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2017 INVESTOR DAY. MERIDIAN ENERGY LIMITED MANAGEMENT - PowerPoint PPT Presentation

2017 INVESTOR DAY. MERIDIAN ENERGY LIMITED MANAGEMENT PRESENTATION WELCOME AND GOODBYE. MARK BINNS . Meridian Energy Limited Investor Day November 2017 2 INTRODUCTION. NEAL BARCLAY . Meridian Energy Limited Investor Day November 2017 3


  1. ������������������������������ ���� ASX forward market. ���� ���� ���� ���� ���� The forward market is very effective ��� � • Liquidity exceeds initial targets �������� �������� �������� �������� • Monthly products provide ability to hedge ����������������������������� ��������� ����������� seasonal shapes (and enhance liquidity) ��� ��� • Meridian has sold over 100MW on ASX in �� various quarters �� �� �� • Others use this market to hedge effectively as �� well � ����� ��� ��� ��� ����� ��� ��� ��� MM (market maker) Meridian Energy Limited Investor Day November 2017 21 Source: ASX

  2. Over the Counter (OTC) market. OTC market emerged following ASX �������������������������� ��������� • Used for short term hedging ��� • Brokered and bilateral (direct) �� �� • Products are typically bespoke �� • Large hedging transactions (i.e. 10MW +) �� • Unit outage hedges � ������ ������ ������ ������ ������ ������ • Shaped retail hedges ��� • Specific risk instruments like our swaption ��� with Genesis ��� ��� ���� ��� ���� Source: Meridian Meridian Energy Limited Investor Day November 2017 22

  3. Financial Transmission Rights (FTRs). • Instrument that manages price risk between nodes • Meridian is one of the largest participants • Should not be a surprise with our South Island hydro generation and distributed ■ Contact customer base ■ OMF ■ Other • FTRs are effective baseload products ■ Meridian • FTRs manage underlying basis risk • FTRs do not manage peak or other basis risks, OTC (and spot) market products are designed to do this Source: Meridian Meridian Energy Limited Investor Day November 2017 23

  4. 20 years of spot market trading. • Spot market prices provide an index for most contracts • Efficiency and reliability of these prices builds support for contracting • Enabling changes to offers/bids as close to real time as possible improves price formation • Spot market is the central market • Spot market flexibility allows participants to adjust positions • The move from 2 hours to 1 hour went very smoothly Image: Meridian’s Wellington trading room • We will ask the EA and System Operator to consider reducing it further to 30 minutes Meridian Energy Limited Investor Day November 2017 24

  5. Summary. • Wholesale markets are competitive and effective • The addition of ASX, OTC and FTR markets in particular drive greater competition • Meridian participates in all markets to manage its portfolio • The Electricity Authority is acknowledged internationally as an effective market operator Image: Meridian’s Wellington trading room Meridian Energy Limited Investor Day November 2017 25

  6. MANAGING OUR PORTFOLIO. GUY WAIPARA . Meridian Energy Limited Investor Day November 2017 26

  7. Overview. Generation and sales portfolio • Bowtie framework • Modified to cover observed behaviour • Optimising real time hydro dispatch 2017 review • Statistics • Managing risk and storage Image: Lake Pūkaki and Genesis Energy’s Tekapo B station, June 2017 • “Hindcast” results • What did we learn? Meridian Energy Limited Investor Day November 2017 27

  8. Bowties. Whole of NZ construct • Demand (including demand response) • Supply (including plant reliability) • Hydrology • A simplified regional transmission system Our objective • To find the portfolio or contract position that delivers the maximum revenue, with the minimum distribution, across the hydrology outcomes we expect to experience • Guides our three-year portfolio planning and is integrated across all of our wholesale and retail sales channels Meridian Energy Limited Investor Day November 2017 28 Source: Meridian

  9. Reflecting market behaviour. Impact of contract positions • Observations are that parties’ behaviour is affected by their respective contract positions • Have developed our models to include the best information we have on our and others’ contract positions • Still includes an opportunity cost of water to ensure that hydro storage is managed efficiently within its full operating range (from spill to shortage) Image: Meridian’s Mill Creek wind farm Meridian Energy Limited Investor Day November 2017 29

  10. Next evolution. The bowtie neck has a reasonable range • So there are a number of “optimal” contract Maximise revenue positions • Doing more work to test what position(s) deliver improvements in mean revenues while minimising variability Minimise risk • Early results look like we have more capacity to sell above our current contract position without incurring more risk Source: Meridian • The NZAS back-to-back contracts have also created more sales headroom Image: NZAS aluminium smelter, Meridian Energy Limited Investor Day November 2017 30 Tiwai Ploint

  11. Moving closer to real time. GENERATION AND CONTRACTED SALES How we adjust the portfolio to reflect near-term GWH conditions • Even with what may look like a conservative portfolio, we can find ourselves long generation (first half of 2017) 7,029 6,285 6,435 or short generation (second half of 2017) 5,900 1,110 455 1H FY17 2H FY17 When average doesn’t show up… Physical generation Contracted sales Acquired generation • It is important that all wholesale and retail sales are Source: Meridian well co-ordinated • Models are run weekly with weekly energy targets delivered to our traders. Pricing guidance is provided to retail C&I sales • Executive portfolio committee meets monthly to oversee execution of the plan • During times of hydro stress this committee is updated weekly Meridian Energy Limited Investor Day November 2017 31

  12. Within a week, up to real time. Hydro optimisation continues right up to real time • Waitaki is block dispatched • Optimising lake levels across the chain means you can get the best water to wire efficiency (remember E p = mgh?) What we have achieved • Developed in-house tools to optimise hydro production to deliver weekly targets across a range of inputs, including: • Weekly energy, outages, generation efficiency, ramp rates, lake levels, flow and lake level Source: Meridian’s hydro optimisation tools constraints, expected inflows • Estimated $3m pa improvement • Also delivers consistency in operations across all Generation Controller staff Meridian Energy Limited Investor Day November 2017 32

  13. 2017 IN REVIEW. Meridian Energy Limited Investor Day November 2017 33

  14. 2017 key statistics. INFLOWS, GENERATION, STORAGE 1H FY17 (GWH) 5,665 7,029 First half FY17 Inflows Physical generation Storage (period end) 1,919 • Inflows 96% of average MERIDIAN'S WAITAKI STORAGE 1H FY17 (GWh) 3,000 • Generation 3% above FY16 2,000 1,000 • $44/MWh average generation price Average 1979- 2017 0 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov 1-Dec • Storage 118% of average at end of December 2016 INFLOWS, GENERATION, STORAGE 2H FY17 (GWH) 4,845 Second half FY17 6,285 • Inflows 78% of average Inflows Physical generation Storage (period end) 883 • Generation 8% below FY16 MERIDIAN'S WAITAKI STORAGE 2H FY17 (GWh) • $59/MWh average generation price 3,000 2,000 • Storage 55% of average at end of June 2017 1,000 Average 1979- 2017 0 • February to June 2017 were the lowest same-period 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun Source: Meridian inflows on record Meridian Energy Limited Investor Day November 2017 34 Source: Meridian

  15. Managing risk. Commercially GENESIS SWAPTION VOLUMES Weekly energy (GWh) • Called the Genesis Swaption between June and 30 25 August 2017 20 15 • Were able to delay calling this as we had better 10 5 offers available earlier on 0 12 Jun 17 19 Jun 17 26 Jun 17 03 Jul 17 10 Jul 17 17 Jul 17 24 Jul 17 31 Jul 17 07 Aug 17 • ASX and OTC liquidity meant we had a range of options Source: Meridian • Still had the smelter demand response available BENMORE ASX FUTURES SETTLEMENT PRICE $/MWh to call if necessary 120 100 • Swaption flexibility significantly improved our risk 80 management tool set. Benefit to having 50 MW 60 tranches with relatively short call periods 40 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 • NZAS backing contracts plus the swaption has 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 significantly reduced Meridian’s risk position 31 January 2017 28 February 2017 31 March 2017 28 April 2017 31 May 2017 30 June 2017 Meridian Energy Limited Investor Day November 2017 35 Source: ASX

  16. Theoretical storage energy balance Storage management. Even at the end of the dry period • Portfolio could still be covered with minimal risk of hitting the bottom of Pūkaki • At 21 July still 1ox more likely to spill (34 sequences) than to even use contingent storage (3 sequences) Source: Meridian Lake Pūkaki projected storage from July 2017 without Swaption volumes • The effect of the Swaption is to reduce the risk Source: Meridian significantly (200 GWh lift in 5 th percentile) Take outs • Portfolio is robust and has changed with NZAS contracts • Still had more insurance options over and above the Swaption • These facts seemed to surprise some stakeholders • Ongoing information sharing was key Source: Meridian Lake Pūkaki projected storage from July 2017 with Swaption volumes Meridian Energy Limited Investor Day November 2017 36

  17. A “Hindcast” comparison. What is a Hindcast? • A comparison of what occurred with what perfect competition would have delivered Why is it important? • Provides an analytical framework to test whether the market has delivered an efficient outcome for consumers • Is a good proxy for a regulatory test and informs questions such as: • Is a company using storage too conservatively or aggressively? • Do market prices reasonably reflect scarcity? Results • Hydro storage and market prices consistent with expected outcomes from a perfect market • If anything, slight risk aversion in our storage use Source: Meridian Energy Limited Investor Day November 2017 37 Meridian

  18. Engaging with stakeholders. Transpower • Engaged early to discuss hydrology, water values and plans • Considered a change to contingent storage – but decided to put off until a review was completed • Reviewing their security of supply policy Electricity Authority • Engaged early as above • Received some complaints from others but these lacked quantitative analysis • EA 2017 Annual Report “…electricity market has once again worked effectively to manage the dry conditions.” • Will complete a formal review of 2017 Meridian Energy Limited Investor Day November 2017 38

  19. What did we learn from this year? Market maturity • Continued to learn and evolve over dry year experiences “Assumptions are • The improved liquidity in the ASX and OTC markets helped manage risk the termites of Stakeholder engagement • No such thing as engaging too early. There is relationships.” significant information asymmetry • Having an analytical framework like hindcasting is extremely helpful (Henry Winkler) • Testing the system operator’s security policy (in particular their modelling of contingent storage) was done too late Others perceptions of risk and behaviour • Is potentially based on historical assumptions which have not been tested, given the changes to our portfolio Meridian Energy Limited Investor Day November 2017 39

  20. STRATEGIC ASSET MANAGEMENT. RICHARD GRIFFITHS . Meridian Energy Limited Investor Day November 2017 40

  21. Image: Meridian’s Benmore power station Content. • Approach and philosophy • Our 20-year asset management plan • Expenditure forecasts • Major projects • Process safety • Benchmarking Image: Meridian’s Aviemore power station Meridian Energy Limited Investor Day November 2017 41

  22. Asset management principles. We are committed to: • Protecting the value of Meridian’s assets • Maintaining the safety, performance and capability of these assets over their projected economic life, and • Meeting our asset management obligations in a manner that is demonstrably world class Performance is founded on: • Total Asset Management – people, process, plant • AMP based on balancing risk, financial and plant performance • Best practice reliability centred maintenance practices and processes • Conformity with ISO55001 Meridian Energy Limited Investor Day November 2017 42

  23. Strategic asset management plan. Major turbine and generator works set the primary timing of the 20-year plan Meridian Energy Limited Investor Day November 2017 43

  24. Strategic asset management plan. Long-term commitment to the Structural Safety Evaluation Programme Meridian Energy Limited Investor Day November 2017 44

  25. Strategic asset management plan. Control systems, excitation & protection replacements are best fit Meridian Energy Limited Investor Day November 2017 45

  26. Strategic asset management plan. Fit other projects in at optimum timing Meridian Energy Limited Investor Day November 2017 46

  27. Strategic asset management plan. Waitaki Stage II, civil works, contingent works Meridian Energy Limited Investor Day November 2017 47

  28. Strategic asset management plan. Current plan Meridian Energy Limited Investor Day November 2017 48

  29. Hydro capital expenditure forecast. $M INDICATIVE HYDRO CAPITAL EXPENDITURE 50 40 30 20 10 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 Source: Meridian Excludes Stage II Waitaki generator refurbishment – a 10-year programme, as yet unconfirmed, with peak annual spend of around $15m Meridian Energy Limited Investor Day November 2017 49

  30. Waitaki refurbishment. Overview • Waitaki was first commissioned in 1935 and is the final power station on the Waitaki River • Reliability and performance is important for managing consent flows • Annually generates ~$30m in energy revenues Capital Deferral Enabling Works (complete) • Stator cleaning on Units 1 & 2 • Unit 3 re-commissioned • Upgraded unit protection and fire suppression • Sluice gate control upgrades General Upgrades (complete) • Mechanical & electrical plant refurbishments • Seismic strengthening of power house • Upgrade of transformer fire walls Images: Meridian’s Waitaki power station Meridian Energy Limited Investor Day November 2017 50 • Upgrade of station cranes

  31. Waitaki refurbishment. Dam Safety Upgrades (complete) • Repairs to left bank abutment • River bank erosion protection works • Piezometers upgraded • Uplift drainage upgraded and extended Dam Safety Upgrades (work in progress) • Inundation protection of the Hornell Gallery • Manifolding of the uplift drainage system Stage II Generator Upgrades (planned) • Ongoing commitment to maintenance and condition monitoring to extend life and maintain reliability • Upgrade timing driven by condition as we operate the machines in a “manage to end-of-life” mode • While the actual timing is uncertain, the plan assumes this will initiate in 5-10 years • Comprises complete replacement of four of the seven turbines/generators Images: Meridian’s Meridian Energy Limited Investor Day November 2017 51 Waitaki power station

  32. Manapōuri transformers. Overview • Manapōuri commissioned in 1967 • Underground power station • Generates ~$250m per annum Main Unit Transformers • T2, T3 and T4 were replaced in 2015 following failure of the oil coolers • T1, T5, T6, T7 currently being manufactured by Wilsons • All four will be delivered to Deep Cove in late November 2017 Local Service Transformers • T8 & T9 manufacturing underway • Mitsubishi SF6 transformers • SF6 eliminates environmental risks and fire hazards from switchyard Image: Transformer haulage Meridian Energy Limited Investor Day November 2017 52 • Delivery expected end of FY18 Manapōuri power station

  33. Ōhau chain upgrade programme. Overview • Ōhau chain comprises Ōhau A, B & C • Controls flow from Lakes Pūkaki & Ōhau • Collectively generate ~$220m pa Programme • $48m business case approved in October 16 • Programme extends through to 2023 Scope comprises: Image: Meridian’s Ōhau A power station • Ōhau A unit refurbishments • Ōhau A, B & C control upgrades • Ōhau B & C protection, excitation and transformer firewall upgrades • Ōhau B & C generator refurbishments Current status • Unit G11 stator inspection completed • Design and procurement well underway Image: Meridian’s Meridian Energy Limited Investor Day November 2017 53 Ōhau B power station

  34. Process safety. Overview • Meridian initiated a review of its process safety risks in 2014 • Lockheed Martin and Scottish Power were engaged in 2015 to facilitate risk bowtie workshops and undertake a gap analysis • Meridian established a programme to implement the recommendations • In 2016 a ramp-down event at Manapōuri 1. Understanding what can go wrong occurred. DuPont were invited to undertake a 2. Knowing what systems we have to post-incident review prevent things from going wrong • DuPont endorsed the workstreams that were 3. Having information to assure underway and recommended an additional ourselves that these systems are focus on the interface between ICT and working effectively generation plant • The outcome has also seen an increased level Meridian Energy Limited Investor Day November 2017 54 of management focus and commitment

  35. Process safety. Key Workstreams: • Develop R Risk Bowties isk Bowties for all sites and integrate into AMP • Undertake an Alarm Management larm Management and rationalisation programme • Undertake a Risk Management isk Management review • Review the Plant Change Control lant Change Control process • Process safety Training and Awareness raining and Awareness programme • Review the management of C Controlled ontrolled Documents Documents • Address defects with the G Generation Control eneration Control System System • Develop a suite of P Process Safety KPIs rocess Safety KPIs and dashboard Images: Meridian’s risk bowties and reporting Meridian Energy Limited Investor Day November 2017 55

  36. Benchmarking results. International Benchmarking • Meridian compares very favourably against international peer group in respect to both Composite Service Level Composite Service Level (function of Plant Availability and Forced Outage duration) and Unit Cost Of Production Unit Cost Of Production • Manapōuri is a leading performer in the large hydro category • Waitaki chain stations are all in the upper quartile Meridian Energy Limited Investor Day November 2017 56

  37. OPERATIONAL MAINTENANCE. MAT BAYLISS. Meridian Energy Limited Investor Day November 2017 57

  38. The Waitaki scheme. Some facts • Eight hydro stations in the Waitaki Scheme • Tekapo A and B are owned by Genesis Energy • The six hydro stations from Lake Pūkaki to Waitaki, owned by Meridian Meridian Energy Limited Investor Day November 2017 58

  39. The Waitaki scheme. Meridian Energy Limited Investor Day November 2017 59

  40. Hydroelectric power. Meridian Energy Limited Investor Day November 2017 60

  41. Hydro Asset Maintenance . How we are organised • Engineers, trades staff, technicians, operators, maintenance planners • Dedicated maintenance teams for three asset portfolios • Ōhau Chain, Mid-Waitaki and Manapōuri • Including graduates and apprentices, 70 staff in three locations • Augmented by contractors What do we do • Planned maintenance, defect and fault response • Maintenance projects include civil, mechanical, electrical and automation repairs and upgrades Meridian Energy Limited Investor Day November 2017 61

  42. Performance. Hydro plant performance measures • Availability (% of time) • Operational Unit Cost $/MWh • Forced Outage Factor (% of cap) • Forced Outage Count (# events) Maintenance process measures • Multiple live measures • Extensive use of maintenance management system (Maximo) • Targets reset annually to reflect focus areas, continuous improvement • Remuneration linked to outcomes for all staff • Periodic benchmarking using external service Source: Meridian Meridian Energy Limited Investor Day November 2017 62

  43. Health and safety. Our Approach • Lead role in industry collaboration forums (StayLive, EEA etc) • Safety & Sustainability Board Committee • Dedicated H&S team reporting to MaP GM • Competent workforce, strong safety culture • Incident reporting and investigation • Safety performance of contractors Meridian Energy Limited Investor Day November 2017 63

  44. Community. Our Community Engagement Strategy • Significant footprint in multiple small rural communities • Goodwill important when operating large assets, lakes and rivers • Multiple engagement mechanisms & channels • Power Up – Meridian community fund • Community sponsorships • Staff involvement • Collaboration • National sponsorships • Meridian held in high regard Meridian Energy Limited Investor Day November 2017 64 Image: Haast kiwi release, Rona Island, Lake Manapōuri

  45. Twizel. History • Built in 1968 as a temporary service town • Saved from demolition in 1983 • Today is the largest town in the MacKenzie Meridian Source: Electricity Authority • Large employer in the area, now including a retail call centre • Direct contributor to the community Image: Twizel, late 1960s Meridian Energy Limited Investor Day November 2017 65

  46. MANAGING TRANSMISSION . GEOFFRY SAMS AND JON SPILLER . Meridian Energy Limited Investor Day November 2017 66

  47. Getting energy to customers. Meridian’s power stations • 2,762MW installed capacity • 32% of New Zealand’s generation • 89% located in South Canterbury and Southland Meridian’s customer base • 280,000 customers all across New Zealand • Connected through 29 lines networks • Geographically distant from our generation New Zealand transmission system • Owned and operated by Transpower • 11,238km transmission lines connecting generation to customers • High voltage backbone running from Southland to Auckland Meridian Energy Limited Investor Day November 2017 67 Source: Transpower’s APR 2017

  48. Transmission backbone. The transmission system is robust • Transpower backbone consists of high voltage (220-110kV) AC transmission lines • North and South Islands connected via 350kV HVDC link between Haywards in Wellington and Benmore in South Canterbury • Transpower’s investments in the following projects over the last five years has removed most bottlenecks: • North Island Grid Upgrade Programme 400kV (capable) line from Whakamaru to Pakuranga in 2012 ($824m) • HVDC Pole 3, replacement of Pole 1 2013 ($672m) • North Auckland and Northland reinforcement for upper North Island 2013 ($473m) • Ōtāhuhu substation diversity 2010 ($99m) • Wairakei ring 2013 ($141m) Meridian Energy Limited Investor Day November 2017 68 Source: Transpower’s RCP2 Submission

  49. HVDC Pole 3. HVDC transfer capability (2011 - 2017) Control upgrade, 1400 1200MW Pole 2, Pole 3, 1200 700MW 1000MW Overload 1000 Transfer [MW] Investment in the HVDC link has greatly improved capacity 800 Meridian’s generation flexibility 600 Usable capacity • Following the decommissioning of Pole 1 in 2011, total 400 Installed capacity 200 HVDC capacity reduced from 1,000MW to 700MW 0 Sep-14 Jan-11 May-11 Jan-14 May-14 Sep-16 Jan-17 May-17 Sep-17 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-15 May-15 Sep-15 Jan-16 May-16 • New HVDC Pole 3 was then commissioned in 2013, increasing total HVDC capacity to 1,200MW • Usable capacity 1 is often signficantly lower, dependant HVDC North transfers (2011 - 2016) on a number of market conditions, primarly NI reserves 1500 Tx limit • Meridian has been working with Transpower to enable 1000 2011 Utilisation has increased over time Transfer [MW] greater utilisation of the full HVDC capacity 2012 500 • As part of this effort, the overload capability was 2013 0 0% 12% 30% 48% 66% 84% 96% 6% 18% 24% 36% 42% 54% 60% 72% 78% 90% 2014 increased in 2016, which enabled usable capacity of 2015 -500 ~950MW Probability of exceedence [%] 2016 -1000 Source: Meridian 1: Usable capacity calculated assuming 300MW of NI reserves offered to the market Meridian Energy Limited Investor Day November 2017 69

  50. Constraint management. Meridian has a number of tools and processes to manage transmission constraints • Simulations from power system modelling • Historical event analysis • Knowledge capture of constraints and outages We also manage exposure through a number of Power System market mechanisms Modelling Software • Financial Transmission Rights (FTR’s) • Over the counter financial arrangements • Collaborating with the System Operator on risk assumptions • Implementation of “special protection schemes” • Plant maintenance scheduling FTR Holdings - Dec 2017 Meridian Energy Limited Investor Day November 2017 70 (as at 1/11/17)

  51. Catalyst for transmission investment. Two primary drivers • Meridian perceives the biggest possible catalysts of change to the transmission system as: • Potential Tiwai Point smelter shutdown • Potential Huntly Rankine unit retirement • Both these scenarios would require new Image: NZAS aluminium smelter at Tiwai Point transmission investment by Transpower • Meridian believes our current tools and capabilities would enable us to continue to manage our portfolio, if the transmission investment projects were progressed Image: Genesis Energy’s Huntly Meridian Energy Limited Investor Day November 2017 71 Power Station

  52. Potential Tiwai Point smelter shutdown. Three significant restrictions • If an exit of the Tiwai Point smelter occurs, a number of transmission constraints have been identified by Transpower that would impede energy transfer across the transmission system: • 1. Southland export constraint • 2. HVDC north export constraint • 3. Lower North Island transfer constraint Image: NZAS smelter at Tiwai Point Meridian Energy Limited Investor Day November 2017 72

  53. 1. Southland export constraint. Source: Transpower’s 2016 SSF Constraints can be managed while investment programme is completed • A potential Tiwai Point smelter exit will release an additional 5,000GWh of energy into the market • This generation is predominately supplied from our Manapouri power station and Contact Energy’s Clutha power scheme ������� ���� ������� ����� ��������� • We are currently investigating options with ��������� ������������ ������� ��������� ������ ����� �������� ������ ����� Transpower to maintain the current transmission ����� capacity during the subsequent investment ����� ����� �������� program ���� ���� • Peak generation capacity within the region will be ���� constrained ���� � ������� ������� �� � � ������ � �� � ���� • In order to minimise lost energy we will need to � � ��� ���� � � � ��� ���� � Source: Meridian � ����� ����� ��� � � manage storage until transmission is built out Meridian Energy Limited Investor Day November 2017 73

  54. Southland improvements. Project ready to initiate following a smelter announcement • Transpower have a fully costed and approved project to resolve the Southland export issue; the Clutha Upper Waitaki Lines Project 1 : • Two sections already commissioned • Three years to complete remaining two sections ��������������� Image: Lake Manapōuri • Detailed designs for remain projects �������� ���� ������������� ������������������������������ ������ ����������� ���� completed and majority of land access rights �������� ����������� ������������ obtained ���� ��������� ����������� ������� • Fully costed at $110m 2 ������������� �������� ��� • Once complete will enable full generation ����������� � ������������ �� �� �� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ���� export capability ���� �������������������������� ��� �������� 1: https://www.transpower.co.nz/clutha-upper-waitaki-lines-project-and-tiwai-future-faqs ��������� 2: Transpower’s Grid Upgrade Plan 2009 Instalment 3 ������� Meridian Energy Limited Investor Day November 2017 74 ����� Source: Meridian

  55. 2. HVDC north export constraint. Image: Transpower’s Pole 3, Benmore Current HVDC capacity is sufficient to manage greater transfer to North Island • HVDC capacity has been substantially increased • Current peaking capacity of 950MW has only been utilised 2% of the time • Any potential Tiwai Point smelter exit will have no impact to current HVDC peaking capacity into the YEARLY GWH TRANSFER TO NORTH ISLAND POST YEARLY GWH TRANSFER TO NORTH ISLAND POST North Island SMELTER EXIT SMELTER EXIT • The additional energy released if the Tiwai Point Meridian Others smelter was to exit can be transferred to the market under the current HVDC capacity, provided 20,000 GWH/YR storage is managed across the year 10,000 0 ANNUAL SI DEMAND HVDC TRANSFER ANNUAL SI GENERATION Source: Meridian Meridian Energy Limited Investor Day November 2017 75

  56. 2. HVDC improvements. Increasing usable capability • Transpower have started detailed investigation into undersea cable replacement project • Current cable asset end of life between 2023-2025 • Installing a fourth cable would increase HVDC capability to 1,400MW and could increase usable capacity to 1,150MW • Cost of installing an additional 500MW cable is ~$55.8m 1 Image: Transpower’s Pole 3, Benmore ����������������������������������������� ���������������� ����� • Adds an additional 200MW of peaking capacity into ���� the North Island ���� • With flexible hydro assets able to respond quickly, ���������������� ��������� ����������������� �������� we are well positioned to utilise the additional ������������� ��� ��������������� HVDC peaking capacity to support North Island � demand �� �� �� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ��� ���� ���� 1: Assuming it is installed as part of the undersea cable replacement project. If project precedes in �������������������������� ��� isolation, expected cost is $150m Meridian Energy Limited Investor Day November 2017 76 ���������������� �������������������� ���������������������������� Source: Meridian �����

  57. 3. Lower North Island transfer constraint. Source: Transpower’s 2016 SSF Current transmission issues • Limited transfer from Bunnythorpe through to Whakamaru • Limits lower North Island and Taranaki generation into the upper North Island No planned improvements Wellington export limits based on Taranaki generation Wellington transfer North [MW] (Tokaanu-Whakamaru) • Constraint when competing with Taranaki generation 2000 1000 • Expect to see lower cost generation dispatch ahead 0 of higher cost peaking thermal 0 100 200 300 400 500 600 700 800 900 1000 Taranaki Generation [MW] Linear (Winter) Linear (Summer) Source: Transpower’s 2016 SSF Meridian Energy Limited Investor Day November 2017 77

  58. Huntly Rankine unit retirement. Investigation is underway • A separate issue is the potential decommissioning of Huntly Rankine units • There is sufficient generation in the market to cover demand into the upper North Island • 94% of upper North Island generation is currently sourced from outside region • Transmission investment will be required ahead of the Rankine unit retirement to enable sufficient energy to be transferred into the region • This investment would be independent of any Image: Genesis Energy’s Huntly Generation Station Tiwai Point smelter outcome Meridian Energy Limited Investor Day November 2017 78

  59. Auckland import. Investment project underway • Transpower currently working through the Waikato and Upper North Island Voltage Management Investigation • Longlist option consultation has been completed • Lower cost short-term options likely to be Source: Transpower’s 2016 SSF preferred such as series capacitors Auckland voltage stability import limit 3100 • Solution to be implemented ahead of any Genesis Upper North Island demand [MW] 2900 Rankine unit retirement 2700 Winter demand 2500 Investment required by 2300 2024 based on Transpower 2100 Current demand forecast capacity 1900 1700 1500 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 Source: Transpower’s UNI generation decommissioning report Meridian Energy Limited Investor Day November 2017 79

  60. Summary. Meridian is well placed to manage its portfolio through future uncertainty • Transmission upgrades are more critical for lower South Island and reduce as you move north • Key projects are well developed • Flexibility of storage will allow Meridian to manage lost energy during investment phase • Our transmission team continue to work with the industry to improve the current capability of the transmission system Meridian Energy Limited Investor Day November 2017 80 Image: Meridian Energy’s Benmore Power Station

  61. ENERGY EFFICIENCY. GRANT TELFAR . Meridian Energy Limited Investor Day November 2017 81

  62. Forecasting demand. What is the problem ������������������������������������������ “Missing” • Very poor data on energy usage demand ������� • Demand has been flat for some time ������� • Traditional econometric modelling approach has ������� increasingly struggled to explain demand ������� ������������� outcomes ������� 1998-2008: small residuals 1998-2008 ������� (error in fit) using standard GDP Population ������� macro-economic factors ������� Dwellings Tariffs Residual ������� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ����������� �������������� ���������������������������� 2008 onwards 2008 onwards: residuals grow; harder to explain Source: Meridian, Ministry of Business, Innovation & Employment GDP Population Dwellings Tariffs Residual Meridian Energy Limited Investor Day November 2017 82

  63. Usage as at 2008. ����������������������������������������������� costs in real �������� terms (2017$) NZ household usage ���������� ������� • Very poor data on energy usage ������� ��������������� ������������������ ������� ������� ����������������� ������� ������� • BRANZ HEEP study (2002-2005) last ������������� ������� comprehensive nationwide survey ��������������� ������� ���������������� ������� ������� ��������� • Insights: ����������� ������� • Electrical heating spend is low (on ������������������� ������ average) ������������� ������� ������������������ ��������� • Biggest spend is on hot water ��������������� ������������� �������������� �������������� ������������������� ��������������� ���������� ������������ �������� ���������������� ���������� Source: BRANZ, Meridian Meridian Energy Limited Investor Day November 2017 83

  64. Usage as at 2008. ��������������������������������������������������������������� NZ non-household usage • Even worse data ��������������� ���������� ��������������� ��������� ��������� • BRANZ HEEP plus 2005 Treasury study are both ��������� useful ��������������� ��������� ��������� ��������� • Insights: ������� ��������� ������������ ������� �������������� • NZ business use a lot of motors (motive and ��������� �������������� ������� pumping) ��������� ������� ����������� ��������� • Combined lighting, refrigeration, and heating ���������������� ������� �������������� ������� similar scale to residential ��������� ������������ ������������� ������������� �������� ������������� ������� ���������� ������������ ������� �������������� ������������ Source: Treasury, Meridian Meridian Energy Limited Investor Day November 2017 84

  65. ������������������������������������������ ���������������������������������������� What has changed? ���� ���� ���� ���� ���� NZ households ���� ������������������������� technology �������������������������� ���� changes ���� driving ���� • Kiwis love buying appliances ���� savings �������������������������� ���� �������������������������� ���� ��������������������������� ���� • TV efficiency has improved dramatically ������������������� ���� ���� ����������������� ���� • 2017 lighting efficiency reflects slow LED uptake ���� �� �� ��������� ������������������ �������������� ������� ������ ����� ������ ���������� �������������� ������ ������� �� �������� ������� ������ • Room for further efficiency improvements ������� Source: ������� EECA, Meridian • Technology driven rather than price responsive �������������������������������������������� ������������ �������������������������� NZ non-household ���������������� ���������������������� savings are • Hard to know available at ����������������������� a price ������� ��������� • Motive power, lighting and water heating have ���������� ������������� �������� significant potential to reduce energy demand �������� ������������������������� • Total efficiency potential up to 25% ���������������������� ����� Source: Treasury, • Likely to free-ride on technology changes �� ������ ������ ������ ������ ������ ������ ������ ������ Meridian ���������������������� Meridian Energy Limited Investor Day November 2017 85 • More likely to trade-off costs (eg LEDs)

  66. How we use energy now. �������������������������������� Efficiency is only one part of the puzzle �� indoor temperatures up • Greater efficiency does not necessarily mean a �� reduction in overall consumption, e.g: �� no clear change in ���������������������� � �� external temperatures • NZ houses appear warmer than they were 15 �� years ago (not hard) �� • Replacing an incandescent light bulb with an � LED implies an 85% saving in energy use – but � ������� ������� ������� ������� how many do LEDs do we install? What Source: ����������� �������� BRANZ, ��� ��� ���� ��� incandescent ‘waste’ heat now needs replacing? Meridian ���������������������������������������������� costs in �������� real terms (2017$) ���������� Household energy usage as at 2017 ������� ������� ��������������� ������������������ ����������������� ������� ������� ������� ������� • Not a lot of change proportionally ������������� ������� • Heating consumption has likely increased ���������������� ������� ���������������� ��������� ������� ��������� ���������� ������� • TV consumption has dropped markedly ������������������� ������� • Incremental improvements in appliances …except �������������� ������� ������������������ ��������� dryers! Source: ��������������� ������������� �������������� �������������� Meridian Energy Limited Investor Day November 2017 86 Meridian ������������������� ��������������� ���������� ������������� ������� ���������������� �����������

  67. ������������������������������������������� ������ Better efficiency potential? ������ NZ households ������������������������� technology driven ������ efficiency potential • Increase seen in potential household efficiency steadily increasing related savings since 2002 ������ • Hot water shown least improvement ���� • Scale of implied savings ~500MW of new wind Source: �� Meridian ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� generation ($1.2B+ worth) in last 15 years ������������������ ��������� �������� �������� ������ ���������� ������������������������������������������ ������ NZ non-household ������ • Increase seen in potential commercial efficiency technology & cost ������������������������� driven efficiency potential steadily related savings since 2002 ������ increasing • Equipment life cycle (age and replacement) is critical ������ • Higher uptake of LEDs than residential (probably) ���� • Scale of implied savings is another ~500MW of new Source: �� wind generation in the last 15 years Meridian ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���������������� ���������������� ��������������� ������������� Meridian Energy Limited Investor Day November 2017 87

  68. Where to now? Improved demand forecast ��������������������������������������������������� • Including efficiency potential alongside other ������� “Missing” demand better explained economic variables dramatically improves model ������� ������� But early days! Careful of monkeys & typewriters • ������� ������������� ������� 1991-2017: 1991-2017 Efficiency including GDP Population ������� potential efficiency ������� restores small ������� explainable Residual Dwellings Tariffs ������� residuals ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Source: MBIE, ����������� ����������� ���������������������������� �������������� ���������������������������� Meridian • Assessing future efficiency is challenging ��������������������������������������� ������� Forecast efficiency data and customer usage is ������� • ������� not readily available – but we can examine ������� ������� ������� • Remaining efficiency potential by usage ������� ������������������������ ������� �������������������� • Views on consumption/ICP trajectories ������� �������������������� ������� ���������������������������� ������� ���������������������������� • Economic energy intensity improvements ������� ����������� ������� Efficiency and price ������� • Growth of 0.5% - 1.0% pa seems likely – with plant response bends growth ������� downwards ������� retirement adding to the system need for new power … ������� Source: but how far? ������� Meridian Energy Limited Investor Day November 2017 88 Meridian ������� ���� ���� ���� ���� ���� ���� ���� ���� ���� ����

  69. CLIMATE VARIABILITY AND CHANGE . DR JEN PURDIE. Meridian Energy Limited Investor Day November 2017 89

  70. We rely on the timely arrival of our fuel. We forecast and plan on different time scales: • Days to weeks: • plan generation and offers into the market to use intermittent wind and to move water through the river chain Image: Genesis Energy’s Tekapo • Months to years: B station • plan generation and contract position, and manage risk through financial instruments • Years to decades: • We make long term projections of generation and new plant We are always walking the tightrope between: • Running out, and Image: Contact Energy’s Clyde Dam …OVERFLOWING! Meridian Energy Limited Investor Day November 2017 90

  71. Our fuel is variable. • Our fuel arrival varies from year to year ��� ��� • It’s arrival is anticorrelated with electricity demand ��� • We have limited ability to store it ��� • We have to plan the number of customers/contracts ��� ������ ��� that we take on ahead of time ��� • We can offset some of our fuel variability with ��� planning and financial instruments ��� � ����� ����� ����� ����� ����� ����� ����� ����� ����� ����� ����� ����� Storage and average annual inflows (GWh) Lake Pukaki weekly average inflows 1931-2013 1000 ���������� ������ 900 ���������������� 800 ��������������� 700 GWh ���������� 600 ������������� 500 ������ �������������������� 400 � ���� ���� ���� ���� ���� ���� 300 Mar May Jan Feb Apr Jun Jul Aug Sep Oct Nov Dec Sources: ��������������������� ������������� Average NZ demand Average NZ inflows Meridian Meridian Energy Limited Investor Day November 2017 91 New Zealand hydro inflows vs electricity demand

  72. Predictability – short term. Weather forecast Quantified half-hourly rainfall and wind forecast Inflow forecast Offer into electricity market Meridian Energy Limited Investor Day November 2017 92

  73. Predictability – medium term - cycles. Summer El Nino rainfall anomaly (%) Summer La Nina rainfall anomaly (%) El Nino – Southern Oscillation (ENSO) • Periodical variation in winds and sea surface temperatures over the tropical Pacific Ocean • 2-5 year cycle • Significant impact on our inflows and wind Southern Annular Mode Source: Niwa • Ring of climate variability that encircles the South Waitaki catchment inflows 1978-99 vs 2000-2008 Pole and extends out to the latitudes of New (m3 x 106) 9600 9400 Zealand 9200 9000 • 6-week cycle wet-dry 8800 8600 Interdecadal Pacific Oscillation (IPO) 8400 8200 8000 • Long term oscillation of the Pacific Ocean 7800 7600 • 20-year cycle 7400 Mean 7200 Mean±SE 1978-99 2000-2008 Mean±1.96*SE • 1977-99 was wet, 2000– now dry Inter-decadal Pacific Oscillation (IPO) index 1911-2016 Meridian Energy Limited Investor Day November 2017 93

  74. Predictability – medium term – snow melt. • Snowmelt contributes half of our summer inflows in the Waitaki catchment • Difficult to measure in a mountainous catchment • Several high-altitude measurement sites • A snowpack simulation model estimates GWh stored as snow • Useful in spring/summer inflow forecasting Meridian Energy Limited Investor Day November 2017 94

  75. Predictability – long term climate change. The climate is changing • Glaciers are retreating • Seasonal snow is disappearing • Sea level has risen by 20cm in the past century Image: Upsala glacier, Argentina • A 1 metre sea level rise is predicted to make 15 million Image: Mt Hood, people in Bangladesh homeless Washington Meridian Energy Limited Investor Day November 2017 95

  76. Climate change - local changes. Ice loss Tasman Glacier National Park – retreat at Mt Cook Images: Glacial • Snow and ice recession in our headwaters • Warming trend at local climate stations ��������������������������������� ���� ��� ��� ��� ��� ��� ��� ��� ���� ���� ���� ���� Hermitage annual average temperature 1930-2017 ���� ���� ���� ���� ���� ���� ���� ���� Meridian Energy Limited Investor Day November 2017 ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� 1 deg C warming since 1930 ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� 96 ���� ���� ���� ����

  77. Climate change – local changes. ���� • Annual rainfall and inflow totals have not ��� ��� changed significantly over the 90 years of ��� ��������������������������� record… ��� ��� • but the seasonality of our rainfall and inflows ��� has changed significantly over the past 90 ��� ��� years ��� Hermitage at Mt Cook • Autumns have become up to 20% drier over February rainfall 1930-2017 � ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� time ����� �������������������������������������������������������������������� Older inflows Recent inflows • Mid-summer has become slightly wetter ����� • We have incorporated these changes into ����� our generation modelling and planning ������ ����� ���� Lake Pukaki weekly inflows long term averages ��� ����� ����� ����� ����� ����� ����� ����� ����� ����� ����� ����� ����� 1929-72 vs 1973-2015 ��������� ��������� Meridian Energy Limited Investor Day November 2017 97

  78. What can we expect in the future? Niwa take global climate model (GCM) projections and regionally downscale them to predict what climate changes we can expect in NZ Temperature changes 2055 2090 1 – 2.5 degrees warmer everywhere About 1 - 1.5 degrees warmer everywhere Source: Tait et al 2016, https://ofcnz.niwa.co.nz Meridian Energy Limited Investor Day November 2017 98 Projected annual temperature changes in NZ by 2050 and 2090 under a “middle of the road” emissions scenario

  79. Rainfall changes – annual 2090 2055 Wetter in the west and south, and drier in the east and north 5-15% wetter in 10-20% wetter in our catchments our catchments Source: Tait et al 2016, https:// ofcnz.niwa.co.nz 9 9 Meridian Energy Limited Investor Day November 2017 99 Projected annual rainfall changes in NZ by 2050 and 2090 under a “middle of the road” emissions scenario

  80. Rainfall changes – seasonal 2055 2055 Source: Tait et al 2016, https://ofcnz.niwa.co.nz Summer rainfall is projected to increase 5-15% in our Winter rainfall is projected to increase catchment headwaters 15-25% Meridian Energy Limited Investor Day November 2017 100

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