Contact Energy Limited · NZX:CEN
Contact Energy — Investor Day (May 2023)
74 slides from Contact Energy's investor day presentation, May 29, 2023
Slide 1: Capital Markets Day 2023
For personal use only Capital Markets Day / 2023 29 May 2023 1
Slide 2: Disclaimer and important information
Disclaimer and important information While all reasonable care has been taken in compiling this presentation, EBITDAF, free cash flow and operating free cash flow are financial measures that are neither Contact nor any of its directors, employees, shareholders nor any “non-GAAP (generally accepted a
Slide 3: Agenda
Agenda Topic Presenters For personal use only Welcome and introduction Mike Fuge Decarbonise our portfolio Chris Abbott External presentation: Climate imperative Phillip Benedetti (Boston Consulting Group) Morning tea Grow demand Dorian Devers Fireside chat: Customer perspective Andy Sibley, Nathan
Slide 4: Welcome and introduction
Welcome and For personal use only introduction Mike Fuge CEO 4
Slide 5: Executive team presenting today
Executive team presenting today For personal use only Chris Abbott Jacqui Nelson Mike Fuge Chief Corporate Chief Development Chief Executive Affairs Officer Officer Officer John Clarke Jan Bibby Matt Bolton Chief Generation Chief People Chief Retail Officer Officer Experience Officer Jack Ariel Tigh
Slide 6: We are on track to deliver on our promises
We are on track to deliver on our promises With channel yields indicating an increase in normalised EBITDAF For personal use only FY23 performance year to date Our performance, year to date, has reflected soft wholesale This has limited our ability to generate margin from our contracted thermal mark
Slide 7: FY23 highlights to date
FY23 Resource consent gained highlights to date to continue operations at For personal use only Te Huka III Wairakei geothermal field 94%1 completion of Final investment for the next 35 years decision Tauhara Selected to deliver Launched a leading parental leave policy 150MW solar farm at Kōwhai Par
Slide 8: We are deep in the execution of our strategy
We are deep in the execution of our strategy to lead New Zealand’s decarbonisation For personal use only Strategic Grow Grow renewable Decarbonise Create outstanding theme demand development our portfolio customer experiences Objective Attract new industrial demand with Build renewable generation an
Slide 9: What's driving us and how we think about delivery
The circular/koru form like a still bay, unfolding frond. Mauri ora Mau te ronga Mau Allow wellbeing For personal use only Arrive at a place to flourish of clarity Taniwha Mauri Ora The hand to the mouth – sustenance/ food for the What’s driving us and soul how we think about delivery Mau taniwha Ha
Slide 10: Growing renewables development: a key component of Contact26
Growing renewables development: a key component of Contact26 For personal use only After 10 years of no major capital project activity and running as “mean and lean”, Contact needed to rapidly ramp up required capabilities NZ’s Engineering and construction market was close to capacity and all indica
Slide 11: We took action: Major Projects, key partnerships
We took action: Major Projects, key partnerships and continued to build on this unique capability For personal use only Immediate action: Step change in capability Major Projects office Clear vision for Major Projects Established solar JV with Aligned organisation established and Director including
Slide 12: Significant investment programme on track
Significant investment programme on track Delivering world class geothermal developments For personal use only $1.18bn1 225MW 1.9TWh Tauhara Te Huka 3 GeoFuture3 On stream: Q4 2023 Q4 2024 2H 2026 Spend2: ~$700m 1 ~$100m 1 Expect to invest ~10% total costs pre-FID4 1 Includes sunk costs. Excludes ca
Slide 13: Even greater ambitions for delivery of Contact26
We now have even greater ambitions for the delivery of Contact26 And we have committed to reach net zero (Scope 1&2) by 2035 For personal use only Strategic pillar FY27 ambitions Scope 1 and 2 GHG emissions run-rate of ~300ktCO2e, putting us well Decarbonise on track to our 2035 net zero commitment.
Slide 14: Decarbonise our portfolio
Decarbonise For personal use only our portfolio Chris Abbott Chief Corporate Affairs Officer 14
Slide 15: Decarbonise our portfolio: orderly transition to renewables
Decarbonise our portfolio Facilitate an orderly transition to renewables For personal use only Launch: what we said we’d do A Decommission TCC. Lead NZ's’ thermal portfolio structure to ensure it can support security of electricity supply through the B energy transition at the lowest possible cost t
Slide 16: The case for orderly thermal substitution remains compelling
2 YEARS The case for orderly thermal substitution remains compelling ensuring security and affordability For personal use only Government sets Recent volatility Gas availability More focus on Variation within thermal ambitious targets of carbon price constrained supply security asset management plan
Slide 17: A clear path towards a long-term thermal asset solution
Contact has a clear path towards a long-term thermal asset solution For personal use only Horizon Otahuhu closed in 2015 Peakers to be retained, medium term, to assist orderly transition without threatening stable, affordable electricity supply Market testing of ThermalCo solution concluded Peakers
Slide 18: Decarbonise our portfolio: execution
Decarbonise our portfolio Facilitate an orderly transition to renewables For personal use only Execution: two years on, what does delivery look like? 12 month targets (FY24) ADVANCED Key initiatives AMBITIONS (FY27) Net zero roadmaps agreed Te Rapa closure. (Scope 1 and 2). Scope 1 and 2 GHG net emi
Slide 19: Our pathway to Net Zero by 2035
Our pathway to Net Zero for Scope 1 and 2 emissions by 2035 For personal use only Current emission breakdown Decarbonisation pathway (ktCO2e) (ktCO2e) 92 788 -207 Te Rapa SBTI FY26 target 648 ktCO2e -287 TCC -36 -51 299 -128 -148 -189 FY22 scope 1 New emissions (Tauhara Long term thermal Capturing o
Slide 20: Geothermal CO2 capture will evolve baseload renewable generation
Geothermal CO2 capture will evolve baseload renewable generation from low- to no-carbon After a successful trial at Te Huka, we’re now developing a pathway to apply carbon capture technology For personal use only across existing and planned plants Emissions across Contact’s current geothermal portfo
Slide 21: Clear leadership in responsible decarbonisation of NZ electricity
Showing clear leadership in responsible decarbonisation of NZ’s electricity supply By investing to displace baseload thermal generation at Te Rapa and TCC and innovating For personal use only to reduce NZ’s reliance on fast start peakers for system security FY12 FY18 FY22 FY27 Output from renewable
Slide 22: External presentation: Climate imperative
External presentation For personal use only Climate imperative Phillip Benedetti Managing Director and Partner Boston Consulting Group 22
Slide 23: Morning tea
For personal use only Morning tea 23
Slide 24: Grow demand
Grow For personal use only demand Dorian Devers CFO 24
Slide 25: Grow demand
Grow demand Attract new industrial demand with globally competitive renewables For personal use only Launch: what we said we’d do A Develop NZ’s hydrogen and green chemical industry. D Attract data centres with clean electricity. B Electrify industrial process heat. E Facilitate decarbonisation of N
Slide 26: Demand outlook for electricity improving
2 YEARS Demand outlook for electricity improving Decarbonisation ambitions and thermal economics will support growth. For personal use only Demand flexibility now a key part of system transition Conditions improved Economics for major Large scale data Decarbonisation Demand response is for NZAS to s
Slide 27: Grow demand: execution
Grow demand Attract new industrial demand with globally competitive renewables For personal use only Execution: two years on, what does delivery look like? 12 month targets (FY24) ADVANCED Key initiatives AMBITIONS (FY27) Conclude NZAS extension NZAS agreement extension. negotiations with improved F
Slide 28: Key partnerships to advance demand growth
Key partnerships to advance demand growth Contact has developed a view of relative netbacks across applications and will focus on those of highest value For personal use only Large scale data centres Entered into 10-year renewable energy agreement with Microsoft on new geothermal power station at Te
Slide 29: Partnered with NZ Steel on innovative supply arrangement
Contact has partnered with NZ Steel to develop an innovative supply arrangement Supporting NZ Steel’s decarbonisation initiative to install an Electric Arc Furnace For personal use only Key features Value to NZ Steel Contact’s fixed price sales position over “Winter” (March – September, Peak periods
Slide 30: Green chemical pathway at geothermal
Green chemical pathway at geothermal Opportunities from our success in geothermal carbon capture include the purification and sale of industrial grade CO2 (Horizon I) and subsequent eFuel applications (Horizon II) For personal use only Inputs and outputs Horizon I: Industrial grade CO2 Horizon II: e
Slide 31: Fireside chat: Customer perspective
Fireside chat For personal use only Customer perspective Andy Sibley Nathan Jones CEO General Counsel Simply Energy NZ Steel 31
Slide 32: Grow renewable development
Grow renewable For personal use only development Jacqui Nelson Chief Development Officer 32
Slide 33: Grow renewable development
Grow renewable development Build renewable generation and flexibility on the back of new demand For personal use only Launch: what we said we’d do A Build Tauhara to extend our geothermal capacity. B Grow our generation footprint through Wairākei geothermal replacement, and/or wind and solar. C Depl
Slide 34: NZ development environment has shifted
2 YEARS NZ development environment has shifted with geothermal becoming more competitive For personal use only And we have seen a raft of early-stage announcements Forward wholesale Technology Construction Battery economics Development electricity prices cost curves environment have been announcemen
Slide 35: Grow renewable development: execution
Grow renewable development Build renewable generation and flexibility on the back of new demand For personal use only Execution: two years on, what does delivery look like? 12 month targets (FY24) ADVANCED Key initiatives1 AMBITIONS (FY27) Achieve FID for GeoFuture Geothermal: GeoFuture and Kowhai P
Slide 36: A unique capability to develop renewable generation
A unique capability to develop renewable generation For personal use only Geothermal Wind Solar Operational experience on the Partnership with Roaring40s with key staff Partnered with Lightsource bp, recently world’s second longest electricity producing having experience delivering nine operational
Slide 37: Targeting renewable generation of 10.3TWh by end of FY27
Contact is targeting renewable generation 10.3TWh by end of FY27, from 7.2TWh in FY22 10.7 10.3Wh FY27 target For personal use only 0.9 Southland wind farm Additional Tauhara 0.7 0.3 North Island solar capacity 0.3 Kowhai Park 1.4 GeoFuture2 4.6 0.4 Te Huka Unit 3 7.2 Tauhara 1.4 -1.1 7.2 6.1 “Curre
Slide 38: Ramping up Southland wind project
Contact is ramping up Southland wind project Launching application for resource consent in 2023, targeting generation online in FY27 For personal use only Location Consenting 30km southeast of Gore within the Undertaking site investigations and design towards Southland District. preparation of resou
Slide 39: Contact and Lightsource bp partnership: Kōwhai Park
Contact and Lightsource bp partnership Selected as preferred developer of Kōwhai Park solar farm (stage 1) For personal use only Location Consenting Adjacent to Christchurch Airport (CIAL). Foundational project (solar farm and upgraded transmission capacity) supporting future green aviation initiati
Slide 40: GeoFuture proceeding to FID
GeoFuture proceeding to FID Contact to proceed with plans to replace Wairākei A&B legacy geothermal power stations with Te Mihi Stage 2 (GeoFuture) For personal use only Indicative development timeline GeoFuture investment parameters2 A range of plant capacity options 160 to Dec 22 being assessed (n
Slide 41: Breakout sessions
Breakout sessions For personal use only Wind Paul Botha James Flannery Director GM Strategy Roaring40s Matt Cleland Solar Adam Pegg Head of Wind Managing Director and Solar Australia and NZ Lightsource bp 41
Slide 42: Lunch break
For personal use only Lunch break 42
Slide 43: Create outstanding customer experiences
Create outstanding For personal use only customer experiences Matt Bolton Chief Retail Officer 43
Slide 44: Create outstanding customer experiences
Create outstanding customer experiences Create NZ's leading energy sustainability brand that will support renewable development ambitions For personal use only Launch: what we said we’d do A Continue to improve our customer experience. B Add decarbonisation and adjacent products. C Decrease our cost
Slide 45: A competitive market, changing customer expectations
2 YEARS A competitive market, customer expectations and the environment continue to change For personal use only Highly competitive retail energy and Growing importance Energy usage and Challenges of Sustainability telco market of the Home patterns changing rising costs (and decarbonisation) Wide ra
Slide 46: Recent delivery confirms FY27 targets within reach
Our recent delivery confirms FY27 targets are well within reach For personal use only Growing total connections Growing our products Growing Contact brand trust1 +16% Good Nights Wireless Investigating next proposition broadband adjacency 585k +3 574k 523k 505k 5th= 3rd= 2nd= Contact Contact Mobile
Slide 47: Customer experiences: execution
Create outstanding customer experiences Create NZ's leading energy sustainability brand that will support renewable development ambitions For personal use only Execution: two years on, what does delivery look like? 12 month targets (FY24) ADVANCED Key initiatives AMBITIONS (FY27) Electricity net pri
Slide 48: Our digital and data capability
Our digital and data capability Transforming our cost to serve and pricing strategy Digital services: Digital share of interactions (%) Customer per contact centre FTE Lowest cost platform: For personal use only Transforming our +32% Cost to serve / connection (1H FY23)1 +31% cost to serve 78% $236
Slide 49: Scaling through adjacencies
Scaling through adjacencies Incremental margin and improved customer experiences drive increased CLV For personal use only Broadband: Broadband connections Multi product attachment Multi-product churn benefit Growing continues to drive lower churn Customer month churn rate by bundle Dec 21-Dec 22 1
Slide 50: Further evolution of how customers engage with energy
We see a further evolution of how customers will engage with energy by the end of the decade For personal use only Bundled utility provider of choice Leverage brand Cloud based eco-system Lowest CTS remains to efficiently scale that combines connectivity with a competitive product lines. energy solu
Slide 51: Panel discussion: Enabling our strategy
Panel discussion For personal use only Enabling our strategy Chris Abbott Tighe Wall Chief Corporate Affairs Officer Chief Digital Officer John Clark Jan Bibby Chief Generation Chief People Officer Experience Officer Facilitator: Louise Wright, Head of Communications and Reputation 51
Slide 52: Major Projects execution
Major Projects For personal use only execution Jack Ariel Major Projects Director 52
Slide 53: Major Projects: Tauhara execution and building capability
Major Projects: Tauhara execution and building capability for the future For personal use only 53
Slide 54: Tauhara: Project started well…
Tauhara: Project started well… Commercial operation Commissioning For personal use only 100% 90% 80% 70% Plan at FID 60% 50% Construction 40% 30% 20% 10% Achieved by Aug 21 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2021 2022 2023 2024 54
Slide 55: But 2021-2022 happened
But 2021-2022 happened For personal use only Delays in getting goods Uncharacteristic Global into New Zealand. rain patterns supply chain Record-high collapsed transportation costs. Highly impacting safety, productivity, cranes operations, etc. Extreme externalities Substantial impact Commodity on c
Slide 56: …and we started to feel the consequences
…and we started to feel the consequences Commercial operation Commissioning For personal use only 100% 90% 80% Based on the achieved performance by Aug 22 70% the re-forecast showed Plan at FID a further delay 60% 50% Construction Based on what we saw by Dec 21 40% we needed to adjust the plan Chall
Slide 57: We needed to change trajectory
We needed to change trajectory And have now recovered a quarter Commercial operation Commissioning For personal use only 100% 90% 80% 70% Actual 60% Apr 23 50% Construction 40% Recovery plan Aug 22 30% 20% 10% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2021 2022 2023 2024 57
Slide 58: Recovery plan – the challenge
Recovery plan – the challenge: To recover and de-risk the programme not compromising safety & quality, nothing off-limits (time – costs – output) For personal use only Re-focused project organisation Set-up the Project Acceleration Office Collaboration with Partners (ENABLER) (GAME CHANGER) (TO IMPR
Slide 59: How we did it
How we did it For personal use only Strategy Execution (INTENTION) Project leadership (ATTENTION) Robust business case Collaboration Meticulous plan Compelling vision One team spirit Thorough preparation Clear objectives & goals Innovation Impeccable execution Clear scope Competence Pace of delivery
Slide 60: Geothermal Projects: Tauhara and Beyond
Geothermal Projects: Tauhara and Beyond Front-end FEL-3 Te Huka For personal use only design FEL-3 GeoFuture Te Huka Engineering GeoFuture Engineering Engineering/ procurement Te Huka Procurement GeoFuture Procurement Tauhara Construction Te Huka GeoFuture Commissioning Tauhara Te Huka GeoFuture and
Slide 61: Future capability: we tackled Tauhara
Future capability: we tackled Tauhara and developed future capability Our thinking process… For personal use only What capabilities do we need to build to effectively execute large capital projects? What we learnt from our capital What is required for effective delivery of the future pipeline at Con
Slide 62: Developed capability to execute large capital projects
And we’ve developed the capability to execute large capital projects For personal use only Tauhara Te Huka 3 GeoFuture Wind Solar Battery Organisation Design Capability Construction Clear vision and leadership Design Efficiency through scope Front-end work and project planning Contracting strategies
Slide 63: Disciplined investment; growing returns
Disciplined For personal use only investment; growing returns Dorian Devers CFO 63
Slide 64: Leadership in shareholder communications
Leadership in shareholder communications Principles For personal use only Transparency Not hiding behind complexity Accountability of the business Implemented Reporting on Simplified view Short-term and regular operational Monthly tracking ROIC metrics of the short-term long-term EBITDAF ESG reporti
Slide 65: Dynamic capital allocation to meet the market
2 YEARS Dynamic capital allocation to meet the market For personal use only Environmental changes Investment decisions taken Conditions improved for NZAS to stay. A Accelerate the development of the geothermal assets: • Accelerate Te Huka 3 investment backed by Microsoft agreement. Forward wholesale
Slide 66: Driving value from renewable development
Driving value from renewable development We are in a unique position across the technology types, with our renewable geothermal development not requiring firming. Relative value of new renewable flexibility will increase. For personal use only Indicative go-forward renewables LRMC $/MWh1 Solar (gene
Slide 67: Capital allocation framework: delivering our strategy
Capital allocation framework: delivering our strategy Changing value rankings of renewable investments Decision making framework to deliver value accretive growth For personal use only Today (FY23) Tomorrow (FY27+) Near term returns higher on elevated wholesale pricing and lower correlation with exi
Slide 68: Near-term growth: Geothermal
Near-term growth: Geothermal Investments expected to deliver material operating free cash flow uplift Pro-forma geothermal segment: EBITDAF and Operating free cash flow Cumulative geothermal capital investment ($m) For personal use only $m cps SIB capex +267 750 +94.7% 80 Western Energy EBITDAF ($m)
Slide 69: Future growth: Intermittent renewables
Future growth: Intermittent renewables Wind and solar additions will be supported by firming and sales channel choices Energy Sales For personal use only Historical EBITDAF by proforma segment ($m) Manage annual volatile hydro inflows Manage demand peak shapes 553 537 62% 505 446 283 255 252 193 Win
Slide 70: Five year accelerated SIB capex programme
Five year accelerated SIB capex programme We have accelerated key SIB capex initiatives to enhance resilience and capture market value What we will deliver Accelerated SIB capex programme ($m) SIB capex performance² ($m) For personal use only 150 Optimising hydro assets to 9 Trading systems enhancem
Slide 71: Contact indicative FY27 EBITDAF aspiration
Contact indicative FY27 EBITDAF aspiration Supported by NZAS extension and current electricity futures market prices For personal use only EBITDAF ($m) Achieved FY27 +278 +52% result will be 6 dependent on 100 815 hydrology with 15 20 94 +/- $50m annual 267 266 variance to mean 537 to continue Rest
Slide 72: Q&A
Q&A For personal use only Mike Fuge Dorian Devers CEO CFO 72
Slide 73: Closing remarks
Closing remarks For personal use only Mike Fuge CEO 73
Slide 74: Thank you
For personal use only Thank you