AGL Energy Limited (AGL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the AGL 2022 Half Year Results Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Graeme Hunt, Managing Director and CEO.

Good morning, everybody. Graeme Hunt speaking. Thank you for joining us for the webcast of AGL's first half results for the financial year 2022. I'd like to begin by acknowledging the traditional custodians of this land where I'm presenting from today and pay my respects to their elders, past, present and emerging. I would also like to acknowledge the traditional owners of the various lands from which you're all joining from and any people of the Aboriginal and Torres Strait Islander origin on the webcast. Today, I'm joined by Damien Nicks, CFO and CFO-elect for AGL Australia; Christine Corbett, Chief Customer Officer and CEO-elect for AGL Australia; and Markus Brokhof, Chief Operating Officer and Chief Operating Officer-elect as well as Deputy CEO-elect for Accel Energy. I'll get us started before handing over to the team, and we will have time for questions at the end. Today's result reflects a solid first half performance, with continued resilience of our operations and generation portfolio despite another period of pandemic-related disruption. As anticipated, lower earnings were primarily attributable to the nonrecurrence of $105 million of insurance proceeds received in the first half of last year relating to the 2019 Loy Yang outage. Earnings were also impacted by the progressive roll-off of hedge positionings established at higher wholesale pricing and to a smaller extent, the expiry of lower-priced legacy gas supply contracts. Encouragingly, these impacts were partly offset by a $57 million reduction in operating costs, driven by major cost-out initiatives. In summary, underlying EBITDA of $723 million was down 21%, while underlying NPAT of $194 million was down 41%. Adjusting for the insurance proceeds, underlying profit after tax was down 23%. An unfranked interim ordinary dividend of $0.16 per share has been declared, and the DRP will be fully underwritten. Pleasingly, we have narrowed the underlying earnings guidance ranges for FY '22, reflecting a solid first half performance, with lower second half earnings in line with expectations. I'll elaborate further on this towards the end of the presentation. Looking forward, AGL is well placed to benefit from the improvement in wholesale electricity prices we've seen over the last 6 months. And we expect this, together with any sustained improvement to wholesale prices to be reflected in future earnings beyond FY '22 as hedge positions roll off. Turning now to some business updates. Our strategic Net Promoter Score remains in record territory, and we continue to see solid growth in our telecommunications customer service numbers. Good progress was also achieved on the repurposing of our major generation sites. With the construction of the Torrens Battery underway and planning approval received for the 200-megawatt battery at Loy Yang. We remain acutely focused on cost discipline and cash preservation to ensure balance sheet strength prior to the implementation of the proposed demerger. As mentioned, operating costs decreased across the business in the half, and we are well on track to deliver our targeted $150 million in operating cost savings by the end of FY '22 compared to the FY '20 operating cost levels, together with our targeted reduction in sustaining capital expenditure of $100 million by FY '23. We have also completed the sale of our investments in the EIP Fund and Ecobee for approximately $100 million with other targeted noncore asset sales progressing. Importantly, excellent progress has been achieved since we confirmed our intention to demerge the organization on the 30th of June 2021. Leaner organizational structures for both proposed entities have been confirmed, with additional executive team and Board appointments made. The purpose and strategies for both proposed entities are now in place and Christine and Markus will talk to these in greater detail. And today, we are very pleased to outline the proposed climate commitments for both AGL Australia and Accel Energy, which I'll cover shortly. Damien will talk more to the debt financing arrangements, which have now been fully executed as well as the capital structures and dividend policies of both proposed entities. In addition, the offtake and transition service agreements as well as the tax and regulatory processes are all progressing well. I can also confirm today that Accel Energy will hold a 15% minority interest in AGL Australia, enabling Accel Energy to share in the anticipated value creation in AGL Australia and strengthening balance sheet and financial flexibility. And finally, the scheme booklet containing additional information on the proposed demerger is expected to be released in mid-May. This will be followed by a scheme meeting in mid-June, giving you our valued shareholders, the opportunity to consider and vote on the proposed demerger. This is certainly a pivotal time in AGL's 180-year plus journey, and we look forward to this exciting new chapter, which will create a stronger future for our business. Moving now to 2 key operational areas, safety and customer experience, which both continue to remain strong. The total injury frequency rate per million hours worked increased slightly to 2.4 for the half year. However, this is still a material improvement on FY '19 and '20, reflecting our sustained focus on safety culture and performance. As mentioned, our strategic Net Promoter Score reached another record high, reflecting our unwavering focus on customer experience and the rewards of significant investment in digitization coming to fruition. Considering that we've had another period of challenging market conditions, these results are pleasing. This slide shows a further summary of our financial results, which Damien will cover in more detail later. Now taking a closer look at electricity market conditions. Encouragingly, we have seen a strengthening of forward pricing from late May, initially driven by the Callide and Yallourn thermal plant incidents. And this trajectory has continued through the remainder of 2021 largely supported by higher international commodity prices. Pleasingly, the dotted lines indicate this recovery to be sustained into FY '23. As we've previously guided, over the short term, our hedge position will limit potential earnings upside from recovery in wholesale pricing, particularly in FY '22. Longer term, given the relative strength of our low-cost generation position in the NEM, AGL Energy and the proposed Accel Energy will be well placed to benefit from any sustained recovery in wholesale electricity prices as well as their focus on delivering commercial availability during volatility. AGL Australia will also be well positioned to manage a higher wholesale pricing environment, with its flexible generation portfolio, providing coverage for market volatility, suite of power purchase agreements benefiting from higher energy and LGC prices and its ability to manage price changes through its significant retail and commercial and industrial customer base, not to mention its extensive trading expertise. On the right-hand side, you can see the material elevation in volatility, driven by the major thermal plant incidents I mentioned earlier, coupled with the higher outage levels persisting across the summer in Queensland. The increasing penetration of new renewable generation in the NEM has also had a profound effect on the volatility in the market in recent years, as it introduces variability on the supply side for electricity. Again, we are well positioned to manage this heightened volatility with our generation fleet and sophisticated risk management and trading expertise. The development of our 850-megawatt grid-scale battery pipeline will also be key to firming intermittent renewable generation and smoothing price volatility in the years to come. We've spoken before of the forces that are shaping our market and accelerating Australia's energy transition. For any organization to succeed in this environment, it is not enough to simply respond to these. A consistent, clear purpose and strategy that ensures access to capital and broader stakeholder support is essential for any business that wants to not only meet the challenges of the energy transition, but also grasp the opportunities it presents. We believe AGL's proposed demerger achieves this, creating a stronger future for both parts of our business while enabling a responsible orderly transition towards a decarbonized energy future. The proposed demerger will result in 2 industry-leading companies, Australia's leading multi-service energy retailer and Australia's largest electricity generator. And each organization will have the ability to unlock value as they pursue strategies tailored to their individual purpose. Each business will be able to act on their district value drivers, ESG weightings and investment propositions, enabling them to better attract relevant investors and capital and improve future value. AGL Australia and Accel Energy will adopt a robust dividend policy that supports returns to shareholders while also supporting employees, suppliers and the communities they serve by investing in skills and new opportunities. Our aim, by transforming our business, is not only to better address our own climate-related risks, but also to take a key leading role in enabling Australia's energy transition, creating long-term value and sustainable investment opportunities as we do it. With this outcome is our objective, we have defined a way forward for AGL Australia and Accel Energy to manage these climate-related risks that embraces Australia's energy future and builds on AGL's legacy of innovation and development. Energy transition and the path to net zero will be the defining challenge of our era. Companies that don't adapt, don't innovate and don't set themselves on this path will be left behind. When it comes to taking action on climate, AGL Energy legacy is strong. In the last 2 decades, AGL played a leadership role in Australia's transition, investing more than $4.8 billion in renewable and firming generation and delivering more than 2,350 megawatts of new generation capacity since 2003. Moving early has meant that today, we operate the largest portfolio of renewable and storage generation assets of any ASX-listed company. And it is this legacy that will shape DNA of AGL Australia and Accel Energy and their response to climate. Today, we are outlining a set of climate commitments that demonstrate decisive action to accelerate our pathway to decarbonization for each organization. And importantly, they are commitments that strike a balance between Australia's current and future energy needs and the need to responsibly decarbonize. AGL Australia will be carbon neutral for all Scope 1 and 2 emissions upon listing with credible pathways to net zero for Scope 1, 2 and 3 emissions by 2040, including a 50% emissions reduction on FY '19 levels by 2030. And in delivering this, it will underwrite 3 gigawatts of renewable and flexible capacity by 2030 to support its customers as the leading multi-service energy retailer. These are milestones that would not have been contemplated by our retail business under the current gentailer model. For Accel Energy, there is no doubt that coal-fired generation across the entire system will exit earlier than previously believed, enabling a faster decarbonization pathway. However, for this to happen, AEMO's recent draft ISP estimate that approximately $70 billion to $90 billion worth of investment in transmission and generation will be required. With this scale of change, these closures must not happen outside of coordinated plan across government, industry, regulators and the community. Without this, we will create market uncertainty and put at risk energy reliability and affordability. It is these interdependencies that must be considered when determining the future closure dates for our coal generators. Accel Energy will provide reliable, low-cost energy with a strong focus on repurposing existing thermal generation sites as low emission industrial energy hubs, as it brings forward its coal closure dates to no later than 2033 for Bayswater and 2045 for Loy Yang. With Liddell scheduled to close by April 2023, Accel's electricity generation portfolio's annual Scope 1 and 2 emissions will reduce by 18% to 27% between FY '25 to FY '34 and by 55% to 60% between FY '35 to FY '46 compared to an FY '19 baseline. Overall, modeling shows an expected 90 million tonnes reductions in emissions between FY '23 and FY '50 compared to the results from our previously modeled scenarios as detailed on Slide 45 of this pack. This is a significant contribution to Australia's energy sector's decarbonization process. With the possibility of improvement beyond this, if Accel Energy is able to bring closure dates further forward within the closure of ranges for Bayswater and Loy Yang. As I said, there are many independencies and many of those are outside our direct control, as one organization in a highly integrated energy network. We need the entire system to be ready to operate without our critical baseload generation. We are committed to working with government, industry and the community in pursuit of this and we'll be reporting annually on progress towards this ambition. Australia's energy transition will not happen overnight. The market must continue to provide people with affordable energy while pursuing innovation and technology that will deliver decarbonization. By creating AGL Australia and Accel Energy, we will provide critical leadership to the Australian energy system through this transition. These commitments that we are announcing today are the beginning of the journey for these 2 companies, not the end. We have set a new baseline for both, and it is against this that they will measure their success and strive to improve as energy markets evolve. As I touched on earlier, excellent progress has been achieved since we confirmed our intention to demerge the business mid-late last year. I've covered most of the milestones on this slide. However, I'd like to highlight the appointment of Gary Brown as Chief Financial Officer-elect of Accel Energy. Gary joins us with more than 20 years of senior finance experience across numerous ASX-listed and multinational companies, including BHP Billiton, Shell, Viva Energy and CSG Limited, and most recently as CFO for ENGIE Australia and New Zealand. We also announced the appointment of Graham Cockroft to the AGL Energy Board in late December, and look forward to his considerable expertise gleaned over a 30-year-plus career in the energy sector. We've also confirmed the respective Board compositions for both proposed entities. Additional nonexecutive director appointments for both AGL Australia and Accel Energy are well progressed and will be announced in due course. Before I move on, I would also like to highlight that the one-off cash costs related to the demerger are expected to be between $220 million and $260 million. This includes debt finance costs of approximately $40 million for new facilities and early replacement of certain existing facilities. This level of cost is in line with transactions of similar complexity. I will now hand to Damien to take you through the financial results in more detail.

Thanks, Graeme, and good morning, everyone. I'll start by providing some context to the half year results and an update on how we are tracking towards the cash preservation targets we previously announced. As Graeme touched on, the reduction in our headline result was not unexpected and driven by factors previously guided to market. The solid half year performance was driven by strong generation and trading performance in the second quarter. I'll go through the group underlying profit result in more detail on the next slide. However, one thing I'd like to highlight here are the segmental results, which are now reported under the AGL Australia and Accel Energy reporting segments, reflecting the proposed demerger entity structures previously provided as part of the FY '21 result. Please note that Centrally Managed Expenses have not been reallocated and remains consistent with prior reporting periods. Pleasingly, operating costs were down and operating cash flow was up 6% despite the decrease in earnings. I will discuss these movements in more detail later. However, they are both a good reflection on how we are progressing with our cash preservation targets. We're on track to deliver our targeted $150 million in operating cost savings by the end of FY '22 and a $100 million reduction in sustaining capital expenditure by FY '23. We've completed the sale of investments in the EIP fund and Ecobee, recognizing approximately $100 million. The sale of other noncore assets are ongoing, with Newcastle Gas Storage Facility taking longer and being more difficult than anticipated. The previously announced underwriting of the FY '21 final and the FY '22 interim dividends will save a further $300 million approximately. These cash preservation initiatives were designed to ensure both entities will achieve investment-grade credit ratings and have robust balance sheets from day one. Now looking at group underlying profit. The $134 million step down in underlying NPAT was largely driven by the nonrecurrence of the Loy Yang outage insurance proceeds. Looking at the chart from left to right, starting with AGL Australia, consumer energy margin was down, largely due to the impact of milder weather on demand, higher cost of energy with increased residential solar volumes and margin compression from customers switching to lower-priced products. Supply and trading gas margin was lower as anticipated with the impact of lower-priced legacy supply contracts rolling off during the second half of FY '21. While we've been successful in recontracting in the short to mid-term, recent contract prices have been higher than AGL's legacy contracts. Moving to Accel Energy. In addition to the nonrecurrence of insurance proceeds, there was a further reduction in trading and origination electricity margin due to lower contracted electricity prices, coupled with lower offtake sales to consumer electricity resulting from increased penetration of solar. The positive movement in centrally managed expenses was attributable to major cost-out initiatives implemented to achieve our targeted savings, which I'll go into in more detail on the next slide. The favorable movement in depreciation was driven by the asset impairments recognized during FY '21. Higher net finance costs were largely attributable to the embedded interest cost unwinding from the onerous contracts and rehabilitation provisions recognized in FY '21. And finally, the reduction in tax expense largely reflected the fall in profit. As mentioned, we are well on track to deliver our committed $150 million of operating cost reductions in FY '22. OpEx reduction initiatives in AGL Australia included reducing net bad debt expense and lowering marketing and advertising spend. Markus will discuss Accel's cost-out initiatives in more detail later. Further, corporate cost-out initiatives involved a significant reduction in IT and discretionary spend, combined with labor reductions across the corporate areas. Post demerger, we expect a small reduction in operating costs on a like-for-like basis with planned cost savings in FY '23 to offset recent growth and acquisition costs plus the dis-synergies of standing up 2 separate organizations. An organizational structure review was undertaken during the half to simplify and streamline AGL Energy, and 350 roles have been identified for removal. The first tranche of departures occurred during the first half of FY '22, with the remaining roles to depart prior to 30th June '22 or early FY '23, subject to the proposed demerger proceeding. Redundancy costs associated with the review are projected to be $40 million in FY '22, which will not impact underlying results. These savings reflect leaner, more focused organizations following the proposed demerger. I'll now cover cash and debt in more detail. Net cash from operating activities was up 8% in the half, driven by cash improvement initiatives, a large inflow from margin calls compared with an outflow in the previous half and other positive working capital movements, which more than offset the decrease in EBITDA. Lower cash tax paid in the first half was consistent with the reduction in earnings. Investing cash flow was about $147 million, reflecting the investment in Tilt Renewables and offset by the noncore investment sales as previously announced. Financing cash outflows were significantly lower than the previous year, reflecting the underwritten FY '21 final dividend. Pleasingly, our cash conversion rate remains very strong at 112%. Turning to debt and funding. Despite a challenging year, we retained sufficient headroom under our Baa2 credit rating and our debt covenants and have over $700 million of cash and undrawn debt facilities available at 31st of December. Today, we can confirm the proposed dividend policies and capital structures for AGL Australia and Accel Energy. These are largely in line with what we've indicated in previous announcements. We believe the proposed dividend policies are tailored to provide capital management flexibility for each entity whilst at the same time providing appropriate return for shareholders. AGL Australia will establish multi-option bank facilities in aggregate totaling approximately $2.44 billion. This will be complemented by U.S. private placement notes totaling $661 million from AGL Energy's existing $910 million in U.S. private placement notes. It is expected AGL Australia will receive an investment credit grade rating of Baa2. It is proposed AGL Australia will target a dividend payout ratio of between 60% to 75% of underlying profit. Dividends are expected to be partly franked in the short term, targeting to be fully franked over the longer term. Accel Energy will establish debt facilities of approximately $1.4 billion, which will be a combination of amortizing term debt and revolving working capital and guaranteed facilities. Accel will also benefit from additional balance sheet flexibility provided by the 15% shareholding in AGL Australia and is expected to receive an investment credit grade rating of Baa3. Accel Energy will adopt a dividend policy aligned with the expected cash profile of the business, targeting 80% to 100% of free cash flow after servicing net finance costs. Free cash flows will effectively be Accel's operating cash flow, excluding tax, working capital requirements and CapEx. CapEx will include sustaining and any contribution for planned growth or investment. Dividends will be unfranked in the first few years following the demerger as tax losses are utilized. I'll now hand over to Christine and Markus, who will provide a first half update on customers, operations and portfolio generation, before delving into the strategies of AGL Australia and Accel Energy.

Thank you, Damien, and good morning, everyone. Our consumer business remains strong with 4.2 million services to customers and 4.5 million when you include ActewAGL services. This has been underscored by good growth in telecommunication services and continued underlying cost efficiencies. Over the past 6 months, there has been increased competitive activity, and we've seen a modest increase in churn in line with the market trend. This has led to a slight reduction in overall energy services, predominantly driven by the anticipated higher churn of Click Energy customers, although pleasingly, this is still in line with our business case expectations. A highlight for the first half was the strong growth achieved in telecommunications as we scale our offering, and we now have 42,000 services under the AGL brand. Furthermore, brand awareness of AGL's Internet offering has continued to grow to 34%, with moderate but efficient brand and marketing investment. Net operating costs per consumer energy service continue to be driven lower, underscored by digital and marketing campaign efficiencies. Prudent investment in our growing telecommunications business resulted in an overall increase in net operating costs. Pleasingly, we have continued to deliver efficiency while at the same time improving our customer experience as demonstrated by our strong NPS results. We have also seen a further 12% reduction in ombudsman complaints compared with the prior corresponding period. As we enter the second half of FY '22, we will continue to focus on growing the value of our customer book, improving the customer experience and driving efficiency in our cost base. Our commercial and industrial customer performance has remained strong, primarily attributable to growth in Sustainable Business Energy Solutions. The integration of the Epho and Solgen businesses has been highly successful. As expected, these businesses have complemented and bolstered our existing solar capabilities, enabling AGL to deliver more tailored and innovative energy solutions for businesses as we partner with them through the energy transition. AGL is now the leading commercial solar provider in Australia and is uniquely pressed to deliver energy as a service through our behind-the-meter technology solutions. Energy Solutions gross margin has doubled to $6 million, driven by strong sales growth, with average electricity supply contracting tenure rising significantly. We have also grown our distribution revenue notably albeit off a smaller base. This is despite the disruption to global supply chains and the impact of COVID-related shutdowns on solar constructions. We continue to innovate and support customers on their decarbonization journey, including microgrids with Santos, deploying solar across nearly 850 sites with The Salvation Army and a 5-year partnership with Goodman Group deploying up to 100 megawatts of solar. Our strong customer focus as evidenced by service performance, customer advocacy and scaling our multi-service offering has delivered value today whilst providing a solid foundation for growth. And now over to Markus.

Thank you, Christine, and good morning, everyone. I'm pleased to say that we have had a very strong performance to the year so far. We have been able to capture opportunities in the market through commercial fleet availability, effective trading and risk management and complemented this with our resilient generation portfolio. This slide shows a few of our key metrics for our operational performance. Starting on the left-hand side, the commercial availability of the entire thermal generation fleet, which is higher compared to the first half of last year, mostly reflecting the good performance of Loy Yang and Liddell. I will discuss this in greater detail on the next slide. In the middle, you can see a metric that demonstrates how we are positioning the portfolio in the traded markets. We have improved year-on-year, our capture of volatility and have extracted more extrinsic value of our assets. Our effective trading origination and risk management has come to bear in the half, as our portfolio hasn't been hit by the coal and gas price increases seen in the global commodity markets on the supply side. Again, I will touch on this in more detail on an upcoming slide. Finally, we had a very slight reduction in generation volumes over the half, mainly influenced by a major planned outage in Loy Yang, reducing volumes from the plant and some demand impact from sustained lockdowns in Victoria, New South Wales. We have previously highlighted the focus on commercial availability over technical availability for our thermal fleet. This is an important shift in mindset from bringing available as much as possible to maximizing availability when the market needs our units to be on and compensates for them. You can see the trend of Loy Yang has been really beneficial, with a big step-up in availability during times when the price is above our short-run marginal cost. As we continue to undertake disciplined investment on the station and mine, we believe this can be sustained. On the right-hand side, you will see Liddell and Bayswater. Liddell's availability is trending down over time, which is natural for an aged plant. That said, it has an uptick relative to a poor performance in the first half of 2021. Liddell's performance reflects a changed sweet spot operation, in other words, lowering the operational capacity to 320 megawatts to 350 megawatts, which helps us keep the units running reliable through to end of life. Bayswater is an area where we are applying increased focus, with some recent challenges arising out of derates particularly from our coal mills. We have invested into greater flexibility, lower minimum load running and upgraded the digital control system, which will improve performance in future years. The commodity markets were very much dominated by a recovery of the global economy, after COVID-19 impacted most of the manufacturing industry and trade flows. Gas storage levels were below average in most of the countries in the Northern Hemisphere, and China has become the largest importer of LNG after decades of Japan being the largest offtaker. The diversion of LNG cargoes has caused an uplift in prices in Europe and the Asian Pacific region. Gas to coal switching has also caused higher demand in thermal coal. Nevertheless, our coal supply portfolio and gas portfolio has not been majorly impacted by these price rallies, due to a very well-managed procurement strategy and risk management. In addition, market participants with short positions on green certificates, such as LGCs have substantially driven up the forward curve for LGCs, benefiting our renewable portfolio in the short and mid-term. Power prices in the forward markets in the NEM have followed the same trend and been more pronounced in the northern states than in South Australia and Victoria. Now back to Christine.

Thank you, Markus. As the CEO-elect for AGL Australia, I am pleased to share the growing market opportunities for the new company and our distinct advantage. Our strategy, where we see value, the capabilities we need to capture value and importantly, the strong position we are taking on our climate commitments. We have a strong growth future. The NEM itself is changing, after growing by less than 5% in the last 2 decades, electricity consumption is forecast to grow by 23% between now and the end of the decade. This transformation is being driven by the electrification of industry, transportation and residential demand. The shift is been enabled by technologies such as smart and connected devices, electric vehicles, competitive and reliable renewable power, decentralized energy and the rise of the prosumer. We are in the midst of this transition already as rooftop solar is now the second largest generator in the NEM with almost 15 gigawatt of capacity. To succeed in this growth market, we have the compelling combination of scale, energy trading and sustainability to drive growth and generate incremental value. Scale. Our roots have been in Australian energy retailing at scale. We have over 4 million customer services. We are recognized for energy and have a strong established brand, which our customers trust as we move to a sustainable future. Trading is in our DNA and will be pivotal to manage volatility during the energy transition. Our trading capabilities are well respected and known. We will continue to manage risk and create value at the same time. At the heart of this is our hedging strategy and flexibility to expand and adjust our green portfolio over time to meet the energy and decarbonization needs of our customers. Sustainability. With our large customer base, our flexible and green supply portfolio and the goal of underwriting 3-gigawatt of renewable and flexible capacity by 2030, we have a unique opportunity to provide leadership for both our residential and commercial customers as we progress to net zero. Despite market convergence and adjacent players entering the energy sector, it is the compelling combination of these 3 attributes that uniquely positions AGL Australia for a strong growth future. We are a leading Australian brand providing more than 4 million services nationally. This scale renders AGL Australia, a powerful change agent and our actions can truly shape the future of energy in this country. Being Australia's leading custodian of energy relationships brings responsibility, and we take ours seriously. We know that Australians expect us to act on climate change and meeting and exceeding these expectations is paramount to everything we do. Our purpose sits at the center of our strategy, connecting every Australian to a sustainable future. What underpins our purpose are our 4 strategic pillars and aspirations. Customer obsessed. As Australia's leading multiservice energy retailer, AGL Australia holds a privileged position uniquely placed to provide the specialist energy advice and services that our customers need. With an unwavering focus on the needs of our customers, we will capture rising demand. In this new environment, engaged customers as central to long-term growth. We have established a trusted position leading the category as Australia's most recognized energy brand and building scale and telecommunications. We have a strong history of innovation, retailing and customer centricity, which provides an incredible platform for growth. This approach will be tailored for our business and commercial customers to meet their evolving needs. Dramatic simplification of our products will reduce complexity for customers and our people. We will improve customer experience and time to value through our investments in digital and technology platforms, including both Kaluza, a new energy core system and the Retail Next transformation program. Accelerating decarbonization. Electrification and decarbonization are the most significant forces impacting the energy transition over the next 2 decades. We will guide customers through the decarbonization journey providing innovative offerings in e-mobility, decentralized energy resources and green financing. Our partnership model with business customers will drive electrification and support net zero targets through our market-leading commercial energy solutions position, achieving our sustainability ambitions together. Expanding the flexible and green portfolio. To enable us to meet the energy needs of our customers and achieve our 2030 goal of underwriting 3 gigawatts of renewable and flexible capacity, we will carefully curate an optimal portfolio to manage both our financial risk and generating value for our customers. In delivering this, we have the flexibility to build, contract or underwrite renewable and flexible energy assets expanding on more than 2 gigawatts of flexible and renewable generation to meet the needs of our customers. Our last pillar, simplifying, digitizing and engaging is about transforming our business, operational model and ways of working. This is being delivered through digitization, simplification and partnerships, including our partnership with Kaluza which is reducing cost to serve, improving speed to market, whilst increasing employee engagement and performance. Our Retail Next program will also enable AGL Australia to grow beyond core energy and expand into emerging areas such as EVs, batteries, orchestration and other adjacencies. All of this leads us to our goals, which is to have #1 market share, be net zero by 2040 and have the market-leading cost to serve. AGL Australia is strategically well positioned to benefit from the energy transition. Value in our core business is driven by scale, efficiency, a trusted brand and value maximization through leveraging our trading book. Our immediate focus will be driving incremental value through efficiency gains, by leveraging our technology platforms, our flexible and renewable asset base and our trading expertise in a more focused and nimbler environment. Over the medium term, as electricity consumption rises by the transition to electric vehicles, the demand for domestic charging infrastructure is expected to grow to $1.5 billion in the next decade, and we want to help our customers connect both in the home and on the road. We want to drive the electrification transition by using our position as a trusted brand and go-to energy specialist, including tapping into the growing solar and battery market. Through strategic partnerships, we want to make participation in the decarbonization journey affordable by supporting our customers with green financing to reduce the burden of upfront capital needs. On the supply side, the NEM could play host to over 78-gigawatt of renewable energy assets and 31-gigawatt of flexible generation and storage by 2030. We will play an active role in this market transformation, and we have the customer demand to stimulate growth and investment, expanding our green and flexible portfolio to meet our customer needs. Lastly, we aim to drive the evolution, growth and transparency of voluntary carbon markets alongside industry partners and government agencies. We are creating value by creating an optimal portfolio of assets and contracts for energy and carbon relative to our customer needs. While AGL Australia will be Australia's leading multi-service energy retailer with over 4 million customer services, we come out of the blocks as much more than that. We have flexible generation assets, with our gas peakers and batteries under construction, contracts for the output of renewable assets like our wind and solar offtakes with Tilt Renewables and the largest private fleet of flexible and renewable assets including 780-megawatt hydro-asset fleet. These assets span our customer footprint in 5 states of Australia, but we aren't just thinking about supply in the traditional large-scale generator sense. Our customers are increasingly prosumers, participating in the energy mix through their orchestratable assets. Today, we run a leading retailer-led virtual power plant in Australia, and we see our customers as an intrinsic part of our supply portfolio in the future. We have a complementary gas contract book to supply our gas customers across the East and West coasts, linked to our electricity portfolio via the leverage of our gas generators on both sides of the country. Alongside our electricity and gas books we have an established green trading capability, managing national and state-level renewable energy schemes and carbon offsets for our customers, prepared and poised for our growth in these markets. Taken together, AGL Australia will list as a large-scale, fully formed energy and retail market player equipped with the people, portfolio and passion to connect our customers to a sustainable future. AGL Australia will be a leader in sustainability and impact at scale as a net zero energy business by 2040. Our decarbonization road map lists out key milestones towards our net zero target. From the first day of listing, AGL Australia will be carbon neutral for all Scope 1 and 2 emissions. In addition, we will implement a carbon pricing mechanism to underpin our investment business. We will work collectively with our industry partners and government agencies to drive the evolution of the carbon trading market in Australia. By 2030, we aim to reduce emissions by 50% based on FY '19 levels, and underwrite 3 gigawatts of renewable and flexible capacity. We have laid down the foundations by being a leader in renewable and flexible assets with our carbon-neutral offerings and all our products, our partnerships with business and commercial customers and our trading positions within the existing carbon markets. As we connect Australians to a sustainable future, we have committed ourselves to a sustainable transformation alongside our customers. We are excited about our commitment to our decarbonization journey, and we'll come back with a detailed climate road map later in the year, in line with our strategic scorecard and metrics. AGL Australia is poised for growth and uniquely placed to transition as the provider of choice in a generation shift towards electrification, enabled by a unique blend of scale, trading DNA and sustainability credentials, we have a strong growth future. Now back to Markus.

Thanks, Christine. As you would remember from previous announcement on the proposed demerger, Accel Energy will be characterized by its large, low-cost thermal and wind fleet, backed by a large customer book. Its primary route for growth will be the energy hubs. Since this announcement, we have been forming a holistic strategy to sit around this company architecture, which I will walk to a high level before going into some more detail on key areas on subsequent slides. For Accel Energy, our purpose will be advancing a new energy future together. And I will come to what that means as I step through this slide. Firstly, it means meeting the challenges and opportunities that the changing energy world presents. Decarbonization, decentralization, digitization and the changing policies of governments will all shape the pressures and opportunities that Accel can explore. To address these challenges and opportunities, Accel's strategy will be to deliver 3 core promises: To supply competitive energy; to protect enhance value; and to deliver new opportunities. These promises indicate that Accel will keep efficient delivery of energy at the heart of its operations while growing into new segments that reflect the changing energy landscape in Australia, with its increasing shift to low carbon sources. These promises will leverage Accel's existing strengths, while providing growth and continuity post the closure date of its existing assets. As preconditions to success in this strategy, Accel Energy must maintain its investment-grade rating and protect its balance sheet. Transition to a low-carbon and flexible portfolio and diversify its sources of revenue to provide the company with longevity and resilience. To deliver against our promises and preconditions are our 3 strategic pillars. At its core, Accel is an energy business with large-scale operations. So we must operate safely and efficiently, which is what we term operational excellence, Then, to monetize and create value from our generation, we need trading excellence. Finally, to innovate and transition from today, we need portfolio excellence with the ability to grow in the decarbonized, decentralized and digitized energy future. While all this gives a sense as to what Accel will pursue, it is important to know that we will not be doing this alone. We must partner with others who have a similar interest in driving the energy future. Whether it be our talented workforce or the communities in which we operate and the First Nations people or other industries partaking at our energy hubs or governments, we have a shared interest and will achieve our objectives quicker and more effectively by working together. On this slide, we have some more detail on each of these strategic priority areas to give a sense as to what we will be pursuing in these. I won't go into each individual here but will characterize what I see to be some of the key aspects. Starting on the left, you see that our core business remains our asset fleet. The key focus running through is our people and environment staying safe, while our operations remain commercially competitive. This includes building on our lowest cost position in the NEM and continuous improvement is at the heart of operational excellence. In trading excellence, you will see that managing the long generation position through customer origination and trading remains a focus for us. But there are also new areas of growth and value, such as carbon products, algo-trading and building up a wider customer base to enable us to advance renewable developments and risk manage our portfolio. Finally, our portfolio excellence is where you will see the most growth. The 2 previous mentioned strategic pillars are the ingredients for success in portfolio excellence. At the heart, the energy hubs and the investment vehicle of the low carbon fund that we will seek to establish and on which I will go into more detail shortly. Sticking around this are other avenues to growth, such as building optionality in new ways to decarbonize the economy and maximizing value from daytime energy when the duck curve is increasingly pronounced. As we look to our first pillar of our strategy, which is operational excellence, there is a broad spectrum of activities this covers, but underpinning all these activities must be a disciplined approach to costs. Damien covered earlier that AGL has had good traction towards its cost targets and Accel will continue this momentum, focusing on labor, maintenance and efficiency to keep its OpEx low. Strategic asset management and ensuring we had a disciplined approach to capital spend on our assets in the remaining life will be important to achieving our CapEx targets. Looking now at the right-hand side and what our trading team will be managing. Accel will have a natural long energy position, but will start well positioned in the market upon demerger. The existing large customer book and offtakes with AGL Australia will provide effective risk management while leaving some uncontracted position to capture further value. Over time, as the AGL Australia offtake steps down, Accel will grow and diversify its customer book, and this will be a key area for the trading origination and portfolio teams. This will be a primary focus area for myself and my team at Accel, as growing our customer book and offering new contracts and products will allow us to manage risk while bringing our pipeline of renewables and low-carbon firming online. This customer growth will be achieved through our energy hubs and more broadly, looking to grow in large customer segments. The Energy Hubs will be key to our portfolio excellence priority and enable us to grow beyond the core that exists today. When executed, the energy hubs will see us transition our thermal sites to hubs that provides low carbon energy demand, expand services and have Accel take a hub orchestration role of synergistic energy and waste flows. We believe that the energy hubs at Latrobe Valley, Hunter and Torrens are compelling proposition for 3 core reasons. They will repurpose existing infrastructure and capabilities which provides a competitive edge in return on investment and execution capabilities. They will create synergistic intrahub flows such as carbon dioxide, water or heat, similar to a circular economy. The real value here is that these unlock new ways to decarbonize and lower costs for Accel and industry partners. They are an effective mechanism to align customer demand for low carbon energy to our extensive renewable pipeline. This will allow Accel to accelerate bringing these low-carbon projects online and lower the market risk for Accel. We need to work in partnerships to create the opportunity and the value that the energy hubs may afford. On the right-hand side of the slide, you can see some of the industry clusters who are interested in the energy hubs and with whom we have engaged in recent months. It is critical that these energy hubs unlock incremental revenue for Accel and build a solid base of earnings to diversify Accel's income. The aim is not to simply replace kilowatt hours generated by our thermal portfolio with kilowatt hours of low carbon generation. To help illustrate how we see this occurring, this slide highlights some of the value streams we are exploring. First, and closest to our existing core business is firmed renewable energy. As I touched on earlier, partnering in the hubs allows us to direct link customer demand for renewable energy to bringing online new capacity at a lower risk for Accel and for the customer. We believe this may represent 5% to 10% of new NEM capacity through to 2030. Second, we see new hub products emerge. One very simple example of this is where excess heat is generated by one hub participant, such as a data center, then another participant such as a greenhouse can then use it as an input with minimal cost and is no longer emitted as waste. The opportunities extend far beyond this as land, rail and emerging energies such as hydrogen can all be explored and leveraged at lower cost when you bring the right partners together in a hub. Third, and this is where we are quite uniquely positioned in developing energy hubs is the portfolio value. As an energy company, we can create value through load orchestration for hub partners to enable lower cost electricity. As AGL Energy today, we are running one of the largest VPPs in Australia. Finally, and this is our least explore area, the opportunity for Accel to gain exposure and invest in new industries where they align to our strategy and portfolio. The energy hubs and associated pipeline of renewable development will require significant investment and cannot be funded by Accel alone. We will use Tilt Renewables as a blueprint to set up the investment vehicle. We are currently in the market to establish a fund, which we are calling the energy transition investment partnership or ETIP. It will support Accel in funding low-carbon development and provide partners with access to a portfolio of investment with the pipeline already up to 2.7 gigawatts across Australia. All projects are already at different stages of development and at approval stages. Accel would fulfill a role as a vehicle manager in addition to managing development, output marketing, construction, asset and dispatch. We are working on the assumption that the ETIP will be established by the point of demerger. Establishing the fund will support the accelerated development of up to 2.7 gigawatts of quality renewables and low-carbon firming that Accel will hold. This includes highly valuable wind, pumped hydro and battery projects across New South Wales, Victoria and South Australia. Developing this pipeline will support Accel in maintaining its position as one of the largest wind operators in Australia, and grow the low carbon firming to support renewables being integrated into the grid. Before handing back to Graeme, I would like to highlight some further detail in relation to the climate commitments we have announced today for Accel Energy. As you can see in this slide, the new closure windows that we have announced today result in emission reduction targets that will enable a reduction in the total greenhouse gas emissions for our thermal fleet. With asset management plans structured to the end date of 2033 for Bayswater and 2045 for Loy Yang, total emissions during the period financial year '23 to financial year 2050 will be reduced by at least an additional 12% compared to the trajectory previously referenced to our TCFD reporting. This is a significant step forward for Accel. Through our 5-year planning process and annual reporting, Accel Energy will report against our ambition of earlier closure beyond 2033 and 2045 in the context of changes in government policy market settings and advances in technology. Overall, as I look across our strategy that I have presented to you today, I'm excited for the unique role that Accel Energy will play in the future of energy in Australia and the opportunities for growth that it will have. I will now hand back to Graham.

As mentioned at the beginning, we've narrowed the underlying earnings guidance for FY '22, following a solid first half performance. The expected reduction in second half earnings will be largely driven by increased capacity costs during periods of peak electricity demands, particularly in the summer months, which have risen as wholesale electricity prices have lifted. Additionally, wholesale gas consumption is expected to be lower due to seasonally warmer months in the second half, with haulage and storage costs remaining flat. Customer margin is expected to improve in the second half, reflecting a reduction in commercial solar feed-in tariffs, disciplined margin management and a ramp up of commercial solar projects that were delayed by COVID. And as Damien has discussed, we are well on track to deliver our targeted operating cost and sustainable capital reductions in FY '22 and FY '23, respectively. Importantly, we are well positioned to benefit over the longer term from any sustained recovery in wholesale electricity prices, which will be reflected in earnings as hedge positions from prior periods roll off. Thank you for your time today, and we'll now open to any questions.

[Operator Instructions] Our first question comes from Tom Allen at UBS.

Just a couple of quick questions on the outlook for Accel Energy, if I may. Just in the presentation today, we're now only getting a 1.5-year outlook on the contracting portfolio for Accel Energy. So being mindful that the smelter contracts are rolling off in the mid-2020s and also acknowledging that AEMO's latest integrated system plan is now pointing to a new key scenario where all coal-fired capacity would be retired in Victoria by the early 2030s. Just given that Accel will have a long energy exposure, can you share some more color on the key risks and opportunities around contracting the existing thermal capacity from Accel, please?

Okay. Thanks, Tom. I'll start and then perhaps throw to Markus for some more detail. I guess, starting in the middle, you have a question around the AEMO ISP, just draw your attention to the fact that, that's a draft. You would have seen also quite a lot of comment about the challenges there of meeting that 2030 indication of closure for coal. We obviously have looked at that, but it doesn't align at this point in time with our view of how the market will develop. And hence, the closure dates that we've announced today. I would note, though, that what we've also said is that there's potential for those dates to come forward a few years, and that's why we've identified windows for closure. But those moving forward is dependent upon the evolution of the NEM over time. And we -- Accel, obviously, will look at that year in, year out and update the market as we're better placed to determine how the future of the NEM will unfold. Markus?

Yes, Tom, I think you have identified clearly. Accel is long energy. I think one of the strategic pillars was trading excellence and growing our customer portfolio. That must be in the focus now coming up. We are moving also in the context of the demerger. We are using the largest C&I customers also or keep them. We are not moving them, but we are moving them from customer markets to Accel Energy in order to shorten the long position. But you're right, that need to be a high focus going forward because at the end of the day, we don't want to be ending up with a long position in the market.

Sorry, Tom, the only other thing I'd add is just, as you well know, we're very well positioned in terms of our cost position of generation on the coal side. And so any consideration of, if you like, the batting order of coal closures would position us well to be more to the back end of the batting order than the front end.

Okay. Just a quick question for Christine, if I may. Just regarding AGL's investment in OVO Australia and the options you have on OVO's Kaluza platform that you mentioned a few times in your presentation. Does this require a licensing deal and fee to be agreed for it to be rolled out across AGL Australia? Or has that already occurred? And can you describe specifically what might differentiate Kaluza from other platforms such as Kraken in Australia?

Thanks, Tom. With respect to our investment decision around Kaluza, that has actually already been factored into our modeling and being factored into any sort of capital allocation out of existing funds where we are with Kaluza at the moment. And Kaluza is a cloud-native platform. It's highly modular, and it really gives us the opportunity to have sort of a scalable technology platform. As we mentioned, and I think we mentioned this at the full year, it gives us the optionality to be able to extend upon those -- to meet the challenges of where the energy market will sort of head. Where we are at the moment and what is actually sort of the relationship between ourselves and OVO Australia is we're working with them to localize the platform for the Australian market. That actually includes sort of integrating the platform with sort of market data and market technology and ensuring both the customer experience and business processes are compliant with all of the laws and regulations in this country but importantly, meets the customers' needs as well. We have actually made really good progress on that over the last sort of 6 months, and we look to be onboarding our first customer soon. Your question with respect to sort of what is the same and sort of what is different to other platforms that are out there. I think for us, what we are really excited about with the Kaluza platform is their ability, particularly in the decentralized energy space and their Flex platform for us to really sort of accelerate that capability and roll out in this country.

Our next question comes from Mark Busuttil from JPMorgan.

Just got a few, if I may. Firstly, in terms of the debt that you've raised for each of the entities ahead of the demerger. Specifically, the Accel Energy entity, you previously suggested you're going to put $800 million into there and $2.2 billion into AGL. I sort of realize your facilities are going to be more than that. You talked about $1.4 billion for AGL. So can you firstly confirm the $800 million is what you plan on putting on in Accel Energy? And also, can you give us a bit of a sense as to how difficult it was to raise that money whether there are covenants associated with it what the security is and maybe even a sense of the cost?

Do you want to take that, Damien?

Yes. I'll take that one. So I'll take it in a few parts if you like. So first part of the question is, you're right, we provided the total facilities on like-to like basis. We do that quite deliberately to provide the market just an overarching view of those facilities, which will include both the term debt for Accel, but also the working capital and the marketing facilities that business will need. Through the process with the banks, we've had really strong support. And that level lifted slightly for Accel from what we've previously announced, only marginally, but that was the good support of the banks. In terms of the actual terms, the terms, what I'd say are in line with standard commercial terms for other ASX-listed peers, when you think about the expected credit ratings that we expected to account.

Thanks, Damien. Can you just repeat that last phrase please. You've -- that credit ratings. No. It looks like we might have lost Damien temporarily.

I'm getting a lot of feedback from where I am.

Yes. Okay.

Okay. Look, I'll try again. Apologies, everyone. Unfortunately, the timing hasn't been good. I've ended up in isolation on day of results. So I'm doing that from afar, but...

Yes. We've lost you again.

Let me try again, Graeme.

Yes, please. And then we might move on. The commentary around the credit rating is in the pack Baa2 and Baa3.

Okay. My next one is directed at Christine, if I may. You've seen 2 consecutive halves of decreasing customer numbers in both electricity and gas. I understand the issues you've had with Click Energy, but can you maybe elaborate a little bit about what you see going forward, how you would address the decrease in customer numbers, and if you think you're going to turn that around in the next sort of half or even beyond?

Yes, absolutely. And again, thank you for the question. When you look at the year-on-year unfavorability and I'll look at it across both customer numbers as well as margin. So let me start with margin because, obviously, that's important for investors. When we look at that, average customer demand has been lower as a result of the mild winter, obviously, the higher cost of energy from an increase in solar volumes but there's also been margin compression as a result of customers swapping to lower-priced products. For us, in particular, that's been as a result of the Click customer energy base. We did forecast that, and pleasingly, when we look at churn in the Click customer base, it is actually performing to business case expectations, which is great. When we then look forward, we also, though, do see that there is increased competition in the market, in particular, over the last 6 months. And I'm sure that you have all seen that through both decisions from a DMO and VDO perspective and the various market prices that have flowed. We are balancing, making sure that we are balancing both volume and value, and that has been very deliberate for us. That being said, the other commitment that we gave to market is that we would be diversifying our product portfolio. And again, you have seen the -- over -- what we have done is our telco customer numbers have grown over the last 6 months, we've now got 42,000 customer services under the AGL brand, which is really quite a remarkable performance when you think the short period of time that we've been in that market. So probably look in summary, we have taken action and you will see a better performance with respect to some of our margin management in the second half as we have indicated. Part of that is obviously in terms of how we're looking at managing our margin specifically. We've looked at solar feed-in tariffs, and we've also looked at broadening that portfolio or appeal with our multiservice offering that has gone well. but competitive market churn as anticipated. But certainly, we've taken some decisive actions for the second half.

Okay. And just one more, if I may. Just in terms of the full year guidance, you didn't really change that sort of much. It's sort of implying a fairly material drop off, and I understand that you've sort of talked about the reasons for that. But maybe you can just elaborate a little bit about the -- what you refer to as the increased cost of capacity to cover periods of peak electricity demand. What exactly are you referring to there? And is there a possibility that performing against that?

Yes. I might just give a brief overview and then throw to Markus again. Look, typically, second half would be softer than the first half, and that was in line with our expectations for the full year. We're sitting here on halfway through February. And typically, February and March, particularly can be very, very volatile. And we also saw quite warm winter months last year. And so a prudent forecasting and guidance process would not assume that we're going to continue what has been extraordinarily strong, best in many years, operating performance. And so we're obviously in a position where we can't take that for granted. And the most prudent forecasting and therefore, guidance approach is that softer second half. Maybe, Markus, if you can elaborate a little bit more on what we mean by capacity costs.

In general, it looks a bit strange that we speak about exposure to capacity prices. But at the end of the day, in certain states, via seller of capacity and in other states, via buyer of capacity, and I'm pointing particular to Queensland and New South Wales where we have to protect our portfolio against volatility buying caps. And we do this not only this, on the spot market, but we are also protecting our portfolio with weather derivatives. And this has a price and you are right, theoretically, we could see further upside. If we are not -- if we don't need to buy all the caps in the market for particular, now for balance of months and for March that could have an upside.

Next up, we have Peter Wilson from Credit Suisse.

A question on wholesale gas margins. I'm not sure it should be better directed to Christine or to Markus...

Sorry, can I just [Technical Difficulty] -- in terms of the traditional splits, if you go back historically -- traditionally [Technical Difficulty] H1 to H2.

But in a rising gas cost environment, generally we expect ideally gross margins to improve. Talk about supply and out of -- kind of periodic point of view. So my question is, is there a prospect to see, I guess, higher customer prices in the second half going into next year and see an improvement in that wholesale gas gross margin?

Sorry, Peter, do you mind just repeating your question? We were just getting some feedback. I know it is about gas, but we missed the question. It was just an overlay of feedback, if you don't mind.

Okay. Hopefully, that's better. The outlook for the wholesale gas gross margin given that there is higher prices in the market.

On the one hand, we have said that we are not vulnerable on this side of higher gas prices because at the end of the day, we have covered most of the demand already in the market in the past. Still, we have a seasonality in our gas book, particularly the first half is much more stronger. The months July, August and September is -- has much higher gas demand. So we have quite a stronger gas reside there. And then at the end of the day because we have fixed costs, which are fixed over the year. Then in the second half, we have then less gas sales, and that causes some seasonality, particularly on the gas side.

And probably just to add that, Pete, look, both our coal supply portfolio and our gas portfolio has not been majorly impacted by the price rallies of what you're sort of seeing overseas and here. And part of that is due to, obviously, a very well-managed procurement strategy and our risk management position. In addition, if you look at market participants with short positions on green certificates, such as LGCs that have substantially driven up the forward curves for LGCs and that benefits our renewable portfolio. But power prices in the forward markets and the NEM have followed sort of the same trend. It's been more pronounced in the northern states than in South Australia and Victoria. So look, all of that all sort of said, the gas book is an important part of our customer portfolio and certainly the position that we have, the supply contracts that we have in place, puts us in a good position to manage volatility on behalf of our customers moving forward.

Maybe I will say it another way, and thanks for your comments, Markus, about seasonality but I wasn't referring to that as such. But I like to say, Christine, you do have contracts in place and hence somewhat of a fixed cost of gas supply, understanding the legacy rolloff, it's somewhat fixed. If we look on the sales side, spot gas prices are very high. Should we expect that to flow through to C&I and other customer pricing? And hence, is there a prospect for the margin that you make to increase given that the market price of gas is going up more than your own cost?

Yes. So again, look, as you know, how we actually feed through those cost inputs from a transfer price perspective, we will actually reflect that through the consumer book, and we do that when we actually look at resetting prices on an annual basis. Obviously, input costs is a key part of that. From a C&I perspective, look, it is very competitive. And again, what we're actually sort of starting to see in that regard is obviously increased competitive activity and margin pressure for the gas book there. But look, on both sides -- and Pete, let me just repeat, it is -- we are in a good position. We have a highly flexible gas portfolio and a supply strategy. We have long-term supply agreements in both the northern and southern markets. And that means that we can continue to make sure that we can meet our customers' gas requirements, and we can do so competitively. And that actually sort of means the margin we make is actually certainly an important part of our EBIT position, and you can see that flowing through the OFR.

Okay. But it sounds like -- so you're not expecting your wholesale gas gross margin to grow over the coming years?

Not materially.

Next up, we have Max Vickerson from Morgans.

Just a quick question for Markus on the structure of the ongoing relationship between Accel and AGL Australia in terms of the offtake. In previous presentations, forgive me, I can't remember exactly when it was, but I believe there's some discussion around maybe a transparent basket of swap contracts kind of thing the pricing for that offtake. Is there any more detail you can provide around that? I mean the 3 slabs of contracts you've got on that Slide 32 kind of suggest that it's kind of like a baseload swap-type arrangement. But do you want to provide any more detail or how we should think about that?

No, I think you have summarized it perfectly what we can disclose. I think this factor -- the price factor around this offtake agreement is really linked to liquid products. And so it's at market, and it has 10 or 5 years will phase out over time. So there is a decrease in volume over time. But we are not disclosing more details to this one because then every competitor can exactly know what we are doing.

And probably look...

No, fair enough. I just wanted to understand it was market length and it sounds like that will be. So that's fine. Just another question really for well, Markus and Christine on -- what are you seeing in terms of demand side response? Is that playing much of an impact yet in how you guys think about hedging? I know you've got the Click Energy Rewards program, Christine and the megawatts are now part of the NEM. Is that attracting much interest? And has it changed how you contract?

Yes. Look, when we look at -- and thank you, we had a peak reward event just this week. We've actually now had almost 100,000 customers actually participate as part of that. And certainly, we see that, that is only going to grow. So that would be the first part. The second part, when we start to look at decentralized energy, it absolutely is one of the growth pools that we've identified for AGL Australia. That's going to be in terms of access and uptake to increase solar and battery storage. It's going to be access and uptake to how we actually orchestrate and manage those assets and bring the customers sort of on that journey. And as I also sort of did highlight, we also sort of anticipate between -- this decade between now and 2030, a 23% increase in demand. Now with that demand and with that increase in renewables coming into the market, there will be increased volatility. And I think how we manage those decentralized assets and how we orchestrate against that demand is going to be important to both manage risk, but also to create value for our customers. So it's an important part of our strategy. We are absolutely seeing growth in solar, but we are well positioned to manage for that. To that regard, when I say growth in solar, we had approximately 500 gigawatt of solar volume was exported by AGL's customers during the first half compared to last year. And that's actually driven by not only an increase in customers themselves with solar but also an increase in the average size system. So it's an important capability that we've developed. It's only going to get more important moving forward.

Yes. And maybe a comment from my side. The VPP has already grown to above 200 megawatt. So that will be, in the future, contributing much more to the volatility event. I think that's something which you maybe have also recently seen in Queensland. So we are actively participating in this market.

Fantastic. And look, one final quick one for me. With the -- and -- sorry, maybe have been disclosed already in the slides, but just wondering what kind of Board representation is Accel going to have in AGL Australia? Does that add any governance complications when you have 2 organizations that will become increasingly independent over time? Does that sound -- does that add any challenges in how you manage the trading positions?

Max, it will not have a Board seat, and there will be no special arrangements in terms of how it deals with its investment.

I think we've got enough time for 1 more question. We've got Mark Samter from MST Marquee.

Two quick ones. If I can squeeze 2 quick ones in. The first one is, I noticed with the previous DRP that only one director actually like to stake the shares, not the cash in that DRP and no one on the board or executives that bought any stocks in even when we touched down towards $5. Can you just give us an indication, and obviously, it's entirely everyone, what they do with their own money? But can you give us an indication that during the demerger process, have there been restrictions in place on Board and executives buying stock because of the information you're garnering through that? Or it just has been no one's chosen to buy any stock?

Mark, there's really 2 parts to that. One is we have a minimum shareholding policy that applies to executives and the Board. And I can confirm that that's been complied with or in the process of being complied with, with directors that have just joined recently and that ramps up over time. But the point that you just made is very valid. Obviously, as we've moved through the planning and the assessment of this demerger, the -- everyone's had to take a conservative approach in terms of any share trading.

Okay. And then just second question on the balance sheet. I know you said the Accel maybe able to take a bit more than the $800 million in terms of debt. But if we say it's around that number, and I presume with the demerger costs probably not going to generate much positive free cash flow through this half. That would mean about $2 billion of debt is going to end up in AGL Australia and AGL Australia's first half numbers are down 30% annualized on FY '20, and that would put it on as long as the split of corporate cost is the same as you guided before. That would mean AGL Australia is going to demerge with 4.5x plus net debt to EBITDA. I mean that sounds personally to me, a crazy level of gearing for a business buyback to demerger. I just want to talk about growth ambitions. You need money to fund growth ambitions. And at the moment, the business is going backwards. So can you tell us, a, what you think is the right level of gearing for that business in a stand up zone? And b, how you're thinking about that balance sheet into the demerger?

Yes. Thanks, Mark. We'll try to see whether we can get Damien online for that. If not, we'll do it from here. Damien?

Thanks, Graeme. Thank you, Mark. Look, I think, Mark, the way to think about it from the guidance, we're guiding that we -- the customer will be higher in the second half. The other thing I have to think about is total costs overall are reducing, and those costs are reducing further with some of the additional cost savings we're doing into '23. Weather impacted also had quite a big impact on H1. So I think you're just taking raw numbers to get up there. The other thing to think about is we see, as you've heard from Christine today, real growth into that business and growth into the future. So whilst to your point, it might be a bit tight on day 1, where we're really confident in the strength of that business and the future outlook for both not only the earnings but also the debt structure and the balance sheet.

Do you think that's CapEx less growth or that growth does require investment as well?

Sorry, Mark, I didn't hear that question, apologies.

I was going to say, with that growth I presume -- normally not much growth comes for free. I presume that growth is going to need a reasonable amount of capital, and this business will be starting with very high gearing even if annualized the first half is not certainly correct and still should be by 4x. Where do we think that funding for that growth is going to come from?

Well, I think the way to think about -- the way we think about the modeling business is the growth that we're doing today and the trajectory on today is included in the way we're thinking about the cash and the cash that will spin off from this business over that point of time. If there is any large M&A at that point, we would have to consider how we fund that, and that would be a decision of time for the Board and management as the best way to fund that. And if it was obviously clearly accretive, we would then think about how we would come back to market.

So just to add that Mark obviously, to Damien's point, we're thinking about future growth in 2 ways: growth across our existing transition projects and focus areas, and that's actually being incorporated into the modeling and current existing sources of funding, and that's been allocated as part of the demerger. Obviously, when we look at future growth projects, we will prudently deploy our own capital where we think the returns make sense, but we are also looking at alternate measures to deliver growth through partnerships that will also be part of the AGL Australia growth prospects moving forward. But for any significant M&A where we see that there will be significant value, we'll determine -- and the Board will determine the required capital and type shouldn't warrant any investment or equity from the market but we'll work with our investors to obviously demonstrate that value.

Look, thanks, everybody. I know that there are questions still waiting to be answered. We took more time than we normally would in stepping through the half year because there was so much important stuff to talk about in terms of both climate and obviously, progress on the demerger. So we obviously are open to dealing with more questions. Feed those through to Investor Relations as normal, and we look forward to seeing you all but virtually over the coming days. So thanks very much for your time.