Decarbonising New Zealand

27 June 2019

Contact hosted institutional investors and analysts for dinner in Wellington on Wednesday
26 June. Dennis Barnes, Contact’s Chief Executive, presented a brief update on the
progress of the Wholesale business in delivering on its strategy

Decarbonising New Zealand
“Relentless execution of Contact’s strategy to optimise both the Customer and Wholesale
businesses to deliver strong cash flows, has seen Contact increase ordinary dividends by
50% while reducing net debt by more than $500m over the last two financial years.

Our quality portfolio of low-cost, long-life renewable generation assets and strong balance
sheet have informed our distribution policy with the Board targeting a pay-out of 100% of
expected operating cash flow which results in an ordinary dividend of 39 cents per share.
This clear commitment not only rewards our shareholders with a strong and predictable
income stream for their support for our previous capital investment programmes, but also
drives a strong capital discipline.

New Zealand is at the start of a decades-long transformation from a reliance on fossil fuels,
which remarkably still includes the significant use of coal for process and space heat, to
renewable electricity. Contact is well placed to meet the expected growth in electricity
demand which will result in meaningful reductions to the nation’s carbon emissions. This
alignment with political and public sentiment underpins our Wholesale business strategy
which has the goal of being ‘an innovative, safe and efficient generator, working with
business customers, and partners to decarbonise New Zealand’. This strategic intent is
backed with large-scale consented geothermal development options, world-class geothermal
capability and our strong balance sheet.

Contact has secured 4.5PJ of gas for this winter and access to new Maui gas until the end of
2024 as the field is progressively invested in. Our perspective is that gas is getting more
expensive and less reliable at a time when it’s facing increased competition from
renewables. To maintain its share of energy production it should be doing the opposite. This
unreliability has also impacted our ability to call on energy under a long-standing insurance
product which has significantly devalued its future worth. On a more positive note the
Ahuroa Gas Storage facility expansion is progressing well with completion expected in early
2020 and we understand there is a long term contract with another user imminent.

The increased price and reducing reliability of gas is accelerating the case for the long-term
economic substitution of thermal plant with new baseload geothermal. After successfully
lowering the cost of geothermal since our last build, we are taking the next step in
developing the geothermal project we have consented at Tauhara by committing to drill a
series of four appraisal wells. In gas equivalent terms Tauhara is a 20PJ per annum

resource, and that’s just the currently consented portion. The drilling will lay the groundwork
for a final investment decision for a new power station in early 2020. The results of the
drilling will further define the extent of the reservoir and its characteristics and confirm our
initial assessment that along with steam turbine technology cost improvements Tauhara is
New Zealand’s lowest cost new generation build.

While it is clear that decarbonisation will drive electricity demand growth, the timing currently
remains unclear. With electricity demand still at 2008 levels, the first stage of any potential
Tauhara investment would be sized to substitute the energy we currently produce from our
Taranaki combined cycle plant (TCC). If the green-shoots of demand growth accelerate,
TCC has the capacity to be the lowest cost transitional source for new demand while the
business case for new renewable generation is developed. This ongoing business case for
TCC is dependent on securing an additional reliable gas supply at a significantly lower price
than current expectations.

We are actively partnering with our commercial and industrial customers, who are
undoubtedly the prime decarbonisation opportunity. Our target is to enable customers to
switch to electricity from their current energy sources, help them be more energy efficient,
reduce their costs and cut their carbon emissions. We will accelerate the delivery of our in-
house energy management offering with our purchase of a 49.9% shareholding in Simply
Energy (Simply), this includes a $2 million injection to fund investment in systems and
technology to deploy their bespoke products and services. We can increase our
shareholding to 100% in two years and have agreed an aligned set of KPIs that will provide
tangible proof of our progress; for example the Simply team have been challenged with
conversion of 40MW of currently emissions intensive energy use to renewable electricity by
2022.

Finally, you would have seen that I have made the Board aware of my intention to leave
Contact in 2020. The Board has commenced a process to find my successor. In making this
decision I know that the company is in a strong position, with excellent prospects and with a
talented and committed team in place. I am proud of many things Contact has delivered
under my leadership but I’ll leave that list until I’m actually going and in the meantime you
can rest assured that we will continue to deliver on the execution of our strategy” said Mr
Barnes.

Investor enquiries
Matthew Forbes
+64 21 072 8578

Media enquiries
Andrew Austin
+64 21 644 167