Michael Thorpe Managing Director Infrastructure and Utilities

Transcription

1 Michael Thorpe Managing Director Infrastructure and Utilities

2 INTRODUCTION RENEWABLES IN THE UK RENEWABLES / GAS GENERATION IN THE US OPTIMISING THE OUTCOME

3 Introduction Coming together is a beginning; keeping together is progress; working together is success Henry Ford 2

4 Renewable Energy Targets Countries with hydro generation in place have higher renewable targets, whereas others require frameworks to encourage investment into renewable energy Renewable Energy 2020 Targets by Country (unless otherwise stated) Based on energy consumed Based on energy generated Based on other metrics (see footnotes) New Brunswick 40% California 33% Mexico (2024) 35% Nova Scotia 40% New York (2030) 50% Brazil (2030) 45% Spain 20.8% Argentina (2025) 20% Uruguay (2017) 95% Norway 67.5% EU UK 15% Russia Germany 4.5% France 18% Italy China 23% Japan (2030) Egypt (2022) 20% 20% 17% India (2030) 40% 15% Australia 23.5% 22-24% NZ (2025) 90% 3 Sources: Renewables 2017 Global Status Report REN21 (Renewable Energy Policy Network for the 21 st Century); Australian Government Department of the Environment and Energy Website Note: (1) China target based on the share of non-fossil energy

5 02 RENEWABLES IN THE UK

6 Electricity Generated (%) Drivers of the Generation Mix in the UK Use of coal is at an all time low due to closures of multiple mines and power stations Key Themes Coal power is increasingly uneconomical 50% 40% Renewable Obligation Certificates (ROCs) Climate Change Levy EU Emissions Trading Scheme Climate Change Act 2008 Feed-in Tariff (CfD) Renewable Heat Incentive Energy Act 2013 Closure of all coal-fired power stations by 2025 Policies encouraging the construction of new renewable generation capacity 30% 20% Fall in gas prices 10% In April 2017, the UK generated a day s electricity without using its coal-fired power stations Coal Oil Gas Nuclear Hydro Renewables Other 5 Source: Department for Business, Energy & Industrial Strategy Energy Trends: electricity (Mar 2017)

7 6 Source: Department for Business, Energy & Industrial Strategy Special feature Renewable energy in 2016 (Jun 2017)

8 Revenue (GBP/m) UK Government Contract for Difference Implied value of CfD 2.3bn to Beatrice investors (large scale project financing) Key Assumptions Beatrice Offshore Wind Farm 588MW, 15 year CfD with a strike price of 140/MWh, 25 year project life Beatrice to be fully operational in 2019 General assumptions 10% discount rate (UK regulator s discount rate) and CPI at 2.5% Beatrice CfD Revenue Beatrice CfD Revenue NPV of revenues 2.1bn NPV of revenues 2.3bn 200 Beatrice Wholesale Revenue Beatrice Wholesale Revenue Source: Poyry UK Wholesale Electricity Price Forecasts (through to 2040) Note: (1) Based off publicly available information only

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10 DONG Energy These will be the first offshore wind farms that depend entirely on market prices instead of government support DONG Energy was awarded the right to build three offshore wind projects (total capacity 590MW) in the German North Sea, two of which were zero subsidy bids The zero subsidy bid is a breakthrough for the cost competitiveness of offshore wind, and it demonstrates the technology s massive global growth potential as a cornerstone in the economically viable shift to green energy systems Samuel Leupold CEO of Wind Power, DONG Energy DONG Energy Press Release (13 Apr 2017) 9

11 UK YieldCo Market YieldCos have entered the market to purchase smaller renewables projects (wind and solar) post-development principally onshore The scheme will run for another 20 years for existing ROCs issued Listed YieldCos Continued pipeline Are there sufficient opportunities for continued investment? Very low cost of capital based on the operating history and regulatory certainty Closure of ROC accreditation Is it still worthwhile to invest in these projects? 10 Sources: Feeding the beast: are US yieldcos sustainable? (Environmental Finance, 30 Sep 2015); Yieldcos Two Big Questions (Bloomberg New Energy Finance, 27 Jul 2015); Building out the yieldco (Environmental Finance, 22 Jun 2015)

12 03 RENEWABLES / GAS GENERATION IN THE US

13 US Renewable Portfolio Standards There is no consistent mandate in the US, with the East and West coasts driving the change in renewables Oregon 50% 2040 New York 50% 2030 Vermont 75% 2032 California 50% 2030 Washington DC 50% 2032 Renewable Portfolio Standard Renewable Portfolio Goal Hawaii 100% 2045 Texas 10,000MW 2025 This was surpassed in As of 2016, it had 21GW of installed wind capacity, with 5GW under construction 12 Source: Database of State Incentives for Renewables & Efficiency (Feb 2017)

14 Electricity Generated (%) Drivers of the Generation Mix in the US Focus on the decarbonisation of the US market Key Themes 60% Production tax credits for wind and solar projects have been in place since 1992 Increased renewable capacity due to subsidies and regulation 50% 40% Energy Policy Act 2005 Expansion of ITC and PTCs EPA emissions ruling The Clean Power Plan and Extension of ITC and PTCs Coal power is increasingly uneconomical 30% Access to prolific low-cost gas reserves 20% 10% ITC = Investment Tax Credit (for solar projects) PTC = Production Tax Credit (for wind projects) Coal Oil Gas Nuclear Hydro Renewables 13 Sources: PJM s Evolving Resource Mix and System Reliability (PJM Interconnection, 30 Mar 2017); Monthly Energy Review Data Topic 7.2a (U.S. Energy Information Administration)

15 PJM The Pennsylvania-New Jersey-Maryland Interconnection (PJM) is the world s largest wholesale electricity market Began in 1927 as the world s first continuing power pool Services 65 million people with 177GW generation capacity across 1,373 generation sources Real time and one day ahead Energy Market Committed capacity via the Capacity Market (RPM) Hedging tools available to stabilise revenue streams 14 Source: PJM Statistics (PJM Interconnection, 11 Apr 2017)

16 Capacity Market Constant review of capacity pricing framework with the aim to support a stable market and ensure availability of sufficient generation resources Polar Vortex event High electricity demand due to a series of winter storms in Jan 2014 led to a significantly higher number of forced generator outages in the region Capacity secured 3 years in advance via auctions Locational capacity pricing Variable resource requirement Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Electricity Price ($/MWh) Gas Price ($/MMBtu) Capacity Performance requirements By the 2020/21 delivery year, Capacity Performance is expected to be the only capacity product in PJM 15 Sources: PJM s Evolving Resource Mix and System Reliability (PJM Interconnection, 30 Mar 2017); View Point Capacity Markets (PJM Interconnection, 19 Oct 2016); PJM Website; Bloomberg

17 Cleared Unforced Capacity (%) PJM Resource Mix Continual shift towards gas and renewable resources 50% Historical Forecast 40% 37% 45% From 2010 to 2016, coalfired units made up ~19.6GW (79%) of the capacity retired in the PJM 30% 20% 27% 18% 24% Forecasted retiring of 5GW+ coal plants over the next few years, to be replaced by new build gas and renewable capacity 17% 10% / / / / / / / / / / / / / /21 Coal Oil Gas Nuclear Hydro Renewables Other 8% 5% 4% 1% 6% 5% 4% 1% PJM has a natural advantage of abundant cheap gas and access to existing transmission 16 Sources: PJM s Evolving Resource Mix and System Reliability (PJM Interconnection, 30 Mar 2017); Generator Deactivations (PJM Interconnection, 1 Jun 2017) Note: Other includes demand and energy efficiency resources

18 USDm USDm CCGT Transactions in the PJM Transaction structures have remained relatively stable over the past few years 160 Cash sweep applied to achieve pre-agreed target debt balance Forward-looking cash sweep mitigates lower than forecasted capacity prices Revenue put option provides a floor to energy margins Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 0 Hedged Energy Revenue Merchant Energy Revenue Capacity Payment Revenue Ancillary Revenue Debt Balance (w/ sweep) Debt Balance (w/o sweep) 17

19 US Federal Tax Regime Similar to Australia, the State and Federal renewables regimes are different The Federal tax regime has an overlay of tax incentives to achieve its renewable energy goals Accelerated Depreciation 5 year accelerated schedule 50% first-year bonus depreciation for equipment placed in service before 2018 Wind Production Tax Credit 10 year credit based on electricity generated for facilities that commence construction prior to 2020 Solar Investment Tax Credit Based on the amount invested in the project Tax Flip Financing Structure Solar ITC availability Wind PTC availability Full ITC (30%) 26% ITC 22% ITC Permanent 10% ITC Full PTC ($23/MWh) 80% PTC ($18/MWh) 60% PTC ($14/MWh) 40% PTC ($9/MWh) No PTC Uncertainty around corporate tax rates has delayed investment in some projects Sources: Infratil Investor Day (Longroad Energy, 29 Mar 2017); U.S. Renewable Energy Policy and Industry (NREL, Oct 2015) Start of construction Online date 18

20 04 OPTIMISING THE OUTCOME

21 Supporting the Transition to a Lower Carbon Economy The market will evolve from both a funding and sponsor perspective depending on the renewables regime that Australia will adopt Reduce policy uncertainty Incentivise investment via subsidies, grants or guarantees Policy-makers Deter from retrospective policy changes Security of supply Establish effective public-private partnerships Carbon pricing Regulators Businesses and Investors Develop industry expertise Transparent, consistent and long-term regulatory frameworks Innovative funding structures 20

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