EnBW Capital Market Day 2015 EnBW Energie Baden-Württemberg AG

Karlsruhe, 1 October 2015

Current & Future Energy Policy Framework Implications for EnBW

Capital Market Day Karlsruhe, 1 October 2015 Andreas Renner, Head of Public Affairs

Major issues of current German energy policy Broad framework for fossil fuels and national climate policy set. Nuclear energy policy still under review

Cornerstones for Grand Coalition‘s energy policy

Special Case: Nuclear Energy Policy

› Market Design

› Financing system for nuclear phase-out under review

 Adaptation of energy-onlymarket ( EOM 2.0)  Implementation of a tworeserves systems (Grid Reserve + Capacity Reserve)  No capacity mechanism envisaged

 Stress test of provisions for nuclear  Commission to make proposals for future financing system of nuclear phase-out. Results expected by end November 2015 (delay expected)

› CO2 reduction in electricity sector

› Nuclear waste management

 Implementation of a 2.7 GW lignite reserve to reach national climate targets (-40%) by 2020

› Reform of Combined Heat and Power Generation (CHP)

› Grid Expansion  Priority for underground cabling

Auctioning Design Renewables › Individual design for each technology

 Final disposal site for highlevel nuclear waste to be selected by 2031  Final disposal site for low and intermediate-level waste to start operation in 2022 (Schacht Konrad)  Return of recycled used fuels needs clarification

3

Overview of envisaged CO²-emission cuts by electricity sector Lignite capacity reserve to deliver biggest share Additional CO2-reduction share per year through envisaged measures (in million t CO2)

1,0

1,0

1,0

1,5

1,5 5,5

2,5 4,0

22 mt

15,0 11,0

Capacity reserve of 2.7 GW lignite power plants

Additional CHP funding

Additional efficiency in housing

Financing: EnBW Capital Market Day, 1 October 2015

Additional efficiency in municipalities

levy public funds tbd

Additional efficiency in industry

Additional efficiency at Deutsche Bahn

Possible additional reduction by lignite sector

Total

4

Schedule for implementation of new ‚Electricty Market Law‘ and nuclear energy policy Earliest commencement of Electricity Market Law

Green Paper

Consultation until March

White Paper

Implementation period Electricity Market Law

Consultation until August

Start new Market Design First Draft Electricity Market Law

November 2014

Summer 2015

Fall 2015

Expert Opinion BBH Presented in March

Summer 2016

2017

Stress test

Results by end of September

Nuclear Financing Commission Fund vs. Provisions

Nuclear Liability Law EnBW Capital Market Day, 1 October 2015

Conflicting schedule

5

Assessment of planned measures (1/2) Tendency positive, still some negative points

Assessment by EnBW › Positive: self-imposed commitment of state to refrain from intervening in free price setting ENERGY-ONLY-MARKET › Definition of ‚security of supply‘ takes cross-border aspects into account 2.0 › Details on 2 GW Capacity Reserve for Southern Germany yet to be elaborated, from EnBW‘s perspective political compromise in favor of Bavaria

CO2 REDUCTION BY ELECTRICITY SECTOR

› When expired Lignite Capacity Reserve should be replaced by a competitive market mechanism › Transparency of compensation mechanism necessary › Amount of additional reductions compared to anyway planned decommissionings to be checked

CHP

› Positive: Adjustment of expansion target as no additional overcapacities incentivized › Details of incentives for fuel-switch still unknown. Potentially positive for EnBW depending on configuration.

GRID EXPANSION

› Decisions on Suedlink (Prioritization of underground cabling) will lead to delays. Investment needs for Transnet increased through underground cabling

EnBW Capital Market Day, 1 October 2015

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Assessment of planned measures (2/2) Tendency positive, still some negative points

Assessment by EnBW

RENEWABLES

› Positive: individual auctioning design for each technology › Negative: disadvantages for inland sites due to higher cost structure and worse wind conditions not taken into account sufficiently › Specific temporary rules for interim period necessary (esp. for wind offshore)

NUCLEAR ENERGY

› Positive: Establishing commission to suggest future financing system for nuclear phase-out › Positive: Grand Coalition to take ‚economic capability of utilities‘ into account › Negative: No master plan for nuclear phase-out

EnBW Capital Market Day, 1 October 2015

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3 Components of Future Energy Policy

Politics will not help us

No independent national energy politics

EnBW Capital Market Day, 1 October 2015

Energy Policy

Piecemeal approach instead of master plan

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Bilanzpressekonferenz Questions ? für das Geschäftsjahr 2013 EnBW Energie Baden-Württemberg

Andreas Renner

Head of Public Affairs Telephon: +49 (0)30 – 23455 – 130 E-Mail: [email protected]

Capital Market Day » EnBW Energie Baden-Württemberg AG Capital Market Day Karlsruhe, 1 October 2015 Frank Mastiaux, CEO

Environment remains difficult – both from an energy industry and energy policy perspective

Energy market

Capital market

Energy policy

EnBW Capital Market Day, 1 October 2015

› Wholesale market › Spreads

› Equities and debt markets

› Nuclear energy themes › Expansion of the grids

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As a Reminder: EnBW 2020 Strategy with two main pillars will remain unchanged Engine Room of the “Energiewende” System Competence

Customer Proximity Market Orientation

Performance management, operational excellence, lean structure and processes, new leadership culture Specific features include › Simple in terms of the organisation and management of business

› Customer insight based orientation: knowing the needs of customers and anticipating developments at an early stage

› Flexible in terms of plants, facilities, processes and costs

› Innovative: ideas can be swiftly brought to the market

› Efficient and safe construction and operation

› Entrepreneurial style: small and dynamic teams to test new business models; deliberately decoupled from ”heavy" group processes EnBW Capital Market Day, 1 October 2015

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Our priorities are clear: execution

1) Performance

2) Renewal

3) Portfolio

› Relentless focus on efficiency

› Review and renewal of our Sales and Marketing organisation

› Continued investments in areas of growth

› Consideration of focused M&A in our areas of growth

EnBW Capital Market Day, 1 October 2015

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1) Performance

Optimisation of structures and processes

Profitability of conventional power generation

Sales: focus on efficiency and growth

Process of continuous improvement

EnBW Capital Market Day, 1 October 2015

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2) Renewal I – New structure of our sales and marketing organisation

›

New integrated business logic: differentiated handling of markets and customers per business unit

›

Clear accountabilities for product development

›

Restructuring of the product portfolio for B2C, B2B commodity and energy and sales solutions: streamlined to reflect a result-oriented business model

EnBW Capital Market Day, 1 October 2015

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2) Renewal II – Development of new products

›

Innovation-Campus up and running

›

Market launch of new products:

›

›

“SM!GHT”: entry into intelligent urban energy infrastructure

›

“ERN!E”: solution for B2C customers to optimise their own energy consumption

›

“Campus One”: new interactive learning platform

€100 million of venture capital allocated for further growth ›

First investment in the startup DZ-4

EnBW Capital Market Day, 1 October 2015

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3) Portfolio I – Expansion of renewable energies, focussing on wind power

Offshore wind › Baltic 2 – 288 MW › Offshore pipeline – 1,600 MW › EnBW is largest German supplier of offshore wind power

Onshore wind in Germany › 4 new subsidiaries, project pipeline expanded to 2.5 GW, of which 580 MW already secured › Well on track to achieving the 2020 expansion targets

Onshore wind in Turkey › Expansion of renewable energies, 186 MW* in operation › Total of 1,500 MW* in operation, under construction or under development

EnBW Capital Market Day, 1 October 2015

* EnBW: 50%

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3) Portfolio II – Expansion of the grids

›

Expansion of regulated grids business with stable returns

›

First investments by Transnet BW in construction of north-south grid transmission lines

›

Highest investment by Netze BW into distribution networks for more than ten years

EnBW Capital Market Day, 1 October 2015

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Conclusion: Clear strategy, new structure, focused restructuring and renewal 2013: New EnBW 2020 strategy and new structure of EnBW group 2014: First full year of implementation 2015: Implementation continued rigorously and with pace ›

Further improvements in performance and efficiency

›

Continuation of investments into growth

›

Realignment of our sales and market organisation based on “customer proximity”

Restructuring and renewal is on course – in a difficult environment

EnBW Capital Market Day, 1 October 2015

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Thank You! EnBW Energie Baden-Württemberg AG

1 October 2015 Frank Mastiaux, Chief Executive Officer

Well-positioned in a challenging environment EnBW Energie Baden-Württemberg AG

EnBW Capital Market Day Karlsruhe, 1 October 2015 Thomas Kusterer, CFO

EnBW Strategy 2020: Shift in profit pools to regain financial strength

Generation and Trading

Renewable energies

Grids

Sales

EnBW Capital Market Day, 1 October 2015

2012 Adj. EBITDA 2020

Main value drivers

1.2

› Wholesale market prices

€ bn

0.2 € bn

0.8

€ bn

0.2

€ bn

-80%

+250%

+25%

+100%

0.3

€ bn

0.7

› Efficiency › Expansion

€ bn

› Regulatory framework

1.0

› Regulatory environment

€ bn

0.4

€ bn

Interest rates

Business segments

› Capex › Efficiency › Customer proximity

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Transformation phase related decline in earnings will be fully compensated in 2020 Adjusted EBITDA of EnBW

+11%

in € million

2,341

2,225

2,167

2,059 2,167

2012

2013

2014

Outlook 2015

2,400

Target 2020

Earnings development › 2011 and 2012:

› 2013: › 2014 and 2015: › 2016 and 2017:

EnBW Capital Market Day, 1 October 2015

Introduction of nuclear fuel tax and shutdown of 2 nuclear power stations; Wholesale market prices begin to fall Full auctioning of CO2 allowances Wholesale market prices and spreads remain under pressure Further drop in earnings expected due to uncertainties regarding › political and regulatory conditions (electricity market 2.0/White Book) › development of wholesale market prices › expected delay in implementation of federal grid development plan 23

2020: Sales with substantial development, but less than 20 % of EnBW’s earnings overall Adjusted EBITDA in € million

400 241

227

231

254277

2012

2013

2014

Outlook 2015

History

Target 2020

Outlook

› 2012:

Improved margins

› 2013:

Declining gas sales Higher purchasing cost

› 2014:

Optimised customer portfolio Efficiency measures

› H1 15: Higher sales due to lower temperatures Optimisation measures of electricity sales

EnBW Capital Market Day, 1 October 2015

› 2015: Slight increase › Positive effects from H1 remain

› 2020: Doubling of earnings › Restructuring of existing sales operations › Innovations and product development with new/additional margin pools

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2020: With > 40% of the overall profit Grids maintain our solid earnings basis Adjusted EBITDA in € million

773

2012

962

886

797886

1,000

2013

2014

Outlook 2015

Target 2020

History

Outlook

› 2012:

Higher network user charges Lower overheads

› 2013:

Higher gas distribution; higher use of grid Lower overheads

› 2014:

Start of 2nd regulatory period Lower gas distribution and use of grid

› H1 15: Higher lease expenses due to new contract with City of Stuttgart; subsequent repayment for water price to customers in Stuttgart EnBW Capital Market Day, 1 October 2015

› 2015: Slight decrease › Effects from H1 remain

› 2020: Increase › Expansion of transmission grids probably delayed by 2 years › Continuous significant invest in distribution grids

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2020: Renewable Energies will boost the share of low-risk business to more than 70 % Adjusted EBITDA in € million

700 239

220

191

>229

2012

2013

2014

Outlook 2015

History

Target 2020

Outlook

› 2012:

Higher energy output of wind power

› 2013:

Lower electricity prices with negative impact on earnings of run-of-river power plants

› 2014:

Delay in ramp up of Baltic 2 Lower earnings from run-of-river due to lower electricity generation and prices

› H1 15: Unfavourable earnings of run-of-river power production Moderate expansion of wind onshore EnBW Capital Market Day, 1 October 2015

› 2015: Increase › Full commissioning of offshore wind farm Baltic 2

› 2020: Significant increase › Full adj. EBITDA contribution of Baltic 2 as of 2016 › Expansion of wind generation in Germany › Expansion of wind and hydropower generation in Turkey

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2020: Consequently, the importance in the adj. EBITDA of Generation & Trading is decreasing Adjusted EBITDA in € million

1,125

2012

839

2013

900

2014

History › 2012:

675765 Outlook 2015

300 Target 2020

Outlook Falling electricity prices Permanent shutdown of 2 nuclear power stations

› 2015: Decrease

› 2013:

Lower prices and spreads Full auctioning of CO2 allowances

› 2020: Significant decrease

› 2014:

Substantial efficiency measures

› H1 15: Falling prices and spreads maintain

EnBW Capital Market Day, 1 October 2015

› Prices and spreads maintain under pressure: Partially offset by efficiency measures › One nuclear power plant still in operation › Further development of legislation for network reserve power plants › Further cost cutting measures and optimisation of revision cycle 27

Due to its favourable maturity profile and refinancing measures of € 1.75bn in 2014, EnBW is fully financed until the end of this decade Maturities of EnBW’s bonds in € million1

1,0002

1,000 900

1,0004

2072

2076

700

700

500

1,000

8323

800

600

1,000

500

500

500

400 300 200

100

823

100

2016 2017 2018

2021

2023

1 As of 30 June 2014 2 First call date of hybrid maturing in 2072 3 Including CHF 100m converted as of the reporting date 30 June 4 First call date of hybrid maturing in 2076 5 Nominal with conversion as of the reporting date 30 June 2014

EnBW Capital Market Day, 1 October 2015

2025 2026

2034

1445

2038

2039

2014 28

Based on its flexible access to financing sources EnBW’s liquidity position is strong

Commercial paper prog.

Syndicated loan facility

Bilateral short-term credit lines

€ 2.0 billion

€ 1.5 billion

€ 507 million

undrawn as of 30 June 2015

undrawn as of 30 June 2015

undrawn as of 30 June 2015

Euro Medium Term Note prog.

Other: Hybrid bonds

Other: Capital increase

€ 7.0 billion

€ 2 billion

€ 822 million

€ 4.2 bn utilised as of 30 June 20151

July 2012

Details of the syndicated loan facility:

› › ›

Maturity date of 2019 In 2015 prolongation for a year as of 21 July 2015 Prolongation option in 2016 for a further year

1 As

of 7 July 2015 repayment of a bond with a nominal value of €750 million. € 3.5 bn of EMTN utilised as of July 8 2015

EnBW Capital Market Day, 1 October 2015

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The decline in discount rates for pension provisions seems to reverse Discount rate for pension provisions (IFRS) in % 4

2013

2014

2015

3

2

1 Jan 13

Apr 13

Jul 13

Okt 13

Jan 14

Apr 14

Jul 14

Okt 14

Jan 15

Apr 15

Jul 15

Source: Towers Watson EnBW Capital Market Day, 1 October 2015

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Positive impact is already noticeable

Gross pension obligations incl. CTA

Nuclear provisions

in € million thereof interest effect: 2,114

in € million thereof interest effect: 945 +26%

+50%

7,680

6,888 5,494

1,102

7,664

6,606 1,146 CTA

8,401

8,296

6,584

6,849

5.5

5.4

5.0

4.8

4.6

4.7

2011

2012

2013

2014

Q1 15

H1 15

1,069

4,395

5.25

5,644

1,124

8,071

3.8

4,575

5,786

6,556

5,460

3.75

2.2

1.5

2.45

Discount rates %

2011

2012

2013

EnBW Capital Market Day, 1 October 2015

2014

Q1 15

H1 15

31

Positive impact on net debt level also due to decreased NPV of pension provisions Adjusted Net Debt in € million

-6% 7,983

-1,150 376 FFO

Dec 2014

EnBW Capital Market Day, 1 October 2015

Working capital

428 Net investments, acquisitions, divestitures

215

-321

Dividens paid

Non-cash payments effects (addition of accrued interest)

7,531

Jun 2015

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German Utilities with a conservative and consistent approach for nuclear provisions Nuclear provisions based on § 9a AtG (legally-binding public regulations) & operating licenses (restrictions)

§ 249 (1) HGB & IAS 37

Comprehensive accounting treatment of all measures of controlled dismantling and disposal of radioactive waste

Annual external appraisals & experts assessments for individual situations

EnBW‘s nuclear provisions of 31.12.2014 in € million 8,072

Interim and final storage of fuel elements

Interim storage and disposal of nuclear waste

Decomissioning & dismantling Waste

Post-operational period, decommissioning & dismantling, disposal of waste

Fuel elements disposal

4,642 381 3,049

Multiple controls are in place in the German provisioning system

Independent auditors

Tax authorities

Annual audit

Audit of tax balance sheet

EnBW Capital Market Day, 1 October 2015

Tax authorities: Formal recognition of external appraisals regarding underlying cost assumptions

33

Experience in decommissioning process shows that provisions have sufficiently been set aside Progress of decommissioning project in Obrigheim based on „Dismantled Masses“

Decommissioning experience in EnBW‘s nuclear power station in Obrigheim: › Regulatory approvals sets the timeframe

29%

71%

37%

To be decommissioned/ still existing

63%

decommissioned/ used

› Successful progress of decommissioning process in comparision with use of nuclear provisions

Far more masses have been decommissioned than provisions have been used

Decommissioning Provisions

EnBW Capital Market Day, 1 October 2015

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Based on its Asset Liability Management (ALM) EnBW is managing its nuclear obligations successfully

Provisions for obligations 31.12.2014:

Coverage of obligations 31.12.2014:

in € million

in € million

Overall sum of obligations

14,959

Nuclear provisions

8,071

+ 2,657 Operational liquidity

10,627

(Treasury)

Financial assets (incl. CTA) Pension provisions (incl. CTA)

› Coverage ratio (31.12.14): ~ 74%

6,888

› 100% coverage expected in 2028

Provisions

Coverage of provisions

Complete (liquid) financial assets are in principal higher than nuclear provisions EnBW Capital Market Day, 1 October 2015

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EnBW can fully cover non-current provisions without negative affect on OCF successfully EnBW’s CF-based Asset Liability Management: LT-obligations do not affect OCF negatively in € million 1,000

Right Hand Side Provisions Financial assets

2028: 100% coverage 800

16,000

12,000 Cash outflows from provisions

600

8,000 Max. €300m p.a. OCF contribution1

400 4,000

Asset contribution

200

OCF contribution

0 2014 1 adjusted

for inflation

EnBW Capital Market Day, 1 October 2015

2018

2022

2026

2030

2034

2038

0 2042

No further contribution of OCF required 36

In any scenario no material implications for the date of full coverage thanks to EnBW‘s ALM1

Year of 100%-coverage

Current coverage

Variation of 1-2 % discount rate

› Delay of 3 – 5 years

› ~ 70 - 60%

Externalisation 30 %

› No material change

› ~ 70 %

Externalisation 100 %

› No material change

› ~ 40 %

1Calculations

based on ALM model as of December 2014

EnBW Capital Market Day, 1 October 2015

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Our key messages

› Operating performance well on track › Strategy EnBW 2020 in execution › Nuclear provisions discussions in principle no issue for EnBW

EnBW Capital Market Day, 1 October 2015

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