Analyst Presentation Managing Hydrology Risk

Transcription

1 Analyst Presentation Managing Hydrology Risk PAGE 1

2 Disclaimer This presentation may contain projections or forward-looking statements regarding a variety of items. Such forwardlooking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks. Although Management may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realised. Furthermore, while all reasonable care has been taken in compiling this presentation, Meridian cannot guarantee it is free from errors. PAGE 2

3 Reservoir management: uncertainties, risks, and rewards o Sources of uncertainty o The role of hydro in New Zealand o Reservoir management concepts o Portfolio management o Maximising value through asset management, hydrology, wholesale market PAGE 3

4 About Meridian o Integrated renewable generator and retailer o New Zealand s largest electricity generator o 272k* customers Meridian Retail (239k) and Powershop (33k) o International wind and solar generation facilities o Strong portfolio of future generation options in New Zealand and internationally o Innovating in new products and services * As measured by ICP s PAGE 4

5 Hydrology: one of many sources of uncertainty Meridian manages Impact Inflow variability Regulation Demand Growth Generation Investment Options Unforced outages Trading risk/tx failure Offer behaviour Gas Trading Retail competition Carbon Trading Transmission Investment Source: Meridian Time PAGE 5

6 Hydro generation is the cornerstone of NZ s electricity supply Energy supplied (NZ, annual) % of supply (NZ, annual) 45,000 40,000 GWh 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Cogeneration Gas Coal Oil Wind Biogas Geothermal Hydro 100% 80% 60% 40% 20% Nonrenewable Other renewable Hydro - 0% Source: MED Energy Data File, Meridian MERIDIAN ENERGY LIMITED Analyst Presentation: Managing Hydrology Risk Source: MED Energy Data File 17 AUGUST 2011 PAGE 6

7 and underpins NZ s flexible electricity system o Hydro s lowest average output exceeds thermal s highest average output Average MW Generation in Period 4,000 3,500 3,000 2,500 2,000 Annual Average Generation by Trading Period NZ Thermal Half-hourly MW Profile NZ Thermal FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 4,000 3,500 3,000 2,500 2,000 Annual Average Generation by Trading Period NZ NZ Hydro Half-hourly MW Profile NZ Hydro FY2005 1,500 FY2006 1,500 1,000 FY2007 FY2008 1, FY FY Trading Period Trading Period Source: Centralised Dataset, Meridian PAGE 7

8 Meridian s portfolio o Manapouri o 800MW / ~5,100 GWh p.a. o Storage 440 GWh 3,000 2,500 2,000 Installed capacity NI SI o Waitaki scheme o 1,538MW / ~7,000 GWh p.a o Storage ~1,700 GWh (Pukaki) MW 1,500 1, o Wind o NI: 298MW / ~1,150 GWh p.a. o SI: 58MW / ~190 GWh p.a. Source: Meridian Source: Meridian PAGE 8

9 New Zealand hydrology: sum of many moving parts Annual Hydro & Wind Variability By Catchment North Island South Island Annual Inflows [GWh] Total Annual Inflows [GWh] Taupo & Waikato Tongariro TrustPower NI Hydro/Wind Meridian NI Wind Waikaremoana Todd NI Hydro Other NI Wind/Hydro Manapouri Pukaki Hawea & Clutha Tekapo Hydro/Wind Catchment TrustPower SI Hydro Other SI Wind/Hydro Meridian SI Wind North_Island South_Island New_Zealand Spread (5th-95th %ile) Annual Mean Annual max/min Source: Meridian. Note: Tekapo and Pukaki inflows reflect energy generated from all Genesis and Meridian stations in the Waitaki scheme PAGE 9

10 Average weekly inflows anti-correlated between islands within the year o Inflows dominated by rainfall and snow o NI inflows driven by winter/spring rainfall o SI profile driven by snowmelt over summer o However, anti-correlation effect is limited North Island Inflows (average, weekly) 200 GWh Jan Mar May Jul Sep Nov South Island Inflows (average, weekly) 500 GWh Todd NI Hydro Other NI Wind & Hydro Meridian NI Wind TrustPower NI Hydro & Wind Waikaremoana Tongariro Taupo & Waikato Other SI (Wind & Hydro) Meridian SI Wind TrustPower SI Hydro 200 Tekapo Hawea & Clutha 100 Pukaki Manapouri 0 Jan Mar May Jul Sep Nov Source: Meridian PAGE 10

11 and inflows vary markedly across weeks & seasons 400 GWh North Island (historic 80yrs, weekly) 200-1,400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec South Island (historic 80yrs, weekly) 1,200 GWh 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Meridian PAGE 11

12 while inflows are anti-correlated with demand 1,000 Inflows from Hydro and Wind (NZ, weekly) GWh th-95th %ile NZ demand Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Meridian.. PAGE 12

13 Limited long run trend information is available from historical information o Science of weather prediction inexact (expected vs forecast) o Long-term cycles observable after the fact o While we do model snowpack and gain some insight from snow storage o historic distributions best indicator of future variability GWh Annual Wind/hydro GWh and averages by decade 35,000 30,000 25,000 20,000 15,000 10,000 5, Source: Meridian NZ Annual SI Annual NI Annual PAGE 13

14 All this volatility reflected in wholesale prices o This price volatility impacts all market participants 4,000 GWh Storage 3,000 (NZ hydro) 2,000 1,000 $/MWh 0 Jan 01 $500 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 HAY2201 (Day average) Jan 09 Jan 10 Jan 11 $400 BEN2201 (Day average) $300 $200 $100 $0 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Source: Meridian PAGE 14

15 Inflows can be stored, but capacity varies Storage and average annual inflows (GWh) Manapouri Pukaki Taupo & Waikato Hawea & Clutha Tongariro Waikaremoana Tekapo TrustPower SI Hydro Average inflows [GWh] Storage [GWh] Source: Meridian PAGE 15

16 Thermal fuel storage is material GWh Aggregate storage capability 3,000 2,500 Gas/coal storage (GWh) Hydro storage (GWh) 2,000 1,500 1, Genesis Meridian Contact Mighty River TrustPower Source: Meridian. Thermal fuel storage reflects estimates of both physical storage capability and plant efficiency. PAGE 16

17 Reservoir management o Reservoir management o Choice of weekly release of water o Balancing value of production for week against potential value if stored for release in later weeks o Impacted by o Demand o Offered cost of thermal fuels now but more importantly in the future o NZ wide energy storage (both hydro and thermal) for that time of year Economic cost lower storage higher storage Water values increase due to excess peaking thermal operation (and shortage) whenever low inflows occur Low production, high prices, high risk Efficient storage management Costs increase due to excess spill requiring greater use of baseload thermal plant Missed revenue opportunities due to spill, reduced production for same reason Regulatory risk and loss of flexibility Regulatory risk and loss of flexibility PAGE 17

18 Meridian Earnings Risks: S-curves o Portfolio planning process manages the evolving S-curve o Committed sales and optimal position combined with simulated price/quantity outcomes indicate direction for trading o Variability in revenue assessed for each quarter over next 3-5 years (updated weekly) o Meridian s lower revenue outcomes can be driven by low and high inflows Probability Distribution p(1) p(0) S-curve of Net Energy Revenue Limits Low revenue outcome VAR Mean Net Energy Revenue High Revenue Outcome $m The tail : outcomes worse than the limits are possible PAGE 18

19 Portfolio Optimisation: Bowtie Indicators o Bow tie a key metric for assessing future revenue risk and contract position o Captures interaction of contract position and synthetic price distributions on net energy revenue distributions o Calculated across multiple timeframes o Within-year variations due to load-shape, season and location factors Net Energy Revenue ($) Max P95 P75 Mean P25 P5 min 60% Minimum total spread Fewer contracts Illustrative Bow-Tie Minimum P5-P95 spread More contracts Contract quantity as % of expected load 110% PAGE 19

20 Meridian operates and executes a portfolio management process o Clearly defined Governance from Board supported by policy and regular reporting o Appropriate levels of balance sheet headroom, debt/funding facilities in place o Consistent framework for measuring performance and revenue risks across different timescales and scenarios o Assumptions scrutinised and updated routinely as market evolves and information revealed o Extensive experience across all aspects of planning and execution phases o No surprises approach 4 Execute Sales 1 Business Plan 2 Weekly Forecasting 3 Plan Optimal Portfolio 4 Execute Wholesale Trading 4 Execute Spot Trading 5 Monitor & Analyse PAGE 20

21 We operate a sophisticated modelling toolset o Analytic tools/models used to explore and manage issues over multiple timeframes o Market simulation o Snowpack o Wind and weather forecasting o Demand forecasting o Tools used to inform experts who ultimately decide and are accountable o A variety of models used to simulate revenues o Modelling impacts of uncertainty in a range of future market conditions o Input assumptions reflect future market state via market offers, plant availability, inflow variability, demand and transmission o Outputs (water-values and releases) inform trading, reservoir operation and contract valuation PAGE 21

22 How good are the tools? Hindcasting provides a means to assess effectiveness Pukaki & Tekapo Hydro Storage: Hindcasting versus Actual Hyd Seq Beginning: ,500 2,500 2,000 2,000 storage [GWh] 1,500 1,000 1,500 1,000 storage [GWh] Jun00 Dec00 Jun01 Dec01 Jun02 Dec02 Jun03 Dec03 Jun04 Dec04 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 0 Source: Meridian PKI+TEK Hindcast PKI+TEK actual PKI+TEK Historical Average PAGE 22

23 Price hindcasting shows similar results, even for extreme hydrology periods Wholesale Market Prices: Hindcasting versus Actual $400 Hyd Seq Beginning: $400 $350 $350 $300 $300 baseload price [$/MWh] $250 $200 $150 $250 $200 $150 $100 $100 $50 $50 $- Jun00 Dec00 Jun01 Dec01 Jun02 Dec02 Jun03 Dec03 Jun04 Dec04 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 $- Source: Meridian week NI Hindcast SI Hindcast HLY2201 actual BEN2201 actual PAGE 23

24 Utilising water in real time is complex flexibility valuable o Real-time operations consider physical constraints on storage and head ponds + Local transmission constraints, unit outages, market conditions + environmental and resource constraints Schematic Key OHU OHU Inflow Storage Canal Waitaki Hydro System Schematic POJ OHA RTH Inflow OHB TKB PKI Inflow PKO OHC OCT TKA TAT TKO TEK LSC Inflow River o Uncontrolled or tributary flows vary across schemes and are material o Strong links between operations and trading OHA Power Station Natural Inflow Junction Inflow Inflow BEN BEN AVI AVI WTK BEJ AVJ WTK WTJ Source: Meridian PAGE 24

25 We maintain our assets to sustain our ability to maximise revenue o Reliable and flexible assets required for executing long and short-term strategies o Individualised asset management strategies depending of the fit of each asset in the portfolio o High performing assets o 0.18% hydro forced outage factor o Recently completed GKS Hydro benchmarking analysis o 40 stations,1,525 generating units with 100,000 MW of installed capacity o Comparatively o Manapouri a leader o Waitaki in the upper quartile o Cost performance o sub $5/MWh cost in upper quartile, well below average of ~$20/MWh o Continuous improvement opportunities remain and are built into regularly reviewed asset management plan PAGE 25

26 Summary o Inflow variability is the dominant uncertainty faced by us and all market participants o We understand hydrology risk and manage it effectively o Our asset management capabilities are effective and support our hydrology management and wholesale trading activities o Reliable hydro plant, storage capability, and expert analytics give Meridian significant flexibility to maximise the value from the assets, particularly post Pole 3 commissioning PAGE 26