American Power Industry: At a Pivotal Point

Transcription

1 American Power Industry: At a Pivotal Point David Crane Chief Executive Officer NRG Energy, Inc. Deutsche Bank Energy and Utilities Conference May 30, 2007

2 Safe Harbor Statement This Investor Presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of Forward-looking statements are subject to certain risks, uncertainties and assumptions and typically can be identified by the use of words such as expect, estimate, should, anticipate, forecast, plan, guidance, believe and similar terms. Such forward-looking statements include our acquisition, hedging and repowering strategy, expected benefits and timing of the comprehensive capital allocation plan and repoweringnrg, expected impact of RepoweringNRG on the Company s carbon emissions and the projected carbon intensity of NRG s fleet. Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, weather conditions, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets, changes in government regulation of markets and of environmental emissions, the condition of capital markets generally, our ability to access capital markets, unanticipated outages at our generation facilities, adverse results in current and future litigation, failure to identify or successfully implement acquisitions and repowerings, the inability to implement value enhancing improvements to plant operations and companywide processes, our ability to realize value through our hedging strategy, our ability to achieve the expected benefits of the comprehensive capital allocation plan and RepoweringNRG, and our ability to realize the impact of RepoweringNRG on the Company s carbon emissions and the projected carbon intensity of NRG s fleet. NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG s actual results to differ materially from those contemplated in the forward-looking statements included in this Investor Presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at 2

3 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Company Overview Weekly Price (December 3, 2003 through May 18, 2007) $95 3 rd Fastest Growing Co. in Fortune 500 Listed: NYSE (NRG) Market Cap.: $10 billion Employees: 3,640 Generating Assets: 23,000 MW, primarily in four domestic regions $85 $75 $65 $55 $45 $35 $25 March 25, 2004: NRG begins trading on NYSE $15 NRG: The center of the power industry value chain. 3 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Nov-06

4 Agenda Capital Allocation An Update Critical Trend - Carbon 4

5 Capital Allocation: The Plan Holdco/Opco Structure Dividend Initiation Share Buyback Continuation Covenant Flexibility Five Components/ One Rationale FLEXIBILITY to OPTIMIZE RETURN OF CAPITAL to SHAREHOLDERS 2:1 Stock Split More control over our capital structures provides us more ability to optimize allocation of capital 5

6 Capital Allocation Philosophy for Strong Free Cash Flows 40% Return of Capital to Stakeholders Anticipated Allocation of CFFO Total ~ $10 billion Pay down Debt Dividends & Buybacks 20% Uncommitted and Available 40% Reinvestment in Business Environmental & Major Maintenance Capex Balance Flexibility Growth PBSM 6

7 Seizing First Mover Advantage Across The Technological Spectrum 7

8 Repowering Current Dynamic Fundamentals say Build but.. 1. Tight reserve margins 2. Aging fleet/pending retirements 3. Chronically high & volatile natural gas prices 4. Renewable Portfolio Standards 5. Access to capital 6. Access to long-term offtake 7. Competitive advantage of Repowerings over Greenfield development Externalities create Ambiguity 1. Uncertain carbon endgame 2. Increased environmental pressure 3. Surging equipment/epc costs 4. Regulatory unrest around newbuilds, PPA s and market mechanisms 5. Forward price curves do not, themselves, provide right price signal 8

9 Trends in Power Generation: Top 10 Industry Dynamics Six months ago.. 1. Consolidation no more utility mega-mergers 2. Credit comfortable at Junk 3. Locational Capacity Markets get implemented 4. Reserve Margins ever tighter 5. Summer Gas withdrawals 6. TXU/NRG New Builds avoiding the Seven Sins 7. PPAs Not whether but how 8. Carbon 9. Backend Controls the rising cost of remediation 10.Shareholder Activism in Power Sector Today 1. Carbon 2. Carbon 3. Carbon 4. Carbon 5. Carbon 6. Carbon 7. Carbon 8. Carbon 9. Carbon 10. Carbon A Once-in-a-Generation Paradigm Shift 9

10 PJM West Hub Forward Prices $87.00 Feb 1, 2007 May 21, 2007 $82.00 $77.00 Peak Forward Prices $72.00 $67.00 $62.00 Carbon cost priced in $57.00 $52.00 $47.00 Off-Peak Forward Prices $42.00 Feb Mar April May Source: Goldman Sachs & Co. Calendar 2008 Calendar 2010 Calendar 2012 The market now believes in a Carbon Tax by

11 Three-Pronged Assault on GHG Emissions 1 New Nuclear Displaces carbonintensive coal-fired (baseload) generation Effective implementation of Energy Policy Act (2005) New legislation to add a first wave to first past the post 2 Carbon out of Coal Pre-combustion (new generation) Post-combustion (existing generation) Federal support for 5-6 IGCC projects Federal-State CCS scheme R&D support for carbon capture technologies 3 Carbon Emissions need a price Private sector-driven technological innovation requires a price signal Federal pre-emption Cap-and-trade with step up safety valve Allocation & Auction Concentrate the Focus/ Move the Needle 11

12 NRG s Low Carb Line-up RepoweringNRG is a fundamental component of our carbon strategy 12

13 NRG s Low/No Carbon Lineup PADOMA WIND POWER NRG wind team Padoma Wind Power focused on projects across the nation. Plan to develop over 500MW by the beginning of the next decade. IGCC (Gasified Coal) Convert coal to synthesis gas via partial oxidation; Removes pollutants from gas prior to combustion Removes 95% of SO2, NOx and 65% of CO2 with carbon capture and sequestration. ALGAE BIOREACTOR PLASMA Teaming with GreenFuel Technologies to research viability of CO2 capture and storage. Algae photosynthesis absorbs CO2 in flue gas; High energy biomass removed and can be used as alternative fuel source. Plasma torches break coal down into its molecular structure to become synthetic gas; similar emissions profile to IGCC. Can be used on smaller plants that might not otherwise be retrofitted 13

14 RepoweringNRG by Technology Repowering NRG % Contribution by Technology 100% 80% 60% 40% 20% 0% # of Projects MW MWh Invested Capital Avoided CO2 STP 3-4 IGCC Wind Gas Coal STP 3&4 is the flagship for RepoweringNRG 14

15 New Nuclear: The Opportunity Why ERCOT Market? 1. High (baseload) demand growth 2. Well-functioning, highly liquid wholesale market 3. Single price auction system with gas on margin majority of time 4. Availability of skilled labor 5. Widespread political support 6. Big offtake customers with large appetite for baseload power 7. Existing NRG fleet can provide back-up support Why STP Site? 1. One of only two existing nuclear facilities in state 2. Enormous footprint 3. Common facilities (particularly reservoir) already designed for four units 4. Ready access by barge and rail 5. Widespread public support 6. Open space and access to local Houston load center 7. Top quality operations STP site in ERCOT is ideal location for new nuclear unit 15

16 New Nuclear: The Risks (Remembering the 1970s -1980s) Risk 1. Regulatory 2. Merchant 3. Political 4. Financing 5. Completion/Performance Mitigation -COLA process -Standby Support -Long-term offtake agreements -Production tax credits -State action -Local involvement -Loan guarantee program -U.S./Japan Cooperation - Turnkey contract with experienced EPC consortium or lead contractor Viability: Can a new nuclear plant be successfully developed in a merchant environment? 16

17 New Nuclear: The Technology ABWR ESBWR AP1000 EPR Manufacturers GE, Hitachi, Toshiba GE Westinghouse AREVA Unit Size 1,350 1,600 1,000 1,600 Reactor Design NRC Certified Design Boiling Water Reactor Yes Boiling Water Reactor No Pressurized Water Reactor Yes Pressurized Water Reactor No Status of Design Engineering Completed except for site specific changes In Progress In Progress In Progress Units in Operation ABWR technology has been in operation for 10 years in Japan with plants built on time and on budget 17

18 The Texas Low Cost, Low Carbon Plan 110, ,000 90,000 80,000 Gas Age Carbon: CCGT = 0.5 (t/mwh) (Last of the) Coal Age Carbon: Coal = 1.1 (t/mwh) STP & IGCC (w/ Sequestration) Nuclear & Clean Coal Age Carbon: Nuclear = 0 IGCC = 0.1 (t/mwh) 28,000 MW Peak Demand w/ reserve margin of 12.5% Current Supply 70,000 3,500 MW 5,500 MW NRG Projects: 500 MW CCGT 200 MW Wind 800 MW Coal 2,700 MW Nuclear * Developed based on ERCOT 5-Year Capacity, Demand & Reserve (CDR) report of June 9, ,000 MW of New Generation Low Carbon Regime: Mt/y All Coal Alternative: Mt/y (million tons/year) 18

19 NRG Carbon Footprint Before and After Repowering NRG NRG Fleet: Projected Carbon Intensity ~0.9 tons/mwh ~0.7 tons/mwh 1 w/igcc CO 2 sequestration Per Mwh Note: includes impact of 2,700MW of nuclear, 2,250MW of IGCC, 1,800MW of coal, 3,100MW of gas and 1,000MW of wind. MW are before any potential equity sell down. 1 Assumes full impact of 2,700MW at STP. With only 44% ownership of STP, carbon intensity would be ~0.06 tons/mwh higher Repowering NRG: Doesn t Solve Carbon Issue but is a Big Step in Right Direction 19

20 NRG s Clean Line-up: Next Steps STP 3&4 Huntley IGCC Somerset Plasma Padoma Wind Filing of COL Partners committed Ultra heavy forgings secured Offtakers identified BWR partner engaged Federal Loan Guarantee effective State action completed Commercial arrangements finalized CCS plan Financial sources identified Air permit issued Commencement of construction 1-2 projects ( MW) under construction Algae Bioreactor Completion of Big Cajun 2 demonstration 20

21 RepoweringNRG Current Newbuild Environment Current Dynamics Effect Potential Outcomes Impact on NRG A B C Increasing environmental pressure Carbon wildcard Surging equipment/ EPC costs Paralysis & Indecision 1. Policy makers get their act together immediately and make rational long term decisions 2. Policy makers get their act together but only in time to make decisions on best available short term options Super fast track options D Regulatory uncertainty around new build 3. Policy makers never get their act together Enhanced value of existing NRG fleet Positioned for success in all public policy outcomes 21

22 NRG: A Virtuous Circle of Initiatives Ensure economic competitiveness of aging fleet Green solutions to extend life of environmentally challenged assets Ensures ability to manage and operate future fleet A coordinated plan to provide for the present while preparing for the future Makes our Portfolio younger, bigger greener and more efficient 22

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