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Leaders in Energy 2008. Power: Bridging Europe’s Generation Gap. Mark Williamson Chief Financial Officer, International Power plc. Agenda. Brief introduction to International Power Overview of European business Bridging Europe’s generation gap a review of key investment considerations for - PowerPoint PPT Presentation
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Leaders in Energy 2008 Power: Bridging Europe’s Generation Gap
Mark WilliamsonChief Financial Officer, International Power plc
Leaders in Energy June 2008 International Powerpage3
Brief introduction to International Power
Overview of European business
Bridging Europe’s generation gap– a review of key investment considerations for
merchant assets in UK long-term contracted assets in Portugal renewable assets across Europe
Summary
Agenda
Leaders in Energy June 2008 International Powerpage4
Multinational independent power producer
31,191MW (gross) capacity in operation worldwide
Creating value through strong growth
Risk mitigation across five core regions– in-depth regional market knowledge– balance of contracted and merchant
markets– diversity of fuel type and technology
Good access to growth opportunities – acquisitions– greenfield
IPR portfolio by geography
IPR portfolio by contract type*
*Rolling one year average
International Power overview
All charts are presented based on net operating MW
Leaders in Energy June 2008 International Powerpage5
Free cash flow (£m)
£456m
£285m
£104m
2004 2005 2006 2007
£653m
Note: As at 31 December
* In 2007, IPR sold its interest in Malakoff and signed an agreement with Mitsui to align its percentage holdings in its UK subsidiary power stations. This resulted in the net sale of 935MW (net) during the year.
Share price
Growth profileG
W (
Net)
*
Pen
ce
Leaders in Energy June 2008 International Powerpage6
UK1. Deeside 2. Derwent 3. First Hydro4. Rugeley5. Saltend6. Indian Queens Sub-TotalRest of Europe 7. IP Opatovice8. ISAB9. Tejo Energia (Pego) 10. Turbogas 11. Spanish Hydro 12. Unimar (Marmara)13. IPR European
Wind PortfolioSub-Total
GRAND TOTAL
500214
2,0881,0501,200
1405,192
585562628
1,00886
4881,153
4,510
9,702
75%23%75%75%75%75%
100%34%50%60%67%33%
100%
WalesEngland Wales EnglandEnglandEngland
Czech RepublicItalyPortugal Portugal Spain TurkeyGermany/Italy/France/Netherlands
GasGasPumped Storage CoalGasOil
Coal/GasGasCoalGasHydroGasWind
Plant namePlant name CountryCountry StatusStatusGross
MWGross
MWNetMWNetMW
IPRown %
IPRown %
FueltypeFueltype
Merchant PPA 2010 Merchant MerchantMerchantMerchant
ContractedPPA 2020PPA 2021PPA 2024Tariff 2030-65PPA 2020Regulated Tariff
37549
1,566788900105
3,783
585193314605
57162
1,153
3,069
6,852
Over 50% of portfolio in UK merchant market
Rest of Europe – contracted or regulated tariffs
12
DeesideSaltend
DerwentFirst Hydro
RugeleyIndianQueens
PegoTurbogas
SpanishHydro
IPR European Wind Portfolio
IP Opatovice
Unimar
ISAB
123
4
5
6 7
9
1011
13
8
International Power in Europe
13
Leaders in Energy June 2008 International Powerpage7
Merchant generator with interest in six assets
6.5% share of UK generation Balanced portfolio
– fuel diversity – gas, coal, oil and pumped storage
– assets across the merit order - baseload, mid merit, peaking - First Hydro well placed to capture value in short term market
Growth via acquisition– from 500MW in 2000 to over
5,000MW (gross) today
Strong financial performance in 2007– robust operational performance– optimisation of coal and gas– peaking plant flexible and available
Deeside
Saltend
DerwentFirst Hydro
RugeleyIndianQueens
123
4
5
6
UK - overview of operations
IPR UK portfolio by fuel type
Chart presented based on net operating MW
Leaders in Energy June 2008 International Powerpage8
Long-term fundamentals remain attractive
Uncertainty on available capacity – restricted running of opted-out coal
plant and potential closure before 2015
– further pressure on coal capacity due to rising coal price and carbon costs
– ongoing retirement of nuclear plant– potential unreliability of
plant approaching closure– wind generation - unpredictable
load factors / availability
Forward gas prices have strengthened– maintains upward pressure on
UK wholesale prices– strong dark spreads in spite
of higher coal pricesNotes:• Peak demand estimate updated for lower winter 2007 demand• Includes impact of 5,912 MW of Nuclear capacity lifetime extensions• Wind generation assumed at 35% of installed capacity
UK Reserve Margin
0
5
10
15
20
25
30
2008 2010 2012 2014 2016
Reserve margin without early LCPD retirements
Target Reserve
%Reserve marginwith early LCPD retirements
UK - market fundamentals
Leaders in Energy June 2008 International Powerpage9
Stable regulatory framework Clarity on environmental legislation
– phase III of EUETS and beyond
Supply / demand balance– uncertain reserve margin– trending to new-entrant– future of nuclear / new technologies
Availability of long-term offtake contracts Stability of input costs
– volatile cost of fuel – gas, coal and oil– uncertain cost of carbon
Rising Engineering Procurement and Construction (EPC) costs
– new generation capacity needed worldwide– positive for incumbent generation
Capital availability – optimal leverage
UK merchant assets
UK - key investment considerations
Leaders in Energy June 2008 International Powerpage10
2002 2003 2004 2005
Demand Portugal
2006
25,000
30,000
35,000
40,000
45,000
50,000
GWh
40,667
45,500
49,18847,945
43,061
Generation Portugal (%)
0%
20%
40%
60%
80%
2003 2004 2005 2006
100%
Imports
Hydro
Gas
Oil
Coal
Wind
Co-Gen & mini hydro
High demand growth Lowest per capita consumption in EU15 Strong dependence on thermal plant
– hydro generation varies year-on-year Iberian market in operation since July 2007
20,000
4.2%
Portugal - market fundamentals
50,050
20072007
Leaders in Energy June 2008 International Powerpage11
Interests in three long-term contracted assets – coal and gas– Pego, coal fired, 628MW (gross)– Turbogás, gas fired, 1,008MW (gross)
– additional 40% acquired in 2008– Elecgas, gas fired, 830MW (gross) under construction
Long-term presence in attractive market– strong demand growth
Strong performance– financial underpinned by technical– re-financings at very good terms– major investment for long-term
environmental compliance
Turbogás
ElecgasLisbonOffice
Asset in operation
Under construction
Pego
Portugal - overview of operations
Leaders in Energy June 2008 International Powerpage12
Contracted assets in Portugal
Portugal - key investment considerations
Stable regulatory framework
Environmental legislation– carbon costs pass through
Supply / demand balance
Availability of secure long-term offtake contract
Security of fuel supply– ability to pass through fuel cost
Rising Engineering Procurement and Construction (EPC) costs– industrywide trend– ability to pass on increased cost
Capital availability– high leverage
Leaders in Energy June 2008 International Powerpage13
New plant
ExistingPlant
Elecgas, Portugal
830MW CCGT, Portugal
Located adjacent to existing Tejo coal plant
– benefits from shared services
Commissioning scheduled for 2011
IPR and Endesa 50:50 partnership– 25 year tolling contract with Endesa
EPC contractor – Siemens
£443m project financing complete– IPR equity investment £34m
Excellent organic growth opportunity from:– existing market presence– available site– access to finance
Leaders in Energy June 2008 International Powerpage14
Europe - renewables
Fastest growing sector in the European generation market– 52GW installed since 2000
Growth driven by EU target of 20% contribution from renewables to energy mix by 2020
Key mechanisms for meeting CO2 targets:– EU Emissions Trading Scheme– high renewable targets– underwritten by legislated support mechanisms
Development has been dominated by specialist renewable energy companies
Fragmented market – consolidating with power companies
Leaders in Energy June 2008 International Powerpage15
Stable regulatory framework
Transparency of incentive schemes
Commitment to high targets for renewable generation
Wind regime / historic performance
Rising EPC costs– industry-wide trend– positive for incumbent generation
Source of further growth opportunities– fostering relationships with developers and equipment suppliers
Capital availability– high leverage
Renewable assets in Europe
Renewables - key investment considerations
Leaders in Energy June 2008 International Powerpage16
Significant scale in wind generation– 1,199MW now operational worldwide
- 660MW of operational wind capacity acquired in 2007 - 132MW under construction brought online in 2007
– now a leading global wind generator
Established market positions provide strong platform for growth– improved access to developers
and turbine manufacturers
Current focus– growth opportunities
across our core European markets
– deliver benefits of scale
Strong growth in renewables
Canunda
Levanto Organic Growth
Maestrale
1,199
407
Wind generationyear-on-year growth
2006
March 2008
1,2009006003000
Europe - renewables
Leaders in Energy June 2008 International Powerpage17
Investment backdrop in Europe
Tightening reserve margins across Europe
Further liberalisation in certain markets
Impact of carbon unclear
Rapidly rising cost of equipment
Debt available for high quality projects
International power focus
Multiple markets for capital allocation
Selected markets in Europe for growth
– wide appetite for renewables
– new build – long-term contracts required
– further expansion in existing markets
Financial discipline is paramount
Summary
Leaders in Energy 2008 Power: Bridging Europe’s Generation Gap