IPR in Europe July 2007
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IPR in Europe July 2007
European overview Steve RileyExecutive Director, Europe
Today’s speakersToday’s speakers
Kevin Dibble Director, Marketing – First Hydro
Paul Evans General Manager, Operations
Steve Drapper UK Commercial Director
Richard Lappin Regional Director, Central Europe
Paulo Almirante Regional Director, Iberia
David Leich Rugeley Station Manager
David Alcock CEO First Hydro
Clive Warden Director of Business Development, Europe
Michael Baker CEO Levanto
Kevin Dibble Director, Marketing – First Hydro
Paul Evans General Manager, Operations
Steve Drapper UK Commercial Director
Richard Lappin Regional Director, Central Europe
Paulo Almirante Regional Director, Iberia
David Leich Rugeley Station Manager
David Alcock CEO First Hydro
Clive Warden Director of Business Development, Europe
Michael Baker CEO Levanto
Europe in the IPR portfolio Europe in the IPR portfolio
* Excluding exceptional items and specific IAS 39 mark to market movements
MiddleEast
Australia
Asia North America
Europe
12
9
29
33
17
Net MW by GeographyNet MW by Geography PFO by Geography*PFO by Geography*
Asia
Europe
MiddleEast
Australia
12
566
15
11North America
Portfolio overviewPortfolio overview
12
123
4
5
6
DeesideSaltend
DerwentFirst Hydro
Rugeley
IndianQueens
7
910
11
13
8Pego
Turbogas
SpanishHydro
Levanto
IP Opatovice
Unimar
ISAB
European portfolio overviewEuropean portfolio overview
By Fuel Type (%)By Fuel Type (%)
Well balanced portfolio, by fuel type and technologyWell balanced portfolio, by fuel type and technology
Gas
CoalPumpedstorage
Wind
AsphaltOil 2
RoR Hydro 1
34
2826
6
3
Black Coal
1810
BrownCoal
Pumpedstorage 25
GE 9EOCGT 2
3
Ansaldo V94.2
10 SiemensV94.3
15 MHI 701F9
Alstom GT 13E26
Wind turbinesRoR hydro 1
Fr6B 1
By Technology Type (%)By Technology Type (%)
6
European portfolio overviewEuropean portfolio overview
By Merit Order Type (%)By Merit Order Type (%)
Wind
28
6
19
47
Baseload
Mid Merit
Peaking
By Offtake Type (%)By Offtake Type (%)
Merchant
37
1021
6
26
ContractedPPA
Pumpedstorage
RegulatedTariff
Well balanced portfolio, by merit order and offtake typeWell balanced portfolio, by merit order and offtake type
• Reserve margins beginning to fall– most markets will need new capacity by 2011
• Availability of gas– Western Europe increasingly reliant on imports
• Drive for new-build– gas CCGT in Western Europe; coal in Eastern Europe – ‘clean-coal’ dash emerging– renewables only a partial answer
• Power prices– trending to new-entrant– potential future volatility – First Hydro well positioned
• Environment– emission control (LCPD) and climate change (EU ETS) legislation– FGD installed at Opatovice; fitting FGD at Rugeley and Pego– Levanto – significant renewables portfolio
Industry environment Industry environment
Industry environmentThe futureIndustry environmentThe future
• Policymakers must balance competing objectives– security of supply – balance of technology and fuel type– environment– affordability
• Low carbon generation is high on political, social and environmental agendas
• Uncertainty over regulatory framework / Phase 3 CO2 allocations
An important role for existing and new thermal plant
IPR in EuropeMaximising portfolio valueIPR in EuropeMaximising portfolio value
• Balanced portfolio in UK merchant market– Gas CCGT– Coal– Pumped Storage– Oil
• Long-term offtake agreements on continent– Pego PPA– Unimar PPA
• New-build opportunities– Enecogen and Pego CCGTs – tolling arrangements– Levanto – renewable development pipeline
Range of technologies, plus merchant and contracted assets, provide benefits of steady cashflow and market volatility
IPR’s European performanceIPR’s European performance
PFO (£m)PFO (£m)
0
100
200
300
400
500
2004 2005 2006
Net Growth (GW)Net Growth (GW)
2
4
2004 2005 2006
Availability (%)Availability (%)
0
20
40
60
80
100
2004 2005 2006
01
3
7
56
Growth opportunitiesGrowth opportunities
• What do we look for?– stable regulatory markets– route to market– proven technology– market that delivers new build price signals– partners
• Process– acquisition/greenfield/expansion opportunities– rigorous due diligence process– ICOM
• Risk adjusted target return
SummarySummary
• Excellent performance record
• Positive outlook for IPR
• Current portfolio well positioned– good fuel diversity– balance between merchant and long-term contracts
• Tightening reserve margins around Europe
• Good future growth opportunities
Regulatory DevelopmentsKevin DibbleDirector, Marketing -First Hydro
StructureStructure
• IPR provides independent perspective
• Regulation integrated into operating business
• Network of experts actively involved/consulted
Regulatory Affairs
Assets
Trading UK Govt.Regulator
Market OperatorSystem OperatorIndustry Bodies
Trade AssociationsEU
Energy PolicyTransmission
Competition Issues
Market Rules
Environment
2006 UK Energy Review2006 UK Energy Review
Recap
• Wide-ranging review, driven by security and climate change concerns– high gas prices Winter 05/06, Ukrainian crisis– mounting evidence of climate change effects
• Re-opened the nuclear question
• Potential for market intervention measures
IPR response
• Level playing field for all technologies
• Reliance on markets and private sector delivery
• No nuclear subsidies
• Strengthening of EU ETS in delivering on carbon reduction targets
• Other sectors to face carbon reduction incentive
UK Energy White PaperUK Energy White Paper
• Markets to deliver most economic outcome
• Fair provision of technology options to the private sector
• Cross-sector and international perspectives
• Coal continues to have a key role
• Support for new nuclear– allow the private sector the “option to invest in nuclear”– but not expected until 2022
• Range of carbon reduction incentives proposed for non-EU ETS companies
Planning White Paper Draft Climate Change Bill Nuclear Consultation
Key Proposals
Linked Developments
EU developmentsEU developments
GHG reduction target 20% by 2020Burden-sharing to be negotiated
Further liberalisation packageUnbundling of transmission assets?Moving towards a single market?
Improved transparency& harmonisation
Regional initiatives already under way
Environment National Emissions Ceilings Review
IPPC Review
Binding Renewables Target agreed20% by 2020
Burden-sharing agreement late 2007
Strengthening of regulatory regimesRole for a European regulator
Markets & CompetitionEnergy & Environmental Policy
EU ETSEU ETS
Phase II
• Allocations now clear at installation level
• A few NAPs awaiting EC clearance
• Liquidity, data release improving
• Inclusion of aviation mid-phase
Phase III Review
• Scope, term, harmonisation, international linking etc.
• Expect increased use of auctioning, and centrally determined allocations
Total
2.58 (1)
0.55 (1)
2.23 (1)
0.44 (1)
2.95 (1)
1.34 (1)
0.20
2.81
0.80
2.57
1.09
3.82
2.61
Derwent (33% share)
IPO Opatovice
PT
ET
ISAB
Tejo
Turbogas
0.010.02Indian Queens
2.112.48Saltend
0.690.94Deeside
2.493.34Rugeley
Phase IIPhase IIPhase IPhase IM tonnes CO2M tonnes CO2
NAP AllocationsNAP Allocations
(1) NAP allocations not yet approved
20.68 15.58
0.19
Key messagesKey messages
• IPR portfolio well placed– increased renewables will create intermittency issues– firm, flexible capacity vital to ensure security of supply– improved access to EU markets for new entrants– fuel diversity remains a key requirement
• IPR will build on its good relations with external stakeholders and policy makers
• Regulatory affairs remains a key priority– optimising operating portfolio– identifying market opportunities
Operations Paul EvansGeneral Manager, Operations
Continuous improvementContinuous improvement
• Continuous improvement and best practice in:– Health and Safety– Operations and Maintenance – Environment– People – Plant/infrastructure– Commercial and Financial– Quality
Safety - key focus for IPR Safety - key focus for IPR
• Safety performance integral to operational performance
• Continuous improvement a key objective
• In 2006 a working group was formed:– key aim to investigate
behavioural based safety
• Jan 2007 roll out of Fresh Eyes begins
• IPR benchmarked against leading process industries
Health and Safety (H&S) Health and Safety (H&S)
• H&S is a key priority
• Accident Frequency Rate (AFR) is a key non-financial KPI
Lost time accidents (LTAs) divided by the number of hours worked, multiplied by 100,000International Benchmarking Group consists of 11 major international oil/gas and mineral companies
AFR AFR
00
0.20.2
0.40.4
0.60.6
0.80.8
1.01.0
20052005 20062006 2007objective
2007objective
Internationalbenchmark
Internationalbenchmark
(1)
(1)
(2)(2)
(1)
(2)
Operations Operations
• Key IPR strength
• Global knowledge base adds value across range of assets– benchmarking of costs and technical performance– global safety and environmental programmes
- ISO 14001- OHSAS 18001- Fresh Eyes
– global technical standards
• Flexibility to reflect jurisdiction, cultural, contractual and JV structures
• Acquisitions – add value through due diligence process
BenchmarkingBenchmarking
Illustrative example
Plant operating & admin expenditure(£/MWh equiv) v load factor
Plant operating & admin expenditure(£/MWh equiv) v load factor
30 40 50 60 70 80 90 100Load factor
Pla
nt O
pera
ting
& A
dmin
expe
ndit
ure
(£/M
Wh
equi
v)
>30% below median 15% to 30% below median Median to 15% below medianMedian to 15% above median 15 - 30% above median >30% above median
QualityQuality
• One plant has implemented a highly structured quality management process
• Value adding opportunity identified for other assets
• Process led to change programme for the UK– implement common business model across UK assets– adopt ISO 9001 across UK assets by end 2008– adoption of PAS 55 and PAS 99 across UK assets by
end of 2009
SummarySummary
• Clear focus on continuous improvement through internal and external benchmarking
• Demonstrable commitment to HS&E performance throughout the business
• Track record of delivery against those commitments
• Utilising global expertise and experience to deliver value
UK Trading Steve DrapperUK Commercial Director
UK tradingUK trading
Agenda
• Update on market prices
• Commercial position
• IPR Approach to Trading
• Example – Trading Deeside
Gas price (2008)Gas price (2008)
• High correlation with oil in forward markets• Supply constraints in the UK removed through infrastructure investment • UK gas price fallen below European benchmark
((1) IPR view
20
30
40
50
60
70
80
Feb2005
June2005
Oct2005
Feb2006
Jun2006
Oct2006
Feb2007
Jun2007
Oil ($/bl)Oil ($/bl)
UK gas (p/th)UK gas (p/th)
European gas (1) (p/th)European gas (1) (p/th)
UK forward spreads (2008)UK forward spreads (2008)
• Gas and Power have reduced from highs in 2006
• Delivered coal prices have remained strong
• Increases in 2007 driven by gas and carbon
Forward curves based upon 2008 from Nov 2005 to Jun 2007 All spreads shown are based upon power price less fuel cost only.Rugeley and Deeside heat rates have been used to calculate dark and spark spreads
Nov2005
Feb2006
May2006
Aug2006
Nov2006
Feb2007
May2007
£/MWh£/MWh
0
10
20
30
40
50
60
Baseload darkBaseload dark
Peak darkPeak dark
Baseload powerBaseload power
UK forward spreads (2008)UK forward spreads (2008)
£/MWh£/MWh
0
10
20
30
40
50
60
Baseload sparkBaseload spark
Peak sparkPeak spark
Forward curves based upon 2008 from Nov 2005 to Jun 2007 All spreads shown are based upon power price less fuel cost only.Rugeley and Deeside heat rates have been used to calculate dark and spark spreads.
Nov2005
Feb2006
May2006
Aug2006
Nov2006
Feb2007
May2007
Baseload powerBaseload power
Carbon price Carbon price
• Phase 1 now virtually worthless due to over-allocation and mild weather• Phase 2 firming due to clarity on allocations
€/tn€/tn
0
5
10
15
20
25
30
35
Phase 1 (2007)Phase 1 (2007)
Phase 2 (2008)Phase 2 (2008)
Oct2005
Feb2006
Jun2006
Oct2006
Feb2007
Jun2007
Commercial positionCommercial position
• Rugeley and Saltend 80% contracted for 2008 (4)
Spread £/MWh
Load factor
Forward contracted
Spread £/MWh
Load factor
Forward contracted
20
65%
50%
22
40%
n/a
RugeleyRugeley DeesideDeeside2006
35
65%
90%
28
55%
n/a
2007(1) 20062007(1)
% of anticipated output for the full year(2)
(3)(3)
Full YearFull Year
(2)(2)
Pre cost of CO2(1) IPR forecast as at May 2007
(3)
n/a
90%
95%
n/a
80%
n/a
SaltendSaltend20062007(1)
(4) Position as at March 2007
Trading philosophyTrading philosophy
• Asset backed trading – focussed on hedging trading margin
• Develop strategies based on fundamental analysis and research
• Positions and strategies continuously reviewed and adjusted over time
• Optimise positions within the portfolio
• Share knowledge and strategies across regions
• Operate within an approved risk framework
General strategyGeneral strategy
• Hedge forward positions– focus on ‘spread’– seek to add value through structured transactions – develop and maintain good trading relationships
• Maximise value 0f asset flexibility– actively trade in short-term markets – sell in periods where there are good margins– buy back short-term power below cost or to achieve
higher price
Example – Trading DeesideExample – Trading Deeside
Power market liquidityPower market liquidity
• EFA Blocks to individual half hoursWithin day
• Next day• Baseload, peak, EFA Block
Day ahead
• Following week• Baseload, peak, EFA Block (4 hourly)
1 week
• Individual months• Baseload, peak, overnight
1-3 months
• Winter, Summer seasons• Baseload, peak
6-24 months
LiquidityLiquidityTime to deliveryTime to delivery
Forward contractingForward contracting
One year prior to delivery Sell baseload winter clean sparks
Contract Position
MWMW
0
100
200
300
400
500
0 4 8 12 16 20 24HoursHours
££
Secured Trading Margin
Medium term optimisationMedium term optimisation
Three months prior to delivery Clean spark spreads fall and we buy position back
Contract Position
MWMW
0
100
200
300
400
500
0 4 8 12 16 20 24HoursHours
££
Secured Trading Margin
Short term optimisation (1)Short term optimisation (1)
One month prior to delivery Spread for October peak periods rise, whilst off peak periods remain at zero
We re-contract the station’s full output at this level over the peak period only
Contract Position
MWMW
0
100
200
300
400
500
0 4 8 12 16 20 24HoursHours
££
Secured Trading Margin
Short term optimisation (2)Short term optimisation (2)
One week prior to delivery Spreads for the EFA Blocks 3 and 4 (07.00 – 15.00) fall to zero and we re-purchase the full volume for the week
Contract Position
MWMW
0
100
200
300
400
500
0 4 8 12 16 20 24HoursHours
££
Secured Trading Margin
Short term optimisation (3)Short term optimisation (3)
One day prior to delivery At the day ahead stage, the spreads for EFA Blocks 3 and 4 rise and we re-contract the station
Contract Position
MWMW
0
100
200
300
400
500
0 4 8 12 16 20 24HoursHours
££
Secured Trading Margin
On the day optimisation (1)On the day optimisation (1)
On the day of delivery Clean spark spreads for EFA Periods 3 and 4 fall to a low level and we purchase in order to offer the volume into the balancing mechanism
Contract Position Secured Trading Margin
MWMW
0
100
200
300
400
500
0 4 8 12 16 20 24HoursHours
££
On the day optimisation (2)On the day optimisation (2)
On the day of delivery Our offer is accepted in the balancing market for 310 MW for EFA Block 4 (11.00-15.00) at a good clean spark spread
Contract Position Secured Trading Margin
MWMW
0
100
200
300
400
500
0 4 8 12 16 20 24HoursHours
££
SummarySummary
• Captured good prices to date– highly contracted for 2007/2008
• Add value through active trading
• Maximise value from flexible asset portfolio
Czech Republic Richard LappinRegional Director, Central Europe
Macro environment Macro environment
• Most stable economy in Central Europe
• GDP: US $124 billion (2005)
• GDP growth 6% (2006)
• Inflation 2.7% (2006)
• A-/Positive
• Czech Koruna: CZK28.7 = €1
• Population growth: 0.1%
• Electricity demand growth: 2% p.a.
Political environment Political environment
• EU member
• Coalition government (3 parties)
• State Energy Policy (2004) promotes energy security, environmental protection and economic efficiency– supporting balanced mix of generation
• No immediate plans to fully privatise CEZ
Power market fundamentalsPower market fundamentals
0%
10%
20%
30%
40%Peak Reserve Margin (assuming full import)
Peak Reserve Margin(assuming export)
New-entrant level
2005 2007 2009 2011 2013 2015
Forecast Peak Reserve MarginForecast Peak Reserve MarginPumpedStorage
10
24
12
4563
Nuclear
Hard Coal
Hydro GasLignite
Czech Republicdomestic capacity 2005 (%)
Czech Republicdomestic capacity 2005 (%)
Major power plantsMajor power plants
9
34
2
1
8
7
5
6
CEZ Thermal
CEZ Nuclear
7
CEZ Hydro
CEZ P. Storage
IPR
Other IPP’s
IPRIPROpatoviceOpatovice
PTPT
ETET
PolandPoland10.2 TWh10.2 TWh
AustriaAustria6.1 TWh6.1 TWh
SlovakiaSlovakia5.2 TWh5.2 TWh
GermanyGermany11.4 TWh11.4 TWh
Net power flow
IPR in the Czech marketIPR in the Czech market
• Power and heat businesses
• Largest IPP– large site
• Lignite/ coal/ gas fired
GenerationMarket Share (%)
GenerationMarket Share (%)
70
25
CEZ
Other
IPO Group 5
IPOPTET
LigniteCoal/GasLignite
Plant namePlant name
1004949
FuelFuel% IPR
ownership% IPR
ownership
36365
160
IPR sharePower
(MW)
IPR sharePower
(MW)
966932360
IPR shareHeat
(MWth)
IPR shareHeat
(MWth)
Power market structurePower market structure
• Market dominated by bilateral trading– day ahead market– intraday market– balancing market
• Power exchange in development– CEZ expected to sell most power through exchange
• Market operator is OTE
• Preferred dispatch given to renewables and CHP
• Fully liberalised retail market
• 2nd largest net exporter in Europe
Czech vs German baseload pricesCzech vs German baseload prices
0
10
20
30
40
50
60
2005 2006 2007 2008 2009
€/MWh
German baseload
Czech baseload
IPO contract strategyIPO contract strategy
• Priority to system services
• Majority of IPO output secured under contract– large single bilateral contract – smaller bilateral agreements
• Trading on day ahead and balancing markets
• Short and long-term offtake opportunities– rising prices– large number of counterparties
• No significant new-build in short/medium term
Ancilliary servicesAncilliary services
• Primary (30 sec) secondary (10 mins) tertiary (30 mins)
• Organized by ČEPS
• Paid both for provision and activation
• Direct impact on bottom line– provides approx 10-15% of PAT to IPO
Heat marketHeat market
• Regulated prices with regional differences
• Price provides cap
• Recovery of fixed costs and profit
• Fuel cost is pass through
• Ability to secure 90% of savings (Gas to Cogen)
• CO2 costs are also pass through
Benefits of cogenBenefits of cogen
• Increases overall efficiency to 50%+
• Price benefit for cogeneration electricity (45CZK/MWh)
• Regulated heat price (cost + reasonable profit)– CO2 and fuel pass through
• Electricity linked to heat has preference
EnvironmentEnvironment
• Czech Republic is a signatory to Kyoto– 8% reduction in 1990 CO2 emissions (2010)
• Actual emissions likely to be circa 30% lower
• EU member – Renewables Directive– LCPD legislation (2016) – EU Emissions Trading Scheme
Cogeneration - IPOCogeneration - IPO
GG GG GG
126 5 4 39,6 Mpa535 deg. C250 Ton/Hr
60 MW 60 MW60 MW 60 MW60 MW 60 MW
218 MW
160 MW 160 MW
160 MW
698 MW5000 Ton/Hr180/60 deg. C
• Flexible plant– common header – mix of turbines
Heat network - IPOHeat network - IPO
Primary network 168.9 kmSecondary network 115.3 kmTotal sub-stations 489Own sub-stations 202
• 2,000 contracts
• 56,ooo flats
30 km/19 miles
Desulphurised production
Mazut
Large gas plants
Coal
Local gas boilers
Heat supply area
Heat network - PT & ETHeat network - PT & ET
LetňanyBohnice
Vysočany
Juliska
Veleslavín
MalešiceRohožník
Zbraslav
Ruzyně
Modřany
Krč
Třeboradice
Ďáblice
Holešovice
Barrandov
Černý Most
Hostivař
Neratovice
Michle
Jižní Město
Kobylisy
Invalidovna
Řepy
Horní Počernice
Horní Měcholupy
Radotín
EMĚ 1
Petrovice
JZ MěstoStodůlky
Libuš
PT supplies 37% of allheat to Prague
Shareholder structure Shareholder structure
• Largest shareholder in PT/ET (48.67%)
• 66% voting required for AGMs
• Other shareholder is PTH (City of Prague/ EnBW)
• Different views on dividends versus capital investment for new connections
Malesice - PTMalesice - PT
PerformancePerformance
• Health and Safety– ISO 14001– OHSAS 180010
20406080
100
2003 2004 2005 2006 2007
Technical availability (%)Technical availability (%)
Turnover (CZKm)Turnover (CZKm)
0
2000
4000
6000
8000
IPO PT ET Consol
19992002 2006
PFO (CZKm)PFO (CZKm)
0
1000
2000
3000
4000
IPO PT ET Consol
19992002 2006
Future development - IPOFuture development - IPO
B – possible expansion siteB – possible expansion site
A – new boiler 100 MWeA – new boiler 100 MWe
GrowthGrowth
• Circulating fluidised bed boiler– fuel flexibility – lignite, biofuel, hard coal
• 100 MW additional capacity– incremental output of 700 GWh
• Biofuel energy will earn significantly higher price
• 2010/11 commissioning
Future development - PT Future development - PT
LetňanyBohnice
Vysočany
Juliska
Veleslavín
MalešiceRohožník
Zbraslav
Ruzyně
Modřany
Krč
Třeboradice
Ďáblice
Holešovice
Barrandov
Černý Most
Hostivař
Neratovice
Michle
Jižní Město
Kobylisy
Invalidovna
Řepy
Horní Počernice
Horní Měcholupy
Radotín
EMĚ 1
Petrovice
JZ MěstoStodůlky
Libuš
Desulphurised coal
Mazut
Large gas (plyn)
Teplárna (uhlí)
Gas boilers (plyn)
Heating area
SummarySummary
• Strong and consistent operational and financial performance
• Active IPR role– operations– trading– growth opportunities across assets
• Strong market with upside potential– ability to secure future volume at market price – upward trend on electricity prices (circa 14% for 2007)
Iberia Paulo Almirante Regional Director, Iberia
Macro environment Macro environment
GDP growth rate
Credit rating
Inflation
Population growth
GDP growth rate
Credit rating
Inflation
Population growth
1.2%
AA- (1)
3.1%
0.6%
(1) S&P
SpainSpain PortugalPortugal
3.6%
AAA (1)
2.7%
0.9%
Demand growthDemand growth
• High demand growth
• Portugal has the lowest per capita consumption in EU15– 4,400 kWh vs. EU15 average of 6,475 kWh
• Spain: 6,000 kWh per capita
4.2%
25,000
30,000
35,000
40,000
45,000
50,000
GWh
2002 2003 2004 2005
Demand PortugalDemand Portugal
2006
GWh
2002 2003 2004 2005
Demand SpainDemand Spain
50,000
100,000
150,000
200,000
250,000
4.3%
211,516225,851 235,412
246,768252,878
2006
40,667
45,500
49,18847,945
43,061
Generation Portugal (%)
0%
20%
40%
60%
80%
2003 2004 2005 2006
100%
0%
20%
40%
60%
80%
100%
2003 2004 2005 2006
Nuclear
Hydro
Gas
Oil
Coal
Wind
Co-Gen & [m/hydro]
Generation Spain (%)
Generation mixGeneration mix
• Strong dependence on thermal plant– hydro generation varies year to year
Imports
Hydro
Gas
Oil
Coal
Wind
Co-Gen & [m/hydro]
Portugal – fundamentalsPortugal – fundamentals
* Adjusted for availability of hydro and special regime at peak
Market size: 49 TWhDemand growth: 4%Peak demand: 9 GW Domestic capacity: 14 GWReserve margin*: 10-20%
Fuel Type Mix(installed capacity - %)
Fuel Type Mix(installed capacity - %)
13
16Wind
Other /Special Regime
12Coal
11
14Oil / Gas34
Hydro
CCGT
Spain – fundamentalsSpain – fundamentals
Market size: 253 TWhDemand growth: 4.0%Peak demand: 44 GW Domestic capacity: 78 GWReserve margin*: 18%
Fuel Type Mix(installed capacity - %)
Fuel Type Mix(installed capacity - %)
15
20Wind
Other /Special Regime 12
Coal
14
8Oil / Gas21
Hydro
CCGT
10
Nuclear
* Adjusted for availability of hydro and special regime at peak
Power market structurePower market structure
• Portugal market structure:– long term PPAs– liberalized market– regulated tariff (renewables)
• Spain market structure:– spot market– bilateral contracts & auctions– regulated tariff (renewables)
• MIBEL– spot market (OMEL)– derivative market (OMIP)– Virtual Power Plant Auctions (VPP) – 500 MW– interconnections: market splitting and auctions
Iberian presenceIberian presence
Turbogás(Tapada) CCGT
990 MW
Turbogás(Tapada) CCGT
990 MW
Tejo Energia(Pego) Coal600 MW
Tejo Energia(Pego) Coal600 MW
Lisbon(Office)Lisbon(Office)
JaénMini hydro1 plant - 2.53 MW
JaénMini hydro1 plant - 2.53 MW
Barcelona (Office)Barcelona (Office)
PirineosMini hydro3 plants - 10.8 MW
PirineosMini hydro3 plants - 10.8 MW
ZaragozaMini hydro4 plants - 42.9 MW
ZaragozaMini hydro4 plants - 42.9 MW
LogroñoMini hydro3 plants - 13.7 MW
LogroñoMini hydro3 plants - 13.7 MW
ValladolidMini hydro7 plants - 14.1 MW
ValladolidMini hydro7 plants - 14.1 MW
Asset in operationProject under development
Asset in operationProject under development
50%50% 38.9%38.9% 11.1%11.1%
Peg
o
60%60% 40%40%
Spanish
Hydro
67%67% 29%29% 4%4%
Tap
ada
PartnershipsPartnerships
Development of IPR businessDevelopment of IPR business
Acquisition ofTejo Energia
Acquisition ofTurbogás
Acquisition ofSpanish Hydro
Acquisition ofEDF stake inTejo Energia
Award ofPego CCGT
Production License
Tejo EnergiaLCPD Investment
(€175m)
Tejo EnergiaRefinancing(€646m)
1993 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Apr-07
Spain - Spanish HydroSpain - Spanish Hydro
• 18 mini-hydro plants (41 units) total of 84 MW
• Public water concessions
• Unmanned sites operated from central location
• Regulated tariff– ‘Royal Decree’ in June 07– establishes fixed or market
regime– grants existing regime up
to 2012
Portugal - Tejo & TurbogásPortugal - Tejo & Turbogás
Tejo Energia
54
EDP
99
10
18
Turbogás
Imports
Other (special regime)
Generation market share
2006 (%)
Generation market share
2006 (%)Tejo Energia Turbogás
Equity share 50% 60%
PPA term 2021 2024
Tariff structure Capacity & energy charge
Capacity & energy charge
Fuel arrangements(pass through)
Market Long term contract
CO2 costs/benefits Pass through Pass through
Finance arrangements
Project Finance
Commercial availability (2006)
98% 93%
Project Finance
Adding value – Tejo refinancingAdding value – Tejo refinancing
• Refinancing of long term debt and financing of LCPD Project– total facility of €646m– maturity extended from 2014 to 2020– interest margin reduced c.50%
• Key factors– asset proven performance – time to market– strong local relationships– robust PPA– asset risk profile
Tejo compliance with LCPDTejo compliance with LCPD
• SOx abatement– FGD, wet limestone gypsum
• NOx abatement– partial SCR
• Dust abatement– precipitators improvement
• Total investment of c.€175m – construction facility in recent re-financing– PPA amended to reflect additional costs
• Turn key contract with Alstom
• Site works started in May 2006
• Completion Q2 2008
1300
800
95
400
500
50
200
200
50
SOx
NOx
Dust
Pego2008
(mg/m3)
LCPD2008
(mg/m3)Today
(mg/m3)
Emissions Limits
Tejo LCPD constructionTejo LCPD construction
Sept 2006 June 2007
Tejo CCGT opportunityTejo CCGT opportunity
• CCGT development in Portugal– 2 x 400 MW capacity– uses Pego land– benefits from existing infrastructure and shared services
• Pre-construction licensing process completed– Connection Point Sep 2006– Environmental Licence Oct 2006– CO2 Emissions License Nov 2006– Production License Apr 2007
• Negotiations in progress with short list of EPC bidders
• Indicative timeline– financial close - subject to commercial agreements - end 2007– commercial operation - 2010
Tejo CCGT – future site overviewTejo CCGT – future site overview
SummarySummary
• Attractive market– strong demand growth
• Good asset base– fuel mix; long term contracted; renewables
• Strong performance– financial under-pinned by technical
• Confidence in existing assets– major re-financing at very good terms– major investment for long-term environmental compliance
• Near term growth opportunities– Pego CCGT
UK Dave AlcockCEO First Hydro
David LeichRugeley Station Manager
ContentsContents
• Value beyond the spread – value of power quality– provision of reserve– future requirements for UK system
• IPR UK portfolio– current asset base– investment program
Commodity value of powerCommodity value of power
• If power were a ‘pure’ commodity, then– sole determinant of competitive position would be cost– gross margin = (power price – fuel cost) x volume
• Annual UK gross margin– total demand ~ 350TWh– demand-weighted price ~ £37/MWh– average production cost ~ £20/MWh (excl emission)– total gross margin = 350 x (37-20) ~ £6,000m
Power qualityPower quality
• Differentiates power from standard commodity
• Physical system requirements– instantaneous supply/demand balance– quality of supply (voltage, frequency)– security of supply (in varying timescales)– management of local or regional constraints
• Wholesale market delivers crude demand/supply balance
Value of power qualityValue of power quality
• Estimate of gross margins available in 2006/7:-– Reserve, response ~ £250m– BM offers ~ £300m– BM bids ~ £ 50m– Other (reactive etc.) ~ £100m– TOTAL ~ £700m
• ~10% of UK market value relates directly to quality
Market reserve requirementsMarket reserve requirements
0
1,000
2,000
3,000
4,000
5,000
6,000
-24 -18 -12 -6 -4 0
MWMW
National Gridshort term procurement
Market delivered
National Grid forward procurement
Last 'planning' point 4 hours ahead
Source: National Grid
HoursHours
UK generationUK generation
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
MWMW
OilPumped StorageHydroFrench IC
Coal
Flexible CCGT
Inflexible CCGT
Nuclear
Half HoursHalf Hours
11th June 2007
Spinning reserveSynchronised but part loadedSpinning reserveSynchronised but part loaded
0
1,000
2,000
3,000
4,000
5,000
6.000
Pumped StorageOilHydro
Coal
CCGT
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
MWMW
Half HoursHalf Hours
11th June 2007
Standing reserveNot synchronised but one hour noticeStanding reserveNot synchronised but one hour notice
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
CCGT
Oil
Pumped Storage
Hydro
OCGT
MWMW
Half HoursHalf Hours
11th June 2007
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
0
1000
2000
3000
4000
5000
6000
-24 -18 -12 -6 -4 0
MWMW
OCGT, hydro(First Hydro, Indian Queens, Rugeley OCGTs)
Part-loaded fossil plant, short-notice plant
Warmed fossil, balancing mechanism, trading(Deeside, First Hydro, Indian Queens, Rugeley)
Current reserve provisionCurrent reserve provision
UK power system - futureUK power system - future
• Opted-out coal plant (8.5 GW)– constrained operation– retiring end 2015 (at latest)
• Renewables build– predominantly wind– leads to generation forecasting problems– more short-term price volatility
• Nuclear retirals – bulk energy requirement– likely replaced by CCGT and supercritical coal– nuclear build?
What do these changes imply for reserve provision?
Future reserve provisionFuture reserve provision
Little change to market provision (OCGT, PS, hydro)
Opted-out coal plant less willing to part loadreduction in volume
Opted-out coal plant less likely to participate in Balancing Mechanism
reduction in volume
Upward pressure on requirement for operating reserve
0
1000
2000
3000
4000
5000
6000
-24 -18 -12 -6 -4 0
MWMW
UK market over next 5 yearsUK market over next 5 years
• Supply of response & reserve likely to fall:
• Requirement for response & reserve should increase
Expect that market value for power quality will rise
Increasing value for plant which is flexible and reliable
• IPR UK portfolio – currently capturing large share– well positioned to capture increased share of future value
IPR UK portfolioIPR UK portfolio
Saltend 1,200 MW CCGT
First Hydro 2,100 MW Pumped Storage
Deeside 500 MW CCGT
Rugeley 1,000 MW Coal
50 MW OCGT
Indian Queens 140 MW OCGT
Derwent 220 MW CHP
Saltend 1,200 MW CCGT
First Hydro 2,100 MW Pumped Storage
Deeside 500 MW CCGT
Rugeley 1,000 MW Coal
50 MW OCGT
Indian Queens 140 MW OCGT
Derwent 220 MW CHP
All assets except Derwent owned 75% IPR 25% Mitsui
UK portfolio investmentUK portfolio investment
• Current portfolio already attractive– diverse fuel sources and technologies– highly flexible assets
• IPR investing to add value– improve reliability– reduce maintenance costs– enhance flexibility– increase capacity– extend life – increase efficiency (lower CO2)
Rugeley FGDRugeley FGD
• FGD currently under construction
• Target stage 1 completion date August 2008– construction going well, civil work progressing, steel
erection on going– 175m new stack windshield complete
• £145m investment
• Ultra low sulphur coal in Q1 2008
• Unrestricted operating hours following completion
• Turbine upgrade offsets FGD efficiency reduction
Rugeley FGDRugeley FGD
Top of new stack (175m)Top of new stack (175m)
Deeside gas turbine upgradeDeeside gas turbine upgrade
• Upgrade to latest Alstom MXL technology
• Extend periods between inspections
• Lower firing temperature than standard giving– less thermal stress– reduced reconditioning
of parts– direct positive impact
on lifetime
• Opportunity to peak fire
First Hydro dam extensionFirst Hydro dam extension
• Design storage of Dinorwig ~ 9,200 MWh– 7,000,000 m3
– station can operate for 5 hours at full load
• Raising level of dam at upper reservoir
• Increases storage by 700 MWh (8%) – in 2006, would have been used on 15 days
• First stage (280 MWh) completed in May
• Target final completion October 2007
First Hydro dam extensionFirst Hydro dam extension
Saltend flexibilitySaltend flexibility
• Saltend currently runs baseload
• Very little flexing due to– low cost gas– steam provision– asset protection
• Flexibility needed to enhance market position
• Leverage off experience at Deeside
SummarySummary
• Power not a standard commodity – need shape, reserve, response
• IPR portfolio well placed to meet UK requirements
• IPR investing to meet changing market requirements– modest investment, good returns & payback periods
• Diverse portfolio, which we are enhancing to improve future competitive position
GrowthClive WardenDirector of BusinessDevelopment - Europe
ContentContent
• Development focus
• Current initiatives:– EnecoGen 800 MW CCGT– Tejo II 800 MW CCGT– renewable opportunities
• Other initiatives:– Czech Republic – Turkey– Russia
Development focusDevelopment focus
• Leverage existing country platforms
• Establish appropriate risk management structures
• Selective new market development activity
• Increasing focus on non-thermal generation
Current initiatives
EnecogenEnecogen
• 800 MW CCGT development project in Port of Rotterdam
• Partnership with Eneco (45% IPR)
• 17 year tolling agreement with Eneco
• Site and infrastructure secured
• All key permits granted
• Timescales driven by availability of firm electricity export capacity
• Financial close anticipated late 2008
• Commercial operation 2011
Tejo IITejo II
• 800 MW CCGT development project on Pego coal site
• 50/50 partnership
• Long term tolling agreement
• All key permits granted
• Financial close anticipated late 2007
• Commercial operation expected mid 2010
• Synergies with existing station
RenewablesRenewables
• Fastest growing sector in the European generation market– 40 GW installed in past 8 years– 60 GW additional capacity by 2010
• Growth driven by EU target of 20% contribution from renewables to energy mix by 2020
• Returns underwritten by legislated support mechanisms
• Key mechanisms for meeting CO2 targets:– EU Emissions Trading Scheme– high renewable targets
• Requirement for Member States to publish targets and enact policies
Other initiatives
The Czech RepublicThe Czech Republic
• 100 MW expansion at Opatovice– biomass boiler– additional steam turbine
• April 2007: EIA issued
• May 2007: Construction permit issued
• August 2007: EPC process to commence
• 2010/11: Anticipated commercial operation
• Long term regulated tariff
TurkeyTurkey
• No new generation capacity since 2003
• Energy crisis looms with predictions of ‘lights out’ as soon as 2008 – new capacity required now
• Potential to expand at Uni-Mar– exploit synergies– potential for commercial operation sooner than
green/brown field
• Further development initiatives being assessed (thermal and renewable)
RussiaRussia
• Market liberalisation commenced with major restructuring of the sector
• Growing need for new capacity– tightening reserve margin with high growth outlook– significant investment program– prospect for increasing tariff
• IPR approach– thorough understanding of market fundamentals
and participants – seek players who value our core skills to develop
partnerships– no investment decision yet
SummarySummary
• Existing portfolio provides incremental development opportunities
• Carefully structured development in new markets
• Wind development activities will contribute to growth
• Focused development effort
Levanto & wind growthopportunities
Michael BakerCEO Levanto
IntroductionIntroduction
• Market fundamentals
• The Levanto business
• Wind growth initiatives
Market sizeMarket size
Installed capacity to increase from48 GW in 2006 to 100 GW in 2011
Netherlands
France
Portugal
UK
Italy
Denmark
Spain
Germany 20.7 9.3
11.6 9.5
0.8
4.8
8.9
3.8
7.2
0.9
0 5 10 15 20 25 30
26%
41%
9%
40%
27%
5%
13%
8%
2006-11E CAGR2006-11E CAGR
3.1
2.1
2.0
1.7
1.6
1.6
Installed capacity (GW)Installed capacity (GW)
Installed capacity 2006
Projected installed capacity 2011
Source BTM Consult
Regulatory supportRegulatory support
Tariff support and grid access mechanisms are key
200€/MWh€/MWh
160
120
80
0Italy UK Germany France Netherlands Spain Portugal Denmark
66
85 84 77 75 73
50
Power salesCertificates (€/MWh) ROC’s (€/MWh)
Source EER 2005
40 67
105
71
Drivers for IPR investment Drivers for IPR investment
• Growth potential – EU 20% renewable target by 2020
• Wind now a mainstream generation technology
• IPR core competencies add value:– development– financing– trading– asset management
• Partner with leading wind developers
LevantoLevanto
• 436 MW of high quality wind assets; 409 MW in Germany and 27 MW in France
• €567m enterprise value, €190m equity investment
• IPR in top 20 owners of wind capacity worldwide
• IPR in two of Europe’s most attractive wind markets
Kisselbach Wind ParkKisselbach Wind Park
Growth strategyGrowth strategy
• Significant potential for growth in a highly fragmented market
• Pursue portfolio and single asset acquisitions– achieve scale and market entry
• Pursue developer relationships to access new build
• Review emerging markets for long-term pipeline
IPR wind initiativesIPR wind initiatives
• Ongoing M&A activity
• Germany & France– 436 MW wind power operational/in construction– >150 MW near term opportunity
• UK, Italy, Turkey– 200 MW wind in permitting
SummarySummary
• High growth
• IPR well positioned
• Exciting future
Summary Steve Riley Regional Director, Europe
SummarySummary
• European business performing well• Good environment for IPPs
– new build required • Capturing good value in existing assets • Focused investment in existing assets to enhance value • Excellent growth opportunities
– indigenous: Czech Republic– new build: Netherlands, Portugal– renewables: Germany, Italy– new markets: eg Russia
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