Contact Energy Limited · NZX:CEN
Contact Energy — Investor Day (May 2021)
91 slides from Contact Energy's investor day presentation, May 20, 2021
Slide 1: Capital Markets Day 2021
Capital Markets Day 2021 20 May 2021 1
Slide 2: Agenda
Agenda Topic Presenters Welcome, recap of FY21 and strategy overview Mike Fuge Theme 1: Grow demand James Kilty Morning tea Theme 2: Grow renewable development James Kilty Theme 3: Decarbonise our portfolio Jacqui Nelson Theme 4: Create Outstanding Customer Experiences Matt Bolton Enabling our strat
Slide 3: Presenting
Presenting Dorian Devers CFO Mike Fuge CEO Jacqui Nelson Chief Generation Officer James Kilty Deputy CEO Catherine Thompson Chief Corporate Affairs Officer and General Counsel Jan Bibby Chief People Experience Officer Matt Bolton Acting Chief Customer Officer . 3
Slide 4: Welcome, recap of FY21 and strategy overview
Welcome, recap of FY21 and strategy overview Mike Fuge CEO 4
Slide 5: 2021 Highlights
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 5
Slide 6: Overview: Introduction to Contact26
100% ownership of Simply Energy powered by contac ZN Tauhara final investment decision backed by $400m equity raise +30! Redesigning our work with Transformative Ways of Working (7 Expected to beat EBITDAF target of {0} $480m despite fuel, hydrology headwinds and NZAS support agreement >1000 househo
Slide 7: Our past strategy focused on efficient operations and use of capital
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 7
Slide 8: This discipline has delivered stable EBITDAF over the past four years
Our past strategy focused on efficient operations and use of capital Profitable operations Strong cash conversion Reducing our cost base Operating free cash flows per MWh, $/MWh Operating free cash flows as a proportion of Other operating costs and SIB capex, $M EBITDAF, %, 3-year average -37% 33 33
Slide 9: We have developed distinctive capabilities to position us for growth
This discipline has delivered stable EBITDAF over the past four years, despite volatile wholesale markets and rising thermal fuel costs In line with our mean EBITDAF of $480m p.a. and beating our operating free cash flow target EBITDAF, $M, continuing operations rolling 12 months average FY18 FY19 F
Slide 10: Two structural shifts impact the NZ electricity market
At the same time, we have developed or acquired distinctive capabilities to position us for growth Strong geothermal capabilities Strategic acquisitions and partnerships Enhanced customer experiences driving highly Geothermal generation cash-costs excluding transmission, to build capability engaged
Slide 11: Decarbonisation imperatives will accelerate electricity demand growth
Two structural shifts impact the NZ electricity market 1 Decarbonising the economy End of NZAS supply agreement 2 11
Slide 12: Decarbonisation provides the opportunity for growth
1. Decarbonisation imperatives and technology improvements will accelerate electricity demand growth The Climate Change Commission expects electricity demand to grow to meet climate targets Key drivers of decarbonisation Electricity demand, TWh1 45 Increased focus on climate change globally includin
Slide 13: Electricity market could look very different by 2030
2. Decarbonisation provides the opportunity for growth 6 Change in electricity demand and supply, TWh 5 Demand, NZAS exit Demand, including NZAS 4 New supply (cummulative) Implication 3 for Contact 2.0 Our imperative is to 2 1.3 1.4 +6 TWh deliver on our commitment 0.9 to decarbonisation and grow 1
Slide 14: We are best positioned to enable decarbonisation
Decarbonisation and the end of the NZAS supply agreement could leave the electricity market looking very different by 2030 How the electricity market will change? Baseload thermal exits, with low utilisation for remaining thermal assets The energy transition will be bumpy with periods of Intermitten
Slide 15: We're ready to drive New Zealand's decarbonisation
We are best positioned to enable decarbonisation New Zealand’s Proven best renewable Leading NZ thermal decarbonisation development pipeline generation transition We have a pipeline of options growth platform for high-quality renewable We have led the economic substitution of almost 3 TWh of thermal
Slide 16: Our strategy to lead NZ's decarbonisation
We’re ready to drive New Zealand’s decarbonisation: 16
Slide 17: Ambitious measures of success across our strategic themes
Our strategy to lead NZ’s decarbonisation Strategic Grow Grow renewable Decarbonise Create outstanding theme demand development our portfolio customer experiences Objective Attract new industrial demand with Build renewable generation and Lead an orderly transition Create NZ's leading sustainable en
Slide 18: Underpinned by three key enablers
We have set ambitious measures of success across our strategic themes Grow Grow renewable Decarbonise Create outstanding demand development our portfolio customer experiences Attract new industrial Build renewable generation Lead an orderly Create NZ's leading sustainable Objective demand with globa
Slide 19: Theme 1: Grow Demand
This will be underpinned by three key enablers Our ESG commitment Operational excellence Transformative Create long-term value through our Use innovation to continue to improve ways of working strong performance across a broad business efficiency Use technology to modernise our set of environmental,
Slide 20: Grow demand
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 20
Slide 21: Meeting climate change commission targets
Grow demand James Kilty Deputy CEO 21
Slide 22: Contact is well positioned to facilitate NZ's decarbonisation
Meeting climate change commission targets will require rapid electrification and use of new fuels like hydrogen Climate Change Commissions emissions reductions pathway Mt CO2e Electrification of existing industries 50 Emissions New demand Sector reduction from 2020 projected to 2035 Buildings and 40
Slide 23: Grow demand
Contact is well positioned to facilitate NZ’s decarbonisation Our capabilities and endowments 425 MW of geothermal Hydrogen capability 784 MW of hydro capacity with recent feasibility study, and upcoming pilot and EOI process to support our customers NZ’s best renewable development pipeline Willingn
Slide 24: Hydrogen will be a critical fuel
Grow demand Attract new industrial demand with globally competitive renewables What we’ll do A Develop NZ’s hydrogen and green chemical industry B Electrify industrial process heat C Electrify space heating D Attract data centres with clean electricity E Facilitate decarbonisation of NZ road transpo
Slide 25: Partnering with Meridian on green hydrogen feasibility
A. Hydrogen will be a critical fuel to decarbonise the global economy Hydrogen Global H2 demand by subsector in 2050, Mt 642 A light, storable and dense energy source: 483 Existing feedstock • Can be used without direct emissions New feedstock • Can be made from low and no-carbon energy sources Buil
Slide 26: Initial findings point to significant opportunity for New Zealand
A. We are partnering with Meridian to study the feasibility of the green hydrogen economy in New Zealand Advisory Board Three-part study Registration of Interest process UK/USA/Australia Completion date: August 2021 June 2021 1 Market scan Seeking responses from: Andrew • Products Murphy • Transport
Slide 27: Hydrogen projects accelerating globally
A. Initial findings point to a significant opportunity for New Zealand to lead the hydrogen economy 1. Developing international markets for green hydrogen 4. Hydrogen offers a dry-year solution • Global demand forecasts are high • Electrolysers can be designed to provide demand flexibility to suppor
Slide 28: Our next steps in hydrogen
A. Hydrogen projects are accelerating globally with >200x growth until 2030 50.1 Global electrolyser projects (announced)1 GW 43.8 ~50 GW 38.4 March 2021 32.2 25.8 Capacity installed as of 2020 ~240 MW 20.8 ~28 GW Jun 2020 11.3 6.8 3.8 ~3 GW 1.6 0.1 0.2 Jun 2019 2019 20 21 22 23 24 25 26 27 28 29 20
Slide 29: NZ industrial users opting to decarbonise process heat
A. Our next steps in hydrogen This year we will Assess New Zealand’s hydrogen opportunity Investigate the feasibility of large-scale renewable energy hydrogen production in New Zealand Determine the benefits of using hydrogen for dry- year energy supply management Seek expressions of interest for of
Slide 30: Electrification of food industries can bring +13 TWh
WORKING DRAFT B. Forward thinking NZ industrial users are already opting to decarbonise their process heat requirements Image completements of Waterford Press 30 Image completements of Waterford Press
Slide 31: Process heat is profitable as carbon costs rise
B. Electrification of food industries can bring +13 TWh of new demand, abating ~3% of NZ carbon emissions Process heat overview Dairy, meat, and food manufacturing can be the most readily electrified 48.1 TWh 35% 7.6 Other NZ energy emissions 2.5 Non-metallic minerals 9.7 Petroleum, chemicals +12.6
Slide 32: Space heating is a major part of NZ energy use
B. Process heat is a profitable source of energy as carbon costs rise Increasing carbon prices will drive further coal boiler electrification Break-even for 15MW coal boiler electrification Key assumptions Breakeven electricity price, $/MWh Climate Commission 2030 ETS target Capex: 100 Firmed renewa
Slide 33: Heat pumps will soon be economic with gas boilers
C. Space heating is a major part of New Zealand’s energy use The Climate Change Commission’s decarbonisation pathway will see a 14% increase in electricity use for space heating Building emissions pathway Energy use, TWh 40 35 30 ~3 TWh 25 expected demand +3 growth from space 20 heat electrification
Slide 34: Supplying a 10MW data centre in the lower South Island
C. Heat pumps will soon be economic with gas boilers as carbon costs continue to rise Increasing carbon prices will drive further space heating electrification Break-even for heat pumps vs. high efficiency gas boilers Key assumptions Breakeven electricity tariff, $/kWh Climate Commission 2030 ETS ta
Slide 35: Data processing will drive increased electricity demand
D. Contact is partnering to supply a 10MW data centre in the lower South Island https://www.youtube.com/watch?v=nlGGFNgUwic 35
Slide 36: Electric vehicle use expected to grow quickly
D. Data processing will drive increased electricity demand as the world becomes more digitised The global cloud data centre market is growing as more processing moves to the cloud Worldwide Installed Cloud Data Center Capacity Success factors for data centres million m2 Reliable green electricity su
Slide 37: Actively working to capture decarbonisation opportunities
E. Electric vehicles use is expected to grow quickly in New Zealand once economic, driving higher electricity demand The Climate Change Commission path expects EV electricity demand to grow quickly, reaching ~6 TWh by 2035 No new conventional cars EV Electricity demand, TWh (approx. Million EVs) ent
Slide 38: Decarbonisation panel
We are actively working to capture opportunities to drive decarbonisation The time is now: with NZAS exit in 2024, increasing carbon prices, and new technology we are at a tipping point The scale opportunities lie in hydrogen, boiler electrification, and data centres as we can capture additional val
Slide 39: Morning tea
Decarbonisation panel Andy Sibley James Kilty Simply Energy Deputy CEO Chief Business Officer 39
Slide 40: Theme 2: Grow Renewable Development
Morning tea 40
Slide 41: New generation
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 41
Slide 42: The renewable generation market is evolving
New generation James Kilty Deputy CEO 42
Slide 43: Core capabilities needed to grow renewable generation
The renewable generation market is evolving: The right renewables are an attractive investment Falling renewable technology costs Demand growth accelerated Renewable electricity aspirations Levelised cost of energy by decarbonisation IMAGE TO BE REPLACED -77% -34% 2010 2018 Solar PV Onshore Wind Ren
Slide 44: Grow renewable development
We have the core capabilities needed to grow renewable generation High quality resource consents and pipeline World-class geothermal operator ~3 TWh p.a. of geothermal generation 30-40% lower fixed costs than our peers Roaring 40s wind partnership Operational excellence provides access to sites ~1 G
Slide 45: Broken ground on Tauhara, completion expected mid-2023
Grow renewable development Build renewable generation and flexibility on the back of new demand What we’ll do A Build Tauhara to extend our geothermal capacity Grow our generation footprint through Wairakei geothermal B replacement, and/or wind and solar if they are better economics C Deploy large s
Slide 46: Tauhara more cost effective than other recent builds
A. We’ve broken ground on Tauhara and expect to complete in mid-2023 Tauhara construction timeline 2021 Early Jan Preparatory 15th Feb earthworks begin Announcement of building power station Early March Drilling commences March-October Mid 2021 Site earthworks Construction of foundations commence on
Slide 47: World-class geothermal capability
A. Tauhara appears to be more cost effective than other recent renewable builds or acquisitions in NZ OUTSIDE-IN ESTIMATES Comparison to recently announced projects / acquisitions Tauhara/ Project name/ Waipipi/Tilt/ Harapaki/Meridian/ Hawkes Mercury purchase Contact/Taupo/ Owner/Location/ Technolog
Slide 48: Geothermal: tailor investment to market conditions
A. We have world-class geothermal capability Our recent geothermal developments Operational experience on the world’s second longest electricity producing geothermal field (Wairakei, since 1958) Te Huka (2010) 28MW Capability in construction management, consenting and stakeholder engagement Bioreact
Slide 49: Wind: assessing new wind options
B. Geothermal: we will tailor investment to meet market conditions, backed by a strong pipeline of development options Investment decisions will be based on market conditions and relative economics against other options Low demand growth scenario Moderate demand growth scenario (base case) High dema
Slide 50: Green flexibility valuable as market becomes more volatile
B. Wind: We are assessing new wind options Build a portfolio of attractive, low-cost development options to assess for the next generation build after Tauhara Up to 10 TWh wind generation Wind can play a key role in our Roaring40s adds wind growth is expected by 2035 future renewable portfolio devel
Slide 51: Battery technology will provide attractive returns
C. Green flexibility will be valuable as NZ’s energy market becomes more volatile Pursuit of 100% renewables target will Volatile wind and solar capacity will Falling technology costs see thermals exit the market only continue to grow Battery LCOE, $/MWh IMAGE TO BE REPLACED -30% 2015 20 25 30 2035
Slide 52: Leading the market in demand flexibility
C. Battery technology will provide attractive returns to firm electricity Difference between maximum and minimum half hourly prices by day Our battery feasibility study $/MWh, 12 month moving average 50 MW battery in the North Island Importance of batteries will increase $240 as wind penetration inc
Slide 53: Simply Energy leads demand flexibility; plan to grow 10x by 2025
D. Leading the market in demand flexibility https://www.youtube.com/watch?v=zDh42R2Uf-8 53
Slide 54: Theme 3: Decarbonise Our Portfolio
D. Simply Energy is the leading provider of demand flexibility in New Zealand; we plan to grow this 10x by 2025 Demand flexibility capacity forecast, MW 100 100 Our demand flexibility technology allows customers to reduce their demand when wholesale prices are high, and sell this capacity to market
Slide 55: Decarbonise our portfolio
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 55
Slide 56: The role of thermal generation is changing in New Zealand
Decarbonise our portfolio Jacqui Nelson Chief Generation Officer 56
Slide 57: Decarbonise our portfolio
The role of thermal generation is changing in New Zealand; an orderly transition is in the interests of all stakeholders Increasing thermal costs struggle to compete with renewables Intermittent renewables will require firming Renewable electricity aspirations Contact gas plant fuel cost ($/MWh) +56
Slide 58: Facilitate an orderly transition to renewables
Decarbonise our portfolio 2 Change in thermal generation, 3 year rolling average TWh 1 We have been 0 leading the decarbonisation -0.7 TWh Peer 1 of NZ’s electricity -0.8 TWh Peer 2 sector -1 -2 -2.8 TWh Contact -3 FY05 FY08 FY11 FY14 FY17 FY20 58
Slide 59: Expect to decommission TCC as Tauhara comes online
3. Decarbonise our portfolio: Facilitate an orderly transition to renewables A Decommission TCC Lead NZ's’ thermal portfolio structure to ensure it can support security of electricity B supply through the energy transition at the lowest possible cost to consumers In 2026 TCC is decommissioned Reduce
Slide 60: Flexible thermal generation still has an important role
A. We expect to decommission TCC as Tauhara comes online in 2023, creating shareholder value 95 Investment in Tauhara is lower cost to Contact in the long-term 60-85 than continued investment in TCC Approximate LRMC, $/MWh ~40% TCC is approaching end of life: $80 million investment is required to su
Slide 61: Thermal review to identify operating model
B. Flexible thermal generation still has an important role in providing Kiwis with reliable and affordable electricity As demand grows and renewable penetration increases, the winter capacity margin will fall below optimal range, while thermal asset utilisation falls NZ winter capacity margin (NI),
Slide 62: Exploring establishment of 'ThermalCo'
B. Our thermal review will identify an operating model to optimise the value of our flexible thermal assets add to security of supply and benefit our shareholders Act on our commitment to ESG, contributing to better outcomes for our communities and the environment Ensure secure 24x7 electricity supp
Slide 63: Theme 4: Create Outstanding Customer Experiences
B. We are engaging with key stakeholders to explore establishment of ‘ThermalCo’ to achieve a return on assets and facilitate the energy transition Structure Process Create high level design principles Ownership 1 for new thermal structure Optimise ownership structure Agree high level design princip
Slide 64: Create Outstanding Customer Experiences
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 64
Slide 65: Scale, lowest cost-to-serve and strong brand
Create Outstanding Customer Experiences Matt Bolton Acting Chief Customer Officer 65
Slide 66: The market is becoming more competitive
Our scale, presence in adjacencies, lowest cost-to-serve and strong brand position us well against our peers to add value to shareholders Large market share Lowest cost-to-serve Strong and trusted brand Electricity mass market share; Percent Leader by region $/connection against peers NPS 19 +43 12
Slide 67: Create Outstanding Customer Experiences
The market is becoming more competitive as customer expectations continue to change Retail energy market is competitive Digital attackers and platforms are emerging with low cost-to-serve business models putting further pressure on profit margins, scale will be critical for incumbents to win Custome
Slide 68: Gearing up to grow in new and existing verticals
4. Create Outstanding Customer Experiences Create NZ's leading energy sustainability brand that will support renewable development ambitions What we’ll do A Continue to improve our customer experience B Add decarbonisation and adjacent products Decrease our cost to serve through simplification, grow
Slide 69: We're reimagining digital experience for our customers
A-B. We are gearing up to grow in new and existing verticals, building on our strong growth in broadband, targeting 650,000 connections by 2026 We’ve proven that we can grow into new markets and products We will build on our success in broadband to grow across four verticals ICPs by fuel Energy Telc
Slide 70: We will digitise to simplify our business
We’re reimagining digital experience for our customers 70
Slide 71: Enabling our strategy
We will digitise to simplify our business and improve the customer experience A track record of delivery Our success so far The End to End Customer Journeys program has directed our digitisation efforts toward improving customer experience, therefore satisfying Lowest cost to serve of Tier 1 energy
Slide 72: Enabling our strategy
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 72
Slide 73: Our strategy to lead NZ's decarbonisation
Enabling our strategy ESG, Operational Excellence, and Transformative Ways of Working Catherine Thompson Jacqui Nelson Jan Bibby Chief Corporate Affairs Chief Generation Chief People Officer and General Counsel Officer Experience Officer 73
Slide 74: Deep commitment to ESG
Our strategy to lead NZ’s decarbonisation Strategic Grow Grow renewable Decarbonise Create outstanding theme demand development our portfolio customer experiences Objective Attract new industrial demand with Build renewable generation and Lead an orderly transition Create NZ leading sustainable ener
Slide 75: Build on our strong ESG commitments
We have a deep commitment to ESG, which will enable us to drive New Zealand’s decarbonisation We are taking care of our environment and communities to deliver value to all our stakeholders New Zealand Shareholders Acting as good stewards to conserve our Align with shifts to grow shareholder value an
Slide 76: Our operational improvement priorities moving forward
Build on our strong ESG commitments Environment Social Governance • Reduce Scope 1 & 2 emissions by 45% • Support 100 community • 40-60% gender balance by 2026, compared to 2018 initiatives and organisations throughout Contact’s board, (Science-based targets) annually management and workforce • 95%
Slide 77: Transformative Ways of Working
Our operational improvement priorities moving forward We’ve been successful at reducing our cost base In the next horizon, we will innovate to continue to optimise our operations Other operating costs and SIB capex, $M -37% 391 357 301 272 248 Use digitisation and analytics to Improve generation ope
Slide 78: Our stories
Transformative Ways of Working will enable Contact to attract and retain the right talent to execute on the strategy, while delivering financial benefits A deliberate program to redesign and reimagine the ways in which we work, enabled by technology to create a great experience for our people TWOW h
Slide 79: Our investor value proposition
Our stories The empowerment our people have gotten from being By redesigning my ways of working my Allie decided to trade in living in Wellington able to work from home has increased productivity. I’m mornings have gone from leaving the house and relocated 700kms to Waihi with her a complete convert
Slide 80: Our investor value proposition
2021 Highlights Overview: Introduction to Contact26 Theme 1: Grow Demand Theme 2: Grow Renewable Development Theme 3: Decarbonise Our Portfolio Theme 4: Create Outstanding Customer Experiences Enabling our strategy Our investor value proposition 80
Slide 81: Clear pathway to long-term value creation
Our investor value proposition Dorian Devers CFO 81
Slide 82: We will transform to support demand growth and new development
Contact has a clear pathway to long-term value creation Disciplined capital allocation will continue to be important Investment in renewable supply Maintaining demand-supply balance key Decarbonisation growth opportunities 82
Slide 83: Our financial strategy grows shareholder value
We will transform to support demand growth, new renewable development across technologies, and new customer products Strategic theme Today Contact26 Outcomes Reactive to decarbonisation Proactively forming partnerships with industry to Grow electricify their energy use through long-term PPAs, Provid
Slide 84: Capital allocation framework
Our financial strategy grows shareholder value by generating cash flows from strategic investments, backed by new demand Grow our business Generate returns on our capital investments Fiscal discipline to maximise returns Build a Strategic pipeline of capital Generate demand deployment and sell Retur
Slide 85: Growth investment funding strategy
Capital allocation framework to deliver Guiding principles Our commitments What this means Continue to attract capital Invest early to reduce risk around platform and Efficient deployment of 1 station availability in a fuel scarce market - • Deliver competitive shareholder returns including stay-in-
Slide 86: The market will react to changes in supply and demand
Growth investment funding strategy Complementing conventional debt funding and potential hybrid debt instruments, Contact has already accessed equity funding to support our base case investment programme Medium-term capital investment programme Potential sources of funding (uncommitted) 50 244 60 23
Slide 87: Delivering on strategic capital deployment
The market will react to changes in supply and demand While the market will balance post NZAS, our ambition is to maintain South Island demand at current levels to enable new renewable build to displace baseload thermal generation Potential changes in demand and supply balance over next 5 years, TWh
Slide 88: Our operational plan: next 18 months
Delivering on strategic capital deployment The base business earnings in the short-term are leveraged to fuel uncertainty. Longer term the effective deployment of strategic capital should drive earnings growth Assumptions FY26 run rate Complementary NZAS load has not been fully FY24 products Product
Slide 89: Questions
Our operational plan: What you can expect in the next 18 months H1-FY22 H2-FY22 H1-FY23 Strategic theme Hydrogen expression of interest Select hydrogen position Develop hydrogen option Grow Finalise data centre partnerships Build data centres Build data centres Demand Engage on boiler electrificatio
Slide 90: Thank you
Questions 90
Slide 91: Thank you
Thank you