Agl Energy Limited · ASX:AGL
Agl Energy — Corporate Update (May 2013)
66 slides from Agl Energy's corporate update, May 31, 2013
Slide 1: ASX Release: Merchant Energy presentation
AGL Energy Limited Level 22, 101 Miller Street Locked Bag 1837 T: +61 2 9921 2999 ABN: 74 115 061 375 North Sydney, NSW 2060 St Leonards NSW 2065 F: +61 2 9921 2552 AUSTRALIA AUSTRALIA www.agl.com.au ASX Release Merchant Energy presentation 31 May 2013 Attached is a presentation to be made today by
Slide 2: Energy Market Update, Falls Creek, Victoria
1 Energy Market Update Falls Creek, Victoria Prof Paul Simshauser, Chief Economist Anthony Fowler, General Manager Merchant Energy 31 May 2013 | AGL External
Slide 3: Disclaimer and important information
2 Disclaimer and important information The information in this presentation: › Is not an offer or recommendation to purchase or subscribe for securities in AGL Energy Limited or to retain any securities currently held. › Does not take into account the potential and current individual investment obje
Slide 4: Agenda
3 Agenda › Electricity Demand: A global perspective Prof Paul Simshauser › Wholesale Electricity & Gas markets Anthony Fowler › Q&A session » Market Update – Falls Creek » 31 May 2013 » AGL External
Slide 5: Electricity Demand: Key thematics
4 Electricity Demand: Key thematics • Effect of economic conditions on demand in the NEM • Recent trends in AGL household energy demand • Impact of Solar PV » Presentation Title » February 2008 » AGL Internal
Slide 6: Economic growth
5 Economic growth Global GDP growth forecasts for 2013f have been trending down. › Consensus forecasts of 2013 real GDP Consensus Real GDP Growth forecast – 2013f growth have been trending down over the past 18 months › The US outlook is improving, although continues to face fiscal headwinds › Europ
Slide 7: Economic growth
6 Economic growth Sub-par economic growth continues to be a drag on power production. Economic Growth (%) 2013f GDP Growth (%) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 - -0.5 » Market Update – Falls Creek Source: IMF, RBA. » 31 May 2013 ACCU – Advisory Customer Council – Utilities » AGL External
Slide 8: Recovery from a financial crisis is a slow process
7 Recovery from a financial crisis is a slow process. Empirical evidence confirms it is a mistake to assume a smooth return to economic growth. This has implications for power production and electricity demand growth » Presentation Title » February 2008 » AGL Internal
Slide 9: Contracting power production
8 Contracting power production A common thematic amongst industrialised nations from about 2008. › Following the financial crisis in Power Production Growth (Cumulative Change 2007-2011) 2008, power production growth Power Production Growth rates have contracted in most (Cum. Chg 2007-2011) 2.0% wes
Slide 10: Energy demand growth rates
9 Energy demand growth rates NEM energy demand growth rates have been falling for decades. › Declining energy demand (as distinct Average Annual Growth in Energy Demand (NSW, QLD, VIC, SA) from peak electricity demand) growth rates and a concentration of 2010-2020f Frequency 2 per. Mov. Avg. (1956-1
Slide 11: US electricity demand growth distribution: 1950-2029f
10 US electricity demand growth distribution: 1950-2029f Electricity demand growth in the US shows a similar pattern. Average Annual Growth in Energy Demand (USA) 18 16 14 12 10 Frequency 8 1950-1969 1970-1989 6 1990-2009 2010-2029 4 2 0 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% Average Annual Elec
Slide 12: NEM power production growth
11 NEM power production growth Growth rates fell below GDP growth in the mid-1990s, and stayed there. NEM power production growth rates GDP & Power Production Differential Growth: Growth Indices: Growth in Power Production (NEM States: 3-yr Moving Average) [Power – GDP] (1960 = 100) (%) GDP Growth (
Slide 13: Energy demand
12 Energy demand Demand is now harder to forecast, as AEMO’s forecasts illustrate. NEM Energy Demand: Actual & Forecast (GWh) Energy Demand (GWh pa) 260,000 240,000 220,000 200,000 180,000 160,000 ACTUAL 2012 NEFR (Low) 2012 NEFR (Moderate) 140,000 2012 NEFR (High) 2011 ESOO 120,000 2010 ESOO 100,00
Slide 14: The basic anatomy of a financial crisis
13 The basic anatomy of a financial crisis is an important starting point when examining the drivers of electricity demand growth in the current environment » Presentation Title » February 2008 » AGL Internal
Slide 15: Anatomy of a financial crisis: The Run-up
14 Anatomy of a financial crisis: “The Run-up” › Financial crises are occurring more frequently, and their intensity has been rising. Globally, there have been 120 financial crises over the last 50 years › The 2008 financial crisis included more than 10 countries and included the USA, which by defin
Slide 16: Anatomy of a financial crisis: The Crash
15 Anatomy of a financial crisis: “The Crash” › Aggregate asset prices (stocks & real estate) race ahead of GDP growth year-on-year, which defies economic gravity in the case of aggregate stock prices › Then aggregate economy-wide demand begins to slow – ‘event X’ occurs which flushes out the weakne
Slide 17: Anatomy of a financial crisis: The Fall-out
16 Anatomy of a financial crisis: “The Fall-out” › Firms and households are by this stage demonstrably over-leveraged and are forced to urgently repair their business and personal balance sheets › In 1991 and in 2007, Australian firms went into the financial crisis with about 40% debt. They exited t
Slide 18: Business & Household credit
17 Business & Household credit Rapid credit expansion during the run-up, then, deleveraging. › Following the financial crisis in 2008, Business and Personal Credit ($ Billion) business and personal credit, which form Business Personal Credit Credit important components of economic ($ Billion) ($ Bil
Slide 19: Household savings
18 Household savings Consumer caution drives increases in savings rates. Household Savings Rates Household savings (%) 30% 1st OPEC Oil Shock 2nd OPEC Oil Shock 25% Banana Republic Speech 20% 2008 Global Financial & 15% Economic Crisis Aussie Dollar Floats 10% Property 1987 Stock Crash values accele
Slide 20: Retail trade
19 Retail trade Rising savings has a dampening effect on Retail Trade. Retail Trade ($M/a) Retail Trade YoY Change ($M/a) (%) Retail Trade 300,000 9.0% YoY Change 8.0% 250,000 7.0% 200,000 6.0% 5.0% 150,000 4.0% 100,000 3.0% 2.0% 50,000 1.0% 0 0.0% Jan-2000 Aug-2001 Mar-2003 Oct-2004 May-2006 Dec-20
Slide 21: Housing finance
20 Housing finance Consumer caution has also dampened housing finance and renovations. › Housing formation remains an important source of structural electricity demand growth Housing Finance ($ bn) Housing Finance Housing Finance ($ bn) Total Housing Finance - Owner-Occupier & Investor (YoY Change)
Slide 22: Official Rates and Consumer Sentiment
21 Official Rates and Consumer Sentiment Interest rate cuts are helping sentiment recover, with a lag of ~4 months. Consumer Sentiment (YoY) vs. RBA Cash Rate (YoY) WMI Consumer RBA Cash Rate Sentiment (YoY) (YoY) 60.0% WMI Consumer Sentiment YoY (LHS - 4 Month Lag) -80% RBA Cash Rate YoY (RHS - Inv
Slide 23: Unemployment Rate
22 Unemployment Rate But the unemployment rate trend is unlikely to help consumer sentiment. Unemployment (%) Unemployment (%) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Jan-2000 Jul-2001 Jan-2003 Jul-2004 Jan-2006 Jul-2007 Jan-2009 Jul-2010 Jan-2012 Jul-2013 » Market Update – Falls Creek Source: RBA, AGL
Slide 24: Consumer sentiment
23 Consumer sentiment Sentiment remains volatile, oscillating around the neutral line. WMI Consumer Sentiment WMI Consumer 130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 Jan-2000 Apr-2001 Jul-2002 Oct-2003 Jan-2005 Apr-2006 Jul-2007 Oct-2008 Jan-2010 Apr-2011 Jul-2012 Jun-2013 Source: WMI, RBA » Market
Slide 25: AGL customer payment speed index
24 AGL customer payment speed index Sentiment affects AGL’s customer payment speed index. AGL Payment Speed Index (YoY) vs. WMI Consumer Sentiment (YoY) & RBA Cash Rate (YoY) Consumer Sentiment & Payment Speed RBA Cash Rate AGL Customer Payment Speed (YoY) (YoY - Reverse Axis) (YoY) 55% WMI Consumer
Slide 26: Customer disconnection rates
25 Customer disconnection rates Customer disconnection rates have followed sentiment. Disconnection Rates vs WMI Consumer Sentiment Annual Household WMI Consumer Disconnection Rate Sentiment Index (%) (Reverse Axis) Disconnection Rate (LHS) 3.0% 80 Disconnection Rate - Adjusted (LHS) WMI Consumer Se
Slide 27: Electricity demand growth
26 Electricity demand growth Underlying drivers of residential demand appear to be changing. › At the household level, long run electricity demand growth has been driven by three separate factors: » Structural growth: population growth, house renovations, housing commitments and other new connection
Slide 28: Electricity Price Index vs. Consumer Price Index
27 Electricity Price Index vs. Consumer Price Index Electricity demand is not perfectly inelastic. › Price growth from 2007 has undoubtedly delivered a non-trivial demand response Electricity Price Index and Consumer Price Index (YOY) Price Index (YOY change) Consumer Price Index (YoY change) 20% El
Slide 29: NEM population
28 NEM population Growth rates fell during FY10-12. Aust and NEM population › Population growth rates in Australia Total Population have been gradually rising over the Population Aust Population YoY (%) last two decades, although a visible 25,000 NEM Population 2.5% deceleration occurred during FY10
Slide 30: Construction of dwellings
29 Construction of dwellings Subdued construction is also weighing on structural electricity growth rates. Construction of Dwelling pa Construction of Dwellings (#) NEM Construction of Dwellings pa 120,000 Aust Construction of Dwellings pa NEM Trend 100,000 80,000 60,000 40,000 20,000 0 Jan-1990 Sep
Slide 31: Customer connections
30 Customer connections Growth in customer connections has been running below growth in dwellings. › Growth in new connections Aust and NEM population averaged 2.0% YoY over the 20 Number of YoY year period to 2007, just prior to the connections change NEM total connections start of the financial cr
Slide 32: Weather is an important driver of short run demand
31 Weather is an important driver of short run demand Household consumption analysis needs to be weather corrected. Avg max temp. vs. NSW Avg household consumption Temperature NSW Avg H'hold Average yearly temp (metro) (Degrees C) Consumption 20 year average temp (metro) 25.0 7.8 NSW average househo
Slide 33: AGL 'C&I survey' demand
32 AGL ‘C&I survey’ demand C&I loads declined post-GFC, but stabilised in 2012 at 1.1% growth (YoY). › However, C&I demand remains susceptible with the most adverse trends occurring in the NSW region (-2.1% YoY) following a number of manufacturing site closures AGL Avg. Daily C&I Load Av. Daily C&I
Slide 34: AGL's consumer market
33 AGL’s consumer market AGL’s NSW customers are the largest consumers of electricity. AGL’s average consumer market consumption › AGL’s NSW customer base has AGL Avg Household increased substantially over the past 12 Consumption Average AGL household consumption - Portfolio Feb 2013 (MWh pa) months
Slide 35: Household electricity consumption
34 Household electricity consumption Appears relatively stable from 2002-2011 across many jurisdictions. Average Household Consumption (MWh per year) Average Household Consumption Australia U.S U.K (MWh per year) California Texas Washington 16 14 12 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 20
Slide 36: AGL consumer market demand
35 AGL consumer market demand A more granular analysis from 2009 shows NEM demand trending down. 12 month rolling-average AGL consumer market customer 12 Mth Rolling Average Consumer Market NSW VIC (MWh pa) 10.0 QLD* SA 9.0 8.0 7.0 6.0 5.0 4.0 3.0 *Consumer Market in Qld previously 2.0 included load
Slide 37: Solar PV and consumer market demand
36 Solar PV and consumer market demand AGL data shows that Solar PV is having an impact at the margins. Solar output from AGL customers vs consumer market demand by State Energy Demand (GWh pa) 5,000 AGL SA solar output + demand AGL SA demand (GWh) AGL NSW solar output + demand AGL NSW demand (GWh)
Slide 38: Solar PV installation growth rates have slowed
37 Solar PV installation growth rates have slowed, but installation sizes have increased.
Slide 39: Global Solar PV capacity
38 Global Solar PV capacity Capacity reflects sharp falls in panel costs & accommodative Feed-in Tariffs. › Global Solar PV manufacturing Global Solar PV installed capacity capacity in 2012 was about 70GW/a Installed capacity (MW) California Texas › Aggregate Solar PV panel demand 30,000 Australia U
Slide 40: Solar PV output
39 Solar PV output Solar PV in Australia now represents almost 2% of aggregate energy demand. MW installed kW installed per Solar output as % (data to 2011) head population of total electricity consumption Germany 24,678 MW 0.31 8.3 Italy 12,754 MW 0.21 7.4 France 2,659 MW 0.04 1.2 Australia 2,300 M
Slide 41: Solar PV installations and installed capacity
40 Solar PV installations and installed capacity Growth in Solar PV capacity continues. Solar PV installations and installed capacity by state (MW) Total PV Installed capacity installations (#) (MW) 1,200,000 Total number installations ACT 800 NSW VIC QLD SA NT WA 700 1,000,000 TAS 600 800,000 500 6
Slide 42: Solar PV installation growth rates
41 Solar PV installation growth rates Households respond to solar PV incentives on offer. Solar PV installations (Month-on-Month growth) Growth installations (MoM %) 35 VIC premium tariff from Nov 2009 to Dec 2011 30 NSW VIC 25 NSW FiT cut solar multiplier reduced from 5X QLD SA (60c to 20c) Oct 201
Slide 43: Solar PV system size
42 Solar PV system size Installation rate has moderated but installation size is rising. Average Solar PV system size Average PV System Size (kW) NSW VIC 4.5 QLD SA 4.0 AUS Average 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 end2009 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 » Market Update
Slide 44: Solar PV market saturation estimates
43 Solar PV market saturation estimates And aggregate installation remains well below market saturation. Market share of Solar PV on suitable dwellings Solar PV Est Share of Suitable Dwellings (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% ACT NSW NT QLD SA TAS VIC WA Australia Source: Green Ener
Slide 45: Impact of solar PV on residential demand
44 Impact of solar PV on residential demand Represents 1.9% of aggregate demand and ~5.5% of household demand. NEM solar PV output as proportion of residential demand NEM Household Consumption (GWh per year) 60,000 Output from solar PV now accounts for 50,000 about 5.5% of total NEM residential 40,0
Slide 46: Solar PV output as a share of NEM consumer demand
45 Solar PV output as a share of NEM consumer demand Solar PV output represents a rising share of NEM consumer demand. NEM solar PV output as proportion of consumer market demand Solar output share of residential demand (%) 12.0 NSW QLD 10.0 VIC SA 8.0 6.0 4.0 2.0 0.0 2009 2010 2011 2012 Source: AGL
Slide 47: Intermittent Distributed Generation
46 Intermittent Distributed Generation Intermittent DG policy settings are likely to come under scrutiny. › Policymakers will inevitably review network tariffs, net-metered FiT design, or both where a peak- load mismatch persists (vis-à-vis economic welfare, and investment above efficient levels) DG
Slide 48: Solar PV effect on power production
47 From a power production perspective, Solar PV is having a moderate effect by comparison to demand contraction and large- scale Renewable Energy production. This will have implications for mid-merit plant, i.e. the ‘right half’ of the aggregate supply function…
Slide 49: NSW generation mix
48 NSW generation mix Lower production by NSW black coal generators. NSW power generation mix 2009-2012 Energy Production (GWh pa) Wind TotalCCGT TotalHydro 90,000 TotalOCGT BlackCoal NSW Load 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2009 2010 2011 2012 » Market Update – Falls Creek
Slide 50: Impact of Renewables
49 Impact of Renewables Adding renewables changes the short run dynamics. › When renewables are added to a Price power system, the average annual ($/MWh) Ssrmc cost of supply (ac) shifts upwards (to Ssrmc* ac*) through non-NEM mechanisms such as Renewable Energy Certificates and FiT’s › Renewable te
Slide 51: Wholesale Markets
50 Wholesale Markets » Presentation Title » February 2008 » AGL Internal
Slide 52: Electricity markets
51 Electricity markets East coast energy markets are experiencing significant uncertainty. Key factors: › Future demand growth › Stagnant electricity forward curve › Uncertain carbon and renewable energy policy settings › Increased renewable generation › Future gas prices » Market Update – Falls Cre
Slide 53: Electricity markets: forward curve
52 Electricity markets Stagnant Forward Curve reflects low demand and excess supply. Historical VIC Flat Contract Prices ($/MWh) $80 $80 $70 $70 Max $67.29 $60 $60 Max $57.99 Max $58.59 Max $55.88 Max $53.94 Max $51.82 $50 $50 Avg $46.12 Avg $46.25 Max $47.14 Avg $45.64 Avg $44.02 Avg $44.06 Max $44
Slide 54: Electricity markets: Queensland Q1 2013 spot outcomes
53 Electricity markets Queensland Q1 2013 spot outcomes. Average Q1 QLD Price › The transmission network connecting southern $120.00 and northern Queensland is congested $100.00 » Network constraint with significant pool $80.00 price impact resulted $/MWh $60.00 › Queensland state-owned generators b
Slide 55: Carbon policy
54 Carbon policy Policy uncertainty is adversely affecting the electricity market. › Decreased liquidity in the forward market › Altering expectations around plant closure and increased hydro generation Historical Tasmania Hydro Cumulative Generation (GWh) NSW market implied probability of carbon re
Slide 56: Renewable Energy policy
55 Renewable Energy policy AGL generation positioned for MRET uncertainty. › The LREC market continues to carry a bank LRET Market until 2015/2016, due to the rapid uptake LGCs MW of small scale solar that occurred in 2009 (000s) 35,000 10,000 & 2010 (which is now excluded from the 9,000 scheme) 30,
Slide 57: Renewable Energy policy
56 Renewable Energy policy Leading renewable development options. › AGL’s next renewable project is Solar Flagships: Renewable Cost Stack1 » 50 MW at Broken Hill and 100 MW at Nyngan » Final investment decision expected in June › Currently reviewing EPC tender responses for Silverton Wind Farm: » Up
Slide 58: Domestic Gas market
57 Domestic Gas market Increase in future value of gas. › The domestic gas market is going from a long Annual demand projections (including LNG export) market with declining production capacity to a short (‘LNG pull’) market with a significant price 2,500 uplift expected 2,000 › Expected that gas pr
Slide 59: Domestic Gas market
58 Domestic Gas market Tightening supply is resulting in rising gas prices. Gas Spot Price $6 $5 $4 $3 $2 $1 $0 Jan‐10 Jun‐10 Nov‐10 Apr‐11 Sep‐11 Feb‐12 Jul‐12 Dec‐12 May‐13 Victorian Rolling 365‐Day Price Sydney STTM Rolling 365‐Day Price Adelaide Rolling 365‐Day Price Brisbane Rolling 365‐Day Pri
Slide 60: Domestic Gas market
59 Domestic Gas market Supply contracts decline sharply post-2017. Eastern Australia Contracted Supply › Domestic gas contracts decline rapidly from 2017 › NSW’s CSG policy reversal puts stress on Commercial and Industrial users › Cooper Basin gas expected to largely flow to Queensland from 2015 › E
Slide 61: Domestic Gas market
60 Domestic Gas market AGL well-positioned to benefit from emerging trends. AGL Contracted Supply – Maximum Annual Quantity (PJ) 300 Price Reset 250 Gloucester Stage 1 Fixed Price Portf olios (post 200 current price reviews) Consumer and Fixed Price 150 Commitments Fixed Price Commitments (Wholesale
Slide 62: Domestic Gas market
61 Domestic Gas market Supply tightness reducing domestic swing. 2012 East Coast Australia Supply & Demand › Currently existing production provides a significant TJ/day proportion of the gas market swing required to meet 3,000 LNG Storage demand on peak days 2,500 Linepack › LNG demand contributing
Slide 63: Domestic Gas market
62 Domestic Gas market LNG reducing domestic swing. Meeting NSW AQ Demand Meeting NSW MDQ PJ/year TJ/d 160 900 140 800 ? 700 120 ? 600 100 500 80 400 60 300 40 200 20 100 0 0 2012 2017 2013 2017 VIC Imports Moomba Vic Import Moomba Queensland NSW CSG QLD Imports Camden Gloucester Incremental VIC Lin
Slide 64: Gas-fired generation
63 Gas-fired generation High gas prices to impact gas generation. Graphical Representation 120 140 100 120 Steam Generator Generation MW running below 100 80 RRP $/MWh SRMC MinGen 80 60 60 40 40 20 20 0 0 1 3 5 7 9 11 13 15 17 19 21 23 Hour of Day Pool Price Steam Generator OCGT » Market Update – Fa
Slide 65: Gas-fired generation
64 Gas-fired generation High gas prices result in >$35/MWh increase in SMRC cost of gas generation. NEM Intermediate gas SRMC - No Carbon Intermediate gas capacity and utilisation $160 6,000 Short Run Marginal Cost ($/MW hr) $140 $120 5,000 4,000 $100 MW 3,000 $80 2,000 $60 1,000 $40 0 $20 2012 2016
Slide 66: Questions
65 Questions