cbi energy conference 2011 - tony quinlan

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22 February 2011 CBI Energy Conference June 2011 Tony Quinlan – Finance Director, Drax Group plc Reforming the Electricity Market

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Presentation by Tony Quinlan, finance director, Drax, at the CBI's energy conference. London 2011.

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Page 1: CBI energy conference 2011 - Tony Quinlan

22 February 2011

CBI Energy Conference

June 2011

Tony Quinlan – Finance Director, Drax Group plc

Reforming the Electricity Market

Page 2: CBI energy conference 2011 - Tony Quinlan

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

Page 3: CBI energy conference 2011 - Tony Quinlan

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

Page 4: CBI energy conference 2011 - Tony Quinlan

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

Page 5: CBI energy conference 2011 - Tony Quinlan

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

=

Page 6: CBI energy conference 2011 - Tony Quinlan

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

Page 7: CBI energy conference 2011 - Tony Quinlan

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.

Page 8: CBI energy conference 2011 - Tony Quinlan

CBI Conference

June 2011

Reforming the Electricity Market