Contact Energy Limited · NZX:CEN
Contact Energy — Goldman Sachs Investor Conference 2007
26 slides from Contact Energy's conference presentation, September 2007
Slide 1: New Zealand's leading integrated energy company
New Zealand’s leading integrated energy company Goldman Sachs Investor Conference London September 2007
Slide 2: Disclaimer
Disclaimer This presentation may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking stat
Slide 3: Snapshot of Contact Energy
Snapshot of Contact Energy • 634,000 customers (electricity, gas, LPG). • 28% of NZ’s generation from 10 power stations – 51% natural gas – 34% hydro – 15% geothermal • 27% share of the electricity retail market • 32% of the gas retail market • 50% of the LPG market 3
Slide 4: New Zealand's Electricity Industry Regulatory Structure
New Zealand’s Electricity Industry Regulatory Structure • New Zealand’s regulatory structure is relatively light handed • There is ownership separation between lines companies and generator/retailers • An industry regulator, the Electricity Commission, makes recommendations to the Minister regarding
Slide 5: The sector is dominated by integrated generator / retailers
The sector is dominated by integrated generator / retailers • A high level of integration between generation Rio Tinto supply and retail customer bases • Three of Contact’s competitors are state owned • Contact is the only generator/retailer with access to LPG as well as natural gas Mighty Meridian
Slide 6: Strategic themes
Strategic themes Renewable energy growth programme • Renewable energy investment programme announced - $2billion over 5-7 years in wind and geothermal A price on carbon • Government set to announce a cap and trade market for carbon coupled with strong emphasis on renewable energy Retail price • Reta
Slide 7: Financial Results Summary
Financial Results Summary 12 Months Ended 12 Months Ended Variance 30 June 2007 30 June 2006 $million $million $million % Operating Revenue $1,998.0 $2,330.1 ($332.2) -14% Operating Costs ($1,454.3) ($1,773.1) $318.8 -18% EBITDAF $543.7 $557.0 ($13.4) -2% Depreciation ($139.2) ($133.2) ($6.0) 4% Cha
Slide 8: Key drivers of profit for the period ended June 2007
Key drivers of profit for the period ended 30 June 2007 • On an adjusted basis, profit at $231.2m was down by 4% while EBITDAF was 2% lower than in the 2006 financial year • In the 2007 financial year, wholesale electricity revenue reduced by 40% with an average wholesale price of $53.70/MWh compare
Slide 9: Operating Expenses
Operating Expenses (excluding retail electricity purchase costs) Operating Expenses 1200.0 $994.3m $998.2m 1000.0 21.7 Rockgas expenses 229.0 212.8 800.0 Other (excluding Rockgas) $million 600.0 354.5 325.3 Gas purchases and 400.0 transmission Electricity transmission and 200.0 410.8 438.4 distribut
Slide 10: Short term outlook
Short term outlook • Prices on energyhedge which range between approx.$50/MWh and $70/MWh over the next few years • There is expected to be excess gas available at least for the period to 2010 and possibly beyond that once Kupe is on stream Energy Hedge Closing Price ($/MWh) - 24 August 2007 80 70 6
Slide 11: The NZ Energy Strategy is focussed on lowering emissions
The NZ Energy Strategy is focussed on lowering emissions • Generation emissions in 2005 were around 11% New Zealand’s total emissions – different than most developed countries • Contact’s emissions are projected to fall due to the introduction of new renewable generation from the beginning of the ne
Slide 12: Carbon policy
Carbon policy • It seems increasing likely that a cap and trade regime will be introduced into New Zealand with Government proposals expected to be released shortly • Contact anticipates that this will be introduced from 2009 with the effect being reflected in prices in steps to 2012 • At a carbon p
Slide 13: New firm peak capacity will be required by around 2012/13
New firm peak capacity will be required by around 2012/13 • Chart shows current and committed generation against growth in peak demand • Since wind does not contribute significantly to firm capacity the market requires other capacity to meet that requirement 13
Slide 14: Energy policy and market considerations
Energy policy and market considerations • Substantial new capacity will be needed by 2012/13 to meet peak demand growth • The volatily of wind means it can provide a limited contribution to firm capacity • Hydro development lead times are too long to provide any new capacity in the short to medium t
Slide 15: Electricity demand and retail prices
Electricity demand and retail prices • Electricity demand has been growing at ~ 2% p.a. over the last 10 years, with the majority of that growth coming from commercial demand • Residential demand growing despite price increases which have averaged 4.5% p.a. over the last 10 years • The effects of en
Slide 16: Drivers of the long-run price path
Drivers of the long-run price path • Over the longer term it is assumed that prices will tend towards the LRMC of the next most efficient plant • At a carbon pricing of $20/ tonne, CCGTs and wind appear to be equivalently priced, in the $80 - $95/MWh range • A $20/Tonne carbon charge would increase
Slide 17: Gas supply over the long term is influenced by decisions on generation options
Gas supply over the long term is influenced by decisions on generation options • Over the long term the value of access to fuel will be significant given the relative scarcity of developed gas reserves in New Zealand • It seems likely that gas can be secured at least to 2015 • Key issue remains deal
Slide 18: Fuel outlook
Fuel outlook • This illustrates sources and expected average cost of Contact’s gas based on mean hydro generation over the period to 2010/11 • In the 2007/8 financial year total average gas costs are expected to rise a further 20% (approx) as Contact increases its gas take from the Pohokura field wi
Slide 19: Contact has an LNG back up plan
Contact has an LNG back up plan • Consents for an LNG importation plant – Gasbridge - are being sought in New Plymouth • The plant is a joint venture with Genesis Energy • No decision has been made on LNG. Contact’s strategy is to develop renewables so as to avoid the need for LNG. Consenting the si
Slide 20: Contact's future environment and opportunities
Contact’s future environment and opportunities… 20
Slide 21: Progress on geothermal development
Progress on geothermal development Consents have now been granted which enable operation of the existing plant at Wairakei until 2026 This will enable operation at Poihipi to increase from 30MW to 55MW during the remainder of this calendar year Application for additional consents required to e
Slide 22: Progress on Contact's wind and hydro options
Progress on Contact’s wind and hydro options Wind • Contact now controls four wind generation sites with a total capacity of in the range of 700 – 950MW • All sites have been extensively monitored and indicate high quality wind resources • Pleasing progress has been made with two priority sites on k
Slide 23: New generation – CCGT
New generation – CCGT • Otahuhu C has been a key generation option for some years and is the best site in New Zealand for a new CCGT • In response to the Government’s Energy Strategy Contact continues to defer the Otahuhu C development and accelerate Contact’s renewable options • However given it is
Slide 24: Capital expenditure and interest expense
Capital expenditure and interest expense • Net interest expense was 7% lower than for the 12 months ended 30 June 2006. This was largely due to Contact earning $23m of interest income as a consequence of its net cash position during the period (up to 30 April 2007 at which time the Rockgas acquisiti
Slide 25: Conclusion
Conclusion • Contact performed well in 2006/07 despite having to absorb a 20% increase in the average gas cost and a 42% reduction in wholesale prices • During the financial year Contact secured additional long term gas and make significant progress on new generation options • Contact now has access
Slide 26: Contact
GS CONTACT
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