RWE Generation SE – Tackling the challenges ahead Essen, 12 February 2014 Dr. Frank Weigand Chief Financial Officer RWE Generation SE
Forward Looking Statement
This presentation contains certain forward-looking statements within the meaning of the US federal securities laws. Especially all of the following statements: > Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items; > Statements of plans or objectives for future operations or of future competitive position; > Expectations of future economic performance; and > Statements of assumptions underlying several of the foregoing types of statements are forward-looking statements. Also words such as “anticipate”, “believe”, “estimate”, “intend”, “may”, “will”, “expect”, “plan”, “project” “should” and similar expressions are intended to identify forward-looking statements. The forward-looking statements reflect the judgement of RWE’s management based on factors currently known to it. No assurances can be given that these forward-looking statements will prove accurate and correct, or that anticipated, projected future results will be achieved. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Such risks and uncertainties include, but are not limited to, changes in general economic and social environment, business, political and legal conditions, fluctuating currency exchange rates and interest rates, price and sales risks associated with a market environment in the throes of deregulation and subject to intense competition, changes in the price and availability of raw materials, risks associated with energy trading (e.g. risks of loss in the case of unexpected, extreme market price fluctuations and credit risks resulting in the event that trading partners do not meet their contractual obligations), actions by competitors, application of new or changed accounting standards or other government agency regulations, changes in, or the failure to comply with, laws or regulations, particularly those affecting the environment and water quality (e.g. introduction of a price regulation system for the use of power grid, creating a regulation agency for electricity and gas or introduction of trading in greenhouse gas emissions), changing governmental policies and regulatory actions with respect to the acquisition, disposal, depreciation and amortisation of assets and facilities, operation and construction of plant facilities, production disruption or interruption due to accidents or other unforeseen events, delays in the construction of facilities, the inability to obtain or to obtain on acceptable terms necessary regulatory approvals regarding future transactions, the inability to integrate successfully new companies within the RWE Group to realise synergies from such integration and finally potential liability for remedial actions under existing or future environmental regulations and potential liability resulting from pending or future litigation. Any forward-looking statement speaks only as of the date on which it is made. RWE neither intends to nor assumes any obligation to update these forward-looking statements. For additional information regarding risks, investors are referred to RWE’s latest annual report and to other most recent reports filed with Frankfurt Stock Exchange and to all additional information published on RWE's Internet Web site.
1
Since 1 January 2013 RWE’s conventional electricity generation is under one roof Portfolio in 2012
RWE power plants in Europe
(100 % = c. 48 GW)
C. 50 plants, c. 18,000 employees
Split by country Voerde
Eemshaven Staythorpe Klazienaveen Little Barford PembrokeGreat Yarmouth Aberthaw Didcot Enschede Tilbury Littlebrook Fawley
Vianden Mülheim-Kärlich Ensdorf Biblis Saar-Energie Mannheim
Ineos
Moerdijk Amer
Bergen op Zoom
Matra*
5 7
Lignite
5 4 24
Nuclear
Nuclear
Denizli Oil
Hydro
Biomass
Hard coal Gas
Plomin *
* Under the responsibility of RWE East
Turkey
(%)
30 Gas
Benelux
Fuel type
Helmond Eindhoven
Hard coal
Germany UK
Dormagen Frimmersdorf Neurath Fabrik Fortuna-Nord Niederaußem Fabrik Frechen Fabrik Berrenrath Goldenberg
Claus Swentibold
Lignite
1
60
Gundremmingen Schluchsee
s-Hertogenbosch Cuijk
10 27
Erica Emsland Ibbenbüren
Weisweiler
(%)
Westfalen Gersteinwerk Datteln Bergkamen GK West Scholven Knepper Herne Walsum Dortmund Bochum Herdecke Huckingen
25
Oil Hydro Biomass 2
Mid-term earnings perspective of Conventional Power Generation Operating result in € bn 3.5
3.3
3.0 Outright position
2.5 2.0
Impact from decline in realised outright power price from €55/MWh to ~€37/MWh CDS/CSS
1.5
Volumes
Mainly shut down of 150 MW lignite units and Tilbury
1.0 CO2
0.5 0.0 -0.5 1
2
Free allocation of c. 120 mt of CO2 certificates in 2012: ~€1.2 bn
Others 2012
Efficiencies 2012-2017
1
Mark-to-market2
2013(e.g. m-t-m Others:2012 e.g. compensation payments for construction delays in 2012; changes in the regulatory framework biomass NL); increase in depreciation Mark-to-market as of November 2013 at market prices of around €37/MWh for German baseload forwards
3
Significant pressure on our generation portfolio
Profitability of RWE’s conventional generation portfolio1
OR2 > WACC
OR > 0
c. > 50% – 60%
c. > 60% – 70%
> Current market situation leads to severe earnings pressure despite significant efficiency improvements > At current market conditions, approx. 1/3 of our power plants show a negative contribution to operating result and between 20% and 30% is free cash flow negative > Old gas fired power plants are under most pressure but even some new state of the art gas plants are cash flow negative
FCF2 > 0
1
2
c. > 70% – 80%
> Older hard coal plants are under pressure mid-term due to lack of flexibility
Rough profitability analysis for 2013 to 2015 in % of installed capacity of RWE‘s conventional generation portfolio (economic stake) in Germany, UK and NL (average c. 44 GW) based on market parameters as of January 2013. OR = operating result; WACC = weighted average cost of capital pre tax; FCF = Free cash flow = Revenue – Cash costs 4
Internal focus on cost reduction and portfolio optimisation and external focus on development of the market model What are we doing about that?
Internally
> Operational: Cash Improvements through efficiencies > Structural: Portfolio-Optimisation
> Interaction with stakeholders to further develop market models Externally
– Security of supply – Climate protection and sustainability – Affordability of electricity
5
Efficiency programme “Neo” covers all areas of RWE Generation via dedicated projects
Hard Coal & Gas DE
NL
UK
Participations
Nuclear
Lignite
Hydro
RWE Technology
Management & Support
CAO1
Technical Functions External spend
1
CAO - Commercial Asset Optimisation 6
¾ of target already specified by ideas / measures
Cash improvement target ~ 25%
100% = high 3 digit €m At least 80 % to be effective in operating result
~ 75%
DoI1 logic applies
Already specified by ideas / measures 1
to be specified by concrete measures
Overall target
DoI = Degree of Implementation 7
Cash improvement measures will ramp-up until end of 2016, with full financial effect in 2017 Cash improvement target 100% ~ 90%
50-60%
20-30%
2014
2015
2016
2017
8
Synergy and restructuring potential is targeted in project “NEO” across all areas of the generation business Hard Coal & Gas
> Further reduction of start-up time and costs > Optimisation of hard-coal transportation cost
Nuclear
> Improvement of front to back end processes in fuel management > Active ageing management for power plants
Lignite
> Improvement of technical processes in plants, mines and refining > Reorganisation of overhauls and services through out lignite system
Hydro
> Increase of production by ecological and technical improvements > Streamline organisation by realising internal and external synergies
RWE Technology
> Alignment of resources to predicted demand > Integration of Management Support functions into RWE Generation
Management & Support Functions
> Elimination or service level reduction of non crucial activities > Optimisation of processes and streamlining of the organisation
Commercial Asset Optimisation
> Optimisation of processes / structure > Integration of activities in Germany and NL / Reduction of IT complexity
Technical Functions
> Tailored technical co-operations across plant portfolio > Introduction of “Competence Heads” for technical components
External Spend
> Switch to cheaper supplier (e.g. to non-OEM-supplier) > Standardisation / harmonisation of product requirements 9
Decision on capacity measures Measure
Plant
MW1
Fuel
Decommissioning
Amer 8
610
Hard coal
NL
Q1-20162
Long-term mothballing
Moerdijk 2
430
Gas
NL
Q4-2013
Gersteinwerk F
355
Gas – steam turbine
DE
Q3-2013
Gersteinwerk G
355
Gas – steam turbine
DE
Q2-2014
Weisweiler H
270
Topping gas turbine3
DE
Q3-2013
Weisweiler G
270
Topping gas turbine3
DE
Q3-2013
2 mid-size units
85
Gas
NL
Q1-2013
Emsland B
360
Gas – steam turbine
DE
Q2-2014
Emsland C
360
Gas – steam turbine
DE
Q2-2014
Confidential
1,170
Hard coal
DE
Q4-2013 – Q4-2014
Summer mothballing
Termination of 3 contracts Total
Location
Date
4,265 MW
1
Net nominal capacity | 2 Depending on the final decision on the Dutch “Energieakkoord”, with a decision expected by the end of August 2013 | 3 At a lignite plant 10
Development of the electricity market model under the principle of one goal - one instrument
Goal: Security of supply
Goal: Climate protection
Goal: Affordable electricity
Non-discriminatory system to reward availability of power generation capacity
Emissions trading system with a long-term goal to reduce CO2 emissions
Market integration of renewable energy; reform of the Renewable Energy Act
11
German energy politics
Essen, 12 February 2014 Dr. Peter Heinacher Head of Corporate Affairs RWE AG
RWE AG
12/02/2014
PAGE 1
New cabinet‘s agenda compiled at Meseberg conclave
The new cabinet’s conclave at Meseberg Castle (21 Jan. 14)
Cabinet’s energy agenda
Renewables Act
Capacity Mechanism
Climate Action
Picture: Bundesregierung
RWE AG
12/02/2014
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Key protagonists
Sigmar Gabriel
Source: A. Müseler
Rainer Baake
Source: Heinrich-Böll-Stiftung
RWE AG
12/02/2014
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Pressure from Brussels on German energy politics
DG competition opened inquiry into German Renewables Act 2012 on 18 Dec. 2013 Renewables support likely to be state aid but in line with Com’s 2008 guidelines Exemptions for the energy intensive industry may be considered state aid not in line with Com’s 2008 guidelines J. Almunia
RWE AG
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Renewables Act heading for the right direction To be finalized by August 2014! Support
Wind onshore: 2,500 MW/a cap, automatic digression of FIT; locational differentiation Wind offshore: 6.5 GW target until 2020, digression of FIT in 2018/19 PV: 2,500 MW/a cap, automatic digression of FIT Biomass: 100 MW/a cap, automatic digression of FIT
Market
Mandatory direct marketing for new installations as of 2014 (500 kW and more), 2016 (250 kW and more), 2017 (100 kW and more) Default buyer General auctioning of renewables support as of 2017
Cost allocation
Review of exemptions from renewables surcharge for energy intensive industry according to EU state aid regulation 90% renewables surcharge for new auto-generators (70% for CHP and renewables) 5,28 ct/kWh allowance for existing auto-generators
RWE AG
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The Renewables Act channels green value added into the States (“Länder”) Net totals of EEG-payments by the states (2012)
Negative net total Positive net total
Source: BDEW
RWE AG
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Capacity mechanism will be the next no. 1 task Government program acknowledges the necessity of a capacity mechanism Meseberg conclave confirmed this view
Four competing concepts for capacity mechanisms Power plant reserve or enhanced balancing market e.g. BNetzA Bundeskartellamt
Decentralized capacity market
BDEW VKU France
Centralized capacity market
EWI UK
Centralized, discriminatory capacity market
Öko-Insitut Agora
RWE AG
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Climate action plan prior to Paris 2015
Ministry of Environment may table a Climate Action Plan Government program states that national climate action will be shaped in the light of the Paris 2015 results Nevertheless, Environmental Ministry seems to be determined to table a national action plan before B. Hendricks
Yet unclear how binding a possible Climate action plan will be in a legal perspective
RWE AG
12/02/2014
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Back up
RWE AG
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PAGE 9
RWE is 3rd in the EU in terms of gas-fired power plants, in Germany we are number one RWE and big European utilities1: Gas capacity in the EU and Germany 2012 (GW)
GDF
25.3
Eon
19.5
RWE
Vattenfall
14.3
EDF
EnBW
13.0
Iberdrola
1.7 1.2
Label Gas capacity (partly dual fuel)
4.4
EdP
4.7
GDF Suez 0.2
8.3
Vattenfall
5.2
Eon
15.6
Enel
3.9 1
Centrica EnBW
RWE
3.7 1.2
including customer plants and participations, e.g. enviaM, also including temporarily mothballed capacity
Most important sources (for separation of gas-fired capacity sometimes more sources necessary) RWE:
Facts & Figures und Annual Report 2012
Eon:
Annual Report 2012, Facts & Figures March 2013
GDF Suez:
Asset Table 2012
EDF:
Facts & Figures 2012, Analyst Fact Pack 2012, Platts Power Plant Database 2010
ENEL:
Presentation Results 2012, Plan 2013-2017, Website Endesa, ENEL List of thermal Power Plants in Italien
EnBW:
Annual Report 2012
Vattenfall:
Info package 2012, Website Power Plant List, BNetzA Power Plant List (DE)
Iberdrola:
Annual Report 2012, Website Iberdrola (Interactive analysis)
RWE AG
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Company ranking for pump storage capacity connected to the German grid 2.793 ,
Vattenfall 2.119 ,
RWE 1.755 ,
EnBW E.ON
947
Voralberger Illwerke Tiroler Wasserkraft Statkraft
751 289 220
markE
138
GDF SUEZ
127
Stadtwerke München
Turbine power Figures in MW
99 RWE AG
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Ranking of > 100 MWel CHP plant operators in Germany Vattenfall
7
RWE
3
EnBW Steag E.ON
2 1 1
Figures in GWth
RWE AG
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With ca. 1,000 MW installed capacity by 2015, we will be one of the leading offshore operators Strong position in competitor comparison (Capacity in MW)*
DONG Vattenfall
3
E.ON SSE
5
RWE Centrica Statoil Statkraft
In operation
EnBW
Under construction
SWM Iberdrola EDF 0
500
, 1.000
, 1.500
,
,
,
* Source: RWE Innogy internal analysis - Offshore competitor database. RWE AG
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