Contact Energy Limited · NZX:CEN
Contact Energy — Investor Presentation (April 2008)
43 slides from Contact Energy's investor presentation, Apr 2, 2008
Slide 1: Contact Energy – Presentation to Investors (ASX cover fax)
For personal use only To Company Announcements Office Facsimile 1900 999 279 Company Australian Stock Exchange Limited Date 2 April 2008 From Bill Hundy Pages 43 Subject CONTACT ENERGY – PRESENTATION TO INVESTORS Attached herewith is a copy of an announcement released to the NZX by Contact Energy to
Slide 2: Strategic Overview: Presentation to Contact Energy Investors
For personal use only Strategic Overview Presentation to Contact Energy Investors Queenstown April 2008
Slide 3: Disclaimer
Disclaimer This presentation may contain projections or forward looking statements regarding a variety For personal use only of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in an
Slide 4: Overview of the past year
Overview of the past year For personal use only • Over the past year Contact has made significant progress in its strategy development and execution • Contact has progressed various generation options: – Geothermal generation: 500 MW of new geothermal generation in various stages of development • St
Slide 5: Overview of the past year, contd
For personal use only Overview of the past year, contd • Contact has also progressed its thermal portfolio – Gas-fired peaking plant: Up to 300 MW • First phase 2 x 100 MW units to be constructed adjacent to Contact’s CCGT at Stratford, Taranaki • In construction in 2008 and in operation by Winter 2
Slide 6: Energy and climate change policy
Energy and climate change policy • At the heart of Contact’s strategy is the positioning around the Government’s policy For personal use only framework • Two major planks of Government policy: – NZ Energy Strategy – 90% renewable energy by 2025 – Economy-wide Emissions Trading Scheme that sets a mar
Slide 7: Political and regulatory update
Political and regulatory update For personal use only • Climate Change legislation expected to pass before election – although now coming under more political pressure • Thermal moratorium will be contentious • National Party energy policy under development – Supportive of emissions trading – Questi
Slide 8: Contact's submission on Climate Change Bill
Contact’s submission on Climate Change Bill For personal use only • Supportive of Emissions Trading Scheme • Uncertainty over importing of ‘hot air’ credits into NZ ETS needs to be addressed – Balance between short term cost minimisation and credibility of the ETS • 90% renewables target ‘ambitious
Slide 9: Prices are expected to rise
Prices are expected to rise • The policy environment is clearly guiding investment toward renewables For personal use only • To realise the policy goals, wholesale prices are expected to trend toward the LRMC of wind • $85 -100 / MWh • Resulting in continued upward pressure on retail prices 120 Entr
Slide 10: A renewables scenario
A renewables scenario • Contact is supportive of the renewable target but it will be ambitious For personal use only • Below is an illustration as to how this might be achieved – it is one scenario • Achieving this target depends heavily on wind, geothermal and from 2020, new hydro TWh Supply vs Dem
Slide 11: A renewables scenario
A renewables scenario For personal use only Supply vs Demand: Mean Year Energy TWh 90% Renewables 60 50 New Hydro New Peakers 40 New Wind 30 New Geothermal 20 Existing Gas 10 Existing Coal Existing Renewables 0 2008 2025 Note: one possible scenario only. 10
Slide 12: An alternative scenario
An alternative scenario • Under this scenario, gas becomes the marginal plant from around 2017 For personal use only • This could be due to a number of factors: – Abandonment of the thermal moratorium – Capital costs of wind increasing relative to gas fired options – New gas finds coming to market a
Slide 13: An alternative scenario
An alternative scenario For personal use only • Under the gas world scenario new geothermal remains a key source of new generation • From about 2020 it is assumed that new hydro is built – this may however be substituted by further gas fired capacity Supply vs Demand: Mean Year Energy TWh Gas Future
Slide 14: Implications for Contact
For personal use only Implications for Contact • Contact believes that the broad structure of the energy industry will remain – namely vertically integrated generator/retailers • Increasing wind penetration will increase the volatility in the market – further reinforcing the value of having physical
Slide 15: Outlook
Outlook For personal use only • Contact is very well positioned for a 90% renewable scenario – It has very good renewable options – Its thermal positioning supports these options • Contact also has options which could be exercised if the base load gas was required for any reason • In either case, Co
Slide 16: For personal use only
_ contact a 2 = © @ D = © ‘= 9 Q — @ a. — © UL
Slide 17: Overview of Gas Storage
For personal use only Overview of Gas Storage Presentation to Contact Energy investors Contact Energy Offsite Queenstown, April 2008
Slide 18: Disclaimer
Disclaimer For personal use only This presentation may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in an
Slide 19: Introduction
Introduction For personal use only • In December 2007 Contact announced that it had acquired rights to develop a gas storage project in conjunction with Origin’s acquisition of the Swift Energy NZ assets • It is Contact’s current expectation that the transaction to acquire Swift’s assets will be com
Slide 20: Rationale for storage
For personal use only Rationale for storage
Slide 21: Post Maui gas contracts
Post Maui gas contracts For personal use only • Post Maui 367 gas, gas contracts are inflexible and far more expensive – Contact’s total annual gas cost is over $400m – Extracting an appropriate margin from each GJ of gas used is critical • There is little ability to bank gas under new contracts • T
Slide 22: Gas Supply and Demand characteristics
Gas Supply and Demand characteristics For personal use only • Gas demand reacts only partially to price signals – Residential and commercial customers are unable to switch easily to other fuels and they have limited on-site storage options – Generators and industrial customers are most able to switc
Slide 23: Changes in generation market will increase short term volatility
Changes in generation market will increase short term volatility For personal use only • It is generally accepted that the increasing quantities of wind expected to be added to the electricity system will increase volatility • By 2014/15 close to 10% of all generation will be from wind; this is abou
Slide 24: Example of market response to wind intermittency
Example of market response to wind intermittency For personal use only Meridian wind generation and Haywards spot electricity price 3-5 February 08 1,200 120 1,000 100 Meridian’s wind 800 80 generation drops dramatically $/MWh MW 600 60 400 40 200 20 - - 03-Feb-08 04-Feb-08 05-Feb-08 Generation Pric
Slide 25: How to approach valuation
For personal use only How to approach valuation
Slide 26: How does gas storage work
How does gas storage work For personal use only • The gas storage project involves using a near depleted underground gas reservoir • Through an optimised combination of additional gas, compression and new wells the reservoir is repressured and able to store and then reproduce gas Observation Product
Slide 27: Sources of Potential Storage Value
Sources of Potential Storage Value For personal use only • Replicate flexibility historically provided by production swing – In evaluating storage Contact has primarily focussed on the value in regaining the seasonal variation – a key value driver is the price differential to be gained between injec
Slide 28: Optimise thermal generation
Optimise thermal generation For personal use only • The charts to the right show: – the range of actual capacity factors for Contact’s thermal stations (excluding New Plymouth) over the last six calendar years – the historical price distribution curve for monthly HAY prices over the same period. • O
Slide 29: Better efficiency in gas contracting
Better efficiency in gas contracting For personal use only • Given the current gas portfolio thermal plants can back off in summer when prices are low and hydro volumes are slightly higher • Inflexible gas contracts require buyers to contract for maximum daily demand which can result in “over contra
Slide 30: Managing short term volatility
Managing short term volatility For personal use only • While wind may provide useful capacity additions over the long term, in the shorter term it is much less predictable. The “spaghetti” chart below shows the theoretical generation available from the Tararua wind farm for the years 1972 to 2005. T
Slide 31: Hydro storage value as an analogy
Hydro storage value as an analogy For personal use only • With 10PJ of storage and 170TJ/d of potential withdrawals, the gas storage at Ahuroa represents about a five-fold increase in Contact’s energy storage capacity • Contact’s gas storage will have the advantage of location in the North Island •
Slide 32: The increasing cost of pipeline balancing
The increasing cost of pipeline balancing For personal use only • One of the key recent changes to the gas market is through the transmission regime • Since the introduction of open access to the Maui system there has been daily balancing – the actual application is muted at present due to the conti
Slide 33: Support for imported gas
Support for imported gas For personal use only • Doubt still remains over whether indigenous Possible LNG gas can be found to replace reducing landing location supplies • It is apparent that LNG and CNG both require some form of storage – The most economic supply configurations seek to minimise time
Slide 34: Australian third party access charges
Australian third party access charges For personal use only • Transmission access: – Third Party access to gas transmission and distribution pipelines in Australia is governed by the National Third Party Access Code for Natural Gas Pipeline Systems (“the Code”) – This dictates principles for setting
Slide 35: International examples
International examples For personal use only • The proposed facility at Ahuroa would have around 10PJs (0.26bcm) of working capacity, roughly 4% of annual gas demand Total Gas Gas used Number of Working Peak output Storage Demand p.a. for storage capacity (mcm/day) capacity as (bcm) Generation facil
Slide 36: Why Ahuroa has been chosen
For personal use only Why Ahuroa has been chosen
Slide 37: Why Ahuroa reservoir?
Why Ahuroa reservoir? For personal use only • In coming to a conclusion to pursue storage in the Ahuroa reservoir Contact undertook a scan of all potential underground reservoirs. We also considered above the ground options • Most other underground options were rejected as not feasible for either te
Slide 38: Ahuroa storage facility costs
Ahuroa storage facility costs For personal use only • Indicative Costs and Economics – Expenditure • A total payment of about $54m to Origin covering: – purchase of rights relating to the storage project – the gas and LPG currently stored in the Ahuroa field to be used as part of the pad gas require
Slide 39: How the project will be developed
How the project will be developed For personal use only • Under the arrangements agreed with Origin: – Contact will have beneficial ownership of the part of the mining permit to the extent of the areas covered by the Ahuroa gas reservoir – Contact will direct the activities to be carried out in that
Slide 40: Timetable for development
For personal use only Timetable for development
Slide 41: Project Phases
Project Phases For personal use only • The storage project will be developed in two phases • Trial Phase – covering the next couple of years – Suspension of production from Ahuroa – Reinjection of Tariki gas upon approval of changes to the work programme – this requires the reversal of the compresso
Slide 42: Conclusion
For personal use only Conclusion
Slide 43: Conclusion
Conclusion For personal use only • Securing an option for gas storage is a key element in Contact’s strategy • It has been apparent for some time that new gas supply obligations are not consistent with the demand side requirements • This has been reinforced by the increasing focus on growth in renew