RWE npower Simon Stacey Retail Finance Director

Transcription

1 RWE npower Simon Stacey Retail Finance Director THE FINANCIAL CHALLENGES FACING THE ENERGY INDUSTRY RWE npower PAGE 1

2 THE FINANCIAL CHALLENGES FACING THE ENERGY INDUSTRY Contents RWEnpower Background Information Energy Production in the UK Market Place Current UK Generation Mix The Generation Capacity Gap Meeting the Generation Gap The Retail Challenge Current UK Retail Market Share and what is Retail Managing Customer Value Product Proposition Retail Challenges Regulatory and Environmental Management via KPIs What are KPIs and Value Drivers How RWEnpower develops KPIs Questions? RWE npower PAGE 2

3 RWE npower as part of RWE Group RWE npower is a leading UK energy company, operating within the RWE Group, one of Europe s largest industrial companies The RWE Group has over 60,000 employees worldwide. RWE npower employs over 12,500 employees at 60 sites across the UK The turnover for the RWE Group was 49 billion in RWE npower s turnover for 2008 was 8.6 billion RWE s core businesses electricity, gas and energy services RWE s core markets are Germany, UK and central Eastern Europe RWE npower PAGE 3

4 RWE Group Structure RWE AG (Group Centre) RWE Power RWE Dea RWE Supply & Trading RWE Energy RWE npower RWE Innogy > Revenue ( million) > Operating Result ( million) > Employees > Generation Capacity(MW) RWE npower , ,747 10,145 % of Total RWEGroup 18% 8% 19% 22% RWE npower PAGE 4

5 RWE Today: One of the Top 5 Integrated European Utilities RWE Core Markets Leading Positions in Core Markets United Kingdom Netherlands Luxembourg Germany Austria Poland Czech Republic Slovakia Hungary Market Germany Product Electricity Gas No. 2 No. 3 UK No. 4 No. 4 Central- Eastern Europe > No. 2 in Hungary > No. 3 in Slovakia > Active in Poland > No. 1 in the Czech Republic > Leading position in Hungary Electricity Gas Water Europe No. 3 No. 6 RWE have leading positions in two of Europe s largest markets as well as in strongly growing CEE markets and own a large upstream position in both Europe and North Africa. RWE npower PAGE 5

6 RWE npower s vision To become the UK s leading integrated energy company Building a powerful future Turning people into fans With power comes responsibility Turning customers into fans RWE npower PAGE 6

7 THE FINANCIAL CHALLENGES FACING THE ENERGY INDUSTRY Contents RWEnpower Background Information Energy Production in the UK Market Place Current UK Generation Mix The Generation Capacity Gap Meeting the Generation Gap The Retail Challenge Current UK Retail Market Share and what is Retail Managing Customer Value Product Proposition Retail Challenges Regulatory and Environmental Management via KPIs What are KPIs and Value Drivers How RWEnpower develops KPIs RWE npower PAGE 7

8 Diverse Energy Generation RWE is one of the UK s leading electricity generators We have the capacity to generate around 10,800MW from coal, oil and gas fired power stations along with wind, hydro and co-generation plants We have a diverse fuel portfolio which ensures a high degree of commercial flexibility to the benefit of our customers RWE npower PAGE 8

9 RWE npower Generation Current Generation Fleet Didcot B 1,370MW CCGT Little Barford 680MW CCGT Didcot A 1 2,000MW Coal Great Yarmouth 420MW CCGT Aberthaw 1,500MW Coal Tilbury B 1 1,000MW Coal Cowes 140MW OCGT 1 Opted-out under LCPD Fawley 1 1,000MW Oil Littlebrook 1 2,000MW Oil RWE npower PAGE 9

10 UK Generation Market Major Participants SSE 11% GB Generation Installed Capacity Others 19% British Energy 15% Centrica 5% Drax 5% EDF 7% SSE 12% GB Generation Market Share 2007 Others 23% British Energy 19% Centrica 4% Drax 8% Scottish Power 9% RWE 15% E.ON 14% Scottish Power 7% RWE 9% E.ON 12% EDF 8% Big 6 have approximately 50% of GB installed capacity This Includes all the opted-out coal plant British Energy has 15% of installed capacity and generates about 19% of the UK Generation from nuclear power plants Most other non-big 6 companies generally have a gas-biased portfolio The major exceptions: Drax, International Power, BE, NDA RWE npower PAGE 10

11 UK Generation Market The Generation Gap The UK capacity gap is likely to be more than filled up to 2012, subsequently the gap is expected to grow further Projected Evolution of UK Generation Stack Potential Evolution of UK Generation Gap 1 GW Gas Coal Nuclear Renewables Other Range of Plant Retirement The need for new plant in the UK is well recognised However uncertainties still exist around the exact timing of this need. Key determinants are: Use of 20,000 hours by opted-out coal plant Whether further nuclear plants receive life extensions The level of demand growth and penetration of technologies such as microgeneration (No Gap / Over Build) GW (Gap / Under Build) Gap inc. only new build currently under construction Gap inc. new build currently under construction & pending construction The generation gap appears to be more than met out to 2012, however this will be strongly determined by the actual timings of new build commissioning From 2013 onwards the gap is expected to grow to a further 5GW by 2015 and up to 20GW by 2020 RWEn aims to capitalise on this operating environment to achieve its market share aspirations by: - Leading the Big VI in new build projects commissioning by 2012 (Staythorpe/Pembroke) - Developing attractive options for further new build in the post-2013 period - Expanding into nuclear generation RWE npower PAGE 11

12 We are preparing for the challenges of future growth Challenges RWE npower Actions Environmental and CO 2 targets > CCGT new build > Nuclear involvement > R&D into Clean Coal (CCS) Uncertain energy markets > Pressing for regulatory clarity > Balanced new build strategy > Strong set of plant options Maintain financial performance in a period of rising investment > Planning ahead > Leveraging RWE Group scale economies Engineering requirements > Substantial in-house expertise > Active recruitment > Knowledge share in RWE Group 1 Combined Cycle Gas Turbine; 2 Research and Development; 3 Carbon dioxide Capture & Storage RWE npower PAGE 12

13 We have 3.6 GW of planned new gas plant and over 3 GW of coal site options RWE npower Key Fossil Plants & New Build Plans Blyth New Build CCGT Plant Coal Site options Staythorpe New Build & Planned CCGT > Staythorpe (1,650 MW) Construction started in 2007 Alstom secured as EPC 1 provider Commissioning expected in 2009/10 Thermal efficiency of 58% > Pembroke (2,000 MW) Consent Granted 2009 Alstom EPC 1 option, option expires 30th Nov 08 Commissioning expected in 2011/2 Thermal efficiency of 59% > Further options: more than 8,000 MW Pembroke Coal Site Options > Blyth (1,600 2,400 MW) > Tilbury (1,600 MW) Tilbury 1 Engineer, Procure & Construct RWE npower PAGE 13

14 Nuclear Strategy E.ON and RWE to build 20bn UK nuclear reactors TIMES Online Jan 14th 2009 Nuclear The RWEnpower Perspective Andrew Duff, Chief Executive of RWEnpower, said: New nuclear build is a key part of RWEnpower s commitment to meet the UK s energy needs and to reduce carbon dioxide intensity. E.ON is the ideal partner for UK development given that our businesses have complementary strengths and capabilities, and a successful track record in nuclear power. The UK power industry needs significant investment to replace aging coal and nuclear plant and to drive the change to a lower carbon economy. This joint venture will deliver an early, substantial and vital contribution from nuclear power. Nuclear - Summary Nuclear R&D programme since 2006 Auctioning of NDA sites in 2009 JV with E.ON to build at least 6 GW RWE npower PAGE 14

15 THE FINANCIAL CHALLENGES FACING THE ENERGY INDUSTRY Contents RWEnpower Background Information Energy Production in the UK Market Place Current UK Generation Mix The Generation Capacity Gap Meeting the Generation Gap The Retail Challenge Current UK Retail Market Share and what is Retail Managing Customer Value Product Proposition Retail Challenges Regulatory and Environmental Management via KPIs What are KPIs and Value Drivers How RWEnpower develops KPIs RWE npower PAGE 15

16 The RWEnpower Retail Business Electricity Retail Volume Share TWh 2007 Gas Retail Volume Share TWh 2007 British Energy 8% British Gas 13% Others 14% SSE 16% npower 17% E.ON UK 16% EDF Energy 17% Others British 22% Energy 8% GDF 6% Scottish Power 6% SSE 7% npower 10% E.ON UK 14% British Gas 35% Source: Cornwall Associates 2007 RWE npower PAGE 16

17 Retail - Energy at Home and Work Since its launch in 1999 the npower brand has grown to be recognised by nearly 90% of the UK population One of the UK s leading energy brands Since 1999 customer base has grown from 500,000 to over 6 million customer accounts npower business provides simple, essential energy services and products to its customers and is one of the largest energy suppliers in this sector Sponsors of Test Cricket and proud to provide energy for the new Wembley Stadium RWE npower PAGE 17

18 Retail Managing Customer Value We segment our customers in terms of behaviour to understand their long-term value Targeted Marketing Driven Through Brand/Promotions Cross sell Target advertising Sponsorship Channel Remote Face-to face Product/Proposition Payment method Dual fuel Green products Home Energy Services Service/Operational Excellence Billing Call centre Meter reading Our strategy is to deliver segmented propositions which differentiate us from the competition We know the marketing channels and products that work best for each customer segment This supports our dual goals of growing market share while maintaining margins RWE npower PAGE 18

19 Retail Managing the Production Proposition Core Green Innovation Energy Services Future Products & Services > Gas > Electricity > Dual Fuel > Payment methods > Juice > National Trust partnership > Gas Guardian > Tracker product > npower hometeam > Installation & service > Solar > Heat pumps > Wind > DCHP 1 > CO 2 management Juice a green electricity product matched to the output from the UK s first offshore wind farm North Hoyle National Trust partnership green energy affinity programme donating 15/customer/year for low carbon initiatives to the National Trust Gas Guardian price promise product fixed to competitors gas offering at a time of rising prices Tracker launched in early 2007 and was the first product of its type; Tracker reflects changes in wholesale energy costs by following an independent pricing index Formation of npower hometeam boosted through the acquisition of Homerserve s gas service business provide heating maintenance and installation services 1 Domestic Combined Heat & Power RWE npower PAGE 19

20 Retail Challenges The Regulatory Environment RWE npower PAGE 20

21 Retail Challenges - Pricing Brent Oil ($/Barrel 1 Month Ahead) Net Average Unleaded Petrol (p/litre) npower QCC RETAIL Gas (p/therm) Wholesale Gas Cost (p/th 1 Month Ahead) Index Value Pricing methodology follow market or smoothed prices Power challenge for future as new investments come on stream Media expectation versus profitability RWE npower PAGE 21

22 Retail Challenges The UK s CO2 reduction and social energy programmes Expected industry spend for CO2 reduction and social obligation 3 Year Spend ( ) m CERT (Original Spend) 2800 CERT (20% Increase) 560 CESP 350 Voluntary Social Spend 375 Total 4085 Carbon Emissions reduction target (CERT) This phase of the energy supplier obligation to last 3 years (April 2008 April 2011) Replaced the Energy Efficiency Commitment Target of 154mt CO2 emissions reduction, increased by 20% to 185mt CO2in September08 Emissions savings to be delivered by measures improving energy efficiency in households Obligation to make 40% of saving in priority group1(including those aged 70 and over) RWEnpower CO2reduction target of 26.2 million over 3 years Government proposed on 12 Feb 2009 to continue with a CERT equivalent obligation until Dec 2012 Community Energy Savings Programme (CESP) Partnership of local councils, voluntary organisations and energy suppliers in the most deprived areas of the UK Power generators included in the programme House-to-house calls to offer free and discounted central heating, energy efficiency measures and benefit checks Measures must deliver significant CO2and fuel bill savings Creation of 100 new community schemes benefiting some 90,000 homes Allocation to energy companies pro rata to market share3 Voluntary Social Spend Voluntary commitments by energy suppliers to support certain customer groups such as fuel poor Measures principally in form of reduced tariffs RWEnpower committed to spend approximately 53 million over 3 years (April 2008 April 2011) RWE npower PAGE 22

23 We are preparing for the challenges of future growth Challenges RWE npower Actions Environmental and social obligations Developing affordable green energy products Customer retention Continue to improve customer service & value proposition greater product bundling Continuing strong competition Maintain brand strength and develop further channel offerings Regulation & Media Proactively engaging with stakeholders, tell our story better RWE npower PAGE 23

24 THE FINANCIAL CHALLENGES FACING THE ENERGY INDUSTRY Contents RWEnpower Background Information Energy Production in the UK Market Place Current UK Generation Mix The Generation Capacity Gap Meeting the Generation Gap The Retail Challenge Current UK Retail Market Share and what is Retail Managing Customer Value Product Proposition Retail Challenges Regulatory and Environmental Management via KPIs What are KPIs and Value Drivers How RWEnpower develops KPIs RWE npower PAGE 24

25 Value Drivers and KPIs RWE npower use KPIs to reflect and measure key drivers of business value. Value drivers move the organization in the right direction to achieve its stated financial and organizational goals. Examples of value drivers might be high customer satisfaction or excellent product quality. In most cases, KPIs are not financial metrics. Rather, KPIs reflect how well the organization is doing in areas that most impact financial measures valued by shareholders, such as profitability and revenues. As such KPIs are leading not lagging indicators of financial performance. A good KPI should: Be easy to understand Be always relevant Be based on valid data And most importantly should drive positive action RWE npower PAGE 25

26 Identification of Value Drivers and KPIs (1/2) Goal Shareholder Value Components Operating Cash Flow Value Generator Sales Growth, Profit Levels, Tax Rate Strategic Projects Management Decision Operating Business Enhancement Capex Replacement Capex Decomissioning Control Area Control of Margins Cost Control Market Expectation Control Parameter Electricity Generation income Variable Generation Costs Operating Expenses Market Modelling Important Factor Price, Coverage, Products Quantity Price, Coverage, Procurement Quantity Personnel Expenditure Material Costs Market Share Political Environment Expectations Competitor Expectations RWE npower PAGE 26

27 Identification of Value Drivers and KPIs (2/2) Control Parameter Electricity Generation income Variable Generation Costs Operating Expenses Market Modelling Important Factor Price, Coverage, Products Quantity Price, Coverage, Procurement Quantity Personnel Expenditure Material Costs Market Share Political Environment Expectations Competitor Expectations KPIs Plant Availability Generation Volumes Biomass useage Generation Volumes Start Reliability Plant Availability Efficiency Ratio of Fuels Used Lost Time Incidents Employee Surveys Employee Turnover Rate Total Controllable Cost per MW Capacity Configuration of Power Stations by Capacity and Fuel type Average Age and Fuel Type of Competitors Fleet No. New Power Station Build Apllications RWE npower PAGE 27

28 Question? RWE npower PAGE 28