NZX RETAIL INVESTOR EVENING MANAGEMENT PRESENTATION NZ ELECTRICITY - - PowerPoint PPT Presentation

NZX RETAIL INVESTOR EVENING MANAGEMENT PRESENTATION

NZ ELECTRICITY SECTOR

▪ Five large retailer generators ▪ $10b free float ▪ Defensive, high yield characteristics ▪ Frequently seen as bond proxies ▪ Competing in a market with low growth in the last decade Main participants are listed

19% 33% 31% 17% 14% 0% 5% 10% 15% 20% 25% 30% 35% 2014 2015 2016 2017 2018 Financial Year ended 30 June

MERIDIAN TOTAL SHAREHOLDER RETURN

Meridian Energy Limited NZX Retail Investor Presentation October 2018 2 Source: Meridian

1 2 3 4 5 6 7 8 9 10 Meridian Mercury Contact Genesis Trustpower $B

ELECTRICITY COMPANIES MARKET CAP

Source: NZX

MERIDIAN ENERGY

▪ Largest of the five retailer generators ▪ 420,000 customers in three countries ▪ Diversified NZ customer sales, weighted towards business, commercial and agricultural ▪ 40% of generation covered by Tiwai Point contract (price guarantee, not physical supply) ▪ Strong sustainability focus $8.5b company, listed in 2013, 51% Government owned

Meridian Energy Limited NZX Retail Investor Presentation October 2018 3

MERIDIAN ENERGY

▪ Seven big hydro stations – flexible plant with the country’s largest storage ▪ With low operating costs and capital needs ▪ Five NZ wind farms, two in Australia ▪ Proven success operating in a high wind environment ▪ Backed with more than a decade of construction and operational experience ▪ Typical long generation position to manage variable hydro inflows NZ’s largest generator, all production from renewable sources

Meridian Energy Limited NZX Retail Investor Presentation October 2018 4

▪ Recent acquisition of further renewable generation and offtake agreements Long-term competitor in Australia

Meridian Energy’s Benmore power station Meridian Energy’s Manapōuri power station

HOW WE MAKE MONEY

Meridian Energy Limited NZX Retail Investor Presentation October 2018 5

666 629 435 1,039

• 1,194
• 154

195 86

• 127
• 259

16 400 800 1,200 1,600 2,000 2,400

Retail Contracted Sales Wholesale Contracted Sales Generation Spot Revenue Cost to Supply Contracted Sales Cost of Acquired Generation Acquired Generation Spot Revenue Australian Earnings Transmission Costs Operating Costs Other EBITDAF

$M

Selling electricity to retail customers Selling electricity to wholesale customers Selling electricity we generate to the wholesale market Buying electricity from the wholesale market for customers Buying electricity generated by other companies Selling that electricity to the wholesale market Australian retail and generation Costs of the inter island high voltage link Maintenance, customer service, IT, salaries, insurance

NZ ELECTRICITY DEMAND

Little demand growth in the last decade

Meridian Energy Limited NZX Retail Investor Presentation October 2018 6

▪ Likely to be modest in the short term, estimated between 0.5% and 1% pa on average ▪ New generation capacity will be needed, probably after 2021 ▪ Older plant retirement will add to the need for new generation Future demand growth is expected ▪ + Economic growth ▪ + Positive net migration ▪ - Industrial and manufacturing closure ▪ - Warmer than average temperatures ▪ - Growing impact of technology and efficiency gains ▪ +/- Variable irrigation load depending on rainfall

30 40 50 60 70 80 90

1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050

TWh

DEMAND FORECASTS

NZ Historical Demand Transpower MBIE - High MBIE - Low Productivity Comm. - High Productivity Comm. - Low Meridian - High Meridian - Low

Source: Meridian

NZ ELECTRICITY DEMAND

Zero Carbon New Zealand by 2050

Meridian Energy Limited NZX Retail Investor Presentation October 2018 7

▪ Agriculture means NZ has one of the highest per capita rates of emissions ▪ 32 million tonnes of carbon emissions from the wider (non-agricultural) sector could be removed through electrification ▪ Converting all fossil fuel-based energy use to renewables could add 75% to electricity demand ▪ Depending on the rate of electrification, equivalent of two or more mid-sized wind farms needed annually over the longer term ▪ Consent maturity is near dated

5% 17% 20% 49% 6%

3%

NZ 2016 SECTOR EMISSIONS

Electricity Road transport Stationary energy* Agricultural Industrial processes Waste

3,000 6,000 9,000 12,000 15,000

201820192020202120222023202420252026202720282029203020312032203320342035

GWh

NZ CONSENT MATURITY

Geothermal Gas Wind Tidal Hydro

Source: Ministry for the Environment Source: Meridian *manufacturing (including milk processing), construction and commercial sectors and domestic heating

POLITICS AND REGULATION

New Zealand

Meridian Energy Limited NZX Retail Investor Presentation October 2018 8

▪ Policy support is increasing the pace of NZ’s climate change actions ▪ Government’s electricity price review has delivered its first report ▪ Energy affordability can be an issue ▪ Low income households need better support ▪ Competition is high, customer engagement varies ▪ Industry delivers high quality supply ▪ Distribution and transmission could be more efficient ▪ Lack of coherent energy policy to support renewables ▪ Electricity is highly politicised Australia

Source: Ministry of Business, Innovation and Employment

2 4 6 8 10 12 14 16 18 20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 c/KWh

REAL RESIDENTIAL ELECTRICITY COST

Energy and other component Lines component

TIWAI POINT ALUMINIUM SMELTER

12% of New Zealand’s total annual demand

Meridian Energy Limited NZX Retail Investor Presentation October 2018 9

▪ CfD contract with Meridian on NZAS perpetual 12-month termination right ▪ International aluminium is recovering, LME prices up 13% in the last year ▪ Additional 50MW contract signed ▪ Aluminium remains a commodity exposed to cycles and Chinese supply decisions ▪ Meridian not expecting smelter closure, change in ownership may occur ▪ A smelter closure would trigger further South Island grid investment (majority of lower South Island generation can be dispatched now) ▪ Greater HVDC capacity and North Island line uprating possible in the medium term

New Zealand Aluminium Smelter, Tiwai Point

NEW TECHNOLOGIES

Solar

Meridian Energy Limited NZX Retail Investor Presentation October 2018 10

▪ Solar uptake increasing in NZ as economics slowly improve ▪ NZ residential capacity factors are low (13%-15%) and payback high (13 years) ▪ Commercial solar opportunities are being developed ▪ Grid scale solar unlikely in NZ with competing land uses and winter peak demand ▪ Solar uptake is much higher in Australia with subsidy support ▪ Residential capacity factors and paybacks are better in Australia ▪ Grid scale development is happening in Australia as costs decrease significantly

NEW TECHNOLOGIES

Batteries

Meridian Energy Limited NZX Retail Investor Presentation October 2018 11

▪ Battery value for energy management is in load shifting (high to low price periods) ▪ Grid scale unlikely in NZ due to large hydro storage ▪ Grid scale possible in Australia with subsidy support ▪ Solar and batteries to achieve residential

• ff-grid in NZ remains very expensive (20

year payback) ▪ Batteries also offer other value: ▪ Back-up power ▪ Grid and transmission support ▪ Avoided infrastructure costs

CLIMATE CHANGE

We have seen

Meridian Energy Limited NZX Retail Investor Presentation October 2018 12

▪ No significant change to catchment inflows over the last 100 years ▪ Some seasonal shift in inflows; drier autumns, wetter summers ▪ Snowpack and glaciers getting smaller

Genesis Energy’s Tekapo B power station Contact Energy’s Clyde Dam

▪ Wetter in our catchments, including in winter ▪ With bigger individual rain storms ▪ Drier in irrigation areas ▪ Warmer everywhere ▪ Windier at our wind farms, especially in winter It is projected to get

SHAREHOLDER VALUE

Meridian Energy Limited NZX Retail Investor Presentation October 2018 13

High Income

Strong free cash flow Low capital needs High free cash flow payout Continued cost discipline Progressive

• rdinary DPS

Capital management

Potential Growth

NZ retail load

Retail platform changes Medium term new generation

Customer growth in Australia

Flux Powershop franchise into the UK Long term sustainable business

Meridian Energy Limited 2018 Annual Results Presentation 14

The information in this presentation was prepared by Meridian Energy with due care and attention. However, the information is supplied in summary form and is therefore not necessarily complete, and no representation is made as to the accuracy, completeness or reliability of the information. In addition, neither the company nor any of its directors, employees, shareholders nor any other person shall have liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or any information supplied in connection with it. This presentation may contain forward-looking statements and projections. These reflect Meridian’s current expectations, based on what it thinks are reasonable assumptions. Meridian gives no warranty or representation as to its future financial performance or any future matter. Except as required by law or NZX or ASX listing rules, Meridian is not obliged to update this presentation after its release, even if things change materially. This presentation does not constitute financial advice. Further, this presentation is not and should not be construed as an offer to sell or a solicitation

• f an offer to buy Meridian Energy securities and may not be relied upon in connection with any purchase of Meridian Energy securities.

This presentation contains a number of non-GAAP financial measures, including Energy Margin, EBITDAF, Underlying NPAT and gearing. Because they are not defined by GAAP or IFRS, Meridian's calculation of these measures may differ from similarly titled measures presented by other companies and they should not be considered in isolation from, or construed as an alternative to, other financial measures determined in accordance with GAAP. Although Meridian believes they provide useful information in measuring the financial performance and condition of Meridian's business, readers are cautioned not to place undue reliance on these non-GAAP financial measures. The information contained in this presentation should be considered in conjunction with the company’s financial statements, which are included in Meridian’s integrated report for the year ended 30 June 2018 and is available at: WWW.MERIDIANENERGY.CO.NZ/INVESTORS/ All currency amounts are in New Zealand dollars unless stated otherwise.