished at the end of June. There will be still the migration of customers after that period. Then we'll just have our large industrial customer development left. We expect to finish that at the end of September, and we expect to have all of our customers migrated by December. In regards to our OpEx savings, the example that I just gave around training is a great example. Because the Flux platform is easier to use and more intuitive, if you look at the cost of spending one week training our people to instead having three weeks, there's a saving there. As well as I said, it's not just the technology.
Also we're thinking differently about the way we work. We used to pride ourselves on being a really complex business. That's one of the things I liked. Actually now we're trying to be far more simple and reduce calls to the call center, having less of those interactions. That's definitely part of the cost reduction.
Thanks. Can you just briefly elaborate on how the process heat conversions works, please?
Yeah, sure. What we have with customers, there are a lot of customers out there that want to convert their coal boilers to electricity. There's a huge benefit there. There's plenty of customers that want to do that. At the moment, what they find or the reason that they haven't done it till now is because they haven't had long-term certainty in pricing. What we've been able to do is provide them a long-term contract with a stable price so that they can factor that into their business case. That's really what it is. We're just facilitating that by providing that long-term supply contract. There is some funding that they normally get from EECA, and then sometimes we support that a little bit. We're coordinating that activity. Hi.
Hi, Lisa.
Hi.
The e-certified product you mentioned.
Yes.
Firstly, how do you actually achieve that? Has anybody else got a similar product? How big is the demand from the international-
Yeah
-standard you're talking about?
As you may be aware, internationally, having a certified electricity product is quite commonplace. The customers that have demanded it from us now are people that are playing in the international stage. Normally, their board would expect them to have it, and they're quite surprised that in New Zealand we don't have it. How it works is that we work with a third party who certifies that the electricity that we're providing that customer comes from renewable generation, and there is a charge for that.
Sorry, just to follow up. Is the scope for sales into that channel quite large in New Zealand?
It is at the moment. As I say, an example is Fisher & Paykel. Larger customers that are playing internationally, they're expected to have their energy consumption certified. Yeah. That's it. Thanks very much.
Excellent. All the technology is working. I'm Nic Kennedy. I'm the CEO of Flux Federation. It is a real pleasure to present our vision for growth to you all today. I thought before jumping into the slides, it might be helpful to give you all a bit of context around where we have come from and what it is that we do at Flux. Flux was born out of Powershop around about four or five years ago. It was the software platform that the Powershop retail businesses in New Zealand, Australia, and the U.K. were using to run their back office and customer-facing apps. Flux is a software as a service offering. We provide solutions to retailers to help them run their businesses efficiently and enable them to respond to their changing market conditions as they unfold.
I took over the reins at Flux about 18 months ago now. It is fair to say that I took on a work in progress. My first role was to get the Meridian migration onto the Flux platform project back on track t hen to explore scaling Flux globally. Flux, I think the best way to describe it is it was a startup that really needed to grow up in order to run that project properly. I spent the first 12 months focused on getting the right talent on board and orchestrating a real transformation of the culture, one that cared deeply about our client outcomes, and one where good and very experienced people could grow great careers. Then we worked together to solve the problems for these companies trying to navigate the transition that they are going through.
I also engaged a group of very seasoned professionals to act as my advisory board. That included a woman, Marika Borigo, who had spent 22 years as an exec at Apple. Mr. Rob Lee, who was the CEO of IBM New Zealand. Michael Koziarski, who is hands down the best engineer I have ever worked with. We worked together at Vend. He was one of the original contributors to the Ruby on Rails framework, which was how Flux was originally built. We have recently added Melissa Clark-Reynolds, who many of you may know. She is a wonderfully gifted strategist and entrepreneur. That is my group of people who help us make good decisions and help us define our strategy well. The first job at hand was to recover the Meridian project, which frankly, had been overpromised and it was under-delivering.
We reset the project to one with shared outcomes, and transformed how the project was run and how everybody working on the project felt about it. Working in a very close partnership, Flux and Meridian forged lots of new ways of working, and the win-win results really speak for themselves. The challenges continued, and when COVID hit us in March last year, and we moved our work out into our homes, we rethought how we work, and we shifted to something that we call a remote-first way of working. This enabled our staff to work from anywhere and to ultimately organize their work around their lives instead of the other way around, which is the way that we have always operated. It has turned out to be a game changer for us as a company, for our culture, and ultimately for our clients.
We have accessed a much larger talent pool throughout New Zealand, a sizable number of our people living in Auckland and Wellington have moved out to the regions where house prices are more reasonable and where they can have a lifestyle that they prefer now that they're no longer bound to commuting into offices. We've gone on to win a global Stevie Award for how we have moved to a remote first company, and Flux staff rank it as our highest valued benefit. Again, it's not without its challenges. No book has been written on how to do this. We've learned a lot along the way, and we continuously improve how we do things every day, and we'll keep doing that for the foreseeable future. We don't just talk about the future of work at Flux.
We live and breathe it every day. We're showing others how it can be done as well. In other news that followed off the back of COVID, E.ON over in the U.K. took over Npower, who was our client, and they were running PS UK. They made a decision to consolidate all of their business, and that PS UK would be wound down. However, the sunny side of that decision was, we were locked up in an exclusivity agreement with Npower. We have now been freed from that agreement, and we are active in market in the U.K. right now, looking for new clients. Just yesterday, we brought on a new top sales performer over there and two weeks ago, we hired our VP of global sales based out of Australia. That's a very exciting new chapter that we're entering into.
If we fast-forward to today, Meridian project is on track. Our clients are rapt with the outcomes that they're getting and the efficiencies that they're gaining. We've hardened our product, really focused in on quality, and have moved it from being a solution that worked for small retailers to now working for medium to large size retailers. Our transformation to a high-performing company is complete, and this year we will see the last of the commitments made by the previous administration finished and ahead of us, our new challenges will be around securing new clients and scaling effectively. You are all investors in this room, so you are interested in growth and opportunity. Let me now briefly touch on how we see that unfolding for Flux over the next 12 months.
We've taken a lot of time to dig deep and do a lot of market research to learn about our clients' businesses and to understand where the challenges and opportunities lie in the market. A great thing about that travel ban is it's been very easy to get on Zoom calls with all sorts of experts in this industry around the world. From those discussions, we're convinced that we have a product that is world-class, and we are entering the market at exactly the right time, when there's a seismic shift forcing energy retailers to really rethink and improve their operations. What we know is that energy retailers really have been underserved in the past. They've had to put up with terrible software, and we've seen that from the work that we've been doing with Meridian for a long time.
The incumbents really have taken full advantage. We believe that the time is right now for a new solution, one where we partner with clients, where we share our expertise and knowledge with them and help them transform their businesses, and to become ultimately more flexible and efficient. We have a solution for mass market, for residential and SME, and also for C&I customers. We've got a very healthy pipeline of prospects in New Zealand, U.K., and Australia that we're currently talking to. Like I said before, we just hired our first two salespeople, which is ridiculously exciting, and we're gearing up for bringing on new clients in FY 2022. Finally, what does the end look like? All I can say to that is it's still very early days. It's no small feat building a software company that's scalable and delivers top-class services globally.
We have got all the right ingredients at Flux, and there is a very ripe market out there desperate for better software solutions, and we're going after it. I'm exceptionally proud of the team that we've built and of the turnaround that we have achieved and the outcomes that we have delivered over the last 18 months, and very excited about what lies ahead. We will continue to build and scale Flux to grow our valuation and to support the Meridian retailers to grow their businesses. Am I safe to assume that we can take these slides as read, or would you prefer me to go through them quickly? Straight to questions?
We have no problem with-
Oh, we have to go straight to questions. Oh, you don't have a copy of the slides. I'm sure we can sort that out. I've got about 20 seconds left on my clock, so maybe we could just go straight to questions.
Slides have been released. Nicola, just flick through them very quickly.
This is the vision. Flux empowers visionary companies leading the energy transition, enabling them to respond to changing generation, distribution, and consumption models by moving faster, pricing smarter, and integrating widely. We create value for the Meridian Group in these three ways. Obviously providing the best platform for the Meridian Group retailers, selling that platform to other retailers, and building the enterprise value of Flux. Just some fast facts there. Still 100% owned by Meridian Energy. We've got about 250 staff around the globe. We operate in a remote-first manner, so we have very low office costs. We've got a world-class exec team. We're targeting growth, specifically in Australia, New Zealand, and the U.K. at the moment. Mass market, SME, and C&I. These are all the things that we assist clients with. We will send this pack out for you all later, so you can read through it.
Essentially, what's happening in the market, the energy retailers globally are being challenged like never before. The three Ds, digitization, decentralization, and decarbonization, is on the top of all retailers' agenda, and it's driving the decisions that they need to make. On top of that, there is increasing regulation, specifically in the U.K., and AU is following close behind, not so much in New Zealand yet. The competition landscape is also changing. What has traditionally been a generation through to a retailer through to a consumer, we're now seeing lots of other players move into that space. Not least the oil companies, and they're coming in hot, and they're coming in with a lot of cash. There's pressure on margins, we know that, and challenging stakeholder demands. The last one is also quite interesting, low in-house change in digital skills and talent within these energy retailers.
That's an area that we think Flux can really help. Things are changing. You've got the old incumbents up there at the top who've had a pretty good run, to be honest, but their time is running out. The new entrants at the bottom are primarily tech-first companies who are building software in a way that enables these energy retailers to be more flexible. You can see the top three there are all owned by generators as well. At the bottom there, we've got another player, ENSEK, based over in the U.K. Our offerings are quite different. They've come from different angles. Essentially, most of them have billing at the heart of it. That's how we think about Flux as well. It's the beating heart of your organization. It's the thing that has to always work.
It's got to be accurate, and you've got to love it. These are some of the things that I talked about in the beginning. We've done a lot for the last 12 months. It's been full on, and we're really in a good spot now for the next one to two years to build on our customer intimacy and product leadership strategies, and acquire new clients throughout those three territories. The next three to five years after that is expansion into the U.S. and into Asia. That's it. Any questions?
Symbolically, Nic, you've got an online question. Someone wants to know how old is the core tech of Flux, and how does it stack up against the competition? What investment is required to improve or update it to best in class?
Yeah. Well, we think it is best in class. What we have is a very mature tech stack that is solid. We spend a lot of time making sure that the data that goes into Flux matches the quality of the data that comes out, and we know it works because it's in market and it's not throwing up a whole ton of errors. At the same time, you always have to have your eye on the next horizon. The next horizon for us is the second and third horizons, where the new software that we are building out, while it uses what we have built as foundations, we are building that out in a slightly different style. It's called microservices.
I don't know if that means anything to any of you. It essentially just adds flexibility. It means we can move faster. It means that our clients can utilize those microservices as they have API layers around them, which enables data to go in and out in a very smooth, clean, and easy way. We are in an excellent place in terms of the quality of our software.
Could you, just two questions. One is, can you talk a little bit about, y ou mentioned there about talent acquired through COVID. Can you talk about churn of the team?
Yeah.
Can you just talk about the incentive structure of the team versus the incentive structure of Meridian? Are they aligned? Are they separate?
Yep. They are separate. I'll go from the backwards.
Yeah.
The incentive structures at Flux are very much based around what it is that we are trying to achieve. They are at the exec level only. Meridian has a different setup. What was your first question?
Staff churn.
Staff churn. Yeah. When you go into transforming a company, there always has to be change, and some people love that change, and some people hate it. We had a period over the last 12 months, or it was a little bit less than that, probably nine months, where we had quite high churn of people at Flux. That was not regrettable. We used those roles to then bring people in, very senior, very experienced. I think that made a fundamental difference to our business, how it runs, how we're thinking about building software. Yeah. The churn now is down to just spot on. I think we looked in March, and we were just at national averages. Yeah. What is changing, though, in New Zealand, which is quite interesting, is the period that you tend to keep, especially a software developer in your business, is shrinking.
There's lots of market forces that is causing that to happen. Not least with our borders being shut down, we're bringing less tech talent into the country, but the requirement for tech talent is going up, so the prices are going up. There's huge demand for good people. Don't tell anybody that I've got the best people in New Zealand because I wouldn't be losing any of them. Yeah. That's why making sure that our culture is fantastic, that's the way that we keep people for longer at Flux, because there's only so much you can pay people. Okey-dokey. Who have we got next? Grant.
This is very oddly like talking at a wedding. A funeral. Let's stick with the wedding metaphor. That's a much better one. Hi, I'm Grant Telfar. Today we're going to be staring at some future-facing stuff, mostly on the wholesale side of things. That's what I find interesting. That's largely my role at Meridian all that, and generally slightly annoying people is the other main role. That's what we're here to do. We're trying to stare at the future. Before we get into some details, it's probably worth just gently, and this is a little bit teaching people to suck eggs, but step back for a second and say, "Where are we at the moment in the world?" The international context here is electricity systems are on the cusp, as comes no surprise to anyone in the room, of huge amounts of change.
All right. This is probably the biggest change and most exciting period in our electricity power system since the vast expansion of electricity systems post-World War II. Possibly the change we're staring at here is going to be the biggest since electrification full stop. When you couple that with the desire and drive to decarbonize energy systems, coming back to Mark's work at the start, you're living in exciting times. Just keep that in mind as we wrestle with some of these issues and think about some of the solutions that are put forward by Te Waiora government. You're on the cusp of a huge amount of change. There's huge uncertainty and big, change decisions that are coming. What does that mean for little old New Zealand in our corner of the world?
I guess in some ways, New Zealand has been slow to the party in some of this stuff. Europe and the U.K. in particular have been advancing down the energy system decarbonization thinking, at least for the last sort of 15 years at least. New Zealand's only really coming to the party over the last few years. In other ways, New Zealand is uniquely placed, I think, to advance quite rapidly through this space, given the nature of our power system and the resources we have available. Where we are today, I guess, is that New Zealand cross-party shares the same broad decarbonization vision that the rest of the globe is starting to align behind, and that's great. What does that mean, crudely speaking, for New Zealand and our power system?
You break it down into the three issues that we have to wrestle with is one's green electrons. That's sort of obvious. The second one is the same problem that everyone talks about internationally, which is dealing with all the intermittency in particular that comes with that. That's not unique to New Zealand. The third bit, which is really the focus of today, is dealing with the sort of the hydro-related dry year issue. All right. That's where we start today's bit of analysis.
If you add to that for Meridian in particular, the is Tiwai here, is Tiwai not post 2024, the possibility of the smelter at the bottom of the South Island closing and releasing a whole 5,000 GWh of energy free into the system creates a particular impetus for Meridian to have a closer look at how we think some of this stuff could hang together. That's what we're doing here today in the brief time we've got. In particular, touching on the area that Guy Waipara is going to talk about later, which is demand at the bottom of the South Island that is flexible, is really where we're trying to get the conversation to. What role could that play in the broader dialogue that we have here within New Zealand? That's what we're wrestling with today.
There's a whole bunch of pages that have been deleted because we've only got 15 minutes. I'll try and work through this without confusing everyone. What we're exploring analytically is a modeling exercise, right? The modeling, if you like, is your attempt to say, "This is what the economics and a well-designed market are capable of doing." Whether you get to that perfect purity, we'll see. We hope you'll get there with enough will and enough good regulation and market design. These are modeling exercises. We're focusing here, I'm calling it 2030, largely because that's the language the government's been using. Is it 2030? Is it 2035? Doesn't really matter too much. It's around that period. This is very similar in nature to the sort of work that the Climate Change Commission's been doing, where we're attempting to look at a market in equilibrium.
When I say equilibrium, what do I mean? It's dynamic efficiency, so it's investment equilibrium. We have everything in the market that's coming in is still making money is point one. With the one exception, which we'll come back to, I'm deliberately ring-fencing the mostly unknown costs of some of the specific flexibility costs. The NZD 4 billion Onslow costs we're just putting to one side for a second. Everything else in these analysis are all making money in the energy-only market that we have today. That's the idea, is to have a snapshot of a market in equilibrium in 2030, where you shut off almost all the thermal in the power system. Ideally, all of it, if you're aligning yourself to government intent. Government policy hasn't really been written yet, but government intent, all of it. That's the goal, right?
I guess there's a range of ways you can do that, very briefly, there's a range of scenarios. The obvious one the government's hung its hat on is Onslow, and you can see there's a range of, how many have I got there? Seven different ways you can think about solving some of the drier flexibility issues on top of electrons and on top of intermittency in New Zealand. On the left here, you can see BAU today. That's over the next few years, just to give you a sense of context. As you move towards the right in that chart, I like charts, by the way. If you don't like charts, I don't really apologize. You just have to deal with my charts. You've got some amount of flexible hydrogen on the first left-hand bar there.
The next one along is flexible demand in Southland that only flexes down. Now, that could be aluminum, it could be hydrogen. It's just some demand in Southland that flexes in a dry year, right? Doesn't really matter from the point of view of a modeling exercise. Gas turbines, that's a fairly obvious solution. That's just conventional fast start gas turbines flexing the market as they do. Onslow, hopefully everyone doesn't need an explanation of what that is. That's the pump storage facility uphill from Roxburgh. Coal reserve plants, that's the other idea that people have of taking the Rankine units in particular and jamming them to the side of the market. Overbuild is perhaps the wrong word to use. This is where you don't have any specific flexible mechanism. You just keep jamming in more and more renewables into the power system until your investment metrics normalize.
Then issues around how reliable, how much outage do you have, all that just fall out of the back end of that analysis. The final one is one that's sort of brought to us. Somebody said, "Well, what if we don't do Onslow? What if you have big lakes elsewhere?" Ones that people always mention are Manapouri High Dam, which would be a terrible idea, or Pukaki High Dam is another one that people mention. I said, "All right, fine, we can do those numbers. It's not that hard." That's the range of analysis and scenarios of ways we are thinking about one could look to have a highly renewable power system. All of them rely, keep in mind, all of them rely on other parts of the power system flexing.
None of these solutions have to do the heavy lifting in a dry year by themselves. With enough renewables in the power system, you can expect some amount of renewable spill to play a role there. You can expect some amount of economic demand response, whatever that looks like, to play a role as well. You don't have to have one of these solutions doing all the heavy lifting. The other thing to keep in mind, really, if you think about the amount of electrons, is the amount of new generation to go from that left-hand bar to the first of the right-hand bar is in the New Zealand context, at a nine-year time frame, if you're sticking to government's ideas, is simply enormous, right? There's a huge amount of new electrons you'd have to put in the ground, and that's just about green electrons.
That's not about drought effects. There's a lot of work you'd have to do. Pace and change and scale of that in the New Zealand context is going to be challenging if the government is serious. What you might conclude from all of that is perhaps the obvious, is that at the back end of all that, analytically, does this work? Yes, they can all do the job. They all produce a power system that, in theory, can work. In terms of lights stay on, carbon is low, average costs aren't out of control, but you would expect to see quite different behavior in terms of wholesale prices, storage, and generation patterns. Two, compared to today's market, it's quite a different beast. There's a lot of change in the way things will flop around.
We haven't got much time, briefly, all I'm going to do is just touch on three of those solutions just to dig into them a little bit deeper. We did quite detailed power system modeling. I'm not going to bore anyone with that. You can come to me for charts afterwards if you like. It's worth focusing on some of the flexible demand ones in particular, is the one where we have a lot of interest, and that's dovetailing with the area to try and stimulate demand post the smelter. First one would be, you've got a demand facility in Southland that just happens to be around 5 TWh , which just happens to be the same size as the current smelter and is around 610 MW.
Now, if you bake into such a facility, whether it's making hydrogen or biscuits or widgets, it doesn't really matter, a range of rules about how that might flex out in terms of turn off consumption when things get progressively drier, how does that fit? When we did this work, we didn't really have any preconceived ideas of how this would look. That histogram over on the right-hand side there is a description of the annual distribution we would expect to see for production from this facility. What you see is most of the time you hit pretty much what you'd expect is sort of similar to baseline operation, right? You get this very long, extreme, but quite small tail over to the left-hand side.
What that's starting to tell you is sort of the obvious, is that in a dry year, you can expect a lot of the load to be handed back to the power system. How you monetize that, how you get the commercial entities involved to actually agree to these sorts of things and then do them in advance. I'm just a modeler, I don't have to worry about that. I'm just assuming it happens, but it can work. The amount of flex you get isn't that big. It's quite modest. In a dry year, you're not handing back the 5,000. Keeping in mind storage does a bit of the 5,000, you're not even handing back 3,000. Only around 1,500 is the extreme limit of that tail.
That's the sort of scale that you'd expect to hand back maybe once in a blue moon, once every 60, 70, 80 years. Those tails are important. If a power system can't deliver those little extreme tails, then it doesn't work. The governments or the regulators will find another way if you can't deliver those tails somehow. That's the sort of scale. In terms of overall load factor, if that was, let's say, a hydrogen facility, that would be remarkably good. If you were sitting there trying to think about your green hydrogen facility internationally, where you're playing off the back, which doesn't really exist at the moment, where you're playing off the back of a solar farm, a wind farm, capacity factors of 25% to sort of 40%, 45% are about as good as you're going to get, really.
Here you can get an average capacity factor that's extremely high. The quid pro quo is we'd like some of that demand back occasionally, please. It could work. The more interesting one for us is same sort of view. This is now a weekly view of the same sort of chart. This is now a dry year facility combined with, if you like, the ability to flex up in times of surplus. The rule set that's been designed to create flexibility when you're coming down in a dry year is exactly the same as the previous scenario. All we've added to this is the ability to flex up when you have times of surplus. Days it'll be windy, it's raining, load is low. Although, can you get sunny in this? I'm not sure how you get sunny. Maybe it's sunny in Auckland.
Days where you've got lots of renewable energy going on, you can flex up if you've got that capability. You're talking about sort of flexing out for a week. It's not sort of half hour by half hour. The idea is flexing up and staying up sort of a period of week or so. Adding that ability to flex up creates a dramatically different distribution to the previous one we saw, which suggests, not surprisingly, in a close to 100% renewable power system, you can expect times of surplus and one assumes quite low prices a lot of the time. You can expect the price duration curves in these worlds to be quite interesting.
A facility that can flex up, be it this or something else, could have quite a positive, but moderating influence in a power system like that to soak up some of that excess. Onslow, in a sense, can do a similar thing. If you could pump when there's excess, then that's the ideal with these sorts of situations. Average capacity exactly the same as the previous case. It just happens to flex a lot more than the previous situation. I haven't got the annual chart there, but from an annual production perspective, would you be happy with the distribution that's much more varied here? Maybe, because it depends what your counterfactual is and how you're being rewarded in terms of commercial monetization. Again, that one's got a lot of interest, both on the downside dry years, but also flexing up. You can see there's other aspects there.
You'd agree with that you're loser. Some strong seasonality. There are times when in theory, the power system would take the entire megawatts, all megawatts you've got available back, but not for long. That's the sort of thing that could happen ideally. The final one we'll dig into before I go to my end slide is this simple Onslow representation. Onslow you can model in quite a complicated way or you can be a bit dumb. This is sort of the semi-dumb representation, but it's one that's consistent with the rest of the modeling here. This is a very simple Onslow representation, 1,000 MW, 4,000 GWh additional storage, and you put water into it overnight in summer. This is like a trickle charge version of Onslow rather than a clever version. It works. Does it do what it says on the tin?
Sure it does. Can Onslow help fill that flexibility role that's hard to do otherwise in New Zealand power system? Yes, it can. Absolutely. Any of these solutions can. Onslow is no different. The issue with Onslow is not does it work or not. The issue with Onslow will come down to how much is it and who pays. It works. You end up with an interesting distribution there where again, the tail is expected to pull around 1,500 GWh above average out of the thing. Otherwise, you've got 25% losses. All these bits and pieces that people in the room will be familiar-ish with. I guess MBIE will tell us eventually whether they think it's a realistic option from an engineering point of view and what sort of cost estimate it's going to look like. Yes, does it do what it says on the tin?
Sure. If you try and compare these things, this is the second to last slide for the timekeepers in the room. This is one busy way to compare them. This is annual system cost. This is the old fashioned way back in sort of the Rod Deane days of running Electricorp, or was it ECNZ then? Whatever. Wholesale power system costs. They're not prices. These are costs that the wholesale system faces and how they vary between scenarios. Broadly speaking, it's the same sort of perspective you'd maintain for the grid investment test, is what are the differences in lumps of cost between these scenarios and what conclusions can you draw. Same scenarios. You can compare what the average system costs are today on the left-hand side, then going up in colors, we've got annual maintenance and operating. You've got thermal fuel.
Why is there still some thermal fuel in some of those scenarios, you ask? The answer is because they haven't closed all the coalitions. They are closing, but they haven't closed them all yet. That's the only reason. There's some carbon costs, some transmission costs, and the blue bit, of course, is the interesting one. That's the annuitized capital of all those lovely green electrons we jam in the power system. The bit on top, the little sort of squiggly little red bars, that's the annualized additional costs of the flexibility. That's the worst of these that can ever influence those costs and keep them to one side. If you ignore those and just focus on the standard cost of building more wind, geothermal, solar, whatever, you get to the top of that stack.
If you start adding in the costs like what's the annualised cost of an Onslow at NZD 4 billion, then you pop to those little squares at the top. I guess things you can conclude from that are average system cost compared to today, future cast summary scenarios, they don't look that different. You can sort of see why ministers in charge are looking at it and say, "Well, that doesn't look that bad. Let's roll on." They don't look dramatically different than today's average costs. You can sort of see where politicians come from to some degree. The other thing is there's not a huge amount of difference in an absolute sense between the scenarios, right? They all are in a similar space. It's not as if one's NZD 4 billion and one's NZD 15 billion. You don't have that scale of difference between the solutions.
You do have modest differences until you add in the additional flexibility costs, and that's when things get interesting. It will be the socialisation of those costs, who pays and how, and does it stamp on the market that we have today, are all going to be the problematic issues or not for some of the solutions. The final bit before I move on to my final slide is that system cost is fine, but it's only one aspect. As much as some people roll their eyes at it's useful keeping in mind the whole trilemma space and thinking that there's other metrics by which people judge how well we as an industry and an energy system are doing, and carbon and keeping lights on security are obviously two of them. Also, volatility, investments, market stability, all these aspects you could imagine might have different ways.
Some of them might be more qualitative that some of these scenarios play out against others. Cost is the one in the past in New Zealand for the last sort of 40 years, at least, we mostly look at cost and don't move past there. I think those days are probably gone and some of those other metrics will come into effect when people consider whether scenario A is better or worse than scenario B. There's a lot of detail there, I know. I guess the three points I'd like to leave you with are highlighted, so there they are. One is the scale and pace of change getting towards 100%, even if you don't make it all the way, is large, right? We've got a good start over the next few years with Harapaki and other new investments going on.
If you're really going to do it, there's a lot more to do, right? There's a lot of effort. If decarbonization energy stimulation picks up, there's a hell of a lot more than that that might be required. Second point there that I'd like to highlight is there is no single solution that is fantastic on all these metrics we talked about. There's some amount of compromise required in all of them. Whether that compromise is you have to fill your market, whether that compromise is you might have to put up with cold one type of market, that's not my decision to make. There's no one obvious solution that is perfect across that spectrum of sort of the matrix of ticks that politicians might go through.
The final bit really is, I think any of the solutions can certainly help the dry year part in particular. Some of them might also help with intermittency. Most of them don't help with additional green electrons, but dry year intermittency, yes, but none of them need to do it all by themselves. Whatever we do, as an industry and a country, solutions that are amenable and sit alongside and complement other potential solutions, I think are ones that would be ideal. Things that shut the door on other people's ideas or innovation or future potential changes would be, I think, the wrong path to take. Keeping the door open to complementary solutions is ideally where we would be finishing. I like it. That's time up. Questions quickly, because I think I'm over time. You don't have to ask questions quickly.
You can ask it as slow as you like.
I will try and ask them slowly. Grant, the previous slide, which of those would you be able to continue with an unregulated electricity market, and which ones would you have a real problem?
Well, I think the gas turbine one is probably, in theory, the one that we're most familiar with, right? I think the issue, which again, will come as no surprise to anyone in the room, is upstream gas flexibility and how you keep those, the fixed cost side of the gas industry going is probably still going to be problematic. Whether that's left to pure commercial arrangements or whether you have to support that part of the industry in some way, shape, or form is still a question mark. I know Gas Industry Co's talking about that at the moment and putting out their report soon, I believe. That one's probably the easiest. In theory, the overbuild ones ironically sort of work best because there's no specific giant billion-dollar thing over here that you have to pay for.
There's just a lot of wind or solar or geothermal that might not quite get as many electrons into the grid as you thought it would. In a sense, the overbuild solutions can work best from that point of view, but they are, of course, the most volatile and insane in terms of price or storage or anything else. As long as people can cope with volatility. There's mixed attitudes out there at the moment with how we're doing with today's volatility. That's the quid pro quo. That's sort of what I meant before, is that there's no perfect solution. That one's probably most amenable to NZO only because there's no additional payments. It has other consequences, and volatility is one of them.
How many PJs of gas are left in 2030 in your gas in the system?
For the cogen ones?
Yeah.
I have to do not many. It'd be like the Glenbrooks and all the rest of the world. There's probably under 10. I could tell you. I'd have to open my magic spreadsheet.
Right.
I'm just interested in terms of when you're doing the modeling, how you think about the dry year situation and what level of water you go down to. Is it lakes running out of water? Is it the 10% risk of running out and savings campaigns or anything like that?
Storage management. The current energy risk curves and so on put to the side, because that to some extent is an artificial constraint based on today's market. Put that to the side. What we do here, the entire storage range is the answer, but very occasionally. If you did a storage duration curve, you'd touch the bottom for New Zealand storage, like maybe once across sort of 90 hydrologies, across three or four years of equilibrium that you got there. It happens, and that's a self-calibrating answer. We deliberately dial up a very risk-averse storage management regime when we do that calculation, the full range. We don't reserve any.
We say, look, if you're telling me you've got 4,000 or 6,000 or 3,000 GWh , you can use that full range, but you only just get to the bottom.
If you were to reserve some to make sure the politicians are generally happy that that doesn't actually have a risk of running out?
That's that funny thing where then the economists would say that's an inefficient outcome, and it comes down to it. It's an uncosted and unstated risk-averse attitude, which is fine. Risk aversion is not a problem, which is why the analysis has been done deliberately with quite extreme risk aversion already. You'd say, okay, you think about transmission. Saying, if you're covering for an N minus G minus one event, what level of failure are you covering for, and to what extent would you bother given lights go off around cities in New Zealand actually quite frequently, if you think about it, but often not for months on end. You could do that for sure. You'd say, under what conditions would you actually use this? Why is it there? Yes, completely useless.
For our case with our consenting, we're quite aware, for example, that use it or lose it is a real issue. If consenting bodies see you not using a resource there, well, why do you have it? We'll take that back, please. Unless the national government's told them not to, I guess. All right.
Greetings, everybody. My name is Guy Waipara. I'm the GM for development. I'm really here to talk to you today about the demand side of my development portfolio. Rebecca's going to cover off the generation side. For those who were up at site today and for those that are going up this afternoon, put something warm on. Who would have thought there was such a world-class wind resource available in the Hawke's Bay, of all places, but it clearly is. My slide pack's all about what are we doing. I thought before we get into the what, I should talk about why we're doing that and what are we trying to achieve, briefly.
I think everyone should be familiar, I think, with NZAS, the exit announcement, but also what does it mean for the electricity sector, not just for Meridian Energy or just South Island generators, but what NZAS decides to do at any point in time impacts all players in the electricity market. It's often described as our largest risk. The flip side of our largest risk, I believe, is our largest opportunity. That's the way we're thinking about replacing NZAS with other things. For Meridian Energy, we've really got kind of three things we're looking at. Firstly, everything we do from kind of a current baseline is going to be earnings accretive.
That's important not just for people with a short-term outlook on earnings, but also from a longer-term outlook as we look at the range and depth of investment we're likely to see over the next decade or two. The second component really is we're seeking diversity. At the moment, we're really tied into the aluminum commodity cycle as a business, and so to take ourselves away from that and to put our eggs into three kind of general baskets. We're looking at data, process heat, and green hydrogen. Gives us more resilience into the future. The third part, which is what Grant's covered off and which is what I believe is quite possibly the most important part, which is our dry year flexibility.
It's really difficult to see how New Zealand can transition to a, say, 99% to even 100% renewable energy system without the demand side really participating in a meaningful way. All the conversations we're having with parties, demand side flexibility is front and center to all of that. That's what we're trying to achieve. It's not all about Meridian. If you look at Southland, they've had a bit of a cloud hanging over them around the future of the smelter, not just economically, but also environmentally. They're after certainty about both of those elements. What does their future look like for jobs, but also what does the future look like for their environment? Lastly, but important to everybody, is what's in it for New Zealand.
The ability to unlock a large tranche of renewable energy does allow us to really fast forward our progress on decarbonization. Those are the kind of what are we trying to achieve. How are we going about it? All the things I'm going to present to you today are difficult. I'm not going to dodge that because they all don't exist. You have to be pretty optimistic when you're in a development space. We are being super open. We're being creative into how we solve problems and what we do in terms of our kind of current business model and where we might actually move into in the future. We're also very commercial. If something's not working, we're not afraid to park it and move on because there's plenty to look at. The first one, data.
This is actually the pitch from the Datagrid team. It's led by a guy called Rémi Galasso. Malcolm Dick, another investor, but Rémi is the main guy. He's the person behind the Hawaiki cable, which runs from Whangarei Heads up to the west coast of the U.S., which he got done despite a lot of, what would you call it? A lot of people didn't believe it was going to get done. When he looks at our opportunity, he sees an abundance of renewable energy with very high capacity factor. He likes the coldness of the deep south. For those of you that know about data centers, a lot of it's about economics and efficiency. It has a really low PUE, which means it doesn't have to do a lot of work on cooling.
It's got a relatively short distance to Australia, and Australia really is his primary target market, not New Zealand, even though we would love to have New Zealand customers inhabiting this hyperscale facility. It's well within the 35 millisecond latency range, which is the kind of cutoff that customers are after when it comes to data speed. The connection point is probably one of the most reliable connection points in the national grid because all roads lead from Manapōuri into North Makarewa and all roads from there lead out to Tiwai. It's a highly reliable system with the ability to go to three in redundancy or more if you want to. Lastly, they like the look of New Zealand as a place to work from a range of perspectives. That's kind of the Datagrid pitch. I can't do much more than that.
You have to ask Rémi for more details. A quick update on the project. We actually quite quickly decided, because pace is important to Meridian, that we'd enter into an exclusivity arrangement with the Datagrid team for selling electricity to data centers, and that includes crypto. There's quite a lot of interest in crypto mining out of Southland, believe it or not. Irrespective of what you believe in crypto and what you think about it as an activity, there's definitely a lot of interest. The reason for that is it was a win-win. Rémi and his team need confidence that they've got a supplier standing behind them, and we need to give him confidence that he can make fast progress and spend money, which we're seeing happen. We've tied him into a range of milestones. The next one coming up is finding some land.
He's currently in a DD process for two parcels of land, which he's only got weeks to close on before that exclusivity times. Forward-looking, the Aussie market in and of itself looks like it's going to quadruple in the next four years. The worldwide market, even the local market for data is immense. Finally, a lot of it does come down to cost. That team believe they can supply Aus at a 30% discount to what they can achieve from a local data center based in Australia at their temperature range, buying renewable energy. Even with the cabling, the Datagrid team believe they've got competitive advantage. Where we're at, just a quick run over program. That site acquisition then from there everything parallels up to resource consents, architecture, design, construction tenders.
The part that might be of interest to you is the NIMs due out later this year, and the team would ideally like to close it with New Zealand money. There might be an opportunity to be involved in the data center in some shape or form. Right. I'm going to skip over this pretty quickly because Lisa's already talked about process heat. I've got a really small team. Lisa's got a bit of a larger kind of sales force. We're compartmental. We're split up basically the way we chase process heat between the smaller scale stuff, which as Lisa talked about, the bottleneck really has been giving counterparties long-term confidence in power supply that they can offset their capital investment, which has got a longer term payback.
We've kind of jumped that hurdle and we're offering long-term offers with good pricing, provided it's a decarbonization play. The kind of target that Lisa's team is looking for, that 250-500 GWh is around a sixth to a third of what we're aiming to do by end of 2024. That really does give us optionality around choices for the smelter. It's a massive chunk. We've already got 30 MW underway, and there's a lot of interest coming in. That's really positive. My team, talking about that kind of creativity part, we've teamed up with another large South Island generator. I'm sure you can figure out who they may be. We've syndicated an offer to another large user of process heat. I'm sure you can figure out who that might be as well.
That's moving kind of beyond electricity sales at the gate into kind of selling heat or steam as a service. That's currently parked. We talk about being commercial. We haven't found a lot of enthusiasm for that offer. We've decided to park it and move on to more productive pastures. It's sitting there ready to be reinvigorated as that counterparty becomes reinvigorated. I think I've navigated our NDAs all right with that one. Lastly, I thought I'd like to leave a little bit of time for green hydrogen, because this is by far the most complicated. If I'm going to be brutally honest, two years ago, if you said to me, "I'll be up here talking about green hydrogen." I would have thought you're in the sun. The interest really has come from the customer side.
Looking at hydrogen, it's difficult because it is a lossy, expensive process. If you consider it alongside all other renewable technologies, at one point in time, every renewable technology that we've employed now was once very expensive, wind, solar, et cetera. It's not an unfamiliar territory to be in a place where something looks quite expensive. We've all seen what investment and cost curve, coming out of cost curve looks like. Given the amount of interest we've had, which is quite phenomenal in green hydrogen, we've kicked off a joint study. You'll see the Contact logo up there. One of the surprising things is it's working with one of our arch rivals, in a way that's got a very NZ Inc. And focus on it has been one of the most rewarding things I think we've done for a very long time.
The teams that we've pulled together a joint team, we're working under strict Commerce Act protocols and rules, because we are competitors. It's allowed two different companies that often go head to head to come together with different capabilities and form a team really focused on how do we get the green hydrogen play done. We've divided the way we look at this into three components. Firstly, there's a market scan. That's largely complete and will be released. It might be end of this month or early next month, depending on how we decide to release it, but the work's largely done. That's been completed by McKinsey. I'm going to go over the summary of conclusions at the end of this pack. The second part is a technology assessment. That's like, how do you build it? What are the components? What does it cost?
Health and safety, process safety, logistics, shipping, transport, all of that kind of grunty engineering stuff. We've decided to pull an internal team together to work on that, so that at the end of that process, we've gone right up the IP curve rather than just outsourcing this to a consulting firm. The third part is Grant's shown you his work on dry year flexibility. We're getting that peer reviewed by Concept Consulting with a view of publishing it. We believe that this provides a really awesome opportunity to be amongst the subset of answers to our dry year problem in New Zealand. In parallel with that, we're going to market, and it says May, and again, depending on how we launch this, it might be June, but we will have our registration of interest process ready to go by the end of May.
The purpose of that is to go to the entire value chain of hydrogen, right from people who just want to buy electricity and do the whole thing, to OEMs, to customers, and to conglomerates who are looking to assemble a value chain together to deliver a project from end to end. From that, we hope to get a lot of interest and then to step back and figure out how on earth would we pull this together technically and commercially in a way that looks like it will have long-term sustainability. When you're doing something at the front end, there is no roadmap for doing this right now. We are truly in frontier land. Starting off super open before we know really feels like it's the right place to begin.
In order to help us make sure we learn from the mistakes that we haven't made, we've assembled an international advisory board of true experts. We've got a couple from the U.K. We've got an ex-chief scientist from Shell who's retired, based in the U.S. We've got a couple of Australians who were around the LNG early days who understand the establishment of that market, how it was born, and what were the errors that people made in those early days. We're really relying on these people to give us. They do give us pretty pointed feedback on how we're traveling and all the decisions we're making. A little bit on program. The back end, to be honest, is a little bit dart throwing. The front end, we've got a lot of confidence in.
Our feasibility study, our first phase, we want to have that done for our annual results in August. Our ROI, we want those all in, so we've at least got a first cut by the same time. We can step back and go, have we got an opportunity here or not, and do we keep going? Assuming we are, we need to select the pathway. What that means is there are so many use cases for green hydrogen or hydrogen derivative materials. Working back, there's many options on how you transport the stuff around the globe. We need to ultimately pick a pathway, pick a customer, and then whether it's easy or whether it's difficult, develop a delivery mechanism, which could be some form of consortium approach. Then it all flows from there.
I thought I'd run quickly through some of the insights we've gained from having McKinsey, who are probably the most internationally recognized consulting firm when it comes to green hydrogen. Firstly, there is real international demand for this product, and a lot of it in our part of the world has been driven from Japan and South Korea, who have, for those who know their power systems, they have very little or very few local renewable energy opportunities to decarbonize. If this thing is to get going, they are probably the target destination for New Zealand scale hydrogen facility. There are many potential pathways. Everyone knows how to make hydrogen gas, but it's what you do with it from there, which is the trick.
Whether you convert it to ammonia, whether you convert it to liquid hydrogen, whether you turn it into methylcyclohexane, which is a proprietary mechanism to travel it, to move it around. What the end use cases are, there's many options for that, whether it be transport, power generation, green steel, chemicals, fertilizer. There's a vast range of use cases, and they've all got quite different economic propositions. Not wanting to shy away from the fact that there is an economic gap between the cost of producing this stuff right now and the cost of a fossil fuel alternative. Companies or governments will need to do some heavy lifting around this to make it viable, as they have done for all other renewable energy technologies in the past. If we don't get that, this thing ends up probably becoming part.
Fifth point is around dry year risk. I don't know if Grant quantified it, but a Tiwai scale plant with up and down flexibility, basically dropping down production during a dry year and then ramping up production in a wet year, could provide roughly 35%-40% of what we think this country needs in terms of its dry year cover. Which is a massive amount when you see the kind of numbers that are flying around with Onslow. Almost as a byproduct of its operation. That's still while maintaining around 90% capacity factor operating plant, which would put it by far the most high-end use plant globally. All that kind of flows into if anyone can do it, we think we can. The country's done pretty brave stuff in the past. It's been a wee while. We built an HVDC link in 1964.
That was by far the largest link in the world. This has kind of been corroborated by the parties that look at what we've got and they say, "You know what? We've looked at a lot of stuff, but if anyone's going to get this done, it looks like the combination of actual renewable energy, transmission capacity which is available, deep water port, access to water, and an industrial kind of land zoned area." That gives you all the ingredients you need for a facility like this. When you're comparing this to, say, Australian desert solar or a wind island on the bottom of South America, which is some of the kind of green hydrogen ideas, it really does float to the top of the crop. We do believe there is a real opportunity.
We kind of get to at the bottom is kind of cautious optimism. It's early, so that's the caution. You don't want to be drinking too much Kool-Aid. We are optimistic about this opportunity and the idea of it. It's certainly an interesting one to pursue, so we're continuing to do so. That's me. Any questions? Slightly non-technical would be preferred, but anyway.
Whereabouts does the water come from for hydrogen?
In the Southland region, there's plenty of deep water aquifers. We've had a look at water options, and even though the numbers look like it consumes quite a lot of water, compared to other uses of water, it's actually quite small. In the overall scheme of things, water becomes quite a small problem in the New Zealand context. If you look at Saudi Arabia or Australian solar options, then water is a massive challenge, and they're looking at desalination prior to kind of fresh water. We don't have to do that desal kind of step, which saves cost and energy.
Does that mean you can have it on the Tiwai plant potentially, or does it have to be somewhere else because of the water issue?
Yeah, that general location. We've looked at land options all around that peninsula, and there are at least half a dozen good land options around there. I mean, Tiwai is also compromised by the fact that it's currently an operating site, so with remediation issues to deal with. That's the big kind of question as to how you would kind of lever something and leave an existing operation out. It might be too problematic. There are other options other than the actual Tiwai site.
Hi, Guy.
Hi, Grant.
Just a couple of questions. What is the economic shortfall on a hydrogen project of 750 MW that Grant was putting up there? Is it NZD 1 billion?
I can't actually answer that until, Grant, we've got a sense of what customers are going to be willing to pay. The purpose of doing an ROI is to go out and understand what that willingness to pay looks like. Only until we've got that willingness to pay understood, plus the kind of capital investment required, will we be able to do the numbers and really figure out what that economic gap is. We have to solve that. Whether or not that's New Zealand's problem to solve or whether that's the customer's country to solve, that'll be the question.
How forthcoming are the government in engaging on this? Is there a chance you could possibly get this into that Onslow NZD 17 million review process, that this could be seen as an alternative?
Yeah. We think demand flexibility is a legitimate option. We have run MBIE through this, through Grant's work, actually. Grant's presented this pack to the MBIE team who are working on the NZ Battery project. They are engaged on that. We hope that they will still believe this is an alternative. What's the first part again?
No idea. The final question is just, you did answer it. Sorry, Guy.
Yeah.
Why was Grant putting this as more a flex up program as a demand response downside program? Is that just the way you guys see the future intermittency of renewable generations coming online?
That's actually, you're talking about Grant Telfar's work anyway. That's an up and down. Initially, we started looking at just the downward flex. His early work is all about the ability to taper off as our lakes drop. The added part was what can you do? If you have a renewables overbuild scenario, how do you capture that overbuild? That was where the upside part came into it. It's totally bilateral. It's an up and down concept. It's not just a up or just a down. The optimization is obviously more electrolyzer investment. We don't know really where the optimal point would be around how big you'd make a plant if you're not fully utilizing the upside all the time.
Thank you.
Hi, Guy. How do you think about being potentially tied into another international sort of supply chain?
Sorry?
How do you think about being tied into another international supply chain?
How I think about that or how I think we think about that is we don't want to recreate what we currently have right now. We're acutely aware of not creating what you might term Rheo 2.0. Look, we are quite open to the fact that we might end up having to participate in this end-to-end value chain, as was done in the early days of LNG. Our counterpart is also in the same space. To solve this challenge, it might mean taking a position that we're not used to, but that gives the overall end-to-end delivery chain more resilience to bangs and crashes over time, because it's hard to know how this thing will progress over the next 20-30 years.
We also believe that the end consumer is going to want upstream parties to have skin in the game because they're going to need to invest as well. That's the hypothesis right now, and will be proven out or not once we've run a detailed ROI.
Good day, Guy.
Yeah.
Just three quick ones from me. Datagrid, are they the only player in the picture at the moment? Secondly, I think the Climate Change Commission had come up with a range of about NZD 500 a ton up to NZD 2,000 a ton, a very wide range for hydrogen. Are you guys on the same sort of page there, and why is it so wide a range, I guess? The third question is just about EnPot, whether or not that's dead or not.
Right. What was your first question?
Sorry, throwing you. Datagrid.
Datagrid. In the early days, there was quite a lot of interest, it was more from the incredible end of the continuum to the credible end. That was mostly around crypto mining. We've snapped the Meridian and then participants that come in and ask about a data center related thing, we just put them to other suppliers and say, "Look, we're committed to these guys, so you need to talk to a different supplier." We believe of all the parties we've talked to, he's by far the most credible and has a track record of getting stuff done at scale. Yeah, they're the only show in town for us right now around data, but we're pleased with that. It feels win-win because they are making good progress, and ultimately, speed is important. That was data.
I believe the Hydrogen Commission were looking at hydrogen as a fuel to power gas or coal turbines. That use case is pretty inefficient. I'm not surprised you're coming up with really high carbon abatement costs. We don't believe that's the right way to use hydrogen necessarily. There's much more direct use cases at home, as we'll see. It'll give you a much better bang for buck in terms of carbon abatement. EnPot, you have to ask Rheo about EnPot. That's a difficult one. Yeah.
Maybe a slightly academic question, but what's the thought around potentially having maybe a stranded hydrogen asset in the South Island 10 years from now? Just as you say, all these renewable technologies, the cost curves come down quite dramatically, hydrogen for NZD 2 a kg, and then we have this asset that has a levelised cost of NZD 5 a kg, and then it's not economic for them to continue to operate anymore. Is that part of the thinking?
Yeah, that's a question we have thought about, the answer is not apparent. Partly, we think you can de-risk that by securing longer-term contracts for supply, similar to how early-stage wind and solar projects underwritten with PPAs. Our offer didn't make sense about two years later, but it stood the test of time because it had a 20-year PPA. There are ways and means of managing that commercial risk. Look, if you believe in the long run that the globe is going to be moving hydrogen around as an energy vector as opposed to fossil fuels, this is coming at us. It's part of it. I think part of it, New Zealand's ability to control that future is quite limited. Anyway. Yeah, I thought so.
In the interest of time.
Yeah. Cheers. Thank you.
Good afternoon, everyone. My name is Chris Ewers. I'm the GM Wholesale. I'm in a unique position because I get to pull together all of the stuff that you've heard leading up till now. Just a little recap on all that we bring together in the portfolio and operate. Just going to talk a little bit about the portfolio balance. The wholesale team is a reasonable sized team. There's 30-odd of us, and our job is to bring together all those inputs and deliver energy margin while managing downside risk. We've got a huge modeling component, and you heard from Grant this morning about that on a weekly basis. We take a look at our committed sales that the retail team, Lisa's team, have delivered, and we look at our fuel levels that we've got sitting in our hydro lakes.
Now's a good time where we really are looking at managing that storage. We have a big range in our lakes and the range of inflows that we've got to deal with year on year. We top up that uncertainty through risk management products. In terms of our stats and how our portfolio has tracked over time, here's the last five years of our portfolio, and that's all from our operating reports. Many of you would already have seen that. The numbers in the black, you can see trending down over time as we head forward to today. That's the difference between our generation and our load commitments year on year, and that's based on actuals. You can see a bit of the range in our generation, which are these big purple bars on the left of each box.
That just shows the difference in generation year on year. That flexibility is useful. Also when you start getting tight, it's something that we've got to manage very closely. So that's why we're very keen to see Harapaki come in and support the portfolio and help grow that margin to give us that flexibility to manage the variation of fuel through that time. One other thing in terms of flexibility, this is going back to Grant's question earlier, is helping to manage the risk is getting more flexibility out of the assets that we've already got is important. On the right there's a diagram of the range of Lake Pukaki. Now, historically, we've only actually had the ability to operate that from 532.5 meters down to 518 meters. That 518 meters was the hard bottom that we couldn't go below.
Late in 2019, we managed to reconfirm the engineering ability to get below that 518 meters. We have now a contingent storage range which goes down a further five meters. Now that's in two tranches. The first tranche is tied to the hydro risk curves or the electricity risk curves, as they're called now. That is only when we get to the 4% electricity risk curve is the watch status, is what the system operator calls it in their modeling. The second tranche is tied to the 10% electricity risk curve, and that allows us to unlock that. While we can't actually get to that until those conditions have been met, what it does give us is a lot more flexibility in order to utilize the storage within our lake.
Those additional storage tranches have also been reflected in the system operator's electricity risk curve modeling, which many people out there will be looking at in terms of storage risk. These couple of charts here just show you what a difference it makes. The chart on the left is historical traces for Lake Pukaki, and the dotted line is the historical minimum of 518 meters. You can see all those traces sort of pulling up quite a bit short of that. Because of that hard limit, you tend to end up with a bit of a buffer over time because you don't want to get too close to it. As Grant mentioned before, having the traces just touching it's a bit risky. When you introduce the contingent storage, which is the chart on the right, you can see a number of those sequences.
Those are those 89 years of hydro sequences. There's a handful of them touching them in each year. Although as you approach them, you start to take action, so you probably won't get there. What it does allow you to use is the full range of the lake more so you've not actually got that buffer above 518 meters. So getting more flexibility out of that lake is already valuable, and we've seen that since we've implemented it in our modeling in 2020. The red line is the modeled average going forward on that right-hand chart, and the yellow line is the historical actual average.
You can see that across multiple years, that's allowing to run the lakes just a bit lower and actually use more of the range within the storage. As I mentioned before, the 540-odd GWh of Harapaki will help grow the flexibility within our portfolio. That, combined with the contingent storage, gives us a greater ability to manage risk going forward. As you've heard from others, it helps us fast-track retirement of thermal plant as an industry, and is aligned with where the Climate Change Commission is focusing on decarbonization. In terms of the swap option, many of you will be aware we have a financial contract with Genesis that allows us to call up to 3 50 MW tranches of cover, and it's for use primarily in dry years. That runs out in 2022.
We started a process of looking to replace that swap option a couple of years ago, but then paused it while the uncertainty on the smelter played itself out. Since then, we've seen a bit of a change in the market too. We've seen changes in gas availability and the Climate Change Commission work too. That's changed the environment in which we're having those conversations. We're still in discussions with multiple parties, but it is something that we're working through this year. As we've mentioned before, demand response will probably play a key part of it going forward. One last point. Topical for now. Our current arrangement with the smelter has provision for smelter demand response.
What this is effectively a 250 GWh reduction in load that once the storage level triggers reach a contractual trigger level, which is what that graph's showing, does provide Meridian with the option. It's got pretty close, as that graph shows. In fact, extremely close. Currently, today, it's sitting at about 107 GWh gap between the two, driven by some rain that we got over the weekend. The trigger level, as you can see, does start climbing through the back end of May and into June. Seeing how things play out in the near future, as we're all keeping an eye on. That graph is published on our website too, for those that are interested. That's me. If there's any questions.
Just a couple from me, Chris. In terms of the swap option renewal, are you still looking at 150 MW sizing for whatever that eventual replacement might be?
Yeah, we're looking at a range of different sizes. Just seeing what's out there and how it might be utilized. As we've talked about, the additional flexibility in the storage provides some of that. Load management may provide some of that. What you've seen as traditional tranches or chunks may look quite different in the future. Yeah.
Just the other one is, still obviously a lot of uncertainty about where Tiwai will be in 2025 and beyond. If it does go, that makes the portfolio positioning interesting. Do you have a view about whether or not you'd have a bigger position in the North Island? Your growth rate today heading towards a potential Tiwai exit. Are you comfortable with having a greater share of load in the North Island to help build out that portfolio?
Yeah. Well, look, ideally, we'd like to have everything in the South Island, but the reality is it's hard to get replacement of that size. As guys talked about, there's a lot of focus on new plant down in the South Island and decarbonization through process heat conversion. However, we do realize that there's only a limited market down there. We can grow within, we are growing nationwide, and Lisa is growing nationwide. That's why we've looked at other mitigation options in the North Island, such as the battery project that we've previously talked about to help mitigate that risk. That's still something we're looking at.
Thank you.
Cool.
Chris, what is your base case on Tiwai, stay or go?
Good question, that one.
Can you just answer it in the context of your retail goal of adding an extra 50% of ICPs over the next five years? You add that's another 1,500 GWh . You don't get a swap option, that's losing 600, 700 GWh hours of cover. Where are you positioned? I don't quite get how big this Tiwai is, and you seem to be building a strategy of them going. Is that the wrong way to look at it?
Well, look, if they're going to stay, they need to provide a significant component of demand management in order to meet the seasonal risk of dry hydrology. At the moment, they don't. If they're going to be seen staying beyond that's one thing we would definitely expect. Apart from that, we grow Harapaki. We start looking at what new generation options we can deploy, and we use our risk management capability in contracting as a bridge there until that time.
We should be thinking of it as a year-by-year strategy which could change at any moment based on your view on where Tiwai moves.
It's something we should revisit and keep an eye on closely. Absolutely. Yeah.
Final question, just on that trigger point. It appears as though if you're just 100 gigs short, it's under your control whether you run those generations hard to trigger that or not. What's stopping you from triggering it?
Yeah, the trigger level's actually made up of quite a few lakes. It's not just our own lakes. It includes the Clutha Lakes as well and Lake Taupo, and so we're not exactly in control of that.
Yeah, okay. It's a risk.
Yes.
Thank you.
[Foreign language] Chris More. Hi, I'm Chris More, everyone. I'm the WMD manager for Meridian, and I'll be the project director for Project Harapaki. What is Harapaki? Harapaki is the literal translation of the escarpment. That's the main feature you can see on the southeastern side leading up to the wind farm. This will be the highest wind farm in New Zealand, and it's in subalpine conditions. Those that were up there this morning certainly felt the 20-degree temperature change from downtown Napier and will certainly feel it again this afternoon. The terrain has some interesting challenges for us. It is a limestone and ash base, and what that means is that tomos are present. Tomos are voids in the land, and we haven't had that before at our other sites.
We've got a unique pile foundation that is able to branch through a tomo, through an air gap, and then back into earth again to hold the turbines up. This has been twofold win for us. Not only is it a risk mitigation, but it uses a lot less concrete. This will be the most sustainable wind farm we've had from a concrete perspective, and it's something like 30% savings pro rata over what we achieved at Mill Creek. Great access to the site. Never have we had a state highway leading from the port all the way up, and then even to have a port in Napier itself. This site is blessed from a logistics point of view, which is fantastic. When you get up there, the afternoon crew, as the morning crew saw, we've got a marquee right underneath a transmission tower.
That transmission line is the Whirinaki to Wairakei Circuit, 220 kV. We'll be teeing into that. This project has no transmission of its own to build. The counter to that is that we have a large cable reticulation where we have some 220 km of cable in the ground to get the electricity from every turbine back to the substation. The substation is in the bottom left corner shortly after we turn off from the highway. Another plus of this project is we can get underway as soon as we've branched off from the main highway. Previous projects, we've had to build km of road to actually get to the starting work front. In three years' time, that's what it's going to look like. First power in around June, July 2023, and final power a year later.
Because we're in a very complex area with wind and gusts and snow and rain, there is a lot of downtime built into our program. If you don't build that in, you can come a cropper a little bit later. The project sits within a community, of course, and it's a community that we are establishing relationships both with Te Pohue, which is a farming and forestry background and has historically been the gateway to the center North Island from the coast here. We are building deep relationships with two iwi, Ngāti Hineuru and also through the Maungaharuru-Tangitū Trust. We're going to be here for 30 years, and we've created a building relationship that will be alongside one another for that period of time.
We will have a community fund, just like we have at all other sites, where the community-led initiatives can be proposed to the panel. Those will be enabled, and it's one of the ways how we add back and actually really integrate. The shot here is something that Robert Batters, who is our project manager. Is Robert in the audience? No. For those in the afternoon, you'll see him. Robert Batters instigated this at Te Uku. This is where we try and use our influence over our contractors to integrate what they're doing into the community. We'll be at the school with their curriculum, try and get energy in on it. Then get the trucks to stop outside the school on the way up. Here's a bunch of school kids getting inspired at just out of Raglan on the way to Te Uku.
Right, you need a team to put this all together. Any prizes to work out who the big guy in the middle is? It's Mr Barclay. He was the executive around and responsible for Mill Creek. In this particular shot, there's the very last blade being lifted. It's a bit of a ceremony. You can't see on the blade, but there's actually the flags of New Zealand, and in this particular case, the Danes, even though Siemens Gamesa is a German-Spanish company, the Danes still like to hang their flag on it. The key thing what we're getting across here is we've put together a top tier of delivery agents, if you like, who we think are best in breed. They're not cutting their teeth on this one. They know what they need to do, and they've done it before.
As part of our sustainability drive, there's going to be some 260 odd jobs across all the contractors. We've got a really big aim to hire locally. Locally works both from an ownership and community and the stories back out into the wider Hastings and Napier area. It also is really good for cost as well. This is not a fly in, fly out project. We want people to be based here and really live it and not just be transient. We spent a lot of time in the setup of this project to ensure engineers that are responsible for outcomes in their workstreams are able to bring in learnings from the past and actually design out issues that we had known from our previous operational, or sorry, our current operational farms and previous builds.
If we are on site, then it enables us to establish the culture, it enables us to set the health and safety standards. It enables us to sort out issues. That's why it's absolutely no mistake that we've chosen the principal approach as opposed to turnkey varieties. There's just too much at stake in a complex terrain to hand that over to a contractor. Who knows more, an owner who's really been in depth and going through all the details, or some contractor who's done an eight-week tender for you and claims to know everything? We believe we know more, so we're best placed to manage the risk. Setting that health and safety culture and performance across all the contractors is one of the things you get out of a principal approach.
We're there, we've got our own health and safety manager, and we're making sure that all those contractors, both local and international, are meeting the minimum standards that we require. That can be a little bit hit and miss if you go down an EPC route. That doesn't always get through to the job phase. There's some really complex interactions with the master program. To get first power out, we've got to have the 23 kilometers of road built, the hard stands, which is where the crane sits on, the foundations, the cable in the road. We put the cable back in the road just after we'd made it, so you kind of make a road, tear it up, put the cable in, flatten it back out again. Ships come, you start erecting that.
Somewhere along the line, you've been building the substation, you're doing a whole bunch of things in parallel to hit the program we've got. I think I analyzed this, if we did it in sequence after we closed everything off, it'd be a seven-year program instead of a three-year program. Managing risks in real time. If you're on site, you can sometimes avert a contractual issue, a health and safety issue, or just a technical issue because you're there in real time. We're going to get experts around the table and solve it. If you just let it bubble away, it can fester, then it can really pop out two or three months later as something that you can't resolve.
One thing you can't ever get back is time, you'd rather have that beauty of time to solve things rather than a contractor coming to you in a bunch of months later saying, "We've got a really big problem." Okay, the technology here, we really have to be thankful to the northern hemisphere. The northern hemisphere has had a massive subsidy approach over the last two decades, that has enabled offshore wind farms to take hold. Offshore wind farms are plagued with the really hard ability to maintain. You need a sea state below two. After that, you're choppering in and that you need probably below about 40 knots to be able to land and maintain. The main suppliers have been looking at different ways of designing their turbines, this particular one is one that we've chosen.
The direct drive is effectively what the EV is to the combustion engine of the vehicle fleet. The direct drive has less moving parts. It is literally spinning that rotor within a generator. What we have currently with geared machines is that rotor spins a shaft, that goes into a gearbox, spins it up to 1,500 RPM from the 12 to 14, and then it goes into a stock bog standard generator at 1,500 RPM. There's a lot of things that need to be aligned. There's a lot of gear meshing and teeth and a lot of different components from different suppliers to bring it together. The upshot of the direct drive is the ability to operate in a greater range of wind conditions and also have a longer life expectancy and lower maintenance, and hence drive over the lifetime of the turbine more favorable cost outcomes.
Look, we've got quite good experience in direct drive in the past. The first direct drive turbines we put in were the three at Ross Island down in Antarctica. It was the only thing that would kind of hack that harsh environment. We've also got direct drive at Mount Millar in South Australia and the little, for those in Wellington, the little Polhill Brooklyn turbine, that is now a direct drive as well. That's hung on in gusts of 160k. It hasn't been generating at that point, but it has stayed stable and allowed itself to generate later when the winds come down without needing a technician intervention. That's really where the kind of the availability has a chance to step up. Right, final slide. This is the money slide. Obviously a pretty large investment, and very fortunate to lead Meridian on the pitch.
Our last business case was July 2012 for Mill Creek. We're coming up to 10 years. That NZD 395 million of capital is going to get you 41 turbines, around 176 MW, and just a tad over 540 GWh . It's got a 35% capacity factor. I've been grilled on this in the car. That's a bit lower than what you've seen elsewhere. Just to speak to that, the capacity factor is massively altered by the size of the rotors. Larger rotors enable you to get a higher capacity factor. We're constrained by our tip height here. We have modified the consent to enable us to use bigger machines like this. There are even bigger blades out there. If we had bigger blades on this, our capacity factor would be up there.
Our EBITDAF range we show there is with the Tiwai exit in a reasonably conservative wholesale price path view. In today's NZD and what we're seeing currently, it would be some multiples of that. On a kilowatt-hour basis installed compared to Mill Creek, it's a good 17% lower, and that's really this move of technology and where wind tech or wind turbines are getting to. Just to really hit that point home and close, the direct drive has two main benefits there. Lower operational costs, so there's less moving parts, and that's all good. Greater longevity. This is the first time we've got a 30-year wind farm signed, sealed, and agreed with the OEM to do the maintenance and give us an availability warranty that pays real cash if they don't hit the key targets.
What we're sharing with you below is the estimated LUC of NZD 62.40. Once again, that's one of our better results and kind of what you can grow to expect in the wind industry for great sites. Thank you. Questions?
Hi there. How do you think about residual value beyond the first 30 years? Is there value in the civil works and the foundations?
We had a very conservative way to get through our FID. We basically have no residual value after 30 years. There is value there, but we don't account for it.
Just a quick question. Chris, what roughly can you tell us about the average cost of operation and sort of the OEM cost on these machines?
Yeah. We'd probably need to get back to you, Neville. There is a ramp up during the profile of the contract, but the opening five years is extremely low. Something I've never ever seen before.
Thank you.
Thank you. I would like to welcome up to the stage Rebecca Knott, our Head of Renewable Development.
Good afternoon. This is the first time that I've had the pleasure of joining in this presentation. As I was thinking about it, I thought I should probably present some of my credentials and the credentials of my team, because building a generation pipeline is actually all about the people. I've been around the renewable energy industry in New Zealand for the last 25 years, and yes, that means I have a great love for dams because that's what there was back then. I'm very happy to now be leading the team looking at wind and solar and batteries.
In talking to a group of investment analysts, I also thought I should throw in that I did a master's at the London School of Economics, as an engineer trying to move into that realm was a little bit like exploding a different part of your brain. I also happened to land there right at the time of the GFC. I'm not sure who would have more questions, probably me for you still, even though I got to listen to a range of amazing lectures. Our team has a really broad experience base. Some who've been in Meridian for a long time, have come through past generation development. Others who've been working offshore. We have experience, New Zealand, Australia, the Pacific, the U.K., Europe, and North America, that's a real strength. What is our challenge?
There are a range of different estimates of how fast and how much the demand for additional renewable energy will be. Meridian's own analysis suggests around 12 TWh by 2030. The Climate Change Commission draft advice suggested 10 TWh . For me, the main thing is it's a lot, and we need to have a pipeline there that's ready to go. The best explanation I can give of what my role is to come up with a hand of cards that is ready to be played when the time is right. Not everything will be built, and we can't project exactly when we would want to build it, but we need to have the cards in our hands. It is a challenging number of options, and it's not just to 2030. We're looking right out to 2050.
There are a range of things for us that will influence what we build. I've been asked already today what my opinion is of solar. With the time frames we're looking at, as well as the cost curve for solar, I do believe grid scale solar will be a part of meeting this demand challenge. Part of it as well is consenting time frames. Developing a wind project actually still takes a very long time, not only from the resource monitoring and design side, but through consenting and construction. Solar is faster to analyze, and design, and build. I'll mention consenting again, because I still believe that's one of our great challenges. We don't believe that solar would be any faster to consent than wind, and we're looking forward to what will hopefully be some significant reforms in the RMA process.
The challenge for development with the present process is not only the time it takes to get a consent, but the restrictions that are placed on you. Chris was mentioning just then limits on tip height for Harapaki. When you have a consent that is initially issued for just five years, perhaps getting it extended to 10, you can end up in a space where technology has moved far ahead of what you've consented, and you might have chosen to build something else, but the flexibility isn't there. We're looking at how we can get more flexible consents, and we're also looking to the government to put in some reform that will aid consents being more amenable to the timelines you look at for large generation projects.
The other thing is that there is competition in the marketplace at the moment, so we will not be relying on trying to acquire existing options. A very DIY approach is a sound one in this environment. This graph is indicative only, but to give you a feel for Meridian maintaining market share in view of these projections of renewable energy growth. Harapaki is the bar at the top, and we believe in the period out in the next 15 years, we would need to be building about another seven projects to maintain our market share. Of course, timing is something we're all still guessing, but the important thing here is having a really great pipeline of projects and having smart tools to help us bring the right things into our hopper. I do think of it as a hopper.
You need to bring a range of projects in at the top. You want to be smart about what you bring in because they will all take up time to evaluate. We have been developing some very good tools to help us do that initial selection. As you come through the process, there is attrition, and in the end, you have one popping out the bottom that's going to hopefully be a winner. Our target is to have that as a ratio of about 4 to 1, and that does mean doing smart work up front, but you can see how many projects that means we need to be evaluating and assessing. Having two bars finishing at the same time doesn't mean we'd necessarily be building two at once. That just gives us optionality.
You'd be aware that even right up to the final stages of getting a consent for a project, you can lose a turbine or two. That can totally change your economics. You have to have redundancy in your options pipeline. At the bottom, you'll see the North Island battery that is still very firmly on my radar, and I'll talk to that a bit more in a couple of slides' time. Our current development pipeline is healthy, and I have Chris More in part to thank for that. He was looking after the pipeline before my role was established about 18 months ago. Not only did it produce Harapaki, there are some other very strong options sitting in there. Consented sites are few, and the consents we do have would likely need to be reconsented for modern technology.
We have a good chunk there of options where we have agreements with landowners already, and the red section there of opportunities is what the team are really busy working on now, and these are across grid-scale solar as well as wind. In terms of wind sites coming down off the ridgelines, I thought it would be useful just to outline for you a couple of the challenges in that. With Harapaki, what we've learned is that civil costs have gone up significantly since the last time we had a wind farm built. At the same time, the turbine technology is improving and those costs are coming down. As you come down off the ridgelines, to give you a comparison, the top end of Class 1 wind is around 10 meters a second. When you drop into Class 2, it's 8.5 meters a second.
Now, 1.5 meters a second might not sound like much, but that's actually a 20% reduction in energy from the ridgelines down to the flat, so from Class 1 to Class 2. That needs to be offset by the larger swept area of the turbines, as well as lower civil costs for hopefully having easier terrain than what you saw if you were up at Harapaki this morning, or what you will see if you're up there this afternoon. It's not a straightforward trade-off. The economics and doing the right analysis still really will play a part. The North Island battery, this has been spoken to a few times in the past.
The key thing here is really for us to be able to push more electricity over the HVDC and use the battery to supply the instantaneous reserves market in the North Island to allow us to do that. We are still working with Contact Energy on a proposed joint venture on this, where we'd be looking at the moment for around a 100 MW battery and going 50/50 with them. The delayed NZAS exit has been a real gift. We had a very condensed timeframe when they were looking to be leaving this year. We now have a little more time up our sleeves, but we are planning for that to go live in 2024.
Looking for a site for this is top of my team's priorities at the moment, and particularly just assessing whether we could get additional benefit by co-locating with other generation that we would build at the same time. My last slide is just to talk to another work stream of asset creation that my team are responsible for, and that's our Forever Forests program. Meridian's aiming to build 1,100 hectares of new plantings to offset our own carbon emissions. That's 21 tons. We have already started planting Meridian land. We have some partnerships with other landowners. As we've progressed through this project, what we've realized is to get the speed that we want and the volume that we want, we actually need to be looking to buy our own land.
We have an offer in on our first potential purchase at the moment and some others backing up in the wings. The type of planting we're using is what's described as a mixed model. You plant a mixture of exotics and natives. The exotics provide protection for the natives while they grow up, and then you're able to actually harvest the exotics out and leave the natives to grow up and form the canopy. It's a really fascinating project and is moving along at reasonable pace. So far, we've got 60 hectares planted, and it's roughly 1,000 stems per hectare. We're getting another 80,000 in the ground this year, and our first plantings are already being registered for the ETS. As you can see from those numbers, to get to the 1,100 buying our own land is a significant part of us achieving that.
That takes me to the end of our slides, which will make me Owen's friend because I'm hopefully ahead of time. Does anyone have any questions for me? Oh, way too many hands.
I'll make one quick. Just what proportion of that potential generation stack was solar proportion of the megawatts?
It's probably about a sixth at the moment. Any other questions?
Thanks, Rebecca. First question just on levelized cost going forward. You've got this 12 TWh of build, and you've got the class 1 and class 2 sites that probably similar costs if you get it right. Do we start running out of class 2 sites somewhere in the future, and we see costs starting to rise again?
We don't see that as happening anytime soon. We still believe that there are a number of very good options out there, and that's come up quite a lot recently with people asking me my thoughts about offshore wind. Offshore wind is still two to three times the cost of onshore, and I believe the wind resource we've got on land in New Zealand means we've still got a good base to go before we're starting to get the increase in costs that would cause you to look offshore.
Excluding your cost of capital assumptions, your NZD 62 levelized cost, is that a cost we'll see over the next 15 years, or will that be going down or upwards in your view?
My gut is I'll be struggling to better that in the immediate term, but obviously it's always our aim to get the most economic projects we can. Solar is more expensive than that still, but in some locations, I believe it does still make sense, and especially if you look at the market prices at the moment. Even if solar was in the early to mid NZD seventies, there might be occasions where that would still be an economic project.
Thanks. Just finally, just for clarification, I could have this wrong. I think the Climate Change Commission's 10 TWh assumed Tiwai was exiting. Does your assumption of 12 TWh assume exit or stay?
Exit.
It's 17 needed if it stayed by 2030.
Allow me to defer to Grant Telfar. Where are you, Grant?
Oh, thank you. I got on special.
You were interrupted.
Which 12, Grant? Sorry, that's the.
The earlier slide.
The earlier slide.
There was 12 TWh was Meridian's assumption to 2030.
Oh, from that one. Yeah. That chart, is that from the Climate Change Commission itself?
That's from the Climate Change Commission.
Yeah. That one will align with their numbers. I guess crudely speaking, if I channel Guy, our view with the South will be either Heat New Zealand will be successful down there and there'll be new demand come in, or some version of the smelter going back to Chris Ewers comments will keep rolling. I think more than zero. From 5,000 to zero doesn't seem like a plausible working assumption going forward. Whether it's all five or whether it's half of it is less clear. Yeah, I think assuming it's gone and not replaced by something at all is probably not a reasonable working assumption. There'll be something there.
It's alive either way.
Yeah.
Thanks, Grant.
Just a follow on question while we're talking demand supply assumptions. Last one, just in terms of the comment Guy mentioned, the standing offer, the syndicated offer to a large potential converter. What gives you confidence that over the next decade, there will be the conversion of heat load given their reluctance? Just to pin the point down, how much demand growth is there from industrial heat conversion then to correspond to that 12 TWh generation growth figure?
That's probably not fair to ask Rebecca.
I'm letting you answer it, Guy.
It's really difficult to know, Ned. We are still quite early on in engaging with all the actual users of coal. We've found it a bit interesting how our hypothesis is kind of different to the feedback we got. Whether that changes, whether the price of carbon rises to a point where it just becomes kind of sensible, whether the kind of myth of biomass turns out to be a myth, there's things floating around. You kind of have to believe that this has all got to get done, otherwise we all end up in a pretty poor place. That's kind of my starting point. You've got to believe, you've got to kind of back solve how are you going to make it work. We can't persist on the path we're on.
That's just kind of my outlook on the whole thing.
Yeah, that makes sense. Can I pin you down to a number, though? In the demand track, the 12 TWh in the background, what assumption is there about industrial load conversion?
That's more. That's your point again for me.
We've got Grant. You're safe.
Yes, I'll take that one. Crudely speaking, our assumption on demand going forward is that, if you like, underlying demand as it is presented today is probably going to bubble away small but positive-ish. Maybe half a percent if you're lucky. On top of that, obviously vehicles, about light fleet is probably going to happen. At what pace, we'll see. Heavy fleet, harder again. We're sort of familiar with those sorts of numbers if you did the full conversion, which is probably anywhere from 6 to 10 to 12 TWh on top of whatever underlying is, and that's going to take some time. Industrial heat on top of that is the final bit. In the past, baked into most of our optimistic views of the next 20, 30 years, we'd probably say somewhere around 6- 8 TWh of industrial conversion with the rest being biomass driven.
Obviously people like Transpower with Te Mauri Hiko, at least their previous iteration, had significantly higher numbers than that. As you'd be aware, there's a huge uncertainty there. That sort of six to eight is the top end at some point 2050. That's the future. But how fast, how hockey stick it is, and how realistic that is against biomass or other solutions is, nobody really knows at this point. But that's the sort of scale we're thinking about.
Thank you.
Thanks, Rebecca. There is one more question, but I'll let you off the hook. I'm going to give it to Mike actually. It was how are all these projects going to be funded, not just by Meridian, but the industry more broadly, given government ownership and high dividend payout ratios?
Careful balance sheet management would be the answer. The more complex piece of it is we did an analysis on capital structure last year knowing what we know about the forecasts. If you look at us alone with seven wind farms and assume they're in that NZD 400 million mark, you're talking NZD 2.8 billion over the next 15 years that we've got to find one way or another. We did a capital structure analysis that tested whether we could build a wind farm every three years. So long as we have reasonable uptake in our dividend reinvestment plan, and we're careful around the way that we release excess cash through way of dividend to shareholders, it should be manageable from our perspective. The comments that Mark made around our dividend policy not changing gives us flexibility to do that.
That alongside the dividend reinvestment plan that we've just introduced, we think goes a long way to making that sort of commitment affordable over the next 15 years.
Great. I'll hand you over to Neal for the closing comments.
Thanks for that, team. Rebecca is reasonably unique. One, she's one speaker today who kept to time. Thank you, Rebecca. She's also about the only person who can talk to Mike Roan about requiring more resources
Without getting a pretty sharp shift backwards. I just want to cover a couple of closing remarks and deal with probably a few questions that might still be lingering. Clearly, I think there's going to be a strong tailwind behind the electricity sector for the next few years as the country decarbonizes. That's the positive large, high-level story, if you like. It's going to take quite a lot of reasonably complex and clever maneuvering in the next four years, four to six years, as we migrate away from aluminum smelting in this industry. We've laid out the strategy today in terms of how we go about doing that. Now, the one strategic mitigation that's not on this chart, but we have talked about today quite extensively, is our retail growth options. Yes, we are contracting more load. That's clearly the case.
To get to the point I think you were going to, Grant, we're creating more room in the portfolio to allow us to do that. We've added in the additional contingent storage with Pukaki. We've recently only just added in the SPR capacity into our modeling, and we've got Harapaki coming. On top of that, Chris Ewers does have to manage to very clear guidelines and limits around what our optimal portfolio positioning is based on risk and reward. The executive oversee that management, and to the extent that we're moving outside of those, then he needs to contract with the market. Now, the way that looks in reality is we start trading off some of our large-scale C&I customer load. We would not reprice an existing customer, but we certainly do prioritize them based on loyalty, relationship, and value.
There are points in the calendar year, and it happens reasonably frequently, where we go a bit into buyback pricing mode. Which means that any of those customers that we can't afford to lose, we will only price if we can buy back the capacity from ASX. That's how we do manage that, and I can assure you, we're not taking a massive big punt and hoping that NZAS do exit in 2024. Although we do have a reasonable amount to say whether that actually occurs or not. I think Mark covered off the highlights here. I think the key point to note is nothing, w ell, some things will, but it won't play out exactly as it's scheduled on that chart. Not everything will come off either.
The key thing is some of them will, and in particular, the transmission upgrades in the South Island will occur. They're on track. They will be delivered by the middle of next year. We do have control over our ability to deploy battery and therefore increase HVDC capacity in the North Island. Those two factors on their own improve the walkaway position of Meridian Energy from a renegotiation with NZAS considerably, to a price significantly higher than what we have in that contract today. Now, we think, and I'm reasonably bullish on the process heat, irrespective of whether the big players come to town. We've got a 250 GW target here for the smaller industrial customers. From our interactions with them, there are a lot of businesses seeing the future and wanting to reduce their carbon emissions and move to electric. So I think we're reasonably conservative there.
I also am becoming a strong believer in the data center opportunity, that'll play out over time. I think it's not unreasonable to think that we can add 1-2 TWh of new Southland demand or South Island demand over the next four or five years. If we achieve that outcome, combined with the transmission improvements, we're largely, as a business at least, largely immune from the NZAS exit scenario. That's our bottom line must have, must deliver. Hydrogen becomes really interesting. It's fascinating anyway from a global perspective. There's so many different facets to it and how it could play out, and we don't have all the answers yet. The bit that I'm personally strongly of the view is it can play a strong part as we've talked about in terms of dry year management in this country.
Whilst we've sort of said we'd look at this plant being able to flex up and down, the ability to extract value for that flex up and to extract value for the flex down, that's a massively valuable commodity that could be sold back into the electricity sector. If your alternative is to build a NZD 4 billion plus change and transmission, all the rest of it, a pumped hydro scheme, there's a lot of value there for a flexible hydrogen plant to acquire, which would go to the foundation in terms of making the business case economic. I still think whilst hydrogen production on its own looks challenging, when you bring in the unique characteristics of New Zealand electricity sector and the value that facility can get, it starts looking far more promising.
I'll probably just close out one comment just on Onslow, just because we covered it. I don't necessarily myself believe it could be the market killer that a lot of commentators have talked about, certainly it looks expensive, and Grant's chart showed that, and risky given the scale and given where it's located. I think an appropriately sized pump hydro scheme could certainly fit as part of the suite of options that New Zealand need to manage that dry year risk. The important thing, and the thing we're trying to reinforce with the regulators and policy makers, is that we've got to allow the market to function.
It is proven over time that it does deliver price signals that deliver a competitive build environment, and it does create the right incentives on the major players to avoid shortage. You only have to look at the trend in the Meridian operating report that Alan produces every month over the last four or five months to see that incentive. A lot of commentators miss that, but we are all very aware of the risk of shortage, and it is not something that I think the market will allow to occur if the market is allowed to operate the way it is designed. Just wanted to deal with one other and we might have addressed it during the course of the day, but I certainly got a bit of feedback when we announced Harapaki that, "What the hell are you doing.
Are we looking at a period of overbuild here because we haven't seen any demand growth," and so forth. The reality is Harapaki, along with the other new renewable builds currently underway or committed, will be replacing baseload thermal, and we see those coming out in the next four or five years. By 2025, and it's been touched on, the percentage of renewables in the electricity sector will probably be in excess of 90% on average. Beyond that, just talking to some of these numbers, but if you take a relatively conservative view in terms of organic demand growth, maybe half a percent, you assume we're relatively successful in terms of filling in the South Island deficit, plus you've got EVs and things coming on online. There's plenty of initiatives in the North Island too to decarbonize and electrify.
With an NZAS exit, we still see a situation where you're going to have to build about 5 TWh of new generation before the end of the decade. We are putting a lot of emphasis on the work that Rebecca and her team are doing to build the capacity of the pipeline so that we can actually participate in that growth. Just to be clear, we do talk about maintaining our market share. The underlying assumption is we do it economically and smartly. The onus is on us to come up with the right quality options that we can build and participate in that growth in the future. Just a couple last concluding comments. We haven't talked about Australia at all today. Now, the rationale for Meridian taking a position in Australia, I think, is strategically sound as it ever was.
That country still has a lot of heavy lifting to do in terms of decarbonizing its energy sector. There's got to be strong growth potential there. We are running into some reasonably strong headwinds in terms of our progress. We have engaged an advisor, Lazard, to help us review our existing strategy and to look at other options to ensure that we're going about achieving our aspirations in the right way. We are doing a review of our strategy in Australia, but that does not mean I'm saying we're doing a strategic review, which has connotations. The board certainly haven't been presented with any decisions to make or any analysis around what the outcomes of that work are at this stage. We've got to get through that work, and we won't have too much to add until we've completed it.
Just so you know, we do have Lazard as a consultant organization working with the MEA team just trying to ensure that we've got the right growth strategy in place in Australia. Lastly, just our people. Look, as CEO, the most important thing to me is the health and well-being of our people. We can get all the business success we like in the world, and we've had a bit. We've got our work cut out for us to continue the sort of trends we've managed in this business. It's all for naught, in my view, if we seriously hurt someone, either physically or psychologically. We have and are very focused on improving the way we manage people's safety and well-being in the business. We've put a lot of work into it.
In the last 18 months, we've brought another executive to focus on the issue outside of the just core operational people. Tania now leads our health and safety framework, if you like. It's the one measure in this business that I'm not happy with. We're still having too many incidents. Our lagging measure is we still have too many incidents, and whilst we haven't seriously hurt anyone, there's still too much risk that we need to get on top of. I'm just confirming that that's number 1 focus. It will never go away, and we are very mindful that we need to improve our performance, and we will. Lastly, but I think overall, I personally believe the Meridian team are an incredible team. They're highly engaged. We know that. If you spend time with them, you'll feel it.
Certainly, we do the surveys and the like. They're highly committed. They're very capable. They, by and large, all bought into our purpose, which is clean energy for a fairer, healthier world. I think that's in essence. We can come up with all the reasons why and what we're doing. We're doing a lot of good things and all the rest of that. In essence, to me, is why we're still managing to grow our retail customer bases on both sides of the Tasman. Now, I can assure you from the board down, we remain very focused on building on our inclusive culture. Continuing to facilitate more flexible working arrangements because the workforce of the future is going to demand more from us. They already are. We want to make sure that we are the employment brand of choice and that we have access.
We can retain, first off, access to the talent we need to win in the future. That's very, very important to us. Doesn't get discussed too heavily on a strategy day, but I didn't want it to go past without mentioning it. Lastly, I think the opportunity for a day like today, largely, is to get some exposure to some of the rest of the Meridian team, and to see the quality of the folk we've got on the team and how they think about driving the business. Hopefully it gives you some assurance that what Mike, Alan, and I tell you has a semblance of a robust foundation behind it. Hopefully, you're all going to make it to dinner tonight. We do have the entire executive team here.
We've got a number of other members, senior members of the team, who've presented to you today, so there'll be plenty of people to talk to over a drink and over dinner, and get a bit more of an informal conversation going around some of the things that are challenging us and the industry. I think you'll enjoy dinner tonight, hopefully, and do appreciate you coming. Those of you who have been to Harapaki this morning, you would've worked out it does get bloody cold up there. Those of you who are going up this afternoon, make sure you do take your warm gear. I was amazed the first time I went up there how bloody cold it is. It's fun. It's a unique part of the world. Beautiful views. It gives you an idea of the challenge we have to build things.
I think that'll be worthwhile then as well. Thank you all. At the same time, I can probably take one or two questions. There's also Mike Roan in the room if anyone wants to ask him something specifically. Yeah.
Thanks, Neal. I guess, one thing we haven't talked about too much is the current market conditions and maybe the next three or four years with the gas situation is looking quite tight. What conversations are you having with politicians about that? What do you think their views of the market are at the moment?
Well, we've been having a lot of conversations. I think the Minister of Energy has actually indicated in some public comments that she understands that the market's functioning as it should do. There is a concern. We've got a drought going on. We've seen them before. We know prices go high. It's not an unforeseen circumstance. What we do have in addition, though, is some constraints around the gas market. I think we're starting to get a bit more transparency around how those constraints have materialized and what it's going to take to fix them. But it is going to make things a wee bit tighter for the next couple or three years, and we're very mindful of that in terms of the way we manage our storage and our position.
We do manage our position selfishly for ourselves, but we're very aware that if the New Zealand's electricity system runs out of storage or energy, then the implications will be borne by all. We are taking a reasonably conservative approach.
Thank you.
Right. I think we can climb into lunch now then.
Yeah. If you just sit in your seat for a minute, hopefully by magic, Harapaki will appear on the screen in front of you, as will a picture of Neal.
Welcome to Harapaki, which is Meridian's 11th wind farm development. We're super proud to continue our legacy of delivering renewable energy for Aotearoa New Zealand. With 41 turbines, Harapaki will be the second-largest wind farm in New Zealand and deliver an annual average of 542 GWh of renewable energy into New Zealand's national electricity grid. That's enough power for around 70,000 average Kiwi homes. The site is located within the Hastings District of Hawke's Bay, approximately 35 km northeast of Napier. The site entrance is located at the Titiokura Saddle on State Highway 5, around five km north of Te Pohue. The wind farm will be built on pastoral farmland owned by Meridian. The site is very challenging, with elevations ranging from 730 m above sea level at the State Highway 5 entrance, up to 1,100 m above sea level at the highest point.
All things going to plan, construction is expected to take around three years. Harapaki will also contribute NZD 150 million to the local and national economy and will employ a workforce of approximately 260 people during its construction. After construction, it will provide ongoing employment for the region. Over the next few decades, New Zealand will transition to a low-carbon economy as we do all that we can to combat climate change and support Aotearoa's zero carbon aspirations. We now have the opportunity to electrify these energy uses and power our nation with renewable energy from sources just like Harapaki.