Mercury NZ Limited (MCY) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Mercury Interim Results Analyst Briefing. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Mr. Fraser Whineray, CEO. Thank you. Please go ahead.

[Foreign Language], everybody. Welcome to this interim results webcast for the FY 2020 financial year. We're pleased to be joined by members of the analyst community, owners and also media. Today with me is William Meek, our Chief Financial Officer, and we're pleased to go through the presentation in the usual manner and then get to Q&A afterwards. So I'm just going to flick through to Slide 3, just to cover off the highlights. The EBITDAF was $258 million. That's down through $44 million versus the PCP. Most of that was due to a reduction in hydro generation, a smaller extent a reduction in geothermal generation due to planned outages, and also the removal of Metrix was resolved for $270 million, so those earnings don't exist in the result this time around. And William will elaborate on the bridges in the subsequent slides, but we're very pleased with where things have landed against PCP once you normalize for hydrology. Just to be clear, the way we work here is management doesn't get rewarded for floods or penalized for droughts. We tend to normalize those things out and focus on the underlying business, and we're very pleased with the half on a normalized basis. It is still a very dynamic market. We'll talk about more to that later in the presentation. Tight gas deliverability and higher prices is flowing through to the spot market. There's been some fairly significant swings in the southern hydro lights, at one point going about 25% over the maximum allowable storage in the country, which quickly disappears as those levels have to be spilt. Though -- and that higher spot price, more volatile spot price, is also feeding through onto ASX futures and also, therefore, into retail margins, which are squeezed. The market remains highly competitive. So there's a couple of natural responses in that market dynamic, which really picked up from October 2018. The first is -- and it's deja vu from 2003. If you get a stressed gas market, renewable generation gets built. And that's what we're doing with Turitea, it's what one of our investee companies, Tilt Renewables, is doing with Waipipi. Those 2 projects combined are 3% of New Zealand's electricity. So that's a very significant investment. The second thing we do is we think very carefully about channel management. We don't have to make trade offs with buying gas, running thermal plant, maintaining thermal plant, et cetera, having closed Southdown in 2015. And so we think very carefully about the optimal sales channels for the renewable generation which we are going to run, irrespective really of market conditions. So we've been focused carefully on spot, commercial, industrial and all the different flavors of mass market channels. And we also, yes, exited the Farm Source arrangement just before we hit the second half of the second quarter, and that has been very helpful for us in or portfolio management as well, particularly given the dry conditions. Stay-in-business CapEx $53 million, up slightly on PCP. Drilling campaign at Kawerau, 2 of those, also of course the ongoing hydro refurbishment work, where Whakamaru and Aratiatia have been completing their final units, which should be due to close up this -- in the second half of the financial year, that hydro refurbishment programs starting in 2010, and then also some work on ICT. And culminating, of course, for the owners, an $0.064 interim dividend. That's an increase on the PCP. Full year guidance is on track at $0.158, and that will make it the 12th year of ordinary dividend growth. So now we'll just get into a bit of the bridging and the factors underlying that for the first half with William. Thanks.

Thank you, Fraser. I don't want to labor -- belabor this because these bridges I get for first half performance 2020 versus the prior comparable period are pretty straightforward. Certainly, generation was down, as Fraser had said, by 377 gigawatt hours. Just over 300 of that was hydro and 70 attributable to lower generation from our geothermal fleet, quite a lot. There were 2 major outages undertaken at Kawerau and Nga Awa Purua. So those essentially happen every 2 years. So that really explains the decrease there for those geos. So obviously, less hydro, less geothermal generation affects energy margin, EBITDAF, NPAT and underlying earnings -- so against the PCP, we're seeing those bridges down accordingly. However, when we normalize for hydrology, we don't control how much it rains. The year -- certainly, the half year was slightly below average for an inflow, slightly actually higher on inflow basis than the prior comparable period. But the starting like position much lower and then particularly finishing higher than the PCP. Metrix OpEx, operating expenditure, was actually $5 million lower in half year '20 at $94 million. About $8 million of that is explainable by Metrix OpEx in the prior period, and then those geothermal outages driving slightly higher OpEx. So clawing back about $3 million in terms of that bridge there from $99 million to $94 million. Probably worth just touching on free cash flow. Free cash flow actually was $1 million higher than the prior year. Again, we saw cash taxes and interest costs down $11 million combined. And then we saw a significant improvement in the prudential security posted. So that improved, which affected the prior period. So we actually saw quite strong cash flows at $127 million versus $126 million this half year. Growth investment of $41 million. Again, that's all attributable to the ongoing construction at Turitea, which Fraser will take us through shortly. I will hand back to Fraser.

Right. Thanks. Just on slides...

Sorry, I won't hand back to Fraser. I'll talk to 5 because we've got a very, very cool bridge here on EBITDAF. So again, if we just -- if we break this down once we normalize for the sale of Metrix, which is worth $14 million, so we get our continuing operations. Primary hydrology in geothermal generation being lower. At last year's prices, it's worth just over $50 million, gives us essentially volume-adjusted EBITDAF of $235 million. And then we proceed into the bridge for the core of the business. Prices were lower. So that's -- that pulls us down, but then you see some significant bridges really across that entire portfolio. So a step-up of $23 million increase across the portfolio, reflecting high end-user yields, gains in the CfD position. So there was a disclosure in the appendix showing the CfD position near against the PCP. It's a net short position. So obviously, lower prices do benefit that. So you've got a $41 million improvement there on the prior period. And CfDs lifting essentially to net profit from $235 million to $258 million, which is really reflecting net improved performance across the generation and sales portfolio.

So just on Slide 6. This is a slightly [ reaching ] graphic of what we've been working to and you might have seen in our annual report, pretty much in the front couple of pages for the last few years. And it's just the same purpose and same mission and just reflecting those 5 dots in the middle there, the sort of 5 pillars, as we would see them, or forms of capital is another way of describing them, which we see as important to the long-term success of the company, the outcome of which is energy freedom. The latest push on energy freedom, which, as you are well aware, has a lot to do with energy sovereignty for the country. And that means not importing expensive high carbon fossil fuels when we've got renewable electricity here. Therefore, electrification of transport being a tremendous green growth opportunity which we've been banging on about for some time now. The latest version of that after the 2016 rebrand with the bike, the 2018 version of Evie, the 1957 Fairlane we got converted in the Dunedin garage, is now the iconic kiss oil goodbye campaign, featuring a great 1970s track, the best breakup song we could find actually, from The Manhattans. So that's just been recently launched after a lot of preparation in the half, and we're looking forward to continuing to push with many other people in the country actually on e-mobility. It used to be about electric -- just little electric cars, which looked a bit funny. Now, of course, it's trucks, cars, buses, ferries, bikes, scooters, tugboats and air taxis, et cetera. So electricity is a much wider remit, and we think that's very positive for the country and also positive for the outlook. So we've expressed those 5 pillars in 3- and 10-year views of what success looks like in the last annual report, if you're interested in how we define those. But fundamentally, we look at those pillars and go, well, if we want to be a business in 50 years' time, then all of those pillars, which are externalities, which have choices, need to be with us on that journey to lead to good long-term commercial success. And that's why we focus on those. And indeed, the group KPIs which I'm subject to and the executive and many others, have references to all 5 of those pillars. On Page 7, our key performance indicators. These are the 5 pillars down the left, and then we're just giving expressions to those and some data across the page. Just a couple to highlight. I'm always particularly pleased when we reached the 1st of July or the 1st of January when we have no high severity health and safety incidents. We -- it has been several years now since we've had any high-severity incident, and you never know you've got there until you've actually finished the year-end, unlike being able to forecast financials. So very pleased with that. That is a much bigger focus for us than TRIFR, which can include some not -- some insignificant issues, actually. The main thing is low probability, high consequence events. Our gross generation emissions intensity is pretty similar at about 30kg to CO2 to megawatt hour. That's because of a trapped carbon dioxide coming out with geothermal fluid. Just to remind you that, as a gross figure, and of course, we have the largest and first carbon tenders, which we entered into about 8 years ago, backed by New Zealand exotic and native forests, which mean that we actually operate in a carbon positive position, more than fully offsetting that, as well as our gas sales to all of our 40,000 residential dual fuel customers, for which there are trees backing that as well. Lastly, we made a big commitment to complete the Turitea wind farm. The first half was in March, we talked about, second half was in around October. And so that's steaming ahead and we'll come to that shortly. In terms of Page 8, regulatory developments. There's plenty of that. It won't all fit on the pages, 0 carbon bills, there's a lot more to do with water, there's the electricity pricing review. So we could fill that with several pages, but we just highlight a couple of things there. The work on the electricity pricing review, we're pleased with where that report concluded. The industry structure is good, it's dynamic and optimizing the trilemma that supports the Productivity Commission and the ACCC review of the sector as well. We see there's going to be some bans on saves of win backs. We actually -- you'll see later on, on a chart, that we're not saving that many at the moment. So that's not expected to be a very significant impact for us, and in fact, may produce some positive dynamics as well. There's work on PPDs going on. And importantly, for us, also GLOBUG, which is a critical prepaid product for a relatively underserved part of the market. Because of credit issues or credit constraints put on by our competitors, that is a critical product for about 25,000 to 30,000 customers, and it makes sure that the lights stay on. So we're pleased that, that was unscathed through the electricity pricing review. Freshwater. There's been a lot of focus on that. That is particularly around the role of hydro storage and the criticality of that in New Zealand's energy system, given you can only have a maximum 4 terawatt hours unless you get massive floods like at the end of last year in the bottom of the South Island when it got to 5, but typically 4 terawatt hours is a consented capacity of New Zealand's hydro storage. And that is the sort of the scarce limit in our system. We've also got other ongoing matters around Waitangi Tribunal claims in bits and pieces, which will produce some noise and are process heavy for us, but we note that it's unlikely Mercury will be affected by that. And if we were, then we need to be compensated. In terms of Turitea, the large project. We have many works underway around relocating a public road to avoid or reduce risk with respect to public road movements that the Manawatu Gorge has shut, so there's a lot of traffic going between Palmerston North and Pahiatua, which goes over the same road. So we shifted a public road, which -- so that our blades and every -- and access to the site wouldn't have to be on a blind corner. So we've done that. Site's fully established. A lot of components, you might have seen in the media, are starting to arrive. Some on the west in New Plymouth and some on the east in Napier. We have all the foundation cages in New Zealand. We have 16 lots of towers and the cells and all the bits that go above those foundations. And we have the blades for 33 turbines, which came in from Italy, as well. And so they're in the process of being transported. So there's plenty of activity there. Transmission and connection, which is a separate contract which we hold with Electrix, that is well underway as well as the bit that Transpower needs to connect in at Linton. So just some key dates there. And down the bottom, a reminder of how much it's costing, but then also just noting, we need to -- when you're putting these blades up and craning them up, there's one sort of irony that the number of low wind days you get to do the craning is obviously made more problematic by the quality of a high wind site. So we are subject to weather conditions to put those things together, for safety reasons. And we also are watching closely to see what other components coming out of China may or may not be affected by the manufacturing capacity of China at the moment with that virus floating around. So now I'll hand over to William to talk about the quite interesting and exciting market dynamics.

Thanks again, Fraser. So we're now on Slide 10. Again, this is a familiar slide to most of you, I hope, in terms of market outcomes, a series of ticks there on the right. Certainly, supply and demand rebalancing. We do have the conditions for demand growth despite power prices being elevated. We're certainly experiencing a lot of volatility and it's an ongoing feature of the market. Futures prices remain elevated, really reflecting a forward view of thermal fuels and the [ imports ] of carbon on the market, which I'll expand on shortly, that continues to hold up commercial and industrial pricing. We've seen a very modest reduction in churn. We do note, certainly, the approach across the sector in terms of mass market acquisitions and saves is different, and that has been called out by some of our peers already. And certainly around retail pricing, noting a pretty significant reduction across almost all distribution networks given the 5-year price path review, lowering the cost of capital. So we're seeing quite significant or expecting significant decreases in lines. That being said, we certainly have seen moves in the market around retail pricing at the end of the last half. So again, looking at the chart, certainly, you can see the yellow line reflecting the 12-month rolling spot price peaking in November '19, which actually captures the Super Tuesday prices of October and November in 2018, when prices hit $300 and $200. You see them falling back, but still spot prices remain elevated, but we have seen spot prices regress significantly in January and February of this year, which is not obviously reflected into these results. But we have seen some pretty interesting basis effects between the South Island and the North Island as a consequence. I touched on gas. We have -- we certainly -- we've seen disclosures from Contact and Genesis around their fuel position. Certainly, that is driving forward into those spot prices. Without some reasonable downward moves in NIM securing those contracts for gas or coal, that does create quite a significant floor for spot prices. So that is -- and then, obviously, with the moves around climate change and the Zero Carbon Bill, certainly would be -- seem likely that carbon prices over the medium to long term will continue to rise. Certainly, Mercury, with its long-term forestry contracts essentially protected from those changes if the market price for carbon continues to increase. Turning to Slide 11, which touches on demand. Again, it's a pretty consistent theme. We have seen, on a normalized basis, demand rise by almost 1%, again, led by our cities and the irrigation sectors. Irrigation can be seasonal. Irrigation's certainly seasonal depending on whether it's wet or dry, so that there is some sensitivity there. Industrial users, some of them remain sensitive to the high prices we've experienced certainly up to December of last calendar year. Tiwai is not at full output with particularly the extra pipeline on -- came online about a year ago, but we're seeing about 25 megawatts off the pace from the peak megawatts of 622. Obviously, the Rio Tinto strategic review of the smelter is expected to conclude in March, and we look forward to that announcement. Couple of join-the-dots charts here. Again, really signaling how prices persistently and stubbornly above historic trends, again, reflecting that underlying increase in thermal fuel costs in the left and carbon prices over recent years. So in the yellow dots on the left, on the first scatter plot, there's 8 of those yellow dots, 6 of them essentially signaling that national storage was above average on a monthly basis over the last 8 months. So December was clearly an outlier. We saw inflows into South Island catchments of almost biblical proportions, with some South Island lakes well above sort of normal maximum operating ranges. So I think in terms of the historical inflow record, which goes back to 1927, there was only one period where we see South Island storage exceeding the levels there, which is sort of about 1,600 gigawatt hours above average for that time in December, which is characteristically, you expect to see South Island likely also near full. And again, just correlating spot prices of both gas and wholesale price. Again, an ongoing trend where you're seeing elevated spot gas and elevated [ high ] prices. So again, an inescapable truth there that thermal fuels, which still represent at least 15% of national generation, being particularly the marginal price hitters to the market. Touching on portfolio management. So really focused on how we've been operating Lake Taupo over the half year. Again, just explaining the chart, the sort of the duck blue shaded areas represent the highest lake level that we've seen since, particularly, Mercury or Mighty River was formed back in 1999. So you can see the range there, with essentially lakes trending towards more full in December, January and then falling back to a seasonal low in April or May on the dark line. So we started the year slightly below average by about 100-odd gigawatt hours and then essentially finished the financial year with the lakes very close to the top. So we experienced -- you may recall, there was some bad weather just before the New Year, which should seem to top-up Lake Taupo. The year, you can see in the tables, started wet. So July and August were above average in terms of inflows, then went dry September, October and November. And then December was around about normal. All in all, a slightly below average inflow year for the catchment. You can see the timing of generation again against averages. Certainly our pullback in generation levels in October and November seeing -- I think, is certainly helping the lake level rise in anticipation of the planned and scheduled HVDC and gas field outages in Q1 of this calendar year, so Q3 financial. So anticipation -- what wasn't expected was that the huge inflows into the South Island, which saw very high lake levels and quite a lot of wholesale price pressure in the South Island, which has caused basis to almost -- basis is running at about 2.5x. So February, we're sitting here with prices around $80 in the North Island and sitting around $30 in the South Island. So quite a significant gap. So quite an interesting example of the types of pricing that could be experienced under a Tiwai exit scenario, where you essentially would have had 600 megawatts more generation going across the DC link. And so the price separation from the North and South Island, given constraints across the DC, they're the sorts of things we're observing now triggered by a DC derate because of outages. It's a very interesting comparison to what we could see under that scenario. So the key takeout, again, being active management of Lake Taupo to essentially anticipate the higher prices in -- during those outages, which, in effect, you can see the spot prices trending $90 in January and the 80s in February, all aligned with where futures prices were expecting to be, given the very strong inflows to South Island. We have seen very high thermal commitment too. So it would appear certainly there's quite a lot of contracting to manage that basis for us between North Island and South -- the North Island thermal generators and the South Island hydros.

Now turning to customers. The graph here excludes the exit of the Farm Source contract, which was orderly -- managed in orderly fashion in the half year, just actually before we got into Q2. And that's been very important for us. We wanted to take a slightly longer net generation position to the market. And the farmer load is very highly correlated with the grass curve to refrigerate milk. And therefore, pulling back on the commitments will draw on Lake Taupo between the 1st of October and end of March. When that's accentuated, actually suited our portfolio very well to actively manage that and given the volatility in the spot market, but also some of the uncertainties in the futures market until market making got back underway on the 30th of January. So we, as William has touched on, put a slightly more defensive position into the book, and that has played out quite well in the light of dry conditions in the Taupo catchment, which will still persist, but that's not causing us any reasons for concern on a dynamic basis. Obviously, on an absolute basis, some years, you get water, some years you don't. It's not actually about whether that happens, it's how you manage it and what your strategies are to work in both wet and dry conditions. So on the loyalty of existing customers, that chart there is a slightly -- you can see churn. The wins and losses are both coming down slightly. We're not surprised that some churn should be coming off for the market as a whole in the -- given the counterfactual of spot pricing, futures pricing and also C&I channels. And we're being focused on making sure we're very focused on which customers we're trying to bring on. So we don't just actually run through a bounty, an expensive channel to acquire through, and discounting when that customer is highly unlikely to see any daylight in terms of profitability, and we're being very disciplined on that. So customer numbers have declined slightly, though I think they're at pretty much the same level they were 4 years ago. We will continue to make a -- take a dynamic view to looking at forward pricing as to the allocation of how we should optimize our sales channels. And that's a different goal to if you want to grow a book to sell it, or if your sales team, the mass market sales team, doesn't have an integrated counterfactual to commercial and industrial, then you'll likely to keep churning without adding any value to your book. In terms of guidance, we revised guidance down slightly. We take pride in the guidance we provided in the market with a bit of a midpoint. Tend not to adjust it unless it's with more than $10 million at this time of year. But there was enough gigawatt hours of hydro generation on a recently mechanical basis, looking forward, that we took the opportunity to adjust it here. And of course, we updated our expectations of hydro generation for the full year, each operating statistics as well. So that's down slightly to $500 million. And our ordinary dividend guidance is maintained at $0.158. Stated business CapEx slightly higher to deal with an additional Rotokawa well. We've had the rig working 2 wells, production and injection well at Kawerau, and now we've demobilized that and we're taking it across to Rotokawa to replace a well because one needed to be abandoned from well casing corrosion. So it feels good. It's just there was a few issues with casing corrosion at about the 600-meter deep. Just a final comment. This is my last formal results presentation on behalf of Mercury. The company is on track for its 12th year of progressive dividends. I think there's 2 companies ahead of us on the NZX for that, and one of them gave their results this morning, and so I don't think they will have progressive ordinary dividends going forward. So I think we're still chasing Ryman Healthcare, who's up to about 16 years of that record. You can't progressively grow dividends without actually growing earnings. And you can't actually grow earnings without making good investments and actually having a balance sheet to do it. So we've got growth outlooks in all 4 parts of our company now: wind, geo, hydro and retail, having invested a lot in underlying systems and opportunities. It's a much simpler company. It's far more integrated in terms of the way it thinks, particularly channel optimization, and we've got a very strong balance sheet with some very good projects to put that balance sheet to work against. And if you don't have projects and/or you don't have a good balance sheet, then, of course, you buy PPAs. And buying PPAs is a completely inferior growth opportunity than actually putting the capital to work yourself in a commercial manner. So it's been my privilege to lead the company since 2014 in conjunction with the executive and a very motivated set of enterprise leaders and the people here. I've been an executive in the company for almost 12 years since 2008. And most critically, in the middle, we went through the listing and that really did completely change the dynamic. Non-political appointees to the board, and so professional governance layers, and also the transparency afforded by you, our owners, analysts and the public increased a lot. And it's not because there's a daily share price moving around, it's actually knowing that when you're making decisions, you're going to have to answer to a range of constituents after the fact, face-to-face in many instances, and that is a very powerful human dynamic on making sure you make good long-term and consistent decisions. There has been an improvement on Trilemma since the MOM processes. Pricing, renewability and reliability of the system is solid even when you get big dynamics coming through, such as some of the gas problems we've seen since October 2008. The market is responding in the right way. Capital is getting put to work. And it's getting put to work in a way which doesn't involve a lot of fanfare. And electricity is a very interesting piece of infrastructure because it's not like roads or broadband, which can run slow. You can't queue your customers. They'll get -- even through the peaks, it has to be at the same standard, which is a very tight standard. And so all of that tends to be done in advance with extremely high reliability to consumers. And that quietness of getting on with it sort of masks one key factor in decarbonization. So popular at the moment and will be ongoing. That is actually the electricity sector, actually the largest decarbonization this century out of anything in New Zealand. And in fact, it's removed more emissions than domestic aviation simply by geothermal predominantly and wind investment by many in the sector. And that is a tremendous achievement and one which started long before this whole decarbonization really started firing up. And that actually lifted New Zealand's renewability from the 60s into the 80s and with the other investments I've just mentioned earlier, that renewability of electricity will continue to grow. Of course, there's no need to worry about the renewability of electricity, that's fine. We actually need to worry about the renewability of energy that relates to the company purpose of energy freedom because -- and that's the great opportunity for New Zealand. So thanks for all your support, and I wish you all the best. And thanks again for joining us on the call today. [Foreign Language] We're happy to take questions under the advisement of the administrator.

[Operator Instructions] Our first question is from Grant from Craigs.

Fraser, thanks for many fun years, wish you luck and joy in your new job.

Thank you.

My first question is on OpEx. You guided at the start of the year, I think, would be up $5 million. It looks like your geothermal work is done. It was just up $4 million in the first half. Is that the worst of it? And should I be considering that to be reversed out in FY '21?

Yes. So the guidance for full year OpEx is still good. So in terms of this year, that is okay. We're working through what the implications are for next year. So we've still got refurbishments happening on hydro. But yes, that's -- we haven't worked through that yet, Grant, what that might be, whether that's going to reverse out.

Then on -- you commented the prompt payment discount changes have come up within the next 6 months. Contact and MEL have now put through their changes. Are you planning to do away with prompt payment discount? And if you are paying some changes, can you give us some sort of quantum of what that might impact earnings by?

We don't think it will impact earnings, Grant. What we're doing at the moment per the public note from the Energy Minister is just reviewing the costs of managing follow-ups for amounts that aren't paid on time to see if they are indeed cost reflective. There are some components of our prompt payment discount which actually don't relate to paying on time, they're for other things. And so we're also going to be more defined with those. And so that requires a few system tweaks to achieve that. But there isn't a ban on prompt payment discounts. They just need to be cost reflective was the view from the minister. And that's certainly well supported by customers, the majority of which enjoy it. For customers that can't pay on time because of really struggle -- real struggles with cash flow and that consistently in that area, we're unique in offering the GLOBUG proposition, which has a price point, which is equivalent to post pay, [ additional ] prompt payment discount. And so that is a way that those customers can achieve that. We think choice in the sector is very important, and we know other companies have actually introduced simple products without them and other products with prompt payment discounts. And the end of the day, I think the choice is a good thing for the market. So we're not expecting financial impacts from modifications there.

So can I infer from your commentary that your products that are on prompt payment discounts are nothing like Contact's, where they had about a mid-teens not paying on time?

Ours would be probably close to the late single digits. And we've gone through that on an analysis of seeing if it's recidivism or -- sorry, I should say, repeat. It's not a bit -- it's just whether that's repetitive and what are the reasons why and whether or not we should recommend an alternative product for them. So quite -- there's actually not that many that do that every time. I can't speak for other people's portfolios. Remember, what is it, 25,000 of our customers are on a GLOBUG product. So if they happen to be on a post-pay product, they would probably be struggling with getting the prompt payments on time. So I guess we get the benefit across the portfolio of having those different products, which makes our post-pay look probably better.

Genesis indicated they plan to pass on the Vector distribution company discounts coming through in 1st of April. Is this Mercury's intent as well?

Okay. As a general principle, changes notified by the lines company will be passed through. Some of those lines charges are going slightly up. In some instances, they're going a lot down. And so -- but as a general principle, we pass those through. We haven't undertaken a mass market -- widespread mass market price change since April 2018 on energy, by the way, either.

Have you asked tip anything to the Tiwai cap?

We made our positions on Tiwai pretty clear around the time of our second stage of the wind farm being confirmed late last year. There's -- look, there's some opportunities, I think, for that, Grant, is probably how I'd phrase it, but simply a drag race on price doesn't cut it. I mean they need to work out something that's actually going to benefit New Zealand and its long-term outcomes, and holding a 12-month sort of notice period to the market is, I think, other -- my peers have said does not allow for an orderly transition. And so I think, unless you see something that suits New Zealand come from the other side, I've got a pretty dim view of providing further support for an asset which is actually going to conclude anyway. It's not whether they stay or go, it's just when they go. And we've said that quite clearly. And when they go, it will likely be within the time frame of any of the current renewable projects that were commissioned in the last decade and those to be commissioned.

And then just on that renewable build. Are we starting to face a bit of a risk of overbuild. You've got Turitea coming on, you've got Tilt's Genesis builds coming on, you've got Contact hellbent on doing Tauhara, at least first phase, and now Genesis is announcing solar. Is this the start of a 5-year oversupply path?

I don't know. I think the pricing of gas and the delivery of gas and the pricing of coal plus carbon is still impactful in terms of marginal decisions and also sales to C&I customers to a degree. And -- but those are key decisions for those that are pushing play. We've pushed play on Turitea. So I guess the right place for that question is all those that have yet to commit the capital and because they're the ones pushing for it. And as I said, I think it's a very, very big difference between putting the capital to work yourself and buying a PPA in terms of market valuations for the companies.

[Operator Instructions] Our next question is from Aaron Ibbotson from UBS.