cbi energy conference 2011 - tony quinlan
DESCRIPTION
Presentation by Tony Quinlan, finance director, Drax, at the CBI's energy conference. London 2011.TRANSCRIPT
22 February 2011
CBI Energy Conference
June 2011
Tony Quinlan – Finance Director, Drax Group plc
Reforming the Electricity Market
CBI Presentation – June 2011Drax Group plc1
Agenda
Introduction to Drax
Electricity Market Reform
Drivers of Change
Independent Generator Requirements
Assessment of Proposals
Summary and Conclusions
CBI Presentation – June 2011Drax Group plc2
Introduction to DraxIndependent Merchant Generator
-100
-50
0
50
100
ED
F
SS
E
RW
E
E.O
N
CN
A
SP
W
TWh
Generation Supply
Strategic value Largest, most efficient UK coal-fired
power station 4GW – supplies 7% of UK electricity Flexibility – provides key support
services to grid
Position in UK power market Net physical short position of Verticos is
c. 50TWh per annum Drax can supply c. 40% of net short via
wholesale power market
Strategic direction Progressively decarbonise generation
through biomass 2010: highest renewable output from
single UK facility Expansion of direct supply through
Haven Power
Others
Conoco Phillips
Intergen
GDF Suez / Intl Power
Drax
Indicative Annual Net Output / Supply from Verticos
Total Supply less
Total Generation = c.50TWh pa
Indicative Net Output* from Independent Generators
*Excludes volume sold to Verticos under tolling contracts
CBI Presentation – June 2011Drax Group plc3
Electricity Market ReformPolicy Objectives and Independent Generator Requirements
Key drivers of change
c. 25% out of service by 2020
Reliable and dependable
30%+ electricity from renewable sources by 2020
20% CO2 reduction by 2020 (vs. 1990)
Mitigate fuel poverty and maintain competitiveness
As an IPP(1) – what does Drax need?
Regulatory stability
Investment signals
Liquidity beyond two
years
Appropriate support for
biomass
Ageing fleet
Decarbonisation
Security of supply
Affordability
(1) IPP = Independent power producer
CBI Presentation – June 2011Drax Group plc4
Electricity Market ReformAssessment
Regulatory stability Liquidity Investment
SignalsBiomass Support
Feed-in-tariffs for low carbon
generation
No windfalls Cost effective
Compels
trading
Bankable vs.
targets
Possible index
to fuel costs
Capacity payments for
back-up generation
? Proposal too
little too late
? Proposal
adverse to wholesale mkt
? Need adequate
return for capacity
? Need to reward
flexibility
Carbon price support
Windfalls Political risk
Distorts
wholesale mkt
Not bankable
vs. targets
No net CO2
reduction
Emissions Performance
Standard= =
New unabated coal unlikely
=
CBI Presentation – June 2011Drax Group plc5
Summary and Conclusions
Complementary mix of generating technologies required to deliver policy objectives
UK target: 30%+ electricity from renewables by 2020 (vs. c. 7% today) Financial impact significant – DECC estimates
price increase of c. 40% More reliable / flexible generation required as
backup for intermittency
Biomass can make a significant contribution
4th largest energy source after oil, coal and gas Carbon neutral when sustainably managed Cost effective, secure and flexible
Large scale biomass generation through existing coal plant is significantly cheaper than offshore wind
Working with Government to make this a reality
Biomass Generation
Low carbon
Low cost
Low risk
Investor Presentation – June 2011Drax Group plc6
Disclaimer
These presentation slides (and any subsequent discussions arising thereon) may contain certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”) are not warranted or guaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although Drax believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, many of which are beyond the control of the Group, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; and/or general economic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourable than expected. We do not intend to publicly update or revise these projections or other forward-looking statements to reflect events or circumstances after the date hereof, and we do not assume any responsibility for doing so.
In making these presentation slides available, Drax makes no recommendation to buy, sell or otherwise deal in shares in the Group or in any other securities or investments whatsoever, and you should neither rely nor act upon, directly or indirectly,any of the information contained in these presentation slides in respect of any such investment activity. Past performance isno guide to future performance. If you are considering engaging in investment activity, you should seek appropriate independent financial advice and make your own assessment.
Recipients in jurisdictions outside the United Kingdom should inform themselves about and observe any applicable legal or regulatory requirements in relation to the distribution or possession of these presentation slides to or in that jurisdiction. In this respect, neither Drax nor any of its connected persons accepts any liability to any person in relation to the distribution or possession of these presentation slides to or in any such jurisdiction.
By accepting these presentation slides, you agree to be bound by the above conditions and limitations.
CBI Conference
June 2011
Reforming the Electricity Market