bruce levy north america regional director

Bruce LevyNorth America Regional Director International Power

EEI 44th Financial Conference, Florida November 2009page International Power2

International Power - overview

A leading independent global power plant developer and operator– with expertise in closely linked businesses such as desalination

and energy retail Our objective is to deliver growth in shareholder value through

– investment in power generation and closely related businesses– ensuring a balanced international portfolio in terms of markets,

fuel, contract type and technology We create value by

– the efficient operation, financing, and trading of our power generation fleet

– maintaining the highest levels of safety and environmental performance


An international portfolio

Gross capacity in operation 32,949MWNet capacity in operation 21,239MWNet capacity under construction 1,028MW


A portfolio approach

Risk mitigation across regions, fuel type, and technology Balance of merchant and long-term contracted assets Stable financial performance from long-term contracted assets

overlaid by merchant market returns In-depth regional market knowledge Knowledge/skill share across portfolio


Portfolio breakdown

H1 2009 PFO by Geography(%)

Net MW byGeography* (%)

31

34

15

128

Europe

Australia

MiddleEast

AsiaNorth America

* As at 10 August 2009

Europe

Australia

MiddleEast

Asia North America1012

5021

7

Net MW bycontracted position* (%)

Long-term contractedUncontracted

Pumped storage7

21 38

Short-term contracted

34


International Power – key strengths

Regional knowledge and expertise– access to growth opportunities across all regions

Key skills– development and commercial structuring of new projects– project finance– M&A– management of EPC contracts– trading– operations and maintenance– partnering

Rigorous capital allocation – Investment Committee process– only the best projects succeed– flexibility to deploy capital within the portfolio where we see the

best returns– financial discipline


Capital structure - overview

Very secure capital structure– strong liquidity at parent – as at 30 June 2009 corporate cash of

£368m and free cash flow of £326m– proceeds from assets sales will further strengthen corporate

liquidity– low debt at parent level

88% of total debt non-recourse at asset level Project finance still available for high-quality sponsors and projects

– similar tenors for long-term contracted assets, debt term matches PPA length

– shorter tenors for merchant assets– club deals instead of syndication– higher margins

– lower base rates means similar all-in costs Successful agreement of revolving credit facility

- US$780m in place to October 2012– 19 banks participated


Refinancings

SEA Gas (Australia)– A$425m refinancing signed on 28 October 2009, to run to

October 2012 Hazelwood (Australia)

– A$445m tranche due in February 2010– in discussions with lenders– linked to outcome of Carbon Pollution Reduction Scheme (CPRS)

US CCGT Fleet– US$769m due in July– in discussions with lenders– evaluating variety of options

Strong corporate liquidity gives IPR leverage in negotiations with lenders

Experienced teams in place across the Group and strong relationship with banking group

No refinancings in 2011


US gas market outlook

Current View– shale gas production - likely to

influence forward gas prices– market fundamentals remain in over

supply with storage at capacity– gas prices remain subject to

production levels, weather load Trend

– early 2008: gas and oil markets strong, new supplies brought on line

– mid 2008: recession impacts, gas demand/price fall

– demand stabilized: small rally due to cold start to winter in the Northeast

Supply– rig count reacted to lower prices with

60% drop in drilling – supply has begun to reduce slowly– new exploration focus in on shale gas

supply

0

2

4

6

8

10

12

14

J an-08 Apr-08 J ul-08 Oct-08 J an-09 Apr-09 J ul-09 Oct-09Nov-09 Cal 10 Cal 11 Cal 11

US Gas Price Movements

Natural gas sets marginal price of power much of the time in Texas and New England Power prices are set by less efficient plant than IPR US fleet, therefore gas price is the

primary driver to power price in the short-term

Demand– gas demand down, particularly

industrial, due to recession– gas demand for electricity

generation stable– at lower gas prices CCGTs in some

regions displace coal adding to gas demand


Markets affected by gas prices, economic downturn and weather conditions

Pricing environment– spot prices higher than forward prices, however little sign of

improved pricing in 2010 Long-term fundamentals remain strong

– even with overall demand reduction, peak demand reached record levels in June

– some cancellation of new-build (primarily wind) and little evidence of planned new-build

Texas


Lower peak demand– low temperatures and record rainfall– economic downturn

ISO-New England capacity payments currently over 50% of 2009 revenue

– mitigates effect of mild weather and reduced peak demand– auction for 2012/2013 cleared at minimum price of US$2.95/kW-

month with 4,487MW of excess supply Increasing dependence on potentially unreliable demand response

and imports– in 2011 reserve margin only 17% without demand response and

imports

New England

New England 2008Full Year

(1)


PJM

Primary revenue source is capacity payments Pricing levels set through 2013

– 2010/2011 = $174/MW-day– 2011/2012 = $110/MW-day– 2012/2013 = $16/MW-day

– 2.5% holdback for demand response– price separation within region– new capacity resources included 5,700MW of demand

response– low prices do not encourage new-build

Anticipate changes to be introduced prior to the 2013/14 auction (May 2010)

– various changes supported by generators, utilities and PJM First Energy joining PJM market

– will tighten supply/demand balance in western region– beneficial to IPR


AIM PowerGen acquisition

Portfolio of wind assets in Canada– 40MW in operation in Ontario– 40MW under construction in Ontario (Harrow)

– COD expected H1 2010– advanced development pipeline throughout Canada of 1,200MW

Ontario Feed-In Tariff programme introduced in October 2009– 20-year feed-in tariff of C$0.135/kWh– streamlined approval process and interconnection priority– supports Ontario’s goal of eliminating coal-fired generation by

2014 C$82 million of non-recourse project finance raised for Harrow

– 20-year term with fixed interest rate Gain strong local management team with 15 employees

– supplemented by IPR global expertise– strong platform to organically grow the business


US CO2 cap and trade legislation

House of Representatives: Waxman Markey Bill– 17% reduction of 2005 greenhouse gas emissions by 2050– allowances for 90% of generation industry’s CO2 emissions– provides specific protection for merchant coal

Senate: two separate bills proposed– Bingaman Murkowski Bill

– no cap and trade provisions– targets 15% of US demand from renewables

– Kerry Boxer bill– 20% reduction of 2005 greenhouse gas emissions by 2050– similar allocation formulae as Waxman Markey but overall amount yet to be

determined Senate must agree one bill, then negotiate final bill with House Legislation unlikely to be passed prior to 2010 Impact on IPR fleet

– minimal impact on efficient gas-fired assets– Coleto Creek coal-fired asset expected to receive allowances


Europe - UK market update

Market affected by reduced demand and low gas prices Looking forward

– 12,200MW of thermal retirement by 2016– 5,600MW of nuclear retirement by 2017– system not as volatile as 2008 however ageing fleet creates

potential for short-term pricing volatility IPR balanced and flexible portfolio well-positioned to optimise returns

– Saltend: excellent performance/beneficial gas contract– strongly contracted for 2010

– Deeside: flexibility to capture price volatility, strong performer in a low gas price environment

– Rugeley: – FGD operational June 2009, now has improved operating

flexibility– 80% forward contracted for 2010 at a dirty spread of £27/MWh

– First Hydro: unlikely to repeat strong H2 2008 performance, well-positioned for any unplanned short-term volatility


Europe - Czech business

Agreed to sell Czech business to J&T Group for net cash proceeds of some £590m

– unsolicited offer Attractive price represents excellent shareholder value High performing asset, but risk profile includes:

– security and pricing of long-term coal supply– less beneficial CO2 allowances in Phase III of the EU Emissions

Trading Scheme– significant capital expenditure to comply with environmental

regulations– declining market for district heating– limited growth potential


Australia market update

Significant improvement in results across the portfolio– improved availability – higher prices– price spikes from extreme weather events

Small increase in reserve margin– reduced demand forecast in 2010– no material change on supply side

Some reduction in forward prices– mild winter– increased trading activity following CPRS delay, but still below

historic levels– Hazelwood 30% forward contracted for 2010


Australia - CPRS

Changes to proposed CPRS announced by Government in May– implementation delayed by one year to 1 July 2011– price of carbon will be fixed at A$10/tonne for first year

Outstanding issues– number of emission permits made available with no charge – transition period - currently five years– CO2 reduction target by 2020– IPR very actively engaged

Next steps– defeated in Senate vote in August due to opposition from Liberals

and Greens– Liberal opposition pushing for emissions trading scheme that

includes improved compensation for generators– increased allocation of free permits– longer transition period

– legislation scheduled for second debate in Senate in November– “double dissolution” of Parliament if defeated a second time


In 2007, IPR sold its interest in Malakoff and signed an agreement with Mitsui to align its percentage holdings in its UK subsidiary power stations. This resulted in the net sale of 935MW (net) during the year.

*

History of successful growth

Operational capacity more than doubled since 2000 Experienced development and financing teams in place in each of

our five regions

2000

2001

2002

2003

2004

2005

2006

2007*

2008

8.3

8.9

10.5

10.6

15.3

15.9

18.5

18.8

21.3

2520151050

International Power’s Net GW

North America

Europe

Middle East

Australia

Asia


Growth opportunities

IPR continues to actively pursue wide range of growth opportunities– long-term contracted greenfield projects – renewables - acquisitions and organic growth– expansion of existing assets– merchant assets in key markets

North America– Canada - organic growth of renewables portfolio on back of AIM

PowerGen acquisition– US - new legislation creates incentives for investment in

renewables– option to expand Coleto, subject to clarity on carbon and off-take

Middle East– bid submitted - Tarfaya 300MW wind in Morocco– in near-term bids expected in Oman, Saudi Arabia, Morocco,

Tunisia and Abu Dhabi– region still expects growth of 50GW of power and 2,000MIGD of

water in medium-term– potential new markets - northern and southern Africa


Growth opportunities

Asia– Paiton 3 expected to close shortly– economies still experiencing strong growth– potential new markets - Vietnam, Philippines

Europe– continue organic growth of renewables portfolio– seek out opportunities for long-term contracted assets– potential to increase existing capacity (UK, Portugal)

Australia– New South Wales privatisation– clarity on CPRS required before further investment decisions

can be made


PFO (£m)

£773m

£536m

£222m

2004 2005 2006

Free cash flow (£m)

Earnings per share (pence)

22.4p

14.6p8.6p

2004 2005 2006

Dividendper share (pence)

7.9p

4.5p2.5p

2004 2005 2006

£904m

2007

27.1p

2007 2007

10.16p

Financial summary

2008

£1,050m

2008

32.4p

2008

12.15p

£456m

£285m

£104m

2004 2005 2006 2007

£653m£513m

2008


Summary

Leading global power plant developer and operator– deep experience across most technologies – high quality asset portfolio

International portfolio approach continues to deliver significant benefits

– balance of merchant and long-term contracted assets– excellent access to growth opportunities

Fundamentals in our markets remain attractive Proven track record of delivering growth and value

– underpinned by strong capital structure– good liquidity with £368m cash at corporate at half year– strong free cash flow generation

bruce levy north america regional director

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