Interim Results Analyst Briefing

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 Start of Transcript Operator: Thank you all for standing by and welcome to the Mercury Interim Results Analyst Briefing for 2022. At this time all participants are in a listen only mode. After the speakers’ presentation there will be a question and answer session. To ask a question at that time you will need to press star one on your telephone.

I would now like to hand the conference over to Chief Executive Mr Vince Hawksworth.

Thank you, please go ahead.

Vince Hawksworth: Kia ora tātou and welcome to Mercury's Half Year 2022 Results. I am Vince Hawksworth, and I am joined by our Chief Financial Officer William Meek. If we turn to slide 3 in the pack, half year '22 reflects significant change for Mercury and creates a platform for future growth.

We have seen major events occur. Completion of the Tilt New Zealand acquisition where we have acquired their five operating wind farms. Which when you combined that with Turitea North, make Mercury New Zealand's largest wind generator. Turitea North now in full operating mode with all 33 turbines generating, and the Southern section with civil works well advanced now. Looking at a completion in mid-calendar '23.

Of course the half year also saw us move through the acquisition process of Trustpower.

We are getting close to the completion of that deal, the High Court decision being positive.

Now we're in the ‘giving effect to’ phase, which should see us complete the second quarter of cal-'22. All of these things being put together provide that really important platform for the decarbonisation of New Zealand.

At an EBITDAF level, the $242 million result was obviously down. It reflects a number of moving parts, which we will go into in some more detail shortly. But lower hydro generation, the outage at Kawerau, and the impacts of the retirement of the Norske Skog plant all had impacts. Of course with some offsets by the added wind generation.

Importantly, in a period of extremely low hydro in-flows we were able to maintain our lake storage to be able to deal for lower - higher prices, and lower in-flows in the second half.

That’s a notable change from last year.

We talk about Thrive as our evolving culture and the way we want to work. But importantly it also delivers financially. We are on-target for our $30 million, made up of both revenue and cost elements. The important thing will be sustaining that changing way of work through future years.

Page 1 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 We are really pleased to be able to confirm guidance at $570 million EBITDAF for the full year. That includes the hydrology conditions that we have set out later in the pack, and the Tilt and Trustpower acquisition accounting. It does not include the - any settlement for the Kawerau insurance claim.

We are confirming $0.08 per share interim dividend, and offering guidance of $0.20 per share for the year. Importantly, we have also turned our minds to capital management and are announcing today a dividend reinvestment plan with the intention to underwrite for the interim dividend. We will go into more detail on that shortly.

So a really busy first half to the year, but really laying important foundations for the future. I am going to hand to William now to take us through some of the numbers, and I will be back to talk some of the strategic issues shortly. William?

William Meek: Thank you Vince, and welcome to those on the call. So we are now on slide 4. I'll just take us through some of the financial highlights of the year. We did, as Vince has said, the period reflected significant changes for Mercury. Some of these changes include some pretty complex accounting for some of these transactions.

So again starting with the energy margin, you see it down from $361 million to $321 million. Again largely explained by those factors, lower hydro generation, so 25th percentile in-flows into the Waikato catchment. Sort of 20 days of the Kawerau outage in July, and the Norske Skog transaction, which saw us buy out the remaining term of the foundation hedge with Norske and acquire their portfolio of hedges on-sold to other customers.

So that energy margin decrease flowed through to EBITDAF and also into our free cash flow results, which were again down on the prior period. OpEx stepped up from $91 million to $106 million. Again there's a pretty clear bridge in the next slide. but really largely driven by the addition of our new wind farms. So on the back of the Tilt transaction and the commencement of generation at Turitea. Some outage costs, predominantly related to the Kawerau outage, and then some increases in ICT and SaaS-related impacts there.

NPAT, a very strong increase, up almost $300 million from last year's result. Again fully explained by the gain on the sale of the Tilt shares back in August. So once you back that through, our effective tax rate rises back to 28%.

Probably commenting on sustained business CapEx, broadly in line with the prior period.

Obviously growth investment almost hitting $700 million, again reflecting the purchase of the ex-Tilt Wind Farms and then just under $50 million related to construction costs at Page 2 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 Turitea. Vince has touched on our interim declared dividend of $0.08, and $109 million, which will be subject to a - or intended to be underwritten through that DRP. Turning to the EBITDAF bridge on slide 5. Again a fairly complex bridge, which I'll quickly run through. It's worth commenting, spot prices for the period were lower than the prior comparable period. They started off in July and August quite high. Then we saw some very strong in-flows into the South Island through that June/September period and a pretty long lockdown which saw prices fall away through September through December.

So you can see the spot price from generation. So that’s, when we talk about spot generation, we're talking about our hydros and our geothermal. We have broken out the wind portfolio into Turitea, which is essentially the spot wind revenue generation, then the ex-Tilt assets which are all subject to either PPAs or CFDs in relation to Waipipi. So obviously Turitea and the ex-Tilt Wind Farms adding $36 million to that bridge.

Our purchase costs, again benefiting from the lower price. Quite strong yield uplift, particularly in C&I, so up 12%. So those were shared with the market with our Ops Stats release in January, and a 2.5% yield increase across our mass market businesses. So again that C&I yield assisted by the exit and termination of that Norske contract.

You can see the Norske contract, so the termination of the 15-year contract, which had about two-and-a-bit years to run, was done at a, struck at a price of $65 million. So that is immediately recognised to P&L. So you can see that bridge then at negative-$65 million.

Derivative settlements were also a decrease, given we've got a net short book and spot prices were lower by $24 million.

A strong carbon trading revenue gain. So up $15 million, given the series of carbon auctions and a rising carbon price, which is now trading at about $82. Then the impact of accounting, so the acquisition amortisations, which are detailed in the appendices, between the Norske and Tilt transactions totalled $20 million. So again we're seeing some differences between the accounting and EBITDA and actually underlying cash flow treatment.

Other income was down $8 million, and that’s largely attribution to the reduction in Tilt share of profits. Because we are no longer - well, (1) we don’t own that, and we're not recognising it as an associate anymore. We have touched on OpEx, giving us that bridge from our half year '21 at $290 million through to this year's result at $242 million.

Now turning to the market. So again this is a familiar chart, we produce this each reporting period. So it's worth just summarising some of this market situation that was occurring. So Page 3 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 this graph's the North Island catchment. As I said, I think it received about a 26th percentile in-flow event for the half year. In contrast to the South Island, which was very wet. So the South Island had monthly in-flows between June and September, over 90th percentile in each month. I will come back to that.

Cyclone Dovi, which came through a couple of weeks ago, saw us lift the lake by 100 gigawatt hours. We are currently sitting at about 125% of average for this time of year.

Again putting us in a good position for the typically drier months as we head through autumn and into early-winter.

I will call out the difference there in probably the bottom table with the spot prices and futures. So the futures prices are what the market expected spot to trade at three months ahead. You can certainly see the impact. The market was predicting much higher futures prices through July, August and September. Well, pretty much almost the whole year.

Again it's that inability to forecast extreme wet weather into South Island catchments. But worthy of note is, prices in May and June were in the high $200s. So there were certainly periods there where prices were elevated.

Then we came out of Christmas, and again the futures price three months earlier was indicating a price of $105. We have seen prices rally quite strongly in spot to $163, with futures predictions again quite close to month-to-date pricing in February, $147 versus $157.

Turning the page. Again we have thought on this slide around the high wholesale price environment. Obviously that feeding through into futures and C&I-type pricing, a series of charts here. We’ll start with the coal price. Again not surprising, coal prices at record highs. Sort of close, almost up to $300 a tonne. Obviously that affects the price of running the Rankine units at Huntly on coal. Carbon prices have been steadily rising strongly since April '21. Currently trading at $82. Again influencing the generation cost of both coal and gas.

Gas production, again we're still clearly, the market is much lower than where it was two years ago or three years ago. TCC hasn’t run since August, so that’s really again a reflection of the current gas state. Right here, right now, two Rankines are online, E3P, P40, which is Huntly 6 online, the Stratford peakers are running, Junction Road and McKee.

Page 4 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 So you are actually seeing quite a lot of thermal commitment, which takes us back to the first chart, thermal generation and price. You can certainly see a very strong correlation in spot prices to the level of thermal commitment.

If we look back in July '21 we saw spot prices then of $191. Certainly as we extrapolate forward to winter this year we expect a similar level of thermal commitment. The futures prices for July '22 are indicating pricing of $190. So a lot of that wholesale price can be explained by underlying thermal costs. But certainly with elevated prices the portfolio risk for hydro generators are also amplified.

So that potentially leads to that inherently conservative operation to avoid the short squeeze under higher prices, and the potential for what we saw through the first half. If in-flows are strong then essentially spot prices will fall away as thermal commitments drop. You'll get a divergence there between futures expectations and spot prices.

Now turning to slide 8 and the retail market. It certainly remains competitive. We certainly have seen with the high wholesale price that that’s certainly creating some challenges for some of the independents in the market. But certainly we're seeing transactions over a longer period to actually supply hedges to independent retailers.

From Mercury's perspective, our sales position has been relatively consistent on a half year basis. So sitting around the 3000 gigawatt hours sales market. But we can certainly see the mix shifting there from mass market to C&I. So that’s a pretty long-running trend, again coinciding with this phenomenon of elevated prices, which is clearly indicated in the channel yield chart to the right.

Certainly we saw our ICP volume stabilise in this half with essentially losses over the six months of only 1000 customers. So that’s certainly attenuated strongly from the trends we had seen in prior periods. Certainly looking forward to that Trustpower transaction concluding and becoming New Zealand's number one energy retailer.

I will hand back to Vince.

Vince Hawksworth: Thanks William. So turning to those sort of regulatory and policy areas. The context for all of this of course is 2050 and Net Carbon Zero, and really requires us all to focus on joined-up policy and regulatory responses. In the period we are discussing, the advice from the Electricity Authority that effectively wholesale market volatility wasn’t part of a gentailer initiative, but does reflect the underlying issues that William has touched on. That is, more generation is required as thermal fuel costs rise and New Zealand moves to decarbonise.

Page 5 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 So the question has to be in that context is, what's the industry doing about that? It's already responded to those price signals with both Turitea, ourselves, Harapaki by Meridian, and Tauhara by Contact. That will bring on new renewable generation and will start the further exit of thermal fuels.

Of course it's really important though that in order to continue that journey more investment occurs. The most important thing to occur really there is to have clarity around future policy. When we look at the Emissions Reductions Plan that came out of the Climate Commission's work, it is a big lift that needs to occur. Those economy-wide changes that are in that plan, including transport and process heat, also require the electricity sector to do some heavy lifting.

The regulatory focus on that transition has to focus on 100% renewable energy, as opposed to just 100% renewable electricity. That’s where we have to be travelling towards. The New Zealand Battery Project is an interesting piece of development in that space. We note that the recent OECD report cautions that it could undermine least cost abatement.

In the really near-term though the transition from the RMA to the NBEA, the Natural and Built Environments Act, is essential if we are going to support rapid deployment of new generation build. One of the things that we know is that delays in the consenting process change the economics of projects really quickly.

One only has to look at the current inflationary pressures around steel, aluminium, copper and other supply chain issues associated with builds to know and understand that. And that then leads me to what Mercury is doing, which is this next slide. As I said at the start, the Tilt transaction puts Mercury in a position to really respond to the decarbonisation challenges.

We have since that transaction completed, continued to work hard to bring some of the pipeline to fruition. With Puketoi, which we already owned, we have extended the consent period to 2031 and we're active in understanding the constructability and consent enhancements required to progress the project.

We're taking the learnings of the Turitea project, which was also a big project, and applying those to our thinking on Puketoi. Kaiwaikawe, the recent resource consent hearing is completed and there's a decision pending.

Page 6 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 As everybody knows, we have a PPA with Genesis and we're advancing all of the I guess investigation work around - and the procurement chain to be able to move that project forward.

We have 160 megawatts at Mahinerangi Stage 2. Kaiwera Downs Stage 1, which is 40 megawatts, we're into constructability work there as well. We have a further 200 megawatts consented at that project.

We've also started exploration and initial feasibility work for a fifth unit at Ngatamariki.

That would add a further 35 megawatts to that site. So when you look at that, we are really active and what we need to be able to respond to the challenge, is to get those projects to a point of final investment decision.

The challenge in final investment will be procurement and construction cost pressure. I don’t need to explain all of those to you. And the appropriate policy settings. We are very active in pushing for a coordinated response with government.

Turning now to the strategic framework which we shared last year. Many of you are familiar with our 2030 longer term horizons, where we consider the pillars of customer, commercial, people, kaitiakitanga, and partnership.

Clearly, some of the things that we've done over the last 18 months, both with Tilt, Trustpower, Turitea, and Thrive, all lend themselves to a platform for that destination. Our three year objectives though try to give focus to us and our people. Thriving today and shaping tomorrow.

We believe we're well positioned to achieve the $700 million EBITDAF as set out in our three year objectives. And the work we're doing on people, transformation, and systems, and enhancing our licence to operate, and working with stakeholders sets us up well.

The goal of shaping tomorrow and playing the leading role in New Zealand's transition to a low carbon economy is incredibly important. And the execution of the options for growth that I just described will help support that destination.

Of course, as we've all learnt through the last two years of COVID, being adaptable and resilient is critical to success. And I'm really pleased with the way that our culture is developing and our engagement with our team on our challenges is improving.

The next slide gives a bit of a detail on the action of that. So you know, importantly, our safety performance continues to improve. We all know that we're only one incident away from that turning back. So culture is incredibly important in this space.

Page 7 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 We have been talking with stakeholders and our stakeholder audit tells us that we are making good progress and we need to keep up the work on communication. We've talked a lot this morning already about value creation. And whilst the shareholder returns have seen some headwinds, maintaining our dividends and growing our base through Tilt has set us up well for the future.

Our culture index has improved and our culture program is paying dividends. So as we look into the future, we've described the challenge of meeting New Zealand's transition to a low carbon economy and we've described how we're progressing that. Including, I might add, the trial reinjection of CO2 at Ngatamariki which will bring down our own generation of carbon dioxide.

So I guess when I look forward for the options for new growth, the platforms in place, we now need to push to further execution. Part of that execution is completing Turitea. We've already noted the situation with Turitea North. The picture there shows what it looks like on a beautiful day in the Tararuas. And I think, you know, we can really be proud of what's been achieved by the collective team.

Of course we still have challenges. The challenges are to complete Turitea South. It's - I think the picture there at the bottom of the page really gives focus to the civil challenges.

So there is a lot of dirt to move. We are well advanced though, as that picture shows.

We have some commercial issues to resolve and those conversations are ongoing. But we remain convinced that we end up with a project in mid calendar year '23 that really everybody involved can be proud of.

Trustpower retail acquisition is clearly the next step in the journey. We're nearly there, as they say, and we expect to complete in quarter four of the financial year. The time that we've been waiting has not been wasted. There has been a massive amount of work done by both the people who will be joining us from Trustpower from both Tauranga and Oamaru.

But also, work on the Trustpower side so that we can make that change seamlessly. And we're pretty excited about the fact that as we make that change, it releases a whole bunch of capability to deliver for customers on an integrated system and technology stack, and we get the benefits of joint capability.

The fact that we've been able to deliver all of this in a virtual environment, I think there's been perhaps only one or two face to face meetings between the two teams, also puts us Page 8 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 in a great position for new ways of working. And we note the contribution and likely accounting effects.

We talk a lot about continuous improvement through our Thrive and Thriving programs at Mercury. The fact that we have been able to make real progress despite all of our Auckland staff being in lockdown for something like four months in this half year says a lot for our resilience and purposeful attitude towards this development.

In fact, it's all about the Mercury attitudes of curious and original, share and connect, and commit and own. We've built more commercial capability. We are supporting people to make better decisions. We're leveraging our data and we have seen real improvements in the way that we think about deployment of our assets on the Waikato River.

We've also seen real improvements in the way that we communicate with our customers.

With significant automation and data insights driving better customer communications.

We've also discovered that if you can get everybody to lift through improved ways of working, you build sustainable change. And we are intending to invest in ways of working over the second six months and through into the next year.

So a couple of other issues that we should just talk to before I hand back to William. One of the things that's really important when you're a geothermal operator is your drilling campaigns and the renewal of your geothermal resource.

One of the reflections that we've had over the last year or two is that a just in time approach, rather than having certainty and clarity about your program, is not the way to go.

We've done considerable thinking about how we approach building capability and also dealing with stressed procurement chains and inflationary pressures. And that's resulted in us determining to have an eight well program across FY23 and '24, with the associated stay-in-business CapEx. It does allow us though to plan purposefully and not be buffeted by the change of a more just in time approach.

We also note that we expect partial payment of the insurance claim on Kawerau. That is excluded from FY22 guidance just due to the exact timing and the exact amount. However, we remain positive that that will occur.

And we note here as well that part of the consequence of all of that is we will have an outage in calendar year '23 to put the new parts in that will have arrived as part of the refurbishment of Kawerau after the event last year.

Page 9 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 So lots going on and in order to fund that, of course we need a capital structure that is flexible and I'm going to hand to William who is going to talk about our initiatives in that space.

William Meek: Thanks, Vince. We're on slide 17 now. As it says there, we're expecting our debt/EBITDAF ratios to peak this financial year following the acquisition of the Trustpower Retail business for $440 million.

So we closed the period at - with net debt of $1.61 billion. So certainly high. But as S&P confirmed back in November, certainly within our current rating targets of two to three times debt/EBITDAF. We've got the capacity to fund those transactions.

But looking forward in terms of those generation development options and Mercury being very keen to support the decarbonisation of New Zealand, wanting to ensure we've got a balance sheet that essentially enables the funding of further generation development.

So as flagged by Vince, we have announced a DRP effective for this interim dividend. We plan for the DRP to be underwritten also and we are considering a capital bond issue and that obviously would detract a 50% equity credit. So the majority of the Trustpower transaction cost would essentially be paid for by equity type instruments versus debt, which is certainly helpful to strengthen those credit metrics.

So just a little bit more on the DRP. So an NZ$0.08 fully imputed dividend declared, up 18% from the prior period. So that’s about NZ$109 million of cash. We have indicated a discount of 2.5% for the DRP, it will be underwritten.

So essentially shares not taken up by existing shareholders will be placed with an underwriter on identical terms and those shares will be sourced from Treasury stock currently held slightly north of 37 million shares - of Treasury shares held. So key dates in that table on slide 18 with dividend paid by 1 April.

Finally, guidance for the full year. So we guided NZ$570 million in January with the release of our operating stats. Guidance remains unchanged at NZ$570 million, although the construction is slightly different. Hydro forecasts below average at 3750 gigawatt hours.

Clearly hydro is quite volatile and we’ve been in a dry series up till very, very recently.

The ordinary dividend guidance at NZ$0.20 so again, unchanged and we hold our stay-inbusiness capital guidance at NZ$70 million. So the bridge there from guidance from our initial guidance at the start of the year at NZ$590 million down to NZ$570 million.

Page 10 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 Probably the key callout there is the impacts of the acquisition accounting relating to Tilt, which we expect to be NZ$15 million positive for the year. Again, non-cash.

Then a call out there on the Trustpower acquisition accounting. So assuming that transaction concludes with a few months to run, we’re looking at an adjustment there, negative of NZ$25 million. The appendix does flag a pretty hefty discount or amortisation in FY23 of over NZ$100 million and again, that will be dependent on the forward curve on the day the deal is ultimately struck.

So essentially what’s happening is, the embedded CFD with Trustpower or Manawa, is essentially fair valued on our books. It’s clearly in the money and that amortises through time. Then our amortisation largely taking place over the next three years, so quite a significant divergence there between accounting and cashflows of that transaction. With that, I’ll - we’ll open the phones for Q&A. Thank you.

Operator: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Our first question comes from Grant Swanepoel at Jarden. Please, go ahead.

Grant Swanepoel: (Jarden, Analyst) Good morning, Mercury Team. Can you hear me?

William Meek: Loud and clear, Grant.

Grant Swanepoel: (Jarden, Analyst) Fantastic. First question just on Norske. Is that about 100 gigawatt hour contract you guys exited?

William Meek: It was actually an 80 megawatt CFD so much larger than that.

Grant Swanepoel: (Jarden, Analyst) Okay, so can you give some sort of idea of what a normalised 1H would have looked like if it hadn’t had that exit included in it? So there was 242 adjusted for C&I, uplift and knock off the initial hit from Norske?

William Meek: Yes, it’s a good question. I’m just trying to find the appendix because there’s some quantity data in there. So on slide 21, you can see some information. You can see there’s essentially the net effect of terminating the CFD and picking up their sales portfolio.

You’ve got a 375 gigawatt hour reduction in ’22, 500 gigawatt hour next year and then a stub period of 160 in ’24. So the end - all of those contracts have essentially got a similar strike price of circa 80 megawatts, so you would essentially see a base load 80 megawatt contract. What’s that? Eight - what’s that, 640 gigs would have stayed at the spot price. I haven’t done the calc and you effectively halve that.

Page 11 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 Grant Swanepoel: (Jarden, Analyst) Okay, so…

William Meek: So essentially for a net proceed of NZ$32 million, we’ve essentially gone longer by those quantities in ’22, ’23 and ‘24.

Grant Swanepoel: (Jarden, Analyst) Thank you. A second and final question, just on Trustpower acquisition. So your assumption, is that a couple of months? Only two months that you’re using there in terms of NZ$10 million of EBITDA generated? Have you shifted any of your plans around separate IT systems for two years before you do an IT overhaul and any ideas on what that IT overhaul would cost Mercury?

William Meek: Yes, so we’ve worked through - we - when we undertook the transaction, we gave indications to the market around core EBITDA, which is around NZ$4 million to NZ$5 million a month. The amortisation’s laid out here so it’s pretty hefty. You can see in ’23, related to that CFD, which has got at the moment, based on the forward curve of NZ$260 million asset value, we guided integration costs of NZ$50 million.

So embedded in that would be the cost of implementing the IT changes amongst other things and then synergy realisation of NZ$30 million and essentially a three year program to deliver synergies and that integration.

Grant Swanepoel: (Jarden, Analyst) So well does that NZ$50 million integration cost, does that cover moving to a single IT system over time?

William Meek: Yes, that was the intent. So that work’s still in progress. Obviously with the transaction’s taking probably a little bit longer than we thought and we do need to have some pretty serious engagement with the other side before those decisions are made.

But certainly been doing a lot of background work around some of the options and what that might look like in terms of ultimately the IT stack. But again, there’s certainly a lot of duplication across the two businesses, particularly in terms of IT and rationalising that onto a common platform is a huge part of that synergy.

Grant Swanepoel: (Jarden, Analyst) Thanks very much, that’s it from me.

Operator: Our next question comes from Andrew Harvey-Green at Forsyth Barr. Please, go ahead.

Andrew Harvey-Green: (Forsyth Barr, Analyst) Morning, William and Vince. Couple of questions from me. First of all, just in terms of the guidance around maintenance CapEx for FY23, FY24. So I’m right in thinking that NZ$65 million is in addition to current maintenance CapEx? So when we add in the Trustpower transaction as well, are we Page 12 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 looking at NZ$140 million, NZ$150 million all up for stay-in-business CapEx for those two years?

William Meek: Yes. Andrew Harvey-Green: (Forsyth Barr, Analyst) Great. Next couple of questions, just in terms of your outlook on development pipeline. The Ngatamariki unit that you’re looking at, do you have additional steam resource consented or are you able to use existing steam consents and you’ve got capacity, you just need the plant on top to take advantage of those existing consents?

William Meek: No, you’ll require additional steam take, which will require a consent. Yes. Andrew Harvey-Green: (Forsyth Barr, Analyst) Yes, okay and secondly, in terms of the Mahinerangi, Kaiwera Downs, the megawatts that you’re talking about there. Just going back to the Trustpower days when they were on the books, are those megawatts, are those - does that assume new turbines or is that based on the old plans and there’s potential for uplifts if you think about technology changes over the last decade?

Vince Hawksworth: That’s based on what you would call - yes, historical scale technologies and bear in mind, Mahinerangi consent was given effect to through the smaller project. It would require - if you want to use different technology, you would have to look for a consent variation. The Kaiwera Downs consent has an envelope that we believe can deliver those projects. There is potential for uplift if we wanted to go through that process.

Andrew Harvey-Green: (Forsyth Barr, Analyst) Yes, okay and lastly, I know you haven’t given formal numbers at all but are you able to just give us a rough ballpark estimate of what we might be looking at around the insurance on the Kawerau geothermal?

William Meek: Yes, so this is a - we - in the deck, we’re signalling an interim settlement so that’s not a final settlement. Insurers have accepted there’s an insurance claim and so we’re expecting a number in the order of mid-20s after retentions. That will be recognised as other income so we will flow through P&L, even though most of that will actually be related to property.

Andrew Harvey-Green: (Forsyth Barr, Analyst) Okay.

William Meek: Because obviously you end up having to buy the replacement gear.

Andrew Harvey-Green: (Forsyth Barr, Analyst) Yes, okay. Okay, that’s great. That’s all from me, thank you.

Operator: Our next question comes from Adrian Atkins at Morningstar. Please go ahead.

Page 13 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 Adrian Atkins: (Morningstar, Analyst) Hi, Vince. I noticed the cost of the Turitea South development has increased but by a pretty small amount. Just wondering if that’s actually indicative of how much development costs have risen if you were starting a new project?

Then just further on that, just wondering, it’s not just high commodity prices and labour shortages but bond yields have also gone up quite significantly in the past year, so is that materially increasing the electricity price needed to justify new wind farms?

Vince Hawksworth: So first part first, Adrian. I think yes, so I don’t think you should make any linkage between the Turitea change and the structural inflationary pressures that we see on a global basis. It’s associated with some quite small issues that have had to be dealt with so that’s not a linkage.

To the second part of your question, we would have to say that everything we’re seeing around commodity prices is flowing through into pricing that we’re seeing coming from equipment manufacturers.

It reflects the lift in steel prices, aluminium, copper, et cetera and also the other supply chain issues associated with actually transporting is flowing through. So that does put reasonably significant headwinds on investment and I guess that does lift - that does lift the sort of pricing that one needs to see to invest.

That said, when one looks at the wholesale prices that we’re seeing and one looks at the outlook when we’ve seen some commitment from New Zealand steel, we’ve seen, I think pretty bipartisan commitment to a decarbonised future. We’re seeing electric vehicles being taken up and government support for that. You start to add all of those things together, we still believe that there will be projects that can get away.

We’ll test that as we get to final investment decision but in the meantime, you can’t test that whilst - until your project’s ready to go. So we are spending money on being ready to go and yes, so that’s the environment we’re in but I think businesses like Mercury have to stand up and be counted.

Andrew Harvey-Green: (Forsyth Barr, Analyst) Okay, thanks.

Operator: As a reminder, it is star one to ask a question. Our next question comes from Eamon Rood at Energy News. Please, go ahead.

Eamon Rood: (Energy News, Journalist) Good morning, Vince. Going back to Ngatamariki, can you explain what prompted this feasibility study into a potential fifth unit and can you

Page 14 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 give any indication of perhaps what the CapEx requirement and development timeline might be for that?

Vince Hawksworth: Yes, well I mean, I guess the first part of your question is that - goes to this long-term decarbonisation goal. If we’re going to be successful, we believe that New Zealand needs a suite of technologies and Mercury has, if you like, got itself into a position where we have geothermal hydro and wind and we see those technologies as playing long-term roles to get to the outcome.

The Ngatamariki site and field seem to have the ability to support further investment so and obviously in Mercury’s portfolio, it builds a bit more base load as we add the intermittency of wind and the storage and peaking capability of the Waikato River. So it helps keep all of those things balanced as we move through our growth ambitions. As to capital cost, I think basically too early to say.

Eamon Rood: (Energy News, Journalist) Do you have an idea when the study will be wrapping up or is it also too early to say?

Vince Hawksworth: Look, we’re sort of pretty well advanced but as one of the earlier questions said, there will be some consenting things we need to work through so I know and I have to say, that’s one area I never like to put a timeframe on. Experience seems to say - and that goes back to my commentary on regulatory, you put timeframes on consenting processes at your peril.

Eamon Rood: (Energy News, Journalist) All right, okay, thank you…

William Meek: Eamon, I think what I would say is, geothermal development’s slightly different to the other technologies in that confirmation of the fuel resource underground is really important. Ngatamariki commissioned in 2013 so we’re nine years down the track from that, so certainly got a lot of confidence around the sustainability of the resource and ability of the field to produce sufficient steam.

What you don’t want to do is commit to assets above ground and then find that essentially the steam field is incapable of supplying the fuel. So no one wants an Ohakea - or Ohaaki, I should say, scenario where you’ve got a large plant that’s running at seriously de-rated capacity.

So we’re still - it’s still early days. We’ve got a lot of stakeholder engagement to work through, which we will do but certainly, our desktop studies indicate it looks promising.

Eamon Rood: (Energy News, Journalist) All right, thank you.

Page 15 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 Operator: Our next question comes from Nevill Gluyas at Jardin. Please, go ahead.

Nevill Gluyas: (Jardin, Analyst) Good morning, team. Two questions from me. First one, just I’m interested in what you had to say about Mercury participation in peaking capacity.

I’m interested in what kind of form you thought that might take? Whether that’s direct investment, contracts, i.e. peaking contracts or swaptions. If you could just add a bit more colour to that, that’d be great, thanks.

Vince Hawksworth: Yes, well thanks, Nevill. I think in that sense, Mercury has always talked about its use of the Waikato River chain. One of the key things for us is the reinvestment program in that chain, which allows to get a few more peaking megawatts by the type of plant change out we’re doing plus also get a few more gigawatt hours at the right time.

That then leads to the work that we’ve been doing on the sort of data investment on the chain and optimising the use of each machine. So that’s entirely within our control and we all know that hope is not a strategy.

Our discussion with other parties is - we are always open for business with respect to swaptions and we would have - we’ve said publicly or at last I’ve said publicly and would continue to say publicly that gas does make a good transitionary fuel.

We’re not going to be investors in gas, that’s not our space, but certainly we would continue to look to support some gas peaking as a transition over the next 15 to 20 years.

In that sense, be a willing purchaser of products that support those investments.

Nevill Gluyas: (Jardin, Analyst) That’s great, thank you. Very clear. I’m just going to scratch a little bit on the potential new investments as well. I think you’ve kind of given a pretty clear answer about the reliance or the dependence on how the commercial outcomes and consenting outcomes could dictate FID on this project you’ve named.

I’m just wondering about other factors. I mean, how significant would Tiwai be, whether or not we see heat conversions, whether or not Lake Onslow proceeds or whether there’s any sort of major dependence on transmission, do you think would be significant in that FID process as well? Are any of those major roadblocks or enablers?

Vince Hawksworth: I think look, I think the Tiwai cliff or headwinds or speculation wears a bit thin. I think with the projects we’re looking at we’re going to have to muscle up and commit. Obviously transitions in the EV and processed heat space are encouraging.

Page 16 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 I think the investments that are being made that are beginning to see those changes occur are good. I think the New Zealand Steel announcement is positive. We’re not close to the hydrogen thing but I note that if that were to occur that would also be net beneficial.

I do think there is serious interest in data centres occurring and I’ve always had the view that the investors in fibre, large scale fibre networks around the globe would see New Zealand as a place where data centres should be housed and I think there’s evidence of that occurring.

So I think all of those things are positive. Of course at the end of the day it’s always a bit trickier in the South Island than it is in the North Island. We’d be the first to acknowledge that. However, I would also say if there was a time for the industry to step up and play its part, if we want to get to that decarbonisation position, the next five to 10 years is the time.

Nevill Gluyas: (Jardin, Analyst) Great, that’s useful thanks but Lake Onslow? If an announcement came out tomorrow that they committed to it. Do you think that would change your investment decisions for those projects?

Vince Hawksworth: Probably my lack of dealing with Lake Onslow says something about my view of it. Look, I still think it’s the wrong tool for the wrong problem and lack of problem definition.

I think it would be. It’s the one thing that it’s impossible I think to scale around. A decision to go ahead I don’t think would come with a clear timeline, how it would operate in the market. The chances of it being successfully built in that timeline, all they do is add massive uncertainty.

So that probably would be the one thing that is really difficult to navigate around for all sorts of reasons, which you would understand as much as I do.

So I do think though that the best response that Mercury can make to Lake Onslow, other than bleating is to get up and show we’re ready to do our bit, our share of the heavy lifting.

Nevill Gluyas: (Jardin, Analyst) Very good. Very clear. Thanks Vince.

Operator: Thank you everyone. We have no further questions, so Vince, I’ll hand back to you for closing comments.

Vince Hawksworth: Thank you. Well look, thanks everyone for coming on. Thanks for the questions. You all know how to find us and William and I are always happy to talk to that.

Page 17 of 18

Mercury NZ Limited - Interim Results Analyst Briefing 22 February 2022 We appreciate your time this morning. Look forward to seeing you all in person at some stage.

End of Transcript

Page 18 of 18