It’s innovation, stupid!

Dr.-Ing. Leonhard Birnbaum, Member of the Board E.ON SE

Generalversammlung Swissgas

22nd / 23rd June 2015, Hotel Bellevue Palace in Bern

Disclaimer

This presentation may contain forward-looking statements based on current

assumptions and forecasts made by E.ON Group Management and other

information currently available to E.ON. Various known and unknown risks,

uncertainties and other factors could lead to material differences between the

actual future results, financial situation, development or performance of the

company and the estimates given here. E.ON SE does not intend, and does

not assume any liability whatsoever, to update these forward-looking

statements or to conform them to future events or developments.

Agenda

The German „Energiewende“ is just an example for

other energy transitions taking place globally

There is no way back: “Energiewende” is a now global trend

driven by innovation not by politics – and digital is a key element

The energy landscape becomes

increasingly complex – also for gas

Investor owned utilities and the gas industry need to adopt their

business models aggressively to this environment.

German energy transition:

Achieving the impossible?

Climate

Change

Renewable

Energy

Energy

Efficiency

Abatement

of greenhouse

gases in %

-23.8%

(estimated)

Share in electricity

consumption

Share in final energy

consumption

25.4%

12.4%

(2012)

Reduction primary

energy demand

Energy productivity

-3.3%

+1.1% p.a.

… …

…

Source: German Ministry of Economics

Energy turnaround in Spain

driven by gas and renewables

Stagnation since financial crisis

-

20'000

40'000

60'000

80'000

100'000

120'000

Insta

lled

Cap

acit

y i

n M

W

Hydro Nuclear Coal Gas/Oil Others (CHP, waste,..) Wind PV CSP

Source: Red Eléctrica de España (Spanish TSO)

Energy turnaround in the US driven by

success of unconventional gas

U.S. dry natural gas production

trillion cubic feet

0

10

20

30

40

50

60

70

80

90

100

0

5

10

15

20

25

30

35

40

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Tight gas

Coalbed methane

Other lower 48 onshore

Shale gas and tight oil plays

Alaska Lower 48 offshore

Projections History 2013

billion cubic feet per day

Source: EIA, Annual Energy Outlook 2015 Reference case

Energy turnaround in China driven by

dramatic economic growth China’s net electricity generation by fuel type, 1985– 2014 in TWh

Source: BP Statistical Review of World Energy 2015

0

1000

2000

3000

4000

5000

6000

Other RES

Wind

Solar

Hydro

Other (Coal, gas)

Nuclear

Energy turnaround in the UK:

History repeating

Source: DECC – Department of Energy and Climate Change („Generated electricity“)

-

50'000

100'000

150'000

200'000

250'000

300'000

350'000

400'000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19

20

19

23

19

26

19

29

19

32

19

35

19

38

19

41

19

44

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

20

13

Conventional thermal CCGT Nuclear Renewables incl. Hydro Electricity supplied

Agenda

The German „Energiewende“ is just an example for

other energy transitions taking place globally

There is no way back: “Energiewende” is a now global trend

driven by innovation not by politics – and digital is a key element

The energy landscape becomes

increasingly complex – also for gas

Investor owned utilities and the gas industry need to adopt their

business models aggressively to this environment.

There are known knowns; there are things we know we know. We also know

there are known unknowns; that is to say we know there are some things we

do not know. But there are also unknown unknowns – the ones we don´t know we don't know.“ -Donald Rumsfeld -

Dynamic innovation and technology are

driving changes on energy markets

Examples

US Gas 2012

Price decreased by 20%

each time the installed capacity doubled

Europe 2014: 72% of new installations (22% in 2000)

Renewable energy: substantial size

2000 2013

318 GW

17 GW

2000 2013

139 GW

1 GW

global

PV

global

wind

Mo

du

le p

rice

1980 1990 1990 1990

1990 1990

2000

1990 1990

2010

Cumulative production

Shale gas: technology „Hydraulic fracturing”

Increasing gas resources

change global macro economics

2040 Net importer

with 42 bcm

Net exporter

with 165 bcm

PV: cost decrease beyond expectations

KNOWN

KNOWNS

Source: www.iea.org

Photovoltaic:

Continuous cost reduction

0

5

10

15

20

25

30

35

40

End-customer price Italy

PV costs Germany

PV costs Italy

End-customer price Germany

PV system price, Germany

[<100kWp System]

2013 2013 2017 2019 2021 2023 2025

PV electricity costs vs. end-customer

costs [€ct/kWh]

Investment for customers with high own consumption positive without subsidies

Dependency on subsidies reducing by further cost reductions and

additional appliances increasing the own consumption.

KNOWN

KNOWNS

Source: http://www.photovoltaik-guide.de/pv-preisindex

Costs for batteries [€/kWh]

Investment in PV + battery:

positive

Electric vehicles reduce costs for

Li-ion batteries by > 50% by 2020.

Market leader Tesla

“Giga-factory” will produce more than the

current global production volume

Batteries: Costs have reached the turning point KNOWN

UNKNOWNS

Source: UBS, Tesla, Umicore

Exploding data volumes

3rd generation of the internet – the

„internet of things” connects

1 bn people via PCs

6 bn. People via mobile phones

28 bn. „things” in 2020

Digitalization, Big Data & „Internet of things“:

Integral part of our life in the future

Time

Today

Intelligent Power

Meters

Terminals & automated substations

Roll-out of GIS in the grids

Smart home and end customer data

Improved „operations management“ OMS

Control center intelligent grid

Improved automation DSO-grid

New smart home

Appliances and internet

Estim

ate

d a

nnual data

Intelligent thermostat

KNOWN

UNKNOWNS

Source: based on EPRI (assuming a 1 million customers energy supply company incl. grid and sales activities)

Example for digital handling in the energy sector

2013 2014 2015-2017

Start 2013 – today Germany’s largest installer

…rolls up the German installation market

The first online based heating installer

• Little assets, no working capital

• State-of-the-art digitalization in a traditional market

• Proprietary process fully integrated in an

IT-architecture with unique planning tool

Three lasting cost advantages:

• No on-site visit needed to create best offer

• Installation within 1 instead of 2 days

• Largest volume discounts in the sector

Source: E.ON Technology & Innovation

KNOWN

UNKNOWNS

Example of digital sales in the energy sector

In 2014 conversion rate of 15% in NL and an NPS of 73

… sells PV-systems online with an individual guarantee on performance

Attractive,

personalized

offers

Several options

to choose for

customers

Guaranteed monthly

costs and savings

are communicated

in a transparent

manner

Simple, easy to use

access for the

customer

Outstanding after-sales

communication to create

excellent customer

relationship

Source: E.ON Technology & Innovation

KNOWN

UNKNOWNS

Innovations will dynamically reinforce

each other

Photovoltaic

Air conditioning

E-mobility

Smart metering

Transparent energy consumption

Intelligent local distribution system

Battery storage

“e-Home Energieprojekt 2020”

Interdisciplinary field of research with technical & customer oriented questions: main

research on VRDT* / batteries / customer satisfaction / e-Vehicles

Ad *: VRDT = Voltage regulated distribution transformer

Source: E.ON Innovation Center Distribution

KNOWN

UNKNOWNS

„Simply because you do not have

evidence that something exists does

not mean that you have evidence that it

doesn’t exist.“

-Donald Rumsfeld -

UNKNOWN

UNKNOWNS

Agenda

The German „Energiewende“ is just an example for

other energy transitions taking place globally

There is no way back: “Energiewende” is a now global trend

driven by innovation not by politics – and digital is a key element

The energy landscape becomes

increasingly complex – also for gas

Investor owned utilities and the gas industry need to adopt their

business models aggressively to this environment.

The future energy system is highly complex and

will have implications on all our businesses

Customers Heat Power

System Mgmt

Distr.

MV/L

V

Transm

.

Individual family houses,

business premises & offices

Hydro

System Mgmt

PV

Energy Mgmt.

Industry

Wholesale - Price signalling

Nuclear CHP

Substation

automation

Gas

Heat plant

System Mgmt System Mgmt

Via transm- or distr. grid

Solar

thermal BG

fermentation

NG from

DK,NO,RUS

Import/Export

Mini-/micro

CHP Gas mob.

E-mob.

Energy Mgmt.

White

goods Storage

PV

BG

gasification

P2G

Nevertheless, Europe will depend on energy imports for

the foreseeable future

Source: IEA World Energy Outlook 2014, New Policies Scenario

21

526476

441403

369

392403

423434

448 459

223202

206211 207

166202

220235 249 261

336

230

33

2012 2020 2025

1,553

95

0

1,641

61

1,614

78

1,582

294

2040

1,533

112

2030 2035

400

600

800

1,000

1,200

200

1,800

144

1,523

129

131

1,400

180 249

1,600

218

Gas

Oil

Coal

other RES

Bioenergy & Hydro

Nuclear

Primary energy consumption EU Mtoe

Especially in gas new import sources required

[bcm]

600

European consumption

Europäischer Importbedarf

Unconventionals

NOR NL Import gap

UK Other

2025 2015 2010 2020 2030

Gas demand and supply Europe

22

Gas supply diversification needed for security of supply

1) Pipeline-Supply 2) Aserbaidschan, Irak, Iran, Turkmenistan 3) Inkl. unconventional supply from 2015 4) Leviathan

North Africa (1)

Ru

ss

ia

North Africa (1)

LTCs Russia/ Nordth Africa

North Sea production

LTCs Russia/ North Africa

LNG import

4th corridor

Eastern Med

North Sea North

Sea

4. co

rrid

or(

2)

Traditional sources Future sources

Eastern Med(4)

Ru

ss

ia

LN

G

24

Complication: European market currently unable to

attract LNG

Gas-Spot prices [€/MWh, nominal]

0

5

10

15

20

25

30

35

40

45

50

1/14 1/13 1/12 1/11 1/10 1/09 1/08 1/07 1/06 1/05 1/04

10

26

1/15

Rough Explosion

Lehman’s

Bankrott

Fukushima Katastrophe

U.S. Shale Gas Boom

Source: Platts Average until April 2014

Japan-Korean Marker U.K. National Balancing Point U.S. Henry Hub

25

Complication: Political tensions need to be taken into

account in diversifying sources and transit routes

ENTSO-G Modell:

based on IP-capacities, storage capacity, import flex, market demand

Modelling of gas flows, Assessment of supply disruption scenarios

Sufficient flexibility (i.e. diversification and security of supply) in Western and Southern Europe

Disruption of supply via Belarus affects Poland, disruption via Ukraine affects SEE

Source: ENTSO-G, TYNDP 2013-2022

Security of Supply - Germany and Ukraine S. Augustin, M. Hüsken, R. Wagner 26

ENTSO-G Analysis of impacts of Ukrainian transit stops

Agenda

The German „Energiewende“ is just an example for

other energy transitions taking place globally

There is no way back: “Energiewende” is a now global trend

driven by innovation not by politics – and digital is a key element

The energy landscape becomes

increasingly complex – also for gas

Investor owned utilities and the gas industry need to adopt their

business models aggressively to this environment.

28

Challenge #1: building smarter energy systems

Cleaner & better

conventionals

Smart grids /

micro-grids

Smarter

Renewables

Integration of

transport (power & gas)

Integration of

heat

Latin America Africa

North America

Middle East

Oceania

Europe

+95 bcma

Asia

+344 bcma

38 (+38)

21 (+21)

4 (+1)

23 (+8)

35 (+8)

15 (+3)

63 (-4)

121 (+91)

90 (-19)

10 (+7)

Source: Wood Mackenzie

3 (-3)

+29 bcma from 2013 Atlantic Basin

+139 bcma from 2013 Pacific Basin

Americas

+21 bcma

Asia

Global LNG trade growth 2013-20

+49%

Middle East

+14 bcma

Challenge #2: building smarter energy supply chains

Seaborne LNG trade to 475 bcma by 2020

with Europe acting as a balancing market

Ready for a radical re-thinking in this context?

The world largest taxi company

owns no cars.

The company owning the most media

content globally does not produce

content.

The globally most valuable trader has

no inventory or stocks

The largest provider for

accommodations owns no real-estate.

Source: E.ON Technology &Innovation; wetp@int

E.ON is ready for radical re-thinking!

The world largest taxi company

owns no cars.

The company owning the most media

content globally does not produce

content.

The globally most valuable trader has

no inventory or stocks

The largest provider for

accommodations owns no real-estate.

One of the globally leading energy

company owns no power plants?

Source: E.ON Technology &Innovation; wetp@int

Two leading companies for two energy worlds

UNIPER

Generation

Hydro

E&P

Global Commodities

Russia

Wind/Solar/Other

Brazil

Germany

Other EU Countries

Turkey

Renewables

Distribution

Customer

Solutions Power Generation

Upstream

Global Commodities

Distinct opportunities, mindsets and capabilities

Storage CO2 storage

Challenge #3: Application of new technologies to drive

future gas demand

Gas Heat

Pumps

Gas mobility

Analyzing the potential of large storage in the energy system: linking power, gas and heat

Improve technology, economics and environ-mental impact of fuel cells and Stirling engines

Lift the potential of gas mobility

Distributed Generation

Market entry of gas heat pumps

High efficient CCGTs

CCGT > 60%

Bio Methane

Commercial production and feed-in of bio methane

Power the main competitor?!

34

Power

Gas

Heat

CHP µ-CHP P2G heat

pump (gas)

bio

methane gas

mobility

LNG /

pipelines

Data

exchange

Competitors RES,

in-

sulation

RES,

in-

sulation

Power /

Heat

storage

heat

pump

(electric)

Bio fuel,

wood,

RES-E

Electro

mobility

Electric

grid

35

One example for a smart energy partnership:

the joint project „WindGas Falkenhagen“

Construction of one of Germany largest gas block heat

and power plant by HanseWerk Natur

36

Customer situation

E.ON solution

HanseWerk Natur builds a gas-fired CHP

with10 MWel to generate power for

21,500 households

The flexible and highly efficient plant has

a total efficiency of up to 95%.

The district heating station in Stapelfeld,

to the east of Hamburg, is part of the

district heating system Verbund Ost.

In Verbund Ost part of the heat is

generated with inefficient boilers.

38

Challenge #4: building smarter energy partnerships

Conclusion

Be part of the transformation

Build smarter energy systems

Build smarter global supply chains

Support gas as part of the solution

Rely on proven partnerships

E.ON/Uniper appreciate their successful partnership with Swissgas

Embrace innovation

…if only to protect your existing business

It‘s the innovation,

stupid!

Thank you for your attention