Contact Energy Limited · NZX:CEN
Contact Energy — Investor Presentation (February 2009)
30 slides from Contact Energy's investor presentation, Feb 9, 2009
Slide 1: ASX cover note: Contact Energy retail investor presentation
For personal use only To Company Announcements Office Facsimile 1300 135 638 Company ASX Limited Date 9 February 2009 From Bill Hundy Pages 30 Subject CONTACT ENERGY – RETAIL INVESTOR PRESENTATION Attached herewith is a copy of the above presentation, released to the NZX by Contact Energy today. Ori
Slide 2: New Zealand's leading integrated energy company
For personal use only New Zealand’s leading integrated energy company Presentation to Retail Investors 9 February 2009
Slide 3: 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 4: Today's discussion – Three questions
Today’s discussion – Three questions For personal use only 1. What is the background to the January earnings guidance? 2. Why does Pole 1 need to be replaced? 3. What does the absence of Pole 1 mean for Contact? © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company
Slide 5: Contact is often referred to as a diversified, integrated generator/retailer
Contact is often referred to as a….. For personal use only • Diversified • Integrated • Generator/Retailer © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 4
Slide 6: Diversified (fuels, products, geography), Integrated (generation/retail)
Diversified (fuels, products, geography), Integrated (generation/retail) For personal use only © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 5
Slide 7: Why can earnings vary up and down?
If that’s the case, why can earnings vary (up and down)? For personal use only • Several reasons • One reason is ~15% of Contact’s generation is exposed to the wholesale electricity market – ~85% of generation supports Contact’s retail demand and other sales (eg: industrials) © Contact Energy Limite
Slide 8: In any year, a distribution of earnings outcomes was possible
In any year, a distribution of earnings outcomes was possible For personal use only • Historically, actual earnings were driven primarily by hydrology [wholesale price] – In dry years, Contact’s North Island gas-fired and geothermal plants provided cover, and the wholesale price was higher than aver
Slide 9: Contact has outperformed the market
Contact has outperformed the market For personal use only • Annual average compound return of • Dividends have continued to grow 13% since listing – consistently outperformed the NZX50 2005 was a nine month period and has been annualised © Contact Energy Limited 9 February 2009 New Zealand's leading
Slide 10: Current year performance impacted by extreme weather and Pole 1
Current year performance has been impacted by extreme weather and Pole 1 For personal use only • Decommissioning • Severe drought in • Lakes overflowing of HVDC pole 1 in the South Island in in Dec/Jan and loss November 2007 August/Sept of Tiwai potline © Contact Energy Limited 9 February 2009 New Z
Slide 11: August-September 2008 hydrology conditions at opposite ends of the scale
August-September 2008, hydrology conditions in the North and South Island were at opposite ends of the scale For personal use only South Island North Island Taupo inflows were at their highest ever Actual Average Average Actual Clutha inflows were near their lowest ever April May June July Aug Sept
Slide 12: Transmission constraints
Transmission constraints For personal use only • If two HVDC cables (poles) were in service, more power would have been able to move from the north to the south – Pole 1 was unexpectedly removed from service in November 2007 Compounded by other – Resulting in the islands transmission constraints ope
Slide 13: No significant investment in transmission for decades
No significant investment in transmission for decades… For personal use only Source: Transpower © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 12
Slide 14: Despite significant increases in demand
…despite significant increases in demand For personal use only Source: Transpower © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 13
Slide 15: Strong South Island demand growth – majority of new generation North Island
Strong South Island demand growth – majority of new generation North Island For personal use only Generation and Demand by Region - 2007 Hydro Growth over last 10 years Gas 7,000 6,000 Coal Total change in GWh from 5,000 Geothermal 1997-2007 4,000 Wind 3,000 Other 2,000 Demand 1,000 0 North Island S
Slide 16: The South is increasingly dependent on the Cook Strait cable
The South is increasingly dependent on the Cook Strait cable For personal use only 98 99 00 01 02 03 04 05 06 07 08 © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 15
Slide 17: Wholesale electricity prices
Wholesale electricity prices For personal use only South Island North Island © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 16
Slide 18: Transmission constraints resulted in losses for South Island retailers
Transmission constraints resulted in losses for South Island retailers For personal use only • Between May and August South Island retailers paid approximately 26 c/kWh for energy supplied to the South Island across the HVDC – “average” tariff is about 20 c/kWh – if fully recovered from customers ta
Slide 19: The absence of pole will continue to be felt until it is replaced
The absence of pole 1 will continue to be felt until it is replaced For personal use only In the high inflow sequences during summer and into autumn there is a reasonable probability of South/North constraint About 70% of historic inflow sequences are in band which suggest constraints are not genera
Slide 20: The recent conditions in historic context
The recent conditions in historic context For personal use only January and February 09 starting storage were at the top 15% of recorded storage April to Sept 2008 were in the bottom 5% of recorded storage for that time of the year © Contact Energy Limited 9 February 2009 New Zealand's leading integ
Slide 21: Implications for Contact's earnings profile
Implications for Contact’s earnings profile For personal use only Two poles One pole © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 20
Slide 22: Implications for Contact's growth strategy
Implications for Contact’s growth strategy For personal use only • Environment – Transmission constraints until pole 1 is replaced – Periods when the islands operate as separate markets – Demand growth will continue – but at a slower rate – Carbon pricing is expected to be implemented – Higher price
Slide 23: Drivers of long run electricity prices
Drivers of long run electricity prices For personal use only © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 22
Slide 24: Gas demand will exceed supply next decade
Gas demand will exceed supply next decade For personal use only • The gas market is dominated by a few large suppliers – Additional gas sources will be required to meet demand by the second half of next decade • Contact has consents to build gas-fired combined cycle stations in Auckland and in Taran
Slide 25: Gas flexibility will be a valuable commodity
Gas flexibility will be a valuable commodity For personal use only • As new generation is increasingly renewable, the electricity system needs forms of flexibility – Gas plants will need to respond to this and key to enabling this is gas supply flexibility • Gas supply arrangements are increasingly
Slide 26: Geothermal continues to be NZ's best fuel for new generation
Geothermal continues to be NZ’s best fuel for new generation For personal use only • Not weather-dependent • 500 MW of new geothermal generation in development • Base-load or construction • Climate friendly – Tauhara Phase 1: 23 MW – expected online in 2010 • Lowest cost irrespective of – Te Mihi: 2
Slide 27: Contact's strategy is even more relevant now
Contact’s strategy is even more relevant now For personal use only • Generation – $1.5b investment in new geothermal – Taking advantage of the new HVDC pole 1 by 2012/13 • Inflexible gas supply – $250m investment in gas storage • Increased wholesale market volatility – $250m investment in new gas- f
Slide 28: 1,400 MW of new generation projects: up to $3 billion of new investment
1,400 MW of new generation projects: Up to $3 billion of new investment For personal use only © Contact Energy Limited 9 February 2009 New Zealand's leading integrated energy company 27
Slide 29: Perspectives on the questions
Perspectives on the 3 questions For personal use only • What’s the background to the January earnings guidance? – Two extreme weather events in 6 months – The absence of two HVDC poles has clearly been felt • Why does Pole 1 need to be replaced? – Both islands rely on two poles: Transmission is the
Slide 30: For personal use only
For personal use only © Contact Energy Limited 9 February 20098 October 2008 New Zealand's leading integrated energy companyNew Zealand's leading integrated energy company 29 © Contact Energy Limited
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