Sse Plc · LSE:SSE
Sse — Investor Day (May 2018)
62 slides from Sse's investor day presentation, May 25, 2018
Slide 1: Creating Value in a Sustainable Way – Networks Businesses
@sse CREATING VALUE IN A SUSTAINABLE WAY — NETWORKS BUSINESSES DELIVERING FOR CUSTOMERS AND SHAREHOLDERS IN ELECTRICITY NETWORKS GREGOR ALEXANDER, COLIN NICOL AND DAVID GARDNER
Slide 2: Networks RAV and EBIT contribution to group
• RAV £3.4bn •RAV £3.1bn •RAV £1.8bn •EBIT •EBIT •EBIT Contribution Contribution Contribution to group to group to group 22-27%* 7-16%* 9-15%* *range over the past 5 years 2
Slide 3: 33% equity stake in SGN
▪ 33% equity stake 400 300 ▪ Contributed 9% of Group Adjusted EBIT in FY17/18 200 239 ▪ At the frontier of regulatory performance 100 165 0 ▪ New shareholder structure providing flexibility and FY17 FY18 development potential ▪ Expansion into new markets 3 ▪ Meter Asset Provider company ▪ Gas to the
Slide 4: 4
4
Slide 5: Colin Nicol, MD Networks
COLIN NICOL MD NETWORKS
Slide 6: Networks customers and RAV growth
7 6 3.0m customers £2.3bn RAV England England Price control 5 770k £1.1bn RAV ending FY2023 *SSE 33% share 4 customers Scotland Shared Scotland services and 3 management Connected RAV growth of expertise 2 over 1.3GW of over 190% to Price control renewables £3.1bn since ending FY2021 sale of stake i
Slide 7: Networks strategic priorities
▪ Drive efficiencies through ▪ Lead the industry transition ▪ Deliver £1.1bn Caithness- technological to a smart, flexible system Moray and future SWW transformation ▪ Build capability for projects on time and within ▪ Deliver a reduction in cost increased competition allowances to serve ▪ Efficient
Slide 8: Distribution RAV up 5% to £3.4bn
▪ Distribution RAV up 5% to £3.4bn ▪ Generating sustainable cash flows £m £bn ▪ Stable group EBIT contribution at c. Beginning of new price £400m 600 control RIIO-ED1 4.0 500 3.8 ▪ Successful delivery of £869m Capex in the first three years of ED1 400 3.6 300 3.4 ▪ Forecast investment of £2.4bn over
Slide 9: Targeted improvements in incentives performance
Targeted improvements Efficient delivery of Focused delivery of Maintain leadership in incentives capital investment regulatory outputs position on innovation performance programme 9
Slide 10: Incentives: maximum vs actual earned
£m 35 Maximum incentive 30 SSEN Actual All nominal prices 25 20 15 10 5 0 FY17 FY18 FY17 FY18 FY17 FY18 Numbers are shown in the price base of the year in which the incentive is earned, and under the price control are inflated to the price base of the year in which they are recovered (two years late
Slide 11: Actual and potential incentive revenue FY1718
£12.5m £43.2m Actual Potential incentives incentives revenue revenue FY1718 FY1718 11
Slide 12: Total forecast investment over RIIO-ED1 £2.4bn
▪ Total forecast investment over RIIO-ED1 period £2.4bn 4.5 ▪ Potential additional projects 4 ▪ Subsea Cable Replacement Programme £100m 3.5 ▪ Electrification of transport 3 2.5 2 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 12
Slide 13: Delivering regulatory outputs through increased efficiency
DELIVERING REGULATORY OUTPUTS THROUGH INCREASED EFFICIENCY TRANSFORMATIONAL CHANGE PROGRAMME Ds OPERATIONS — AMODERN APPROACH TO PLANNING AND SCHEDULING ath PEOPLE A NEW ORGANISATIONAL DESIGN AND OPERATING MODEL a, wt ASSETS IMPROVED DATA AND OPERATIONAL RIGOUR AROUND ASSET MANAGEMENT ese ‘Se TECHNO
Slide 14: Innovation funding secured since 2010
Secured over Discretionary award of in innovation funding for Low Carbon since 2010 Networks Fund in 2017 14
Slide 15: Innovation portfolio informing DSO transition
SSE’s innovation portfolio is informing our preparations for the DSO transition: ▪ NINES – an integrated solution for managing constraints in Shetland involving ANM ▪ Constraint managed zones - first network operator to issue CMZ tender as a BAU activity ▪ Active Network Management – Orkney - first
Slide 16: DSO Video
DSO VIDEO
Slide 17: Preparing to deliver value in a DSO world
PREPARING TO DELIVER VALUE IN A DSO WORLD SSEN IS WORKING TOWARDS A PHASED TRANSITION - WITH INVESTMENT PLANNED ACROSS RIIO-ED1 Scottish & Southern Electricity Networks end energynetworks aR association HM Government ofgem 17
Slide 18: Targeted improvements in incentives performance
Targeted improvements Efficient delivery of Focused delivery of Maintain leadership in incentives capital investment regulatory outputs position on innovation performance programme 18
Slide 19: Dave Gardner, Director of Transmission
DAVE GARDNER DIRECTOR OF TRANSMISSION
Slide 20: Renewables connected to network and Transmission RAV growth
▪ Renewables connected to network grown from 3.7GW to over 5GW since 2013 ▪ Forecast to grow to over 6GW by 2020 Transmission RAV growth £bn GW 3.5 5 3.0 4 2.5 3 2.0 1.5 2 1.0 1 0.5 0 0.0 FY13 FY14 FY15 FY16 FY17 FY18 Transmission RAV (RHS) Renewables conntected to Transmission network 20
Slide 21: RIIO-T1 capex and track record of delivery
• RIIO-T1 capital expenditure to date over £2 billion • Track record of delivery on time and under budget 1. Beauly Denny delivered and closed out with Ofgem 2. Kintyre Hunterston 3. Beauly-Blackhillock-Kintore 4. Beauly Mossford 5. Foyers Knockknagael 6. Fort Augustus 7. Connection to Stronelairg W
Slide 22: £1.1bn project on track for 2018
▪ £1.1bn project ▪ Over £900m spent to date ▪ Remains on track for delivery in 2018 22 22
Slide 23: £1.1bn project on track for 2018
• £1.1bn project ▪• £1.1bn project [c£900]m spent to date ▪• Over £900m Remains spentfor on track to date delivery in 2018 ▪ Remains on track for delivery in 2018 23 23
Slide 24: £0.9bn planned capital investment to FY20/21
▪ £0.9bn of planned capital investment in remaining three years of the price control to FY20/21 1. Rothienorman GSP 2. Inverary to Port Ann 3. Beauly to Keith 4. Loch Buidhe to Dounreay 5. Keith to Blackhillock 6. Beauly to Tomatin 7. Fort Augustus 400/133kv ▪ Visibility on contingent projects of up
Slide 25: Remote island wind projects CfD eligible
▪ In October 2017, the Government confirmed that remote island wind projects would be CfD eligible ▪ Needs case for Orkney link submitted to Ofgem March 2018 ▪ Total investment opportunity of c.£1.5 billion for all three island groups 25
Slide 26: Capex pipeline and estimated RAV growth
4.5 £bn 4 ▪ 3yr Capex pipeline to FY2021 of £0.9bn ▪ Estimated RAV £3.6bn at Mar2021 3.5 3 ▪ 5yr Capex pipeline to FY2023 of £1.2bn ▪ Estimated RAV £3.8bn at Mar2023 2.5 2 1.5 ▪ Visibility on contingent projects of up to 1 £0.7bn 0.5 ▪ Islands opportunity of up to £1.5bn 0 RAV Growth base case 26
Slide 27: Gregor Alexander, Finance Director
GREGOR ALEXANDER FINANCE DIRECTOR
Slide 28: The RIIO-2 Framework
THE RIl0-2 FRAMEWORK
Slide 29: Base case RAV growth and EBIT averaging around £800m
£m £bn 12 ▪ Base case RAV growth to FY2023 forecast at c3.6% CAGR 10 ▪ EBIT averaging around £800m out to 8 2023 6 ▪ Positioning well for the future with significant options for further upside 4 ▪ Creating value in a sustainable way 2 0 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Transmission
Slide 30: Enterprise Video
ENTERPRISE VIDEO
Slide 31: Creating Value in a Sustainable Way – Wholesale Businesses
CREATING VALUE IN A SUSTAINABLE WAY — WHOLESALE BUSINESSES PROVIDING ENERGY IN THE TRANSITION TO A LOW CARBON WORLD ALISTAIR PHILLIPS-DAVIES, CHIEF EXECUTIVE MARTIN PIBWORTH, WHOLESALE DIRECTOR 25 MAY 2018
Slide 32: Aim of this session
▪ Aim of this session is to leave with a better understanding of the: - Value of SSE’s portfolio of assets and why it’s worth more than the SoTP - Attributes of SSE’s unique portfolio of renewables - Importance of flexible thermal generation - Benefits of gas production and gas storage - Significant
Slide 33: Severe weather and gas supply fears
1B Severe weather possible MJ Potential risk to life and property BBC NEWS tty images Gas supply fears as Wednesday Thursday Friday Saturday cold snap continues ‘bruary 1 Mareh 2March 3 March RED WARNING SNOW BBC NEWS
Slide 34: Generating 1st March 2018 snapshot
Generating 1st March 2018 - Snapshot On and offshore wind Hydro Pumped storage Thermal including gas, coal and multifuel Gas production Gas storage Most remaining thermal plant available as back up
Slide 35: UK gas prices and weather headlines
Source: The Times, 13 October Source: Reuters, 17 November Source: The Guardian, 11 December UK GAS-PRICES DOWN ON SNOW AND ICE DISRUPTS TRAVEL ACROSS UK AS WARM WEATHER AND THOUSANDS OF SCHOOLS STRONG WIND FORECASTS CLOSE Source: BBC, 1 March Source: Reuters, 21 February Source: Reuters, 17 January
Slide 36: Ability to thrive in most prevailing market conditions
ABILITY TO THRIVE IN MOST PREVAILING MARKET CONDITIONS @sse ENVIABLE PORTFOLIO OF DISTINCTIVE FROM ANY ASSETS OTHER ENERGY GROUP aaa EXTENSIVE DELIVERING PERFORMANCE aaa OF ASSETS COMMERCIAL EXPERIENCE IN A RESPONSIBLE WAY EARNING OPTIMAL RETURN CREATING VALUE FOR SHAREHOLDERS AND SOCIETY
Slide 37: Renewable and thermal assets highly complementary
Renewable and thermal assets highly complementary: ▪ Renewable output benefits from high wind and rain ▪ CCGTs and coal deliver value when wind penetration low ▪ Thermal flexibility offers value in a market of mass intermittency ▪ Balancing Mechanism activity EBIT between £50-£100m during 3 years to
Slide 38: SSE has a leading portfolio of renewable energy assets
SSE HAS A LEADING PORTFOLIO OF RENEWABLE ENERGY ASSETS @sse RENEWABLES BY TYPE 4500 4000 3500 3000 2500 44 * weonsraucron | MW 2000 ‘ao 2017/18 SSE RENEWABLE GENERATION EBITDA OVER ‘ono S690M 500 0 = HYDRO m PUMPED STORAGE m HYDRO & PUMPED STORAGE w= FULLY OWNED ONSHORE WIND im ONSHORE im OFFSHORE w
Slide 39: SSE's onshore wind capacity
SSE’s onshore wind capacity output inc. constrained off volumes FY18 inc. £24m gain on sale of Clyde 2020 prices based £45/MWh power and £50/MWh ROC ▪ Renewable engineering capability ▪ Strategic siting of assets into operational hubs reduces costs ▪ Size, scale and experience provide competitive ed
Slide 40: SSE's offshore wind capacity
SSE’s offshore wind capacity output inc. constrained off volumes 2020 prices based £45/Mwh power and £50/MWh ROC ▪ Geographic diversity around UK increases wind capture potential ▪ Continuous improvement to improve availability and reliability ▪ Commercial partnerships provide shared learnings GB GB
Slide 41: SSE's hydro capacity
SSE’s hydro capacity 2020 prices based £45/MWh power and £50/MWh ROC ▪ Hydro flexibility delivers value ▪ Operational expertise ▪ Long term investment strategy Run of river Flexible hydro Pumped storage ▪ Responding to changing market conditions
Slide 42: Jerry Williamson, Director of Renewable Operations
Jerry Williamson © director of renewable operations
Slide 43: 300MW fast response hydro pumped storage
▪ 300MW fast response hydro pumped storage generation ▪ Provides balancing services and frequency response ▪ Annual average EBITDA around £12m for past 3 years ▪ Market requires fast acting flexible assets ▪ Can help replace the flexibility of aging coal plant ▪ Capacity market contracts ▪ Contribut
Slide 44: Hydro output and focus on returns
▪ ~12 TWh output per annum ▪ Based on £45/MWh power and £50/MWh ROC price ▪ Focus on returns ▪ Helps deliver a lower carbon economy
Slide 45: Thermal plant: Great Island, Fiddler's Ferry, Ferrybridge
en GREAT ISLAND — 464M CCGT FIDDLER’S FERRY - 1; 995M COAL FERRYBRIDGE— 137MW MULTIFUEL— SSE SHARE 50% 45
Slide 46: Critical role supporting electricity market changes
CRITICAL ROLE IN SUPPORTING ELECTRICITY MARKET CHANGES THROUGH END OF COAL AND INCREASED WIND SSE THERMAL PLANT EARNED C£50-100M IN BALANCING MECHANISM IN 2017/18 VALUE STREAMS INCLUDE BALANCING MARKET AND ANCILLARY SERVICES E.6. FORWARD CURVE RISK PREMIUMS BLACKSTART BENEFITED CCGT AND COAL PLANT W
Slide 47: Shifting merit order and CCGT load factors
▪ Shifting merit order ▪ Increased load factors on SSE’s CCGTs reflect this 47
Slide 48: Gas production
▪ Produced c1.6mth/day gas & liquids in 2017/18 ▪ Produce enough gas from assets to supply: - SSE’s Business Energy customers - SSE Airtricity household customers ▪ 2017/18 EBITDA of £153m
Slide 49: Gas storage
▪ Separate business with returns driven by seasonal spreads and volatility ▪ SSE holds ~40% of UK’s conventional gas storage with good recycling capability ▪ UK conventional storage duration curve shrunk to ~ 16 days, ▪ Expect this to be further exacerbated by future coal closures ▪ Gas storage will
Slide 50: Delivering a low carbon electricity system
SSE IS PLAYING ITS PART IN DELIVERING A LOW CARBON @sse ELECTRICITY SYSTEM -1 CLEAR OPPORTUNITIES FOR SSE'S WHOLESALE BUSINESSES FLEXIBILITY DIVERSITY 50
Slide 51: Growth opportunities for wholesale businesses
▪ Strong offshore pipeline ▪ Onshore optionality ▪ Multifuel capability and sites ▪ New CCGT options ▪ Strict investment criteria ▪ Exemplary record for building new assets in efficient, low cost manner
Slide 52: Beatrice Offshore Windfarm – In Construction
BEATRICE OFFSHORE WINDFARM--IN CONSTRUCTION
Slide 53: Offshore wind options
▪ Offshore wind space highly competitive ▪ Economics continuously evolving ▪ SSE’s options include: - Arklow Bank – up to 520MW - fully owned - Seagreen – up to 1.1GW - 50% JV - Doggerbank - up to 3.6GW - 50% JV ▪ Political ambition for new offshore wind ▪ SSE will retain financial discipline
Slide 54: Onshore wind delivery and pipeline
▪ Delivered 7 projects - 586MW - in last 16 months ▪ Stronelairg 228MW in construction ▪ 12 years experience of developing, owning & operating onshore wind ▪ ~ 800MW pipeline of potential new development ▪ Portfolio can be monetised ▪ Asset management credentials attractive to prospective partners
Slide 55: Ferrybridge multifuel
▪ Ferrybridge Multifuel1 operating well ▪ SSE share of EBITDA 2017/18 ~£26m ▪ Ferrybridge Multifuel 2 in construction – due 2019 ▪ When complete: - 138MW total in operation - SSE share 50% - Processing ~1.1m tonnes fuel pa ▪ Intend to build further multifuel plant at SSE Slough
Slide 56: New CCGT options: Keadby 2 and Ferrybridge D
▪ Coal closure and nuclear uncertainty ▪ UK requires some new CCGT volumes by mid-2020s ▪ SSE proceeding with construction of Keadby 2 with Ferrybridge D CCGT in development ▪ Optionality at Ferrybridge and Fiddler’s Ferry sites ▪ Financial discipline paramount
Slide 57: Afternoon summary
▪ Afternoon has set out: - Value of SSE’s portfolio of assets and why it’s worth more than the SoTP - Attributes of SSE’s unique portfolio of renewables - Importance of flexible thermal generation - Benefits of gas production and storage - Significant and diverse growth opportunities for SSE
Slide 58: SSE Financial Results to 31 March 2018 and Business Update
@sse CREATING VALUE IN A SUSTAINABLE WAY SSE FINANCIAL RESULTS TO 31 MARCH 2018 AND BUSINESS UPDATE 25 MAY 2018
Slide 59: SSE is being renewed
SSE IS BEING RENEWED. CORE CAPITAL QUALITY CONTINUOUS MARKETS DISCIPLINE ‘SUSTAINABILITY PEOPLE OPPORTUNITIES PROJECTS PARTNERING ASSETS IMPROVEMENT 59
Slide 60: FY20 forecast
▪ FY20 – 4.3GW capacity and 12TWh electricity ▪ Invest c£2.8bn in next 5 years in electricity networks ▪ FY20 – £45/MWh electricity price and £50/MWh ▪ EBIT contribution to average over £800m pa ROC price equals EBITDA of c£800m
Slide 61: Planned retail demerger
PLANNED RETAIL DEMERGER FORECAST *Intend to recommend
Slide 62: Forward-looking statements disclaimer
This financial report contains forward-looking statements about financial and operational matters. Because they relate to future events and are subject to future circumstances, these forward-looking statements are subject to risks, uncertainties and other factors. As a result, actual financial resul