IE A EPRI October 8th, 2014 Challenges to the electricity sector under decarbonisation. Edouard Sauvage, Director of Strategy, GDF SUEZ CONFIDENTIEL

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1 IE A EPRI October 8th, 2014 Challenges to the electricity sector under decarbonisation Edouard Sauvage, Director of Strategy, GDF SUEZ CONFIDENTIEL

will lead to an increase in electricity consumption Substitution Environmental issues cannot be adressed separately from other electricity

2 Is the decarbonisation of the electricity sector the key question? Decarbonisation of the electricity sector cannot be disconnected from the global decarbonisation issue (transport, final consumption) which will lead to an increase in electricity consumption Substitution Environmental issues cannot be adressed separately from other electricity issues : energy security and energy equity. According to WEC (2013 energy sustainability index), countries with poor ranking on the energy equity and energy security issue also have a poor ranking on environmental energy concerns

3 Summary GDF SUEZ PRESENTATION WORLDWIDE ENERGY OVERVIEW: STRUCTURING TRENDS DIFFERENT MARKET DESIGNS CORRESPONDING TO DIFFERENT NEEDS HOW CAN WE FIX THE DIFFERENT MARKET DESIGNS IN ORDER TO ENSURE AN EFFECTIVE DECARBONATION OF ELECTRCITY?

4 GDF Suez : a presence across the energy value chain TWO AMBITIONS Exploration & production Power generation 1 Be the benchmark energy player in fast-growing countries Supply and infrastructures Trading and portfolio management Distribution Sales and energy services 2 Be leader in the energy transition in Europe

5 GDF SUEZ : a low CO 2 power-production mix Flexible, high-performance generation capacity with low carbon emissions (85%). > people working in renewable in Europe CO 2 specific emissions: To be reduced by 10% in 2020 compared to 2012 (emission ratio per power and energy production) Other 3% Wind power 3% 1% Biomass and biogas 15% Hydro power** GDF SUEZ installed capacity at December 31, 2013* 5% Nuclear 114 GW 14% Coal Natural gas 59% * Including 100% of the capacity of GDF SUEZ assets regardless of the actual holding rate. ** Including pumped storage.

construction* North America 12% 1% Latin America 11% 39% 42% 16% Europe 23% META 34% 8%

6 GDF Suez : No.1 Independent Power Producer (IPP) in the world. Breakdown of generation capacity by region Capacity: 114 GW installed // 10 GW under construction* North America 12% 1% Latin America 11% 39% 42% 16% Europe 23% META 34% 8% Asia 10% 3% 2013, * Including 100% of the capacity of GDF SUEZ assets regardless of the actual holding rate. Oceania

7 Summary GDF SUEZ PRESENTATION WORLDWIDE ENERGY OVERVIEW: STRUCTURING TRENDS DIFFERENT MARKET DESIGNS CORRESPONDING TO DIFFERENT NEEDS HOW CAN WE FIX THE DIFFERENT MARKET DESIGNS IN ORDER TO ENSURE AN EFFECTIVE DECARBONATION OF ELECTRCITY?

8 Energy transition: a worldwide and sustainable evolution Energy efficiency and environmental concern Carbon markets expand: 17 carbon markets currently, 5 carbon credit markets planned after GDP energy intensity at purchasing power parity (Kep/$05p*) Greater awareness: public policies on energy efficiency could already impact energy demand in mature and emerging economies NON-OECD OECD * Koe/$05p: kilogramme oil equivalent per dollar of 2005 in purchasing power ratio Source: Enerdata

9 Energy transition: a worldwide and sustainable evolution Renewables development Worldwide renewable installed capacity , excluding hydro (MW) RES annual additional installed capacity (GW) 500, , , , , , , , ,000 50, Source: AIE, World Energy Outlook Wind Solar Biomasse Geothermal Europe&USA & Source: Enerdata, EPIA, GWEC Rest of World RES soon-to-be economically competitive (wind, solar) in countries with abundant resources Acceleration in solar energy roll-out (PV and CSP), centralized and decentralized Environmental concern leading emerging countries to support renewable energy: feed-in tariffs in Indonesia, Thailand, India; calls for tenders in Saudi Arabia 127 pays ont des politiques de soutien des ENR, dont tous les pays internationaux où le Groupe est présent, Decreasing subsidies in Europe leading to a slowdown of renewable energy roll out In 2013: the majority of new installed capacities are located outside Europe and the US

10 Uncertainty concerning coal in the global energy mix Worldwide electricity capacity 2012 (%) Worldwide energy consumption (1,000 TWh/year) Coal 33% Fioul 8% 5,600 GW Nuclear 7% Hydro 19% Gas 25% Biomasse 1% Wind 5% Solar 2% Geothermal 0% Oil Coal Gas Hydro Nuclear Other renewable Coal could become the leading primary energy source in the world after 2020 Coal consumption grew by 4% per year between 2000 and 2011, driven by the increase in energy demand, in particular in the Asian electricity segment Depending on the IEA scenarios, coal demand annual growth rate varies from -1.6% to +1.5% per year by 2035

11 Summary GDF SUEZ PRESENTATION WORLDWIDE ENERGY OVERVIEW: STRUCTURING TRENDS DIFFERENT MARKET DESIGNS CORRESPONDING TO DIFFERENT NEEDS HOW CAN WE FIX THE DIFFERENT MARKET DESIGNS IN ORDER TO ENSURE AN EFFECTIVE DECARBONATION OF ELECTRCITY?

12 Regulatory risk Risk that prices won t enable operators to recover their costs Different designs of power systems Power system Non-contracted asset in merchant environment Hybrid Markets Energy Only Market (EOM) EOM & Capacity Auctions EOM & Capacity Payment Adapted to countries with fast growing residual demand. Price spikes driving economical investment Adapted to sluggish residual demand. Capacity remuneration and price spikes driving investment in the eligible assets Contracted asset in non-merchant environment PPA Adapted to countries : -still developing their power infrastructures, - governmental guaranties required - subsidies for power, when power is a driver of health/economic development -Security of supply is a key issue

13 Summary GDF SUEZ PRESENTATION WORLDWIDE ENERGY OVERVIEW: STRUCTURING TRENDS DIFFERENT MARKET DESIGNS CORRESPONDING TO DIFFERENT NEEDS HOW CAN WE FIX THE DIFFERENT MARKET DESIGNS IN ORDER TO ENSURE AN EFFECTIVE DECARBONATION OF ELECTRCITY?

14 OECD Countries example of Europe A crisis in thermal power generation caused by the falling demand and increased by a failing regulation Hours of operation of thermal power plants 5000 EU Gas Coal Excessively low utilisation rate: in Spain, the utilisation rate of CCGTs plummeted from 66% in 2004 to 10% in 2013 Unless market design changes, 130 GW do not cover their fixed costs (out of a European total electric fleet of 970 GW) Source: GDF SUEZ based on Cera data CO 2 Prices Eur/t The triple failure of the EU policy Subsidies for renewables: a burden for public finances and consumers: more than 300G between 2010 and 2020 in Europe, of which 40% for Germany An inefficient CO 2 market (no price signal) Security of supply at risk

15 Priority in OECD countries: Facilitate RES penetration Address the technical issues of intermittency: strong impact on grid management Increase regional cooperation Make sure that the necessary back up investments come on line Fix the EU ETS market Implement capacity markets, adapt the tariff structure Regulation should be stable, and harmonized at a European level Cancel inconsistencies in the market design (price caps ) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% OECD Europe Generation mix (% TWh) RES Fossil Nuclear Source: WEO 2013

16 Priority in non-oecd countries: Support demand growth Fossil fuel power plants will remain dominant in the energy mix: All technology will be required Develop the most efficient thermal power plants Change of paradigm? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Non OECD Generation mix (% TWh) Check that our thermal investments are resilient to a CO 2 price Source: WEO 2013 RES Fossil Nuclear Non-OECD final demand by fuel (%) Develop energy efficiency services and renewable services Benefit from high potential for solar and wind in some regions 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% coal oil gas Heat other RES & bioenergy Electricity

Medium Term Renewable Energy Market Report 2013

Medium Term Renewable Energy Market Report 2013 Renewable Energy Market Report 213 Michael Waldron Renewable Energy Division International Energy Agency OECD/IEA 213 OECD/IEA 213 MTRMR methodology and scope Analysis of drivers and challenges for RE