Cez As · PSECZ:CEZ
Cez As — Investor Day (October 2008)
22 slides from Cez As's investor day presentation, Oct 2, 2008
Slide 1: Reacting to Changing Market Environment
REACTING TO CHANGING MARKET ENVIROMENT Alan Svoboda, Executive Director Sales Trading Capital Markets Day Prague, October 2nd, 2008
Slide 2: Czech electricity market has fully converged with Germany
CZECH ELECTRICITY MARKET HAS FULLY CONVERGED WITH GERMANY AND THERE ARE NO ADMINISTRATIVE INTERVENTIONS Czech market is integral part of wider European electricity market Czech power prices are fully liberalized and are driven by the same fundamentals as German market There are no administrative int
Slide 3: Current earnings are based on power prices much lower than forwards
CURRENT EARNINGS ARE BASED ON POWER PRICES MUCH LOWER THAN CURRENT FORWARDS Record 2008 financial 90 results are based on >52 80 Eur/MWh baseload price 70 Upside Current German 1Y potential baseload futures trade 60 around 80 Eur/MWh 50 40 30 20 There is large room to 10 improve profitability in 200
Slide 4: CEZ is benefiting from high power prices due to open positions
CEZ IS BENEFITING FROM HIGH POWER PRICES DUE TO ITS OPEN POSITIONS Hedging of CEZ, a.s. own generation 100% = 40 – 45 TWh* CEZ, a. s. applied standard 100% concept of gradual hedging of its open position from generation portfolio against 75% price risks Unsold Within this strategy CEZ, a. 50% s., se
Slide 5: Power price significantly increased to a new level
POWER PRICE SIGNIFICANTLY INCREASED TO A NEW LEVEL OF 80 EUR/MWH 1-year forward price EEX baseload, EUR/MWh 100 Power price is almost 30% 90 higher compared to beginning of 80 the year 70 Large volatility of 60 power price over the last year 50 01-Jan-08 31-Jan-08 03-Mar-08 03-Jun-08 03-Jul-08 04-Au
Slide 6: Main drivers of power price in Germany are hard coal, gas and CO2
ILLUSTRATIVE MAIN DRIVERS OF POWER PRICE IN GERMANY ARE PRICE OF HARD COAL, GAS AND CO2 Generation cost curve EUR/MWh Min load Peak load In free market, power price is set by variable cost of marginal plants CCGT Other oil In Germany, the Hard coal and gas marginal plants Lignite are fueled by hard
Slide 7: Prices of these commodities are increasing as well
01 0 50 100 150 200 / I.0 20 0 20 40 60 80 100 120 140 IV 5 05 04 . / 20 VI 05 0 08 5 /2 I .0 00 X. 5 12 5 05 /2 00 I.0 03 5 /2 IV 6 00 07 6 Coal (USD / t) . /2 VI 06 00 11 6 /2 I .0 Brent oil (USD / bl) 00 X. 6 02 6 06 /2 00 I.0 06 7 /2 IV 7 00 . 10 7 /2 VI 07 00 I .0 01 7 /2 00 X. 7 05 8 07 /2 00
Slide 8: Modelling results show power price directly linked to commodity prices
MODELLING RESULTS DEMONSTRATE THAT POWER PRICE IS DIRECTLY LINKED TO THE COMMODITY PRICES 1-year forward price EEX baseload, EUR/MWh Fundamental model shows a 100 very good fit of 90 Cal09Base model outputs 80 based on Model commodity price 70 forwards with the 60 actual forward 50 power prices. 40
Slide 9: We expect power prices to remain strong due to positive commodity outlook
WE EXPECT POWER PRICES TO REMAIN STRONG DUE TO THE POSITIVE COMMODITY OUTLOOK Future outlook >100 USD/bl due to demand fueled by The Oil/gas growth in China, India, Brazil and slow commodity expansion of production capacity due to prices are delays and increasing costs of new likely to be upstream p
Slide 10: Electricity price growth has positive impact on CEZ's gross margin
ELECTRICITY PRICE GROWTH HAS POSITIVE IMPACT ON CEZ’S GROSS MARGIN, BECAUSE VARIABLE COSTS REMAIN ALMOST UNCHANGED ILLUSTRATIVE Power plant economics €/MWh CEZ has > 90% domestic production in lignite & nuclear Power price energy Long-term contracts have been closed for fuel for the lifetime of powe
Slide 11: CEZ is ideally positioned for the midterm
CEZ IS IDEALLY POSITIONED FOR THE MIDTERM CEZ is in an excellent position to create significant value for shareholders in the next 5 years Current profits are driven by power prices at a large discount to prevailing futures curve Market power price has potential for further growth Our input costs ar
Slide 12: Since 2013, more stringent rules for CO2 allocation are expected
SINCE 2013, MORE STRINGENT RULES FOR CO2 ALLOCATION ARE EXPECTED Current draft of EU directive proposes full auctioning of all CO2 allowances for power industry, while gradual implementation of auctioning is proposed for other sectors Multiple EU member states advocate gradual implementation of auct
Slide 13: Already now our CO2 intensity is below European average
ALREADY NOW OUR CO2 INTENSITY IS BELOW EUROPEAN AVERAGE CEZ Group CO2 intensity currently stands at 0.65 t/MWh of supplied electricity This is already below European price setting plant, which we estimate has an emission factor of 0.8 t/MWh Thus increase in CO2 price has positive impact on CEZ profi
Slide 14: Negative impact of CO2 auctioning can be significantly reduced
NEGATIVE IMPACT OF CO2 AUCTIONING ON OUR PROFITABILITY CAN BE SIGNIFICANTLY REDUCED CEZ Group EBITDA Until 2013 EBITDA ILLUSTRATIVE will grow driven by power prices One-off drop in 2013 due to CO2 auctioning can be largely mitigated After 2013 growth should resume due to the expected growth of CO2 2
Slide 15: Measures to eliminate negative impact of CO2 auctioning
IN ORDER TO ELIMINATE NEGATIVE IMPACT OF CO2 AUCTIONING WE ARE IMPLEMENTING SEVERAL MEASURES CEZ is reacting by following strategic priorities: 1. Diversification of the generation fleet by constructing gas plants 2. Development of nuclear power projects wherever possible 3. Establishing portfolio o
Slide 16: Projects underway will bring 3,760 MW of gas capacity by 2013-14
PROJECTS UNDERWAY WILL BRING 3,760 MW OF GAS CAPACITY BY 2013-14 1. Location Name Approximate Size (MW) Czech Rep. Pocerady 800 Czech Rep. Uzin 400 ČR Slovakia MOL 800+160 SK Hungary MOL 800 HU Bulgaria Varna 800 RO BG More projects are under consideration 15
Slide 17: Nuclear energy remains very attractive and CEZ pursues opportunities
NUCLEAR ENERGY REMAINS VERY ATTRACTIVE AND CEZ PURSUES OPPORTUNITIES IN THIS AREA 2. Reasons for nuclear energy CEZ response Increase of production at existing „in the money“ plants from 26TWh to 31 TWh in 2012 CO2 free solution Temelin – up to 3,400 MW of new Reliable & predicable fuel capacity, in
Slide 18: Recently acquired wind project will increase presence in renewables
RECENTLY ACQUIRED WIND PROJECT WILL SIGNIFICANTLY INCREASE OUR PRESENCE IN RENEWABLES 3. Romania – Fantanele & Cogealac project will bring 600 MW wind capacity by 2011 2020 targets in the Czech Republic Triple the annual renewable energy production from 1.7 TWh to 5.1 TWh Intention to invest CZK 30
Slide 19: Investing in renewal of only selected lignite plants
CEZ DECIDED TO INVEST INTO RENEWAL OF ONLY SELECTED LIGNITE PLANTS IN THE CZECH REPUBLIC 4. Lignite capacity (MW) 5,680 Rationale Low cost of domestic lignite Thermal power plants next to mines – only costs of internal logistics Replacement of old units 2,210 with more efficient new technology (20%
Slide 20: CEZ already contracted over 2/3 of its quota of CERs
CEZ ALREADY CONTRACTED OVER 2/3 OF ITS TOTAL QUOTA OF CERs 5. JI (Joint Implementation), CDM (Clean Development Mechanism) – mechanisms of Kyoto protocol, which enable investments into projects for reduction of green house gases and their import to ETS for utilization instead of CO2 allowances Expec
Slide 21: CEZ is investigating opportunities outside European Union
CEZ IS INVESTIGATING OPPORTUNITIES OUTSIDE EUROPEAN UNION 6. CEZ FINDS COUNTRIES OUTSIDE EU ATTRACTIVE DUE TO FOLLOWING REASONS: Dynamic growth of GDP leads to high electricity demand growth Need to build additional generation capacities Exclusion from EU ETS gives higher flexibility regarding portf
Slide 22: Investment program will reduce average CO2 emission factor by 50%
INVESTMENT PROGRAM WILL ALLOW CEZ TO REDUCE THE AVERAGE CO2 EMISSION FACTOR BY 50% Installed capacity (MW) 18.9 0.6 16.6 3.9 1 Wind 14.3 1.8 3.9 Gas 2.9 Hydro 2.5 0.1 2.5 Nuclear 5.3 4.0 1.0 Black coal 6.2 3.8 4.2 New lignite Lignite 1.9 1.9 1.9 2008 2015 2020 CO2 Emissions (mil t CO2) 40.8 46.6 27.