investing in australia`s energy market
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Learn the basic prospectives of investing in australia`s engergy industry. Learn with complete statistical data and information. Learn more from www.eeaust.com.au.TRANSCRIPT
INVESTING IN AUSTRALIA’SENERGY MARKETAn International Perspective
GDF SUEZAustralian Energy
February 2014
Contents
GDF Suez Overview
Key Investment Considerations
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The Basics – Why is Electricity Important?
Project Economics – The Fundamentals
The Deal – Key Stakeholders
Renewable Generation Projects in Australia
Local Issues
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Recent Trends in Australian Energy Demand
Impact of PV Uptake & Energy Efficiency
Declining Industrial Energy Consumption
Maturity of Renewable Technologies
Generation Alternatives
East Coast LNG Construction
Where to from here?
GDF SUEZAustralian Energy
Investing in Australia’s EnergyMarket
How does Australia Stack up Internationally?
Questions
GDF Suez Overview
EnergyEurope
EnergyInternatio
nal
Global Gas & LNG
EnergyService
s
SUEZ EnvironmentInfrastructures
LatinAmeric
a
NorthAmeric
a
UK-Europe
Middle East, Turkey &
Africa
Asia
AustralianEnergy
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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GD
F S
ue
z E
ne
rgy
Inte
rna
tion
al
GDF Suez Australian Energy
Power Generation
Exploration &Production
Trading & PortfolioManagement
Supply andInfrastructur
es
Sales and Energy Services
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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KEY INVESTMENTCONSIDERATIONS The Basics – Why is Electricity Important?
Project Economics – The Fundamentals
The Deal – Key Stakeholders
Renewable Generation Projects in Australia
The Basics – Why is Electricity Important?
Technical stuff aside…
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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Project Economics – The FundamentalsWhat do you need for a generation project to be economic?
1 Market characteristics
Market fundamentals and growth potentialRight project, right timeStrategic fit, operational synergies
Manageable2 Financial characteristics
Funding and financingBalance sheet impactAppropriate risk allocation and management
3 Commercial environment
Experienced and willing counterparties andcontractorsSkilled, affordable and productive workforce
LuckUncertain
4 Regulatory environment
Supportive regulatory frameworkStable legal institutions and policyLabour policy
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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Viable Project
The Deal – Key Stakeholders
Attracting Equity:
Maximise shareholder returnSuitable return on investment, given risksUsually more willing to accept volatility in rates of return
Convincing Debt:
Fixed rate of returnConfidence that debt will be repaidon time, with interestDon’t like variability and:
• Dislike merchant marketexposureDislike below-investment gradeentities
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GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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GenerationLicence
Connection reement
EnvironmentalApprovals
Lawyers, Engineers, Insurers,
Accountants,Tax experts, etc.
Regulatory Approval (FIRB)
PPA/Offtake
Fuel SupplyAgreements
Fuel TransportAgreements
LandAgreements
Project
OEMs(equipment)
MajorContractors
OperationsAgreements
CoAg
EnLTSA
EBA
EquityDebt
Renewable Generation Projects in Australia
Mostly wind – large capacity,intermittent generationLargely via non-recourse project finance, but increasingly self-funded by majors.Power Purchase Agreements (PPA) provide revenue certainty for loan duration – needed to be bankable.
Connection to grid costs may beprohibitive: Locations suitable for
maximising generation (wind/solar) are remote.
Trade-off: High voltage – extremely costly: Low voltage – greater losses.
Connection of large generation installations necessarily distorts market in short-term.
PPA buyers seek firming deals.Long term PPAs may be risky.
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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15 year PPA + option to extend
Debt coverage Equity coverage Merchant market exposure
T = 0 T = 10 T = 15
Location and Timing:Financing Issues:
GDF SUEZ Australian Energy
LOCAL ISSUES Recent Trends in Australian Energy Demand
Impact of PV Uptake & Energy Efficiency
Declining Industrial Energy Consumption
Maturity of Renewable Technologies
Generation Alternatives
East Coast LNG
Where to from here?
How does Australia stack up Internationally?
Recent Trends in Australian Energy Demand
Energy demand appears to have peaked in 2008:••
SA annual demand is actually lower than 2000-levels.QLD has recorded the greatest and most sustained increase in demand.
Source: AEMO
* Includes Snowy region
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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2013 demand was16.8TWh lower
than its 2008 peak
Impact of PV Uptake and Increasing Energy Efficiency
‘Peak clipping’ phenomenon as a result of:
- Solar PV: bigger and cheaperinstallations,Increasingly efficient electrical appliances,
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- Active demand-side management.
Source: AEMO
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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Declining Industrial Energy Consumption
Source: World Bank
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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Case Study: Aluminium
Significant reduction in aluminium smelting activity since 2008 peak.
Large drop off in world aluminium prices with mild recovery since then.
Too late for several Australian smelters: 300MW Kurri Kurri (NSW) closed in 2012, Doubts about future of 360MW Point
Henry (VIC). Excluding Point Henry, smelters represent
2,400MW of demand across the NEM.
Maturity of Renewable Technologies
Source: EPRI technology status data 2010
Hydro: offers limited scope for further development
or expansion.
Solar thermal: remains interruptible and is expensive.
Wind: gaining greater demand penetration, however still interruptible and still poses some technology risk.
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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Generation Alternatives
Source: AEMO NEFR 2013
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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Renewables RET predominantly met by wind capacity, Intermittent by nature and does not provide a
significant level of dependable peak capacity, Investors require PPAs as prices tend to be
high when (because) wind is low, especially in South Australia.
New thermal capacity (if any): Likely to be met by OCGT with capacity for
conversion to CCGT, Economics of thermal plant uncertain in medium
term given low energy demand and possibility of international price linkage of gas, black coal,
No thermal plant under construction orcommitted.
East Coast LNG Construction
...coupled with--
weakening demand andremoval of the carbon tax,new gas fired generation
projects may becomeincreasingly uneconomic.
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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With gas prices of $8–12/GJ…
Three large LNG export terminals under construction.
33 mtpa gas demand by LNG terminalsrepresents three times current total
east coast gas demand Assuming Japanese LNG demand
remains high, international gas price linkage could significantly increase cost of domestic gas-fired generation as domestic gas contracts roll off and are replaced by oil-, JCC- indexed contracts.
Where to from here?
• Difficult to predict changes in domesticdemand,Continued weakness in Eurozone economies, Persistently high Australian dollar(or, purposeful devaluation of USD by Fed),
••
• High cost of doing business in Australia.• How sustainable is current growth in China
and other emerging economies?Impact of restart of Japanese nuclear power on world LNG demand?
•Source: AEMO
49GW of Japanesenuclear power replaced by gas, oil and coal … will it last?Source: RBA
Source: OilPrice.com Source: AFR
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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Key trends to look out for:
How does Australia stack up Internationally?
‘No reserve deficits in NewSouth Wales, Victoria, South Australia, or Tasmania until after 2022-23.’
AEMO ESOO 2013
To summarise:
Investment in the Australianelectricity sector has some head
winds
Clean Energy Act has fostered
great uncertainty
There are many elements to
investment considerations, but if
there’s one thing that’s certain …
We work in an exciting,challenging and ever-changing environment.
GDF SUEZ Australian Energy – Investing in Australia’s Energy Market 2014
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QUESTIONS?
Wei LiaoEnergy Trader
Trading & Portfolio Management
GDF SUEZ Australian Energy
Ph: 03 9617 8454
Mob: 0478 881 459
Email: [email protected]
GDF SUEZAustralian Energy
Investing in Australia’s EnergyMarket
www.eeaust.com.au