Vattenfall Capital Markets Day 2009 Presentation by: Stephen Asplin Head of Business Unit Trading Amsterdam, 23 September 2009
Contents Overview Business Unit Trading Business Unit Trading s role within Vattenfall Shape of the new, integrated Trading Unit Key strategies for value creation Commodity price development Conclusions 2
Overview Business Unit Trading Board of Directors Chief Executive Officer Group Shared Service Group Functions Business Group Nordic Business Group Central Europe Business Group Benelux Business Group Pan Europe Wind Nuclear Engineering Generation Distribution Sales Mining & Generation Transmission Distribution Germany Distribution Poland Sales Poland Heat Poland Exploration & Production Power, Heat & Services Sales Trading Heat Sales Germany Services Heat Germany Shared Service Centres 3
Overview Business Unit Trading Business Unit Trading is governed directly from Group level. The CEO has delegated responsibility to the CFO. BU Trading is the set-up of a complete trading infrastructure, cross-regional responsible for Market Access to energy wholesale markets for the entire Vattenfall Group Electricity price risk is the risk that has the single greatest bearing on Vattenfall s earnings and is thus the most important factor for value creation BU Trading s main task is to mitigate and transfer commodity-related risks to the market. Risks between portfolios and commodities are netted as far as possible Improved hedge efficiency and extracting higher value out of the value chain 4
Trading s role in Vattenfall s value chain Commodity (fuel) markets international Electricity markets Region x CO 2 -Market EU Green Certificates Central Market Access Generation & Heat Trading Market Place Portfolio(s) Portfolio Mgmt. for 3rd parties Sales Customer Including sourcing of fuels Cables Sales Netting of positions at market 5
Overview Business Unit Trading Since July 1, 2009 Vattenfall Trading Services (VTS) and Nuon ET&W form the new Trading Unit: Vattenfall Energy Trading Hamburg Vattenfall Energy Trading GmbH Copenhagen Vattenfall Energy Trading A/S Stockholm Vattenfall AB, Vattenfall Energy Trading Amsterdam Nuon Energy Trade & Wholesale Our core markets Our locations Energy exchanges on which we trade Warsaw Vattenfall Trading Services Sp.z o.o. 6
Trading integration: complementary and expanded portfolio Deeper market knowledge through expanded geographical presence Finland Sweden UK Denmark Netherlands Poland Germany Belgium Increased customer base portfolio effect for sales, origination and trading books Number of customers Million Nuon Vattenfall Both Providing the basis for profitability and value creation Higher asset flexibility through more diverse asset base Installed capacity (GW) Nuclear 7.6 - Hydro 11.3 0.02 Coal 0.9 Gas 14.7 2.2 Oil 0.6* Other renewables 1.0 0.2 Total 34.6 4 Broader commodity coverage deeper understanding of markets and correlations Electricity 4.8 2.6 Gas sourcing, bcm 2 7 Coal sourcing, mtn 10 2 Gas _ 2.1 Emissions, mtn 82 8 * Combi Unit (Gas/Oil) 7
Key strategies for profitability and value creation Portfolio optimization Origination, Sourcing and Structuring Exploit full potential/flexibility of the expanded portfolio Aggregation and management of all commodity exposures (risks) and unique market access in BU Trading Harmonized generation management Grow and diversify fuel sourcing (e.g. LNG, coal, biomass, freight and primary CDM) Add selectively market flexibility by investing in midstream assets (e.g. gas storage, transport capacity) Expand merchant business through non-standard contracts to monetize the full portfolio effects/flexibility and outsource natural risk exposure Proprietary Trading Expand and deepen activities across commodities (power, coal, gas, bio-mass, emissions, etc.) utilizing the combined market knowledge and understanding Expand geographical presence in adjacent markets which are important for Vattenfall and Nuon 8
Electricity Prices: Looking back on turbulent 2 years Daily Forward Closing Prices EUR/MWh 100 90 80 70 60 50 40 30 20 Jan 07 Apr 07 Jul 07 Okt 07 Jan 08 Apr 08 Jul 08 Okt 08 Jan 09 Apr 09 Jul 09 ENOYR-10 EEXYR-10 ENOYR-11 EEXYR-11 9
with decisive moments in commodity and equity markets Commodity and Equities indices, Jan 2007 = 100 3,5 3 Oil as safe haven? Oil Gas USD/Eur Coal DAX 2,5 Rising global GDP Rising commodity markets 2 1,5 1 0,5 Aug 07: Start of Aug 08: Commodity Jan 09: markets sub-prime crisis markets crashed start to recover 0 10.10.2006 28.04.2007 14.11.2007 01.06.2008 18.12.2008 06.07.2009 22.01.2010 Source: Vattenfall Energy Trading 10
Stable upward trend Phase I (1 Jan 2007 31 Aug 2007) 2 2 1,5 1,5 1 1 0,5 0,5 Oil Coal Oil Coal Gas GasDAX DAX Linjär (Oil) Linjär (DAX) 0 Linjär (Gas) Linjär (Coal) 29.11.2006 0 18.01.2007 09.03.2007 28.04.2007 17.06.2007 06.08.2007 25.09.2007 2006-11-29 2007-01-18 2007-03-09 2007-04-28 2007-06-17 2007-08-06 2007-09-25 Source: Vattenfall Energy Trading 11
Financial flows moving into commodities Phase II (1 Sep 2007 3 July 2008) 3 2,5 Oil Coal Gas DAX Linear (DAX) Linear (Oil) Linear (Coal) Linear (Gas) 2 1,5 1 0,5 0,5 Oil Coal Gas DAX 0 0 06.08.2007 25.09.2007 14.11.2007 03.01.2008 22.02.2008 12.04.2008 01.06.2008 21.07.2008 06.08.2007 25.09.2007 14.11.2007 03.01.2008 22.02.2008 12.04.2008 01.06.2008 21.07.2008 Source: Vattenfall Energy Trading 12
Heights of the fear with all markets being correlated Phase III (4. July 2008-24. Dec 2008) 1,5 1,5 Oil Coal Gas DAX Linear (Oil) Linear (Coal) Linear (DAX) Linear (Gas) 1 0,5 0,5 0 21.06.2 0 008 Oil 11.07.2 008 Gas 31.07.2 008 20.08.2 008 Coal DAX 09.09.2 008 29.09.2 008 19.10.2 008 08.11.2 008 28.11.2 008 18.12.2 008 07.01.2 009 21.06.2008 11.07.2008 31.07.2008 20.08.2008 09.09.2008 29.09.2008 19.10.2008 08.11.2008 28.11.2008 18.12.2008 07.01.2009 Source: Vattenfall Energy Trading 13
Correlation between Brent and Dax 14
Correlation between German Power and Dax 15
Correlation between German Power and Oil 16
Divergent trends in commodity and equity markets Phase IV (25 Dec 2008 - today) 2 1,5 1,5 1 0,5 0,5 Oil Gas Coal Oil Coal Gas DAX DAX Linear (DAX) Linear (Oil) Linear (Gas) Linear (Coal) 0 0 29.10.2008 18.12.2008 06.02.2009 28.03.2009 17.05.2009 06.07.2009 25.08.2009 14.10.2009 2008-10-29 2008-12-18 2009-02-06 2009-03-28 2009-05-17 2009-07-06 2009-08-25 2009-10-14 Source: Vattenfall Energy Trading 17
How does the future look like? V shape Protracted recession Japan 2008 09 10 11 2012 2008 09 10 11 2012 2008 09 10 11 2012 Demand & Supply, tempo of GDP recovery and investments in technology: OPEC spare capacity determines oil price Demand Supply capacity 250 100 70-40 US$/bbl? 18
Conclusions Global commodity markets: Over the last two years trading was driven by fundamentals, global equity trends, dollar hedging, speculation and fundamentals. Since spring, oil is picking up again. German power prices: For a period of nine months German power exposure became a Dax exposure and drop of demand prevailed over bullish sentiments from the oil market. Oil is the major price driver in commodity markets and depending on tempo of global GDP recovery, stronger correlation of power with oil markets is expected. 19
Back-up 20
EEX and Nord Pool spot and futures 2001-2014 EUR/MWh Updated 18 Sept 2009 100 German spot - monthly average German futures 90 Nordic system spot - monthly average Nordic futures - monthly average 80 70 60 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 21
Business Unit Trading: Roles and Responsibilities Portfolio and Generation Management: Execution of Vattenfall s hedging strategy, short-term and online optimisation, trading related services to internal and external customers. Market Access: Executes orders and transfers risks to the wholesale market in accordance with its mandates. Trading on own behalf: Risk taking in electricity and other commodity markets, trading on interconnectors and other borders within given mandates Group responsibility: Activities that for different reasons make sense to be centralised from a group perspective (e.g. IAS 39) 22
Vattenfall Energy Trading Organization BU Trading HR & Communication Chief Commercial Officer Operations Finance Gas Trading Gas Business East Oil Trading Coal & Freight Bio-mass Power& Emissions Portfolio management Generation management Origination & Sourcing New Organisation effective from July 1, 2009 Fully fledged Front Office with all commodity exposures under responsibility of CCO Clear mandates to drive the further integration being prepared for increased value creation and synergies: more diversified sourcing and increased purchasing power portfolio effects (netting, market access, credit and risk) aligned processes and consolidated systems 23
Vattenfall Energy Trading key figures of the combined units Trading volume (external) 2008 Electricity in TWh 1,500 Coal (Swaps and FFA) in mt 110 CO2 (EUA and CER) in mt 280 Gas in TWh 590 Counterparts ~ 500 Transactions per day >1,100 Combined company data Average Age Employees Nationalities 36 ~400 20+ 24