RWE npower Investor Meeting and Tilbury Site Visit Nomura International, London 26 April 2012
RWE npower's perspective on the UK energy market and strategic assessment Volker Beckers CEO RWE npower
2011 RESULTS OF RWE NPOWER Full Year 2011: operating result 31% above previous year million 272 357 2010 2011 RWE npower 26 April 2012 PAGE 3
INDUSTRY CHALLENGES THE UK MARKET IS CHARACTERISED BY REGULATORY UNCERTAINTIES Generation RO rebanding EMR outcome Market liquidity & auctioning TransmiT Retail Push for transparency Sales channel scrutiny CERT & CESP SMART roll-out Green Deal & ECO RWE npower 26 April 2012 PAGE 4
GENERATION PRE-EMR IN THE SHORT TERM, A DIVERSE FLEET IS KEY Pre-EMR Situation Gas plants continue to set electricity prices Over-capacity is suppressing CSS, now almost unsustainably low Carbon tax increases generation costs from 2013, coincident with full auctioning of EU ETS allowances Increasing impact of intermittency as UK renewables portfolio grows GB Fossil Fleet Merit Order - 2012 Our Response Our investments in highly-efficient CCGTs ensure gas portfolio can out-perform market CSS, and pass through carbon costs better than the competition Coal plant (Aberthaw) provide hedge against increasing gas price Renewables (Tilbury & RWEI) provide hedge against increasing CO 2 costs Peaking portfolio provides hedge against increasing intermittency (e.g. Fawley, Littlebrook) Coal stations Gas stations Variable Cost, /MWh Pembroke Great Yarmouth Little Barford 1 Staythorpe Didcot A Didcot B Aberthaw 1. Efficiency post-replant Summer-12 stack RWE npower 26 April 2012 PAGE 5
GENERATION POST-EMR OUR FLEET AND OPTIONS ARE WELL PLACED IN POTENTIAL EMR OUTCOMES Post-EMR Outlook Whilst EMR implicitly embodies the UK s government s desired future generation mix, the final outcome remains uncertain Commercial pressures will continue to add to this regulatory uncertainty Affordability Social pressures Our Response RWEn & RWEI UK investment pipelines give us diversity and flexibility to hedge ongoing regulatory and market uncertainty: Onshore Wind Offshore Wind Biomass Coal Gas Peaking plant Competitive position Affordability Sustainability Security Security of Supply Capacity Mechanism CfD Carbon tax EU ETS Environment Low carbon options include Tilbury Phase II and Innogy pipeline Fossil options at Willington and Aberthaw Peaking plant options across existing & consented sites RWE npower 26 April 2012 PAGE 6
RETAIL TO DATE STRENGTHENING OUR RETAIL POSITION Efficiency programme Reducing YOY Opex Bad debt costs reduced by 25% since 2009 Customer contact volumes reduced from 2.5 to under 1.5 p.a. (Times Award) SAP enabled cost reduction Domestic hedge Previous out of money hedge position has unwound Clear benefits from the introduction of our dynamic hedging approach Warm weather demand reduction was mitigated and margins protected Improved management of commodity costs RWE npower s Retail Business Turn Around Domestic customer/product mix Churn reducing faster than market average Complaints down by more than 70% since 09 Brand awareness of 93% Consumer Focus 3* rating Direct Debit penetration increased: 2nd in market On-line customer relationships increased: to over 20% Exited door to door sales Largest affinity deal in the market, Telecom Plus: 0.5m customers Growing business markets Roll-out of leading B2B services such as energy risk management and monitoring Improved margins by 15% in flexible product portfolio since 2009 Added 5TWh to our portfolio Resulting in improved B2B share of 18.7%: 2nd in power RWE npower 26 April 2012 PAGE 7
RETAIL CURRENT MARKET OUTLOOK Economic challenges Evolving & faster moving market dynamics Trilemma: affordability, sustainability, security MARKET ENVIRONMENT Rising commodity prices Technical Innovation RMR Tariff & Bill Simplification ECO & Green Deal Efficiency targets & fuel poverty EMR - CFDs, Carbon Floor Price and Capacity Mechanism SMART meters Roll-out by end 2019 Increased regulatory cost base, with costs passed through to customers Potential for greater customer awareness and (media) mistrust Need for increased transparency and accountability Partnerships will be needed to competitively deliver obligations e.g. insulation products Potential for reduced liquidity, increased cost to consumer and increased risk to supplier Need for a well planned SMART programme to ensure excellent customer experience GOVERNMENT AGENDA NPOWER IMPLICATIONS RWE npower 26 April 2012 PAGE 8
RETAIL ACHIEVING OUR OBJECTIVES Delivery of cost efficiencies through continuous process optimisation Leverage SAP investments Ensure competitive cost & service levels Cost efficient delivery of obligations Strong risk management and commercial optimisation capability Partnerships in: Channels: routes to market & white labels Propositions: bundles Field delivery Asset ownership Financing Also in delivery of obligations: ECO & Green Deal SMART Secure operational "must haves Leverage potential partnerships CHALLENGES & RESPONSES Improve reputation and trust Target right markets & products/ services Refocus on customer choice Offer simple & transparent products & services and bills Zero tolerance to non-compliance Ensure customer centric service Use data and customer engagement to develop competitive advantage Product & service innovation e.g. developing encompass in B2B market Develop dynamic customer segmentation Grow energy services penetration Offer choice of services Personalise customer experience Profitable growth for Domestic, secure SME and continue to grow I&C RWE npower 26 April 2012 PAGE 9
RWE npower s Financial Performance Dr. Frank Weigand CFO RWE npower
Financial performance of RWE npower in 2011 Full Year 2011: operating result 31% above previous year + Cost reductions / efficiency improvements million 272 357 + - Power generation First time contribution from Staythorpe CCGT and settlement of claims relating to major investment projects and legacy claims Lower spreads 2010 2011 + Retail Improved commodity cost management and lower bad debt costs + - Growth in large customer business segment Lower consumption Source: Fiscal year 2011 analyst and investor conference call on 6 March 2012 RWE npower 26 April 2012 PAGE 11
Organisational setup and a drop in profitability in 2009 lead to need for action Scope and Structure of RWE npower 2002 2009 Operating Result 1 2006 2009 ( m) 499 429 351 Innogy Holding PLC RWE npower 220 Retail Operations & Engineering Trading & Asset Mgmt Renewables Regenysys Retail Generation 2006 1 excl. Renewables 2007 2008 2009 Project Strand was introduced in order to address these challenges RWE npower 26 April 2012 PAGE 12
Project Strand: a holistic approach based on value drivers 1 2 3 4 Value Drivers Organisational Structure Performance Management Targets Implementation Programme RWE npower 26 April 2012 PAGE 13
Value drivers determine new organisational structure of RWE npower Old structure in 2009 From sub-optimal focus on two divisions. Generation P&L Retail P&L New structure since 2010 to clearly delineated performance units Performance units mapped to value drivers One risk management function One bottom line (P&L) RWE npower RWE npower Retail Generation Asset Development Asset Operations Commercial Optimisation Customer Service Customer Markets Energy Services P&L P&L Capex Delivery Cost & Availability Gross Margin & Risk Mgmt Service Level & Cost-to- Serve Cost-to- Acquire & Customer NPV Profitable Growth RWE npower 26 April 2012 PAGE 14
Steering is focused on influenceable drivers and key performance indicators Examples ILLUSTRATIVE Power Station Availability Power Station Costs Cost-to-Serve Product Margin Functions OPEX Customer Numbers Grid Costs. Gross Margin Costs Influenceable via KPIs Non- Influenceable Costs RWEn P&L RWE npower 26 April 2012 PAGE 15
Targets have been set with the full effect in 2012 Value added improvements comprising gross margin, opex and capital employed (in m) ~300 Exogenous and portfolio impacts Development Clean Spark Spreads ( /MWh, Market Data) 12 ~200 8 ~80 4 Actual 2010 Actual 2011 Target 2012 0 2009 2012 Net impact on RWE npower bottom-line RWE npower 26 April 2012 PAGE 16
Improvements are tracked by key performance indicators KPI Examples Cost-to-Serve (in /meter) Settlements Gap (in m) Days Sales Outstanding -15% -60% -20% 2009 Actual 2011 Actual 2012 Target 2009 Actual 2011 Actual 2012 Target 2009 Actual 2011 Actual 2012 Target Power Station Costs (in /KW) -17% Support-Functions Costs (in m) -27% 2009 Actual 2011 Actual 2012 Target 2009 Actual 2011 Actual 2012 Target RWE npower 26 April 2012 PAGE 17
A set of initiatives has been identified to address the major value drivers Examples of initiatives Bad Debt / Working Capital Initiative Station Cost Initiative Function Cost Initiative IT Cost Reduction Measures implemented Enhance credit vetting Accurate/regular meter reading Prompt billing and dispute resolution Improve outage cycles Value related maintenance Revised staffing levels (oil plants) Optimise closure dates Consolidation of teams Automation of activities Improve process efficiencies Stop activities and reduce service levels Decommission of systems Out-sourcing of some service provision Reduce dedicated hardware Reduce service levels RWE npower 26 April 2012 PAGE 18
Outlook Performance of RWE npower for 2012 Guidance for fiscal year 2012: significantly above last year 1 million 357 2011 2012 1 + - + + Further cost reductions / efficiency improvements Power generation Decline of spreads Strong earnings contribution from Tilbury biomass expected 1 Retail Progress on squeezed domestic margins 1 Subject to financial impact from fire at Tilbury power plant Source: Fiscal year 2011 analyst and investor conference call on 6 March 2012 RWE npower 26 April 2012 PAGE 19
Outlook post 2012 Cost reductions / efficiency improvements RWE npower participates in the RWE 2015 programme and will deliver further efficiencies Generation Phase-out of free CO2-allocations from 2013 onwards will hit us significantly Spreads observed in the forward markets remain depressed over the next couple of years Contributions from biomass generation will depend on investment decision for longterm use of Tilbury (FID currently planned for end 2012) Retail New billing and CRM system will take further operating costs out Energy efficiency obligations will become an increasingly relevant part of the cost of supply to domestic customers RWE npower 26 April 2012 PAGE 20
RWE npower s current generation projects Steve Boughton Head of Asset Development
We are investing in upgrading our existing generation portfolio Under Review New Build Aberthaw 1,500MW Coal Potential for SCR & Co-firing Pembroke (2012) 2,000MW CCGT Commissioning on Plan Staythorpe 1,650MW CCGT Commercially Operational Didcot B 1,370MW CCGT Efficiency Upgrade Little Barford 680MW CCGT Currently Replanting Tilbury B 750MW Biomass Biomass Conversion Upgrades Conversion RWE npower 26 April 2012 PAGE 22
RWE npower has an extensive land bank of attractive sites for potential future development Blyth Willington Didcot A Fawley Littlebrook RWE npower 26 April 2012 PAGE 23
Thermal Plants Recent CCGT investments give RWE npower the most efficient gas-fired portfolio in the UK Plant New Build Upgrades and Options 2011 2012 Staythorpe (1650 MW) fully operational Little Barford 100m investment to improve 2012 efficiency and output, on track for commercial operation in 2012, to time and budget Pembroke (2000 MW) on track for commercial Didcot upgrade operation by Q3, to time and budget Ongoing Evaluation of Aberthaw NOx and biomass co-firing Finalisation of consents for 2,400MW at Willington Assessment of land bank of quality sites (e.g. Fawley) for future CCGT development GB Fossil Fleet Merit Order - 2016 Coal stations Gas stations Variable Cost, /MWh Pembroke Staythorpe 1. Efficiency post-replant Little Barford 1 Aberthaw RWE npower 26 April 2012 PAGE 24
Why biomass at Tilbury? What makes a good site? Tilbury s Attributes Favourable fuel logistics Regulatory Support Existing infrastructure Access to a water supply Proximity to demand Jetty on the River Thames ROC regime in place Opted-out plant available Direct cooling from the River Thames Near London RWE npower 26 April 2012 PAGE 25
RWE Biomass Strategy Vertical Integration Upstream (Pellets) Midstream Downstream (Generation) > RWE Innogy pellet plant is already in operation > Maintain strong market position: Competitive advantage by physical positions, portfolio benefits and marketing capabilities + + > Develop the market: Given its competencies, RWEST has a key position for developing the market (e.g. standards for trading, third party conversions) > Maximise co-firing & conversion: As soon as economically viable, it should be increased to a maximum in RWE plants. > Large dedicated is currently not an option Incorporate sustainability as a key requirement for all RWE s biomass activities RWE npower 26 April 2012 PAGE 26
Tilbury Phase I: Update Panel of Inquiry (POI) report investigating the cause of the fire is under review When will Tilbury be operating again? > Subject to POI findings, but REMIT dates are: 14 th May for Unit 8 30 th July for Units 9 & 10 What is the long term impact of the fire? > LCPD hours have been rescheduled to enable generation to continue further into 2013 > Experience from remaining LCPD hours will be used to further inform Phase II design decision > POI findings will be incorporated into Phase II design RWE npower 26 April 2012 PAGE 27
Tilbury biomass conversion a two phase project > Phase I: A fuel switch (pre-closure in 2015) from coal to wood pellets and oil to liquid biomass. > Phase II: Conditional on Phase I findings, will re-permit to new standards enabling renewable operation as a dedicated biomass fired renewable generator beyond 2015. Subject to scheme sanction. 2010 2011 2012 2013 2014 2015 Phase I Development and Sanction Implementation Operation remaining LCPD hours Nov-10 last coal delivery Apr-11 last coal generation Q4 12 Phase II FID Phase II Development and Sanction Phase II sanction risk is moderated by Phase I operational experience Implementation On-going Operation RWE npower 26 April 2012 PAGE 28
Q&A