Endesa S.a. · BME:ELE
Endesa — Corporate Update (June 2006)
47 slides from Endesa's corporate update, Jun 8, 2006
Slide 1: Carbon and electricity markets, National Allocation Plans for Spain and Portugal
June 2006 Carbon and electricity markets, National Allocation Plans General Management for Spain and Portugal
Slide 2: Contents
Contents 1. The Carbon and Electricity markets 2. Activity of ENDESA in the Carbon market 3. Balance of the first year of application of the 2005-2007 NAP in Spain and Europe 4. .and Phase II
Slide 3: Contents
Contents 1. The Carbon and Electricity markets 2. Activity of ENDESA in the Carbon market 3. Balance of the first year of application of the 2005-2007 NAP in Spain and Europe 4. . and Phase II
Slide 4: The Carbon market has been operational
The Carbon market has been operational CHARACTERISTICS TO BE IMPROVED It has shown to be a commodity with intrinsic value There has been sufficient liquidity: Traded volumes of allowances in 2005 reached 362 MMton. Lack of transparency in some situations has not always allowed informed choices. Forw
Slide 5: The Carbon market has been operational: price and volume
The Carbon market has been operational Price ((euro)/tCO2) Volume (MtCO2) 35 30 25 20 15 10 5 0 mar-05 abr-05 may-05 jun-05 ago-05 ago-05 sep-05 nov-05 dic-05 ene-06 feb-06 mar-06 abr-06 may-06 CO2 Price Volume 14000 12000 10000 8000 6000 4000 2000 0
Slide 6: Carbon market has forced power plants to internalize the cost of emission rights
Carbon market has forced power plants to internalize the cost of emission rights Price after ETS Price before ETS Hydro Nuclear Coal CCGTs Fuel-gas Hydro Nuclear Coal CCGTs Fuel-gas o The application of ETS was expected to make necessary for agents to include the price of emission rights in the elec
Slide 7: Electricity prices have reflected CO2 prices
Electricity prices have reflected CO2 prices Strong parallelism can be identified between CO2 prices and forward prices o Electricity prices have been formed considering cost of marginal fuel and CO2, so hedges of clean spread (electricity-CO2-fuel) have been usual o Correlation among electricity an
Slide 8: Electricity prices have reflected CO2 prices: spot
Electricity prices have reflected CO2 prices Spot electricity prices show a tendency to reflect CO2 prices changes. although not always and not equally in all markets o The spot market reflect the cost of the marginal technology: - Coal or gas production in the margin determines to what extent the c
Slide 9: Competitiveness of coal vs gas
Competitiveness of coal vs gas Coal CIF at 61 $/ton and Gas from4 $/Mmbtu to 8 $/MMbtu 0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 (euro)/MWh Coal remains competitive for present level of coal and gas prices and CO2 prices below 32 (euro)/ton For prices of 8 (euro)/ton, coal remains competitive even
Slide 10: Competitiveness of coal vs gas: CO2 impact on margin
While coal remains competitive, the impact of CO2 cost in its margin is more important than for CCGT. Competitiveness of coal vs gas Variable cost 0 10 20 30 40 50 60 70 80 90 100 (euro)/MWh CO2 impact on Coal CO2 impact on CCGT Gas+CO2 ((euro)/MWh) Gas (euro)/MWh Coal+CO2 ((euro)/MWh) Coal (euro)/M
Slide 11: The price of CO2 has not caused coal substitution by gas
The price of CO2 has not caused coal substitution by gas o The CO2 price required to cause Coal substitution by CCGT, has been beyond reasonable values (euro)/tonne 140 20 40 60 80 100 120 0 January 2005 Weeks April 2006 Market CO2 ((euro)/ton) Syntetic CO2 price ((euro)/ton)
Slide 12: Contents
Contents 1. The Carbon and Electricity markets 2. Activity of ENDESA in the Carbon market 3. Balance of the first year of application of the 2005-2007 NAP in Spain and Europe 4. and Phase II
Slide 13: Activity of ENDESA in the Carbon market
Activity of ENDESA in the Carbon market o Endesa is a very active player in the carbon market: -Trading of more than 10 million tonnes of CO2 allowances -Active participation in relevant organised markets and OTC deals: only through Nordpool we have negotiated more that 4.5 million tonnes o And not
Slide 14: Strategy of ENDESA in the Carbon market: Managing EUAs
Strategy of ENDESA in the Carbon market Managing EUAs o Up to date, Endesa has been acting mainly for hedging purposes, i.e. we buy as we need the allowances: -A hedging strategy will integrate the spot price of CO2 in the bid of electricity to the market, and if dispatched, the allowances purchased
Slide 15: Managing EUAs: the collapse of CO2 prices
Managing EUAs: the collapse of CO2 prices Strategy of ENDESA in the Carbon market Price ((euro)/tCO2) Volume (tCO2) 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0, 17-04-06 19-04-06 21-04-06 25-04-06 27-04-06 02-05-06 04-05-06 08-05-06 10-05-06 12-05-06 16-05-06 18-05-06 22-05-06 24-05-06 26-05-06 30-05-06 0 E
Slide 16: Endesa Climate Initiative within Endesa's GHG reduction strategy
Endesa Climate Initiative falls within the framework of Endesa's strategy to Reduce Greenhouse Gases (GHG Plan) Strategies GHG Domestic reductions in GHG CDM/JI Projects European Emission Rights Trading According to the ETS pool Foreign reductions in GHG Improvement in domestic efficiency Domestic r
Slide 17: CDM and JI: Flexibility mechanisms
CDM and JI: Flexibility mechanisms established by CDM Clean Development Mechanism. Mechanism of reducing emissions whereby an Appendix I country may use Certified Emissions Reductions (CERs)* from projects carried out by non-Appendix I countries. JI: Joint Implementation Mechanism. Mechanism whereby
Slide 18: Appendix I countries
18 Appendix I countries(1) : Ratification of the Protocol (61.6% of emissions) Appendix I countries: Pending ratification Appendix I Countries: -European Union (25) -Australia -Belarus -Bulgaria -Canada -Croatia -United States -Russian Federation -Iceland -Japan -Liechtenstein -Monaco -New Zealand -
Slide 19: A CDM project has stages in its life cycle
in its life cycle A CDM project has 5 stages Objectives Output Entity in charge Expected duration 1 2 3 Demonstrate that the project fulfils the requirements needed to be considered a CDM Public's comments within 30 days Project approved or rejected Final approval of project Verify that the project
Slide 20: Main aspects of the Endesa Climate Initiative
Main aspects of the Endesa Climate Initiative First private initiative in the world to buy CDM and JI project emissions reductions Channels carbon credit purchases in a structured manner Preference for large projects (1Mt to approx. 2012) in the industrial, energy and waste management sectors Offers
Slide 21: Endesa Climate Initiative
ENDESA CLIMATE INITIATIVE Endesa in charge of design and development of project The objective is to choose eligible projects within the CDM and JI mechanisms of the Kyoto Protocol via a business-to-business proposal Advantages: Position Endesa as an attractive credits purchaser Leverages advantages
Slide 22: Phases of Endesa Climate Initiative
ENDESA CLIMATE INITIATIVE Endesa in charge of design and development of project Phases of Endesa Climate Initiative o Preparation: prepare reference guidelines and documentation, draw up internal procedures o Marketing: web page design and brochures, press release, launch events -Madrid - 10 Novembe
Slide 23: Brochures in several languages
Brochures in 4 languages: Spanish, English, Portuguese and Chinese
Slide 24: CDM and JI Project Portfolio
CDM and JI Project Portfolio Projects with Emission Reduction Purchase Agreement (ERPA) contract signed Projects with Letter of Intent (LOI) and agreed price, in process of due diligence and preparation of ERPA contract Rest of Project Portfolio Projects being negotiated o 62.7 Mt CO2e o Average Pri
Slide 25: CDM project portfolio: regional distribution
Endesa's CDM project portfolio: regional distribution Total projects: 46 Total Mt: 148.4 N(0) of projects Mt 72.8 24 17 41.6 13 25.8 6 445 52 36 25.8 8.2 3 31.8 7.1 33.9 25.1 13.4 3.1 8.2 funds Asia Latam Others funds Asia Latam Others Regions Regions ERPA signed LOI signed LOI being negotiated Fund
Slide 26: CDM project portfolio: technological distribution
Endesa's CDM project portfolio: technological distribution Total projects: 46 Total Mt: 148.4 N(0) of projects Mt 55.8 4. 9 8 9 3 31.6 3 31 25.8 1 6 8 5 12 223 1.5 3.9 nds ndfills HFC23 ables N2O Others nds ndfills HFC23 ables N2O Others 21. 5 19,4 12.4 10.2 2.7 1.7 31 25.8 21.3 12.9 6 13 15 4 5 3 T
Slide 27: Contents
Contents 1. The Carbon and Electricity markets 2. Activity of ENDESA in the Carbon market 3. Balance of the first year of application of the 2005-2007 NAP in Spain and Europe 4. . and Phase II
Slide 28: Emission allowance deficit of the Spanish 2005-2007 NAP impacted the power industry
The deficit of emission allowances of the Spanish 2005-2007 NAP impacted mainly the power industry Spain has been one of . this deficit has been . where important the few countries with bear by the electricity technological deficit of allowances, . sector . asymmetries exited MM Tm CO2/ano 8 44EU-25
Slide 29: 2005-2007 NAP allocation to the power industry
The 2005-2007 NAP allocated emission allowances to the power industry according to emission objectives per installation Islands o Full allocation, according to expected needs o Fix amount decreasing for 2005 and 2006 o By technology: according to two equations Source: RD 60/2005 21 january Mainland
Slide 30: Power output by emitting technologies versus NAP
Power output by emitting technologies growth 16% versus power output implicit in 2005-2007 NAP Gross power output by emitting technologies in 2005. TWh 118,4 2,3 17,5 2,5 135,7 16% deviation of actual 2005 from implicit power output of NAP 20052007 Implicit power Final increase Due to hydro and Rene
Slide 31: Total emissions in 2005 above NAP allocation
Total emissions in 2005 has been well above allocation of 2005-2007 NAP Mainland power sector emissions. Mton CO2. 2005 5,6 95,8 11,5 78,7 Allocation NAP Large output by Generation mix Total 2005-2007 emitting differences between emission technologies actual 2005 mix and implicit NAP mix Source: PNA
Slide 32: Coal-to-gas substitution assumed by the NAP not achieved
The degree of substitution of coal production by gas production, assumed by the NAP has not been achieved Gross output by emitting technologies in mainland 2005. TWh 100%= 118,4 135,7 Fuel 46% 52% 2 % 57% 36% 7% o 135,7 Emissions increase in 2005: -Increase of output by emitting CCGT technologies (1
Slide 33: Lower CCGT utilisation factor explains failed coal substitution
The lower utilisation factor of CCGT of other agents also explains the failure to achieve the expected coal substitution CCGT Util. factor CCGT Mainland power sector emissions %. 2005 Mton CO2. 2005 96 9 87 Endesa 75% Others 53% Actual emissions Reduction with Emissions 75% util. factor in with 75%
Slide 34: The economic impact for the agents has been discriminatory
The economic impact for the agents has been discriminatory Deficit/(excess) of allowances. Mton CO2 Mainland O.R. Generation 2005 3,8 17,1 15,3 o Allocation in excess for CCGTs (42 M(euro) of extra value) o Allocation deficit for coal (321 M(euro) of extracost) -0,2 CCGT Coal Fuel Total Revenues/ Co
Slide 35: Summary of the 2005 balance
Summarising, balance of year 2005 shows that technology switch depends on international market prices of fuel (gas and coal) as well as on CO2 prices Switch of generation technology was a objective of NAP 2005-2007, it has not taken place: Emissions has not only been reduced, but substantially incre
Slide 36: Balance in Europe: allocation above emissions
Balance in Europe44 Millions tonnes above average allocation in Europe shows an overall long position that was not expected 30th April Member State CO2 emissions for 2005 in Millions of tonnes Annual average allocation in 2005 to 2007 in million of tonnes** Emission to cap in miilions of tonnes Aust
Slide 37: Balance in Europe: consequences for the Spanish power industry
Balance in Europe The consequences for the Spanish Power industry are discriminatory o The Spanish Power Industry, with a significant deficit, has lower specific emissions than other European States where allocation have produced excess of allowances. 1,00 1,00 0,90 0,90 0,80 0,80 0,70 0,70 KgrCO2/K
Slide 38: Spain has the second largest allowance deficit in its power sector
Spain is the second state with the largest emission allowances deficit in his power sector o The cost of this deficit would have been for the Spanish power sector of approx. 400 (euro)M at 2005 prices o Only UK had a larger deficit, but with a larger sector to sustained it o The emission level in Sp
Slide 39: Contents
Contents 1. The Carbon and Electricity markets 1. Activity of ENDESA in the Carbon market 3. Balance of the first year of application of the 2005-2007 NAP in Spain and Europe 2. and Phase II
Slide 40: 2008-2012 NAP: EU Commission recommendations
2008-2012 NAP Recommendations of the EU Commission for o More coherence among member states General o More transparency and simpler methods o Reduced allocations compared to those of 2005-2007 NAP Allocation o Eventually, government purchases of allowances volumes o Auction of up to 10% of emission
Slide 41: The 2008-2012 NAP means a significant burden for Spain
The 2008-2012 NAP means a significant burden for the economy of Spain All sectors CO2 Emissions. Mton equivalent CO2 Reduction effort 455 442 1990+24% o The required 1990+15% effort of the second phase 42 Average 389 2000-2002 124 288 (2.060 M(euro)) will be higher than in the first (880 M(euro)) o
Slide 42: Allocation of reduction burden to the power industry
The allocation of the reduction burden to thepower industry may cause unforeseen consequences Deficit of regulated sectors in Europe Mton CO2/year o The final effect of insufficient allocation to the power sector will cause either high ~80Period 2005-2007 Period 2008-2012>230 electricity prices, and
Slide 43: Lessons learned from the NAP: electricity price and the NAP
Lessons learned from the National Allocation Plan for the second period 2008-2012 The electricity price and the NAP In order to provide the right price signal to new investment and to consumers, electricity price should internalise CO2 market price. Provisionally and until the additive tariff is est
Slide 44: Lessons learned from the NAP: criteria for free allocation
Lessons learned from the National Allocation Plan for the second period 2008-2012 NAP criteria for free allocation: Technologyswitching must take place as a result of the combined effect of the markets: electricity, fuel, CO2 and cost of investment. Otherwise the cost to reduce emissions for Society
Slide 45: Disclaimer
Disclaimer This presentation contains certain "forward-looking statements" regarding anticipated financial and operating results and statistics and other future events. These statements are not guarantees of future performance and are subject to material risks, uncertainties, changes and other facto
Slide 46: Carbon and electricity markets, National Allocation Plans for Spain and Portugal
June 2006 Carbon and electricity markets, National Allocation Plans General Management for Spain and Portugal
Slide 47: Signatures
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENDESA, S.A. Dated: June 8 th , 2006 By: /s/ Álvaro Pérez de Lema Name: Álvaro Pérez de Lema Title: Man