Contact Energy Limited · NZX:CEN
Contact Energy — Investor Day (November 2018)
60 slides from Contact Energy's investor day presentation, Nov 6, 2018
Slide 1: Flexible generation assets and focus on cost efficiency grows cash flow
6 November 2018 Contact hosted invited institutional investors and analysts for dinner in Taupo on Monday evening in advance of an investor day and tour of the company’s geothermal generation assets. Dennis Barnes, Contact Chief Executive, presented a brief update on current performance. For persona
Slide 2: Progress on our strategy (continued)
retailer to a smart example of how we are customer solutions continuing to balance provider customer profitability with the value received from the marginal customer » The rebrand is resonating with customers For personal use only » Introduced smart customer solutions which our customers value by ma
Slide 3: Strategy progress and outlook
» Develop options to planning for a lower carbon enable the economic future substitution of thermal » TCC and its future role generation with » Insight into our high quality renewables and low cost geothermal » Lower the cost of operations geothermal to ensure » A preview of the many For personal us
Slide 4: Outlook and investor enquiries
Contact has not contracted for material volumes of gas for calendar year 2019, which is not unusual for this stage of the year, but is engaging with suppliers. In addition to the gas we expect to contract, we have access to stored gas in AGS and other contractual options which will give us appropria
Slide 5: 2018 Investor day
For personal use only 2018 Investor day Contact Energy | Investor day | 6 November 2018 Te Mihi Power Station 6 November 20181
Slide 6: 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 7: Agenda
Agenda For personal use only 1 Wholesale James Kilty 2 Geothermal advantage Mike Dunstall 3 Geothermal options James Kilty 4 Closing remarks and Q&A Dennis Barnes Contact Energy | Investor day | 6 November 2018 3
Slide 8: Wholesale – James Kilty
For personal use only Wholesale – James Kilty Contact Energy | Investor day| 6 November 2018
Slide 9: Wholesale
Wholesale For personal use only James Kilty – Chief Generation and Development Officer 1 Environment and strategy 2 Organising for success 3 Wholesale market outlook Contact Energy | Investor day | 6 November 2018 5
Slide 10: About Contact
About Contact For personal use only * - All figures as at June 30 2018 Contact Energy | Investor day | 6 November 2018 6
Slide 11: Sustainability is business as usual
Sustainability is business as usual For personal use only Sustainability is about integrating diverse interests into our strategy to ensure long term People value creation. How will this It’s who we are. impact people? • GRI integrated reporting since 2015 Environment Economic • Supporter of the Tas
Slide 12: Societal action on climate change is increasing
Societal action on climate change is increasing For personal use only Macro-trend towards a lower carbon future ¹ A commitment made by the Government when New Zealand joined the Powering Past Coal Alliance. Contact Energy | Investor day | 6 November 2018 8
Slide 13: Contact's strategy
Contact’s strategy For personal use only Optimising our Customer and Wholesale businesses to deliver strong cash flows Customer Wholesale A service and value focussed An innovative, safe and efficient retailer, connecting customers generator working with business and communities to smart customers,
Slide 14: Strategy to optimise the business and to focus on cash remains appropriate
Strategy to optimise the business and to focus on cash remains appropriate for now For personal use only The medium term demand picture appears increasingly positive Electricity demand Decarbonisation Regulatory settings Retail competition and supply » National demand for electricity » The Governmen
Slide 15: To capture value for shareholders we will accelerate execution of the strategy
To capture value for shareholders we will accelerate execution of the strategy For personal use only Customer Wholesale » Move to a simple, lean operating model » Sustainable cost reduction balanced against risk centred on the customer experience reinventing key customer experiences and » Strengthen
Slide 16: Delivering on continuous improvement
Delivering on continuous improvement For personal use only Compelling uplift to near term cash flows from execution FY16 FY17 FY18 FY19 (f) Employee 60% 65% 68% 73% engagement TRIFR 3.2 3.3 5.2 3.2 Cash costs1 $214m $185m $165m $143m 3 year average $77.00 / MWh $77.80 / MWh $78.60 / MWh $79.50/ MWh
Slide 17: Electricity is the solution, not the problem
Electricity is the solution, not the problem For personal use only A lower carbon economy will be enabled by electricity Contact Energy | Investor day | 6 November 2018 13
Slide 18: Support further decarbonisation of energy
Support further decarbonisation of energy For personal use only Leveraging capability to expand C&I products and services Insights and relationships will allow Contact to capture value from demand growth Contact Energy | Investor day | 6 November 2018 14
Slide 19: New Zealand's lowest cost geothermal producer
New Zealand's lowest cost geothermal producer For personal use only Operating and capital cost of production 70 $20.27 /MWh $19.90 /MWh $20.31 /MWh $17.92 /MWh 2 2 60 1 5 5 Direct cash cost of geothermal ($m) 5 3 5 50 23 24 26 19 40 30 20 36 35 33 30 10 - FY15 FY16 FY17 FY18 Geothermal operating cos
Slide 20: Wholesale sales revenue
Wholesale sales revenue For personal use only Electricity sales Electricity sales Contracted to Commercial Steam revenue to Customer electricity sales and Industrial Sales Fixed price variable Fixed price variable Revenue from Revenue from the sale channels volume sales to volume sales to C&I, contr
Slide 21: Cost of supplying energy
Cost of supplying energy For personal use only FY18 components of generation costs ($m) FY18 wholesale trading and cost of supply ($m) 800 Net spot exposed 48 700 revenue 78 Generation cost, 600 $744m ($681m) ($108m) ($45m) including gain on 500 8,614 7,416 1,356 acquired GWh GWh GWh (157GWh) genera
Slide 22: Demand outlook is positive long term
Demand outlook is positive long term For personal use only However, the sector has a bad track record of accurately forecasting demand growth, investment discipline is key 90 80 » Consensus demand 70 growth is approximately 3 - 7 TWh by 2030, TWh 60 » Geothermal and 50 Wind expected to provide this
Slide 23: Many sources of lower carbon generation will be intermittent
Many sources of lower carbon generation will be intermittent For personal use only Thermal generation will be needed for some time Contact Energy | Investor day | 6 November 2018 19
Slide 24: Gas outlook
Gas outlook For personal use only 2018 gas production forecasts (2P) » NZ has 10 years of reserves, further investment needed to firm » Recent deliverability and reliability has been a concern » Short term deliverability issues have resulted in increasing coal imports Contact Energy | Investor day |
Slide 25: Carbon outlook
Carbon outlook For personal use only Carbon costs starting to send stronger price signals 25 20 Change since 2015 15 Spot price +276% $/ T 10 Spot including 5 surrender changes +652% 0 Contact weighted 1-Jul-15 1-Jan-16 1-Jul-16 NZU spot price 1-Jan-17 1-Jul-17 1-Jan-18 1-Jul-18 1-Jan-19 average cos
Slide 26: What does that mean for thermal generation
What does that mean for thermal generation For personal use only Economics of the Taranaki combined cycle (TCC) Current economics Next major investment (2022) sensitivities Gas costs Carbon costs 2022 refurbishment +$3.5/MWh $6/GJ $15/NZU capex Gas +/- $1/GJ on the gas price +/- $7.50/MWh Short run
Slide 27: Market developments will also impact renewable development timing
Market developments, some of which we control, will also impact renewable development timing For personal use only 2018 2019 2020 2021 2022+ Interim Climate TCC major Change Commission maintenance report decision Tiwai 4th pot-line NZ election Electricity Pricing recommissioned Huntly Rankine (“swap
Slide 28: Our renewable development programme can be executed in stages
Our renewable development programme can be executed in stages as market conditions demand For personal use only 7000 6000 Geothermal Generation (GWh) 5000 4000 Brownfield geothermal range 3000 2000 1000 0 Contact Energy | Investor day | 6 November 2018 24
Slide 29: Geothermal advantage – Dr Mike Dunstall
For personal use only Geothermal advantage – Dr Mike Dunstall Contact Energy | Investor day| 6 November 2018
Slide 30: Geothermal advantage
Geothermal advantage For personal use only Dr Mike Dunstall – GM Geothermal Resources and Development 1 Geothermal 101 2 Our geothermal resources 3 Critical to creating value 4 Sharing our successes Contact Energy | Investor day | 6 November 2018 26
Slide 31: Geothermal systems are formed at plate boundaries
Geothermal systems are formed at plate boundaries For personal use only The Taupo Volcanic Zone is formed by the subduction of the Pacific plate beneath the Indo- Australian plate Contact Energy | Investor day | 6 November 2018 27
Slide 32: In localised areas the heat reaches shallow depths
In localised areas the heat reaches shallow depths For personal use only Specific natural upflows of heat from the plate interaction, when charged with large volumes of recharging water, give rise to underground geothermal reservoirs Contact Energy | Investor day | 6 November 2018 28
Slide 33: We are able to harness the geothermal resource from depths of up to 3,000m
We are able to harness the geothermal resource from depths of up to 3,000m For personal use only 1 2 3 4 5 Production Separation plant Generation Cooling Reinjection Contact Energy | Investor day | 6 November 2018 29
Slide 34: Contact's geothermal energy generation
Contact’s geothermal energy generation For personal use only 3323 GWh FY18 generation 430 MW Station capacity 8% of New Zealand’s annual electricity supply 122 in service wells, 90 production, 32 injection Contact Energy | Investor day | 6 November 2018 30
Slide 35: Wairakei field was the first of its kind in the world
Wairakei field was the first of its kind in the world For personal use only 1958 2000 2005 2007 2012 2014 Poihipi power The Wairakei Te Mihi power station power station station purchased consent renewed commissioned The Wairakei binary Wairakei Wairakei power plant is bioreactor station commissioned
Slide 36: Wairakei - New Zealand's largest geothermal field
Wairakei - New Zealand's largest geothermal field For personal use only Wairakei extraction via four interconnected power stations delivering 85% of Contact’s total geothermal generation Contact geothermal cash costs by field » Consented until 2026 $53.69 » Options to add 3rd unit at Te Mihi Unit 3
Slide 37: Rethinking our Wairakei geothermal operations
Rethinking our Wairakei geothermal operations Redesigning Geo Metrics For personal use only 1368 GWh FY18 Te Mihi generation 99.6% Poihipi FY18 availability 82.6% factor Wairakei A&B Station capacity 245,428 FY18 t/day average consumption in Resource consent efficiency 30.4 31.46 32.56 GWh/mt GWh/mt
Slide 38: The Ohaaki field will soon celebrate its 30th anniversary of production
The Ohaaki field will soon celebrate its 30th anniversary of production For personal use only Contact geothermal cash costs by field » Consented until 2048 $53.69 » Higher cost field, higher carbon emissions $50 intensity » Improving injection constraints $40 » Geo40 silica extraction creating diver
Slide 39: At Tauhara we have had a presence since 1996
At Tauhara we have had a presence since 1996 For personal use only 1996 1999 2001 2006 2010 2010 Purchases rights Obtains consents for Te Te Huka to Tauhara field Huka power power station from Electricity station commissioned Corporation of Tenon direct Consent to New Zealand heat plant develop 250
Slide 40: With a decade of operational experience through the Tenon and Te Huka plants
With a decade of operational experience through the Tenon and Te Huka plants For personal use only Contact geothermal cash costs by field » Consented until 2045 $53.69 » Brownfield geothermal – Te Huka and $50 Tenon operating » Consents for significant electricity or heat $40 supply expansion Cost o
Slide 41: Underpinning these operations is world class geothermal capability
Underpinning these operations is world class geothermal capability For personal use only development maintenance Commercial engineering Contact operations Geothermal resources resources execution Low cost effective Reliable Manage capability fuelling Identify Project Safety capabilities Value Cost a
Slide 42: Geothermal team focused on innovation without new development
Without new development, the geothermal team have been focused on innovation For personal use only FY10 – FY14 FY15 – FY19 Outlook » SIB wells drilled – major rig 37 0 » SIB wells drilled – minor rig 0 2* » Rig workovers / broaching 16 / 21 0/3 » Coil tube workovers 2 10 » Contact proprietary techno
Slide 43: Out of the box consenting and revised resource optimisation is delivering value
Out of the box consenting and revised resource optimisation is delivering value For personal use only Illustrative resource consent use of the Wairakei field 270,000 Reduce maximum fuel requirement Maximise efficient plant operation 260,000 250,000 240,000 Mass extracted (T/day) 230,000 220,000 Move
Slide 44: Our steamfield system enables this flexibility
Our steamfield system enables this flexibility For personal use only Te Mihi Te Mihi Wairakei Poihipi 1 2 Plant capacity Steamfield FP16 FP15 FP14 Western borefield capacity Well capacity Poihipi wells Te Mihi wells Western borefield wells Contact Energy | Investor day | 6 November 2018 40
Slide 45: We can flex our steam to different plants
We can flex our steam to different plants When a Te Mihi unit comes out of service we can reduce mass and increase generation For personal use only Te Mihi Te Mihi Wairakei Poihipi 1 2 Plant capacity Steamfield FP16 FP15 FP14 Western borefield capacity Well capacity Poihipi wells Te Mihi wells Weste
Slide 46: History of environmental upgrades at Wairakei
We have history of environmental upgrades at Wairakei previously For personal use only The world's first geothermal Bioreactor completed in 2012 now removes over 99.5% of all Hydrogen Sulphide present in the Wairakei discharge stream Hydrogen sulphide scrubbing in action Contact Energy | Investor da
Slide 47: We have demonstrated our proficiency and capability over many decades
We have demonstrated our proficiency and capability over many decades For personal use only Wairakei field generation, 1999-2020(f) vs the Te Mihi business case 3,000 2014 2,500 Te Mihi completed, initial generation loss covered by insurance and claims 2,000 2001 Poihipi plant purchased Generation (
Slide 48: Geothermal options – James Kilty
For personal use only Geothermal options – James Kilty Contact Energy | Investor day| 6 November 2018
Slide 49: Geothermal options
Geothermal options For personal use only James Kilty – Chief Generation and Development Officer 1 Wairakei 2026 Tauhara development 2 options Contact Energy | Investor day | 6 November 2018 45
Slide 50: Wairakei post 2026 – charting a sustainable path
Wairakei post 2026 – charting a sustainable path For personal use only Consenting and community Reservoir trends Surface facilities » Several consents on the » We must understand the trends » The Te Mihi and Poihipi plants Wairakei Field expire in 2026 – of the reservoir over time, the utilise moder
Slide 51: Scenarios integrate resource, plant and stakeholder opportunities
Scenarios integrate resource, plant and stakeholder opportunities For personal use only Share the benefits – Reservoir Plant and 2 3 4 more cascade use trends asset life Community 5 involvement – tourism, heat Decarbonising New Zealand 1 Water stewardship Me haere ngatahi tatou Contact Energy | Inve
Slide 52: Post 2026 we expect significant fluid supply under wellhead
Post 2026 we expect the field will have significant fluid supply under wellhead For personal use only Future generation on the Wairakei field is compelling Fluid available under wellhead post 2026 above Te Mihi and Poihipi capacity Geothermal Fluid Flow Wairakei Filed MW 2018 2019 2020 2021 2022 202
Slide 53: Wairakei options post 2026
Wairakei options post 2026 For personal use only Future Outage Plant Option Description CAPEX1 cash Complexity Flexibility duration efficiency cost2 Maintain Maintain similar to L H Wairakei current operations A&B Repower Station elements remain, Wairakei but main generating L H A&B plant replaced G
Slide 54: Tauhara development
Tauhara development For personal use only 213,000 t/day of consent geothermal fluid take 250 MW consented capacity 9 years of generation history on the field (1,757 GWh) 4 completed production wells available for new project Contact Energy | Investor day | 6 November 2018 50
Slide 55: Tauhara field supports staged development
Tauhara field supports staged development For personal use only » New Zealand’s pre-eminent renewable » Emerging lower cost technology options in 30-80 development MW range with increased scale at larger plants » Close proximity to 220 kV transmission grid » Later phases to extend reach to west and
Slide 56: A brownfield expansion of Te Huka is attractive
A brownfield expansion of Te Huka is attractive For personal use only » Significant excess of production and injection fluid above plant capacity » Unlocked via transmission connection point at Tauhara » Also low cost generation options – under assessment Te Huka indicative current capacity (t/hr eq
Slide 57: Our renewable development programme can be executed in stages
Our renewable development programme can be executed in stages as market conditions demand For personal use only 7000 6000 Geothermal Generation (GWh) 5000 4000 Brownfield geothermal range 3000 2000 1000 0 Contact Energy | Investor day | 6 November 2018 53
Slide 58: Closing remarks and Q&A – Dennis Barnes
For personal use only Closing remarks and Q&A – Dennis Barnes Contact Energy | Investor day| 6 November 2018
Slide 59: Summary
Summary For personal use only » Sustainability is the way we do things » Contact is preparing for a lower carbon future – the thermal transition will be well managed » Contact is a world class operator of geothermal assets and continues to lower the cost of geothermal » We have high quality and low
Slide 60: Question and answer panel
Question and answer panel For personal use only Dennis Barnes Chief Executive Officer James Kilty Chief Generation and Development Officer Dr Mike Dunstall GM Geothermal Resources and Development Contact Energy | Investor day | 6 November 2018 56