Handel med CO2 kvoter konsekvenser for norsk energisektor

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1 Handel med CO2 kvoter konsekvenser for norsk energisektor EBLs Vinterkonferanse Paris, 4. april 2008 Per-Otto Wold, CEO Point Carbon

2 Agenda Why is carbon important for Nordic power companies? Towards a global carbon and power market? The carbon market Price drivers and key uncertainties

3 About Point Carbon Founded in 2000 Trading analytics, News & Conferences, Research & Advisory Carbon, power and gas markets Currently approx. 180 employees (25 Ph.Ds) Oslo (HQ), London, Kiev, Tokyo, Washington D.C subscribers in 150 domains

4 What we offer Research & Advisory Point Carbon s Research & Advisory team capitalises on access to our world class databases, models, networks and teams of carbon, power and gas specialists Cabon Project Manager Carbon Market Research Services Trading anaylics Carbon Global reach Power Nordic and Continental Europe Gas UK Natural Gas News & Conferences Online news on the global carbon markets Newsletters and Market Updates:Carbon Market Insights Carbon Market Insights

5 Why is the carbon market important for Norwegian power companies?

6

7 How important is the long-term carbon price (e.g in 2020) for new investments in your industry? Decisive factor Influencing calculation, but not decisive No importance 0% 20% 40% 60% 385 respondents all from companies buying/selling/holding EUAs or CERs

8 Power and carbon Power important for carbon market Represents most of change in short term demand Represents most of short term abatement (Fuelswitching) Carbon important for power (Most) important price driver in the medium term Key driver of shareholder values

9 Short term abatement: Fuel switching SRMC /MWh Load curve OCGT & Oil condence Price uplift Emissions Gas Hydro/Wind/CHP Nuclear Lignite & Hard Coal Generation TWh

10 52 weeks rolling correlation 1,00 52 weeks rolling correlation between NP spot price and Total energy reservoir (deviation from Normal) 0,90 0,80 0,70 0,60 0,50 0,40 0,

11 Prices; EUA Dec-09, German Cal-09 & Yr EEX Cal 09 EUA Dec 09 NP Yr 09 0,91 0, EUA Dec /t EEX Cal /MWh 10 NordPool Yr jan. 07 feb. 07 mar. 07 apr. 07 mai. 07 jun. 07 jul. 07 aug. 07 sep. 07 okt. 07 nov. 07 des. 07 jan. 08 feb. 08 mar. 08 apr

12 Towards a global carbon and power market?

13 Towards a global carbon market? India, China take on commitments CDM JI JPN ETS CAN ETS EU ETS Indirect links (offsets) Direct links develop AUS ETS New president US ETS State-level ETS Sources: Shell and Point Carbon

14 Towards a global power market? Technological, economic, environmental, social framework Global markets Oil Indexation and correlation LNG Allows global price arbitrage Natural Gas Regional markets Coal Power Global CO2 Direct links through CER / ERU Regional ETS Increasing global nature of energy pricing increases correlation of power prices globally Increasing price interaction across the complex

15 The carbon market

16 It was a genious plan...

17 ...but it went horribly wrong

18

19 To what extent has the EU ETS caused your company to reduce its own emissions? The EU ETS has already caused emission reductions in my company The EU ETS has caused reductions to be planned but not yet started The EU ETS has not caused any emission reductions in our company 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 420 respondents all from companies buying/selling/holding EUAs or CERs

20 Allocation (20% EU reduction target) Mt/yr % Avg phase 2 Avg phase 3 Source: Point Carbon

21 The Carbon Market 2,7 Gt traded in 2007(1,6Gt % growth) - Value 40 bn, ( 22 bn %) CDM investments in over 130 countries expected to create more than 3 Gt before 2012 EU ETS review Climate Security Act Climate Security

22 How much has traded? Volume (Mt) OTC Exchanges Bilateral

23 How the carbon market works, in theory Gov. AAU sales JPN/CAN/NZ CDM/JI Gov. procurement programmes Governments Private sector EU ETS = Supply = Demand Forwarding compliance

24 What determines the price of carbon?

25 Key price determinants FUNDAMENTALS Bullish/bearish? POLICY Bullish/bearish? MARKET PSYCHOLOGY Bullish/bearish? OTHER Bullish/bearish?

26 EU ETS Phase I 35 Fuel and weather Verified emissions /t NAP 5 Phase I, EUA Dec 2007 Length to market 0 jan. 05 mar. 05 mai. 05 jul. 05 sep. 05 nov. 05 jan. 06 mar. 06 mai. 06 jul. 06 sep. 06 nov. 06 jan. 07 mar. 07 mai. 07 jul. 07 sep. 07

27 EU ETS supply demand: Before EU ETS Review Average phase 3 cap (Mt) Phase 2 Phase 3 (20%) Phase 3 (30%) Allocation Credit limit 2012 emission forecast

28 EU ETS supply demand: After EU ETS Review Average phase 3 cap (Mt) Phase 2 Phase 3 (20%) Phase 3 (30%) Allocation Credit limit 2012 emission forecast

29 Post 2012 US back in the driver s seat? US presidential election all remaining candidates support strong carbon legislation US market: 5,7bn t Co2e = 3 times current EU ETS cap for phase 2 Link with EU established through 15% import of permits from international markets Maximum US demand from international permits from 2012 = 750 Mt/ year Could effect EU ETS/ CDM/ JI markets significantly

30 Summary If you are in the power business you have to understand carbon If you are in the carbon busines you have to understand power The carbon market is already global The carbon market is dynamic and complex Weather and fuel fundamentals drive prices in the short-term Correlations come and go, different things important at different times

31 Thank you for the attention For more information:

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