Steering RWE through a challenging environment

Transcription

1 Steering RWE through a challenging environment UniCredit German Investment Conference September 22, 2010 Dr. Bernhard Günther Chief Financial Officer, RWE Supply & Trading GmbH Dr. Stephan Lowis Vice President, Investor Relations, RWE AG

2 Forward Looking Statement This presentation contains certain forward-looking statements within the meaning of the US federal securities laws. Especially all of the following statements: > Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items; > Statements of plans or objectives for future operations or of future competitive position; > Expectations of future economic performance; and > Statements of assumptions underlying several of the foregoing types of statements are forward-looking statements. Also words such as anticipate, believe, estimate, intend, may, will, expect, plan, project should and similar expressions are intended to identify forward-looking statements. The forward-looking statements reflect the judgement of RWE s management based on factors currently known to it. No assurances can be given that these forward-looking statements will prove accurate and correct, or that anticipated, projected future results will be achieved. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Such risks and uncertainties include, but are not limited to, changes in general economic and social environment, business, political and legal conditions, fluctuating currency exchange rates and interest rates, price and sales risks associated with a market environment in the throes of deregulation and subject to intense competition, changes in the price and availability of raw materials, risks associated with energy trading (e.g. risks of loss in the case of unexpected, extreme market price fluctuations and credit risks resulting in the event that trading partners do not meet their contractual obligations), actions by competitors, application of new or changed accounting standards or other government agency regulations, changes in, or the failure to comply with, laws or regulations, particularly those affecting the environment and water quality (e.g. introduction of a price regulation system for the use of power grid, creating a regulation agency for electricity and gas or introduction of trading in greenhouse gas emissions), changing governmental policies and regulatory actions with respect to the acquisition, disposal, depreciation and amortization of assets and facilities, operation and construction of plant facilities, production disruption or interruption due to accidents or other unforeseen events, delays in the construction of facilities, the inability to obtain or to obtain on acceptable terms necessary regulatory approvals regarding future transactions, the inability to integrate successfully new companies within the RWE Group to realise synergies from such integration and finally potential liability for remedial actions under existing or future environmental regulations and potential liability resulting from pending or future litigation. Any forwardlooking statement speaks only as of the date on which it is made. RWE neither intends to nor assumes any obligation to update these forward-looking statements. For additional information regarding risks, investors are referred to RWE s latest annual report and to other most recent reports filed with the Frankfurt Stock Exchange or SIX Swiss Exchange and to information available on the Internet at 2

3 Good start to 2010 continued Strong operating performance: EBITDA +22%, operating result +21%, recurrent net income +23% Solid earnings contribution from German Power Generation, Central Eastern / South Eastern Europe and Essent Joint Venture established for construction and operation of 576 MW Gwynt y Môr wind farm with Munich municipal utility and Siemens Bio coal production plant shared with Topell Energy kicked off Investment decision made for RWE Dea gas production project in Egypt to secure about 50 bcm natural gas reserves Outlook for 2010 confirmed good prospects for an attractive dividend 3

4 German government s new plans for nuclear lifetime extension, nuclear fuel tax and charges to promote renewable energies Additional lifetime for nuclear power plants in Germany Plus 8 years for seven "old" power plants Plus 14 years for ten "new" power plants Nuclear tax per gram of fissionable uranium (e.g. U235) / plutonium Total tax volume for the industry of up to 2.3 bn per year (gross) Nuclear tax is deductible from the corporate trade tax and income tax Special levy for lifetime extension (ear-marked to promote renewable energies) : Upfront payment of 300 million per year : Upfront payment of 200 million per year From 2017 onwards: 9 per additional MWh from power plants with extended lifetime (adjustments according to consumer price index and forward power prices) Upfront payments can be deducted from later payments All payments can be deducted from the corporate trade tax and income tax 4

5 Uncertainties from nuclear debate put our mid-term outlook for 2012/13 under review EBITDA Operating result Recurrent net income Dividend 2008 reported million 6,826 3, forecast 2012 versus 2008 No guidance CAGR + ca. 5% CAGR + ca. 5% 2009 reported million 9,165 7,090 3,532 Under review forecast 2013 versus 2009 above 2009 above 2009 above 2009 Dividend target Payout ratio 50% 60% with goal to at least match the previous year s dividend for each fiscal year from 2010 to 2013 > We expect the nuclear fuel tax and the levy to promote renewables to have a significant impact on our EBITDA, operating result and recurrent net income > Our financial headroom for investments would be consequently reduced to stay in line with our leverage target which we assume corresponds to an A-flat rating > Therefore, the introduction of a nuclear fuel tax and the levy to promote renewables would significantly influence our earnings and cash flows and hence, our dividend, CAPEX and growth potential 5

6 RWE Supply & Trading an integral part of RWE Long-term gas supply contracts and gas markets Emissions trading World coal market Wholesale power market RWE Supply & Trading Industrial, small and medium enterprises, municipalities, residential Generating companies (RWE Power, RWE npower, Essent) Generation capability Proprietary Trading > Proprietary trading of all energy-related commodities Sells power Buys fuels and carbon Asset-Backed Trading Supply > Centralised management of gas sourcing > Commercial optimisation of assets on behalf of generating companies (STPM) Sells power and gas Sells power to retail markets Retail companies (RWE Vertrieb, RWE npower, Essent) Short-term spot Balancing and reserve markets 6

7 Strict Risk Management in RWEST Segregation of functions between Front Office and Risk/ Back Office REQUIREMENTS TO ORGANISATIONAL AND OPERATIONAL STRUCTURE COO AG CFO AG ILLUSTRATIVE CEO CCO Trading CCO CAO CCO Sales & Origination CFO RWEST Board Front Office Market analysis and research Customer relationship management Sales and Trading Portfolio management Contract negotiation Development of new valuation methods and products Risk Position evaluation (MtM) Identification, assessment & monitoring of P&L and market risks Assessment of master, netting and collateral agreements Limit granting and monitoring Certification/ review of methods Back Office Trade processing/ settlement Margin management/ clearing Collateral management Counterparties management Segregation of functions including the Board Finance Accouting and allocation rules Financial Reporting Legal Assessment of material legal risks 7

8 We quantify and steer risk taking activities of RWEST by extending proven banking industry standards Quantification Steering Market Risk Daily position measurement by commodity, tenor and location Daily determination of Value-at-Risk at 95%-level and oneday time horizon for the proprietary trading portfolio Sensitivity analyses by stress testing Installment of appropriate limit systems for positions and Value-at-Risk Charging for risk capital employed on desk and RWEST level Reduction of position taking by management decisions Credit Risk Daily measurement of liquid portfolio with respect to MtM, potential future exposure and settlement exposure respectively close out exposure (on top of thresholds) Monthly credit risk report containing qualitative statements on top Installment of appropriate limit systems for positions and portfolio Credit Value-at-Risk Charging for risk capital employed on desk and RWEST level Reduction of position taking by management decisions Check and approval of methods (e.g. rating systems, model parameters) Operational Risk Regular evaluation of all existing risks Implementation of Key Risk Indicators Collection of losses and near losses Reconciliation between identified risks, Key Risk Indicators and losses Identification of risk control / preventive measures and monitoring of these Regular preparation of a risk reporting map to monitor the overall level of operational risk 8

9 Maximising commercial value in power generation through asset optimisation of generation capabilities T-3 years T-1 year Fully hedged T-0 Real time Forward Selling Asset Optimisation RWE AG Asset companies RWE Supply & Trading > Overall hedge strategy and policy > Optimise commercial availability of plants > Maximise efficiencies and minimise cost > Position gradually transferred to RWE Supply & Trading > Integrated optimisation of power plant flexibility > Asset-backed trading team working alongside proprietary desks > Daily make or buy decision depending on spot prices and spreads 9

10 Growing number of cancellations increases efficiency gap and value of our new-build projects Flexibility of generation system (Germany) GW base load Max. load swing in GW within 12 hours Source: RWE, December 2009 Current status of new build projects (Germany) Capacity (in GW) Ramp-up capability of power plant portfolio in GW per hour Source: RWE, February 2010 Most likely Under construction Load swing from demand and renewables Cancelled/ stopped Unlikely Questionable > Rising share of renewables generation will lead to: Increase of load swings in the system Price spikes and negative prices due to lack of flexibility in current power plant portfolio Shut downs of old inefficient and inflexible power plants > The efficiency gap is amplified by increasing number of cancellations and delays of new-build projects Eight large power plant projects with a combined capacity of 8.6 GW cancelled in the last 12 months Local public opposition and quality problems cause delays in projects under construction 10

11 Strategy for fossil fired generation: growth, higher flexibility, less CO 2 emissions Comparison of ramp capacities (old and new hard coal / CCGT) New hard coal-fired 1,600 MW plant 2 flexible 800 MW units for mid-merit regime MW Hard coal Old New Max. cap. Max. ~600 cap. MW ~800 MW 800 Min. cap. Max. gradient Min. ~420 cap. MW Max. +/- 8 MW/min gradient ~200 MW +/- 27 MW/min New gas-fired 875 MW plant, > 58% efficiency for peak times CCGT Old New Max. cap. ~420 Max. MW cap. ~875 MW Min. cap. ~168 Min. cap. MW ~260 MW 1 Max. gradient +/- Max. 10 gradient MW/min +/- 38 MW/min Minutes 30 Source: RWE. 1 One turbine gets turned off. 11

12 Making existing power plants more flexible also becomes a highly valuable option Measures for implementing flexibility extensions in RWE s existing fleet Minimum load extension > Minimum load parameters restricting flexible dispatch of thermal plants. > Existing plants provide potential for minimum load level extensions. Already in 2005 RWE started optimizing the dispatch parameters of our portfolio. Increasing partial load Peaker efficiency GT Emsland factors gas plant CC > Improving boiler and turbine system for partial load operation implies the minimization of efficiency losses. under construction > commissioning Stable efficiency in factors 2011provide the possibility to benefit from price volatilities more effectively. Availability management > RWE optimizes scheduled and unscheduled unavailability market driven strictly. Inside our plants the operational staff always knows about the current value of being available in the market. > Downtime planning already integrates occurrence of fluctuating supply. Life time management by plant components > Life time management offers range for the dispatch optimization. > Monitoring and replacing individual components of the plant system within dynamic intervals is an effective measure to avoid bottlenecks for a flexible dispatch. 12

13 Compared to the marginal plant RWE s portfolio is already today financially slightly long CO 2 t/mwh 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 Long Shortfall Pass-through factor > Factor by which CO 2 price is reflected in power price > Set by marginal plants which on average have a higher emission factor than the market portfolio RWE specific emission factor > RWE s portfolio is financially long CO 2 > Target to compensate shortfall to market portfolio via financial measures Market average emission factor > Emissions factor of total market portfolio 0,1 0 Current * Marginal plants RWE Market portfolio *anticipated 13

14 Managing CO 2 : We complement physical measures by comprehensive financial optimisation > Our large low carbon new-build programme as well as our investments in renewables will lead to substantial improvement of our CO 2 intensity until 2013 > For phase 3 ( ) we aim to reach a market average position in terms of our exposure to changes in CO 2 prices Specific CO 2 emissions exposure (t/mwh) 0,80 New builds and shut downs 2 CDM/JI Portfolio optimisation 0,67 New builds Renewables Renewables Shut downs/ lower load factor Portfolio optimisation Market average Today * 0,45 1 Assumes standardised load factors for RWE portfolio including Essent based on commodity price levels and power demand in Conventional new builds currently under construction and agreed plant shut down; assumes nuclear lifetime extension * anticipated 14

15 In European energy markets a lot revolves around power prices Fuel Markets Precipitation/ Snow melt CO 2 prices Gas prices Crude prices Coal prices Wind Solar radiation Cloud cover Temperature Reservoir/Run-of- River Hydro Plants Wind generators PV & Solar Lighting Climatization, Electric Heating Thermal power plants Renewable power generation Power price Power demand Plant availability Revisions Technical outages Cross border exchange balance School Holidays Bank Holidays Time of day Supply Demand Weather Impacts Long-term influences > Regulatory Decisions > Capacity Changes (Plant/Grid Newbuilds & Shutdowns) > Macroeconomic Developments 15

16 Not only is wind volatile, but most of the time it is not available when it is needed > Higher wind power generation during mild climate > Lower wind power generation during extreme temperatures ( Blocking Highs ) 16

17 Cold temperatures in 2009 & 2010 led to a substandard power generation from wind in Germany Monthly average of power generation from wind MW Normal 0 Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez 17

18 RWE s gas procurement portfolio is only partly exposed to the gas-to-oil spread Long-term oil indexed purchase contracts (take-or-pay) Own production 31% Russia NBP TTF approx. 50 bcm p.a. 31% Norway 16% Germany 22% The Netherlands > Our gas procurement portfolio is solely managed by RWE Supply & Trading > ~54% or 27 bcm of overall gas procurement based on long-term oil-indexed purchase contracts thereof ~16 bcm carry a gas-to-oil spread exposure in 2010 which is expected to increase to ~20bcm in the coming years 18

19 We optimise our gas portfolio in a similar way to power generation T-3 years T-1 year Fully hedged T-0 Real time Price revisions Forward Selling Asset Optimisation > Regular price revisions are included in most long-term contracts > In some contracts, additional Joker price revisions can be triggered in case of exceptional price differentials > Locking in spreads by selling the gas on the wholesale market and buying an oil swap depending on market liquidity > Optimising of contract flexibility: Minimum and maximum volumes per hour, day, year, etc. Carry forward/make-up: moving volumes from one contract year to another Delivery point with option to swap location > Use capacity of long- and shortterm storage capacities 19

20 LTCs are virtually paid in oil: When we sell gas at fixed prices we have to hedge the oil risk accordingly long position Producer Gas hedged Oil not hedged financial short position RWE oil short position > When selling gas from long-term oil indexed gas contracts to the gas wholesale market we receive a fixed amount of money via the sold gas forward but would still have to pay a variable amount of money depending on the oil price (we virtually pay in oil). > This means: we would have a financial short position in oil and would therefore loose on rising oil prices. short position Gas TTF LTC = Long Term Contract Fixed price hedge via oil-swap Third party (e.g. bank) > To hedge this risk we have to buy oil swaps (forwards) from a third party (e.g. a bank) at the same time when we sell the gas (e.g. at the TTF). > This is comparable with buying hard coal forwards at the same time when we sell electricity generation from a hard-coal fired power plant forward. 20

21 Why do we hedge our long-term gas volumes? Because we don t want to be exposed to short-term volatility January 2008 January 2010 /MWh /MWh gas-to-oil spread TTF LTC Forward 2009 Forward 2010 Forward TTF LTC Spot 2009 Forward 2010 Forward 2011 In January 2008 long-term oil indexed gas contracts if calculated with then current oil forwards were almost on par with then current TTF-forwards Looking back in January 2010 on 2009 we see that TTF spot prices were clearly below price levels of long-term oil indexed contracts. The spread for the forward years is still large but narrowing, becoming zero in

22 Performance of the Trading/Gas Midstream Division (RWE Supply & Trading) H1 operating result: -62.3% million Trading First-time consolidation of Essent s trading activities (+ 68 million) Performance below high level of H H H Supply Absence of one-offs (successful conclusion of price reviews) in the previous year Burdens from oil-indexed gas contracts Guidance for 2010: significantly below previous year million Trading First-time consolidation of Essent s trading activities Performance below high level of 2009 Supply Absence of one-offs (see above) Burdens from oil-indexed gas contracts 22

23 RWEST business and value drivers at a glance RWE Supply & Trading Proprietary Trading Asset Backed Trading Supply STPMs (Power) Gas Midstream Oil, gas, coal, CO 2, electricity Physical markets Relative value trades Germany UK NL Gas Portf. Mgt. (Global) Sourcing Classical contracts Russia/Norway (Gas to oil spread) LNG Nabucco Volatility high low Increasing (driven by structural changes) P + L (IAS) marked to market IAS for sales of own generation and procurement for own consumption/retail reported at level of operating companies 40% accrual accounting 60% marked to market Value drivers for P + L (IAS) - volatility of commodity markets - unwind Gas to oil spread LNG = - Price cap for demand bottlenecks - Alternative for storage 23

24 RWE Group: Outlook for 2010 EBITDA Operating result Recurrent net income Dividend 2009 million 9,165 7,090 3, forecast % + ca. 5% + ca. 5% Payout ratio 50% 60% 1 Capex on fixed assets bn 5.9 ca Based on recurrent net income 24

25 Steering RWE through a challenging environment UniCredit German Investment Conference September 22, 2010 Dr. Bernhard Günther Chief Financial Officer, RWE Supply & Trading GmbH Dr. Stephan Lowis Vice President, Investor Relations, RWE AG