AGL Energy Limited (AGL) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to AGL's Investor Day. We appreciate you joining us for this event. I'd like to acknowledge the Gadigal people of the Eora Nation, who are the Traditional Owners of this place that we now call Sydney, and to pay my respects to their Elders, past, present and emerging. I also acknowledge the Traditional Owners of the various lands from which you join us today and any people of Aboriginal and Torres Strait Islander origin on the webcast. I ask everyone joining us to please take a moment to ensure that your surroundings are comfortable and free from hazards or obstruction before we begin. I do want to note the disclaimer and other information on this slide. Importantly, a lot of the content that we discuss here today reflects an indicative view of AGL's proposed plans. These plans are subject to change, and all the numbers that we are using are approximations for illustrative purposes. Specifically, the company names New AGL and PrimeCo are project names, not the final company names. So let's begin. Today is a big day for AGL's 180-year-plus history. And Christine, Markus, Damien and I are excited to share our plans with you. We're going to run straight through our prepared presentation, then leave time to take as many questions as we can in the time allocated. AGL plans to create 2 separate businesses, which we are now calling New AGL and PrimeCo. They will both be leading energy businesses, each with distinct strategies. New AGL would be Australia's largest multiproduct energy retailer by number of services to customers, leading the transition to a low-carbon future. PrimeCo would be Australia's biggest electricity generator, playing a vital role in supporting our economy as the energy market evolves. New AGL would have a strong, stable, growing customer base connected to 30% of Australian households. It would continue AGL's heritage as a leading energy trader, backed by a portfolio of flexible generation and storage assets. And importantly, AGL -- New AGL would be carbon neutral for scope 1 and 2 emissions on day 1 with a clear pathway to full carbon neutrality. PrimeCo would account for 20% of the generation in the National Electricity Market and be a key direct supplier to major energy users. It would retain AGL's leading low-cost thermal generation position and strong fuel supply position. And critically, PrimeCo would play its own role in the energy transition by developing its existing sites as energy hubs, operating Australia's largest wind portfolio and developing future wind projects. The forces that are driving the imperative to create this new path are the same ones that we've been calling out for tangible action in the short term. At our results in February, we talked about those shaping forces of customer, community and technology and that they were accelerating faster than we had anticipated. Coupled with continuing pressure on wholesale electricity prices, if anything, that pace has only picked up in the last few weeks. In response, we are taking the following actions. The $150 million of operating cost reduction that we announced for the FY '22 financial year are now fully embedded in our financial plans. Our plans for $100 million of sustaining capital expenditure reduction are being accelerated. We have activated further asset optimization planning across our generation fleet. And we are beginning sale processes for some of the assets that are less critical to our future direction, including the Newcastle Gas Storage Facility and Silver Springs gas project. Markus and Damien will have more detail on these actions shortly. When we look at the strategic rationale for separation, again, we see the shaping forces of customer, community and technology. An accelerating desire for action on climate change, shifts in government policy and rapidly falling technology costs have changed our market. This means an acceleration of multiproduct and low-carbon opportunities for our retail business, a reduced need for retail and baseload supply positions to balance each other and diverging expectations relating to risk and return. Separation would give New AGL and PrimeCo the freedom, focus and clarity to face the opportunities and challenges presented by this new world. They would each be able to set and execute their own strategies and growth agendas. They would each be valuing each business, and customers would benefit from more targeted products and services. This slide provides an indicative view of how we are thinking about the allocation of assets between the 2 businesses. The allocation is designed to play to the strengths of each business. A simple way to think about it is that New AGL would have a large customer base equating to a short energy position, be backed by assets and development opportunities that match that position. PrimeCo would have a long energy supply position and the assets and development opportunities commensurate with that position. Part of the arrangement would be a swap or equivalent arrangement between the 2 businesses to provide the appropriate risk management for both. New AGL's strong customer base would include multi-product consumer retail capabilities and evolving capabilities in end-to-end energy services for commercial customers. This would include a carbon-neutral focus backed by AGL's stake in and access to the PowAR platform, which would be bolstered strongly by the acquisition of Tilt Australia. A business with such a strong customer position needs access to flexible and -- flexible capacity and storage assets to manage peak demand events. Hence, we anticipate New AGL would own the AGL hydro and gas firming portfolio and our battery development pipeline and have the development rights over the Newcastle gas-fired power station and Bells Mountain pumped hydro station. New AGL would be free to pursue growth in its capacity portfolio by meeting customers' demand for decentralized energy solutions and creating shared value via orchestration. Finally, as a major retailer and trader of gas, New AGL would inherit the AGL wholesale gas book, storage rights and trading activity. On the PrimeCo side, it, too, would be customer-focused as the biggest direct supplier of electricity to the NEM, the New AGL -- to New AGL, to other retailers and to aluminum smelters and to other larger wholesale and large industrial power users. It would have Australia's highest-quality, lowest-cost thermal generation portfolio backed by decades of asset management and hedging expertise and a low-cost fuel supply position. It would also have considerable optionality as it looks to the future relating to AGL's legacy upstream gas assets and the rail logistics assets in the Hunter Valley. In wind, PrimeCo would continue to operate the wind farms at Macarthur, Hallet, Oaklands Hill and Wattle Point and be a party to the offtake agreements while taking on the pipeline of new wind development sites AGL owns today. There is an important distinction between PrimeCo's long-term wind portfolio and New AGL's position via power. The PrimeCo wind sites are a whole of life offtakes -- have whole of life offtakes, which reflect PrimeCo's major energy supply position, while the development pipeline provides options for renewal. New AGL's wind position reflects shorter-term offtakes, consistent with the flexibility and optionality to manage a shorter energy position. Most exciting of all, for PrimeCo, it would focus on the development of the Macquarie Generation, Torrens Island and Loy Yang sites as energy hubs. This will include multiple battery sites at each hub. Some will be leased to others, like the first Torrens Island battery announced last week, which would be owned by New AGL. For other battery opportunities over time, PrimeCo might build the battery and sell the service. We are also looking first at Ladell but potentially on other sites, at the potential for waste-to-energy developments as well as a pilot plant using electrothermal energy storage technology. At Loy Yang, it will include the Hydrogen Energy Supply Chain Project. We see separation as a natural step in the long-standing heritage of innovation, investment and structural adoption (sic) [ adaptation ] to meet the needs of our dynamic industry. The company's history is 180 years old. It predates all of us, but many of you, like me, have been around long enough to remember some of the major steps that we have taken over the past 20 years. Highlights have included the separation of the Australian Pipeline Trust, now a major ASX-listed company in its own right, the APA Group; and the merger/demerger with Alinta, following each of which, AGL embarked on new periods of growth and value creation. Personally, I am proud of the acquisitions we made of Loy Yang and Macquarie Generation last decade, providing stability and investment to 2 of the most critical generation businesses in the NEM, and of the creation of what we now call PowAR to carry on AGL's heritage as Australia's biggest renewables developer. And I believe what we are doing today is equally as important. The last few weeks have witnessed a high level of activity with the Tilt acquisition, Torrens battery, Solgen and Epho acquisitions and the OVO/Kaluza collaboration. This has shown that even while times have been tough, we have focused on growth and investing in the future. The proposed separation that we are talking about today positions AGL to continue to lead the energy transition as 2 distinct businesses. Importantly, supporting the energy transition will continue to be vital for both businesses. New AGL would be carbon neutral for scope 1 and 2 emissions on day 1, offsetting the small amount of emissions it generates directly with high-quality accredited instruments. It would also have a clear pathway to carbon neutrality for its sourced energy over time via its support for renewables development and further offsets. It would build on our commitments to provide a carbon-neutral option for all customer products by the end of this financial year. PrimeCo's assets are required for network stability and capacity for many years to come while supporting reliable, affordable and the livelihoods of our people and the communities in which they work. It would continue to operate these assets safely and efficiently until they are no longer needed or commercially viable, retaining AGL's commitments not to extend their life or invest in new coal power. As assets close, these commitments will deliver a step change in carbon emissions reduction. This will be approximately 20% with the closure of Ladell in 2023, 50% no later than Bayswater's backstop closure date of 2035 and fully net 0 in 2050 following the closure of Loy Yang no later than 2048. In the nearer term, PrimeCo would then support the development of low emissions technologies through the development of its energy hubs and its continued operation and development of its wind portfolio. I will wrap up my opening remarks by talking about growth and investment, which would be a clear focus for both New AGL and for PrimeCo. New AGL has a strong pipeline in which to invest. A priority would be supporting large-scale renewables as an off-taker and equity holder in the Tilt development portfolio being developed and acquired by PowAR. We expect New AGL will also own and operate our 850-megawatt pipeline of battery projects, including those on the PrimeCo energy hub sites as well as our pumped hydro and gas firming projects. It would carry forward AGL's long-standing heritage as a major trader of gas, continuing to seek out opportunities to invest in positions that support flexibility of supply to our customers. New AGL would be well positioned to expand as a provider of choice in essential services and decentralized energy and to continue to invest in developing and enhancing its leading customer platform. PrimeCo's first focus would be the safe and reliable running of its generation portfolio, the low-cost backbone of the NEM. It would accelerate work to convert its 3 core sites, Macquarie, Torrens Island and Loy Yang, into industrial energy hubs with a future long beyond the eventual retirement of coal-fired power. PrimeCo would also be well positioned to explore opportunities in adjacent parts of the industrial supply chain as an expert operator of complex industrial assets. It would look to develop its portfolio of wind farm assets, including 1,600 megawatts of new development options and repowering options over some of its existing sites. As a priority, PrimeCo would be able to focus on the Bowman's Creek wind farm in the Hunter region, which has the advantage of being located just a few kilometers away from the valuable interconnection points at the Macquarie sites. These are 2 truly strong businesses with compelling growth and investment opportunities ahead of them as independent companies. Our next section will focus on the proposed New AGL business, which you'll also -- during which you'll also hear from both Christine and Markus. New AGL would be Australia's largest multiproduct energy retailer, leading the transition to a low-carbon future and backed by a flexible energy trading and supply portfolio. As of today, it provides 4.5 million services to customers, including about 300,000 services via ActewAGL, of which we own 50%. Our commercial presence recently grew to become Australia's largest commercial solar business, and we are also becoming a leader in providing carbon-neutral products and decarbonization solutions for our customers. New AGL's secure offtake position would be backed by a leading energy trading capability and a 2.1-gigawatt portfolio of flexible generation assets, with a growing ability to realize the opportunities in decentralized energy and strong gas trading and supply capabilities. I'll now hand to Christine and Markus to discuss more of this in detail.

Thanks, Brett, and good morning, everyone. This is an important moment for AGL, and I'm excited to share with you how we see our consumer and commercial customer positions delivering value as part of New AGL. New AGL would continue to build on our position as Australia's leading multiproduct energy retailer but as a leaner, greener organization. The New AGL strategy would be anchored in customer needs today and into the future. We will continue to focus on delivering great value and an effortless experience, while our brand position will be significantly enhanced by New AGL's green energy supply and low-carbon credentials. In the near term, we see New AGL as strongly focused on scaling our energy, Internet and mobile services under the banner of connected essentials. We then expect to see take-up of residential batteries and electric vehicles accelerate over the next 3 to 7 years, for which we are already strongly positioned. Our low-carbon advantage will play strongly in the commercial segment, where our leading position in renewables development and commercial solar will help us deliver to customer needs for asset-backed low-carbon supply. The technology choices we are making are critical to our success, striking a balance between investing in proven technology today and creating optionality for tomorrow. I'm now going to touch in more detail on consumer margin and costs as these will be foundational to the value of New AGL. The business would be well positioned to deliver margin growth as it continues to grow scale and market conditions stabilize. Historically, consumer margin has moved broadly in line with growth in services, with ups and downs for periods of investment and regulatory change. However, in recent years, we have seen more downward pressure on margin as a result of price reregulation and customers switching to simpler, lower-margin products. In FY '21, we have additionally seen the demand impacts of the COVID-19 pandemic and mild temperatures, albeit these have been offset by the contribution of the Click Energy and Southern Phone acquisitions. As we look forward, we expect more normal market conditions and for our multiproduct strategy to deliver growth in customer numbers and importantly, services per customer. This should translate to higher margin per customer even as margin per individual service remains flat or declines amid a competitive market. In the short term, multiproduct growth will be driven predominantly by Internet and mobile. But over time, we expect a greater contribution from services associated with solar, batteries and electric vehicles. On the expense side, we are confident that the investments we are making will continue to drive down recurring costs. In the last 3 years, operating costs have risen, and we expect them to peak in FY '21 as a result of a combination of debt forgiveness, COVID-19 impacts and business acquisitions. Stripping out these impacts, recurring operating costs, excluding depreciation, are down more than $40 million since FY '18 as a result of labor, marketing and channel efficiencies from the Customer Experience Transformation program and reduced churn. As New AGL would remain focused on growth, we would expect the recurring cost outlook to be relatively flat as it builds further scale. However, at the cost per customer service level, we expect further efficiencies as a result of labor efficiencies through automation, an increase in digitally active customers, net bad debt expense reductions and synergies from providing multiple services over an integrated cost base. These synergies will largely be realized through lower agent handling time and technology stack reductions, which I'll touch on in the next slide. Our approach to technology is enabling the business to meet the evolving needs of our customers in a sustainable manner. Over FY '17 to FY '19, we invested $300 million of CapEx on the Customer Experience Transformation program. This built strong core systems and front-end capability that has powered efficiency gains and improved the overall customer experience. By 2025, that investment will be fully depreciated. We are now focused on the next phase of investment to maintain our leading technology position. Our phased approach will keep driving value today while providing real options for tomorrow. The short-term horizon will use proven technology to help scale our multiproduct proposition while delivering further cost efficiencies over coming years. It will focus on updating the middle layer of our technology stack such as our customer relationship management systems, making it easier for our agents to find solutions for our customers. The next horizon is centered on collaboration with OVO Energy announced yesterday. OVO owns Kaluza, a highly modular, cloud-based digital technology platform currently delivering a cost to serve of GBP 43 per account in the U.K., GBP 7 lower than comparable platforms. Our collaboration involves an agreement for AGL to localize Kaluza for Australia via a 51% investment in OVO Energy Australia. Importantly, it serves several purposes. It provides optionality to derisk AGL's future technology investment. It also delivers an innovation platform to test new propositions and customer segments and a low-risk option for New AGL to outsource development costs and localize and test a new platform extensively before any decision to migrate customers at scale. This is an exciting opportunity that positions New AGL strongly to maintain the position as a technology leader that our competitors are trying to match. Let's now look at another large growth area for New AGL, the commercial business. AGL today has a strong platform in commercial from which to grow. We have a large customer base supported by recent acquisitions that step change our capability to deliver to the evolving needs of customers looking for asset-backed renewables supply to meet their decarbonization goals. New AGL would have a significantly more flexible position to respond to these customer needs without a baseload generation position long to energy supply. As a result, New AGL would be able to offer more competitive and targeted products that deliver to large customer needs and be uniquely positioned to support the energy transition for corporate Australia and deliver energy as a service at scale. Our vision is to bring together renewable supply in front of the meter via the PowAR renewable development pipeline with on-the-ground asset management and on-site renewables at scale, which is greatly enhanced by the acquisition of Solgen and Epho. These acquisitions, combined with our existing business energy solutions capability, make AGL the largest commercial solar provider in Australia. This gives New AGL the ability to deliver further shared value with customers via additional renewable supply such as leveraging the underutilized roof space across Australia and allowing customers to access decentralized renewable energy from each other or for their other locations. Additionally, we have the ability to deliver stronger trading and demand response outcomes for our customers via our proprietary orchestration capabilities. All of this will enable us to grow our commercial market share in electricity from levels today that do not reflect the size of the AGL business. Briefly, before I hand to Markus, I want to reiterate carbon neutral as it is so important to the New AGL customer value proposition. New AGL would deliver this directly for customers via carbon-neutral products, to the market more broadly via backing development of renewables supply and for the company holistically by being carbon neutral for scope 1 and 2 emissions and having a clear pathway to carbon neutrality for all sourced energy. I'll now hand to Markus to cover the supply and trading side of things for New AGL.

Thank you, Christine, and good morning, everyone. It's great to talk to you about the future of AGL this morning. I will provide a sense of the energy trading and supply position and capabilities, which will enable a more flexible, lower-carbon, competitive future for New AGL and its customers. In AGL's recent history, we have been meeting customer energy demand via largely our own asset portfolio and balancing in the market. New AGL would have a shorter position that sources electricity through some large offtakes while remaining well positioned to meet customers' combined needs of low carbon and low prices. Initially, New AGL is likely to source more than half of its electricity from PrimeCo. This would provide near-term access to the lowest-cost baseload in the NEM. New AGL would immediately have a higher proportion of renewable offtakes and low-carbon firming. The recent announcement of the proposed acquisition of Tilt Australia by PowAR reinforces this vision and positions New AGL to be competitive in a market where prices are increasingly being set by renewable generation. Complementary to the renewable portfolio is the 2.1 gigawatts of flexible generation and storage that New AGL would own or operate, including our battery pipeline of 850 megawatts. This will firm intermittent generation and capture value in peak demand periods that will increasingly define the market going forward. The latest step in establishing and strengthening this portfolio is a future -- is the 250-megawatt battery project at Torrens Island on which we took a financial investment decision last week. It will be the first of a series of investment around the NEM that will complement the hydro and gas fleet outlined on this slide. We have already identified and secured additional sites across New South Wales, Victoria and Queensland, including those at PrimeCo energy hubs. Beyond its large assets, New AGL would be empowered to accelerate rapidly towards its ambition in decentralized energy and better [ meet ] market needs -- customer needs as central baseload comes out of the system over time. We have clear targets for growth in this space to achieve more than 300 megawatts by financial year '24, and I see that number doubling again by financial year '30. In addition to consumer and commercial customer battery loads, we have reached an agreement to expand services in the ACT and capital region with ActewAGL and are on target to have recruited 300 customers to our electric vehicle smart charging trial with ARENA this year. Beyond our customer arrangement, we are also using our virtual power plant to incorporate our own latent capacity such as backup diesel generation set to add flexible megawatts. New AGL's ability to combine wholesale market trading with strong customer relationship would be a differentiator. The renewable platform would be a cornerstone of New AGL, building on AGL's heritage as Australia largest private renewable developer and creator of PowAR. New AGL would have access to the PowAR platform, which will pick up now that mantle as a leading private Australian renewable developer via the proposed acquisition of Tilt. The acquisition will lead to a portfolio for PowAR of 1.3 gigawatts of operating solar and wind assets and a further 3.5 gigawatts of development and construction projects. This positions New AGL with access to new developments across all states in which it operates. This diversified set of asset and option in development would position New AGL to increase large-scale, front-of-meter renewables that complements the commercial and consumer expectations that Christine shared with you and would expose New AGL to low marginal cost generation with a carbon-neutral profile. Importantly, the firming nature of our flexible capacity and storage assets I spoke about on the previous slide, in addition to our trading capability, would enable New AGL to manage the intermittent generation risk from renewables. Finally, gas will continue to be a critical source of value and transition fuel, underpinned by AGL's long-standing capabilities in trading and supply. AGL's customer relationships will sit at the heart of how New AGL would meet diverse sources of demand. The greatest value will come from the trading and supply opportunities. Existing and new domestic supply agreements would maximize value for New AGL, while we would continue to look for opportunities to increase competitive gas supply to Australians via new imported sources of gas. Overall, I'm very excited about the flexible, low-carbon future that New AGL has ahead of it and the role it would play in the energy transition for Australia. Now I will hand over to Brett to introduce us to PrimeCo.

Thanks, Markus. PrimeCo would be Australia's largest energy generator, supporting our economy as the Australian market evolves. It would have a strong focus on the efficiency of its core assets with optionality relating to the future low-carbon development. Its generation base would be 40 terawatt hours per year from 8 gigawatts of low-cost thermal capacity with secure fuel supply contracts. Its development options are really fascinating. Not only is there the opportunity of a 1,600-megawatt wind development pipeline and repowering of parts of AGL's wind farm portfolio. There is also the prospect of developing the options for batteries, hydrogen, waste-to-energy and other clean energy assets at the 3 energy hubs as well as adjacent opportunities elsewhere in the industrial supply chain. I'll now call Markus back up again to discuss this in more detail.

Thanks, Brett. I will provide an overview how the unique PrimeCo supply and trading portfolio is positioned in the market and our vision for its growth. PrimeCo would be long generation and would bank on its risk management and trading expertise underpinned by sizable long-term offtakes to manage this exposure. This slide outlines and illustrates the distribution of the offtakes by customer segment and location. Certainty of demand through the 2030 would make the business very resilient. You can see that we anticipate nearly all of PrimeCo's generation to be secured in large customer offtakes in the near term, with New AGL taking nearly half of the load, another quarter going to the smelter contracts and the remainder split between industrial customers and other retailers in the NEM. This gives PrimeCo the stability required to operate its fleet responsibly and to invest in new developments for the future. PrimeCo can support these large customer contracts due to its optimal cost position among the thermal stations in the NEM, which provides an operating advantage and longevity in the fleet. PrimeCo would come from a position of strength. It would be the largest generator in the NEM with the lowest-cost generation in the NEM through Loy Yang, and it would lead the cost stack in New South Wales. While we have a low-cost advantage, there is more we need to do to maintain a leadership position. We are driving prudent expenditure controls, which I will speak about shortly, and working with regulators and bodies such as the Energy Security Board to make sure the market is working effectively and gives the right signals for thermal operators so that an orderly energy transition can occur. We expect the regulatory framework will prioritize an orderly, uniform and transparent transition while enabling operational flexibility. The low-cost advantage that PrimeCo has is, in large part, due to our well-managed fuel supply arrangement across the thermal fleet. These place PrimeCo in a very competitive position over the long term despite the ongoing market uncertainty, in particular, given its own coal supply at Loy Yang and low-cost supply contracts for Bayswater. Now let's look at volume, price and margin more closely. You can see that the portfolio is resilient, and generation volumes have been stable. Nevertheless, we are not immune to the ongoing decline in wholesale prices. Following the abnormally high electricity prices of 2018 to 2019, the average annual price across the NEM has more than halved in the 3 years. This is what is driving margin pressure in financial year '21 and financial year '22. The combination of current low prices rolling through our hedge book and the retirement of Liddell are likely to translate to continued margin challenges in financial year '23 and financial year '24. Over the long term, electricity price recovery would add substantial upside. This would be supported by economic and commodity price recovery post the pandemic, normalization of this year's mild temperatures and supply side generation response. However, the current market environment means that AGL is highly focused on discipline in expenditure. PrimeCo would remain focused in reducing the cash running cost of its plant. Starting this year, our existing Integrated Energy business unit is already delivering a significant proportion of AGL's $150 million operating cost reduction and $100 million sustaining CapEx reduction targets. Given market conditions, we have assessed and put in place controls to ensure growth capital is not spent where the market returns do not warrant the investment. In addition, we are reviewing running expenditure with advice from, consultation with international experts. We need to assess dynamically the return profile of any growth and sustaining CapEx spend. All in all, this would position PrimeCo to deliver the CapEx reductions highlighted in AGL's half year result while better matching availability to when market demand requires it. So the near-term actions underway in Integrated Energy today amount to $160 million of cash savings in financial year '22, a key component of AGL's broader OpEx and CapEx reduction plans. Our priority actions are designed to maintain flexibility while reducing near-term expenditure at the same time as we consider long-term changes to asset management plans and running profiles. The first step is matching spend to market conditions. Immediate actions have already been budgeted and put in place. As we look forward, there is an opportunity for PrimeCo to manage the fleet more dynamically to intra-year demand levels over the near term. That means making sure we are available when demand requires maximum load and optimizing maintenance to reduce running costs the rest of the time. This will improve commercial outcomes while ensuring demand is readily available when the market needs it. There are a few actions that could be taken here. Some are conceptually easy, but they require a change in mindset. For example, stopping spending on overtime and weekend workforce mobilization if the market does not require the energy and the availability of capacity. In addition, we are reviewing to lower further the average operating mode or sweet spot of plant to reduce reliability challenges in an aging fleet while still delivering the energy the market needs. Beyond this, we can also look at seasonal cycling units. AGL has historically worked to have all 12 coal units online as much as possible, but this level of availability may no longer be required by the market. We can improve reliability outcomes, improve the commercial proposition and still meet market needs by holding units in hot or cold reserve during shoulder months. In addition, to better manage the increasing duck curve, we can invest to lower units' maximum generation level to reduce losses through periods when demand is low in the system. Over the longer term, we would look to match generation with a more variable cost base. And finally, this is not a step to be taken lightly. We may consider to mothball units. We will, of course, ensure actions enable the availability in the market at times of demand and respect security of supply. It's important to note, under all of these potential actions, PrimeCo would match its hedging strategy to decisions on the physical assets to prevent being exposed. So now let's turn to the development opportunities. The strong foundation of PrimeCo's low-cost generation position and operating discipline that I have outlined also provides a potential source of funding for potential future development. PrimeCo would have multiple avenues for development. In addition to its 1,600-megawatt wind development pipeline, PrimeCo would be focused on progressively transitioning its existing thermal generation sites into energy hubs, starting with the Liddell Power Station site. The energy hubs will benefit from a unique energy infrastructure with a sizable footprint in strategic locations. The development plan comprises battery sites, waste to energy, electrothermal solar storage as well as site-specific development opportunities using our strategic asset base such as the Antiene coal unloader in the Hunter Valley to develop distribution hub and the Hydrogen Energy Supply Chain Project at Loy Yang. PrimeCo may choose to develop, own or just be a landlord for these opportunities dependent on the respective business cases. These are all genuine opportunities to use the existing infrastructure to give a future to the sites and keep jobs in the local communities while creating value for PrimeCo. Let's start in South Australia. In this aerial image, you can see our Torrens Island site. Today, this houses our TIPS A and B stations connected to the grid at 275 kilovolts with potential land and connection capacity for expansions such as the battery project which we confirmed last week. In addition, we have Barker Inlet, which is co-located and would be part of New AGL in the future. As we zoom into the site in more detail, you can see how our existing infrastructure can be used to enable a future for the site beyond the life of the existing power station. In addition to the 250-megawatt battery development site, a second flexible gas plant to fulfill future market needs alongside the already operating Barker Inlet Power Station is an option as well as future stages of battery development. Moving over to New South Wales and looking at the Liddell and Bayswater sites. You can see the significant length that PrimeCo would hold. This is positioned with strong grid connectivity, proximity to industrial activity and logistics such as rail and a skilled local workforce. Building on these attractive attributes will be the key activity in transitioning after the closure of Liddell. While we plan to continue to operate Bayswater, there will be an opportunity to start redeveloping the Liddell site in the near term. We are actively involved exploring how we might establish partnerships to assess feasibility of a waste-to-energy plant at the site, which would be potentially operational from the mid-20s. In addition, we have invested equity into a partnership for the development of some exciting electrothermal solar storage technology, which we intend to pilot at Liddell. We would look to have a pilot plant of the technology at Liddell. Finally, we have lodged planning approvals for a 500-megawatt battery at the Liddell site, which would be developed pending outcomes of the New South Wales Electricity Infrastructure Roadmap. Turning to Victoria and the Loy Yang site. Alongside the power station and mine, there is a connection capacity and local energy expertise with a skilled workforce. While Loy Yang's closure is far away, there is plenty of diversification options PrimeCo can develop in the meantime. Already, we are a partner in the Hydrogen Energy Supply Chain Project for which the pilot plant has recently started producing hydrogen from the Loy Yang coal mine for export to Japan. In addition, we have submitted planning permission for a battery at site and are exploring proposals for solar development that leverage the existing assets such as the settling ponds. Over time, Loy Yang will grow to a more diverse hub of different energy uses that leverage the unique attributes of the Loy Yang site and Latrobe Valley more broadly. With that overview of how we see PrimeCo establishing its near-term position of strength as well as growth path to the future, I will hand over to Damien, who will focus back on some of our near-term actions.

Thank you, Markus, and good morning, everyone. The proposed separation you've heard about this morning is an exciting next step for us. It positions AGL to continue to lead the energy transition as 2 separate businesses. Brett talked at a high level about the near-term actions we are undertaking at the same time as we are pursuing separation, and Markus has taken you through the details of our asset optimization. So I'll focus on our progress against our OpEx and CapEx savings targets in addition to the asset sales announced today. Let's start with the asset sales. Through the process of looking at separation, we have identified a number of assets which are less critical to our future direction but may be attractive to others. Hence, today, we've announced the commencement of a sales process for 2 of the assets, the Newcastle Gas Storage Facility and Silver Springs. Newcastle Gas and Silver Springs are both valuable infrastructure assets, which have been invested in and well maintained by AGL. We expect to execute on the sales of these assets in FY '22. In February, as part of our first half results, we announced our intention to reduce sustaining capital expenditure by $100 million by FY '23, benchmarked to FY '15 when wholesale electricity prices were last as low as they currently are. I'm pleased to report that we are making good progress, and as you've heard from Markus, the progress in Integrated Energy suggests we may meet this target ahead of schedule. We're working hard to balance our maintenance program, prioritizing commercial availability and efficient operations with our cost base to reflect market conditions. Despite ongoing investment in customer systems and supporting the development of our flexible fleet on the New AGL side, we are confident of meeting these targets. Moving on to operating expenditure. And we are very much on track to deliver the $150 million in operating cost reductions we've committed for FY '22, in addition to offsetting inflation. Again, this was benchmarked to FY '15. We also remain slightly ahead of the objective to keep the FY '21 OpEx flat, excluding COVID-19 impacts and acquisitions. We are confident that the separation we've discussed today can be delivered on at least a cost-neutral basis, excluding the one-off separation costs, which, of course, will be significant for the kind of transaction we are contemplating. We are confident that any dissynergies created by separating would be offset by synergies elsewhere and that both New AGL and PrimeCo would have opportunities to deliver further operating cost efficiencies relative to today's cost base from FY '23 and beyond. The business-as-usual savings in FY '22 will be delivered through lower net bad debt expense as well as savings across labor, asset optimization, digitization and reduction in corporate functions with a material reduction in professional and consulting services, offset by a small amount of restructuring and redundancy costs. I'll now hand back to Brett for closing remarks.

Thank you, Damien. Let me close where I started, by stating that today, we have announced a plan to create 2 leading businesses. They would each have distinct strategies and play a critical role in the energy transition. This is immensely exciting moment in the 180-year history of AGL, and the team is focused on delivering a new structure and a compelling future. My final slide has 3 messages. One, we will seek feedback from shareholders and others on the plan that we have presented today. Two, we will be coming back to you by the end of this financial year with a lot more detail on the intended timing and nature of this separation. This will include more detail of critical elements such as final asset allocation, capital structures, offtake arrangements, leadership teams and investment plans. We will then seek to execute as soon as we can. There's been an enormous amount of work and analysis undertaken to date. However, there is a huge amount still to do to finalize the details. And finally, three, we recognize how challenging and complex our operating environment is. And throughout this period of change, we will remain committed to executing the actions we have discussed today to deliver underlying business improvement. We appreciate the time that you've taken to listen to this presentation, and in a moment, we're keen to take your questions. We'll take as many as we can. And as ever, if you have further questions at the conclusion of this event, our Investor Relations team will be happy to run through these with you. Thank you very much. Now I might -- just before we take the first question, as we've been presenting, I've had a note passed to me that this month has been a big month for AGL. We've had a series of significant investments and announcements. We began the month with the Solgen and Epho acquisitions. We then backed PowAR's acquisition of Tilt. Last week, I was in Torrens Island announcing we'd gone to FID on a big battery there. And finally, in the last couple of days, we announced the OVO collaboration, which behind the scenes, too, also involves some system investment. Between those 4 big growth announcements, we have approved, executed and announced something like $0.75 billion worth of new investment for this business. We've also backed it up this month with an overwhelming vote of support for the new EBA at the Torrens -- sorry, at the Loy Yang site, one of our biggest and unionized sites. So we're very pleased with that. And finally, we signed the contract with Portland smelter to keep one of our biggest and most important customers in the market. So 6 big announcements. We were expecting a seventh. Today, we've received -- in fact, while we've been sitting here, I believe it's been put out, the outcome of the Crib Point panel review. I'm told that the result is the Minister has declined planning application on the basis of the recommendation from that panel. As you can appreciate, it's quite a complex decision. We were given a copy late last night. The team is still pulling it apart to understand it. I'm not really in a position, therefore, to talk to it directly today beyond acknowledging the decision of the Minister and the detail that has come out that we need to consider properly. What I will say in the context of our gas portfolio is we have a rich and complex gas portfolio and trading position with many, many sources of supply. I note that in this financial year alone, in the last 9 months, we've signed something like 150 petajoules of new supply arrangements. So that's in this financial year alone. So while I had been hoping that we would make a seventh big announcement today, clearly, we'll be satisfied with 6 for the moment. And the seventh, we still need to understand properly. On that note, let me throw open to questions.

Thank you, Brett. We only have a limited time for our Q&A today, so we'll only be taking questions from market participants. [Operator Instructions] Our first question comes from the line of Tom Allen from UBS.

You've made a number of references to New AGL and PrimeCo being independent companies. Can you share some detail on the short and medium-term plans for the PrimeCo business and the governance structures? Are you pursuing a separate listing for PrimeCo? Or do you expect that it will remain under the AGL umbrella and you'll sell it down to partners?

Thanks, Tom. Today, what we've done is we've presented what, in effect, is an internal separation. So 2 divisions, if you like, under the AGL umbrella. But we are signaling, in the next phase, we're going to consider the right capital allocation structures and the right funding structures. So the kind of things you've described, like an ultimate share split of the company, like different funding arrangements are definitely options on the table that we're considering and we'll be seeking feedback on. But the balancing act that we're trying to strike is today, while we've got a very thorough first understanding of where we see separation looking for the business, we wanted to present that to the market and to our shareholders, engage in feedback and then come back as part of that end-of-June commitment with further detail. We'll talk about where we think capital structures are going then.

Okay. And then obviously, to make that PrimeCo development, I guess, a little more attractive, the development opportunities you've just discussed, that included development plans for, I think, sort of an Air Liquide CCS plant at Torrens, waste-to-energy plants and possibly a 500-megawatt battery at Liddell, possibly floating solar at Loy Yang. These all sound very interesting. But have you got some indicative CapEx and return profiles that you think those projects might be able to achieve? In the market today, there's no shortage of development opportunities, but the challenge remains that the returns and risk profile have remained challenging.

So some of these things will have appeared in past pipeline announcements. Many of them will feature in the next round where we'll start to put numbers against a lot of what we're talking about. So as we come back in June and beyond, we'll start to quantify better what we're doing. But look, I come back today. I know that there's lots of announcements out there in the market from different organizations. Lots of people talk about doing things. Again, this month alone, we've approved, executed and announced something like $750 million worth of investment. That momentum, if you like, will continue. PrimeCo, you'll see more and more pilot projects beginning. So a number of the things that we've talked about like some of the opportunities at Liddell, for example, with the waste-to-energy idea and the electrothermal storage idea will begin as pilot opportunities. But they're real -- we're very close to putting names against those, but we felt it was important to show that they were there. The Air Liquide position is a real project, which is signed as far as I'm aware and going ahead, on the way to being built. The battery opportunities and collaboration initially between PrimeCo and New AGL and beyond are very real when you think about the explosion of batteries that is going to be needed in the market.

The next question comes from the line of Ian Myles.

I guess in your consideration separation, are you going to create any thought version of due diligence for third parties to potentially look at the New AGL? Because it strikes me it's a rather attractive business and what you're trying to create there within your telco strategy of utilities and telco merging.

Yes. Our focus here today, Ian, is to present that we're looking to separate into 2 business units. We've got no current intention of setting a data room or engaging in other processes. We're focused on the plan that we're presenting here today. I'm encouraged with comments to say different parts of the business will be of interest. I recognize that because part of what we're doing today, I think, will allow the market to better value both businesses and to lean into the attraction that both will have.

And I know it's very early days. Can you give us a sort of a concept of when you think about contracting between the 2, longevity of contracts? Because New AGL is obviously quite flexible. Are we going to see long-dated contracts with PrimeCo? Or is there going to be sort of 5-year-plus options or somewhere along those lines?

I think, Ian, the PPA or offtake arrangements between the 2 will come back in the next phase. But I would guide you to think about it as what would be a sensible commercial arrangement between the market's largest retailer and largest generator. And the balancing act will be both will want to de-risk their position. So in the very short term, both will want to have a degree of certainty. In the very long term, both will want the flexibility to find different suppliers and customers. So I think we'll come back with something that will look like what 2 independent businesses would come together on but 2 independent businesses that are the biggest retail and biggest generator.

A little bit more about your IT joint venture or the 51% interest in Ovo's energy. How do we differentiate that from Octopus, which Origin is going down -- or Kraken, the charge is going down? Where is the different system which you're putting in and theirs?

So I might hand to Chris to take that one on.

Thanks very much, Ian. I think when you look at both systems, both Kraken and Kaluza are both modular, cloud-native technology platforms. So they certainly have that in common. Both also offer superior cost-to-serve advantages through automation. The benefit, if you like, of the Kaluza platform and certainly the architecture, it centers around sort of having a single, unified data source. And what that allows into the future when you think of the future of energy, it allows real-time insights for customers. It allows near real-time data for reporting decisions. It allows increased flexibility for dynamic pricing. And it also importantly allows a customer to take control when you start to look at a future of solar battery electric vehicle. It allows a customer to decide when to dispatch or not into the grid. So that's a really important distinction. The other difference, I would say, between the 2 models is certainly, from what we understand of the Kraken model, it does require not only just the adoption of the technology platform but the adoption of the operating model and the cultural change piece that sits underneath it. That is not something that you need to do with what we're planning to do with Kaluza. So our investment is to be able to access and accelerate the leading technology platforms we have today but also have optionality for the future to work with OVO Energy Australia to localize the platform to the Australian marketplace and then to have that as a future option for us.

Yes. I think, Ian, maybe just to add to that answer. What I really like about it is we're continuing to do 2 things. We've been investing over the last 5 years in our existing systems. That's gone really well. Proof points I offer are best NPS in the market, biggest customer base in the market and growing. So to me, they are 2 very strong proof points that what we've been doing around our existing systems is working for our customers. But that won't last forever. I think as I look at Damien, I think that the existing investment in things like CXT will depreciate by about '25, 2025. So we're very sensible about technology horizons. And the great thing about the OVO position, which, along with Chris, has particularly been driven by John Chambers, our EGM of FB&T, what I really like about the OVO position is it puts a stake in tomorrow's systems. So they're still fully developing them. But if you get on and have a look at what OVO's proposition is, it's really exciting. So great system today that we've got, that we're keeping on investing in but with a sensible technology horizon stake in the ground of tomorrow where we'll try and trial and then eventually really see that grow, I expect.

Thanks, Ian. Next question comes from the line of Peter Wilson.

Maybe a question for Damien. So I take, I mean, Brett's comment that for now, it's just an internal separation. But have you got any idea on the level of debt that you might be able to put into each entity and how that might compare to the current consolidated level of debt?

Yes. Thanks for that question. Look, as you can appreciate, what -- as Brett talked, we'll be coming back to the market towards the back of this financial year with more of those details. We've clearly done plenty of modeling around. There's plenty of thinking around what's the right asset allocation and so forth. But the next step will be to come back with that detail. So that's not for today. Today is about the strategic rationale, the why, why are we doing this, and I think that's a really important first step as we sort of consult with our shareholders and various stakeholders. The next step will be coming back with many of those other aspects. And you'll see me, no doubt, playing a much bigger role in this next one as we come back with a lot more detail.

Damien will take center stage...

Directionally, which way you expect -- do you expect the new structure to free up some capital via higher debt levels?

Pete, I think the way to think about it is AGL today has an investment-grade credit rating. That's really important for lots of reasons among our counterparties in the way that we trade. Any capital structure of the future, separate or together, we'll solve for, we'll target investment-grade credit ratings.

Just to add to that, Brett, the way we're thinking about this and the asset allocation is to make sure they are financially viable, strong organizations going forward as well. So that's the way we're thinking about that asset allocation and the way we'll end up structuring this.

Okay. Got it. And to follow up, there's a question on the duration of the offtake agreements. So Markus' presentation indicated that one of the appealing things about PrimeCo will be the certainty to 2030. Are we to take that -- should we see that as a signal of the duration of the offtake agreements between the 2 entities that will be something like 2030? Or will it be more closely matched to the duration of demand for NewCo?

So Pete, yes, my guide on that would be to not over-index on the 2030 comment. It was as much reflective of the full customer base that exists there that have a variety of tenors. So you've got the smelter agreements. You've got some very large, long-term customers in there as well that will naturally suit the PrimeCo position. And you'll have New AGL and other retailers there. I'd come back to you because what we didn't want to do is go into that next level of detail. We've got to really finish a body of work to solve for what's the right balance between these businesses so that they're set up sensibly. But I'd come back to it should make sense in the context of what would the largest retail look like in terms of balancing its risk but also wanting the flexibility over the longer haul to do its own thing, what would the biggest generator want to do in terms of balancing its risk but also being able to expose itself to different customers and different price points in the future.

Okay. That's -- and one last one, if I could. Brett, I'm struggling to place the Tilt acquisition in this strategy because what it does through acquiring Tilt is effectively doubles down on the renewables development pipeline, so at least both companies with the large development pipeline. And it also leaves both companies with an ownership position of wind farms. So it kind of -- it doubles up in that sense. Yes. Can you just comment on that?

For sure. Look, the starting point is to think about it as, as big as the Tilt platform is and as big as the existing AGL platform is, those platforms, in some ways, are dwarfed by the build that the market will need in the years and the decades to come. So rather than, in my mind, thinking about a sense of doubling up, in both cases, I see it as stage 1 of many in terms of what's going to needed to be done. In the slide deck there, one of the slides I like is, I think it's in the NewCo part of the deck, where it looks at its customer demand against the sources of supply. And you see a very large block with PrimeCo and a modest block for existing generation and the power offtake. And you can imagine, both as PrimeCo starts to unwind some of its generation positions like the closure of Liddell and as the customer base for New AGL pushes more into low-carbon and no-carbon generation and need in the future, you can imagine how those bars will start to shift. And as I say, the power offtake will just be part of a bigger story, I suspect, of opportunity. PowAR itself, I really like. One way to think about it is for 20% of the equity, we've secured a big seat at the table for 100% of the output. And that's the kind of development pipeline we're going to need to meet a customer base that is increasingly demanding low- and no-carbon generation going forward. I expect there'll be much more opportunity than simply the power portfolio, but I think it's a great beginning and really fits what new AGL is going to do for -- need to do for its customer demand just as PrimeCo is going to be thinking about what are the very big, long-term generation positions it keeps wanting to build into the future.

Thanks, Peter. Our next question comes from the line of Mark Samter.

Yes. First question for you, if I can. I mean I guess when we look historically, when listed businesses have announced demergers, it's traditionally been because they believe there's latent value in some of the assets that aren't being fully reflected by the market, and the presentation probably talked to some of that valuation gap. I guess that's pretty absent from your presentation. In fact, I don't want to put words in your mouth, but on one of the slides, you talked about the recent acceleration of issues driving this decision. Can we just get a word around what the driving force was? Was it that just the current business model was deemed almost unsustainable rather than a particular view that there's actual upside value to be created from an equity perspective?

So Mark, without wanting to be sort of boxed into more extreme words at any end of the spectrum, what we are doing here is recognizing the market's evolving and evolving rapidly. And we have 2 choices. We can stand still, and the risk is we get left behind by a market that is moving forward really quickly or we can separate into 2 businesses where your starting point of value is the same starting point that's there in the combined business today. But then by allowing 2 leadership teams, 2 businesses, 2 collections of assets to focus better on the role that they're there to play during transition, I firmly believe they will generate more value than if they stand together with the current outlook. That will create different conversations in the months and years to come. I think New AGL clearly has aspects to it like being immediately carbon neutral that will create significant interest in the investor community as well as in the broader community. I think PrimeCo though, by standing separate, also gives us the chance of being properly valued for the really important role it's going to play for the next years and decades to come in energy transition.

Just a follow-up question, if I can. Obviously, one of the big debates [ connecting ] market, again, is going to be what level of earnings to value, be it [ 1, 2, 7, 20 ] businesses separated into on -- we're now pretty substantially through FY '21, meaning a decent amount of your electricity book is effectively visible to you for next year. I know you tried to guide us to the -- for headwinds in FY '22 results. But certainly, the concern [ exercise once you exit that issuance ] hasn't particularly taken that on board. It doesn't look like it. Is there anything you can say around that outlook for FY '22 and, obviously, the earnings that you will be looking to separate these businesses into?

So I'd note the usual thing, which is we don't guide to the following year until typically we hit August results. That said, we'll be having to think about it when we come back next time as we start to present numbers on what these 2 businesses look like. What we deliberately decided to do today was to focus on the big picture, the strategic rationale. We wanted people to really land on what is the concept, if you like, that we're talking about today and then follow through with the detail like things of profit outlook and where the numbers in these businesses are going. You can infer from the fact that we're not updating our guidance today or any of our longer-term market comments that nothing's particularly changed from the market view that we presented at the Feb results. So that's still the same. We talked at length at the time about the headwinds and the things that we see ahead of us. So nothing's changed, if you like, in that outlook. But today, what we're talking about is how to organize better to meet that future going forward.

The next question comes from the line of Rob Koh.

Yes. A big day, and congrats on all of the announcements. First question, I guess, on New AGL and its approach to hedging and risk taking. Are you able to share any thoughts on will the offtake contracts that it's getting levy like benchmarked to market prices or to default offer prices? Just any thoughts on that?

I'm conscious I haven't given Markus a chance to speak, but we may not be able to give you much more detail. But Markus?

I think as you can imagine, PrimeCo has an interest to sell at market and also New AGL has an interest to buy at market due to the long, respectively, short position. So it will be market based, and that's all what I can disclose so far.

Yes. Okay. Okay. Well, I guess currently, if the wholesale market price were to be negative, then the retail part of the business acts as a really nice hedge. And I guess I'm just -- that hedge is still there contractually? Is that the right way to think about it?

Yes. So Rob, that's right. But what you'll start to see is 2 things will emerge. One is while the 2 parts together, as always, would come to this same combined answer, if I can say it that way, the individual parts will start to show the impacts of higher or lower wholesale prices over time. And I think that is partly reflective of a market where the link -- the old sort of link between retail and generation, your classic integrated strategy is not as strong as it used to be. It's one of the things we called out at the half year and again today and is one of the drivers here. Generation increasingly will be out of contract with different counterparties, like government in the market is an emerging force with a lot of the contracts that they're writing as well as different ways of feeding into retailers like New AGL and others. We've been at pains, I think, to look for a revenue base for PrimeCo that is not just New AGL. I think that would be quite dangerous for both in many ways. You want each of them to have multiple outlets to market both for sourcing as well as for sale. And so again, from memory, in the PrimeCo breakup, it's a little under 50% is the out-of-the-gate NewCo -- New AGL, sorry, position but significant offtakes with other major participants. And you would expect over time that, that will continue to happen so that both get price discovery and an understanding of where they sit in their respective markets. It also allows investors to invest directly in either side of that equation if they choose to.

Yes. Okay. Cool. Can I ask another question about PrimeCo's capital structure? I guess it's kind of merchant from 2030 onwards and includes Torrens Island, which potentially is cash flow negative at forward curve prices in SA. How is that going to be investment-grade? Is there an obvious answer to that?

So it's merchant in the sense that it will need to recontract in the market over time. But you wouldn't expect to get to, to pick an arbitrary date, 2030, have -- all of your contracts have expired, and then you're hunting for all of your book to be refilled. I think what you'll find then is it will have -- like any business, any business that has multiple customers and multiple channels to market, it will have ways of projecting what it expects in its revenue base, what it expects in terms of its contract roles. On the PrimeCo side, I think we would rightly say that there will be some form of ongoing relationship between New AGL and PrimeCo is one example of the largest retailer, I expect, for a long time, would be purchasing from the largest generator, which is not to say out of the gate you lock that in, in a contract. But over time, you expect contracts to roll and for that to continue. I think then we should be able to -- we expect to be able to secure an investment-grade credit rating for PrimeCo in the event that we seek it. So we're thinking about what different capital and contractual structures are. But it will be mindful of the position it has and the assets that it has as we think about what's the right way to secure, for the long haul, that investment-grade credit rating.

Okay. Sounds good. And then just a final question, perhaps for Mr. Nicks. Can you talk to some of the changes to the credential requirements for the company? I guess New AGL potentially needs to do different arrangements for reallocations and AEMO credentials. And I guess PrimeCo would need working capital facilities for ASX futures and things like that. Or I don't know if that's Phase 2, but can you just talk to that at all?

Look, I can, briefly. Rob, look, again, this is absolutely Phase 2, but we are thinking about what they need to be for each of the 2 individual businesses going forward. And the way we're thinking about it is part of the dissynergies/synergies work as well when we're thinking about collectively what does it mean. That's something we'll bring back to the next -- to the table at the end of FY '21. But absolutely, we're thinking about what it means and how we'll set ourselves up from both the trading perspective and also from a funding perspective.

Yes. Okay. Cool. Last question, if I can just sneak one last in. Are there any other regulatory approvals required for this process? And any tax implications? I guess there's the 2 tax groups currently.

I think, Rob, the simple answer is while it's an internal separation, probably not that the devil is always in the detail. If the conversation progresses to more of a legal separation, probably yes and quite a few things to untangle. In a highly integrated business like us, we're going to find that there's a lot of devil in the details to untangle if we progress further down that legal path.

The next question comes from the line of Dan Butcher.

Maybe first one for me, just maybe for Damien. Can you just maybe elaborate on what you think the amount of the anti-synergies are in terms of management duplication and that sort of thing, particularly if you do end up going down the legal separation route?

Look, again, I'm not trying to be difficult on this one, but we will -- that will be the next phase coming back that when we start to sort of break apart the 2 entities and what they can look like and what those dissynergies but also importantly, what the synergies are. So part of the work is not just looking at the dissynergies but also what synergies we can get from having these 2 organizations in a potential new world.

Okay. And secondly, I mean, obviously, you've got to work through the Crib Point decision, Brett, like you mentioned. But if the rejection does stand and can't be gotten around in some sort of way, how do you think about signing up to the [ 3 ] project or Viva or any other ones out there in terms of your game plan there?

Highly relaxed. I fielded questions on Crib Point and our options for years, certainly, throughout my tenor as CEO and then probably before that as CFO. I've always maintained, AGL at its heart is a gas trader. We're out there dealing with everybody. I have absolutely no problem. We've never had a problem. And my answer to this question because it's always come up through the lens of person X is creating a project here, would you contract with that person, and the answer has always been yes. So we have been, and I expect we would continue to be in active discussion with every potential project. If they have good volume at good price, you'll find us a buyer. But nothing has changed in that position. And we're still to assess, and I'm still properly to get up to speed on the Crib Point outcome. But what I would say is nothing has changed in the sense that we're a big and great gas trader with a very flexible, diverse book. And we always have and always will deal with anybody. It's just a question of commercial terms.

Okay. And maybe just a final quick question for me. With the government giving the heads-up on this and, if so, what do they think about this decision?

Again, I haven't had a chance to talk to anyone in government. You can appreciate in the normal course of how these things happen. There's a great deal of confidentiality wrapped around them, and so we were given a courtesy heads-up sort of late -- quite late yesterday. So we had a chance to at least be aware that it was coming out now, but that didn't include any chance to have any active engagement with government pre-announcement. So you can expect in the coming days that will be a part of what we're doing to make sure we properly understand the decision.

Sorry, I actually meant in relation to you proposing to split. Does the federal government have any issues with that, given they've been sort of vocal on the deal and stuff you're doing there and this might be viewed as a way to split off the dirty assets from the clean?

Yes, apologies, Dan. And again, just to pick up on the last comment to say firmly, these are 2 really good businesses. They are both strong, and we're designing them to be really strong. Look, from a government engagement point of view, we didn't make them aware of the detail of this announcement before now, noting it's significant market sensitivity. So we were bound by the usual rules of the market. We were able to have some very basic conversation off the back of speculation and our half year results comments. But more importantly, this morning, we've had representatives in different government offices, and I've been in contact with various energy ministers around the country and federally, giving them a heads-up of what we're doing. I'm not aware of any immediate concerns. And that doesn't surprise me because we have really thought long and hard about would this work better or worse for government, and I firmly believe it will work better. One of the things that you can imagine is when I go and see an energy minister, it's often quite an entangled conversation where in one moment, I might be talking about a battery deal or I might be talking about a wind farm or other things on the new AGL side of the ledger, in the next moment, we're talking about the timing of coal closure sooner or slower, depending on the person I'm talking to. And these can be quite entangled conversations. I genuinely think for government, this will make an easier path for them to engage because they will be able to engage in both halves of the narrative with representatives who are focused on that part of the narrative alone and have a much better, more focused conversation as a result.

Next question comes from the line of Baden Moore.

This seems like, I guess, we're at a juncture where the capital intensity of the business might be changing for new AGL versus the Powerco (sic) [ PrimeCo ]. You've given guidance to [ FY '21. ] There's a lot of projects there. Can you talk maybe about what we should be thinking about when we're trying to assess capital structure for the 2 businesses? What the capital intensity for new AGL might look like? Is that something you could give us some guidance on?

I think, Baden, the starting point is probably the asset split that we've put up there. And so you can get a sense that both businesses were allocating big physical assets, more so to the PrimeCo side -- well and truly more so to the PrimeCo side. But on the new AGL side, you see things like the hydro assets, the gas peakers. So there are significant physical assets there as well. I'd also say on the new AGL side, when we talk about the pipeline of potential investment, they inherit things like the battery pipeline. And people on the call will have heard me talk for the last couple of years about my views on grid-scale battery. Firstly, big positive dawn of the battery age. I'm a major believer in the investment that's needed in the market. I typically said that I thought they were better suited, at least initially, on balance sheet rather than off, although we've then gone to do -- the first few battery deals have been off balance sheet, but there you start to see a change with the Torrens announcement that we made last week, which would be an on-balance sheet battery investment for newco -- new AGL, sorry, in this new arrangement. So I think particularly when you think about flexible capacity, there's significant on-balance sheet opportunities for new AGL without tying it to, would it do everything on balance sheet versus take advantage of other commercial arrangements. So I think out of the gate, whatever happens, that target of investment-grade credit rating is your starting point. The asset split that we've talked about is also your starting point. But then the development pipelines that we've talked about in both businesses, there's a rich pipeline for both, particularly for new AGL, I think, around capacity asset investment, which the market needs, and there's nothing like starting with the market need to really think about where can you invest dollars going into the future.

Could I put it in a slightly different way then. You've invested $800 million to $1 billion every year since FY '18. Do you think we should be factoring in a higher reinvestment rate for the combined entities going forward over the, say, the next 5-year rate? Or have we seen a high water market at $1 billion still?

Look, as always, I'd separate between what we -- in different places or different terms between sustaining and growth. Sustaining, you saw in today's presentation, we're focused on reducing that $100 million. The bulk of sustaining, we show the breakups, and they tend to lean towards the big thermal sites. And so again, you can project numbers potentially in what's happening around sustaining in the 2 businesses by having a look at the basic breakups we give there. On growth, growth is, as you can imagine, a less predictable number year on year on year. It just depends on the opportunities in front of us and what we've executed. AGL has presented significant pipelines in the past few years, which if you go back and look at them, I think all those opportunities still swirl around. Batteries is a great example, where I've been a little frustrated that we haven't come before now with our first FID decision. I'm really pleased this month, we finally got one over the line, and there's definitely more to come. So it's hard to be pinned on a particular number. It's more to say that I think both businesses have good growth opportunities. And if they're there and they're right, we'll lean into them for both businesses so that we're investing at good return for our shareholders.

The next question comes from the line of Max Vickerson.

Can I just pick up on a comment, I think, Christine might have made. When talking about the needs of new AGL, I think, Christine, you made a comment that going forward, there's probably going to be less of an ease of base load, understandably, with a focus on the retail side of the business. Can you provide a bit of color, Brett, on how the offtake might be structured? Is it the right way to think about it in terms of just a very vanilla baseload swap? Or is there potentially something a little bit more tailored that you might look at? And then secondly, just looking forward a little bit further into the gas fleet, I just have some questions about your Yabulu and what the future of that asset might be. If you could provide any color on that, that would be great.

So Max, maybe in terms of the structure of the PPA, I think I'm going to struggle to give you much more detail than we've touched on. I recognize that's a significant component of thinking about the 2 businesses. But in some ways, we already deal with that with our transfer pricing between integrated energy and the retail part of the business. The guide I'd sort of keep giving is the intent of making it consistent with the market. So -- but we've still got to finalize the detail of it. The risk of giving quick answers, which sound like simple answers, is I suspect as we work our way through the detail, there will be a core of simplicity and a lack of complexity as you put that PPA in place. And that's exactly what I'd expect to pull out of a discussion between the biggest retailer and the biggest generator. Both will have different needs in terms of how they're going to manage their portfolios and how they're going to manage their risks. And you'd expect when it's very short term, there's a much greater solidity to it as it moves out into the future. There's more variability, which allows for both businesses to adapt and to grow. In terms of other assets, Yabulu, I think we haven't particularly called out there today. As we go through the next phase of detail, so when we come back in -- at the end of the financial year with a more detailed update on asset allocations and the like, one guiding comment I'd make, which is what I spoke to when I talked to employees this morning, is there's an element of 80-20 or 90-10 in this, where you look at the strategic rationale and 80%, 90% of the assets will naturally fit column A or column B. There will be a clear logic to it. And there'll be 10%, maybe a bit more of assets where you look at and you go, you know what, they could go in either column. And as we go through the churning phase, we'll be trying to work out just what's the right decision, if you like, column A, column B. In the end, there might be a handful of assets that will just push one way or the other for slightly arbitrary reasons so that we finish the allocation. Yabulu, I'd recognize, fits somewhere in that gray zone. On the one hand it's a gas peaker, on the other hand it's heavily integrated with the Moranbah upstream gas field. So gas peakers, we've said, typically go towards new AGL. Old upstream gas positions typically go to PrimeCo. Yabulu falls somewhere in the middle, and that's a good example of where we'll be churning what's the right decision.

The next question comes from the line of Peter Wilson.

Just one follow-up for Markus. So that -- I mean, quite, I guess, an exciting pipeline of investment opportunities since around the hubs. Can I ask, to, I guess, go ahead with those projects, is it reliant -- in terms of timing, is it reliant on the closure of the existing power stations before you can, for example, utilize that existing grid capacity? Or can you do it while the existing power stations are still operating?

It's a mixed response to this question because partly you're right, partly it's dependent that [ the large ] power stations go out of operation, but we have shown already hydrogen energy supply chain is totally independent from any closure of units at Loy Yang. So we are conducting this as well. So Liddell is also proceeding in this respect. Even some of the projects may be materialized even before the Liddell closure occurs. It's very much dependent on the size of megawatt installed at the site. But yes, there's a mixed -- a 500-megawatt of battery at the Liddell site most probably than -- means that certain units need to be closed. Yes.

Okay. And I guess, I mean, the first FID you've taken of 250-megawatt battery at Torrens, we should see that as linked to the retirement of Torrens A, correct?

Exactly. But Torrens A, we have already 2 units mothball -- put out of operation. One is now in a mothballing state. So yes, you're fully right, this gives us additional opportunities, in particular for the 250-megawatt battery, which at the end of the day also, we have another plan in Stage 2 to even increase the capacity of the Torrens battery.

We've got time for 1 more question. The next question comes from the line of Ian Myles.

Look, I actually just wanted a couple of things. I want to go back to your guidance. You said there's no change. Given you've made the intention that you're going to sell the Newcastle gas terminal and the Silver Springs, they're going to slip out of your underlying earnings. So I was just wondering if you could quantify that impact.

Off the cuff, Ian, I don't have the number in front of me. I don't think it's enormous, but I'd need to come back to you on that. I would say in a practical sense, that can't almost possibly happen through the end of this financial year. So it will be the next financial year effect, but I'd have to come back to you on the exact number for that one.

Okay. And look, can you just really give us some color? You signed the acquisition with Tilt and PowAR. Just wondering what new AGL's rights are to those assets? If they have, like, any sort of first rights to market, the PPA? But I guess it extends to also how does new AGL offer better C&I product than what the old AGL would offer in the market sort of going forward?

I'll answer the first, and then I'll hand to Chris to answer the second. Look, in the first, the short answer is it's commercial in confidence, the exact arrangement around offtake there. But I would describe it as we have a big seat at the table for the biggest developer of renewables now in the country post that Tilt acquisition, far and away the biggest developer. And you could expect a sitting there, exercising that seat at the table, noting that the arrangements will have to be commercial and will have to be consistent with market pricing. But we own 20% of the business. We're intertwined with that outfit. We set it up a few years ago. I think we have the opportunity to take on significant amounts of that offtake as it develops. Chris, can you take from here?

So probably just to follow that up, Ian. I think if you look at our renewable pipeline to support corporate PPAs over recent years, it's really been subscale compared to size of AGL. So certainly, I think with the PowAR and then obviously the Tilt renewable pipeline, that will be greatly enhanced. So that would be the first thing. And I think then the second thing is flexible assets coupled with future supply options for us will give us that optionality that a lot of our corporate -- large corporate customers are seeking. And it provides those firm renewable options much more so with a strong pipeline than we've had in the past. And the third thing, I would say, with respect to our commercial portfolio is also then the recent acquisitions of Epho and Solgen allow us to really get into Energy as a Service, be much more than a commodity player and really start to look at and position ourselves both in terms of front of the meter supply as well as behind the meter supply. So that's a really exciting opportunity for the commercial portfolio moving forward.

I'm getting the wind-up from the team here. So all that remains is for me to thank everybody for participating in this Investor Day. Can I say I deeply miss not being here with you in a live sense. I missed the frisson in a room when we're all together. But thank you in these sort of funny times for engaging with us virtually. I hope that we've answered most of your questions. I have no doubt there are more to follow up with, that the Investor Relations team is waiting with bated breath to help you out with. But let me conclude again by saying, today is a massive milestone for AGL. We're announcing our plans to create Australia's largest energy multiproduct retailer, Australia's largest generator. It really does position us as the country transitions into the future. Thanks for your time. Look forward to catching up with you again soon.