APA Group (APA) Earnings Call Transcript & Summary

Good morning, everyone. I'm Yoko Kosugi, General Manager, Investor Relations and Analytics. Thank you for joining us, and welcome to APA's 2021 Investor Day. It's great to see lots of physical faces here in the room today, and we do also have many people online and able to participate in today's meeting. If COVID has taught us anything, it's utilizing technology for improved and more far-reaching communications. As this event is being held in Sydney, on behalf of APA, I would like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of the land on which we meet. We pay our respects to elders past, present and emerging and extend that respect to any other aboriginal or Torres Strait Islander peoples joining us today. Safety first. The room is well signed with exits. In case of an emergency, please follow the Shangri-La staff who will guide us to a safe location. You would have seen that today's presentation is entitled, Strategy and Capability to Deliver Growth. Throughout the course of the morning, we will take you through how APA's refreshed strategy will leverage our extensive energy infrastructure capabilities into new areas of growth. Joining us today is APA's executive leadership team. We will have 2 Q&A sessions today, which will cover questions in the room as well as any questions for both the teleconference and the webcast facilities. The instructions will be up on the screen for those attending virtually, as you see on this slide here as well. If you have any further questions following today's Investor Day, please feel free to contact the Investor Relations team. My details are included at the end of today's presentation pack, which has also been uploaded on to the ASX platform this morning. I will now hand over to APA's CEO and Managing Director, Rob Wheals, to introduce you to his executive leadership team. And together, they will take you through a deep dive of APA's strategy and capabilities.

Good day, everyone, and thank you for joining us here for APA's 2021 Investor Day. And isn't it wonderful to have folks physically in the room today, and thank you also for those of you who are joining us online, and we certainly appreciate your interest in APA. I thought I'd begin also by acknowledging and thanking Yoko, acknowledging the traditional owners of the land on which we meet. Now you might have noticed at the commencement of proceedings today, things might have looked a little bit different. And that's because we've taken this opportunity with our -- at Investor Day to unveil our refreshed brand. Now 2021 is the year in which we celebrate our 21st birthday. And it's also, as you know, a time at which we've refreshed our strategy. So we thought it was appropriate to have a rethink about how we present the APA business to the external world and to present a more contemporary and modern look and feel. And I hope you like it as much as what we do. Importantly, though, we've answered that age-old riddle as to what does APA stand for. APA is Always Powering Ahead. And that is true because today, we are always powering ahead with our purpose, which is we strengthen communities through responsible energy. We're powering ahead with our vision to be world-class in energy solutions. We're powering ahead with the role that we will play in the energy transition and our commitment to net zero operations emissions by 2050. And we are powering ahead with our refreshed strategy. So at the half year results, I outlined our refreshed strategy, and we will delve into that in a little bit more detail during the course of this morning. But the essence of it is that the refreshed strategy brings stronger alignment to our purpose and vision, and it enables us to unlock the vast opportunities that we see in front of us through investing in electricity and gas energy infrastructure, both contracted and regulated, here in Australia and also in North America; through leveraging our skills and capabilities into next-generation energy solutions through our Pathfinder Program; by responding to the ever-changing needs of our customers but all the while maintaining the discipline that you would expect of us, the financial discipline and the balance sheet strength. Now at the half year, I communicated that we were firmly in execution mode. And I can say that 3 months on, that is exactly the case. Now we've had a number of small disappointments along the way, but I can tell you that the momentum that we have developed has given me even greater confidence that we have the right strategy and the right team, the right skills and capabilities to be able to execute our strategy as the energy market transitions. So I think it's probably appropriate just to take a look back, and it's a story that you should all be very familiar with that, over the last 2 decades, APA has been very successful as we've evolved and diversified our business, and we've made strategic investments in different forms of energy infrastructure. And that's enabled us to develop and grow and evolve our business, utilizing the skills and capabilities, and we'll continue to do that as we evolve into the future. Now we are probably best known for our skills and capabilities in safely and reliably operating gas pipelines and gas power generation. But did you know that every day, we're operating and maintaining and providing services to 1.4 million customers, both households and businesses, in Australia. And did you know that we're the eighth largest renewable energy generator in Australia and that we are currently constructing our first-ever hybrid microgrid. And did you know that we have proven capability in electricity transmission infrastructure through our investments in the electricity connectors between Queensland and New South Wales and South Australia and Victoria. So time and time again, we've demonstrated that we can evolve our business and leverage the skills and capabilities that we have into different asset classes. And with our refreshed strategy, we are absolutely confident that we'll be able to leverage those skills and grow and diversify our business into the future. So what does the future look like for APA? What does the future look like? Well, we see enormous opportunities for APA. We see enormous opportunities. Now as the energy markets transition and that acceleration increases, we believe we can play a leading role. We're well positioned to play a leading role. And that's consistent with our vision, which is to be world-class in energy solutions. And all those skills and capabilities, which I just described, we'll be leveraging them as we grow and diversify and capture growth in new markets. Now when you actually do the numbers, we've identified that in our chosen markets of Australia and North America, there's in excess of USD 2.7 trillion of opportunities to play for, USD 2.7 trillion. And those are in the areas of renewable energy, firming and storage, gas pipelines and electricity transmission. Now Julian Peck and Ross Gersbach will do more of a deep dive into the opportunities in those markets during the course of the morning. And as the hydrogen economy develops and matures, we believe that, that will also create enormous potential for APA. And Hannah McCaughey will also talk about the opportunities that we are identifying through our Pathfinder Program around next-generation solutions. Now recently, the International Energy Agency, or the IEA, they highlighted the enormous investment that's going to be required as the energy market transitions, particularly in power generation and electricity transmission. And those are 2 areas that APA has existing and growing capabilities. Now you'll see it on the chart on the left, these are Bloomberg forecast. And what they show is the threefold increase, threefold, 3x increase in electricity generation capacity that's going to be required by 2050 as the energy market transitions and coal retires from our energy markets. Threefold. And of that increase in -- of that electricity generation in 2050, 60% will be wind and solar. Now of course, that will be complemented by technologies such as hydro and batteries. But the point I want to underline for all of us is the critical and important role that gas generation will play as part of our generation mix. 15% of our electricity generation in 2050 will come from gas. Now if you do the numbers, that's actually a near doubling of the generation capacity that we have today. So what does all that mean? Well, it means that gas is going to continue to be a critical part of our energy mix going forward. And importantly, it's the perfect companion for renewables such as wind and solar. Now let me take this to more of an Australian context and talk about the critical role that gas will play and does play and will continue to play in Australia. So first of all, around 1/4 of our primary energy use is natural gas, 26%. And 20% of our electricity generation is gas generation. And as I said earlier, gas generation is an essential companion for renewables such as wind and solar. But not only that, gas plays a critical role for high heat-intensive industries that are hard to [ bake ] such as the industrial sector. Now as the energy transition accelerates and more and more coal comes out of our electricity system, as is forecast and its forecast to accelerate, the role for gas can only grow. Now just recently, the interim national gas infrastructure plan was published. And I quote from that plan, it says that, "Due to the record levels of supply from solar and wind, the firming role that gas power generation will play in grid stability and reliability is becoming increasingly important to keep the lights on in Australia." So that important and growing role for gas gives us confidence that, even as we pursue opportunities in new markets and new energy classes and new energy solutions, gas will continue to be an important part of our energy mix and, therefore, is core to the APA strategy. And that confidence is borne out in this chart. And you can see that our growth CapEx pipeline over the next number of years exceeds more than $1 billion of growth capital expenditure, albeit off a number of years of lower investment. And that is despite the fact that we have changing gas market dynamics occurring in our market. With energy policy uncertainty flowing through to customers contracting shorter terms, requiring greater flexibility, you will have already seen some of those energy market dynamics flowing through to our results this year, coupled with the flow-through effect of lower capital investment in the last number of years. But I'm confident with the uptick in capital investment that you can now see that we'll see growth flow through into the years ahead in '23 and '24. Now as we execute our strategy, we will do so consistent with our commitment to net zero operations emissions by 2050. And what does that mean? It means that we will embed net zero into the way we think about our strategy, our business processes, operating decisions on a day-to-day basis. And that will be underpinned by climate management plan framework, which will be focusing on 5 key priority areas. And I won't go into those details this morning. But what I will say is that during financial year '22, we will publish transparent, interim targets around net zero, which will guide us towards our ultimate goal of net zero operations emissions by 2050. So key to being able to execute our strategy is having the right skills and capability and experience in our people. And I'm confident that we have not only the right team but the right operating model at APA to deliver on our strategy. Now you'll be familiar with most of the team already, including their areas of focus, but probably the one exception of Jane Thomas who has just joined us earlier in this month, in the month of May, and is sitting upfront. Now Jane joins us from Westpac, where she held a senior leadership role. And I know that Jane's still getting her feet under the desk, but I know that a big part of her focus will be helping to drive our diversity and inclusion agenda, boosting our women in leadership roles and also strengthening our safety performance. And Jane's appointment, more generally, has increased the bench strength of APA and our ability to execute on our strategy going forward. And with this team together, we will be driving a strong culture with a big focus on high performance. We'll be focusing on building our talent pool and making sure we have the right skills and capabilities to execute our strategy, and we'll be looking to foster stronger relationships with our external stakeholders because that's so important for our social licenses if we want to execute our strategy. And this team will also be focusing on operational efficiency because scalability is important for growth. So to sum up my introductory comments, APA is in a very strong position. We're in a very strong position. And as we face into the challenges and opportunities of the energy transition, I believe we've got the skills and capabilities off the back of the last 2 decades of diversifying our business and building those skills and capabilities, which we'll be able to leverage into new markets over time, all the while maintaining strong financial discipline, maintaining the strength of our balance sheet as we focus on steadily growing distributions for you, our security holders. And that focus around balance sheet, financial strength and distributions will be elaborated on further by Adam Watson a little bit later during the course of the morning. So I might just focus a little bit about the format for the rest of the morning. So the structure is going to be around, as you can see, clearly around strategy and capability. And capability is all about how we execute our strategy. So we first have Julian Peck and then Hannah McCaughey talk about how we're going to execute our growth here in Australia as well as leverage our capabilities into next-generation technology solutions through our Pathfinder Program. And then this will be followed by Ross Gersbach who will be joining us live by video link from Houston, and Ross will elaborate a little bit more about our growth strategy in North America. This will then be followed by Q&A, and we'll have the whole executive leadership team upfront. And then we'll have a short break. And after the break, we'll change tack a little bit and focus more on capability. And that will include presentations from Darren Rogers and Nevenka Codevelle, followed by an update on capital management from Adam Watson. And once again, we'll have another session of Q&A, and then I'll make some closing remarks. So I hope that today, you'll find the information that we share useful, informative. And hopefully, the morning will also be entertaining. And I now welcome Julian Peck, our Group Executive, Strategy and Commercial, onto the stage.

Thanks, Rob. Good morning, everybody. I'm really pleased to be with you here today. And as a number of you have said to me already this morning in person, it's nice to actually meet people in person again after too many Zoom calls, I'm sure, for everybody in the last 12 months. I'm going to talk about our focus for growth in energy markets in Australia. And I think we'll elaborate on our core pipeline infrastructure business in Australia, and we think that remains an attractive and essential part of the energy economy. But we also recognize the management team, that the energy transition is well upon us. And we recognize that in our expanded strategy. And as such, we plan to participate in those markets going forward. In terms of our gas pipeline operations and what we can see in terms of capital investment opportunities going forward, obviously, we have good visibility in that market, and we think that pool of potential investment at the moment is around $8 billion. But when you look at the energy transition, and that's going to drive significant investment clearly in renewables and electrification over time, just using the AEMO numbers, in the ISP, you've got $60 billion of combined investment across renewables, firming and electricity infrastructure. So we've broadened our investment scope in the refreshed strategy in the half year this year to include those areas. And I'm going to demonstrate to you today how we plan to participate in those markets as we move forward into this energy transition. And that energy transition is well underway. The diagram on the left is from the AEMO ISP. That data is taken from that document. You'll see in there and consistent with Rob's comments around the broader globe and Australia, we see around 35 gigawatts of solar and wind: solar at the top, wind second top, coming into that market. And that energy is obviously displacing coal. And you see around 15 gigawatts of high-capacity factor coal plant dropping out of that market. It's really important to recognize that for every megawatt of coal, there's nearly 2 to 3 megawatts of renewables to come in to replace it. That's more capital investment, and that also means investment in the grid, which I'll come to, but also investment in firming, batteries, pumped hydro that we hear about, but also gas-fired firming. So energy transition is really driving the retirement of coal, replacement with the renewables, but those renewables need a significant amount of firming and dispatchability. This is a central case scenario from the ISP. I think Kerry Schott in ESB are completely right to say we are more like on the fast-change track if you look at those public studies. And it will be no surprise, I think, for us to see coal drop out faster and lumpier than some of these sort of very macroeconomic style projections. And we've seen Yallourn retire in 2028. And Origin has flagged the earlier retirement of Eraring in stages. And it's not very economic to retire coal plant in stages. So they will tend to drop in big lumps. And I don't think it's any surprise that in that environment, you're going to see governments and policymakers look to the security of gas firming in an environment where you can see coal drop out quicker than expected and in bigger lumps than expected. On the right-hand side, a number of states have put out renewable energy targets. In the diamonds, the bars are our current penetration. And we have seen and we will continue to see -- I think, the reality is that governments will adopt policy and intervention to drive those renewable targets or their renewable penetration towards their targets to close that gap. And that's been a feature, obviously, of recent announcements by the state governments. And I think the reality is we expect that to continue. So that will drive that renewable growth, and we are positioned, I think, to continue to participate in the renewable sector. I think I'd like to remind you all that we are, as Rob has already said, the eighth largest owner of renewable energy products today, probably gets a little bit overlooked. We also have capabilities in combined cycle, gas generation, open cycle gas generation and gas engines. And so we actually have a range of capabilities in the business across the stack of gas generation that can play different roles in the market to support that renewable generation. So across that portfolio, which actually is almost a model portfolio for how the market might look over time, APA's carbon emissions tonnes per megawatt hour of around 0.27. The NEM today is over 0.7. So we are well below half in terms of our emission contribution on our combined portfolio today. So we are a meaningful owner operator of renewable and gas generation today with our own operating capabilities and our own development capabilities. And again, within the scale of APA and a big focus on the biggest revenue earner, being gas pipelines, I think this gets a little overlooked. We're also exploring our next-generation energy solutions like the Gruyere microgrid. And I can say that we are engaged in a number of customer discussions around similar developments where customers are looking for microgrid solutions, renewables, paired with storage and firmed by gas. And I think that's a great foundation to participate in renewable growth going forward. We've got existing capabilities that we can leverage. We have growing demand and customer relationships, particularly in mining and industrial customers who, as you expect, are around their own net zero journey, a lot of those customers, so they want to decarbonize over time. But clearly, don't want the lights to go out and looking to natural gas solutions to firm their own operations. Gas, I think, is a perfect companion for renewables through this transition phase, and we'll explore that a little further in the coming slides. We've seen recently, Snowy announced the [ Kurri ] power station, again, looking at a firming solution into the market. And I can share with you that we are working with Snowy on that pipeline and storage solution. The development team and my team have come up with an innovative solution. Snowy had a choice. It didn't have to use APA, but it has partnered with APA on that project. We've also participated in some recent transactions in renewables. Those transactions went to price points where we didn't think they created value for shareholders. But we worked with a multidisciplinary team within APA, commercial side, operations side, development side, capital side, brought a team together with over 30 professionals to really diligence and understand that business and look for synergies and value in that pipeline. So I came away from that exercise, being new to APA, with a great deal of confidence in the capability of the team and the ability to be competitive and find value in the right way. As we said, I think that transaction, which I'm sure you're all aware of, went to a price point where it didn't create value for shareholders. But we will continue to examine that market. And given our capabilities, we have the ability to participate in renewables, both in a greenfield market environment as well as looking at existing assets. But we will be highly selective of acquisitions and developments in renewables with a greater focus on wind in the current environment but making sure we're delivering value for our security holders. To make all that renewables work implies a very significant step-up in our electricity transmission grid because the renewable locations, as you all know, are not conveniently located where the retiring coal fields are. The T&D sector has to step up in order to make that renewable transition work. Numerous examples, and I'm sure the lenders in the room were some of those where congestion in the transmission grid has not effectively facilitated that renewable penetration. So T&D has to step up. Governments are well aware of this and are looking to create renewable energy zones to codevelop the transmission with the renewables such that those congestion points are largely removed, different from models for how this will work. But it's very clear that governments will also welcome contestability in those arrangements given the huge pool of capital that is there. Just again using the AEMO numbers and just the T&D component of around $18 billion just across Vic and New South Wales, although that is the majority. If you look at the total spend for Victoria and New South Wales in their res announcements, which includes the generation and transmission spend, they're huge numbers. I think the -- just on the T&D side, on the transmission side, rather, those capital commitments are more than 2x the installed regulated asset base of the 2 incumbents in New South Wales and Victoria. So there is clearly a room for other participants to participate in that market and invest some of that capital. APA today has some existing capabilities in electricity transmission, as Rob has mentioned. They're smaller than our renewable energy presence at the moment. But it makes sense for us to actively study that market and leverage the capabilities we do have and also look to selectively add capabilities as we study this potential market expansion. And I think a number of our capabilities are quite relevant here in terms of gas transmission being very longitudinal infrastructure, land access, planning, stakeholder management, dealing with community, dealing with environmental approvals. One of those skills are transferable as well as construction management funding and the like. And so as we think about this potential market, we see a number of parallels between this buildout and what APA currently has and does. I would acknowledge that we will need to add additional capabilities to that. But we're starting from a very strong base from our perspective. Moving across to gas but continuing the theme around decarbonization and focusing for a moment on the electricity market. We think the NEM can be largely decarbonized today through existing technologies. So the electricity sector is around 22% of CO2 emissions for Australia. If you think about the mix of what that could look like over time, renewables growing and displacing coal firmed by gas, then as you can see on the right-hand side of the chart, we can get to very low electricity sector emissions. Where does 93-7 come from? That's one of the frontier economic scenarios that we published publicly. As we looked at other markets around the world, there's a number of similar studies -- actually different -- obviously, different markets, different settings, different resource bases. But a number of economists would say whether it's 93-7, 95-5, 90-10, whatever it is, that combination of gas firming and renewables is the quickest and most practical way to decarbonize the electricity sector. Whilst we believe, as you can see from the previous slides that we are going to see greater electrification and renewable penetration, and we will participate in that. We also think that -- and it makes sense that if we're going to build out a large commitment in terms of the grid, storages and renewables for scarcely used peak demand that we are going to -- we, as an economy, a community, are going to invest in a lot of capital that doesn't get used very often. So that last piece of abatement, if you went to a full electrification model, is actually very expensive. So that's why you see the 95-5s, 93-7s, 90-10s, whatever it is, different markets. Well, I think being the most practical solution to quickly decarbonize the electricity sector. And we can't ignore the fact that electricity is about 22%. But obviously, if net zero is the aim, then decarbonization across other sectors and abatement may well be cheaper than trying to electrify every last molecule in the electricity sector. Of course, renewables being renewables, they have renewable doubts. And what we've done here on the next slide is to pick a particular day in South Australia, it's the 12th of May. And I'll just walk you through this. The yellow at the top is solar during this period, it's a 24-hour period. So solar ramping up middle of the day peak and ramping back down again. You can see that the wind, which is that greenish color at the top, stronger overnight and then fades and actually relatively low wind output. During the day, it was down to a couple of percent. You can see the peak demand is not coincident with either maximum wind or solar output. So what happens? You can see intermediate gas, which is the red on the bottom, being pretty consistent with effectively a scenario or a day with this low renewable output. And then the pink color is the peaking gas ramping hard in the morning, backing off when solar participates and then coming back up at night. This is a perfect example of the criticality of gas firming to support renewable penetration but also that flexibility in the market. The darker gray at the bottom is largely imports from Victoria, which is, call it, 80% brown coal. If we did this 2 days ago in South Australia, South Australia was actually -- had a big wind day, it was net exporting wind, and there's about 250 megawatts of gas running in the market. So that ability of gas to ramp up and down, support renewables when it's not there, and back off when the cheaper renewables is there, I think, is a perfect real-world demonstration of the role that gas can play and why we think it is a companion fuel to renewables. And so we think that's a great demonstration of that and the role that gas can play as that companion fuel. Reinforcing that decarbonization of the electricity sector can be achieved with gas back in renewables. And we continue to invest in gas pipelines. As you know, this year, we've made a couple of commitments to gas pipelines. And we are proud to do that. Why? Well, we think, frankly, pipeline gas is both lower emissions and cheaper than imported LNG. On the left-hand side are some studies reviewed from markets with pipeline gas and LNG into those same markets. If you stack up the energy used in -- you got to liquefy the LNG, you got to ship it, and then you got to degas it as well. So it makes sense, it makes logical sense that, that is a more energy-intensive product and pipeline gas. On our numbers, post-combustion, again, depending on the LNG scenario, that's an approximate 20% increase in emissions. So if emissions intensity -- if net zero is the aim, and we're trying to decarbonize the economy, I'm very proud to say, I think, pipeline gas is the best solution for the economy. On the right-hand side, we are pleased to see that the natural gas infrastructure plan concluded that pipeline gas would probably be cheaper than LNG imports. That was certainly our assessment. We've just compared Victorian prices to delivered prices in Asia. Obviously, a range of benchmarks and long-term contracts, but I think this is a representative illustration. You'll see, in certain cycles, LNG might be cheaper because of winter/summer between Northern Hemisphere and Australia. But on the whole, the pipeline gas has been cheaper. And importantly, I think you can see a couple of [indiscernible] spikes in the LNG market, which really drive that average cost of LNG up. So the government has concluded domestic gas should be cheaper. We agree on average. And we also think that domestic pipeline gas is the lower emissions solution if we want to really decarbonize the economy. Wrapping up on capabilities to grow in energy infrastructure. So I talked to you a bit about how we see the electrification, renewables and transmission. Strategy and commercial, the team that I lead within APA, is really the front office of APA. So in the last financial year, we have committed to the Gruyere microgrid. We've committed to the Northern Gas Interconnector Pipeline in Western Australia. We have committed to the East Coast Grid expansion. At last count, I think we had signed and extended 109 customer contracts on a more contracting term, of which obviously, the Origin contract was most recently done. We're working with Snowy on connecting its power station to the grid. And we continue to talk with customers around a range of new projects and energy solutions. None of that really works for my team, being in the front office, without the support of that deep capabilities across the rest of the APA team. Obviously, with infrastructure development, with those new projects, with the stakeholder management team, regulatory and the like, the operational and asset management capabilities are critical and then obviously, the funding and the capital management. So in conclusion, we'll continue to make targeting investments in gas infrastructure, and we see that, that business has a robust future through this energy transition. We've got a very meaningful presence in renewable and power -- firming power today, and we will look for opportunities to add value for our shareholders in the right way in that space. And we have a small but existing presence in electricity transmission infrastructure, and we will look to leverage our existing capabilities in that market and then selectively add to them over time to participate in that sector. Now to talk about next-generation energy technologies, I'm going to hand across to Hannah McCaughey, our Group Executive of Transformation and Technology.

Hi, everyone. So over the last 20 years, APA built the infrastructure that grew the Australian energy market. And what we're going to do in the next 20 years is lots more of that, and we're going to lower emissions significantly. And so we see the bridge from that past to this future will be built in part by new technologies and new innovations. And that's really where Pathfinder comes in. We're going to leverage existing assets and existing capabilities to build those new technologies and those new customer value propositions to serve new interest in the market. And really, we're going to focus specifically on 3 technologies: clean hydrogen, energy storage, microgrids. Why these 3? Well, quite frankly, they play to APA's strength. Today, we have 15,000 kilometers of gas infrastructure that carries molecules. We are already in the business of energy storage. We already understand the value of energy time shifting. And we already serve customers operating in some of the more remote parts of Australia today. So first of all, we're going to talk a bit more about hydrogen. Australia now has a globally recognized comparative advantage in the production of clean hydrogen. We have abundant land. We have some of the best sun and wind resources in the world. We have a highly skilled industrial workforce, and we have existing infrastructure that can be leveraged to build this new market. And yet with this great potential, there's a lot that has to happen to be able to capitalize and translate that potential into a new market. I'm just going to talk about 2 things today. One is regional hubs and the other is gas pipelines. So just firstly, on regional hubs. The government is rightly focused on regional hubs as an important policy play to build this new market. Why? It makes sense to group together infrastructure solutions near existing reports. So you get economies of scale, new users, new producers and build these technical and commercial outcomes together. And effectively, when you actually look at what is a hub, it's renewable energy, it's pipelines, it's electrolyzers and then it's connecting them all together to provide a product. And so APA has experience across many of these energy infrastructure solutions. And so we're talking with other players in the Hunter Valley because it has some great physical attributes such as renewable energy, such as the Port of Newcastle, which is the largest exporting coal port today. The next thing I'm going to just talk about is existing pipelines. So the IEA recently said that gas pipelines offer a near-term opportunity to boost hydrogen production. The reason for this is that in order to drive down the cost of hydrogen, you have to develop it at scale. And the way to develop it at scale is to produce it in the areas where it's the lowest cost of production and take it to use. And that's not going to be done by trucks and trains. We are going to need pipelines to transport this fuel at scale. And while I think this is a genuinely exciting proposition for APA to actually realize this opportunity, there's technically a lot we've got to be able to do. And so we've decided to roll our sleeves up. And we have this project called the Parmelia pipeline transformation project, where we're going to take 43 kilometers of a gas transmission pipeline, Southwest of Perth, and see what it would take to be 100% hydrogen ready. So the project is in 3 phases. And I'm happy to tell you today we've completed Phase 1, which is lab testing. And I'm happy to tell you that the first results are positive. The results have said that the material that the pipeline is constructed could technically carry hydrogen. Now while that is really positive, we still have to go through Phase 2. And in Phase 2, we really have to understand how does this clean hydrogen interact with aboveground equipment, how do we operate it. So we're not home and hosed. We've got a lot more work to do. But the first phase is now complete. And I think what's almost more exciting is that we are building the safety case for clean hydrogen. We are building the framework on which new hydrogen would be transported. And we've got now relationships with people in Europe who are doing the same with their gas infrastructure in Europe. They're trying to understand how will they convert this infrastructure to be part of this new world. So it's really watch this space wherein we're working through the project, but we do see the repurposing of this infrastructure to be an important opportunity. And while that might be good for APA, what we're also learning is that it's probably going to be good for our customers. So studies are showing that if you look at the full energy transition, that repurposing existing infrastructure and the clean hydrogen opportunity could mean that the whole transition to net zero could be half the cost of full electrification. That's a recent Frontier Economics study. So this remains not just an important thing for APA, it's important for our customers. Now we need to get to energy storage. Energy storage, a megatrend for the next 20 years. It's going to be really important. And as you've heard, gas is going to play an important role in that but so is batteries. And so therefore, it's really important that we start to understand how we can use batteries as part of serving our customers and a part of this energy transition. And we've already started doing that at the Gruyere mine in Western Australia. It's a 4.4 megawatt battery. It's not very big. But actually, what's very interesting is that it's being partnered with solar and with gas-fired engines. And so to break this down is like solar provides the lower emission energy, gas provides the reliability and the battery provides stability and an ability to save on fuel costs. And as we build together these technologies, we're creating an integrated solution, and that integrated solution and the innovation required to build that can be scaled for future projects. So again, this is coming about through customers asking us for innovations, and new technology and new solutions are going to be required to meet these customer needs. Now a bit on costs. When looking at all these different technologies -- and the costs are different depending on the use case. And so in some instances, it's just truly uneconomic. And in other instances, it's closer to commercialization. But what we do with Pathfinder is, through these projects, we actually understand the cost curve and understand the precise commercial necessities that will make these commercial in future. And that means as the energy transition happens, we will be at the forefront of that change. So we're going to be participating. We're not going to be spectators. We're going to be part of the new technologies required to meet these new challenges. And just really, in conclusion, I think that's why I'm really excited about the Pathfinder Program because it's not a separate hub separate from the business that does a sprinkling of innovations. It's actually leveraging our existing infrastructure. It's leveraging our existing capabilities and it's building new infrastructure solutions and new capabilities and having technology IP in-house such that we can expand our customer proposition set and continue to meet these challenges as the energy transition accelerates. So it's been great to be with you, and I'm now going to hand over to Ross Gersbach, our President of North American Development. Ross is beaming in.

Thanks, Hannah, and good afternoon from Houston. Now after being here for a little over 18 months, nobody is more disappointed that I can't be there in person because of the travel restrictions. But I'm very pleased to be able to give you an outline, a recap of how our strategy is developing, what we've been up to in the U.S. to obtain our first investment that will be our beachhead in what is one of the largest energy markets in the world. If we could move to the next slide, please. Energy infrastructure, as Rob mentioned, the amounts required are significant. Current forecast -- and there are so many different forecasts, but current forecast that we're using suggests more than a $2.7 trillion investment opportunities in the areas that we look at across gas infrastructure, renewables and firming and electrification in the U.S. through to 2040. It's not a competition with Julian, but I do remind him that this is more than 40x the opportunities that Julian mentioned earlier and doesn't take into account the hydrogen to leverage Hannah's work. Critically, natural gas will have an ongoing and vital role in the energy mix going forward to: support the energy transition that is also happening in North America; to support the replacement of coal and, indeed, potentially the aging nuclear generation fleet; affirming for a significant increase in renewable generation; and importantly, a resilient source of energy for business and household through all weather conditions. And that's certainly been a feature over the last few months with what the Texas storms, et cetera, has highlighted the resiliency of natural gas for homes and businesses. So while we're not limiting our focus to natural gas, we expect our first step into this market will reflect our core capabilities and experience and will provide the opportunity for further expansion, diversification and growth, which will be consistent with our new strategy. Moving on to the next slide, please. As you can see on this chart, even after 2050, natural gas will be critically important in power generation in the U.S. But in addition to that electricity generation, the industrial sector's significant need for energy from natural gas will be very difficult and costly to replace due to the very low natural gas prices in the region. And importantly, as I touched on the colder climates, the U.S. also support demand for natural gas for heating. On to the next slide. Plenty of discussion on net zero by 2050. But consistent with the views in Australia, without gas, it will be a very significant challenge. As you can see on the right, which we've taken from the net zero America report prepared by Princeton University. I commend this report because of the comprehensive and a very rigorous report that sets forth the economic, the technological, the land use and the energy system challenges that would be required for the U.S. to achieve net zero emissions by 2050. So for the U.S. to move to a highly renewables-only scenario by 2050, it's estimated that, that would require some $9 trillion capital investment, which is a twentysixfold increase in wind and solar, which also requires land use in the U.S. that would be larger than that in New South Wales, approximately 11% of the total U.S. land map. So while we see renewables having a very strong future in the U.S., we still see that the natural gas sector will be required to play its part in reducing carbon emissions. In relation to the gas utilities and the energy transition, there are 3 things that we are seeing: the introduction of lower carbon fuels into the system; increased focus on building efficiency measures to reduce energy consumed; and also plenty of discussion around the electrification of buildings using -- currently using natural gas. On the first point, increasingly, regulators are allowing the gas utilities to source a portion of the gas procured to be renewable natural gas such as biogas, even though it is currently significantly more expensive than natural gas. When I say that the regulators are allowing, it's because normally, utilities are supposed to source their energy from the lowest-cost producer. However, given availability of cheap natural gas in the U.S., there is considerable focus on the need to scale up the renewable natural gas sector to help bring down those prices. And it's pleasing to see that the gas utility industry are actively supporting and participating in those developments. On the second point in terms of new building efficiency measures, which is coming without any doubt, in terms of gas utilities, I see it as a win-win initiative for both gas utilities and consumers. This is because gas utilities earn a return on the infrastructure and not on the gas going through it. So lower gas volumes should not impact on returns on the infrastructure, but they do hopefully reduce the monthly bills of customers. And on the third point on building electrification, I'll touch on that a little later. On to the next slide, please. The market dynamics -- the size of the market and the investment opportunities is why APA continues to look for investments in North America. There's nearly 180 million Americans or 72 million households and 5.5 million businesses that use natural gas. And to put that into context, as a country, it consumes nearly 30x the amount of natural gas in Australia. On a per capita basis, U.S. consumption is 73% higher than in Australia. This is driven by the colder climates, the huge industrial base and the fundamental competitiveness of price of gas versus electricity. And just to remind everybody that the U.S. has immense reserves of natural gas to support both domestic and the export markets, which will in turn require the infrastructure to deliver it. Moving on to the next slide. I often speak about the cheap cost of gas and the plentiful supply. And it's expected to be this way and sustainable for many decades, very low cost of production and a very significant gas reserves available to produce. And of course, that means it's inexpensive fuel for the end user. How is APA participating in all of this? Well, the 2 focus areas for APA continues to be natural gas utilities and pipelines. There are a number of interesting differences I see between the U.S. and Australia that I think makes the U.S. very attractive. A key difference is the allowed rates of return for regulated assets, particularly gas utilities, which is generally around the 9% to 10% return on equity. The regulators have this approach in the U.S. for gas utilities and pipelines to make sure that they set a return that's sufficiently attractive to attract new investment into the sector. And this has been very stable over quite a long time. Another key difference, which I really like in terms of the gas utilities, are that they are often vertically integrated. While not universal, it's common for gas utilities to source the gas for their retail consumers. And this gas is passed through for 0 margin. This compares to an Australia's regulatory environment where there is structural separation of the owner of the gas infrastructure from the gas retailer. I think this is a big advantage for the U.S. model. So the gas utility actually owns the customer experience and can more easily focus on providing services such as renewable natural gas that their customers require and desire. As the cost of gas is passed through at 0 margin, there is no significant commodity risk for the gas utilities. And what the gas industry in the U.S. needs to continue to remind the regulators and public is that it's also a very efficient way of delivering energy. Generally speaking, the major use for natural gas customers on the distribution network is heating. As you can see in the graphic on the bottom of that slide, it is far, far more efficient to transport natural gas directly to homes for heating than it is to turn that gas into electricity by gas generation and then transport the energy by poles and wires to this home for electric heating. From a carbon emissions point of view, electrification of heating would worsen emission until the bulk of the generation fleet was 0 emissions. And to compound the challenges is to look at the amount of energy delivered by natural gas networks. To electrify the customer base of gas utilities will require significant new generation to replace this synergy. To put some numbers to it, to fully electrify gas utilities, the U.S. must not only replace all 800,000 megawatts of its current fossil fuel-based generation, but then almost double that level to support electrification of gas utility. So this implies -- and I'll say this slowly, this implies a total of 1.3 million megawatts of new generation and therefore requires constructing of over 43,000 megawatts of firming capacity per annum for the next 30 years. That 43,000 is approximately the amount of the total capacity installed in the NEM in Australia. A very significant challenge and opportunity, but it would be naive to say that that's an enormous challenge for the market to achieve. And that ignores -- those statistics ignore the fact that other new capacity may very -- will be required for other new electrification requirements, such as electric vehicles and electrification of industry. So on to the next slide. So from an APA perspective, the U.S. remains a highly attractive market. We have been active in this market for some time. And while we had some misses, we continue to believe both in the attractiveness of our diversification strategy and our competitiveness in the market. In fact, I think we are more confident over the last 12 months of our competitiveness than we had been to date in targeting initial acquisitions. We, of course, have lent a lot already, including that we can financially compete and that we have complementary and transferable capabilities. So we continue to pursue opportunities that match our risk and return profile. Unfortunately, over the last 12 months or so, COVID did create volatility globally. And we have found that Boards and management here in the U.S. have been loads to transact in these environments. So it's not too dissimilar to the GFC times. But we do see markets are coming back, providing a more stable transaction environment just as they did following the GFC. And there's been recent announcements of a couple of gas utility sale that confirms there is considerable interest to invest in gas infrastructure. And I think those announcements are likely to trigger further asset sales to capitalize on the demand for such assets. We remain confident that the market is attractive enough to spend more time on it. But just touching on the competitive landscape and how we can compete. And prior to COVID, many of the gas utility acquisitions were driven by the electric utilities looking for growth. I see this is unlikely to be repeated given the very significant capital expenditure that electric utilities have got from inorganic growth. And certainly, their focus is on how to fund that organic growth, and you'll see some of those transactions recently were actually sales of gas utilities to help fund utilities organic growth. In terms of other competitors in the gas utility space, they also have significant organic growth, which they need to fund. And they seem to be focusing on more than on the M&A front as well as trying to get their balance sheets in shape after some interesting years over the recent times. So they're reducing gearing and trying to slim down their business. And that leaves financial sponsors which are still active in the market. But we're confident that we can compete with them financially. But what separates from them is that we can also bring and have the added benefit of having the operating capabilities that we can draw on from elsewhere in APA to be more -- fundamentally, more confident in the valuations that we ascribe in any acquisition. So I do believe that there will be an attractive range of attributes, and we are more confident in our competitive position now than 12 months ago. We're very busy looking at opportunities with detailed discussions underway, particularly gas pipelines and gas utilities. There are good buying opportunities. But of course, we will remain disciplined. On to the next slide, if I could. So really, to conclude, we continue to engage with the market. And based on all of our due diligence of both the market and specific opportunities to date, I'm confident in our ability to apply our existing capabilities and our operational, our engineering and financial expertise to supplement the skills we will acquire. Gas infrastructure provides an attractive entry point for APA into this market. And which will provide a beachhead for further growth as we seek to pay for our stake in the $2.7 trillion in opportunities on offer in this market. In the meantime, as I've said, we will continue to patiently look for the right opportunity. But in the meantime, I will thank you, and I will pass back to Rob Wheals.

Well, a big thank you to Julian, Hannah and Ross for their presentations. We're now going to go to a Q&A session. After which, we'll take a short break. So if I could ask the APA executive leadership team to join us on the stage, and we're just going to bring the chairs up while we do that. And as the team join us up on stage, I'll also do some introductions for those executive team members that haven't yet presented. Now just a little bit of a process discussion around how we're going to run the Q&A, just as we're getting ourselves organized. We'll focus initially on taking some questions from the room. And then Yoko will be managing the questions that will come online. And so we'll take a number of questions from the room, and then I'll defer to Yoko for questions online, so we have a good set of questions from both the group in the room as well as those have joined us virtually. As I did say, I'll do some introductions for those of the team that you haven't yet heard presentations from today. You've met Julian, Kevin Lester. I often refer to Kevin as Bob the Builder. His job is the Group Executive of Infrastructure Development, all the things that you've seen up on the screen today in terms of what we've developed over the last number of years and what we plan to build over time will fall in Kevin's responsibility. Nevenka Codevelle, our Group Executive of External Affairs, and you'll hear from Nevenka a little later. Jane Thomas, who I introduced earlier; Darren Rogers, who you will hear from a little later around our capability from an operations perspective and Adam Watson, our CFO. And of course, you've just heard from Ross Gersbach sitting behind us. So with that, we'll take questions. And what we'll do is I'll either answer the question or pass to -- if there's a really difficult one, I'll pass to one of my executive team. Thank you.

Ian Myles from Macquarie. So just a quick question. If we think about net zero emissions, and you said it's part of your strategy and you've told me about all the growth and all the opportunities. We haven't really talked about the fact that you've got 1,000 kilometers of pipelines in the ground and how that transition, the revenues are going to transition in the coming years. We're already seeing your customers shorten their contract lives. I'm not sure I quite agree with you with the need for gas plants given AEMO says we only need 200 megawatts in the next 10 years and battery technology is evolving very quickly. I'm just really curious to understand how you see that element of the business evolving, and how it will change in the coming 3 to 5 years?

Thanks, Ian, and I'll make some comments and then throw to Julian to elaborate a little bit more. But you would have heard from our discussion today both from a global perspective, but also bringing it to a more local perspective here in Australia, of the critical role that gas plays is part of our primary energy usage, but also as part of gas generation. And all the forecasts that we look at give us confidence that, that is going to -- it will continue over the next number of decades all the way through to 2050. So we still remain very confident about the important role that gas will play, and Julian talked about that as well. As we talked about in our presentation, we also can see the energy transition happening. And so we will be investing into these other areas, but we remain very confident, and you can look at a number of different forecasts, the importance and critical role that gas will play in. And just look at what happened yesterday in Queensland with coal-fired generation coming out of the system and gas having to step up. But I'll throw to Julian, just to add to my comments.

Thanks, Ian. I think on the shortening contracts. And I think I would think about different markets. And East Coast Grid, we're seeing some of that. So the Origin contract was sort of 3 to 5 years. And I would contrast customers who of an existing book, existing position and rolling that forward. I think if we've got customers who have more specific project needs, they're looking for longer-term security. And if you look at the West Coast, which is a large market for us as well, you got resource customers doing projects. They're not looking for 3-year security. So I think you've got to really think about the different markets as to how contracts might play out. The forecast that you see from the various participants like AEMO on the East Coast are also public as to what that outlook looks like, again, we see sort of strong and growing demand on the West Coast for resource demand and resource growth is continuing. So I think Rob sort of flagged the sort of contract extensions on the East Coast. But again, you've got a lot to think about specific situations and specific customers. And certainly, as we talk with Snowy, whether Kurri or other customers, the Gruyere Microgrid, for example, that was contracted over more than a decade. So it's not a one size fits all, and different customers are running their own portfolio. On AEMO, just to finish that one off, I think they also forecast EnergyConnect was going to cost less than $2 billion and can it's $2.4 billion. And the AEMO model had a very strong bias, I think, towards transmission and storage. And then obviously, if you -- where you run the models with different costs, you'll get a different balancing. And so I would say to you, there's the macroeconomic models, which tend to spit out certain results. And then there's commercial discussions and customers who are looking for energy security here and now having probably a slightly different conversation that you might see in an AEMO model.

Apologies to belabor the point. You've got a Victorian government who's actually set a policy of net zero emissions and is now actually -- actively running a policy paper to try and work out how to take customers off gas. Historically, it's been about capacity and needing pipeline capacity. It feels if we're shifting away from that need for pure capacity to other versions, whether it be a storage, which is ion or the likes. Doesn't that have implications for your contracting ability in the business and certainty, which historically APA's been able to deliver?

Thanks, Ian. And I think you just pointed to Victoria, and every state is approaching these things in a different way. But you already have heard from Hannah earlier about how we're thinking about the repurposing of our gas pipeline infrastructure. And there's plenty of analysis that can get you comfortable that the fastest way to get and the most economic way to get to a net zero outcome is, number one, gas will play -- will continue to play a role. Number two, that as new technologies become available and just pointing to hydrogen and the economics of that does become comparable, then that's why we focused on the repurposing of our infrastructure. And I think you look back over the last 20 years of APA's journey, we've constantly evolved and responded to how the market's evolved. And just think about how that East Coast Grid didn't exist, and we built the East Coast Grid. So I don't think we need to be sitting there with our blinkers on thinking that the world is going to stop tomorrow, it's about how we evolve and adapt. And Julian, I think, already talked to how that East Coast market, in particular, is a demand/supply balance. And we look at that from a more macro perspective as to how customers' needs need to be met. That is different. You're right. To the contracts of old, 10 years on a contract on the Moomba to Sydney pipeline from Moomba to Sydney. Those markets have changed. There's no doubt. But for any new infrastructure, and we see also on the East Coast -- on the West Coast, when we're building new infrastructure out to mine sites, et cetera, we're always looking for longer tenor to support the capital investment.

It's Mark Busuttil from JPMorgan. Within Julian's presentation, you talked about the $68 billion opportunity over the next, I think, 20 years. Out of that, $40 billion, which is roughly 2/3, is coming from renewables. I'm sort of interested in the investment opportunity within that space. A couple of questions on this. Firstly, we saw material declines in contract prices in recent years. So maybe you can give us an update on availability, tenure and price of PPAs today. Secondly, the returns on these projects, do you see adequate returns in building, particularly wind farms given where prices have gone and how do those returns compared to other opportunities? And then I guess, lastly, on solar, given what middle of the day prices are doing, do you want to invest in solar at all?

All very good questions. I'll make some initial comments. And again, I throw to Julian, given that a lot of that falls in his space. There's no doubt that the price points around renewable energy, whether it's wind and solar, if you look at the forward cost curve -- price curves, that does -- that's a constantly evolving situation, which we're always looking at. But if we think about how we've successfully built our renewables portfolio, which, as we said, is the eighth largest in Australia, it's by engaging directly with our customers around meeting their needs and securing long-term contracts off the back of that. So I still see that as an important way forward because I think they're still going to be -- whilst there's some pretty sharp prices out there, I think that market is going to have to reach some sort of equilibrium where it does continue to attract the right level of capital to support that. Just one other minor -- small comment I'll make and then throw to Julian is you'll have seen all the states come up with the programs around building renewable energy zones. And in particular, if you look at the New South Wales model, it's designed to encourage capital investment and give certainty to those who are investing. Julian?

Yes, it's a good question. I think -- and maybe you're referring to AGL's mark-to-market, but there's no doubt that some period of time ago, contract prices are higher and they're coming down. Why are they coming down? I think part of it is, frankly, the machines are getting more efficient, getting bigger, natural costs. The efficiency of the machine is delivering a lower delivery price, which is what you would expect over time. You've also got a cost of capital environment that's lower than it was 10 years ago. So when you think about prices that might have been struck 10 years ago in that particular environment and now, there are some mechanical differences in the power markets and in terms of the efficiency of the equipment, but you would actually expect it would be stepping down in terms of those contract prices. Look, I don't want to get into specifics of individual situations, obviously, but the projects that we're reviewing had pretty reasonable PPAs on them. In terms of the pricing outcomes including ones that have been tended recently. And so I think to Rob's comment about equilibrium and finding a level, you've got a lot of potential renewables entering the market. You've also got customers looking to secure renewable energy as part of that, and they are finding a balance, I think, and we saw some pretty reasonable revenue numbers coming off some of the contracts that have been entered into in relatively recent times. And obviously, I can't go into specifics on specific customers. Certainly, I think wind is more attractive at the moment. And if you think about solar and wind and the duck curve sort of description, I think I mentioned in my presentation, we would have a preference for wind at the moment. If you look at pricing projections and you have your time-weighted average and if you look at the Auroras of the world or the Baringas and whatnot that produce market forecast, the solar capture is particularly low of those pricing outcomes. That's not -- probably not, no surprise. And the challenge, I think, for solar is the enemy of solar is more solar in that you've got a commodity that's maximizing production at the time during the day when it's at the least value because there's other production has been maximized all at the same time. It's the opposite of really what you want, producing something of low value at maximum production. Because with winds, when we talked about that particular day in South Australia, but if you look at wind projections, where we looked at recent transactions, we're not taking macro, we're going to a specific site level analysis of wind capture. And with a right wind site, you can get capture in the evening and the like way, you've got higher pricing. And so it's very easy to make thematic comments. But ultimately, when we're investing in a project, it's a macroeconomic analysis and where you need to understand particular projects, and that's what we'll do. But certainly, at a thematic level in the current market, as I said, wind is more attractive. Again, solar is its own worst enemy in a lot of ways. And certainly, I think customers are being circumspect around contracting, which doesn't mean they're not there. But as we said, we've seen some recent contracts, which are actually pretty reasonable. But again, I think it's easy to say, well, 10 years ago, someone contracted 100, now there might be 50, but a big part of that change is just the efficiency of the machines going from a 1-megawatt machine to a 3-megawatt machine, et cetera. You should get different economics out of those pricing, which doesn't mean you can't get a return on capital. On comparative returns on capital, it's a great question. We're absolutely are looking at that across our asset classes. And so Adam has been through an exercise recently of capital management review and looking at relative risk and returns across asset classes. So with that broadening of strategy, we've got a very conscious decision to make on where we invest our capital and making sure when we're taking bets, we're not mispricing risk and return across different asset classes. I won't get into specifics on returns, but I think that gives you a flavor for how we think about these things.

And storage. Storage -- storage, shouldn't you ask -- you asked about storage as well, no?

No.

Tom Allen here from UBS. Just staying with the same theme on the risk/return profile that you're able to capture on growth assets, can you provide some color on how you're managing that risk/return profile on greenfield pipeline assets? We're seeing what would appear to be a slightly changing risk profile there. There's some implications that came out of the pipeline, regulation impact statement for greenfield pipelines. And the recent greenfield pipeline that you've committed to build in Western Australia and then perhaps also the compression expansion on the East Coast Grid would suggest that you're willing to take a little bit more back-end risk than perhaps you were in the past?

Thanks, Tom. So I'll make a few comments. I'll ask Julian to comment more specifically around those projects and perhaps, Nevenka, you can talk about the greenfield exemption. And the -- I guess, the first -- the main point that I would want to make before throwing to Julian is that the instances that you've -- or particularly pointed to the expansion on the West Coast and the expansion on the East Coast are case points where we know the markets really well. We understand where the demand is coming from. And we also understand that it's an expansion of existing infrastructure. So they are case examples. They're not -- I wouldn't extrapolate that across as a general theme. And indeed, when we've got other projects that are live at the moment that we've either executed contracts on or in negotiations with where we're looking for longer tenor. So I think it's just 2 particular cases where we've got specific circumstances. Julian, if you want to add to any of what I've just said?

Just a little. I think Rob's probably largely covered it. I think when you think about Gold Fields, for example, so take the West Coast, if you did a pie chart of demand, you'd have lots of individual slices, bigger and smaller of that pie. And so we're investing capital in that market, and it's not a matter of one individual customer having a big chunk of demand in that pie, if you will. But it's a lot of individual customers who are expanding their mining operations and a few TJs here or there, and you're really building that book against that known market, very different to sort of building the equivalent pipeline out to, I'll call it, a brand new market, where we've got existing customer relationships, existing demand profiles, customers that we know are going to need more load. And that was the most efficient solution for that particular situation. So I'd contrast that again to take a Gruyere or Kurri power station, where you've got a single [ R&I ], you're committing to a certain project, that really needs to be underwritten by that owner. And so I think they're particularly case examples that reflects known markets, known customers, known positions and incremental demand or growth on demand that we know we can back-end with some confidence as to how that would translate. And Nevenka?

Yes, sure. Maybe just a word on the regulatory regime. So as you mentioned, the pipeline transparency risk came out very recently. It's yet to be enacted in legislation, but we have an expectation that, that would be the case by the end of the year. Probably 2 points to draw out in the context of the Northern Goldfields Interconnect. One is the decision to move to 2 forms of regulation rather than have 3 and new-build pipelines that are not otherwise the subject of greenfields exemptions will be the subject of the lighter form of regulation. We're very comfortable with that. We have many pipelines operating under that regime. And really from our perspective, we're very comfortable with that as the status, the regulatory status of that new build. There is a greenfields exemption. There always has been a greenfields exemption. It's never been used or hardly ever been used, and our expectation is certainly from our perspective that the lighter form of regulation that provides for commercial arbitration is a space we're quite comfortable being.

Sure. And Nevenka, are you concerned about some of the changes that how coverage applications might apply where the NCC will no longer be deciding that and the Australian Energy Regulator will be deciding whether or not the pipeline should be regulated or not?

Yes. Maybe break that into two. So the -- we're very comfortable with the form of regulation test. And in fact, that was a position we advocated for in our submission, so doing away with the coverage test and just having those form of regulation factors to determine whether you go light or heavy. Whether it's the AER or the NCC, we held a position that we think it's good governance to have a separate body make the call and whether something should be the subject of heavy regulation rather than have the regulator make that determination. Nonetheless, wiser minds than ours came to a view that it should be the regulator, and that's just the place we're in. So we will just manage that as we always do with our regulatory issues.

Sure. And just to follow up your comment, Julian, just to give investors confidence on your understanding of that market in West Australia. Can you share some data points on how you're going in terms of the average tenor and the proportion of pipeline capacity in the Northern Goldfields Interconnect that's currently contracted to date now?

Sure. So obviously, the pipeline is not there today. So we're entering into a range of contracts, and I think might be one announced soon on that. And so we're building up that book of customers. I think -- I would say it's on track in terms of our expectations, in terms of that engagement with customers. All the individual customers have their own products with their own timing. And so it's a periodic process. So I think it's one where someway we're going to have a particular month or day where we're going to suddenly have a big announcement on a big tranche. It's an incremental process. But at the moment, we're on track with our expectations.

Just to add to Julian's answer, the -- Tom, your question around length of tenor, I think I'm correct in saying, Julian, that more often than not the projects that which we're looking at are looking for long tenor.

Yes, that's right. So just picking up that comment before around East Coast, West Coast dynamics, again, resource projects and a number of these participants, as you know, do predict financing and the banks want security supply on the energy arrangements. And so again, you expect in that market that you'd get longer-term security.

It's me, Scott Ryall, Rimor Equity Research. I was wondering if you could elaborate a little bit, you didn't talk too much about the decarbonization of what's actually in your pipeline. One of your competitors a couple of days ago called for a renewable energy -- sorry, a renewable gas target. Could you give you a view on that? And can you play in carbon capture and storage as part of that, please? And if you want to talk about blue hydrogen, not just green hydrogen in that, that will be great as well.

All right. Well, thank you, and there's a number of questions on that. On carbon capture and storage, I'll ask Hannah to address that. But -- and Julian, if you can make some comments around targets. But more generally, and I know the comment you're referring to around setting targets around trying to attract clean energy and clean fuels into the pipeline, I think, is a general comment. We're supportive of that sort of an approach, and we've seen that in the renewable space where targets are set and that created scale and scale is what improves economics ultimately. There are some dangers, of course, for setting targets, and I might just ask Julian to elaborate around that. It's just around how you set the target and what behaviors that drives.

Yes. That's right, Robert. Look, there's different models in different markets for renewable gas policies, and the U.S. has got RNG scheme that -- as you might know, that's really more of a transport scheme, I think. That comes at a cost. And so I think it would make sense, and we're certainly supportive of increased biogas and renewable gas in a system, bearing in mind that we would like to see mechanisms that aren't going to increase the cost of the commodity, et cetera, because that could be counterproductive. And so I just think before we get on a particular part, those sort of policies, I think, need to be well worked through and studied so that actually gets the right result rather than commenting on a specific model now, but that would be my perspective on it. Hannah, do you want to pick up the...

Yes. And I think, look, we are focusing specifically on clean hydrogen, energy storage and microgrid. CCS sits outside that. We are, as part of that, looking at blue hydrogen. So we don't have a closed mine towards it. But certainly, if you're really looking at a net zero endpoint, most of the forecast today have that ultimately renewable hydrogen, green hydrogen, would be the lower cost, but blue hydrogen is an important transition. And so we're actively looking at it.

Okay -- well, I won't comment on that. In terms of then looking at the U.S., you talked about the opportunity set in Australia. And from a high level, it does sound attractive. I think this is further to Myles' question really, that if it's so attractive here, why would you go to the U.S.?

Thanks. I'll make a couple of comments. And then Ross, hopefully still there can support my comments around the U.S., but I'll -- if you think about the APA business today, we've been very successful doing mostly one thing, and we have diversified over the years, but we've been very successful building a transmission pipeline network and then adding through diversification into other forms of energy infrastructure, but that business is solely in Australia. And we see part of the future is to diversify into other asset classes, which we talked about, and that can be done in Australia, but when -- as you rightly pointed out, there's some significant opportunities that we can play for in Australia. But that opportunity is many, many times bigger in North America. I think Ross threw out a number of 40 times. So I might just throw to Ross to add to my comments.

Yes. Thanks, Rob. It's a very interesting graphics objectification. All the opportunities for gas utilities and gas pipeline that we're best known for, we see it significant. And we believe we can leverage our knowledge base in Australia to support that acquisition. So it's just a fantastic gas market in which to participate in. And we see many opportunities that we think that we can match the sort of risk and return profiles that we see in Australia.

It's Rob Koh from Morgan Stanley here. Can I ask, I guess, a question about the hydrogen pathway. And how you look at your existing assets as a possibility to leverage the future, I guess, hydrogen demand sources, which, I guess, starts with things like heavy transport and the future hydrogen production sources, which I guess is sunny places with lots of clean water? Is there any particular assets that you see as priced in that pathway?

Thanks, Rob. I'll just make one comment and then throw to Hannah. Clearly, what we're doing through the Pathfinder Program and you mentioned the Pathfinder Program is understanding what it's going to take to make pipelines either be able to cope with 100% hydrogen or some sort of a blend depending on what is required. And I think the main point I'd make before throwing to Hannah is that there's a technical approach to how we tackle that for on a pipeline-by-pipeline basis. And then there's a market-based approach that we'll look at to say what -- where is the demand source and where is the market, but what I would say is that, as Hannah said, the market is -- Australia is blessed with a lot of land mass, a lot of sunshine, a lot of wind, and we've got a pipeline network that can transport that fuel from what has the potential to be renewable energy zones into industrial sectors and export markets.

Yes, thanks. Great question. I think it is interesting. I was touching that on cost. Like it's very difficult to talk about hydrogen cost as an equal hole because you're right, transport is more near term. But that's why the IEA comments very interesting about gas pipelines being a near-term opportunity because they're really seeing blending as actually being an important use case, which goes back to why we focused on Parmelia because we do think that's a really use case. And it probably then picks up a corner talking about solar and the dock curve in the middle of the day. And so one of the things that we're really actively looking at in hydrogen, and I don't think there is a clear answer to that is one is we are going to need large areas where we have large-scale projects, but it also is going to be possible to use more distributed model around hydrogen and capture those value points around that curve in the day, and that could have good flow-on effect for solar in future because it could be an added revenue stream. And so I'm not telling you there's a single model. And so we don't have -- but we do think, going back to like hydrogen hubs are definitely going to happen. And at what size, we've got to work out, but we think that's -- if we sort of say, where do you want to concentrate? We do think those hydrogen hubs are going to make sense because it's going to be this infrastructure solution approach.

Okay. Great. And then can I ask another question, I guess, which kind of follows on from that, but also, I guess, touches on stuff that Mr. Gersbach also mentioned about volume risk and Mr. Peck mentioned about capacity factors. A lot of the technology of the future will be quite low capacity factor. The Kurri plant might only be 6% used, I think, according to media reports. So how are you guys thinking about that in your business model risk? Are you going to entertain more trading-based models? Or are you going to stick to more infrastructure style background?

Thanks, Rob. I'll make one comment and then ask Julian to add to it. But the APA model, as you know, is a low-risk business model, but it's not a no-risk business model. You've got to take some risk to be able to grow and to capture value in different market segments. So I'll just make that as an overarching comment. But in terms of picking up on Ross' comments -- comments earlier around the capacity and your example around Kurri, our focus is around getting a return on our infrastructure. And that's going to be more often than not the business model that we will continue with and that is the APA that you know and trust. Julian?

Yes, I'll just elaborate a little bit on that. I think ultimately, it will come down to the customers' desires as well in terms of what they need in terms of their products. Each customer is different in terms of the way it wants to contract the pipeline, mainly flexibility it's prepared to take or interruptibility or using PAC and lime and storage products on the pipeline. And so the job for us, for my team is to try and understand that and then figure out solutions that work for the customers. So at the moment, we're not sort of seeing customers driving to models that would suggest a trading model for APA. And I think we would need to be very careful from a conflict perspective as well, that given the amount of information that flows from the business to be trading on that. And I think our customers may not want us to be doing that anyway, Rob. So I think the reality is that's probably a discussion that might be market-driven over time.

Mark Jones, Resolution Capital. Just circling back to the U.S., last week at the American Gas Association conference, there was further around the sale of CenterPoint Energy's LDC gas assets, in particular, the valuation of 2.5x RAB. I would like initially your view on that valuation. And then maybe more interestingly, assuming that this is a floor or benchmark for gas LDC assets in the U.S., how does APA create value at such a valuation?

Thank you. Good question. Ross, you with us? Do you want to address that question?

Yes. I think that was an interesting process that a lot of market participants were keen to understand where that was going to go because they hadn't -- as I pointed out, there haven't been many transactions during the COVID period and probably leading up to that. I think -- let's just say that CenterPoint, I'm sure, was delighted with the price that they've got. I think the acquirer had particular strategic reasonings for that price operating in that same state, et cetera. But certainly, it did get the market's attention. Now I think these transactions, it's very hard to just use that 1 multiple to compare. So many different things go into it, whether they bring synergies, the sort of growth, the capital growth that they forecast against that asset. So it's -- I agree, it's what a lot of the market participants use just as [indiscernible], but there are many things that go into determining whether that was expensive or not.

[Operator Instructions]

And perhaps if I could just add a couple of other comments to Ross' comments. That -- there's no doubt that, that 2.5x multiple CenterPoint would have been very pleased about. And from my understanding, that included the cost of some gas recovery. So that's sort of another -- if you strip that out, you get to a slightly different number. But I think your question around how does APA create value just to sort of fit that one on the head. Two things. Number one, it comes -- or three things. Firstly, the assets that we're looking at have supported by regulatory outcomes that generate those 9% to 10% returns, which we're comfortable with. Number two, we're looking at assets that have a strong CapEx profile. And remember, when you're investing capital over time over the next number of decades, you're investing at a 1x RAB, and you're getting that 9% to 10%. And thirdly, whilst the regulatory structure stipulate a typical or more traditional debt equity structure, we can bring that back to the APA balance sheet and structure in a way that's more efficient to deliver returns to our security holders.

It's Mark from JPMorgan again. A couple of other questions, if I may. Firstly, just a simple question on the U.S. I mean we've been talking about a U.S. acquisition for better part of 2 years, if not longer. I appreciate the discipline angle, but what's taking so long? And then also, secondly, just in terms of the announcement you made, I'm going to say, a few weeks back, and not a couple of months back, and just in terms of the expansion of the East Coast Grid, just some general comments about where you see gas movements and elaborate on the reasons why you're doing that?

Sure. Thank you. I'll make just one comment and throw to Ross on the U.S. question. And then, Julian, if you can pick up the East Coast Gas Grid question. And look, it's fair to say that it is true that we've signaled quite some time ago that we were going to look at the U.S. market. But the time frame that we are truly measuring it from is the time that, once I took up this role, I asked Ross Gersbach to move to the U.S. and drive our strategy. And that time frame, we're measuring from the back half of -- the calendar year 2019. And obviously, then you flow into a more difficult period in 2020 with COVID. So that's not excuse, that's just a reason. But Ross, perhaps you could just add and give a bit of color on some of the things that we've been doing and learnt along the way.

Yes, Mark, it's not the first time I've been asked that question, I have to assure you that. There haven't been many transactions. And Boards and management, it just hasn't been seen to be a good look running an M&A in the middle of it, at a period where, quite frankly, they're flat out managing the impacts from COVID, remote workforces, et cetera. It isn't -- well, it isn't excuse, but that's quite a valid excuse. And -- but we have been active, and we continue to be active and looking to -- looking forward to U.S. settling down and getting some clean air, so that we can be more active in introducing ourselves face to face and developing and having discussions with the market participants to work out opportunities that work for both sides. So -- but we have been active on gas pipelines on LDCs. Unfortunately, the environment hasn't been conducive up until very recently.

On the second one? Yes. So look, there was some announcements made at the time of the Origin contract around some northern gas that was coming down. And we see plenty of gas in the Northern Australia in the short and medium term. I think, obviously, government through the gas security mechanism has been encouraging, I'll say, the producers to send gas to domestic markets. And so I think the producers are seeing that as something they would like to do and continue to send gas south. There is gas in the southern field that continues to be contracted. And longer term, we do see in the government, again, in natural gas infrastructure plan, there's clearly support federally and Queensland government around pipelines and connectivity around the Bowen Basin. Longer term, you've got Beetaloos of the world, et cetera. And so thinking about our East Coast Grid solution, there's here now in the nearer term. And then there's the longer term where we continue to see prospectivity around more northern gas in the southern markets. And clearly, the East Coast is in terms of demand growth, flat, but you're seeing a shifting of supply. And again, you can just look at the AEMO data as a reference point, but obviously, the southern fields, notwithstanding some of the risk and activity are declining, and that's going to shift more gas either through the north or through potentially an LNG terminal. And so longer term, and again, I think the NGIP has got some independent reviews of that data, the scenarios around LNG terminals or scenarios around also southern gas, but it does make the comment repeatedly a number of times that you need more northern gas, more domestic gas supply from the north to supply the energy markets in the south. And so I think that's -- we would agree with that analysis.

Rob, we have it. We have a question -- we have someone on the telephone line that would like to ask a question. Nathan Lead from Morgans, can you please go ahead with your question please?

Question for me. Last year, you published for the first time your climate change for response report. And one of the scenarios under that looked at a potential sort of 5% to 15% decline in NPV for the existing asset base, depending on the climate change to the pathway. I was just wondering whether you can discuss whether you've done any analysis on just how much capital you might need to deploy at current returns you're seeing on projects to sort of pivot away from that downside scenario or protect against downside scenario?

Thanks, Nathan. And you're right, we did publish that we did that climate change resilience report, which looked at our business on a number of independent scenarios around how different climate change scenarios might play out and how it might impact on our business. Just before I throw to Nevenka, we looked at all of those and we tested our asset -- our business robustly across all those scenarios to give us comfort that -- and the conclusion was that under any of the scenarios, even in the 1.5- to 2-degree scenario that our business did remain robust. On the specifics of how that work was done, because remember that work is about an unmitigated situation, I'll throw that to Nevenka just to explain the mechanics of that a little bit further.

Fantastic. I get the easy question. So maybe a bit more color about the resilience report. I won't answer the capital question, but I will just talk a bit more about that report. So I think the scenario, we modeled 3 scenarios, 1.5 degrees, 2 to 3 degrees and the 4-degree plus scenario. In terms of revenue on an NPV basis, it was only the 1.5-degree scenario beyond 2040, that we saw a drop-off in revenue. There was no impact on our carrying value. This was done back in November. And that was the conclusions of the report. Now the purpose of the report was to test our bookends. So we tested the 1.5 degree, we tested the 4 degree in an unmitigated world with us doing nothing on our existing asset portfolio. Looking into the future, there will be lots of change. We -- this is a piece of work that informed our strategy. This is a piece of work that was really important to us considering about our pathways going forward. So it's a snapshot in time of our existing portfolio based on those 3 scenarios and -- but certainly looking forward. And we'll continue to do that work. It will continue to feed into our strategy as we go forward. So can I pick a number out of the air and say it's going to require X spend on capital for us to protect ourselves? No, because there's any number of pathways we're looking at, and that's what our refreshed strategy is all about.

It's Tom again from UBS. If I just ask a question on your growth plans in electricity transmission within Australia. Just want to understand the scale of the opportunity that you're looking at there and whether or not we're talking about a smaller scale exposure to electricity transmission, where it's strategic to your growth in gas, and that might be because it's a strategic easement and it comes with agreements with past leaseholders or things like that? Or are we talking about competing in large new interconnectors, that the likes of TransGrid or Lumea or Mondo might be competing for?

Thanks, Tom. It sounds like a question for Julian.

Thanks, Tom. I think the answer is, and I'm not sort of avoiding the question at all, but the frameworks that the governments are going to roll out on this, I think, is still evolving. And so if you've engaged with the Victorian, New South Wales governments, they're still thinking about how they're going to implement this. What we do know is they've got big ambitions and big targets. And particularly in New South Wales, that's effectively bipartisan. So we approach it from the view they're going to do it. Exactly how, how it's going to work, I think it's still evolving in their minds, including the degree of is this a contestable proposal where we come in and we give them a product and someone else's product, what's the role of the AER in that? Is it going to be automatically rolled into a RAB? And that's sort of boundary line, if you will, between the regulated backbone and when does the res start and stop. So we're still waiting to see some of that detail come out. And I think from there, we'll have a better handle on exactly what that sizing looks like. We know it's potentially an attractive market. It's compatible with an ambition to build out more renewables. We'd like a model where we can do both same time. How that exactly works and how they think about participating in the renewable market at the same time is perhaps participating in the energy infrastructure, the firming side, I think they're still thinking through. But that's our job is to engage with them and push it in a model that suits us. And so I think it will be clearer, I would say, in the next 6 to 12 months, exactly how those procurement models are going to shape up. And certainly, they've got some ambitious targets, I think 10:1 in New South Wales. I want to run by the end of this year or start of next year, but they're still working through the frameworks of how that's going to work. And so I think there's a lot of work to do to articulate how that's going to work for round one. So I think the exact sizing and exactly which targets are going to go through for those markets, I think, is going to be a little bit clearer for us as well as for yourself and the other analysts in the room, I think, in probably around 12 months' time.

Just a couple of questions. Firstly, have you got -- can you give us some color on how many megawatts you might have in development sites, which you haven't disclosed to date that you're just in sort of like a [ growth halt ], because you've got no visible development sites other than Bilby in your portfolio of renewables, yet you talk very large about growing into renewables?

Yes. I don't think I'll be disclosing any more today. Ian, it's a good question. So we'll take that on note. So I think we've got various developments we're looking at since the transaction that was recent in the market, we've got any number of parties coming to us knocking our door and offering up their development sites and the like. And frankly, if you look at [ Bilby ], half of their development sites were acquired from other parties for relatively small fees and actively running around, effectively doing work and then selling them development site with milestone payments and the like. So there's a variety of different ways to enter that market, and we're assessing those sites. And I think to go back to Tom's comment and link those two together, if you look at the major markets where there's res zones, the competition -- or the opportunity inside the res and then what outside the res or what people are starting to call the open access market as well, having flexibility around participating in those, perhaps both of those may be the right model because depending on where the governments have their settings -- exactly where they're going to land will depend upon what's likely to get monetized at the same time. So if we do look at picking up sites, for example, from other developers, it's not going to be something that's of any significant size because of the early work sort of stuff and relatively small scale.

And the other question is, you talk about microgrids. And I think of your compression stations all around the country, in the middle of nowhere, when there's probably plenty of sun, what capability you got to talk about -- talk of converting those into having solar and gas and so you don't burn gas to compress the gas down the pipes, but you actually use electricity?

Ian, I'll just touch on that briefly. We have done some work on, in fact, a project in Victoria, where we're looking at whether -- looking at the economics of electric drive versus compressor drive. It's still got a little way to go, but it's something that we -- is active and live. There is a further challenge around how we might convert existing stations. But that will be a big part or feature as a big part of our climate management plan framework, which we talked about. And one of the key elements there is how you reduce and avoid emissions on a go-forward basis.

I think we're up the time now. So thank you very much to the [ ELT ], and thank you, everyone, for asking the questions. There is another question session in the second half after Darren and Nevenka have presented. We will be back at 11:20 sharp. So please be back at your seats or virtual seats at 11:20. Thank you very much. [Break]

[Audio Gap] For operations for APA and this morning, you heard Rob, Julian, Hannah and Ross, talk about our refreshed strategy, our purpose, our vision, technology within our business, but also how technology is changing the energy landscape. What I'd like to do now is connect this morning's conversation with our existing assets and how we are well positioned for growth. So now I just came back from a couple of weeks in Western Australia, visiting most of our remote sites in WA. In Western Australia, we have 3,500 kilometers of pipeline, 2 wind farms, a solar farm, a world-class underground storage facility and a gas-fired power station at Gruyere Gold mine. So when I'm speaking with my remote workforce in 6 or 7 different locations, we ran through the strategy, the purpose, how our assets have been operating. And you can really see our strategy coming to life in Western Australia with the multi-asset base that we have. And when I think about our refreshed strategy, we all know that APA is well known for our pipeline business. But as was mentioned this morning, we have a substantial renewable energy business and gas-fired generation on the East and the West Coast. Now APA continues to deliver reliable services for all of our customers. So if you're one of our customers on our transmission network, and you ask for a gigajoule of energy, you get that gigajoule of energy over 99.9% of the time. And as we operate a range of renewable energy facilities, our overall availability of greater than 98% is an achievement. We're just talking about efficiency before and Diamantina Power Station up in the Northwest power system in Northwest Queensland is a highly efficient, really great technology, where on an emissions basis, it's 50% of the Queensland NIM. Now we know that we operate and maintain assets, but we also build assets. We've got an enviable track record of delivering over $2 billion in the last 5 years. We work with our customers, the plan, design, get the approvals, execute and then hand over to operations. This delivery, as you can see, has been across multiple asset classes in the last 5 years. So when I was in Western Australia, catching the 5:00 FIFO flights, I went out to see around 75 of our employees that are based in the regions. So nothing is more important to us at APA than the health and safety of our employees and our contractors that work across our sites. So we bought all of operations together just over 12 months ago, and we've had a relentless focus on continuous improvement and efficiency. In that time, we've halved our total recordable injury frequency rate for our contractors, and we've knocked by the end of the year about 25% of our overall TRIFR for the business. So these results still put APA in the middle of the pack. So we still have more work to do. So process safety is the heart of everything we do at APA. So process safety is about keeping the energy where it should be. So that's gas in the pipeline, the electron in the cable. We're disciplined. We have a disciplined approach based on the latest standards. We have KPIs across the business that go into the Board. And last year, we were very proud to receive the 2020 Australian Pipeline and Gas Association Annual Safety Award for our process safety fundamentals. So earlier today, Hannah highlighted megatrends in technology. So equally, as we look to the energy future, in technology on the energy landscape, we look to technology internally. How can we be more efficient? How do we scale quicker? So our integrated operation center which we have talked about previously, which has controllers, commercial operations people, process engineers, operational technology folks, we've invested over $30 million and we continue to invest. We've recently got up and running our digital twin. So we're one of the few companies in Australia to have a full digital twin of our major pipelines across the country. So what it allows us to do, it's a predictive tool. So if you think back to the cyclones in Western Australia at the beginning of the year, or of its bushfires in Victoria or floods in New South Wales or Queensland, that can impact customer demand. We use the digital twin to think about the events, the future to optimize the outcome for the customers and importantly, optimize the commercial outcome for APA. Now as my commercial colleagues often tell me, operations looks pretty easy from the outside looking in, but this is a great example of collaboration, technology and alignment all coming together. Now the photo in the middle is just outside the Melbourne Central Business District. It's actually in South Melbourne. It's a very highly densely populated area of town, and the orange line is about a 2-kilometer section of pipeline. The photo on the right is the easement access that we had, which is congested, a lot of neighbors, stakeholders. And the purpose of this project was to run a pipeline inspection gauge or a PIG through the pipeline. So behind all the folks in the orange and yellow, you can see a cylindrical looking vessel behind them. That's actually a PIG. So you send this PIG 2 kilometers down the pipeline with a myriad of instrumentation on the gauge. And it assesses the condition of the pipeline, the integrity for ongoing safe use. So this project is also in the middle of a really congested area of the network, where we have a lot of customers, residential, commercial and industrial. So we work with the system operator, the distribution companies, the regulator, our neighbors and our stakeholders to successfully inspect this pipeline in a safe and reliable way. This is a small example that you don't normally get to see, but we're executing these projects day in, day out across the country. So we just want to talk about transferable skills a little bit because this morning, we've talked about gas transmission, electricity, renewables, hydrogen, batteries. And I thought I'd like to share a little bit of my own experience in that I spent 15 years in the electricity industry, working my way through the electricity industry and ended up managing a renewable energy portfolio in early 2000s, which seems like a lifetime ago. So back when Julian was talking about scale, wind was very much smaller in the early 2000s. From there, I went to major power stations on the East Coast and then found my way into upstream oil and gas. From there, I went back to electricity in the coal seam gas and came over to APA. So now I've got the enviable job of actually looking after gas and electricity assets. And certainly, when you listen to the strategy session this morning, these 2 commodities are coming together. They're coming together because you need to provide the service for energy, and that energy needs to be decarbonized. So over the last couple of years, we have brought considerable talent into the business, and we've fostered the capability that we have. The types of folks that I've brought in, in the last couple of years are from the electricity industry, process control, operations, upstream oil and gas. It's a wide variety of people, and I'm very confident that we have the people to leverage our future growth. But we do know we are competing for talent. So I've had the pleasure of meeting many of our graduates, our interns, our new line leaders over the last few years. And I can say that the refreshed purpose and vision resonates really well with this demographic. We do see that as our competitive advantage to get the right talent. We're committed to building on the folks and the capability that we have within APA and bringing the skills we need to support growth. So thank you very much, and I'll hand over to our Group Executive, Governance and External Affairs, Nevenka Codevelle.

So I didn't get the music. Normally there's music changeover. So I have to eject my own. But it's really good to be here this morning. And as Julian said, good to actually have you here in person rather than a Zoom call. And talking about people, this is actually what I'm going to be talking about. So not only what we do but how we do it really matters, and we know that doing the right thing by all of our stakeholders is absolutely imperative to enable us to continue to grow on a sustainable ongoing basis. And it's much more than just compliance or getting the tick in the box via access approvals, it's actually about a commitment to sharing value and delivering better outcomes for all your stakeholders. And it's about engaging with them in a way that is holistic, thinking about standing in their shoes, understanding their world, what matters to them and the best way to work with them as we go about doing our business. So to this end, there's been a real step-change in the way that we at APA approached stakeholder engagements and our focus on ensuring that we deliver benefits for them and deliver outcomes that are beneficial not just for our stakeholders, but also for the environment. We take, as I said, much more of a holistic view in the way that we do this, and stakeholder engagement is at the core of what we do. It's about listening to understand and it's about delivering that shared value to enable us to benefit, but also all our stakeholders to benefit. And that's the only way that we'll maintain sustainable growth going forward. So we see our sustainability objective quite simply as really living and breathing our purpose and our vision. So looking around some of the step changes that we have made. In 2000 -- well, last year, in FY '21, we developed our sustainability road map. And that's really the blueprint of the way we approach sustainability generally and also our stakeholders. And key in that sustainability road map was the decision to focus on certain priority areas. And for FY '22, those priority areas are going to be around climate, which we heard a lot about this morning in the earlier session, social performance and also indigenous. And there'll be a continuing focus on safety, diversity and inclusion and also environment. So on climate, Rob spoke this morning about our net zero ambition, which we announced at the half year. There was discussion around our resilience report, which we published in November. But then we've also developed our climate management framework. And the commitment really for FY '22 is around the development of interim targets and also disclosing and being very open about those targets and the way we're going to get there. So on stakeholder engagement, big thing for us in FY '21 was the voluntary establishment of consumer reference panels for all of our regulatory processes, and that proved tremendously successful. So not only did the AER congratulate us on the quality of that stakeholder engagement as part of our Amadeus Gas Pipeline reset, but it also resulted in better regulatory outcomes. The final regulator's decision was about 20 pages, I think the shortest we've ever seen it because, by and large, the regulator accepted our proposal, which was informed by that stakeholder engagement process. Also, we spoke at one of the Q&As in the break was around the RIS, the Regulatory Impact Statement. And again, the RIS -- the final result of the RIS was largely in line with the submissions that we had been advocating or the position we had been advocating, which again was informed by our stakeholders in that stakeholder engagement process. So getting it right, the value that we saw come out of those stakeholder engagement process has caused us to take a decision to expand that framework so that we will be engaging with stakeholders and having stakeholder engagement on all of our business and not just our regulated assets. So one of the big steps as part of that framework is the establishment of a stakeholder engagement advisory group. And we'll be announcing shortly who is on that group, but we're very excited about the establishment of that group, and we'll be holding stakeholder forums throughout FY '22 to not only tell APA story but to hear from those stakeholders as to what matters to them, what role they want APA to be playing, not just in the energy transition, but in society, generally, and we'll certainly be taking that feedback on board to inform our strategy and the way we go about doing things. So just customers, a very, very important stakeholder group. They are at the heart of what we do. And not only will we continue to be working with our customers on energy solutions going forward, but we're also working with the rest of the industry through the energy charter to think about better -- well, delivering better outcomes to customers and consumers as a system as a whole. So during FY '21, we worked very closely with the rest of the energy industry through the energy charter on delivering better outcomes and supporting customers during COVID, particularly those in vulnerable circumstances. And then during FY '22, that work will continue, not only through the energy charter but also through the rollout of initiatives under our sustainability road map. So a case study on how all of this comes together in a very practical on-the-ground way is our West Coast Grid/Northern Goldfields Interconnect project. So our infrastructure projects are complex. They always are. It involves touch points with many, many stakeholders, be they local landholders, communities, indigenous groups, government/regulators, consumers and, of course, our customers, just to name a few. So the critical success to ensuring that these projects are delivered on time and meet the needs of our customers is getting it right with all of our stakeholders. There is a balance to be had. There's often competing priorities. There's interrelationships between those stakeholder groups that we need to manage and accommodate and work through. So developing a clear understanding of what the expectations are and how we best deliver them is absolutely critical to the success of delivering those projects. So I don't propose to go through every aspect of the NGI project, but perhaps just a couple of call-outs. The first is focus on local content. So this is about local jobs, local procurement, local business opportunities. That's absolutely essential and is a focus for this project. And we've required all of our suppliers and contractors on this project to commit to social performance indicators to support these objectives. The second is indigenous groups, our traditional custodians. We are absolutely committed to best-in-class engagement with our indigenous communities and with the traditional owners. It is critically important for us that we work with those groups to ensure that local cultural heritage is protected, but also as importantly is to ensure that they benefit from us being there, working on their land and that those communities benefit through employment, training and business opportunities as well. So these are complex projects and issues do arise, and it's the strength of that stakeholder engagement that really enables us to work through those issues as they do arise. We are there for the long term and relationships absolutely matter. I think just, finally, successfully delivering infrastructure projects is what we do. And we're constantly lifting the bar on the way we do things to improve and to meet the challenges that come from an environment that is ever more complex and ever-changing. So that's what we do. We have a step change. It's an exciting time ahead, and we stand ready to transfer that capability across whatever asset class we're looking to invest in. So with that, I'll hand over to Adam Watson, our CFO.

Thank you, Nevenka. The music was a bit quiet. So I was expecting some more pumped up music for the CFO and the exciting discussion around pigging the New South Wales transition system. I'm only joking. Okay. So often asked the question around what makes a successful growth company. That's certainly our ambition. And whilst there are many, many ingredients, I always will break it down to 3 things. One of them sounds a little self-serving. But first, you need a sound and executable strategy. And I think we've got that. Secondly, you need the capability to execute, and we've been through that today. And again, I think we've got that. And again, this is the self-serving one, but the third thing I believe we need is a sound, a strong balance sheet to be able to not only fund the growth but ensure that we're delivering strong returns for those investors who are providing that funding. And I think we've got that recipe right here at APA. It's been 6 months for me in the role, and it's been a very busy 6 months. Hopefully, I haven't burnt the team out just yet because there's a bit of time to go. But it's been one of listening and one of learning a lot about the business and a new industry for me, a very exciting industry for me. But it's also been a busy time of execution and putting all of this talk to work. Some of it we've delivered some really tangible results, and some of it we've built our learning that will be applied to the next one. A tangible result, and I'll talk about it a little bit more in a moment, but the liability management exercise that we implemented back in March this year. I thought it was February, but it was March. We did all the work in February. But back in March this year, it was an excellent example of how we can create value through the capital strategy and through our balance sheet management. And again, I'll talk to that in a moment. And the other one was just the learnings, but more importantly, the confidence that we have through a couple of the large M&A transactions. It's been spoken to before, one in the U.S., one in the renewable space. But having that confidence that we have, not only the cost of capital to be competitive, and that doesn't mean you're not going to get beaten at times, but we've got the cost of capital to be competitive. But importantly, we've got the funding right to be able to ensure that we can execute and, most importantly, create value. We've developed a framework or refreshed a framework as part of the work that we've been doing over the last 6 months with the capital strategy. It's that pie chart in summary. It's in that pie chart before you. And without going into detail in each of those elements, but first and foremost, it's about making sure that we get the balance right between the amount of funding that we apply or the cash that we generate, the amount of funding that we apply to our organic growth CapEx requirements and how much we give you, our investors, how much we give you, our investors, in the form of distributions. Access to capital, particularly for an infrastructure company and particularly for a growth company, is so important to making sure that not only have we got deep capital markets to be able to source our funding but also to make sure that we can do it in a way that's really efficient, both from a timing perspective, being able to do that quickly when we need it, and also from a cost perspective and making sure that we've got the right competitive tension out there that we can generate at really low cost of capital. Third is the risk management stuff, the stuff that you probably don't see but is all the important documentation and policies and processes in the background that make sure that we've got a really, really robust, risk-averse structure in place so that we can wade our way through unexpected events or whatever it may be. The market engagement is really important. We've put a lot of emphasis, including today, in making sure that we're making the information and the communication flows that we give you, our investors. And I'm not talking just equity investors here, I'm talking our debt investors as well, of which there are many, many here today, but making sure that, that communication and that information is insightful for you and meaningful. And then ultimately, it's about creating value, so creating value for both our debt and equity investors. But we believe we've got the right strategy. The existing strategy, the existing capital strategy for APA was certainly the right one for the APA of old. And we've refreshed our growth strategy. We've refreshed our corporate strategy. And we're very, very confident that through the modifications we're making to our capital strategy, and I'll just call that out, they're not wholesale changes. Nobody was expecting there to be some sort of groundbreaking wholesale change. The capital strategy is all about modifications to complement the new refreshed growth strategy of APA, and we're very confident it's the right one. So moving to the cost of capital and the hurdle rates, and it was one of the questions we had before, and Julian touched on that earlier through the Q&A session. But a big piece of the work that we've done has been to ensure not only are we really confident and do we understand our cost of capital, but in particular, we understand the cost of capital and the hurdle rates that we can apply to each of the various asset classes that we're looking at. Now very fortunately, those ranges are actually quite narrow because, again, we are a low-risk business. We're not a no-risk business, but we are a low-risk business. But nonetheless, there will be different risk patterns for one particular asset class vis-a-vis another or you might have a highly regulated asset versus a highly contracted business. So we are making sure that we've got appropriate risk profiles and appropriate hurdle rates assigned to those. And we've been able to test them. We've been able to test them in the market. And we've got a lot of feedback. But the thing I do want to leave with you is that, given the size of the market opportunities, we have the fortunate benefit of being able to be disciplined, and we will be disciplined as we apply these hurdle rates to our growth ambitions. And it sits very comfortably with us that we will be [ at bid-on ] projects. That's fine. That's not a measure of success for us. The measure of success for us is the ones that we win, where we create value for you, our investors, not the ones where we lose because somebody else thinks that they can create value in a different way that we could see. So that disciplined investment sits very comfortably with us. A clear demonstration of our capacity to be able to create value, not just through our operations, but through our balance sheet, was evidenced with our recent liability management exercise undertaken in March. So what is liability management? Most of you know, but it's basically the early refinancing of existing debt and replacing that with new debt, and you would typically only do that if it's going to deliver benefits, which this one certainly did. So it was a $2.2 billion issuance to replace a bunch of existing facilities that were due to expire over the next couple of years and gave us a real boost of confidence around, again, our balance sheet, but most importantly, around investor confidence in APA. So certainly, the biggest issuance that we've ever done at APA, done in challenging market conditions, albeit the banks always tell me that we're about to issue into a challenging market. I don't think I've ever done a transaction where it's not a challenging market. Craig, I'm looking at you over there. It's always a challenging market when you're a banker. But it was a challenging market. We raised $2.2 billion across multiple tenors and multiple markets and really strong demand for APA's credit, which means they believe in us, which means they want to continue to invest in us, which is fantastic. And the outcome was that we derisked the balance sheet. We extended the average tenor of our debt, and we lowered the average cost of our debt. And that will flow through to free cash flow improvements as well, which has been well communicated. The other thing that we did as part of the capital strategy review as it relates to our debt book is looking at just generally the level of gearing. And I've had quite a few questions coming in around where we want to sit? Is the gearing best measured, I would say, through the rating agencies, through the FFO to debt measure? Is it the right place to be for a company like us? And how do you want to sit within that ratings band? And firstly, it is the right rating band for us. It gives us the appropriate access to deep capital markets and, again, we've just proven that, and balanced with the capacity to deliver the lowest cost of capital to be able to fund our growth projects. So very, very comfortable with the level of gearing; very, very comfortable sitting in that BBB, Baa2 rating band. The question then is, how much flex have we got within that rating band? And you've heard me say this before, we're at the top of the rating band at the moment. We don't need to be there. We're not going to push ourselves aggressively to the bottom of the rating band. But it gives us a lot of headroom and a lot of firepower to be able to fund the next one to future growth opportunities. Moving to our distribution policy. So I hope you can remember, but I've asked most of you about what you think. So we've sought feedback from our investors, from the analysts about the appropriateness of our distribution policy. And it was almost without question, a requirement or a request to have the right balance between funding our organic growth CapEx profile and making sure we deliver strong returns, strong distributions to our security holders. So it was a balanced approach. There weren't many people who said, go your hardest on distributions, raise equity to fund your organic growth profile. And equally, there wasn't really anyone that said, you have to keep every spare dollar you've got to fund organic growth, and then whatever is left is there for distribution. So you asked for balance, and we agree with that. We think it's the right strategy, and that's exactly what we've done. So 2 things that we've done to modify our distribution policy. And the first one is that we have changed the denominator of our payout ratio. And that's not a big wow moment. That's just a small thing. But you've probably heard me say, one of the things I wanted us to do is make sure that we're measuring our payout ratio in a way that was consistent with our peers. And we've done that through changing from an operating cash flow method to a free cash flow denominator. In really basic terms, the difference between the 2 is that free cash is your operating cash flow less the payment of your maintenance CapEx or your stay-in-business CapEx. So your stay-in-business CapEx, your maintenance CapEx is going to be fully funded, and then we pay out after that. And you can then see the second change that we've done or the second modification, which is we're moving away from what was a largely rigid payout ratio, where effectively, we wanted to pay out a percentage of our operating cash flow to one of a range. And that is purely and simply intended to provide us with more flexibility to ensure that we can consistently grow our distributions over time. So again, we've delivered on what you've suggested. We do believe it is the right thing to do. And that capacity to be able to give us a little more flex ensures that we can continue to deliver healthy distribution returns to our security holders, balance with our capacity to be able to fund our organic growth CapEx. Now that's not to say that we have to fund 100% of our organic growth CapEx from free cash because we've got the balance sheet headroom, but it gives us, again, that flexibility to be able to get the balance right. So market guidance and communication is another area of focus for us. And I'll start out by saying that as you would expect, we would need to confirm guidance today, and we've done just that. So we confirm or reconfirm, I should say, our underlying EBITDA and net finance cost guidance. But there's a big caveat there around the underlying because there are a number of transactions that have occurred this year that are likely to be reported as significant items, that distort the actual reported level of EBITDA and net finance costs. The liability management exercise will change the actual reported interest cost that we presented at the full year, the impairment of Orbost, the mark-to-markets on our renewables business. There are noncash transactions that will impact our reported earnings. And I just wanted to make sure that we call those out, and it's obviously documented there. But those changes that are occurring to our business in terms of the accounting adjustments through either the transactions that are occurring or through accounting standard changes that continually are being presented upon us, are making it really difficult to provide a really narrow EBITDA guidance range. But more importantly and, in fact, most importantly is that EBITDA guidance and net finance cost guidance was provided to the market to give you clarity around what our free cash or our operating cash flow was going to look like and what our distribution was going to look like. So to avoid all of that confusion and to focus on the thing that matters, which is our distribution growth, we are moving consistent with our peers to a distribution growth guidance model from FY '22. Malte, I've already read your research report, and you had in bracket something around cloud-based accounting. I call that out as an example where we have -- I think, 2, 3 weeks ago, there was an accounting standard clarification. I've got -- I'm looking at one of the finance -- I've butchered it. But one of the accounting standard clarifications is basically saying that cloud -- all cloud-based or SaaS-based technology investments must be expensed through the P&L. Now that has sort of been a theoretical assumption for a long, long time, but there has been a lot of gray in the accounting standards, which means you can capitalize those costs. And most companies, as far as I'm aware, have done that. But that's just an example of something that has come out a couple of weeks ago that all of those costs need to be expensed and go through the P&L. Now we're not going to be the only one who needs to report these sorts of things. There will be plenty of others as well. But just in another example of something that doesn't change the cash profile of our business, it will change the way that we report our EBITDA. So to wrap it up, we think we've got the right strategy. We've got a strong balance sheet. We've got the appropriate level of gearing. And we've got a distribution policy that really marries and certainly balances our capacity to be able to organically fund our organic growth CapEx and balance that with a healthy flow of distributions to our security holders. We're confident with that capital strategy that we can be competitive in our growth ambitions. We're confident because it gives us a low cost of capital, and we're confident because it gives us access to the world's biggest and deepest capital markets, which means we can fund that growth. But again, I just want to reinforce and reiterate that given the size of the opportunities there, we can and will remain disciplined in that pursuit for growth and ensure that we continue to create value for you, our security holders, over the long term. With that, I will hand it back to Rob.

Right. Well, thank you very much to Darren Rogers, Nevenka Codevelle and Adam Watson for their presentations. We're now going to go into another shorter period of Q&A. So if we could get the chairs up on stage, and I'll just get the executive leadership team on notice that when we've got chairs, you can come up on stage. Thank you.

[Operator Instructions]

Right. I think, again, Yoko, I'm just looking to you whether any questions have come in online during the course of the morning. And maybe if there are any, we can address those first before we throw to questions in the room.

Thank you, Rob. There is one question about Orbost. The question is, any color on the way forward on the Orbost Gas plant in light of continuing performance issues? How much more money are you willing to invest to bring this asset to its nameplate capacity?

Thank you. I will make a few comments on Orbost and then throw to Darren who's lucky enough to have the responsibility for operating it. Just a couple of comments first from myself. Firstly, Orbost is important to us and getting it to a steady state of performance and improving their performance is equally important. But I'd also remind everybody that it's actually -- from a scale perspective, it's actually a really, really small part of the APA business. So whilst it's important, it's important that we get the performance steady and improved. It's a small part of the overall APA business. And I think I'll throw to Darren just to give us an update on where we're at from a performance perspective.

Well, as we all know, Orbost had a pretty rough and tumble start to its early life. It came into operations in August last year, and we went about building a pretty sophisticated and experienced team at Orbost. I will make a quick call out to the team. So when we received it in August, we were running at sort of 15 to 20 terajoules a day. We can stably run now at 45 terajoules a day. We have plans to improve that performance. And we're confident that we will be able to improve the performance from where we are now. And before the next question gets asked, which is, what is that number? We won't be providing guidance on what that number is. There is a -- it's a relatively complex plant divided into 2 parts. The first part of the plant is the sulfur recovery unit, and the second part is a more traditional gas processing plant. The gas processing plant performs perfectly well, 100% capacity. The issues have been in the sulfur recovery unit, and we're still doing a pretty detailed root cause analysis with the technology provider and our partner at Cooper Energy. And we do see that over the next 6 to 9 months or so, that will improve performance and continue to operate the plant safely.

Any questions from the room?

I apologize in advance, Adam. Your depreciation policy, I know it's noncash, but we talk about net 0 by 2050. We're seeing the AER shortened lives of assets within regulated assets. Have we gone -- or have you guys gone through a consideration of your asset lives because I think you probably had some which are out at 90 or 80 years or thereabouts.

Happy to answer that.

Yes, Adam, please go ahead.

Look, there's a couple of ways to answer that. Firstly, when you look at a useful life of an asset, any infrastructure asset, and you're asking about gas pipelines in particular, it's no different where you've got an accounting perspective, you generally have a tax perspective, which is different, and then you have a commercial perspective when you're trying to price a project. When Julian is trying to work with the customer and work out what return we're going to generate, we have to take a useful life view on those. And as I said, they're all different. And if you start, first and foremost, with the commercial one, we have to make sure that we are generating return over the life that we are confident we can keep that going with that customer or with a different customer or different service line for a period of time. So we work on that constantly. And again, the key focus for us is making sure we get return back as quickly as we can. From an accounting perspective, there's just not enough clarity at the moment to change anything. And again, whether it comes back to the work that Hannah is doing around repurposing our asset lives or whether you take the various scenarios that Nevenka spoke of before through the resilience report, there's just sincerely not enough clarity that would cause us to change any of that at the moment. Now that may evolve over time. I don't think it's going to be a thing that will evolve in the next 5 years or 10 years even. But as we get further and further out towards a net 0 economy, then we will continue to assess that, and it's all going to be done in the context of where we and the industry is at in the ability to be able to utilize that asset. But the short answer is, there is no intention to change at this stage.

Okay. And then just on dividend reinvestment, how do you think about that as a means of funding the business? Is it -- historically, APA has had one. You got rid of it because shareholders complained. We've seen a lot of infrastructure companies [ were in store ]. What's your sort of views around it?

Yes. I'll make a few comments first and then throw to Adam. I think, historically, you're right here, that has been the view. But I think as we think about our funding strategy for growth, whether that's organic or inorganic, that is another means for funding that growth, and it's certainly that's something that we will be open to. Adam, if you want to...

Yes, I guess, you always look at it from a portfolio perspective. So you've got many sources of capital. You've got the cash that you generate. We're a strong cash-generating companies, high margins, relatively low-risk business model, and that's evidenced through our ratings and so forth. So you've got a lot of capacity there. You've then got your debt and equity markets. One of the purposes of putting a presentation like today on is that when we come out and buy something that is meaningful, largely M&A-driven, we're likely to be raising equity at some point in time. And what we want to ensure is that our investors and -- feed our investors with a lot of that information are not surprised by what it all means. So we've got confidence around those. And then there are going to be points in time in the cycle where it does make sense to recycle capital. And there's no point trying to speculate or suggest which one makes the right one. But -- and it may not be a complete sale. It could be bringing joint venture partners in. And that's one of the things that we actively look at. And there's a lot of experience in the organization, having worked with joint venture partners, as you know, I have, Ian, in my past. So there's roles to play for joint venturing. There's roles to play for owning at 100%. And there's sometimes a point where it just makes more sense for it to be owned by somebody else where they can generate a higher return or see more value in it than we can. So we're agnostic to that. I don't think anything would be off the table.

And one final question. The government extended the tax break until 2023 or thereabouts. How quickly can you accelerate what's in the -- [ I wish we ] could do this program in the business and spend more money. How fast can Bob build?

I'll throw to Kevin actually because I'm pretty much asking that question every day. It's -- look, firstly, just as an opening, they are really good policies. And with Julian, Hannah and the team, you do get customers coming to you and saying, well, you're going to create some value out of this. So can we accelerate something and share a bit of that [ value ]. So they're a good [ shout out ]. They are very good incentives. It's not the only reason -- the only thing that drives investments, but they are good incentives. The fun part is that the finance guy can now put pressure on the delivery person and say, come on, harry up, you're going to get it delivered on time. But do you want to talk, Kevin, about how you go about that process?

I don't know whether we've actually accelerated any projects, but certainly NGI and Stage 1 of the East Coast Grid fall into that category. We will have them complete, and we need to ensure we have them completed to meet -- get that tax incentive, and that's what we'll do.

Right. If I can add, there are a couple of things that we've got that we're looking at the moment that could potentially go into that bucket, as I talked before around customers with various projects. And I think it's a good policy measure. I think my observation from the initial budget measure was too short for infrastructure because some of these things have a long lead time. And I think probably the initial measure was good for people if they're buying trucks because you do it within 12 months and get it on the ground, whereas our projects, as you know, take longer. And so I think it was a good policy measure to extend it and allows a little bit more lead time for things that involve turning the spade in the ground and building something substantial. So I think it's very helpful from that perspective. Otherwise, you're literally just buying things that are off the shelf, and we'll get the benefit of that tax deduction.

Thank you, Ian. If I can borrow your, "How fast can Bob build," I might just use that more often, Kevin.

Rob, we have one more question from the webcast. The change in gas market dynamics, how long will it last? And what is the impact to APA's medium-term outlook?

I think, first of all, as you would have seen today, and it was on one of Adam's slides, that we've reconfirmed our EBITDA guidance for financial year '21. So that's the first point. You would have seen that I commented during my presentation that the changing gas market dynamics, underpinned by a whole bunch of drivers, not the least of which, there's been a bunch of uncertainty around energy policy, emissions policy and that's flowed through to customer decision-making, the need to be able to contract shorter, requiring greater flexibility. And we've seen some of that flow through this year's results already, coupled with, as I said earlier, the lower investment in growth CapEx that we see in the last couple of years. But we're very confident that the growth CapEx that we're seeing now and the uptick in this year and next and the following year will flow through to growth in revenues in subsequent results. And I think all the while, and Adam talked about this as part of his presentation, that with our refreshed approach to our distributions policy, we'll be able to manage a steady growth in distributions through the cycles, where there's -- we do have a few ups and downs in how the market performs.

Yes. So I guess a question around the hurdle rates that Adam's going to tell us what they all are. Are you -- just I guess 2 questions. Do you have a mechanism in there to do like a mark-to-market as market rates change? And then secondly, if you're willing to disclose it, I mean, do you have a higher hurdle return on, say, renewables versus gas infrastructure? Or can you give us a sense of the relativities?

Thanks, Mr. Koh. So a couple of things there. So one, when we look at the asset classes, there's the traditional cost of capital inputs that I won't bore you with. But there's 1 or 2 major drivers when you're looking at these different asset classes from a risk perspective. And then the other thing that we're trying to do is making sure that we take a forward view on a lot of those inputs. So it's a forward view on interest rates, not a, "What is APA's current cost of debt?" It's very much a forward view and looking at all the various market forecasts that go into those inputs. There is, no doubt, going to be a different risk profile, again, within a very narrow range, but a different risk profile for the different assets. And it's really down to, obviously, a regulated asset is going to have a very different risk profile to a contracted business. And then there are going to be certain assets, going back to Ian's question before, where you're going to build an asset based on, call it, a 10-year contract. But you know that, that asset is going to be generating a return over a 20- or 30-year life, if you want to take a wind farm or whatever it may be as an example. So you've then got to try and price in that risk around what happens after the 10 years when you're then going into recontracting the way we go about that. So that determines the asset beta essentially for the different asset classes. But most important and over and above all of that is a view -- a long-term view on rates. So again, we've got to be very careful that we don't get hung up on the changing dynamics of your cost of capital. What we try to build in is a buffer largely focused on views on rates. That is sustainable over time because we can't be changing our hurdle rates every 5 minutes or every year. We want them to be sustainable over time.

Okay. Makes a lot of sense. And where in that, I guess, project evaluation/capital budgeting process are you doing carbon pricing scenarios?

Do you want me to talk to that? Or Julian? Yes. So it's -- we are early days. And in fact, that's one of the things that we're working with Nevenka's team, and Megan is in the room here who is leading that charge. We are alive to the fact that we've got to somehow build that in. It would be lovely if you could just grab a market model and say, yes, they know exactly what they're doing and we'll use that. If you can tell me one that's robust, then I'd love to hear it. It's in a very immature stage at the moment, but it's going to start building up over time. I'm not sure if Nevenka or Darren or Julian...

Maybe just to say -- rather than immature, I'd say that there's lots of room for opportunity.

I'm not saying we're immature. I'm saying that market is immature.

No, it's definitely part of our climate management plan. It will be a really important part of ensuring both TCFD compliance but also just good commercial sense to ensure that we've got a price for carbon factored into our modeling.

Yes. Okay. And then I guess, just one last question for me. It might be more of a risk management treasury style question. I believe it's still the case that APA has never written off receivables in all of its corporate history. I don't know if it's still the case, but counterparty management was always something I was very proud of. Can you just talk to if you've modified that at all and if there's protections in contracts you'd say, one of your counterparties, I don't know, demerged and part of it wasn't investment grade anymore?

Rob, I'll take that initially and then I'll throw to, looks like, Adam and possibly Julian to comment as well. But I won't comment about your question around counterparties demerging. But just specifically around -- I think your question initially was around never having written off any receivables. That's certainly the case in terms of anything material. There's always a few little bits and pieces here and there, but we've really prided ourselves in making sure that we contract with high creditworthy counterparties. And where they're not investment grade, we take an appropriate amount of credit support, whichever form it might take. So that's been our history, and that continues to be the way we think about things when we contract with our customers, and that will vary from customer to customer, depending on where they sit on their creditworthy scale. Do you want to...

All I'd add is nothing has changed. So that legacy lives on. The only thing I would say is that -- and I'm not being specific about any customer is, to be a supplier in this market, you have to be highly creditworthy. We struggle to see how you can't be highly creditworthy. So whilst we've got really strong disciplines and processes in place to ensure that is the case, it will be challenging to understand how you could be in this industry without being highly creditworthy.

All right. Just a couple of quick ones for Adam, if I can. Adam, definition of maintenance CapEx or if you can size it for us?

Thanks, Matt. So I'm not going to size it for you now because we just need to round out all the nuances in that. But look, essentially, Darren's team has the bulk of that. We have life cycle models that forward look into the asset maintenance programs. I can't remember the number, how much it is, $100-odd million a year, but there is a chunk of maintenance CapEx that effectively comes from the maintenance models. That's not to say that something comes up -- I'm talking on behalf of Darren here standing like an expert, but it's not to say something comes up in a particular year where we redirect the attention to performing maintenance on that. And then the other big part of our business and everybody's business these days is around our technology platforms as well. So we -- we've got life cycle models. We're refining our life cycle models around our technology platforms. And they would be included in that as well. My caveat on trying to clarify is this -- for example, this accounting standard change, it's not a change, it's a clarification a couple of weeks ago around cloud-based. We've got to do a bit of work with that -- with the auditors around is there anything else you can capitalize that was previously capitalized and not. So give me some time, Matt, to clarify that likely at the full year results.

And Matt, if I could just add 1 or 2 other things to that is that from a maintenance CapEx, when you look at our linear infrastructure, our pipelines that traditionally have required less stay-in-business or maintenance capital, any rotating equipment, whether it's compressor stations, power generation, gas plants, and this last year, we've seen a major overhaul at our Diamantina Power Station. So that's a big lick up in maintenance CapEx, but that only happens every 5 years. So I think what you're going to see is as we move into different types of energy infrastructure, it's going to have a different profile as to what that maintenance CapEx being -- solar farms, for example, being at the low end.

Yes. And then Adam, you mentioned you're at the top end of the BBB range. You've got 12% FFO to debt. So what are the guardrails on an FFO-to-debt basis do you think for BBB?

Yes. So look, as you'd expect, both agencies calculated differently. And it's sort of an 8% to 11%, 9% to 12% sort of range. As you pointed out and I pointed out, we are at the top of the range. There's a couple of things to point out. One is, we have modeled and we have a business model that means that our FFO to debt will be growing over time. So you will always build in natural headroom. And in fact, if we did nothing, if we didn't grow at all from an M&A perspective here at APA, then we would be punching through those rating bands in the not-too-distant future. Again, if we've done all the work to say the BBB, Baa2 is the right rating, then that's where we should sit. Sitting at the top gives us a fair bit of headroom and a bit of comfort, but that's not the intention of where we want to be over the longer term. In very simple terms, bumping around the middle of the range is really where we would be. If there was a funding opportunity that would enable us to move quickly, to execute efficiently and not have to raise equity, that could put us down in the lower end of the band, not below the band, but the lower end of the band. And then we can either let it naturally restore over time or the next transaction, you do a bit of an over-raise or whatever we put in a DRP. We can -- we've got the flexibility, Matt, to work our way through that. But ultimately, when we're pricing projects and we're looking at what is the capital structure for a project, whether it be for Ross in North America or for Julian, we are trying to target around that middle of the range BBB, flat Baa2 rating.

Great. And just last quick one. So the couple of one-offs for FY '21 and specifically the cloud investments in the mark-to-market of the renewables portfolio. How are they treated in past periods?

So the mark-to-markets on the renewables were fairly immaterial in the past, and we still don't know what they're going to look like at the end of this year. What we've been working through with the auditors is that we have historically treated them as net finance costs and clarification is that, that needs to be treated as EBITDA. That's not dissimilar to mark-to-markets that are done by most of the generators as well. And I think they treat them as significant items as they put them below the line. So we will call it out so that you can see the underlying performance of the business. But that is one to be quantified. The other one -- and again, it's noncash. And the other one, again, it's cash because you're spending the money, but it's cash that we would have ordinarily spent anyway. And so there's no impact on our free cash flow calculation, is the technology spend. And again, we need to work our way through that. It's only a couple of weeks old because there's not just the technology, but there's also the processes and systems and other investments that go with those sorts of projects. And what we're trying to get clarity around now is, do you have to write the whole thing off? Or can you still only expense the pure technology piece? So again, [ Katie ] is in the room and the team. We're going to have a bit of fun including maybe the auditors over the next couple of months to try and get clarity around that.

While we're waiting for -- there's another question in the back. I was going to say, Yoko, one of the questions that I would love to be able to ask -- maybe I'll ask it now since I'm midstream is, Jane, you've been with APA for a few weeks. So this is my question from the room. What are your first impressions?

Well, it's actually 17 days to be exact. But to be fair, I did quite a bit of due diligence on APA before one joins a company. So the consistent thing that I heard was refreshed strategy, operationally disciplined, opportunities in the U.S. and also locally, organically. And I met some of the peers that convinced me to join and also Rob and the Chair. So important things for me when I do my due diligence but quite excited to be here. Thank you, Rob.

Back to the floor. Thank you. Thanks, Jane.

Scott Ryall from Rimor, again. I was hoping to switch to some of the stuff that Darren spoke about around the skills and the transferability of skills between energy streams, which I take. Maybe it's your question, maybe it's Ross's, but how is the capability transferable to the U.S. where you've got different regulation standards, very different governments and those sorts of things? And can you talk to how many people Ross has on the ground for support for considering these things in his assessment of different opportunities?

Thank you. Well, I might throw to Darren first just to talk about the transferability point. And then Ross, if you can just talk to how we view transactions and how we bring to bear the full capability of APA when we look at transactions.

Yes. So thanks for the question. And you're quite right that the standards and regulatory environments are different. So we're not going to pretend that we're experts sitting in Brisbane or Sydney about U.S. regulatory regimes on pipeline technology, as an example. But the basic framework around asset management and operational excellence is actually global. So if you looked at our asset management framework and our operational excellence framework and you compare that, whether it's in Europe or the U.S., they've got a lot of common elements. The big players like Shell and DuPont, the global organizations, we've mirrored some of those. So I think that part of it is very transferable. And if I think about the U.S. operation and a couple of the transactions Ross was talking about, we did talk about strategic control points. Where are they? Are they locally here in Australia? Or are they more remote? And it goes a little bit to the way that we operate our business within Australia. So I'm not sitting there supervising a technician in the Pilbara. But we've provided some guardrails and the control framework for how they go about their work and the decisions that they make. We make sure they have the right competence and capability to do that. The U.S., we would see, without having the actual business in front of me today, I would say, it is somewhat similar. The certain strategic control points around the asset management framework and operational excellence that you do want visibility of and you do want some input into. But once you're on the ground, those guardrails have to be able to be enacted by the people on the ground doing the work. And then I'll hand to Ross to talk about the second part of the question.

Yes. Thanks. I mean it's important that in doing due diligence that the Australian operations understand what are the key differences between Australia and the U.S. And we brought across a person specifically charged with that responsibility to compare and contrast those operating environments, to bring colleagues in Australia along and to understand what are the key issues required. Now we've only got a small team in the U.S. at 5. But rest assured that we have a fair few number of consultants that we are working pretty hard to work alongside the direct employees as well as our Australian colleagues to make sure that, from a due diligence perspective, that we're aware of what are the key issues that we need to understand. And yes, the operating environment, once we're successful, the U.S. operations has got to stand and do the running of the business on a day-to-day basis, but certainly, there'd be dotted lines back to management in Australia to make sure that those key things that we need to understand we do so. Things like finance, things like corporate relations, et cetera, very key that the Australian operations are familiar with those key risk areas in the U.S. But we're very confident that when we look at due diligence, invariably, if we're successful, we have the resources during that diligence process, both internally in the U.S., internally from Australia, but also supported by key experts contracting it.

And if I could just add one other thing to what Ross said there. In terms of when we're looking at going through a diligence process, clearly, we've got strong regulatory -- economic regulatory capability here in Australia, and we rely on the depth of that. But it's obvious that the regulatory environment is different in North America, and it's different not just at a federal level, but at a state-by-state level. And we've got -- and this is the case in point we rely on the capability on the ground through external advisers who then bring to bear all the nuances and differences that things that we need to consider as part of our diligence.

Can you just clarify? In the U.S., you presented the slide with the opportunities and renewables were on there. I'm just sort of interested, is that a second order transaction for you that an LDC or a gas pipeline is what you're first looking at, and we're not going to wake up 1 day and you announce that you bought a gigawatt of renewable farms in America?

I'm happy to answer that, and I know Ross would give you the same answer that we're consistent with our strategy in Australia, which is looking at the full universe of energy infrastructure. That is how we will look at the world on a go-forward basis. But where we are focused initially in North America is on those gas utilities, gas pipelines. What I would say though is -- and I think we made this observation at the time of our half year results is that whilst that remains our focus, some of these gas utilities have already formed -- acquired other assets and come with some sort of level of integration. And so we just sort of forewarn that, that is a type of asset class that we may turn up with. But certainly, the focus is around those core competencies in gas that we believe are transferable. And as Ross, I think, made the point, a very attractive gas market in North America. So I just wanted to clarify that.

Sorry, can I just go to one question on the telephone, please? So Nathan Lead from Morgans.

Actually, I just got 2 questions, if that's okay. But my first one is just the outlook for the tax profile. I suppose, given your remaining available fraction tax losses and also the federal government budget with the immediate expensing of the CapEx, just what does it look like going forward? And I suppose just how that then plays into the franking of the distribution?

Thanks, Nathan. So we will provide more clarity at the full year, and it is one of the things I was mentioning to some of our investors earlier that in the half year and full year results, we'll provide a bit more clarity in those decks around the -- certainly, the tax profile of the business in the year that we have just been in, but hopefully some clarity around how to look forward as well. There is going to be a fairly meaningful benefit to our tax position in this financial year. Some of that is because of the immediate tax deductibility government incentive that you referred to. The other one is that the liability management exercise where we had those early termination payments. We get a tax deduction for that. It's quite a sizable amount. Don't quote me on this, but the cash tax in FY '21 is going to be around that sort of $100 million mark. It's certainly going to be a lot less than what we have traditionally paid. The available fractions question is, in short answer, it is reducing. About 75% of our earnings flow through our company structure and the balance flows through our trust structure, and it's getting down to a fairly small number. I think it's in that sort of $15 million to $20 million type level. But again, Nathan, well, don't quote me on that. We'll give you those that information and more clarity when we have the information, which will be as part of the full year results.

And the second question I've got is just around your FFO-to-debt target there. And I'm talking about -- around about the 12% at the moment in those rating ranges. You take into consideration what the FFO to debt looks like, I suppose, middle of next decade when you have quite a material step down in earnings from the Wallumbilla Gladstone pipeline. Is your contract expiring, the initial 20-year term? How do you sort of take that into account?

Yes. It's a good question, Nathan. So firstly, just a point of clarification. So 12% FFO to debt is not the target. That's sort of the top end of the range. So the target is more around the middle of that range, around the 8 -- 8% to 9%, depending on what measure you take. The WGP, Wallumbilla Gas Pipeline, amortization or effectively how we deal with the fact that in 2036, you no longer have those revenues, yet you've got a portion of debt, which sits corporately, that effectively would need to be repaid on the basis that you no longer have the FFO to support the debt. With respect to your credit metrics, it's certainly something that we're alive to and that we have modeled. It has helped inform our distribution policy and a lot of the work that I presented to you today to again ensure that, that is sustainable over time. We've got until 2036 before it actually impacts us, but -- which is quite some time away. But equally, we know that it will knock on our door sooner than we all expect. So we have certainly factored that in. And we, in the coming years, will look at different ways to ensure that we have the appropriate amount of cash available in the existing business to fund whatever debt profile we determine as the appropriate one at that point in time.

Last one.

Really mundane question. CopperString 2.0 doesn't seem to go away. I'm just sort of wondering where there are opportunities and threats for you guys in that.

CopperString. Julian.

Yes. Thanks for the question. I think we've put our submission on our website, so I don't know if you've seen that. It's factually accurate. I think that's the way to describe it. Look, it's still there. What are we doing? We're trying to provide our customers in Mount Isa with the right solutions and a good delivered price of electricity. We continue to talk to them about different options, including renewables in that region. Fair to say CopperString, if it was to get up, is going to get up because of, I'd just say, external support for various reasons. And we wait to see more clarity on exactly how that's intended to work. Certainly not going through the usual transmission processes in the RIT-T that we all know and love. And so I think it would be good for the market to see clarity around that project. If it does come in, if the NEM joins Mount Isa, then the role of that plant in that region will have to adapt and migrate over time. Obviously, we've got existing contracts out for some period of time. But if it does come in, then that plan is still going to be there. Its role in the market will necessarily change. Thank you.

Thank you. Well, that's the end of Q&A. I'll just -- if I can ask the leadership team to leave the stage, and I'll just make a few concluding comments. Well, that brings us to the end of Investor Day 2021 for APA. And I certainly thank you for your attendance today, physically in this room and also to those of you that have joined us online. We very much appreciate your questions and your interest in APA. I'd also like to take the time to thank the APA team, not least of which the executive leadership team here, who you have heard from through presentations and also through Q&A. But there are many folks that have worked tirelessly behind the scenes, as you can imagine, like anything, to put something like this together, our Investor Relations team, our external affairs team and the host of other folks around the business who've made this possible. So a very big thank you to you. I trust that you found today useful, informative, provided some further clarity on our strategy and our capability to be able to execute that strategy over the coming years and face into the challenges and opportunities that the energy transition presents for us. And hopefully, you also found it entertaining, like I said, right at the start. Now you've heard from myself and you've heard from the rest of the leadership team this morning, covering a range of topics. But I think there's just a number of points that I want to emphasize in closing. The first of all is that APA has strong foundations, and that's come from over 2 decades of investing in different forms of infrastructure and building that capability, and we will leverage that capability into new asset classes and new markets as the energy market transitions. The second point is that -- and it should be abundantly clear that we're firmly in execution mode. And we are constantly evaluating the opportunities that we see in front of us. And the third point is that we are future-focused. And the discussion that I think Hannah presented today gives you an insight into the steps that we are taking. To understand those next (sic) [ next generation ] energy solutions through our Pathfinder program is testament to that. And the last point I would make is that we will remain disciplined as we execute our strategy. We'll remain focused on that strong balance sheet as we focus on steadily growing distributions for you, our investors. So look, a big thank you for your attendance today, and I hope that you've come away as excited as we are about our refreshed strategy, and I hope you enjoyed today. I'm looking forward to connecting with all of you again at our August full year results. And in the meantime, APA is always powering ahead. Thank you.