macquarie conference - keynote presentation by michael fraser
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AGL E Li it dAGL Energy Limited
Renewable energy: Renewable energy: Policies set for growth
Mi h l F M i Di t d CEOMichael Fraser, Managing Director and CEO
Macquarie Conference - Sydney
5 May 2010
AGL External
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Disclaimer
The information in this presentation:
› Is not an offer or recommendation to purchase or subscribe for securities in AGL Energy Limited or to retain any securities currently held.currently held.
› Does not take into account the potential and current individual investment objectives or the financial situation of investors.
W d ith d d tt ti d i t t th › Was prepared with due care and attention and is current at the date of the presentation.
› Actual results may materially vary from any forecasts (where li bl ) i thi t ti applicable) in this presentation.
› Before making or varying any investment in securities in AGL Energy Limited, all investors should consider the appropriateness of that in estment in light of thei indi id al in estment objecti es of that investment in light of their individual investment objectives and financial situation and should seek their own independent professional advice.
Macquarie Conference - Sydney
5 May 2010
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Agendag
› S&P revised treatment› S&P revised treatment
› Drivers of renewable energy globally
› Domestic policy settings
› AGL’s Wind strategy
› Upstream Gas – Creating value
› NSW Electricity Privatisation
› Summary
Macquarie Conference - Sydney
5 May 2010
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S&P revises treatment of wind farm PPAs1S& e ses t eat e t o d a sSignificant enhancement in capital efficiency.
› S&P spent considerable time understanding risks associated with PPAs
› 50% reduction in the notional capital to be applied to PPAsp pp
› AGL’s balance sheet capacity immediately improved by ~$360 million
› Maintaining BBB rating is important for business purposes
› Increases capacity to around $900 million
› Improved capital efficiency substantially enhances AGL’s ability to fund future growthfuture growth
1. Power Purchase Agreements
Macquarie Conference - Sydney
5 May 2010
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Debt Capacity ebt Capac tyAGL has significant headroom to fund organic growth.
LEGEND
S&P 100%Weight
ion
Closing FY10 Debt
Operating cash flow after dividends
S&P 50% Adjust.
$ m
ill Capex
Headroom
Macquarie Conference - Sydney
5 May 2010
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Renewables: A global growth storyMajority of newly installed capacity globally was renewable.
S N E Fi ( 2009)$US b 2008
e e ab es g oba g o t sto y
Source: New Energy Finance ( 2009)$US bn 2008
Wi d
52
110
Wind
Other Renewable
Fossil Fuel Generation
88
Macquarie Conference - Sydney
5 May 2010
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Renewables: A global growth storyWind and Hydro the primary renewable energy sources.
Source: International Energy Agency (2009)
Macquarie Conference - Sydney
5 May 2010
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8Technology cost curve
350» Source: ACIL Tasman AGL Roam MMA
Wind currently has a substantial cost advantage.
300
» Source: ACIL Tasman, AGL, Roam, MMA
200
250
/M
Wh
)
150
LR
MC
($
/
50
100
0
Brown Coal Black Coal CCGT OCGT Wind Solar PV Wave Solar thermal
Macquarie Conference - Sydney
5 May 2010
AGL External
9REC prices reflect policy uncertainty
Penalty raised to reflect rising cost of renewable projects.
$100
$/REC
$80
$90
$100
$60
$70Expanded MRET announced SHW & PV increases REC Bank
$30
$40
$50
$10
$20
Drought impacting Hydros LRET reform announced
$0
Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Macquarie Conference - Sydney
5 May 2010
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Impact of Renewable Policy SettingFundamental changes required to generation mix.
New Build Generation MixNew Build Generation MixYears of Forecast - 2010 to 2020
20000
Coal Plant CCGT Base Plant OCGT Peak Plant Renewable Plant
9 500MW14000
16000
18000
d (
MW
)
Renewables dominate
4,500MW
9,500MW
1,200MW
8000
10000
12000
ity r
eq
uir
e
Renewables dominate
Delay to CPRS reduces
2 800MW
5,500MW
5,500MW
2000
4000
6000
Cap
aci Delay to CPRS reduces
the demand for CCGT as coal-fired generation remains in service
Source: AGL Greenhouse modeling
2,800MW
0
2000
Original 2006 forecast(ETS, 2% MRET)
Current 2010 forecast(ETS, 20% Expanded RET)
Macquarie Conference - Sydney
5 May 2010
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Renewable Energy Certificate (REC) obligationse e ab e e gy Ce t cate ( C) ob gat o sRegulatory framework necessary to facilitate investment.
› Macarthur (365MW) conditional commitment
› Federal legislation requires AGL to surrender approximately 9 million RECs per annum by 2020
› Strong pipeline of › Strong pipeline of development opportunities
› Proven capability in site selection, project development and performance
1. Excludes long-term supply agreements and Voluntary REC demands.
Macquarie Conference - Sydney
5 May 2010
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Australia has a world class wind resourceust a a as a o d c ass d esou ce
d b
Average wind speeds (metres per second)
› Wind resource is best in Tasmania and areas in Western Australia, South Australia and VictoriaAustralia and Victoria
› NSW, Queensland and the Northern Territory have limited large scale have limited large scale wind potential
› The best wind sites have already been takenalready been taken
> 86-84-6<4<4
Source: CSIRO
Macquarie Conference - Sydney
5 May 2010
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Wind farms: Success factorsd a s Success acto s
A number of critical issues can mean success or failure of a wind farm development:farm development:
› Wind resource
› Land access (support by landowners)( pp y )
› Capital cost
› Connection access: (cost, loss factor, grid capacity)( , , g p y)
› Wind farm scale (to absorb certain fixed cost)
› O&M costs (typically only around 2% of capital cost per year)
Macquarie Conference - Sydney
5 May 2010
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Wind farms: Cost profiled a s Cost p o eSignificant local content built into cost structure.
Total Capital Cost EPC Cost
% % %
90%
4%
2% 2% 2%
55%
10%
12%
6%2%
55%
15%
Pre Development
EPC Cost
Balance of Plant
Wind Turbine GeneratorElectrical (inc Switchyard)TransportBalance of Plant
Project Management
Contingency
pTowerCivilEngineering
Macquarie Conference - Sydney
5 May 2010
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Wind resource drives turbine selectiond esou ce d es tu b e se ect o
› Wind speed generally increases with height
Location of Hallett 1 turbines & wind speeds
› Wake effects reduce yield and drives turbine spacing
› Hallett Wind Farm stages 1, 2 and 4 are classic wind farm sites with are classic wind farm sites with prevailing winds perpendicular to ridge
Wind Rose for Hallett 1
N
Macquarie Conference - Sydney
5 May 2010
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Wind project diversity improves reliabilityd p oject d e s ty p o es e ab tyGeographical diversity enhances the level of ’firm’ generation.
Wattle Point Hallett 1 Pool Price
70
80
90
100
MW
)
$1,000
$10,000
$/M
Wh)
40
50
60
70
genera
tion (
M
$100
l pool price
($
0
10
20
30
Win
d g
$1
$10
Regio
nal
0Sun 06 Mon 07 Tue 08 Wed 09 Thu 10 Fri 11
Half hour time increments (6-12 April 2008)
$1
Macquarie Conference - Sydney
5 May 2010
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AGL projects delivering high capacity factorsG p ojects de e g g capac ty acto sOperational performance exceeds investment assumptions.
1
Macquarie Conference - Sydney
5 May 2010
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Strong growth pipelineSt o g g o t p pe eProvides strategic depth and optionality.
Project Nominal Capacity (MW) Location Type Project Status Definition
Bogong 140 Victorian Alps Hydro Commissioned Completed
McKay Creek Up Rate 10 Victorian Alps Hydro Commissioned Completed
Hallett 2 71 SA - Hallett Wind Commissioned Completed
H ll tt 4 132 SA H ll tt Wi d U d C t ti C itt dHallett 4 132 SA - Hallett Wind Under Construction Committed
Werribee Expansion 2 VIC - Werribee Biogas Under Construction Committed
Oaklands Hill 67 VIC - West Wind Under Construction Committed
Hallett 5 52 SA – Hallett Wind Under Construction Committed
NERATIO
N
Macarthur 365 VIC - West Wind In Development, JV with Meridian
Conditional Commitment
Barn Hill 130 SA - Redhill Wind DA Approved Probable
Hallett 3 80 SA - Hallett Wind In Development PossibleWABLE
GEN
Crows Nest 150 QLD - Toowoomba Wind Permitted Possible
Ben Lomond 150 NSW - Armidale Wind Landowner Agreements in Place Possible
Coopers Gap 300 QLD Kingaroy Wind Landowner Agreements in Possible
REN
EW
Coopers Gap 300 QLD - Kingaroy Wind gPlace Possible
Other 3 Projects totalling up to 600 Various Various Under Review Possible
Macquarie Conference - Sydney
5 May 2010
AGL External
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Upstream Gas – Positioning For Growth
› Targeting 2 000PJ of certified 2P reserves
Exploration program slowed in line with current gas market conditions.
Upst ea Gas os t o g o G o t
› Targeting 2,000PJ of certified 2P reserves
› 2P reserves entitlement up 18% (201PJ); 3P reserves entitlement up 36% (839PJ)
› Camden reflects production depletion only; reserves certification at Camden and Gloucester is planned for the end of financial yearp y
AGL share of CSG reserves As at 31 Dec 09 As at 30 Jun 09 Change
PJ 2P 3P 2P 3P 2P 3PPJ 2P 3P 2P 3P 2P 3P
Moranbah (50%) 506 1,027 497 1,079 2% -5%
Gloucester (100%) 423 630 423 630 - -
Camden (100%) 126 170 129 173 -2% -2%
Spring Gully (various, small) 7 9 7 9 - -
Sub-Total 1,062 1,836 1,056 1,891 1% -3%
ATP 364P back-in rights (50%)* 246 1,307 51 413 382% 216%
Total 1,308 3,143 1,107 2,304 18% 36%
* Under a 50-year project agreement that commenced in 2000, AGL has no effective exploration rights (or ongoing cost obligations) within exploration tenement ATP 364P as these were assigned to Arrow Energy Limited. However, AGL is entitled to participate up to a 50% interest in any commercial development by contributing its share of past costs. Past costs are anticipated to be less than $0.05/GJ.
Macquarie Conference - Sydney
5 May 2010
AGL External
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NSW electricity privatisation S e ect c ty p at sat oDisciplined bidding approach if process proceeds.
› NSW Government still working toward opening data rooms mid-year
› AGL previously stated will look at all assets
› Opportunity to scale up
› Only bid for assets if accretive to EPS
› Maintain BBB credit rating
› Any capital raising to favour existing shareholders
Macquarie Conference - Sydney
5 May 2010
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SummarySu a y
› Significant progress with renewable policies
» Legislation scheduled for May/June 2010g y/
» Requires up to $30 billion of investment
› Delay to CPRS will impact future generation mix
› AGL’s renewable portfolio strategically well-positioned
» First-mover advantage with large portfolio of sites
› Capacity to leverage balance sheet› Capacity to leverage balance sheet
» S&P revision frees additional capacity
Macquarie Conference - Sydney
5 May 2010
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Further Information / Contactsu t e o at o / Co tacts
A range of information on AGL Energy Limited including ASX & Media Releases, Presentations, Financial Results, Annual Reports and Sustainability Reports is available from our website: www.agl.com.au
Alternatively, contact:
INSTITUTIONAL INVESTORS S U O S O S& ANALYSTSJohn Hobson
Head of Investor RelationsAGL Energy Limited
RETAIL INVESTORS & MEDIANathan Vass
Investor Relations & MediaAGL Energy Limited
phone: +61 2 9921 2789Mobile: +61 (0) 488 002 460
e-mail: john.hobson@agl.com.au
phone: +61 2 9921 2264mobile: +61 (0) 405 040 133
e-mail: nvass@agl.com.au
Macquarie Conference - Sydney
5 May 2010
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