TRACTEBEL INVESTOR DAY 2015 PROSPECTS, EXPANSION AND NEW WAYS AHEAD - - PowerPoint PPT Presentation

TRACTEBEL INVESTOR DAY 2015

PROSPECTS, EXPANSION AND NEW WAYS AHEAD FOR ELECTRICITY

São Paulo (SP), May 20, 2015

PART 1: PROSPECTS FOR THE ELECTRIC ENERGY MARKET

Marcos Keller Amboni Manager – Regulatory and Market Matters

Source: ONS

30000 35000 40000 45000 50000 55000 60000 65000 70000 75000 80000 MWavg Demanda de Energia Média Móvel de 12 meses Energy Demand Rolling 12-month Average

Growth in demand

3

 Hydroelectric power will continue with a dominant role in the matrix, although its share will decline in relative terms (from 73% to 64%) while renewable sources will increase (from 10% to 19%).  The share of electricity from thermal sources will remain virtually unchanged.  PDE forecasts growth of 7,500 MW by 2023 in thermoelectrics with a VUC below R$ 250/MWh.  Investments of about R$ 143 bi in new generation plants.

December 2013: 124 GW December 2023: 194 GW

Government view on expansion of supply

Source: EPE

4

Hydro 117 60% Thermal 28 14% Biomass 14 7% SHP 7 4% Wind 22 11% Nuclear 3 2% Solar 3,5 2%

Hydro 86 69% Thermal 18 15% SHP 5 4% Biomass 10 8% Wind 2 2% Nuclear 2 2% Hydro 117 60% Biomass 14 7% SHP 7 4% Wind 22 11% Nuclear 3 2% Solar 3.5 2% Nuclear 3 2% Thermal 28 14%

By 2023: an increase of 2% in the reservoirs against an increase of 40% in consumption.

Source: EPE

Rum of the river power plants

4.4 2 3 4 5 Reservoir fill-up time (months)

5

GWavg

Addition in 7 GWavg (2% ) 15 GWavg 20 GWavg 52 GWavg 201 GWavg 204 GWavg

3.2

52 GWavg 22 GWavg 17 GWavg

Evolution of SIN storage capacity

SE/ C-W NE S N

388.48 584.21 404.95 267.99 100 200 300 400 500 600 700 800

jan/06 jul/06 jan/07 jul/07 jan/08 jul/08 jan/09 jul/09 jan/10 jul/10 jan/11 jul/11 jan/12 jul/12 jan/13 jul/13 jan/14 jul/14 jan/15

R$/MWh

Southeast Spot Prices

Mensal MM12meses MM36meses MM60meses

Jan/06 Jul/06 Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10 Jan/11 Jul/11 Jan/12 Jul/12 Jan/13 Jul/13 Jan/14 Jul/14 Jan/15

Consequence: PLD will remain volatile and at high levels

6

Montly MM12Months MM36Months MM60Months



Sep/12: MP 579 promised a 20% tariff reduction



During 2013 and 2014: circumstantial pressures resulted in emergency measures for reducing the distributors’ financial exposure and containing tariffs (tariff control)

• 2013: R$ 9.9 bi provided by the Treasury, to be repaid in 5 years
• 2013 and 2014: R$ 4.5 bi provided by the Treasury as a non-repayable cash grant
• 2014: CCEE loan of R$ 11.2 bi, to be repaid in 2 years
• 2014: 2nd CCEE loan of R$ 6.6 bi , to be repaid in 2 years
• 2015: 3rd CCEE loan of R$ 3.1 bi , to be repaid in 2 years



Recent energy auctions:

• A-0 (6 years): 2,046 avMW @ R$ 268.3/MWh
• Reserve 2014 (20 years): 535.7 avMW @ R$ 169.82/MWh
• A-5 2014 (20-25-30 years): 2,742.5 avMW @ R$ 196.11/MWh
• A-1 2014 (3 years): 622 avMW @ R$ 197.09/MWh
• LFA 2015 (20 years): 97 avMW @ R$ 199.99/MWh
• A-5 2015 (25-30 years): 1,146 avMW @ R$ 259.19/MWh

Regulated tariffs

7

Tariff evolution



Effects on tariffs are expected to persist for some years



Costs have begun to be incorporated into tariffs

• Since 2014: Costs per Availability Modality Contracts and exposure to the short term market
• Feb/15: Distributors’ tariffs suffer extraordinary readjustment (generalized tariff increase) to incorporate:
• Increased costs with Itaipu
• Increase in CDE (ending of treasury subsidies)
• Introduction and subsequent increase of Tariff Flags
• Existing Energy Auctions at high prices

8 TE TUSD wire TUSD charges TF ×

Energy Tariff TUSD wire TUSD charges × Retail Tariff

2.997 1.556 1.104 1.097 2.312 96 675 11 327 968 1.544 555 302 691 333 1.600 395 2.743 1.147 203,2 211,6 206,4 214,6 202,9 193,4 195,6 205,9 135,8 90,0 130,3 121,4 108,4 142,7 139,7 123,4 135,3 206,7 258,8 R$- R$50,00 R$100,00 R$150,00 R$200,00 R$250,00 R$300,00 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500 5.000 Dez 2005… Jun 2006… Out 2006… Jun 2007… Set 2007… Ago 2008… Ago 2008… Ago 2009… Jul 2010… Dez 2010… Ago 2011… Dez 2011… Dez 2012… Ago 2013… Nov 2013… Dez 2013… Jun 2014… Nov 2014… Abr 2015… Jun 2007… Jul 2010… Abr 2015… Ago 2008… Dez 2009… Jul 2010… Ago 2011… Ago 2013… Out 2013… Nov 2007… Abr 2008… Abr 2010… Price (R$/ MWh) Volume (MWavg) Base data: Apr/15

Key: New Energy Auction

Dec 2005 Jun 2006 Out 2006 Jun 2007 Sep 2007 Aug 2008 Aug 2008 Aug 2009 Jul 2010 Dec 2010 Aug 2011 Dec 2011 Dec 2012 Aug 2013 Nov 2013 Dec 2013 Jun 2014 Nov 2014 Apr 2015 Jun 2007 Jul 2010 Apr 2015 Aug 2008 Dec 2009 Jul 2010 Aug 2011 Aug 2013 Out 2013 Nov 2007 Apr 2008 Apr 2010 R$ 300.00 R$ 250.00 R$ 200.00 R$ 150.00 R$ 100.00 R$ 50.00 R$ - 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500

I ncrease in prices for the latest new energy auctions

2.997 1.556 1.104 1.097 2.312 96 675 11 327 968 1.544 555 302 691 333 1.600 395 2.743 1.147 186 714 97 548 753 445 460 676 535 1.553 1.383 3.200 203,2 211,6 206,4 214,6 202,9 193,4 195,6 205,9 135,8 90,0 130,3 121,4 108,4 142,7 139,7 123,4 135,3 206,7 258,8 218,4 184,9 200,0 231,5 208,8 179,6 126,7 126,2 227,9 123,5108,7 107,5 R$- R$50,00 R$100,00 R$150,00 R$200,00 R$250,00 R$300,00 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500 5.000 Dez 2005… Jun 2006… Out 2006… Jun 2007… Set 2007… Ago 2008… Ago 2008… Ago 2009… Jul 2010… Dez 2010… Ago 2011… Dez 2011… Dez 2012… Ago 2013… Nov 2013… Dez 2013… Jun 2014… Nov 2014… Abr 2015… Jun 2007… Jul 2010… Abr 2015… Ago 2008… Dez 2009… Jul 2010… Ago 2011… Ago 2013… Out 2013… Nov 2007… Abr 2008… Abr 2010… Price (R$/ MWh) Volume (MWavg) Base data: Apr/15

Key: New Energy Auction Complementary Source Auction Reserve Auction Large Dam Auction

Dec 2005 Jun 2006 Oct 2006 Jun 2007 Sep 2007 Aug 2008 Aug 2008 Aug 2009 Jul 2010 Dec 2010 Aug 2011 Dec 2011 Dec 2012 Aug 2013 Nov 2013 Dec 2013 Jun 2014 Nov 2014 Apr 2015 Jun 2007 Jul 2010 Apr 2015 Aug 2008 Dec 2009 Jul 2010 Aug 2011 Aug 2013 Out 2013 Nov 2007 Apr 2008 Apr 2010 R$ 300.00 R$ 250.00 R$ 200.00 R$ 150.00 R$ 100.00 R$ 50.00 R$ - 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500

9

Auction Date Beginning

• f supply

Source/ regulated market contract type * Requirements Cap price

A-3 New Energy Jul/24 Jan/01/18 Q 30: SHP e HPP A 25: gas-fired TPP and biomass-fired (any VUC) A 20: wind TPP: VUC < R$ 250/MWh and inflexibility < 50% Reserve 1 Aug/14 Aug/01/17 Q 20: solar VUC = zero and Capacity > 5 MW Reserve 2 Nov/13 Nov/01/18 Q 20: solar and wind VUC = zero and Capacity > 5 MW Reserve 3 May/29 Jan/01/16 A 20: gas-fired TPP R$ 581/MWh

Next scheduled auctions for 2015

10 * Q = Quantity-type auction; A = Availability-type auction

Prospects



Load growth has been resilient: uncertainty surrounds the impact of rationalization measures and short-term outlook for tariffs



Scenario strongly influenced by current circumstances

• Hydroelectric generators much affected
• Higher market price
• Stimulus for contracting thermoelectric power plants, principally those with a low

VUC



Consolidation as a hydrothermal system

• Growing participation of complementary sources
• Important increase in the participation of thermoelectric generation, now with

efficient thermal power plants

• Hydroelectric power plants without reservoirs



Distributors’ tariffs will remain high for a long period

11

PART 2: OPPORTUNITIES IN EXPANSION

Guilherme Slovinski Ferrari Manager – Business Development

Our asset base

13

Thermoelectric Complementary Under construction Hydroelectric Legend

1

79% Thermoelectric Complementary 16% 5% Hydroelectric

Location of the plants Generator sources (7 GW) Increase in installed capacity

1998 2015

To maintain a portfolio of projects in different phases of development and using various power sources. Focus on sites with major potential in installed capacity and with a high performance factor, allowing for the possibility of gains in synergy. Acquisition of the best projects and assets in the market. To pursue growth in renewable sources in the regulated and free markets.

What is our growth strategy

14

Basic development structure

Principal themes Challenges

Negotiation with several owners, regularization of documentation, property registration with public departments and issue of DUP (Public Utility Declaration). Measurement and evaluation of the necessary resources: wind, water, coal, gas, biomass, access, existing infrastructure and works logistics. Land ownership issues: Evaluation of the necessary resources:

15

1 2

 Prior negotiation with owners  Monitoring registration in real estate registry offices  Clear and objective rules for negotiation

Action plan

 In loco measurement of resources  Study of existing and necessary infrastructure  Long term fuel supply agreements

Basic development structure (cont...)

Technical and economic engineering of the projects: evaluation of proposals, work schedule, costs, equipment options and performance of the Technologies for each site. Impacts on the local communities, issue

• f authorization grants and sócio-

environmental programs. Analysis of energy production: Environmental licensing:

3 4

Principal themes Challenges Action plan

 Certification of energy production by specialized companies  Various quotes from suppliers using different technologies  Evaluation of performance/cost  Supervision and monitoring of contracted companies  Effective participation at public hearings  Close relationship with the affected communities

16

Governance

17

Process Challenges

 Internal authority to begin prospecting  Identification of opportunities  Presentation of the principal characteristics of the project and request for authorization to proceed with the project  Development decision  Detailed presentation of the Project assumptions including: investment, expected return, commercialization strategies, risks and opportunities  Authorization for investments conditional on approval of Tractebel Energia’s Board of Directors  Detailed presentation of the Project assumptions including: investment, expected return, commercialization strategies, risks and opportunities  Final authority for investment Opportunity survey Advanced notice Book of assumptions & investment note Tractebel’s Board

• f Directors

Approval TRACTEBEL

1 2 3 4 OK

Energy commercialization mix

18

What it is: It is energy generated from solar; wind, biomass and cogeneration sources, the maximum capacity from which delivered to the grid (SIN) is less or equal to 30MW or generated from SHPs

I ncentivized energy < 30 MW

Benefits: (i) Discounts from Tariffs for Use of the Distribution System (TUSD) at the two ends of the supply chain (generator and consumer) of at least 50%; (ii)Market reserve for special consumers. What does this represent for Tractebel in practice? (i) Development of optimized projects with up to 30 MW each; (ii) Supply the market for Special Consumers (guarantee market share).

Capacity ≥ 0.5 MW Capacity ≥ 3.0 MW Connection ≥ 69 kV*

Pampa/ Miroel Wolowski Campo Largo Phase I Santa Mônica Ferrari Conventional Energy

*Contingent upon the date

• f grid connection

Free Customer Special Customer

Wind projects pipeline

19

44 159 256 583 878 1,628

TBLE Wind projects pipeline TBLE (Accumulated MW)

1 2 3 4 5

Pedra do Sal (18.0 MW) Trairi Wind Farm Complex (115.4 MW) Santa Mônica Wind Farm Complex (97.2 MW) Beberibe (25.6 MW) Santo Agostinho (600 MW) Campo Largo Wind Farm Complex (~770 MW)

1 2 2 3 4 5

 Growing expansion in the wind projects pipeline;  Currently with about 1.5 GW of wind projects under development;  Projects concentrated in the Northeast, major wind potential;  Commercialization strategy involves a mix of regulated and free markets;  Cluster of projects with a large installed capacity.

1,028

The uncertainties of the wind farm projects

20

Uncertainties  Electric energy generation indicator in MWh/year, issued by a third party certifying agent  50% probability of occurrence  Old parameter used by Aneel for issuing the wind farm physical guarantee P50 Generation  Similar indicator to P50, also in MWh/year  90% probability of occurrence  Current parameter for issue of wind farm physical guarantee  Greater reliability and security for the system  Impacted by the “uncertainties” of the electric energy generation study P90 Generation  Indicator in % calculated by the certifying agent  Is associated to: the duration and quality of the wind measuring data, the type of land, to correlation with other wind measuring structures and long term adjustments, to topographic data, to the experience of the certifying company Associated Uncertainties Reduction of forecasted generation due to the impact

• f the Project’s uncertainty

Wind farm projects under construction

Layout Layout

Área Reserva Legal

Regulated Market: 6 WPP Cap.: 178.2 MW Free Market: 5 WPP Cap.: 148.5 MW

+

Installed capacity: 326.7 MW Location: Umburanas and Sento-Sé (BA) WTG: 121 / Alstom ECO 122 of 2.7 MW and 89m Full COD: January/2019

Campo Largo Phase I (BA)

Phase I – 326,7 MW Phase II – ~300 MW Phase III – 150 MW

Installed Capacity: 97 MW Location: Trairi (CE) WTG: 36 / Alstom ECO 122 of 2.7 MW and 119m Synergies with Trairi Complex Full COD: June/2016

Santa Mônica (CE)

* Areas in red: Trairi Complex

21

 Installed capacity: ~300 MW;  Location: Umburanas and Sento-Sé (BA)  Advanced phase of development  Licensing: preliminary license issued (valid until 2019)  Will use synergies existing with Phase I (transmission line, substations, access, environmental and social programs, work structure)  Installed capacity: 150 MW  Location: Umburanas and Sento-Sé (BA)  Initial phase of development  Environmental licensing will be undertaken by Tractebel  Will use the synergies existing with Phase I and II

Wind farm projects under development

Campo Largo Phase I I (BA) Campo Largo Phase I I I (BA)

Phase I – 326,7 MW Phase I I – ~ 300 MW Phase I I I – 150 MW

 Installed capacity: 600 MW  Location: Lajes and Pedro Avelino (RN)  Initial phase of development  Environmental licensing undertaken by Tractebel

Santo Agostinho (RN)

Phase I – 200 MW Phase I I – 200 MW Phase I I I – 200 MW

Natal - RN

22

Solar energy market in Brazil and Tractebel Energia

23

Themes Challenges

 The Brazilian solar market has been consolidating in the last auctions  Reserve Energy Auction/2014 was responsible for contracting more than 880 MW of solar energy involving 31 projects  The solar energy market is at a similar stage to that of wind energy in 2008 and 2009  Acquisition of solar projects at an advanced stage of development and qualifying to participate in energy auctions  Internal development of solar projects with longer period for maturation  Solar radiation at the site (above 6 kWh/m²/day)  Regularization of land ownership issues (contracts, real estate registry

• ffices, georeferencing)

 Proximity of the site to grid (SIN) connection point (less than 30km)  Conditions of access to the site and local infrastructure  Capacity factor higher than 20%  Environmental licensing (Previous License)  Focus on projects in the Northeast, particularly in the interior of Bahia  Projects which have synergies with other Tractebel Energia plants/projects  Sites with large installed capacity potential and cost dilution  Portfolio with two projects in the prospection phase Solar energy market in Brazil: Strategy for market insertion: Evaluation criteria: Current scenario:

BR solar map

Interior

• f Bahia

Biomass projects under development

24

Themes Challenges

 Market for biomass-fired generation is well entrenched in Brazil  Captive source in the energy auctions organized by Aneel  Use made of the major sugarcane output in Brazil  Several companies in the sugar and alcohol business show possibilities and interest in implementing co-generation projects (sugarcane bagasse)  Identification and selection of potential partners in the market, considering long term production capacity, financial capacity and experience in the cultivation and generation areas  Acquisition of co-generation plants linked to the supply of fuel  Possibility of increasing installed plant capacity  Procedures for plant operation and safety  State of conservation of the equipment  Complete Due Diligence  Focus on projects in São Paulo, a major sugarcane producers  Projects which have synergies with other Tractebel Energia plants/projects  Portfolio with projects in the prospection and construction phase Brazilian biomass market: Consolidated strategy at Tractebel: Evaluation criteria: Current scenario:

Ferrari

Installed Capacity: 340 MW Location: Candiota (RS) Fuel: domestic coal EPC: SDEPCI (Chinese) Energy sold at the A-5/2014 Auction Expected COD: January/2019

Thermoelectric projects under construction/ development

Pampa/ Miroel Wolowski (RS)

Rio Grande do Sul

25

Installed capacity: 600 MW Location: Garuva (SC) Fuel: gas Stage of development: final stage of environmental licensing

Norte Catarinense (SC) Project

Santa Catarina

Installed capacity: 340 MW Expansion of Pampa/Miroel Wolowski Location: Candiota (RS) Fuel: domestic coal Stage of development: initial stage Preliminary License: issued

Pampa/ Miroel Wolowski Phase I I (RS)

Tractebel Energia today

 Approximately 840 MW being implemented  A projects pipeline with more than 2,000 MW under development  Diversified sources (wind, thermal, biomass, solar)  Projects under development in several states in Brazil

Santa Mônica (97 MW) Santo Agostinho (600 MW) Campo Largo (772 MW) Focus on solar projects Focus on biomass projects Pampa/Miroel Wolowski (340 MW) Norte Catarinense (600 MW) Pampa/Miroel Wolowski – Phase II (340 MW)

26

PART 3: TENDENCIES – ENERGY TRANSITION

Alexandre Nunes Zucarato Consultant – New Projects Development

To think about...

28

 If Alexander Graham Bell were somehow transported to the 21st century, he would not recognize the components of modern telephony – cell phones, texting, cell towers, PDAs etc.  While Thomas Edison, one of the grid’s key early architects, would be totally familiar with today’s systems.

From the Smart Grid: An Introduction, U.S. Department of Energy

Disruptive forces

29

Energy Transition Technological development and cost reduction of distributed generation Climate changes and environmental consciousness Access to Digital Information

Breaking a paradigm

From a centralized and unidirectional grid…

30

31

… to a distributed and bidirectional grid

Breaking a paradigm

New needs will emerge

32

 Smart meters  Distributed generation  Local storage  Electric vehicle  Demand response  Big Data  Ask for higher energy efficiency  Ask for lower carbon emissions  Produce their own power  Have access to online information A new and more complex grid... ...with new and more empowered customers ...with new and more empowered customers

Overlapping value pools

33

Transportation Advertising Communications Consumer products Power

How to meet costumers’ needs?

Utilities

Who will consumers trust to support them in this energy transition?

Commercial retailers Home service providers Manufacturers Beyond de meter

34

 Opportunities for new products and services More distributed and small scale based More distributed and small scale based

The path to follow

 Needs for financing solutions to remove the upfront cost barrier More capital intensive More capital intensive  Increase needs for energy management and

• ptimization

More complex More complex

35

Are you ready?

36