Europe & Middle East Europe & Middle East Richard Lappin, Tony Concannon, Paul Turney & Ranald Spiers
Europe & Middle EastEurope & Middle EastRichard Lappin, Tony Concannon,
Paul Turney & Ranald Spiers
Contents
• European electricity market overview
• Central & Northern Europe
• United Kingdom
• West Mediterranean
• Middle East
Privatising
Fully deregulated
Deregulating
Slow/No Change
Nordpool
Island
Central Europe
Peninsular Markets
Main Interconnects
Planned Interconnects
European Electricity Markets by Type & Hub
Our strategy is based on a European electricity market which is, in fact, five subregional markets, modestly interconnected
0%-1.9% p.a.
>3% growth p.a.
2.0%-2.9% p.a.
NordPoolNordPool TotalTotal
Electricity Market Size and Growth 2000/01Market sizes in TWhGrowth rates are for 2002-06Market sizes in Market sizes in TWhTWhGrowth rates are for 2002Growth rates are for 2002--0606
1941943838
3131311311
424424
8282
101101
5656
300300
4949
492492
350350
6363
138138
26263838
Our priority is large, high growth markets, but selective acquisition opportunities exist in other markets
Reserve Margins & Spark Spreads 2002
Tight reserve margins
Wide reserve margins
Moderate reserve margins
Gas – CoalBrackets denote negative spread
Spark Spread range shown in €/MWhSpark Spread range shown in €/Spark Spread range shown in €/MWhMWh
15-24 8-17
5
5-811-13
(5)-3
8-63-20
0-8
0-2*
(2)-15
(1)-219-27
*For whole Nordpool
Represents fuel price vs baseload power price
Our priority is high spark spread / low reserve margin markets but less sought after opportunities may also exist in other markets
European Opportunities –IPR Target Markets
Low priority
Top priority
Medium priority
Czech RepublicCzech RepublicCEZ PrivatisationCEZ Privatisation
SlovakiaSlovakiaSE PrivatisationSE Privatisation
ItalyItalyCCGT GreenfieldCCGT GreenfieldGencoGenco acquisitionacquisition
IberiaIberiaPossible Incumbent divestmentPossible Incumbent divestmentCCGT & Wind developmentCCGT & Wind development
United KingdomUnited KingdomDistressed sellersDistressed sellersCoal or GasCoal or Gas
NetherlandsNetherlandsGencoGenco acquisitionacquisitionLimited GreenfieldLimited Greenfield
HungaryHungaryDivestmentsDivestments
PolandPolandPrivatisationPrivatisation
Central EuropeCentral Europe
Technical CharacteristicsTechnical Characteristics Market StructureMarket StructureTransitional
• CEZ dominates market • 65% of generation, 100% of transmission, 50% of supply• End User Tariffs regulated.• Bilateral contracts and new day ahead market
• Liberalising market will be influenced by EU accession Temelinand June elections
Czech Republic Merit OrderCzech Republic Merit Order IPR AssetsIPR Assets
Installed Capacity Dec 2001
Coal42%
Hydro13%
Nuclear12%
IPPs33%
02000400060008000
100001200014000160001800020000
2002
MW
Cap
acity
Hydro PeakersThermal PeakersImportsIPPsCEZ ThermalEOPNuclearAverage DemandPeak Demand
€ 15/MWhCoalCoal
€ -2/MWhSpark spread Spark spread GasGas
€ 23/MWhBaseloadBaseload PricePrice
57%Reserve MarginReserve Margin
15.9 GWInstalled CapacityInstalled Capacity
10.1 GWPeak DemandPeak Demand
2% p.aDemand GrowthDemand Growth
63 TWhMarket SizeMarket Size
At the ‘crossroads’ of European Energy
Czech Republic – Market Fundamentals
Seasonal baseload
Oligopolistic heating business
4850
2000
360
EOP
Market Position
155007200Heat Sales (TJ)
2001350Sales (GWh)
138330Capacity (MW)
PTETPlant
The EOP GroupThe EOP Group
EOP AssetsEOP Assets
Czech RepublicCzech Republic
PraguePrague
Profitable and low cost businessProfitable and low cost business
Central Europe - 2002
• 2nd largest generator• Strong forward cover• Steady earnings (winter seasonal
peak)• Fully compliant with EU
environmental legislation• Low cost operation• Cost effective skill base• Bordering German & Polish
markets (large export potential)• First wave EU accession
Opportunities: >20,000MWOpportunities: >20,000MW•• Czech Republic: CEZ PrivatisationCzech Republic: CEZ Privatisation•• Slovakia: SE PrivatisationSlovakia: SE Privatisation•• Poland: Plant privatisationPoland: Plant privatisation•• Hungary: DisposalsHungary: Disposals•• Slovenian privatisationSlovenian privatisation
Outlook:Outlook:•• Gas becoming prominentGas becoming prominent•• Capacity margins tighteningCapacity margins tightening•• Spark spreads encouraging Spark spreads encouraging
newnew--build build •• Preference for minePreference for mine--mouth plant mouth plant
with export potentialwith export potential•• Embryonic asset backed tradingEmbryonic asset backed tradingPlant TargetsPlant Targets
Central Europe Strategy – Medium Term
Low priority
Top priority
Medium priorityPlentiful opportunities to grow and to access the German market even without an actual presence
UKUK
Technical CharacteristicsTechnical Characteristics Market StructureMarket StructureFully-Liberalised
• Supply market liberalised; customers choose supplier• Fragmented generation market, over 20 players
• Large degree of generation & distribution/supply integration e.g. Innogy (RWE) and Scottish Power
• NETA launched 27 March 2001, (dominated by bilateral contract framework)
• Key players Innogy (RWE), PowerGen (EoN), TXU, Centrica, Scottish and Southern, Scottish Power and EdF.
England & Wales Merit OrderEngland & Wales Merit OrderIPR AssetsIPR Assets
Installed Capacity Dec 2001
Coal39%
Hydro3%Nuclear
15%
Gas30%
Oil6%
Other7%
0
10000
20000
30000
40000
50000
60000
70000
80000
2002
Gro
ss M
W C
apac
ity
Pumped StorageOilGas & CoalInterconnectorCHPNuclearHydroAverage DemandPeak Demand
Mid-MeritBaseload/Mid-merit
Market Position
Medium Term tolling agmt
Merchant (1 unit mothballed)
Contract Cover
6,5001,200Sales (GWh)
CoalGas CCGTType
1000500Capacity (MW)
RugeleyDeesidePlant
€ 8/MWhCoalCoal
€ 5/MWhSpark spread # Spark spread # GasGas
€ 26/MWhBaseloadBaseload PricePrice
25%Reserve MarginReserve Margin
67 GWInstalled CapacityInstalled Capacity
53 GWPeak DemandPeak Demand
1.5% p.aDemand GrowthDemand Growth
311 TWhMarket SizeMarket Size
England & Wales – Market Fundamentals
Deeside
Rugeley
UK Portfolio
Rugeley• Acquired in Jul 01• 2 x 500MW coal-fired,
Commissioned 1970• 38% efficiency• Tolling agreement with
TXU• 140 IPR staff, 93 full-time
contractors
Deeside• 500MW CCGT• 13E2 ABB design• Commissioned Nov 1994• 52.7% efficiency• Merchant operation• 56 staff including traders
Why Rugeley?
• Contracted forward in a difficult market;
• Fuel diversity;
• Gas prices expected to remain high; coal competitive with gas;
• Proven plant
• Tight reserve margin anticipated in the medium term
Sources:
Heren report 27 May 2002
API#2 coal price
47.6% HHV gas
38% efficiency for coal
Forward curves . . .
• Spark spread (coal and gas) not sustainable
• Coal competitive with gas
• Increasing volatility in day ahead market
• Gas arbitrage likely in winter
• No recognition of environmental constraints£0
£5
£10
£15
£20
£25
Day Ahea
dW
eek A
head
Summer 02
Wint
er 0 2
Summer 03
Winter 0
3Sum
mer 04
Winter 0
4Sum
mer 05
Winter
05Su
mmer 06
Wint
er 06
Summer 07
Gas baseload spark
Gas peak spark
Coal baseload spark spread
Coal peak spark spread
Gas / Coal spark spread comparisons (£ per MWh)Baseload and Peak
England & Wales market - outlook
• Very limited new build of fossil fired plant
• More contracts (fuel and electricity) lapse. More capacity withdrawn. Increased pressure for market correction
• Tightening environmental constraints
• Govt reliance on renewables: expect to slip – continued reliance on fossil fired generation
• Reserve margin will reduce
• Gas prices expected to remain relatively high
• Combined heat and power projects stalled
• NETA remains complex and demanding
IPR position in the UK
• Opportunities to buy assets selectively at reduced prices
• Has fuel diversity (coal and gas)
• Two complementary businesses in place
• Proven performance under NETA
• Can exploit near term volatility
Italy and IberiaItaly and Iberia
Italy and Iberia 2002
• Iberia – liberalised oligopoly
• Population 49 M, highest growth rate of major EU countries
• Tight reserve margins
• Limited interconnects
• Second highest spark-spreads in Europe (€8-€24)– incumbents need to maintain these
• Good fuel diversity
• Acquisitions frequently limited to incumbents and greenfield first-mover difficult to secure
• One of better markets in EU
• Italy – monopoly in transition
• Increasing per capita electricity consumption
• Very tight reserve margins
• Limited interconnects
• Highest spark-spreads in Europe (€19-€27)– incumbents need to maintain these
• Over dependence on oil and gas
• Larger deal-flow than Spain
• IPR amongst first-movers in greenfields
• Best market for IPR in Europe
Technical CharacteristicsTechnical Characteristics Market StructureMarket StructureTransition to a pool market
• Currently in the process of liberalisation.• ENEL must divest an additional 2,611 MW to reach the 15,000
MW stated in the Bersani Decree.• Maximum production after January 2003 per company will be
50%.• High number of new-build requests.• Large portion of divested plant to be repowered with gas.
• Market share at December 2000 as follows:
Italian Merit Order*Italian Merit Order*
IPR is currently developing new CCGT and considering IPR is currently developing new CCGT and considering medium sized acquisitions.medium sized acquisitions.
Key areas of focus are offKey areas of focus are off--take and fuel supply. Careful take and fuel supply. Careful management of local relationships.management of local relationships.
Installed Capacity Dec 2001
Coal12%
Natural Gas9%
Renewable2%
GasOil31%
Fuel Oil
19%
Hydro27%
0
10000
20000
30000
40000
50000
60000
70000
80000
2002
Gro
ss M
W C
apac
ity
Pumped StorageOilNatural GasCoalInterconnectorsRenewablesHydroAverage DemandPeak Demand
3%INTERPOWER
13%OTHERS
3%SONDEL
8%ENDESA
17%EDISON
56%ENEL€27 /MWhCoalCoal
€19 /MWhSpark spread GasSpark spread Gas
€45 /MWhBaseloadBaseload PricePrice
33%Reserve Margin*Reserve Margin*
79 GWInstalled CapacityInstalled Capacity
49 GWPeak DemandPeak Demand
3% p.aDemand GrowthDemand Growth
300 TWhMarket SizeMarket Size
*Adjusted for *Adjusted for Hydro ROR availabilityHydro ROR availability
Italy – Market Fundamentals
IPR’s greenfield development:
• Well positioned around demand centres in north, and high demand growth in south
• Located in regions of power deficit
• Will be heavily forward contracted
• Focus on local concerns with strong local partners
• First mover advantage (permitting process ahead of many competitors)
• Main commercial issues are off-take and fuel
Italian Greenfield Programme
(800MW)
(800MW)
Technical CharacteristicsTechnical Characteristics Market StructureMarket StructureTransition
• Players have Long Term PPAs with grid owner, REN.• Market largely dominated by EDP.• January 2003 - single market with Spain, although constrained
due to interconnector capacity between Spain and Portugal 2003-2006.
Portuguese Merit OrderPortuguese Merit Order
Installed Capacity Dec 2001
Coal20%
Oil23%
Gas11%
Hydro46%
0
1000
2000
3000
4000
5000
6000
7000
8000
2002
Gro
ss M
W C
apac
ity
Pumped StorageOilGasCoalHydroAverage DemandPeak Demand
€ 24/MWhCoalCoal
€ 15/MWhSpark spread GasSpark spread Gas
€ 42/MWhBaseloadBaseload PricePrice
22%Reserve MarginReserve Margin
9 GWInstalled CapacityInstalled Capacity
7 GWPeak DemandPeak Demand
3% p.aDemand GrowthDemand Growth
38 TWhMarket SizeMarket Size
8%OTHERS7%IPR10%RWE75%EDP
45%Ownership share
Baseload/Mid-meritMarket Position
Long Term PPA agreementContract Cover
4,022 Sales (GWh)
CoalType
600Capacity (MW)
PegoPlant
*Adjusted for *Adjusted for Hydro ROR availabilityHydro ROR availability
Portugal – Market Fundamentals
Oligopolistic market structure. Because of this, incumbents dominate most major acquisition opportunities and greenfield first-move position difficult to secure. Pending integration of Portuguese and Spanish markets will provide new opportunities for IPR.
Currently pursuing CCGT development opportunities and several renewable projects in the peninsula.
Technical CharacteristicsTechnical Characteristics Market StructureMarket StructureLiberalised-Oligopoly
• Pool market governed by bilateral contracts.• End users will choose supplier by January 2003.• Incumbents vertically integrated acting as an oligopoly.• Market share is as follows:
Spanish Merit Order*Spanish Merit Order*
Installed Capacity Dec 2001
Coal23%
Nuclear15%
Fuel Oil9%
Gas Oil7%
Hydro32%
Renewables
6%
Special Regime
8%
7%Others
7%HidroCantabrico13%Union Fenosa30%Iberdrola43%Endesa
€ 17/MWhCoalCoal
€ 8/MWhSpark spread Spark spread GasGas
€ 35/MWhBaseloadBaseload Pr icePr ice
22%Reserve Margin*Reserve Margin*
51 GWInstalled CapacityInstalled Capacity
35 GWPeak DemandPeak Demand
3.6% p.aDemand GrowthDemand Growth
194 TWhMarket SizeMarket Size
05000
1000015000200002500030000350004000045000
2002
Gro
ss M
W C
apac
ity
Pumped StorageOilCoalNuclearInterconnectorSpecial RegimeRenewablesHydroAverage DemandPeak Demand
*Adjusted for *Adjusted for hydro ROR availabilityhydro ROR availability
Spain – Market Fundamentals
Conclusion
• Well placed in attractive European markets
• Assets provide steady earnings
• Substantial opportunity for growth
• Quality growth opportunities in medium term horizon
• Selective approach to growing the business
Middle EastMiddle East
Rational for investment in Middle East
• High growth markets with substantial demand for new capacity and opportunity to take advantage of privatisation of incumbent generation
• Long term contract cover on financeable terms available from power purchases backed by investment grade sovereign guarantees
• Opportunities to realise effective US dollar-denominated returns well in excess of our weighted average cost of capital
• Potential for investment in ‘associated’ assets such as desalination plant or natural gas infrastructure
Where are the opportunities in the Middle East ?
MoroccoMorocco Credit Rating:BB
Capacity:3,750 MW (2002)4,600 MW (2007)
Potential Opportunity1,800 MW (new build & secondary market)
Where are the opportunities in the Middle East ?
TunisiaTunisia Credit Rating:BBB
Capacity:2,190 MW (2002)4,000 MW (2007)
Potential Opportunity2,500 MW (new build & secondary assets)
Where are the opportunities in the Middle East ?
EgyptEgyptCredit Rating:BB+
Capacity:17,150 MW (2002)22,000 MW (2007)
Potential Opportunity15,000 MW (new build/privatisation/secondary assets)
Where are the opportunities in the Middle East ?
JordanJordanCredit Rating:BB-
Capacity:1,500 MW (2002)2,000 MW (2007)
Potential Opportunity1,000 MW (new build/privatisation)
Where are the opportunities in the Middle East ?
TurkeyTurkey
Credit Rating:B-
Capacity:26,200 MW (2002)35,000 MW (2007)
Potential Opportunity10,000 MW (new build/TORs/asset salessecondary assets)
Where are the opportunities in the Middle East ?
Saudi ArabiaSaudi ArabiaCredit Rating:Aaa3
Capacity:23,500 MW (2002)35,000 MW (2007)
Potential Opportunity15,000 MW + 500 MIGD(new build/privatisation)
Where are the opportunities in the Middle East ?
KuwaitKuwaitCredit Rating:A+
Capacity:6,900 MW (2002)9,400 MW (2007)
Potential Opportunity2,500 MW (new build)
Where are the opportunities in the Middle East ?
BahrainBahrainCredit Rating:A3
Capacity:1,300 MW (2002)1,800 MW (2007)
Potential Opportunity500 MW (new build)
Where are the opportunities in the Middle East ?
QatarQatarCredit Rating:A-
Capacity:1,950 MW (2002)3,100 MW (2007)
Potential Opportunity1,150 MW + 75 MIGD (new build/secondary assets)
Where are the opportunities in the Middle East ?
UAEUAECredit Rating:A2
Capacity:8,300 MW (2002)11,800 MW (2007)
Potential Opportunity4,000 MW + 250 MIGD (new build/privatisation/secondary assets)
Where are the opportunities in the Middle East ?
OmanOmanCredit Rating:BBB
Capacity:2,260 MW (2002)3,000 MW (2007)
Potential Opportunity1,200 MW + 80 MIGD (new build/privatisation/secondary assets)
Shuweihat S1 Power and Water Project,Abu Dhabi
• 1,500 MW of power, 100 million imperial gallons per day
• Siemens V94.3A2 GTs and FisiaItalimpianti desalinisation distillers
• 20 year Power and Water Purchase Agreement signed in August 2001
• Financial close achieved on 1 December 2001
• $1.6 bn combined Islamic and conventional 20-year term loans
• $355m equity bridge loan until PCOD (15 August 2004)
• Partners CMS Energy of USA (20%) and ADWEA (60%)
1 02
By passes
Heat RecoveryS team Generators
MSF D istillers
ProductWat er
Treatment
DumpCondensers
SeawaterS upply Seaw ater
Outf all
Potable WaterOut
SupplementaryFiring
Low Press ureSteam Main
Steam TurbineGenerat ors
High Press ureSteam Main
Typical Combined Cycle Power & Water Plant (Multistage Flash technology) - Block Flow Diagram
Fuel
Gas TurbineGenerators
Desalination opportunities worldwide
AmericasAmericas Middle East/Europe
Middle East/Europe
Rest ofWorldRest ofWorld
5,000 MIGD in 2002 – 60% in Middle East
44% of all desalination plant is by distillation
25,000 MIGD by 2020 – 50% in Middle East
1,200MIGD1,200MIGD
3,000MIGD3,000MIGD
12,000MIGD
12,000MIGD
800MIGD800
MIGD
5,500MIGD5,500MIGD
20022002
20202020
7,500MIGD7,500MIGD
Fewer competitors since the mid 1990s• Total, Tractabel and AES are main
regional competitors
• Exit of several US developers after September 11/ Enron debacle
• Large size of power/water opportunities means that partnering is desirable to share risk or to keep below market cap
• The structural nature of RFPs, combined with existing in-country experience of competitors, means that low capital costs and innovative O&M is essential for success
• CMS Energy are partners in Shuweihat; Mitsui / TEPCO are current partners on Umm Al Nar bid in Abu Dhabi
Bids for Abu DhabiPrivatisation ProjectsBids for Abu DhabiPrivatisation Projects
EnronCMSPSEG
MarubeniIntergen/Bechtel
TractabelNational Power
EnronCMSPSEG
MarubeniIntergen/Bechtel
TractabelNational Power
CMS/IPRTractabel/Mitsui/TEPCOAESPSEG/Marubeni
CMS/IPRTractabel/Mitsui/TEPCOAESPSEG/Marubeni
7
4
Al TaweelahA2
1998
Al TaweelahA2
1998
ShuweihatS12001
ShuweihatS12001
Our vision for 2007
• Broad portfolio across the region, with a mix of operating projects under construction, and new development
• Secure cash flows underpinned by long-term contracts, with development funded by high deal flow/closed projects
• Bringing assets together (including Pakistan) for potential monetisation; harness local capital / investment funds / IPOs
• ‘Horizontal’ integration into related infrastructure (desalination, natural gas, regasification, etc)
• Build up semi-autonomous indigenous operation with complete range of skills (O&M, financing, technical, legal etc)