Rwe Ag · XETR:RWE
Rwe — Investor Presentation (2014)
27 slides from Rwe's investor presentation, 2014
Slide 1: Volatility, risk, and risk-premium in German and Continental power markets
Volatility, risk, and risk-premium in German and Continental power markets Stefan Judisch Supply & Trading GmbH RWE Supply & Trading PAGE 0
Slide 2: Agenda
Agenda 1. What are the market fundamentals telling us? 2. What can we observe in the traded market? 3. How will future developments impact merit order economics? 4. Summary and conclusions RWE Supply & Trading PAGE 1
Slide 3: Various fundamental factors influence power prices on the long-term forward market
Various fundamental factors influence power prices on the long-term forward market Fuel forward curves A CO2 prices Gas prices Crude prices Coal prices Reservoir Reservoir Marginal costs of level hydro plants thermal plants Power plant new build Supply Renewable Wind capacity Thermal power Available
Slide 4: With the exception of coal, energy prices moved mostly sideways over the last two years
A B C D With the exception of coal, energy prices moved mostly sideways over the last two years As of March 2014 CO2 2014 (EUR/EUA) Coal Cal2014 (USD/t) 2012 2013 2012 2013 TTF Sum2014 (EUR/MWh) German Power Cal2014 (EUR/MWh) (coal at the margin) 2012 2013 2012 2013 RWE Supply & Trading PAGE 3
Slide 5: Recent energy price developments continue to move sideways
A B C D Recent energy price developments continue to move sideways As of August 2014 CO2 2014 (EUR/EUA) Coal Cal2014 (USD/t) 2012 2013 2014 2012 2013 2014 TTF Sum2014 (EUR/MWh) German Power Cal2014 (EUR/MWh) (coal at the margin) 2012 2013 2014 2012 2013 2014 RWE Supply & Trading PAGE 4
Slide 6: German power supply – renewable capacities continue to grow
A B C D German power supply – renewable capacities continue to grow German photovoltaic and wind installations account for 46% of installed capacity and 19% of generated power in 2013 Total capacity installed (GW) Expected capacity growth (GW) Solar Max Solar Min Wind Offshore Wind Onshore RWE Suppl
Slide 7: For a number of thermal plants the energy only market is no longer viable
A B C D For a number of thermal plants the energy only market is no longer viable Closure announcements are cause for concern Plant additions and closures in Germany (MW)1 > Based on current announcements Germany will loose more than 4 GW of ‘dependable’ generation between now an 2018 > From 2015 on
Slide 8: While there is sufficient capacity right now, additional plant closure announcements will eventually tilt the system
A B C D While there is sufficient capacity right now, additional plant closure announcements will eventually tilt the system 2013 Until 2018 2023 > The BNetzA’s view on security of supply has been assessed starting from 2013 figures and adding known capacity changes Mothballed (net capacity developm
Slide 9: E.ON announced early nuclear shutdown
A B C D E.ON announced early nuclear shutdown RWE Supply & Trading PAGE 8
Slide 10: German power demand – power consumption remains weak
A B C D German power demand – power consumption remains weak Energy-intensive industries are cutting production and consumers produce their own energy Average change of weekday load compared to previous year Low load in May (-12%) not representative due to higher number of bank holidays Q111 Q211 Q3
Slide 11: Agenda
Agenda 1. What are the market fundamentals telling us? 2. What can we observe in the traded market? 3. How will future developments impact merit order economics? 4. Summary and conclusions RWE Supply & Trading PAGE 10
Slide 12: The power price development over the last twelve years in Germany show…
The power price development over the last twelve years in Germany show… Forward versus spot prices (EUR/MWh) Cal 02 Cal 07 Cal 12 Cal 03 Cal 08 Cal 13 Cal 04 Cal 09 Cal 14 Cal 05 Cal 10 Spot1 Cal 06 Cal 11 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1 365d spot moving avera
Slide 13: …that the risk premium has been mainly in forward parts of the price curve
…that the risk premium has been mainly in forward parts of the price curve (spike risk) Spread between forward and spot prices (EUR/MWh) Cal 02 Cal 07 Cal 12 Cal 03 Cal 08 Cal 13 Cal 04 Cal 09 Cal 14 Cal 05 Cal 10 Spot1 Cal 06 Cal 11 Risk premium (right scale) 2001 2002 2003 2004 2005 2006 2007 2008
Slide 14: With plenty of generation capacity available, the market does no longer price in a risk premium
With plenty of generation capacity available, the market does no longer price in a risk premium Contango has been reinstated in the front of the curve Spread between implied versus front year (EUR/MWh)1 Implied Year (FY0)2 Front Year (FY1) Second Year (FY2) Risk premium (right scale) 2012 2013 1 Ger
Slide 15: The market expects that renewable generation is growing faster than utilities will close their plants
The market expects that renewable generation is growing faster than utilities will close their plants Spread between year 3 versus year 1 (EUR/MWh) Year 1 Year 2 Year 3 Risk premium (right scale) 2012 2013 RWE Supply & Trading PAGE 14
Slide 16: The market expects also that German dark spreads will follow the decline of spark spreads
The market expects also that German dark spreads will follow the decline of spark spreads Average clean dark and spark spreads (EUR/MWh)1 Expectations for dark spreads (EUR/MWh) 2013 forward 2014 forward 2015 forward 16 Year 1 12 Year 2 8 Year 3 4 0 -4 -8 -12 -16 Trading year 2012 Trading year 2013
Slide 17: Germany's oversupply is dragging adjacent markets lower as long as there is sufficient border capacity
Germany’s oversupply is dragging adjacent markets lower as long as there is sufficient border capacity European power prices (EUR/MWh) > European power price convergence until 2012 90 Capacity constraint > Since then prices diverged 80 Capacity > In the Netherlands and UK 70 constraint gas-fired pow
Slide 18: The volatility in the German power market is shifting to the front of the curve…
The volatility in the German power market is shifting to the front of the curve… Annualised volatility compared to 2001: Forward versus spot Forward1 Spot2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1 Front year baseload 2 Day-ahead baseload RWE Supply & Trading PAGE 17
Slide 19: …and intraday market becomes more relevant to trade around actual solar and wind production
…and intraday market becomes more relevant to trade around actual solar and wind production Trading volumes on EPEX compared to 2010: Day-ahead versus intraday Day-ahead Intraday Market participants in 2010 Market participants in 2013 Day-ahead trading: 94 Day-ahead trading: 208 Intraday trading: 89
Slide 20: A first blip of light at the end of the tunnel
A first blip of light at the end of the tunnel Intraday vs Day-ahead: This year’s calendar week 28 (EUR/MWh) Intraday high / low Day-ahead Intraday 07 July 08 July 09 July 10 July 11 July 12 July 13 July RWE Supply & Trading PAGE 19
Slide 21: Agenda
Agenda 1. What are the market fundamentals telling us? 2. What can we observe in the traded market? 3. How will future developments impact merit order economics? 4. Summary and conclusions RWE Supply & Trading PAGE 20
Slide 22: German merit order in 2013: prices and volatilities for different hours of the year
German merit order in 2013: prices and volatilities for different hours of the year Capacity (GW) System services Renewables Announced for closure Nuclear1 Marginal cost (EUR/MWh) or closure candidates Lignite A cold winter hour Coal with low intraday volatility Gas A winter hour with high intraday
Slide 23: What will happen over the next five years?
What will happen over the next five years? More renewables: merit order will shift further to the right > More fuel switch coal to lignite > Lower prices > Higher spot volatility Plant closures will accelerate > Capacity ranges for coal and gas in merit order will shrink > Gas will be running more o
Slide 24: Volatility, risk and risk premium is moving along the curve in the course of time
Volatility, risk and risk premium is moving along the curve in the course of time > Volatility and risk in German and Continental power markets have moved to the very front end of the curve > This development led to backwardation of long-term contracts > During the last decade seasonal patterns beca
Slide 25: Experiences from other markets prove as well that risk premiums fluctuate
Experiences from other markets prove as well that risk premiums fluctuate USA: Back and forth shifting of the risk premium in PJM power market Spread between forward and spot prices (USD/MWh) Forward1 Result of the bull ...and corresponding Spot2 market in fuels... correction of prices Risk premium
Slide 26: Agenda
Agenda 1. What are the market fundamentals telling us? 2. What can we observe in the traded market? 3. How will future developments impact merit order economics? 4. Summary and conclusions RWE Supply & Trading PAGE 25
Slide 27: Summary & conclusion
Summary & conclusion What are the > Prices for fuel commodities and CO2 are drifting sideways 1 market fundamentals > Despite reduction in subsidies, solar and wind generation will continue to grow in Germany telling us? > From 2015 onwards plant closures will reduce the current generous capacity ma