Focus on financial strength (as of October 2014) Forward Looking - - PowerPoint PPT Presentation

Focus on financial strength

(as of October 2014)

1

Forward Looking Statement

This presentation contains certain forward-looking statements within the meaning of the US federal securities laws. Especially all of the following statements: > Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items; > Statements of plans or objectives for future operations or of future competitive position; > Expectations of future economic performance; and > Statements of assumptions underlying several of the foregoing types of statements are forward-looking statements. Also words such as “anticipate”, “believe”, “estimate”, “intend”, “may”, “will”, “expect”, “plan”, “project” “should” and similar expressions are intended to identify forward-looking statements. The forward-looking statements reflect the judgement

• f RWE’s management based on factors currently known to it. No assurances can be given that these forward-looking statements will

prove accurate and correct, or that anticipated, projected future results will be achieved. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Such risks and uncertainties include, but are not limited to, changes in general economic and social environment, business, political and legal conditions, fluctuating currency exchange rates and interest rates, price and sales risks associated with a market environment in the throes of deregulation and subject to intense competition, changes in the price and availability of raw materials, risks associated with energy trading (e.g. risks of loss in the case of unexpected, extreme market price fluctuations and credit risks resulting in the event that trading partners do not meet their contractual obligations), actions by competitors, application of new or changed accounting standards or other government agency regulations, changes in, or the failure to comply with, laws or regulations, particularly those affecting the environment and water quality (e.g. introduction of a price regulation system for the use of power grid, creating a regulation agency for electricity and gas or introduction

• f trading in greenhouse gas emissions), changing governmental policies and regulatory actions with respect to the acquisition, disposal,

depreciation and amortisation of assets and facilities, operation and construction of plant facilities, production disruption or interruption due to accidents or other unforeseen events, delays in the construction of facilities, the inability to obtain or to obtain on acceptable terms necessary regulatory approvals regarding future transactions, the inability to integrate successfully new companies within the RWE Group to realise synergies from such integration and finally potential liability for remedial actions under existing or future environmental regulations and potential liability resulting from pending or future litigation. Any forward-looking statement speaks only as of the date

• n which it is made. RWE neither intends to nor assumes any obligation to update these forward-looking statements. For additional

information regarding risks, investors are referred to RWE’s latest annual report and to other most recent reports filed with Frankfurt Stock Exchange and to all additional information published on RWE's Internet Web site.

2

RWE – an attractive value proposition

> Progress in strengthening balance sheet > Streamlined and disciplined investment approach > Cash flows from operating activities to cover investments and dividends by 2015 > Further efficiency enhancements and operational excellence > Leading market position and regionally focused strategy > Pure utility play – exit of upstream activities > Balanced asset portfolio > Highly cost-efficient and modernised power plant portfolio > CO2 neutral position > Successful structural changes to all long-term gas supply contracts

Attractive portfolio Stable financials

Earnings outlook for 2014, RWE Dea as a ‘discontinued operation’ (DCO): EBITDA c. €6.4 – 6.8 bn; operating result c. €3.9 – 4.3 bn; recurrent net income c. €1.2 – 1.4 bn

3

Main messages

Performance in H1 2014 line with expectations: EBITDA -32%, operating result -40%; recurrent net income -62% Group outlook for 2014 confirmed Reform of the Renewable Energy Act (EEG 2.0) passed EU Commission and German government approve RWE Dea transaction; closing expected by the end of 2014 RWE enters Romanian market for electricity supply activities S&P confirmed our BBB+ rating

4

From commodity driven earnings development to attractive regulated profile

RWE develops towards an attractive stable downstream business profile with additional focus on renewables and upside potential from conventional power generation

6.4 51% 48% 24% 55% Operating result in € bn 5.9 3.9 – 4.3e >20% >70% Upstream Gas & Oil Renewables Distribution and Supply Conventional power generation Trading Gas Midstream 2012 2013 2014e 5%–10% Of which circa 40%-50% regulated >70% 10%–15% Mid-term

5

RWE’s mid-term business profile drivers

GENERATION Integrated utility along the value chain with focus on core markets within Europe TRADING DISTRIBUTION SUPPLY High portion of earnings from stable regulated businesses (German and CEE/SEE networks; renewables)

> GER: Stable regulatory environment for the next regulatory period Electricity: 2014 – 18 Gas: 2013 – 17 – Potential for revenue growth from integration

• f renewables

– Focus on performance > CEE/SEE: Aim to stabilise regulated earnings – CZ: Discussion on next regulatory period (2015) – HU: Political pressure

• n returns

> Focus on efficiency enhancements > Increasing pressure on sales margins > Margin upside via new products and cross selling > Value oriented customer service > Smart markets: – Decentralised CHP/services – Energy efficiency > Growth by leveraging sales know-how across mature and new markets > Selective growth in renewable energy > RWE Innogy aims to earn its cost of capital in 2016 > Restructure conven- tional power generation (“no profit or cash burning”) > Upside potential from market recovery of conventional power markets (e.g. new market design or recovery of commodities) > Ongoing focus on value extraction in commercial asset optimisation > Develop growth

• pportunities in new

trading markets > Additional value contribution from principal investment projects > Commercial settlement with Gazprom; no further losses until May 2016 > Ongoing losses from long- term contracted gas storage capacities

6

Conventional Power Generation: mark-to-market earnings perspective

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

• 0.5

2012 € bn 3.3 Efficiencies 2012-2016 Mark-to-market (m-t-m)1 2013

1 Mark-to-market as of November 2013 at market prices of around €37/MWh for German base load forwards

Operating result (OR) Depreciation EBITDA 1.4 OR m-t-m before efficiencies

7

Overview of capacity measures

Measure Plant MW1 Fuel Location Date Decom- missioning Amer 8 610 Hard coal NL Q1-2016 Goldenbergwerk 110 Lignite DE Q3-2015 Westfalen C 285 Hard coal DE Q1-2016 Gersteinwerk K2 610 Hard coal DE Q1-2017 Long-term mothballing2 Claus C 1,300 Gas NL Q3-2014 Moerdijk 2 430 Gas NL Q4-2013 Gersteinwerk F 355 Gas – steam turbine DE Q3-2013 Gersteinwerk G 355 Gas – steam turbine DE Q2-2014 Weisweiler H 270 Topping gas turbine3 DE Q3-2013 Weisweiler G 270 Topping gas turbine3 DE Q3-2013 Mid-size units 854 Gas NL Q1-2013 Summer mothballing Emsland B 360 Gas – steam turbine DE Q2-2014 Emsland C 360 Gas – steam turbine DE Q2-2014 Lingen 880 Gas – CCGT DE Q2-2014 Termination

• f contracts

Confidential 2,660 Hard coal DE Q4-2013 – Q4-2014 Total 8,940 MW

1 Net nominal capacity, rounded 2 In times of market tightness mothballed plants might return temporarily to the system 3 At a lignite plant 4 Includes 1 unit which is part of ELES transaction

8

Impact of our capacity measures on our total conventional generation portfolio

41,256 MW 764 MW 3,224 MW Installed net capacity at the end of 2013 43,716 MW 1,554 MW 110 MW 1,140 MW Installed net capacity at the end of 2014e Installed net capacity at the end

• f 2017e

1,892 MW 38,774 MW Installed net capacity at the end of 2016e 41,560 MW 40,666 MW 894 MW Installed net capacity at the end of 2015e Contract terminations and asset disposals Additions Decom- missioning LCPD (UK) Additions Decom- missioning Decom- missioning 2,449 MW

XX MW Thereof mothballed gas-fired capacity

5,698 MW 5,698 MW 5,698 MW 5,698 MW

Net decrease in RWE Generation’s portfolio1 to substantially materialise after 2015

1 RWE’s legal consolidation stake. Unit D (764 MW) of our hard coal-fired power plant at the ‘Westphalia’ site in Hamm is not considered here because the date for bringing the unit into operation is pending.

XX MW Thereof nuclear decommissioning

1,284 MW

RWE Innogy will provide mid-term earnings growth despite reduced capex volume

Development of operating result by 2016

2015e 2014e 2016e 2013 2012

 

First generation: Gwynt y Môr (576 MW), Commissioning: Düshorner Heide (26 MW), Goole Fields (33 MW) Bedburg I (37 MW) Commissioning: NSO (295 MW), Gwynt y Môr (fully), Onshore projects1 Commissioning of

• nshore projects1

€183 million



€203 million

Taken and planned investment decisions

Approx. 340 MW Approx. ~120 MW1

Investments decided in 2014 Planned investment decisions in 2014/2015

Approx. 330 MW Offshore wind farm Nordsee One2 Offshore wind farm Galloper2 Several onshore wind farms 37 MW Approx. 90 MW Onshore wind farm Zuidwester Onshore wind farm Bedburg I

1 Subject to FID, commissioning expected of ~55 MW in 2015 and of ~35 MW in 2016. | 2 RWE Innogy would hold minority stakes.

9

10

More customers will produce self-generated power and will be enabled to manage their consumption

Changing energy landscape

Virtual power plants

» Increase in decentral energy

production from household customers

» Higher incentivisation of

“prosumers” to maximise own consumption

» Rising penetration of home

automation systems enables households to manage their energy needs

» Electricity production on-site

becomes increasingly attractive for business customers which leads to higher volumes of own production of power, gas or heat Trends in retail markets

Surplus marketing Heat production Gas production Electricity production

Household customer Business customer

11

Excellent access to debt capital market is key

2011

Leverage target mid-term: < 3.0x; more flexibility short-term

Net financial debt incl. 50% of hybrids Pension, mining and nuclear provisions 13.0 16.9 29.9 € bn

1

Leverage factor (Net financial debt (incl. 50% of hybrids) + pension, mining and nuclear provisions)/EBITDA; rounding differences may occur.

2

RWE Dea as a ‘discontinued operation’ (DCO)

2012 13.1 19.9 2013 11.2 19.4 2014e2 3.5x 33.0 3.5x 30.7 3.5x In the order of 26.0 Significantly >3.5x Net debt Leverage factor1

12

RWE well on track to reach target of a positive cash balance

Cash flows from operating activities to cover investments and dividends by 2015 2010 2011 2015e ≤ 2012 7.1 4.4 5.5 5.5

Dividends (incl. minority payments; year of payment) Capex in property, plant & equipment and financial assets (according to cash flow statement) Cash flows from operating activities (2014: from continued operations)

9.3 8.8

€ bn

2013 2014e 6.2 5.8 Cash balance

• 3.3
• 3.8
• 2.7
• 0.4

>0

13

Deliveries on our measures to improve the leverage situation

> Reduction of discretionary investments > Optimisation of maintenance capex > Sale agreement signed for RWE Dea; closing expected by the end of 2014 > Urenco and further portfolio optimisation > Adjusted dividend pay-out ratio from 2014 onwards; 40% – 50% of recurrent net income > Earnings improvement through efficiency enhancement measures; at least €1.5 bn by 2016

Efficiency enhancements Capex reduction Disposals Dividend policy Measures

14

Efficiency improvements 1 year ahead of plan – At least €1.5 bn net benefit to be achieved by 2016

Efficiency enhancements

200 800 150 200 150

Net benefit to operating result

In € million

2012 2013 2014e 2015e 2016e



> Total programme consists of measures amounting to €2 bn (= gross effect) > Efficiency improvements to be fully earnings enhancing by 2016, one year earlier than initially envisaged > Efficiencies net of underlying cost increases such as wage inflation > €1 bn already achieved by 2013 instead of 2014 > Continuous improvement: focus on limiting cost increases by e.g. staff factor costs, to secure further potential upside > Staff reduction: – Reduction of ~10,200 FTEs envisaged by year-end 2016 – Operational FTE reduction of ~4,500 realised by year-end 2013 > Internal planning for next wave of efficiency enhancements already started



15

Efficiency measures of €2 bn implemented by the end of 2016

Efficiency enhancements

Net benefit by division

Conventional Power Generation > ~40% reduction of overhead costs > Reduction of O&M costs > Improvement of availability and flexibility of plant portfolio Supply/Distribution Networks Germany > Reduction of overhead functions in the grid and sales business > Leaner sales processes and development of new products > Optimising grid operations Supply UK > End to end cost reductions across domestic customer business, including outsourcing of some customer support activities Trading/Gas Midstream > Focus on optimisation of locations, IT and support functions

~ 20%

Supply/Distribution Networks Germany

~ 10%

Trading/ Gas Midstream

~ 50%

Conventional Power Generation

~ 10%

Holding, other divisions and cross divisional effects

~ 10%

Supply UK

Holding & cross divisional effects > Implementation of new steering model > Harmonisation of IT equipment

Measures of €2 bn = €1.5 bn (net) by 2016

Difference between measures and net figure = cost inflation; %-figures indicate net benefit to operating result

16

€ 10.1 bn

2013

Focus on total controllable costs (TCC)

60% of the efficiency programme will be achieved through a reduction of TCC

€ 10.8 bn

2012

~€ 9.0 bn 5.3 5.2 4.7 5.5 4.9 4.3 0.5 0.4 0.2 0.7 Personnel costs Other TCC Operational cost improvement Portfolio and other effects

2016e

Efficiency enhancements

17

Capex programme reduced to maintenance level

Capex reduction

Further growth projects have to be financed debt-neutral, e.g. by the disposal of

• ther assets or partnering solutions.

> Approx. €8 bn capex programme for 2014 – 2016 excluding RWE Dea: − €1.9 bn for major projects − €5.6 bn day-to-day incl. grids − €0.5 bn other > Completion of new-build power plant programme > Completion of large offshore wind farm projects in 2015

2011 2012 2013 2014e 2015e 2016e RWE Dea ~8 € bn ~5.6 day-to-day

• f which c. ~3.1 for

electricity & gas grids ~ 0.9 Completing conventional power plants ~1.0 Renewable projects 3.8 6.4 4.5 5.1 ~3.5 ~2.5 ~2.0 0.7 ~0.5 Other 0.7 0.7 4.4 5.7

18

Disposals focus on RWE Dea and Urenco

Disposals > Strategic decision, not for deleveraging purposes > Agreement signed with LetterOne Group in March to sell RWE Dea at an EV of c. €5.1 bn > EU Commission and German government approve RWE Dea transaction; closing expected by the end of 2014 > Evaluation of further optimisation potential within participation portfolio > Streamlining of renewable businesses RWE Dea Portfolio adjustments > Non core asset > Reviewing potential exit routes > Disposal conditional to meeting all stakeholders’ interests Urenco

19

Outlook for 2014

In € million Dividend €1.00/share 8,762 5,881 2,314 EBITDA Operating result Recurrent net income 2013 reported Payout ratio of 40% – 50% 6,400 – 6,800 1,200 – 1,400 3,900 – 4,300

1 Based on the sale agreement, RWE Dea will be sold with retrospective effect as of 1 Jan. 2014. Hence, RWE Dea is considered under

‘discontinued operations’ (DCO), i.e. not included in EBITDA and the operating result for 2013 and 2014. The recurrent net income (RNI) of RWE in 2013 still includes the RNI of RWE Dea. In 2014 RWE Dea is reflected in the RNI via the interest on the sale price, assuming the deconsolidation by the end of 2014. Further restatements according to IFRS 11. See pages 10 and 37 of the H1 2014 interim report.

7,904 5,369 2,314 2013 RWE Dea DCO1 2014e RWE Dea DCO1

20

Back-up Charts

21

Major earning drivers post 2013

Further decline in realised electricity margins (realised outright power price 2013: € 51/MWh) Disposal of RWE Dea Disposal of NET4GAS in 2013 (2013 earnings contribution: €171 m to operating result) Regulatory and competitive pressure Efficiency enhancement programme (2014 to 2016: at least € 500 million) Earnings growth in renewables (target to reach ROCE/WACC break even in 2016) Further potential upside from: New market design for conventional power generation or commodity recovery Selective growth projects from “Ener- giewende” (new German energy policy) Potential for small growth in our supply business across Europe Performance increase in our downstream business

22

2014 divisional outlook for the operating result

€ million 20131 2014 forecast versus 2013 Conventional Power Generation 1,384 Significantly below 2013 Supply/Distribution Networks Germany 1,626 Moderately above 2013 Supply Netherlands/Belgium 278 Significantly below 2013 Supply United Kingdom 290 Moderately below 2013 Central Eastern and South Eastern Europe 1,032 Significantly below 2013 Renewables 203 Significantly below 2013 Trading/Gas Midstream 831 Significantly below 2013

1 Figures partly restated.

23

RWE’s forward hedging of conventional electricity production (German, Dutch and UK portfolio)

Outright (GER nuclear and lignite-based power generation) Spread (GER, UK and NL/B hard coal and gas-based power generation)

2014 forward 2016 forward

>30% >10% >40% >10% >50% >20% >50% >30% >60% >40% >30% >20%

• 24
• 21
• 18
• 15
• 12
• 9
• 6
• 3

Months before delivery of forward contract

>70% >50% >80% >60% >80% >80% As of 30 June 2014 >90% >90% >40% >10%

2015 forward

>30% >10% >40% >10% >40% >20% >50% >30% >60% >40% >60% >50% >80% >60% >40% >10%

24

2012 2013

Contango has been reinstated in the front of the curve

Spread between implied versus front year (EUR/MWh)1

1 German power baseload 2 Implied Cal as weighted average of spot settlements and balance-of-year forwards

Implied Year (FY0)2 Front Year (FY1) Second Year (FY2) Risk premium (right scale)

25

Germany: Clean Dark (CDS) and Spark Spreads (CSS)

• 16
• 12
• 8
• 4

4 8 12 16 1-Jan-12 1-Apr-12 1-Jul-12 1-Okt-12 1-Jan-13 1-Apr-13 1-Jul-13 1-Okt-13 1-Jan-14 1-Apr-14 1-Jul-14 1-Okt-14

Ø 7.86 Ø -13.07 Ø -2.37 Ø 9.96 Ø 5.94 Ø -11.63

CDS Cal 2013–15 base load (€/MWh) (assumed thermal efficiency: 36%) Source: RWE Supply & Trading, prices through to 8 August 2014 CSS Cal 2013–15 peak load (€/MWh) (assumed thermal efficiency: 49%)

2013 forward 2014 forward 2015 forward Trading year 2012 Trading year 2013 Trading year 2014

26

NL: Clean Dark (CDS) and Spark Spreads (CSS)

• 20
• 15
• 10
• 5

5 10 15 20 1

• J

a n

• 1

2 1

• A

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• 1

2 1

• J

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• 1

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• 1

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• 1

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• 1

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• 1

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• 1

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• 1

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• 1

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• 1

4

Ø -8.79 Ø -4.55 Ø 7.63 Ø 8.58

CDS Cal 2013–15 base load (€/MWh) (assumed thermal efficiency: 37%) 1 CDS: Including coal tax. Source: RWE Supply & Trading, prices through to 8 August 2014 CSS Cal 2013–15 base load (€/MWh) (assumed thermal efficiency: 49%)

2013 forward 2014 forward1 2015 forward1 Trading year 2012 Trading year 2013 Trading year 2014 Ø -7.46 Ø 11.43

27

UK: Clean Dark (CDS) and Spark Spreads (CSS)

4 8 12 16 20 24 28 4

• J

a n

• 1

2 4

• A

p r

• 1

2 4

• J

u l

• 1

2 4

• O

k t

• 1

2 4

• J

a n

• 1

3 4

• A

p r

• 1

3 4

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• 1

3 4

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• 1

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• 1

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• 1

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• 1

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• 1

4

Ø 3.07 Ø 3.12 Ø 19.51 Ø 17.36 Ø 22.49 Ø 2.03

CDS Cal 2013–15 base load (€/MWh) (assumed thermal efficiency: 36%) CSS Cal 2013–15 base load (€/MWh) (assumed thermal efficiency: 49%)

2013 forward 2014 forward1 2015 forward1 Trading year 2012 Trading year 2013 Trading year 2014

1 Including UK carbon tax. Source: RWE Supply & Trading, prices through to 8 August 2014

28

Development of net debt

€ billion Net debt 31 Dec 2013 Others including f/x effects and change of net debt from discontinued

• perations

(DCO)

• 2.0

30.7 +0.9

• 0.7

+0.4 31.5 +1.5 Cash flows from

• perating

activities1 Change in pension, nuclear, mining provisions1 Net debt 30 June 2014 +0.7 Dividends1 Capex on property, plant and equipment and intangible assets and financial assets1 Divestments/ deconsoli- dations/ capital measures1 No „DCO restatement“

• f FY 2013

Of which € 1.0 bn from DCO

1 From continuing operations, i.e. excluding RWE Dea.

29

Full benefit of deleveraging measures mainly after 2014

> Leverage ratio 2014: declining earnings trend overlays efforts to reduce debt > Continued pressure on earnings and cash flows induced from falling commodity prices > Prime objective is to maintain excellent access to capital markets > Aspiration to bring leverage factor in line with 3.0x target remains > Leverage starting to ease from 2015 onwards due to positive cash balance 2.5 2.0 2010 2011 2012 2013 2014 2015 2016 3.5 3.0

*no positive effects from disposals assumed

30

Capital market debt maturities1 € bn

Capital market debt maturities and sources

• f financing

Strong sources of financing Maturities of debt issued Hybrid (first call date) Accumulated outstanding debt (incl. hybrid)

Balanced profile with limited maturities up to end of 2015 (~€4.3 billion)

Fully committed syndicated loan (€4.0 bn up to March 2019) Commercial paper (up to 1 year) $0.0 bn ($5.0 bn) €0.0 bn €0.0 bn (30 June 2014) For liquidity back-up MTN programme (up to 30 years) €30 bn €14.3 bn (30 June 2014)2

1 RWE AG and RWE Finance B.V. as of 30 June 2014. 2 Bonds outstanding under the MTN programme, i.e. excluding hybrids. Including hybrids: €18.0 bn.

4 8 12 16 20 0,0 0,5 1,0 1,5 2,0 2,5 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044

31

RWE’s major investment projects

RWE share Capex (€ bn) 2013 2014 2015 2016 2017 2018 Conventional new build power plant programme (capex at 100% share) Hamm (hard coal, 1,528 MW)1 77% 2.5 Eemshaven (hard coal/biomass, 1,554 MW) 100% 3.1

1 The date for bringing unit D (764 MW) into operation is pending.

RWE Innogy: major projects under construction (capex at 100% share; UK offshore includes investment for grid connections) Gwynt y Môr (offshore wind, 576 MW) 60% 2.8 Nordsee Ost (offshore wind, 295 MW) 100% 1.4 B Units A Unit E (764 MW)

32

Growing uncertainty as to whether sufficient firm capacity will be available

88 GW 6 GW 2 GW 5 GW 12 GW 0 GW

• 10 GW

69 GW

• 79 GW

5 GW 5 GW

• 15 GW

3 GW

Source: AGORA

Development of firm capacity in Germany, 2012 – 2022

33

A decentralised capacity market closes the financing- gap of the electricity market

Interaction capacity & electricity market

Required price for keeping capacity in the system/new build

Strommarkt Dezentraler Leistungs- markt 100%

Required secure capacity MW MW

Electricity market Capacity market

EUR/MWh EUR/kW Electri- city price Price for secure capacity Covered fix costs Loss Merit order of power plants in the electricity market Merit order of power plants in the capacity market Covered fix costs

Share

0% Share

Function of a decentralised capacity market Today

Electricity revenues Electricity revenues Capacity revenues

2020

What will happen over the next five years?

More renewables: merit order will shift further to the right > More fuel switch coal to lignite > Lower prices > Higher spot volatility Plant closures will accelerate > Capacity ranges for coal and gas in merit order will shrink > Gas will be running more often > Higher prices > More price spikes (spot/intraday) > Higher spot and then higher forward volatility > Re-appearance of risk-premium in forward prices Rise in gas and/or CO2 prices > Higher prices > Higher forward volatility

Source: RWE

34

Summary & conclusion

What are the market fundamentals telling us? > Prices for fuel commodities and CO2 are drifting sideways > Despite reduction in subsidies, solar and wind generation will continue to grow in Germany > From 2015 onwards plant closures will reduce the current generous capacity margin > Electricity demand will drift sideways at best (assuming no major break-through on electric cars) > The markets assume that renewable generation capacity will grow faster than thermal plants are being closed > Lower dark spreads would signal to plant operators that their capacity is no longer required > More than 70 GW of renewable capacity in Germany push up intra-day volatility; sufficient flexibility in the system for the time being but more and more closures of conventional capacity will lead to spikiness in spot and intraday markets > Forward volatility is low right now as (1) coal plants are mostly price setting in average weather (assumption of forward market), (2) the volatility of coal is low > Spot/intraday volatility has gone up and is expected to rise further > Forward volatility likely to be pushed up if intraday price spikes become more frequent > Price to drift sideways for a while before markets tighten > More short-term price spikes will induce rising forward volatilities and risk premium and a change in hedging behaviour of large power consumers What can we

• bserve in the

traded market? How will future developments impact merit

• rder

economics? Conclusions

1 2 3 4

35

36

Eemshaven 1.6 GW Hard coal Hamm (unit E) 0.8 GW Hard coal Denizli 0.8 GW CCGT Pembroke 2.2 GW CCGT

By 2015 we will have renewed 25% of our electricity generation fleet

H1 2012 2010 H2 2012 2013 2015

BoA Neurath 2.1 GW Lignite Moerdijk 2 0.4 GW CCGT Claus C 1.3 GW CCGT Staythorpe 1.7 GW CCGT Lingen 0.9 GW CCGT

2014

Gas Lignite Hard coal

12.5 GW

• ut of (2011)

49.2 GW

12 GW

• ut of

49 GW (2013)

37

0% 20% 40% 60% 80% 100% Centrica CEZ EDF Enel E.On GDF Iberdrola RWE SSE

Share in power plant capacity of own generation by fuel type. Source: Annual reports 2013, company presentations, RWE.

RWE has one of the most balanced generation portfolios of European electricity generators (installed capacity)

Nuclear Lignite Hard Coal Gas Hydro/ Other

The fuel mix of European electricity generators 2013

38

The fuel mix of European electricity generators 2013

0% 20% 40% 60% 80% 100% Centrica CEZ EDF Enel E.On GDF Iberdrola RWE SSE

Share in electricity generation of own generation by fuel type. Source: Annual reports 2013, company presentations, RWE.

RWE has one of the most balanced generation portfolios of European electricity generators (generation output)

Nuclear Lignite Hard Coal Gas Hydro/ Other

39

Practical example for efficiency improvements in the lignite business

Availability of our lignite based power generation fleet

Measures to improve availability (examples)

> Optimisation of coal management > Improvement of commercial availability by shifting planned outages into low-price times > Shorter planned outages, e.g. through parallel maintenance tasks

Efficiency gains

> Compared to 2011, our lignite based electricity production increased by 7.5 TWh to 75.8 TWh in

• 2013. Our aim is to keep these production

volumes mid-term, although 2013 was a peak year 50% 75% 100% 2010 2011 2012 2013 … … …

Above average availability of lignite fleet in 2013

> Mix of fewer unplanned outages and low level of planned outages

EEG Electricity market design Efficiency strategy Renovation strategy Transmission grids Distribution grids Monitoring EU 2030/ETS

The most important projects of the German Energiewende

Network Development Plan 2015 ENEV3) process & Renewable Energies Heat Act Tender pilot Field report 12 11 10 9 8 7 6 5 4 3 2 1 12 11 10 9 8 7 6 5 4 3 2 1 12 11 10 9 8 7 6 5 2016 2015 2014 EEG 2.0 Pilot auctions + pilot construction EEG 3.0 (tender) EU 2030 targets Reform ETS (market stability reserve) Developing Governance 2030 Negotiations of new EU legal framework (renewables, ETS, etc.) Evaluation Green book White book Market Design Law (EnWG1) amendment) Action plan energy efficiency Implementation action plan energy efficiency incl. EED2) implementation Developing renovation roadmap Developing hollistic renovation strategy Scenario Framework 2015 Amendment Federal Requirement Plan Act Evaluation Incentive Regulation4) Amendment Incentive Regulation Progress Report Monitoring Report 2015 Monitoring Report 2016

1) Energiewirtschaftsgesetz / Energy Industry Act 2) EU Energy Efficiency Directive 3) Energy Saving Regulation 4) Anreizregulierungsverordnung

40

Power plant capacity and electricity generation in Germany 2013 – in percentage terms

Wind Natural gas Photovoltaic Hard coal Lignite Nuclear energy Hydropower, biomass Oil, pump storage, other

6.6 15.4 11.6 25.0 14.4 19.1 14.5 10.9 8.6 4.9 6.6 10.8 18.9 5.0 18.8 8.9 Generation capacity Generation volume 183.6 GW (net) 596.4 million MWh (net)

41

Market price

The feed-in of electricity under the German Renewables Energy Act (REA) is leading to …

Demand (midday) Hydropower Nuclear energy Lignite (new/old) Hard coal (new/old) Gas (new/old) Oil Generation capacity Short-term variable costs [€/MWh]

42

Market price

• ld

Demand (midday) Hydropower Nuclear energy Lignite (new/old) Hard coal (new/old) Gas (new/old) Oil REA new Margin loss

… the market price for electricity dropping and conventional plants being forced out

Generation capacity Short-term variable costs [€/MWh]

43

M-shaped electricity price curve on sunny days

Example: 20 February 2012

Sources: EEX, RWE Supply & Trading

Electricity price EEX hour contract Phelix (left-hand scale) Electricity feed-in from photovoltaic (right-hand scale) 10 20 30 40 50 60 70 80 90 1 2 3 4 5 6 7 8 9 0-1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23 23-0 €/MWh Gigawatts

44

The drop in electricity wholesale prices is hitting all conventional power plants

€/MWh End of June 2008

Hard coal price for 2009: US$211/tonne CO2 price for 2008: €29/EUA1) Solar power capacity in Germany: ~5 GW

End of August 2014

Hard coal price for 2015: US$79/tonne CO2 price for 2015: €6.60/EUA1) Solar power capacity in Germany: ~38 GW Peak-load power: Forward price for the subsequent year Base-load power: Forward price for the subsequent year

1) EU Allowance (EUA) = Standard certificate to allow emission of one tonne of CO2

4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96

40 80 120 2007 2008 2009 2010 2011 2012 2013 20 60 100 2014

45

Margins of gas and hard coal power plants

Clean Spark Spreads (CSS) in free fall, Clean Dark Spreads (CDS) still relatively stable due to lower hard coal prices

• 20

10 30 €/MWh 2007 2008 2009 2010 2011 2013 20

CSS = Peak-load power price less costs for gas and CO2, determined for the subsequent year CDS = Base-load power price less costs for hard coal and CO2, determined for the subsequent year

• 10

2014 2011

46

German electricity feed-in from wind and solar energy in January 2014 (cumulative)…

Photovoltaic Wind

Source: RWE Supply & Trading

Gigawatts 10 15 20 5 25

01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24 Jan 25 Jan 26 Jan 27 Jan 28 Jan 29 Jan 30 Jan 31 Jan

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Source: RWE Supply & Trading

… and in July 2013

Photovoltaic Wind Gigawatts 10 15 20 5 25

01 July 02 July 03 July 04 July 05 July 06 July 07 July 08 July 09 July 10 July 11 July 12 July 13 July 14 July 15 July 16 July 17 July 18 July 19 July 20 July 21 July 22 July 23 July 24 July 25 July 26 July 27 July 28 July 29 July 30 July 31 July

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7 7 8 8 9 10 12 14 15 16 17 21 23 25

0.3 0.5 0.5 0.8 1.1 1.6 2.3 3.3 3.9 5.2 3.4 4.4 2.9 2.0 2.2 0.9 1.1 0.7 1.8 2.5 2.9 3.5 4.6 5.1 5.6 9.8 12.1 16.4 16.5 19.9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Steep increase of subsidies granted under the German Renewables Energy Act

Value of the electricity in € x billions

(figure for 2014 based on forecasts)

Extra costs in € x billions

(figures for 2013 and 2014 based on forecasts)

Share of renewable energy in German electricity production

Source: BDEW

49

1998 2014 Electricity tax Combined Heat and Power Act Renewable Energy Act

Private household electricity bills since 1998: State share soared from 25% to 52%

Total Value-added tax Concession levy Generation, transport, sales 12.91 0.08 17.11 Electricity price Cent/kWh1) Component Offshore wind levy Levy per §19 StromNEV2) 2.33 1.79 13.87 6.24 29.13 4.65 1.79 0.25 0.18 0.09 2.05 + 7% + 263% + 70%

1) kWh = Kilowatt hour

Growth since 1998

2) Stromnetzentgeltverordnung (StromNEV) = Electricity Grid Fee Ordinance Source: BDEW

50

Collapse of EUA1) prices due to sovereign debt crisis and expansion of renewable energy

€/EUA 1st trading period

(no carry-over of EUAs to the next period possible)

2nd trading period

(carry-over of EUAs to the next period possible)

3rd trading period

(until 2020)

1) EU Allowance (EUA) = Standard certificate to allow emission of one tonne of CO2

4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 104 108 112 116 120

10 20 30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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35 – 40% share of costs 5 – 7 years 10 – 15 years 2 – 3 years Decommissioning Post operational phase Nuclear dismantling (immediate, deferred) Conventional dismantling/ demolition Final disposal − Power production has ceased − In some cases, technical infrastructure needs to be

• perated for an additional

period − For the time being, fuel elements are being cooled in pond storage facilities until they are suitable for dry-cask (CASTOR) storage on site − Shut down of systems which are no longer needed − Treatment of operating materials and waste − Dismantling of contaminated and activated systems, structures and components − Materials and waste management (treatment, conditioning, packaging) − Conventional demolishing of buildings/components which fall no longer under the German Nuclear Energy Act (AtG). 10 – 15% share of costs About 50% share of costs − Final disposal of decommissioning waste

RWE Power's nuclear power plant decommissioning concept

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Power plant Net capacity MW Commercial commissioning Biblis A 1,167 1975 Neckarwestheim I 785 1976 Biblis B 1,227 1977 Brunsbüttel 771 1977 Isar 1 878 1979 Unterweser 1,345 1979 Philippsburg 1 890 1980 Krümmel 1,346 1984 Grafenrheinfeld 1,275 1982 Gundremmingen B 1,284 1984 Philippsburg 2 1,392 1985 Grohnde 1,360 1985 Gundremmingen C 1,288 1985 Brokdorf 1,410 1986 Isar 2 1,400 1988 Emsland 1,329 1988 Neckarwestheim II 1,310 1989

German nuclear power plants

Brunsbüttel Unterweser Krümmel Brokdorf Emsland Grafenrheinfeld Biblis Philippsburg Neckarwestheim Gundremmingen Isar Grohnde

RWE power plants. Immediately 8,409 MW 31.12.2015 31.12.2017 31.12.2019 31.12.2021 4,058 MW 31.12.2022 4,039 MW Closure 20,457

Overview of German nuclear power plants

53

Inflation of current cost to the assumed disposal date by a set inflation rate; then discounting of the result back to today (discount rate 4.6%) Provisions are made for as of 31 December 2013: €10,250 million > Decommissioning of nuclear power plants €4,769 million Post-operation phase, dismantling, removal, final storage > Disposal of spent nuclear fuel assemblies €4,677 million Flasks, transport, conditioning, intermediate and final storage > Disposal of radioactive operating waste (e.g. cleaning cloths, oils, resins) €804 million Conditioning, flasks, intermediate and final storage Public-law liabilities under Sec. 9a of the Germany Nuclear Energy Act Provisions for uncertain liabilities as per IAS 37

1 2 3 4

Nuclear provisions

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