EDP s internationalization strategy and the US

Transcription

1 EDP s internationalization strategy and the US Presentation to the Portuguese-Unites States Friendship Association and the American Club Eduardo Catroga, President of the General and Supervisory Board of EDP Lisbon, June 7, 2016

2 Agenda for today 1 EDP s 40 years overview and 2015 portrait 2 EDP s internationalization waves into Brazil and Spain 3 EDP s bet on renewables and expansion into new geographies namely the USA 4 The USA as a main driver of EDP s Business Plan

3 EDP commemorates 40 years as was born in 1976 as a state owned company, with roots as old as Privatization started in 1997 and reached 100% in Creation of EDP as a state-owned company, vertically integrated, merging 14 regional companies nationalized in 1975, to promote and satisfy social and economic development demands for the whole population (Decree Law nº 502/76, 30 June) Acquisition of a controlling position in Hidrocantábrico in Spain 1996 Start of Brazil operations, with minority acquisitions in grids (Ampla) and generation (Lajeado, 1997) 2007 Acquisition of Horizon in the USA. Expansion of international growth in renewables 70,01% 31,3% 25,3% 4,14% 0% 2015 Presence in 14 countries ~60% EBITDA outside Portugal Regulated company (~90% of regulated or long term contracted EBITDA) Renewables growth focus 1889 Start of the electric public lighting service in Lisbon 1976 Legally transformed into a public limited company / Legal unbundling of transport, distribution and production activities Mandatory spin-off of Transmission Operator, REN xx % Privatization process main steps: Portuguese State ownership position at EDP 3

4 The first 10 years were very challenging to EDP s financial health, which was recovered only in the 1990 s, creating conditions for a new vision of growth EDP from 1976 until 1995 First 10 years financially challenging due to integration of regional assets and political turbulence Government interventions in the business management Pure domestic player with monopoly on Generation, Transmission and Distribution financial health recovery to prepare the company for the future and for initial privatization Why going international Need for a growth story to back initial privatization: Expand access to growth opportunities, backed by political support Leverage strong technical expertise to add value in markets where it would be required Diversify portfolio and underlying risks of liberalization/unbundling process in domestic market 4

5 Since 1996 EDP has pursued growth into new geographies, new technologies and even outside the energy sector Growth to other geographies: Looking for higher natural growth EU internal market competition Starting in Brazil electricity distribution Spanish HidroCantábrico 40% acquisition 2004 EDP s capital increase ( million) and reaching 96% of HidroCantábrico Dash for gas: CCGT convergence Being a multiutility ,27% in GALP Energia 2003 HidroCantábrico buys 62% of NaturCorp, later named Naturgas 2004 EC did not approve exchange of GALP shares to control Gas de Portugal; later a share in Portgas was bought Growth in renewables: Environment energy EU policy Low risk high growth opportunity 1996 EDP s first Portuguese wind farm 2005 Merger of Spanish and Portuguese wind assets 2007 USA Horizon Wind Energy acquisition 2007 Creation of EDP Renewables and IPO in 2008 Diversification into other sectors: Liberalization driven Being a multiutility 1998 Telecommunications diversification Optimus 1999 Water and sewage with Thames Water (25,5% share in Chilean Essel) 2000 ONI fixed network company starts operations Expanding in IT using EDINFOR 5

6 turning EDP into a top global sustainable energy utility, with ~11 million clients around 4 continents and a leader in renewable energy A top global sustainable energy company 15 Bn revenues 3,9 Bn EBITDA (42% in Portugal) ~11 million clients (5,4 millions in Portugal) workers (31 nacionalities) in 14 countries (4 continents) with shareholders (mostly foreign investors) 60% of generated energy from renewable sources 4 rd largest wind operator in the world Note: figures refer to

7 Without the internationalization process from , EDP would have seen its EBITDA stagnate in nominal terms EDP s EBITDA and investment in Portugal ( Bn) 1,6 EBITDA Investment 1,6 0,4 0, Cumulative inflation % Cumulative investment Electricity demand growth Bn +53% 7 7

8 Today EDP has presence in 14 countries, with ~ employees of 31 different nationalities. ~60% of its EBITDA in 2015 came from outside Portugal USA and Canada (1) 378 Employees Installed capacity (MW) 12% United Kingdom (1) 37 employees France and Belgium (1) 50 Employees 435 Installed capacity (MW) Italy Portugal 42% (1) 22 Employees Employees 100 Installed capacity (MW) Electricity customers Gas customers Installed capacity (MW) Electricity distribution (GWh) Gas distribution (GWh) Spain 19% Employees Electricity customers Gas customers Installed capacity (MW) Electricity distribution (GWh) Gas distribution (GWh) Poland and Romania (1) 73 Employees 989 Installed capacity (MW) 5% RoE China (Macau / Hong Kong) México 5 employees Angola Office Brazil Employees Electricity customers Installed capacity (MW) Electricity distribution (GWh) 22% (1) Presence with EDP Renewables only. Note: Figures for Portugal, Spain and Brazil include EDP Renewables business Note for Portugal: maximum of employees, 1987; 6.683, in 2015, With quality improvement and lower tariffs. 100% electricity market share in 1999; 52% electricity market share in % Weight in EDP s group total EBITDA

9 EDP s international expansion fostered an unprecedent growth and is the foundation of the Group s positioning as a reference utility globally Number of countries where EDP is present EBITDA 1 breakdown by country, Bn , % 2,5 23% 17% 61% 3,9 12% 4% 19% 22% 42% Others Installed capacity, GW Number of shareholders 7,3 100% 12,6 25% 4% 71% 24,3 17% 6% 24% 11% 41% > Reference shareholders (>2%) Renewables EBITDA from each geography is included in the values of the respective geography 2 EBITDA from the whole Group in 1996 (i.e., including operations in Brazil), converted from PTE to EUR at 1 EUR= PTE; data for 1995 not available 9

10 The shareholder structure of EDP has evolved to be geographically diverse with a core group of strategic shareholders Shareholder structure in Dec % 2.27% 2.38% 2.44% 4.06% 7.19% 21.35% 3.02% 16.97% 5.00% China Three Gorges 21.35% (China) Guoxin International 3.02% (China) Capital Group Companies, Inc % (USA) BlackRock, Inc. 5.00% (USA) Oppidum 7.19% (Spain) Senfora BV 4.06% (UAE) BCP 2.44% (Portugal) Sonatrach 2.38% (Argelia) Qatar Investment Authority 2.27% (Qatar) Others 35.3% 10

11 Agenda for today 1 EDP s 40 years overview and 2015 portrait 2 EDP s internationalization waves into Brazil and Spain 3 EDP s bet on renewables and expansion into new geographies namely the USA 4 The USA as a main driver of EDP s Business Plan 11

12 Throughout the last 20 years, EDP has focused its expansion on four main geographies: Brazil, Spain, Central Europe and United States 3 US (RES) 3 Europe (RES) 1 Brazil 2 Spain Macau Hong Kong 12

13 1 Brazil was the first step in the international expansion process of EDP, with partnerships being key for the initial phase MAJOR MILESTONES Why Brazil? Competitive advantages such as deep market knowledge and cultural affinity (e.g., same language) Opportunities in privatization programs at time of entry Favorable institutional context and strong government support at time of entry 1995 Entry in Brazil with initial focus on distribution - acquisition of a stake in CERJ First investment in hydro generation with 25% stake in Lajeado 2000 Creation of EDP Brasil S.A Acquisition of stakes in Bandeirante (directly) and in Escelsa and Enersul (indirectly), reinforcing distribution business 2001 Auction won for Peixe Angical, reinforcing hydro business 2005 EDP Brasil IPO 2007 Acquisition of first thermal plant - Pecém (50%) ( %) 2008 First renewables investments New hydro growth with Jari, Cachoeira Caldeirão and São Manoel hydro plants First investment in energy services (2010; acquisition of APS in 2015). First Inovcity in Brazil (Aparecida) 13

14 1 20 years later, EDP has a very relevant role in the Brazilian energy market across the whole value chain 4 th largest private energy production player 5 th largest private distribution player 4 th largest private energy retailer (by sales) 2,7 GW installed capacity ~75% from hydro > GWh distributed energy ~ 3,3 million clients > GWh commercialized energy ~10% market share Note: figures refer to % of EDP Group Importance to the Brazilian economy ~3.000 employees Superior Performance 829 M EBITDA 1 The Best in Corporate Governance model and awards in Ethics and Transparency 14

15 2 EDP s presence in Spain ranges through the whole energy value chain and complements its domestic market operations MAJOR MILESTONES Why Spain? Natural extension of the domestic market given geographic proximity Reinforcement of EDP s position as a top Iberian player 2001 Entry in the capital of Hidrocantábrico (later HC Energía) Acquisition of up to 40% of Hidrocantábrico, with EDP assuming a controlling position 2003 Acquisition of 62% of NaturCorp (later Naturgas), through Hidrocantábrico 2004 Increase in the stake of EDP in Hidrocantábrico to 96%, consolidating EPD as the 3 rd Iberian player in electricity 2012 HC Energía leads in quality service in Spain, with continuous quality improvements in the grid, yielding the best result in TIEPI 1 (28 min) 2013 Project InovGrid starts in Spain with the mass installation of smart meters in the Asturian city Pola de Siero Acquisition of several electricity and gas distribution assets outside Asturias, increasing the number of distribution clients by 55% and 36% in electricity and gas, respectively 1 Equivalent Interruption Time for Installed Power 15

16 2 EDP has a very strong presence in Spain across the entire value chain 4th largest electricity producer 4th electricity and 2nd gas distributor 3rd electricity and 2nd gas retailer ~6 GW installed capacity Electricity generation in 3 Spanish provinces >9.000 GWh distributed electricity > GWh distributed gas > GWh commercialized electricity > GWh commercialized gas Note: figures refer to % of EDP Group. Includes renewables business in Spain Importance to the Spanish economy ~1.900 employees Superior Performance 759 M EBITDA 1 16

17 Agenda for today 1 EDP s 40 years overview and 2015 portrait 2 EDP s internationalization waves into Brazil and Spain 3 EDP s bet on renewables and expansion into new geographies namely the USA 4 The USA as a main driver of EDP s Business Plan 17

18 3 EDP started to invest in renewables in 1996, although only after 2001 became a growth development vector, turning EDP into an Iberian lead player by 2007 Goal: establish a strong position in the Iberian market 1996 First marginal strategic efforts to diversify energy sources with environmental concerns First wind park built in 1996 (Parque Eólico da Fonte da Mesa - 10 MW) In 2001 ENERNOVA had 4 wind parks in Portugal with 40MW Investment in renewables was less than 2% of EDP s total investment In 2001 Portugal established a goal of having, in 2010, 39% of electricity from renewable sources 2001 Strong Iberian growth in greenfield projects Consolidation of players Entrance into other european countries with greenfield projects 2007 Note: Portugal reached a 50% renewables electricity share in

19 3 EDP was able to anticipate the growth renewables would bring to the sector Wind onshore LCOE 1, /MWh World renewables installed capacity, GW Why Renewables? Growing climate energy policy concerns Segment with very strong growth potential >250-7% p.a. +24% p.a. 433 Coherent framework of investment incentives EDP was able to foresee the strong potential of renewable energy, and particularly wind onshore, ahead of most of its competitors 1 Unsubsidized levelized cost of energy upper limit in the US FONTE: Lazard s Levelized Cost of Energy v.3.0 and v.9.0; Global Wind Energy Council 19

20 3 Wind onshore has become the most competitive source of energy which will continue to fuel growth LCoE average Europe, /MWh (2014 real terms) 20

21 3 EDP Renewables was created as a legal entity only ~10 years ago and already represents around 30% of EDP Group s business MAJOR MILESTONES 2005 Entry in the wind business in France (first market outside Iberia) Expansion to the US through the acquisition of Horizon Wind Energy (2007) and Hydra Energy s pipeline (2008) 2008 EDPR IPO 2010 EDPR is awarded the wind offshore project Moray Firth, entering the UK 2010 EDPR expands into Canada and Italy Creation of EDPR as a separate company to manage all the renewables assets the EDP Group already had in Portugal, Spain and France EDPR expands its operations to Poland (2007) and to Belgium and Romania (2008) 2009 EDPR enters the Brazilian wind onshore market 2014 EDPR enters Mexico through an electricity supply agreement for a wind farm with a Mexican mining company 1 Includes Renewables business in Iberia 21

22 3 Today EDPR is the 4 th largest wind operator in the World with 9,7 GW of installed capacity in 12 countries, EDP Renewables 2015 #4 worldwide wind player EDP Group company focused on wind and solar investments 77.5% EDP SHAREHOLDING MW MW Leader in the most competitive renewable technology Worldwide portfolio WIND ONSHORE 12 COUNTRIES 204 MW Young assets with long residual life Quality asset base generating predictable revenues 6 YEARS AVG. LIFE 95% CONTRACTED in

23 3 EDPR entered the US market in 2007, through the acquisition of a local wind developer with a quality development pipeline Why the 2007US? Market with relatively low explored renewables landscape High growth potential, given ambitious renewables targets in some states and tax benefits Potential for long-term power purchase contracts (PPA) EDPR entered the US in 2007, through the acquisition of Horizon Wind Energy a Texas based developer. Horizon had a small fleet of operational wind farms and a large pipeline of projects at different stages of maturity Installed Capacity by state, Dec 2007 (MW) Illinois Texas New York Oklahoma Minnesota Oregon KEY DATA EDPR IN UNITED STATES Installed Capacity (MW) US (% EDPR) 41% GWh Net Capacity Factor 30% Employees 197 $ million EBITDA 42 EBIT 4 23

24 3 which quickly gained scale over the last years and now the USA represents 40% of EDPR s EBITDA (17% annual growth) MAJOR MILESTONES Fast initial growth Acquisition of Horizon Wind Energy (~560 MW) Acquisition of Hydra Energy s pipeline (~1,050 MW) Self-development of further wind projects Slower growth pace Consolidation efforts Entry in new geographies (e.g., California) Increased competitiveness in getting new attractive wind locations Installed capacity GW +6% p.a. EBITDA $M ,5 2,2 +29% p.a. 2,9 3,2 3,4 3,6 3,7 4,0 4,

25 3 In USA EDPR has today ~4,4GW of wind capacity across 12 States with a team of 383 employees 2015 From 6 States in 2007, EDPR now owns and operates wind farms in 12 US States. We also count on a team of 383 dedicated employees, who focus on optimizing installed base and executing future growth projects KEY DATA EDPR IN UNITED STATES CAGR Installed Capacity (MW) % Installed Capacity by state, Dec 2015 (MW) US (% EDPR) 41% 45% Illinois Indiana Oklahoma Iowa Kansas Texas New York Oregon California Washingt Minnesota Ohio GWh % Net Capacity Factor 30% 32% 1% Employees % $ million EBITDA % EBIT % 25

26 3 The preference for the US market comes from its stable and attractive regulatory framework for renewables, mostly based in Tax incentives and long-term PPAs Federal Level Investment Tax Credits (ITC) (30%) State Level Renewable energy targets, defined at state level The USA financial support to renewables is to the investment and not based in a preferred buying tariff, like in EU. This explains the difference in average price Investment benefits from Tax incentives Production Tax Credits (PTC) Accelerated Tax depreciation (MACRS) State tax incentives RPS Renewable Portfolio Standards, will secure the green value in the future. 26

27 3 The long term bilateral contracts, PPA s type, are not only with distributors, but also with credible large companies Long term bilateral contracts (15 20 years) with well known USA companies, allowing: Competitive price; Long term fixed price, avoiding electricity price risk; Green publicity, as promoters of RES. In 2015 for EDPR: 70% of the energy of new wind farms to be finalized in 2016 and 2017 were sold using these contracts; 5 contracts (Home Depot, Amazon, Philips, General Motors, Bloomberg). 27

28 Agenda for today 1 EDP s 40 years overview and 2015 portrait 2 EDP s internationalization waves into Brazil and Spain 3 EDP s bet on renewables and expansion into new geographies namely the USA 4 The USA as a main driver of EDP s Business Plan 28

29 EDP s future strategy further reinforces its presence in international core markets, particularly the USA Net Investments: avg. 1,4bn/year in EDP s Business Plan Breakdown of accumulated Net Investments (1) : 2016E-20E (%) Breakdown of Recurrent EBITDA by geography: E (%) 62% of net investments are outside Iberia, of which >50% in the USA (1) Net Investments include capex and financial investments in the period and 1.6bn of financial divestments of minority stakes in wind farms by EDPR in ; (2) North America includes: US, Canada and Mexico 29

30 EDP R Business Plan based on +0.7 GW per year, keeping the US and wind onshore at the core of EDPR growth strategy Increasing Business Plan into a new Business Plan with stronger capacity additions and technological mix Capacity Additions (MW; %) Emerging Markets 20% Capacity Additions (MW; %) Brazil Solar PV 10% 10% Drivers Wind Onshore: fully competitive technology Europe 20% 500 MW/year % United States Europe 15% 700 MW/year % North America 1 Solar PV: Increasing its competitiveness Total of 2 GW capacity additons Total of 3.5 GW capacity additions Projects with long-term visibility & low risk profile Notes: (1) North America includes: US, Canada and Mexico 30

31 EDPR forecasts further growth in the US, with an increase of ~50% of its installed capacity by 2020 Estimates from BP EDP R in USA Installed capacity GW 4,4 6,6 EBITDA $M Additional 2,2 GW installed capacity in the US coming mostly from wind on-shore (+1.8 GW), but also from solar PV (+0,4 GW)

32 US renewables growth to be driven by wind, gradual solar competitiveness and regulatory support certainty USA Policy Wind Onshore & Solar PV (utility scale) Regulatory support certainty (PTCs/ITCs) Wind Technological progress Coal retirement RPS demand c.7 GW expected annual capacity additions until 2023 (incentives progressively decreasing) already competitive in Western region and some Central states Solar PV Solar to benefit from longer ITC extension (30% ITC until 2019; decreasing to 10% until 2030) Wind and Solar PV (utility scale) to sum 70% of additions thru 2030 Other Solar PV (non-utility) Solar PV (utility) Wind onshore 152 GW 70 GW 2% 7% 26% 29% 37% 27% 35% 37% Current Fiscal Policy Long-term Policy Increasing demand from non-utility companies, already representing 50% of PPAs signed in 2015 Notes: Source: IHS Energy North America Renewable Energy Power Market Forecast

33 In conclusion During the last 10 years the USA has been a key priority in EDP s investments and will continue to be in the following years, due to its growth potencial and clear rules for renewables development EDP has a long history, marked by its successful international expansion, growth and privatization But the future brings new challenges and EDP needs to continue to face the structural trends in the industry over the next years. 33