Investing In Australia`s Energy Market

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Learn the basic prospectives of investing in australia`s engergy industry. Learn with complete statistical data and information. Learn more from www.eeaust.com.au.

Transcript of Investing In Australia`s Energy Market

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INVESTING IN AUSTRALIASENERGY MARKET

An

International

Perspective

GDF SUEZAustralian EnergyFebruary 2014

Contents

GDF Suez OverviewKey Investment Considerations

The Basics Why is Electricity Important?Project Economics The FundamentalsThe Deal Key StakeholdersRenewable Generation Projects in Australia

Local Issues

Recent Trends in Australian Energy DemandImpact of PV Uptake & Energy Efficiency Declining Industrial Energy Consumption Maturity of Renewable Technologies Generation AlternativesEast Coast LNG ConstructionWhere to from here?

GDF SUEZAustralian Energy

Investing in Australias EnergyMarket

How does Australia Stack up Internationally?Questions

GDF Suez

Overview

EnergyEurope

EnergyInternational

Global Gas & LNG

EnergyServices

SUEZ Environment

Infrastructures

LatinAmerica

NorthAmerica

UK-Europe

Middle East, Turkey & Africa

Asia

AustralianEnergy

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

1

GDF Suez Energy International

GDF

Suez Australian

Energy

Power Generation

Exploration &Production

Trading & PortfolioManagement

Supply andInfrastructures

Sales and Energy Services

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

2

KEY INVESTMENTCONSIDERATIONS The Basics Why is Electricity Important? Project Economics The Fundamentals The Deal Key Stakeholders Renewable Generation Projects in Australia

The Basics Why is Electricity

Important?

Technical

stuff

aside

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

3

Project Economics The FundamentalsWhat do you need for a generation project to be economic?

1

Market characteristics

Market fundamentals and growth potentialRight project, right timeStrategic fit, operational synergies

Manageable

2

Financial characteristics

Funding and financingBalance sheet impactAppropriate risk allocation and management

3

Commercial environment

Experienced and willing counterparties andcontractorsSkilled, affordable and productive workforce

Luck

Uncertain

4

Regulatory environment

Supportive regulatory frameworkStable legal institutions and policyLabour policy

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

4

Viable Project

The Deal Key Stakeholders

Attracting Equity:

Maximise shareholder returnSuitable return on investment, given risksUsually more willing to accept volatility in rates of return

Convincing Debt:

Fixed rate of returnConfidence that debt will be repaidon time, with interestDont like variability and:

Dislike merchant marketexposureDislike below-investment gradeentities

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

5

GenerationLicence

Connection reement

EnvironmentalApprovals

Lawyers, Engineers, Insurers, Accountants,Tax experts, etc.

Regulatory Approval (FIRB)

PPA/Offtake

Fuel SupplyAgreements

Fuel TransportAgreements

LandAgreements

Project

OEMs(equipment)

MajorContractors

OperationsAgreements

CoAgEn

LTSA

EBA

Equity

Debt

Renewable Generation Projects

in

Australia

Mostly wind large capacity,intermittent generationLargely via non-recourse project finance, but increasingly self-funded by majors.Power Purchase Agreements (PPA) provide revenue certainty for loan duration needed to be bankable.

Connection to grid costs may beprohibitive:Locations suitable for maximising generation (wind/solar) are remote. Trade-off: High voltage extremely costly: Low voltage greater losses.Connection of large generation installations necessarily distorts market in short-term.

PPA buyers seek firming deals.

Long

term

PPAs

may

be

risky.

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

6

15 year PPA + option to extendDebt coverage Equity coverage Merchant market exposureT = 0 T = 10 T = 15

Location and Timing:

Financing Issues:

GDF SUEZ Australian Energy

LOCAL ISSUES Recent Trends in Australian Energy Demand Impact of PV Uptake & Energy Efficiency Declining Industrial Energy Consumption Maturity of Renewable Technologies Generation Alternatives East Coast LNG Where to from here? How does Australia stack up Internationally?

Recent Trends in Australian Energy Demand

Energy demand appears to have peaked in 2008:

SA annual demand is actually lower than 2000-levels.QLD has recorded the greatest and most sustained increase in demand.

Source: AEMO

* Includes Snowy region

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

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2013 demand was16.8TWh lowerthan its 2008 peak

Impact of PV Uptake and Increasing

Energy

Efficiency

Peak clipping phenomenon as a result of:

-

Solar PV: bigger and cheaperinstallations,Increasingly efficient electrical appliances,

-

-

Active demand-side

management.

Source: AEMO

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

8

Declining

Industrial

Energy

Consumption

Source: World Bank

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

9

Case Study: Aluminium Significant reduction in aluminium smelting activity since 2008 peak. Large drop off in world aluminium prices with mild recovery since then. Too late for several Australian smelters: 300MW Kurri Kurri (NSW) closed in 2012, Doubts about future of 360MW PointHenry (VIC). Excluding Point Henry, smelters represent2,400MW of demand across the NEM.

Maturity

of

Renewable

Technologies

Source: EPRI technology status data 2010

Hydro: offers limited scope for further development

or expansion.

Solar thermal: remains interruptible and is expensive. Wind: gaining greater demand penetration, however still interruptible and still poses some technology risk.

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

10

Generation

Alternatives

Source: AEMO NEFR 2013

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

11

Renewables

RET predominantly met by wind capacity, Intermittent by nature and does not provide asignificant level of dependable peak capacity, Investors require PPAs as prices tend to be high when (because) wind is low, especially in South Australia.

New thermal capacity (if any):

Likely to be met by OCGT with capacity forconversion to CCGT, Economics of thermal plant uncertain in medium term given low energy demand and possibility of international price linkage of gas, black coal, No thermal plant under construction orcommitted.

East

Coast

LNG

Construction

...coupled with

--

weakening demand andremoval of the carbon tax,

new gas fired generationprojects may becomeincreasingly uneconomic.

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

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With gas prices of $812/GJ

Three large LNG export terminals under construction. 33 mtpa gas demand by LNG terminalsrepresents three times current total east coast gas demandAssuming Japanese LNG demand remains high, international gas price linkage could significantly increase cost of domestic gas-fired generation as domestic gas contracts roll off and are replaced by oil-, JCC- indexed contracts.

Where to from here?

Difficult to predict changes in domesticdemand,Continued weakness in Eurozone economies, Persistently high Australian dollar(or, purposeful devaluation of USD by Fed),

High cost of doing business in Australia.

How sustainable is current growth in Chinaand other emerging economies?Impact of restart of Japanese nuclear power on world LNG demand?

Source: AEMO

49GW of Japanesenuclear power replaced by gas, oil and coal will it last?

Source: RBA

Source: OilPrice.com

Source: AFR

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

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Key trends to look out for:

How

does

Australia

stack

up

Internationally?

No reserve deficits in NewSouth Wales, Victoria, South Australia, or Tasmania until after 2022-23.AEMO ESOO 2013To summarise:

Investment in the Australianelectricity sector has some head windsClean Energy Act has fostered great uncertaintyThere are many elements to investment considerations, but iftheres one thing thats certain

We work in an exciting,challenging and ever-changing environment.

GDF SUEZ Australian Energy Investing in Australias Energy Market 2014

14

QUESTIONS?

Wei LiaoEnergy TraderTrading & Portfolio ManagementGDF SUEZ Australian EnergyPh: 03 9617 8454Mob: 0478 881 459Email: Wei.Liao@gdfsuezau.com

GDF SUEZAustralian