Slide 1: Aluminium – energy in solid state
Aluminium – energy in solid state Investor Relations Webinar Arvid Moss, EVP Energy June 9, 2015 (1)
Slide 2: Hydro aspiration translated into action in Energy
Hydro aspiration translated into action in Energy • Capitalize on strong climate • Realize full potential of strong • Mature captive growth position over time asset base and competencies opportunities • Capture value of the green • Further improve operational and • Raise income potential from certif
Slide 3: Energy plays a key role in aluminium
Energy plays a key role in aluminium Substantial ~50% of total Energy Power costs is changes in energy smelter capacity represents a main differentiator markets and prices ex-China is ~ 50 % of costs from on the aluminium over the last based on captive bauxite to metal globally cost curve years powe
Slide 4: Industry perspective
Industry perspective 01 (4)
Slide 5: Energy represents ~1/3 of smelter cost and ~50% of total value chain cash cost
Energy represents ~ 1/3 of smelter cost and ~ 50% of the total value chain cash cost 40% 15% Primary 30% Alumina Carbon Bauxite 35% 35% 5% 25% Energy Energy Energy Energy Total energy cost: ~50% Percentages indicate share of respective input costs globally Illustrative figures Source: CRU (5)
Slide 6: Volatile energy prices around the globe last years
Volatile energy prices around the globe last 15 years Coal and gas prices System Power prices 180 14 80 160 70 12 140 60 10 120 2014 USD/MMBtu 50 2014 USD/ton 2014 €/MWh 100 8 40 80 6 30 60 4 20 40 2 20 10 0 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2000 200
Slide 7: Stronger increase in contract prices than captive cost
Stronger increase in contract prices than captive cost Smelters, world ex-China 100% captive USD/mt Despite power cost 360 increases also for captive, 260 40% such plants have seen power costs decline as share of total cost Non-captive Non-captive have seen a USD/mt very rapid power cost 585 increas
Slide 8: Grid tariffs and “green costs” affect prices for consumers
Grid tariffs and “green costs” affect prices for consumers Composition of residential electricity Changing European power markets tariffs, 2008-2014 (EUR/MWh) Germany • Rising share of non-regulated power requires higher investments in stable and reliable grid 400 • European power market coupling an
Slide 9: Captive gaining share in primary metal production
Captive gaining share in primary metal production Could increase to around 60 % towards 2030 Primary production estimates, World ex. China (mtpy) X% Contract based X% ~40 % Captive based ~45 % ~50 % ~60 % ~55 % ~50 % 2014 2020 2030 Source: Hydro Analysis * Average semi-captive smelter has captive sh
Slide 10: Dual mission
Dual mission 02 (10)
Slide 11: Energy has a dual mission in Hydro
Energy has a dual mission in Hydro Strong, sustainable value creator and energy provider throughout the value chain To own, operate and maximize To provide competitive power sourcing value of Hydro’s energy assets and global energy competence (11)
Slide 12: Hydro is second largest hydropower producer in Norway
Hydro is second largest hydropower producer in Norway But a net buyer of power globally Norwegian power producers* Power production and consumption TWh normal production in Hydro smelters** 42 TWh 10 10 14 5 19 9 8 7 6 ~20 ~17 5 4 3 2 Production Consumption Production Consumption 1 Norway Outside No
Slide 13: Hydro energy needs are spread across the value chain, regions and energy carriers
Hydro energy needs are spread across the value chain, global regions and energy carriers Europe Power 19.6 TWh North America Natural gas 3.2 TWh Power 1.7 TWh Middle East Power 4.6 TWh South America Power 7.3 TWh Australia/Asia Coal 4.9 TWh Power 1.0 TWh Fuel oil 8.2 TWh Hydro’s energy consumption i
Slide 14: Power producer
Power producer 03 (14)
Slide 15: Hydro’s 110-year history started with energy
Hydro’s 110-year history started with energy Mission: to create a more viable society by developing natural resources and products in innovative and efficient ways Sogn 3.2 10 TWh production in a normal year of precipitation • 20 operated hydropower stations Telemark • 35 turbines and pumps • 2 000
Slide 16: Value-creation in Energy
Value-creation in Energy Key factors Volume Expiring Power and new Price contracts Drivers Commercial Sustaining Competence CAPEX CAPEX and OPEX & Earnings for taxes new GWh (16)
Slide 17: Hydropower – flexible, competitive, renewable
Hydropower – flexible, competitive, renewable OPEX & taxes Economies of scale and operational excellence Hydro Industry Energy TRI* average TRI** Total operating costs for 0 12.7 Norwegian power producers NOK/GWh Reservoirs and dams Tunnels and power stations Hydro Peers *TRI rate (own employees) –
Slide 18: Sustaining capex above historical average
Sustaining capex above historical average Sustaining CAPEX Peak in the rehabilitation cycle for an average plant every 40-60 years Hydro Energy sustaining capex, MNOK 500 450 400 350 300 250 200 150 100 50 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 (18)
Slide 19: Delivering value from growth
CAPEX and Delivering value from growth Earnings for new GWh Green certificates for 15 years if production starts ahead of 2020 2012 2014 2016 2018 2020 Vasstøl Holsbru ~ 350 GWh Execution period realized Vigeland aqusition Upgrades Midtlæger & Mannsberg Other potential projects (19)
Slide 20: Moderate Nordic power price level
Moderate Nordic power price level Power Price Main price drivers from 2008 to 2015 Nordic system price and most • Hydrology is close to neutral in both important price drivers 2008 and 2015 2015 €/MWh 55 • Total Nordic nuclear is relatively similar 50 in both years 45 40 • There are other drivers no
Slide 21: Nordic spot prices are highly volatile
Nordic spot prices are highly volatile Power Price Inter- and intra-year fluctuations and area price differences Monthly Nordic system price, 1993-2015 EUR/MWh 90 80 70 60 50 40 30 20 10 0 1993 2004 2015 Sources: Nordpool (21)
Slide 22: Nordic spot prices are highly volatile
Nordic spot prices are highly volatile Power Price Inter- and intra-year fluctuations and area price differences Monthly Nordic system price, Weekly spot prices year 2013 and 1993-2015 2014 in key elspot areas for Hydro EUR/MWh EUR/MWh 90 60 80 50 70 60 40 50 30 40 30 20 20 10 10 0 0 1993 2004 2015
Slide 23: Nordic spot prices are highly volatile
Nordic spot prices are highly volatile Power Price Inter- and intra-year fluctuations and area price differences Monthly Nordic system price, Weekly spot prices year 2013 and 1993-2015 2014 in key elspot areas for Hydro EUR/MWh EUR/MWh 90 60 80 50 70 60 40 50 30 40 30 20 20 10 10 0 0 1993 2004 2015
Slide 24: Main drivers for short term volatility and regional price differences
Main drivers for short term volatility and regional Power Price price differences Nordic hydrological balance* Nordic power system map TWh • Hydrological balance in Nordic 10 region (water and snow 5 reservoirs) 0 • Nuclear power plant availability -5 • Transmission capacity in/out of Nordic region
Slide 25: Maximizing value from commercial operations
Maximizing value from commercial operations Commercial Competence In the deregulated Nordic power market • Hydro has one of the strongest commercial • Physical assets optimized in spot markets and competence centers in the Nordic power balancing markets market − Increasing balancing needs with renew
Slide 26: Market pricing principle applied to internal contracts
Expiring Market pricing principle applied to internal contracts and new contracts Based on external price references Sourcing side Revenue side Spot 0-6 3) price • Long-term contract 1 10 (8-12)1) • Market pricing • Fixed annual pricing Regulated adjustments price 14-172 ) • Market pricing • Duratio
Slide 27: Energy delivers stable earnings and cash flow
Energy delivers stable earnings and cash flow Lower risk profile compared to Hydro as a whole Underlying EBIT Energy and Hydro Group Quarterly average, 4 quarters rolling, NOK billion 2.5 2.0 1.5 1.0 0.5 0.0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Q3’13 Q4
Slide 28: Energy provider
Energy provider 04 (28)
Slide 29: Energy is adding value across the value chain
Energy is adding value across the value chain Commercial competence, analytical capability and market understanding Global energy Operational and Commercial agility perspective analytical expertize and experience Special focus on markets and Best-practice operations and global Maximizing value of eq
Slide 30: Hydro’s sourcing platform in Norway
Hydro’s sourcing platform in Norway TWh 20 18 16 14 12 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Current captive Other contracts Statkraft 6.4 TWh Total consumption at full capacity Total consumption at full capacity plus Karmøy pilot
Slide 31: Utilizing historically low pricing environment
Utilizing historically low pricing environment Recent long-term sourcing contracts in Norway New sourcing contracts in 2014 Agder Energi 1,0 TWh/yr 2021-2030 Lyse 0,7 TWh/yr 2021-2030 Axpo 0,5 TWh/yr 2021-2030 Agder Energi 0,5 TWh/yr 2021-2030 New sourcing contracts in 2015 Lyse 0,33 TWh/yr 2031-204
Slide 32: Hydro’s sourcing platform outside Norway
Hydro’s sourcing platform outside Norway TWh 25 20 15 10 5 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Rheinwerk Slovalco Albras Tomago Alouette Qatalum captive Total power consumption in smelters at full capacity * Albras and Slovalco on 100
Slide 33: Power market outlook
Power market outlook 05 (33)
Slide 34: Main drivers for German power price level development
Main drivers for German power price level development From 2008 to 2015 German price and most important • Coal and CO2 - the main price drivers price drivers 2015 €/MWh • Growth in renewable power offsets 75 reduction in nuclear capacity 70 65 60 • Changes in thermal generation fleet and 55 transmis
Slide 35: Carbon policy and CO2 prices create large uncertainty for future power price
Carbon policy and effect on CO2-prices creates large uncertainty for the future market power price Nordic power price and CO2 cost Impact on market power price EUR/ MWh EUR/tonne 70 70 • Strong market impact of CO2 price Actual Uncertainty range − 1 €/tonne increase in CO2 price results in ~ 0.7 60
Slide 36: Nordic power generation expected to increase more than demand
Nordic power generation expected to increase more than demand Nordic power demand and consumption Global trends drive production and reduce TWh energy needs 500 Actual Forecast 450 400 350 300 250 200 150 100 50 0 2000 2005 2010 2015 2020 2025 Coal/gas Nuclear Hydro Renewable Demand Power intensive
Slide 37: Brazilian power system
Brazilian power system Hydropower based and interconnected transmission system Reservoir filling Brazil total Interconnected price areas, Brazil 100% 75% Pará 50% 25% North North East Central-West/ South East South 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Normal 2014 2015 Source: www.ons.o
Slide 38: Closely following developments in the Brazilian power market
Closely following short and long-term developments in the Brazilian power market Historical PLD balancing prices, area North • Low inflow to Brazilian hydropower plants for prolonged period BRL/MWh 1000 − Strained supply situation, high balancing prices 800 • Recent improvements in the short term su
Slide 39: Norwegian reversal regime
Norwegian reversal regime 06 (39)
Slide 40: Norwegian reversal regime
Norwegian reversal regime Private ownership not to exceed 1/3 in Norwegian waterfalls Sogn • Secures majority public 2051-2057 ownership of Norwegian hydropower resources (on a state, regional or local level) 3.2 • 1906 – waterfalls and related assets Telemark “revert back” to the state without 2044
Slide 41: Broad optionality to maintain value within the reversal regime
Broad optionality allows to maintain value of our assets within the reversal regime Sell to a publicly owned entity Merge into a larger publicly owned asset TWh with one or several owners 10* 2 Sell 2/3 1 3 7 NewCo or >= 9 TWh 7 3 Sell 100% 7 Energy Energy >= 6 TWh RSK ~3 TWh production production w
Slide 42: Several midsized, professional regional players
Several midsized, professional regional players In addition, Statkraft has assets and ownership in several companies NTE Trønder Energi Tafjord Sunndal SFE Sogn Årdal Høyanger Østfold Energi Eidsiva BKK E-co Røldal- Husnes Suldal Telemark SKL Hafslund Karmøy Skagerak Lyse Agder Vigeland Power produc
Slide 43: Historical hydropower transactions in Norway
Historical hydropower transactions in Norway Price levels also reflect asset quality, reservoir capacity, concessions Price, BNOK/TWh # of transactions (nominal) 4.5 9 Transactions involving 4 8 assets subject to reversion 3.5 between 2021 and 2029 7 3 6 2.5 5 2 4 1.5 3 1 2 0.5 1 0 0 1999 2000 2001
Slide 44: Energy in Hydro
Energy in Hydro Unique industry combination of operational and commercial competence • Stable earnings and cash • Support energy agendas flows contribute to a low of global operations risk profile across the value chain and energy carriers • Active value creation and commercial optimization • Secure
Slide 45: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Head of Investor Relations Next events t: +47 970 96 711 e: pal.kildemo@hydro.com Second Quarter Results July 21, 2015 Olena Lepikhina Investor Relations Officer t: +47 96853035 For more information see e: olena.lepikhina@hydro.com www.hydro.com/ir (45)
Slide 46: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO