Genesis Energy Limited (GNE) Earnings Call Transcript & Summary

Good day, and welcome to the Fiscal Year 21 Half Year Results Briefing Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Marc England. Please go ahead, sir.

Good morning, and welcome to Genesis Energy's Half Year Results Presentation for the Financial Year 2021. You've got myself, Chris Jewell, our CFO, here; and Tim McSweeney, Investor Relations; and a number of others listening in. I'll take you through the first couple of slides, hand over to Chris and then come back and talk about operational and strategic updates. Today, we have the pleasure of delivering a really strong first half result too, which we're extremely pleased with. There are some market headwinds ahead, but we're confident of beating the strategic EBITDAF goal of $400 million that we set out to deliver in 2016. And as you'll have seen, are upgrading our guidance for the full year this morning. If I can start with Slide 4 and just cover some of the highlights from my perspective. I won't read it all, but in summary, the business has come a long way in the last few years. We've turned ourselves into a resilient and technology-focused company, always seeking new and innovative ways of engaging our customers, operating our assets and working smarter. Amongst the retail highlights, many of these are attributed to the -- embedded in the business as it continues to innovate and become more efficient. Many of the successes we're calling out today were started a number of years ago, and we're seeing the fruit of that labor and really pleased with the hard work that many Genesis people have put into it. Of note, customer uptake of our digital tools continues to develop, and we're giving them more control of their energy and more things they can think about around how they control their home or their business. As of January, we had more than 229,000 customers using our app, which doesn't seem very long ago when we relaunched it, we were just up to 100,000. And Energy IQ has now become the tool that many of our customers use to engage themselves in their energy, way beyond just looking at their bill at the end of the month. Energy IQ's tip center, which gives customers ideas to help reduce their energy usage has had more than 380,000 interactions since July 2020. And we're also significantly improving our customer care packages and processes, resulting in lower bad debt. In fact, that's probably one thing we're most pleased of coming off the back of COVID last year. It was a catalyst for us to double down on our efforts to support our customers [ whose coming ] some of whom had really good payment histories and then had short periods of pain. And through a program we call Manaaki Kenehi, we've worked with them -- and with government agencies, to be fair, who deserve some of the credit for it -- to make sure that they stay with us, remain loyal, and we help them through this time. This half, we've also seen the benefits of some long-term planning investment come through on several fronts, notably in our wholesale division, which puts us in a strong position for the future. You'd have noticed that we've put a significant investment into the Tekapo intake gate this year or last year. That's now finished and complete, giving us a level of seismic protection that we've just never had and Tekapo has never had since inception. While we were doing that, we did a number of improvements to a number of different generators and units across the Tekapo scheme, and it's now in great shape and running at full pelt right now down in South Island, so really pleased with the effort that our people put into that and also, as we may have called out last year, worked through COVID alongside contractors to make sure we could get the work done in good time. Also very proud of the Waipipi Wind Farm, which is first energy to the grid late last year and is now fully online. That's adding an extra feather in the portfolio for us and enabling us to have more renewable energy in the system and the space what would otherwise be carbon-emitting energy. We've also started the rollout of advanced gas meters, which we're proud of, the first retailer in New Zealand to do that. And that's been an investment we've been working on for a couple of years, which will start to give gas customers the same insights electricity customers have. And you'll have noted, we made a recent announcement about an investment in Ecotricity, which is New Zealand's only 100% certified renewable electricity retailer. It will be an arm's length arrangement for us. They will continue to operate independently. And some of you who know them may have some questions later on it. As the slides say, our EBITDAF for the half was $217 million, and NPAT was up to $53 million. Cash flow is down versus the -- sorry, cash flow is also up versus the same comparable period, and net debt [ in even the half ] interest costs are down. So an altogether great result, which we're very proud of, and Chris will take you through it in more detail shortly. If I can just direct you to Slide 5 briefly. I just wanted to make the point that we're planning for the future, too, not just sitting there enjoying the fruits of the last 4 or 5 years' labor. And we see ourselves playing our role to empower New's Zealand sustainable future. Partnerships with companies like Ecotricity, the RFP process around Future-gen to build new renewable options and many other activities are part of that today. And you'll have noted that the RFP that we've talked about in the market for 6,000 gigawatt hours of renewable generation options will be assessed over the next few months, and we're reasonably optimistic that there are plenty of opportunities out there to continue to displace our baseload thermal while also empowering New Zealand's sustainable future by standing up for the need for backup thermal to back up its reliable, stable electricity market that can help the economy decarbonize in other areas. We've been prepared to back up our Future-gen program with a bold commitment around carbon [ rid ] emissions to the science based target. I'll talk about that a bit later. And we just -- we've committed to removing at least 1.2 million tonnes of carbon annually by the time we've delivered our Future-gen program and in meeting that science-based target for 2025. You'll all know that, that target is internationally recognized and verified, so it's not something we just came up with. And we didn't announce it until we were reasonably confident that we knew how we were going to deliver it, albeit we've got some newbuild projects that we need to work with partners to get up and running in order to actually fulfill it. I'll touch on some of that more in detail in the strategy section. In the meantime, though, I'd like to hand over to Chris to talk you through our financial results in more detail.

Thank you, Marc. So I'll start on Slide 7, at our half year financial summary. This just summarizes all of our key metrics, and we'll dive into the drivers of each of these in a bit more detail. But just to repeat at [ an ede ] line level, EBITDAF was $50 million up on the prior comparable period, NPAT, underlying earnings, operating cash flow, free cash flow, were all up on pcp, and net debt is $65 million down on pcp. Operating expenses are slightly up as is capital expenditure, for good reason, and we'll talk to those. So Slide 8, dividends. This covers our dividend history and puts some context on our half year dividend announcement. Today, we announced a half year dividend of $0.086 per share, which is half the FY '20 full year dividend, and in a similar trend to what we've done over the past 4 years. It's also consistent with honoring a dividend policy of growing dividends in real terms over time. The dividend remains 80% imputed and we continue to pay a supplementary dividend to non-New Zealand residents to ensure tax equalization. Notably, and importantly, the dividend as a percentage of free cash has reduced to 56%. This year, we, this half year, decided to suspend the dividend reinvestment plan. This has been an important tool for us over the past 3 years in raising some capital to support our balance sheet, following the acquisitions in 2017. The recovery of our payout ratios, as we had anticipated, and also our balance sheet metrics, directors felt now was the right time to suspend this plan. So Slide 9, half year EBITDAF. This just breaks down the improvement in EBITDAF between the various segments, but it also shows the EBITDAF trajectory since our IPO in 2014. Whilst half year is $50 million [ abit ], it's worth noting that the half year '20 had some one-offs that dampened that result. So more importantly for us is the trend since the IPO. And half year '21 shows a $38 million increase since our IPO. And I would say this increase has exceeded our expectations and has been delivered through value uplift in each of our segments. So if I flip to Slide 10, looking in a bit more detail at each segment. So our retail segment includes all our sales of electricity, gas and LPG customers and also those now purchasing energy services. And here, we saw a $24 million uplift on pcp. This has been driven by a lower cost to serve, lower cost to deliver, improved pricing and better volume growth in LPG sales. Our wholesale segment covers all our spot market activities in all of our wholesale sales to large customers and some of our competitors. And we're now through the peak of commodity pricing, and our weighted average fuel costs are falling, [ they ] predicted this, and it will continue to fall with the roll-off of large gas contracts from the 1st of January 2021. This affects both margins on sales contracts and the cost of fuel for our thermal plant. Combined with the very strong plant reliability and a contribution from the Waipipi Wind Farm, our wholesale segment has seen an uplift of $23 million on pcp. Lastly, Kupe has seen an uplift of $7 million on pcp, largely due to not having a significant planned outage this year as a result of gas sales -- as a result, gas sales are up 16%. But importantly, and again very pleasingly, plant reliability at Kupe remains a standout, 99.1% availability through that time for Kupe. Turning to Slide 11, NPAT and underlying earnings. This breaks down the improvement in NPAT, and NPAT does show a similar trend to EBITDAF. The majority of the $44 million improvement in NPAT relates to the improvement in EBITDAF. However, there are also 2 other very important contributors to NPAT. Net finance costs, i.e. borrowing costs, are down $7 million due partly to reduce debt but largely due to lower interest rate environment flowing through to our average cost of debt. Our legacy higher cost debt continues to roll up. And this year, we launched a commercial paper program, which has allowed us to offset or offer short-term debt to the market, it's typically 90-day debt, at a deep discount to our bank debt. And as at 30 December this year, we had $150 million of commercial paper on issue. The second factor that relates to NPAT being up as the Kupe depletion charge. And this half, we announced a 21.5 petajoule reserve upgrade at Kupe. The field is expected to last longer than previously expected, and this is the third significant upgrade over the past 8 years. The impact of this is that we deplete the balance of the remaining reserves at a slower rate. Just looking at the underlying earnings. We monitor underlying earnings as a better measure of our profitability, as our reported NPAT numbers regularly have noise resulting from changes in forecasted asset values. And this year, we did have another asset revaluation, which we do tend to have given asset values are based on a long-term outlook of pricing -- oil prices. But the key difference is in NPAT and underlying earnings are fair value adjustments that flow through the [ ESPs ] and asset values. So flipping to Slide 12, controllable operating expenses. They are up $9 million on pcp. The key drivers of this increase include cyclical investment and generation maintenance projects. So as a consequence of having a few more outages, particularly at Tekapo, we've managed to push through some important maintenance projects at that time as well. Insurance premiums are increasing right across the sector, and we have seen that also for Genesis. We do have some costs for the Kupe strategic review. And we also continue to invest more money in a number of our strategic initiatives, including standing up our Future-gen program. We also have taken another provision -- or taken a provision for reinstating leases at the termination of the Meremere lease. So looking at Slide 13, capital expenditure. We do distinguish our capital expenditure between [ stand ] business and growth. A number of very important projects were undertaken this half, and it's pleasing to report that the $26.5 million Tekapo 8 gate project was completed. This was a significant safety upgrade to reduce asset, staff and community exposure to seismic risk. Additionally, Unit 2 at Tekapo B was upgraded to restore its design capacity after a number of years of below design output. And the upgrade also resulted in an efficiency uplift of 2.5%. We continue to invest in projects that create growth, also the Kupe compression project is well underway and due for completion in the first quarter of financial year '22. We've also commenced the rollout of advanced gas meters, which is a project that's been a number of years in the making and will allow us to start to deliver a similar level of insight to our gas customers, that our electricity customers have been enjoying for some time. Additionally, this will allow us to more fully integrate the gas and electricity experience. We also invested in software that allows us to optimize LPG delivery routing. The LPG business continues to transform from what was largely a manual operation to a more sophisticated digital operation. And our new dispatching technology has been critical in allowing us to remove over 1 million pieces of paper out of the LPG delivery network and also supporting a 13% productivity increase in delivery volumes versus the prior year. So looking at Slide 14, capital structure. The strong improvement in EBITDAF and subsequent reduction in debt is transitioning our balance sheet back into a zone that provides us future investment options. This has been predicted for some time, so it's not a surprise. Debt to EBITDAF is now 2.5 and importantly, Standard & Poor's reaffirmed our BBB+ rating in February '21. Importantly, our interest costs continue to decline, and we are increasingly able to take advantage of lower interest rates. So I'll hand back to Marc, who'll talk a little bit more about the operations and strategy before we come to our outlook and guidance.

Thanks, Chris. So Slide 16, on our flexible generation portfolio. The portfolio demonstrated consistent and yet diverse generation this year. It's great to see, as we've said, Waipipi come into the portfolio, driving lower carbon and lower cost energy in and driving some thermal generation out. We did end the year on lower storage than the prior year. However, we had some massive rainfall late in December, and that's why you see some of the pcp difference. We used a bit more water than the prior year despite the lower inflows. As we moved into this last 6 to 7 weeks, the first part of the second half, the trend has continued. We've got a very dry South Island and a dry North Island. However, we are relatively well positioned in South Island because of our outages last year, the Tekapo scheme is relatively well stocked compared to many other South Island lakes. The introduction to the market of a third Rankine unit from this week until the end of September in various capacities is recognition of the ongoing constraints [ buying ] gas and hydro in New Zealand. And we are a little bit worried about winter, but we feel reasonably well prepared. And we think the third Rankine, despite the trauma of the additional emissions it creates, is the right thing for the New Zealand market. Looking to 17 and talking about fuel and carbon. Related to that, stockpile costs have fallen, which is a big driver of the year-over-year improvement, as Chris has said, and we've been able to take advantage of some of the cyclical lows in coal costs, and we ended the year with a stockpile of around about 500,000 tonnes, which I think was a record high. However, we do expect international coal prices to increase, they already have to some extent and as we bring more in over the following months, we will end up with a higher weighted average cost of coal going into FY '22. The wholesale gas sales roll-off, much predicted, and we've been talking about that for a number of years, is happening. And that's turning a headwind into a tailwind for the Genesis P&L, and we expect that to continue through FY '22 into '23. And then just a note on our carbon hedge position that the -- it's fully hedged until -- pretty much fully hedged until 2025. Price is well below market. The current market price of carbon is $39. And Genesis always retains the opportunity to use the fixed price option for our 2020 emissions, but we've made no decision to do that at this stage. If I could flip you to Slide 18. Message here is that positive financial impacts come from being proactive with customer care. As I touched on earlier, COVID was a catalyst for us to double down on our efforts. We've worked collaboratively with multiple government agencies on this. And the team are really proud of how they've supported customers through difficult times, and that can be -- they were situations where our customer was a particularly good payer for a number of years and then came across some difficult personal circumstances, maybe due to COVID, maybe not, and we've supported them by keeping them paying but helping them spread their payments over longer. The outcome of that is greater loyalty and in the end, less disconnections and less bad and doubtful debt. So you can see the trends on the right-hand side are moving in the right direction. Brand Net Promoter Score, which is not an interaction score, but it's asking a group of random customers the chances of them or the likelihood of them recommending Genesis. That took a bit of a dip in Q1 FY '21 after being at a high during the COVID lockdown period but is now ticking back up again, and we're looking forward to that continuing to rise. Flip you on to Slide 19. Again, better customer service at a lower cost. The message is clear. We've shown you these 2 charts a number of years in a row now, and we continue to invest in digital interactions over manual interactions. And we continue to increase the proportion of digital interactions. Our retail vision of being first choice for energy management is always about engaging customers. But of course, when we engage customers, we want them to be seamless digital experiences that then have a high cost to serve. We continue to invest in that while also removing the pain points and the things that cause customers to call us, they have a high cost to serve where we may have got it wrong, and we haven't made the experience great for them. Still a lot of work to go into that. And if you flip to Slide 20, we're showing you a breakdown of our churn numbers between Genesis and EOL, which I think is the first time we've shown it in that detail. And you can see churn has ticked up a little bit in the first half of 2021, so we're keeping an eye on that. There's a number of factors to that, including the fact that during the COVID lockdown, churn fell across the market. So that second half FY '20 is probably unusually low. But nevertheless, we're keeping an eye on churn. And we're investing back in, and I'll show you in the strategy slides in a second, into improving the experiences customers receive as they join us and when they [ make house ], so that we give them less reasons to shop around and less reasons to consider leaving. Unlike our competitors, we continue to show 2 types of churn: gross churn and net churn. Everyone else just reports net churn. The gross churn for us is a really important metric because it tells us how many or what percentage of our customers consider leaving Genesis, even if we convince them to stay or they don't leave in the end. And so it's a harder measure, but it's one we keep our eyes on because every interaction after the point they consider leaving, whether it's through a home move, journey, experience or another, is a cost to us, and we're focused on minimizing those costs, as you can see. On Slide 22, we continue to drive value in the portfolio in retail, and you've seen that through the netbacks. You can see a breakdown here, slightly different than how we showed it to you in the past, showing the sales volume over the last 3 halves and the netback as a consequence. Of note, on the top right-hand corner is the C&I netbacks and the C&I volume. We took a very rational approach last year to pricing C&I customers and made sure that we were rational from an ASX perspective. We have a relatively balanced portfolio from a generation to retail perspective. We're not long generation, except sometimes in high wholesale price markets. And so we always price our C&I customers to an ASX forward curve, very rational, but with our energy services proposition, and the relationships we've built over the years, we're able to sign more customers back up at reasonable margin. And so we're proud of that progress. Ups and downs across residential and SME, as you can see, and of course the charts here are only electricity. But as you can see from the third bullet point, both LPG and gas netbacks are also up across the board. Moving on to the strategic outlook. And I mentioned our purpose, and those of you that attended our Stakeholder Day in December will have heard that in spades. We titled the conference Empowering New Zealand's Sustainable Future, but we knew that was our emerging internal purpose for our employees. And when we talk about empowering New Zealand's sustainable future what's important to us, as you can see on Slide 23, is it's not just about the macro environment. It's also about many other things. We've chosen 5 of the UN Sustainable Development Goals to focus on. Some of the activities underneath them will be familiar to you. Some of them won't be. But across the board, we see employees increasingly engaging with that purpose around some of these initiatives. Some of them are obviously focused on climate change, but others are focused on maintaining our right to operate in the areas we work, ensuring that our employees are treated fairly, whether it's through the gender pay gap program we have or whether it's the living wage and making sure that we're partnering, particularly that blue 1 ,#17, with other organizations out there to achieve outcomes that we couldn't do on our own and they couldn't on their own, but together, we can actually achieve more. So there's a number of things going on here. I won't dwell on them all now. But the point of the slide is to point out when we say we're empowering New Zealand's sustainable future, it's a broad-based purpose, not just climate change-focused. However, as you can see on Slide 24, as you'll have picked up in December, we have committed to a science-based carbon reduction target, which will limit -- is tied to limiting global warming to less than 1.5 degree Celsius. It's a bold goal. We picked 2025 as the year we will have delivered it by. We didn't sign up to it without any insight as to how we're going to live it, because the Future-gen strategy, which has been a couple of years in the making, is the key enabler here. But as you all know, we don't have all the projects lined up. But we're pretty confident that we can line them up in time to achieve it, and it will see a 36% reduction in Scope 1 and 2 emissions and a 21% reduction in Scope 3 emissions, which equates to an annual reduction of at least 1.2 million tonnes of carbon for New Zealand. As we deliver that, and we continue with the Future-gen strategy into the late 2020s, we expect New Zealand's electricity system to become 93% to 95% renewable. And obviously, some of that will depend on what others do. And we're still maintaining our position that the lowest cost opportunity for New Zealand to decarbonize energy more broadly is not to rush to 100% renewable electricity, but to accept that one of the biggest assets we have as a country is our highly renewable electricity system. We should be using it wisely to decarbonize other sectors. So with that, on to Slide 25, where we lay out some of our very high-level thinking on the Climate Change Committee's draft report. We still believe that New Zealand needs a national energy strategy. We've got to protect against siloed thinking in certain parts of the energy system to focus on what are the interdependencies between different parts of the energy system and make sure that New Zealand is moving forward collectively in the best way to reduce emissions overall and not cherrypicking certain aspects of it. We agree with a lot of the Climate Change Commission recommendations, and I won't go into detail on everything. The one where we have concerns, and we've already fed back and we will do in our response, is we think that electricity price path is overly optimistic. And there's a number of things driving that. But the main one is there's an assumption that Tiwai will leave at the end of 2024. We think that's driven by a high degree of recency buyers around the recent negotiation of Meridian, and it just happens to contract until 2024 for electricity. But our view, when you look at global aluminum dynamics and you look at the future for aluminum and you look at the future for New Zealand's South Island electricity, there's a very high chance that it's staying. And so we think the Climate Commission should be -- their base assumption should assume Tiwai stays. We also think their base assumptions should assume Methanex stays. Just because they have gas contracts in 2029 doesn't mean they won't have gas contracts beyond that. And that will be a tougher base case for the Climate Commission, and we'll then ensure we have the right discussion around the right policies and don't lead ourselves into thinking that it's going to be easy. We also think not enough is understood around the consequence of the Emissions Trading Scheme on the short-term electricity price. And by short term, we mean 3 to 5 years. In the end when the electricity system is even more renewable, carbon pricing will have less impact. But in the transition right here right now, carbon pricing is roughly adding $1 per megawatt hour to electricity prices for every dollar per ton of carbon because of the way the energy-only market works vis-à-vis the cost of running a Rankine Unit. So we think that needs to be considered, and we'll be feeding a lot of that back. Beyond that, we do think Emissions Trading Scheme should be the principal lever for change. But we're supportive of some additional policies around the edges to help ensure a fair and just transition. And in talking to others, we're quite taken by the idea of the carbon dividend, which could help the New Zealand population buy into some of the changes that are needed to effect change. So with that, I'll move on very briefly. I won't cover these next few slides in detail. Just to reinforce, for those that didn't make it to our Strategy Day in December, what our strategy actually is. So you've heard me talk a lot about Future-gen, which is clearly about navigating the transition. There are 4 components to it. One is displacing baseload thermal, which is right here right now. We're out in the market with an RFP around that. But the other part is also around securing gas flexibility, emissions abatement through our guidance, carbon and other initiatives [ potential ] in the future. And [ reason ] on that going on to improve plant efficiency and megawatt capacity. We've had some success recently down in Tekapo where we've improved the efficiency of one of the generators by 2%, for example, and we're focusing on a number of different activities across our fleet to ensure we can get the most out of it over the next few years. Slide 27 briefly covers the time frame for the current RFP [ and ] Future-gen, and we're expecting responses back by the middle of March. The expression of interest we put out there late last year brought back about 12,000 gigawatt hours of potential opportunity. We've sifted through that, and we've gone back out to 11 organizations that covers about 6,000 gigawatt hours of opportunities where we think there are plausible build options. And we're seeking pricing and commitments that we can then go into detailed negotiations on. Reasonably optimistic around that. Just for reference, the 6,000 gigawatt hours is the total Genesis portfolio, but we only need another 2,200 gigawatt hours to fulfill our science-based target and the first phase of Future-gen. And so we are weighing out different opportunities between wind, solar and geothermal, different impacts they will have on our overall portfolio and where that may take us beyond that. In our retail business, we've got 6 initiatives on Slide 28. They're more about delivering more from the core as well as some building for the future. I've talked about residential experiences, that's really important to us. We're continuing to grow our share of small business, less so medium to large. And we want to be #1 or #2 in every region for LPG. And you're going to hear more from Energy Online, those of you that follow it, where we're going to unleash it as a real true competitor to some of the other Tier 2s. And we continue to focus on #5 and #6, which is really our energy management strategy around new products, new technology and eventually a new platform to transform the retail business into a retailer of the future, which you'll hear more about in due course. Slide 29 just articulates how we see the 3 brands. We're now involved in Ecotricity is very much arm's length. They're independent, able to run how they want, and we're not going to interfere in how they operate. But together, we believe Ecotricity can grow in a segment that otherwise wouldn't naturally consider Genesis as their supplier. And Ecotricity have lately been very successful with a number of businesses seeking to achieve their own ESG goals, particularly around Scope 2 emissions. And Ecotricity being New Zealand's really only certified wholesale carbon 0 retailer gives businesses that opportunity. And so we see them growing quite fast from here, backed by our hedges and tied into our Waipipi Wind Farm initially and then also other newbuilds as we go forward. And that excites them around the transition that they can help to make happen in our sector with new renewables, and attract customers who are motivated by that. Meanwhile, we've got a very clear brand promise and proposition for Genesis customers and Energy Online, as I said, will be unleashed a bit more. But again, it targets a different market, much more of the young professional than the Genesis traditional young family. So we're excited about that 3 brand strategy and we'll tell you how it goes as we go. So with that note, I'll hand over to Chris to talk about outlook guidance and why invest in Genesis, which we always love to talk about.

Thanks, Marc. So just an operational and strategic update. I'm just going to pause very briefly on the picture that's on Slide 30 of one of our customers in the supporters T-shirt there, the E-team their supporters T-shirt. So that's going to be an interesting few weeks ahead of us, and I just didn't mention that it is a very proud sponsorship for us, sponsoring the E team's [ NZ ] base and that is going well. We're [ doing a bid if E team NZ ] wins. Anyway, Slide 33, outlook. We've updated our FY '21 EBITDAF guidance to $415 million to $425 million. The second half FY '21 will start the benefit from the expiry of the out-of-the-money gas contracts that have been in our portfolio for some time. The narrowing of the range is consistent with previous years. And lastly, there is no change to our capital expenditure outlook. So I'd just say whilst Genesis is well positioned for the second half, and we've obviously got an outage, a Unit 5 outage, and we've organized ourselves well around that, the gas market does appear to be quite short over the next 12 months, which is something the industry should be aware of and should be planning for. The strategic review of Kupe is progressing well. We've had multiple parties sign the NDA with us to review details about the asset, and we do expect to be able to update the market again in midway through this calendar year. So just looking at Slide 31, we presented the slide in December where we laid out some of the key uncertainties that exist in the market today. I'll just mention these again. Industrial closures. This risk has diminished with Tiwai but does remain present for others, and we are mindful of the very firm forward prices that we're seeing in the market and the challenges that, that does create. So our fuel book is declining and thermal is essentially discretionary for us. Our gas availability there remains some discussion about this, particularly for this winter, Genesis is fully contracted and has multiple fuels to support our position. The pace of electrification is clearly an uncertainty. We think about that when we think about the Future-gen strategy. And we also think about the opportunity that creates for the sector and for Genesis. And lastly, carbon pricing. We do expect carbon to largely pass through the wholesale market, as has been proven to date. And additionally, our Future-gen strategy is important to reducing our long-run carbon exposure. So just to wrap up on Slide 32. These are a strong set of H1 results that our team is very proud of. There are some market headwinds ahead, but we're confident of meeting the strategic EBITDAF goal of $400 million that we set in 2016. In fact, I'll clarify, we're confident of exceeding that as is reflected in our guidance. The business has come a long way in the last few years. But this half, we've really seen the benefits of long-term planning and the investment, and it's come through on several fronts that Marc and I have both talked about. We are planning for the future and playing our role in empowering New Zealand's sustainable future. Future-gen is one key proof point, it's probably the most visible proof point, but we've also laid out a number of other proof points today. We are prepared to back up our Future-gen program with bold commitments to reduction in carbon emissions. And as we talked about in December, we've signed up for science-based targets. So hopefully, as you can see, it's been a very busy and successful half year for us. And just lastly, the commitments we made to our investors in December of just -- we've replayed these. But I'll just leave you with 4 reasons to invest in Genesis. We continue to have a very attractive dividend. And we do see earnings growth over the next decade. We are a company highly focused on reducing our carbon exposure and delivering a new derisked investment proposition, and we do believe we've got a very strong team with a strong innovative culture. So with that, we'll open up for questions.

[Operator Instructions] And we do have a few. Caller, you may go ahead. Your line is live.

A few questions from me. First one, just on OpEx. The $9 million uptick in first half, should we expect a similar increase in the second half?

Sorry, Grant, it's -- I think the question was should we expect to see more OpEx in the second half. Look, our OpEx will be up in FY '21 relative to FY '20. But we haven't guided OpEx specifically other than to say you should reflect OpEx as factored into our EBITDAF guidance, Grant. So we're not reguiding OpEx in the second half.

Next question, just on your outlook of $415 million to $425 million, does this assume that the wholesale pricing tracks the forward curve at around about $200 through to year-end?

Yes. Look, our portfolio obviously performs in a range of wholesale price scenarios and has different impacts depending on different scenarios. So we do, do a range of scenarios, and we're comfortable that our guidance, both the top end and the bottom end, considers all of those scenarios realistic scenarios.

Okay, thanks Chris. And then on your Future-gen strategy, how many of the 15 projects that you guys mentioned actually are new entrants into the New Zealand market?

I think we said 11. But most of them -- when you say new, there's a range of ways I could interpret that, Grant. But if you mean not yet announced projects by other parties, then the majority of them, but not all of them.

Sorry, Marc, what I'm looking for is people who haven't actually built any form of electricity generation in New Zealand before.

Yes, I'm not going to give you the exact number, but we filtered out a lot of the long shots or moon shots. So in the original 12,000 gigawatt hours, we received from the expression of interests, we obviously [ had report ] they weren't plausible builds in the time frame we're talking about, then we didn't go back to them with the RFP. So we've only gone back on the RFP on where we see plausible builds in the time frame we're looking for.

Okay. That leads me to my next question on that topic is, how do you view taking on 1,350 gigawatt hours of PPAs that's starting in 2024 when you still have this potential 5,000 gigawatt hour hole in 2025 from Tiwai exit?

Well, from our perspective, one way you should -- we'd like you to look at Future-gen is it's a wholesale generation and cost reduction initiative. So we look at it as versus our current forecast for cost, input costs. So at the worst case, let's say Tiwai does leave, but I don't think it will, let's say Tiwai does leave in FY '25, then we're still better off than we would have been if we haven't done it. So we're talking about an opportunity cost or an opportunity that's been missed if the wholesale price falls dramatically in 2025. As we go forward, we will make decisions. We don't intend to contract with 1,300, 2,200 gigawatt hours or 3,100 gigawatt hours in one go. We intend to phase it. And our optionality is to watch the market and see who else is building and see what the demand side is doing and decide whether we want to be long or short in the second half of the 2020s. So we see the Future-gen program as giving us lots of different options as we go forward, it's not one big blob.

Thanks, Marc. And then the final question, just on Kupe. You did mention that you have multiple parties looking. That was the same comment from a few months ago. Are you still confident in generating interest in your 46% stake as a sale?

Absolutely.

And we will go to our next question. Caller, you may go ahead.

Mark and Chris, Andrew here. Just a couple of questions. First of all, a follow-up on Grant's just around the strategic review. Are you able to give us a sense of how many of those 11 projects already consented? And I guess also related to that, are they all required to be up and running by December 2024?

Well, there are 6,000 gigawatt hours of potential newbuilds in the RFP, and we only need targeting 1,300 by 2024. So that's the simple answer. But the potential is there. I'm not going to give you any more details on that at this stage, Andrew. I know everyone would love it but we're in the middle of a process, and a lot depends on when we get back from the RFP in mid-March. There's a range.

Yes. Okay. The next question I had was a couple just around, I guess, the guidance and outlook for the second half. In terms of bringing back the third Rankine Unit, have you contracted out any of that capacity? Or are you largely sort of intending it for Genesis use; i.e. being long generation in the second half, if that's required?

At this stage, we haven't contracted any of it out. There's different phases for it. There's 3 phases at the moment, till third week of March it can only run overnight. And then from the beginning of April through -- testing myself now -- through sort of July [ our odds it ] can run 5 days a week, 24 hours a day. And then in winter and through September, it can run 7 days a week, 24 hours a day. So we're building out the operational capacity. We're not saying we're not open for business, but we're being cautious about over-contracting it until the point which, hey, we've got operational confidence and also we understand where the market is going.

Okay. And then in terms of the guidance upgrade itself. I mean how much of it is, I guess, around about the very strong first half results and kind of the flow-through from that versus the second half outlook?