UK Generation BAML lunch - 29 th March 2012 Alison Kay Commercial Director Transmission
Cautionary statement This presentation contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information with respect to National Grid s financial condition, its results of operations and businesses, strategy, plans and objectives. Words such as anticipates, expects, intends, plans, believes, seeks, estimates, targets, may, will, continue, project and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of National Grid s future performance and are subject to assumptions, risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid s ability to control or estimate precisely, such as changes in laws or regulations and decisions by governmental bodies or regulators; breaches of, or changes in, environmental, climate change and health and safety laws or regulations, including breaches arising from the potentially harmful nature of its activities; network failure or interruption, the inability to carry out critical non network operations and damage to infrastructure, owing to adverse weather conditions or otherwise; performance against regulatory targets and standards and against National Grid s peers with the aim of delivering stakeholder expectations regarding costs and efficiency savings, including those related to restructuring and internal transformation projects; and customers and counterparties failing to perform their obligations to the Company and its arrangements with the Long Island Power Authority not being renewed. Other factors that could cause actual results to differ materially from those described in this presentation include fluctuations in exchange rates, interest rates and commodity price indices; restrictions in National Grid s borrowing and debt arrangements, funding costs and access to financing; National Grid s status as a holding company with no revenue generating operations of its own; inflation; seasonal fluctuations; the funding requirements of its pension schemes and other post-retirement benefit schemes; the loss of key personnel or the ability to attract, train or retain qualified personnel and any disputes arising with its employees or the breach of laws or regulations by its employees; accounting standards, rules and interpretations, including changes of law and accounting standards and other factors that may affect National Grid s effective rate of tax; and incorrect or unforeseen assumptions or conclusions relating to business development activity. For a more detailed description of some of these assumptions, risks and uncertainties, together with any other risk factors, please see National Grid s filings with and submissions to the US Securities and Exchange Commission (the SEC ) (and in particular the Risk factors and Operating and Financial Review sections in our most recent Annual Report on Form 20-F). The effects of these factors are difficult to predict. New factors emerge from time to time and National Grid cannot assess the potential impact of any such factor on its activities or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements, which speak only as of the date of this presentation. The content of any website references herein do not form part of this presentation. 2
Agenda Contracted generation Generation closures Are the 2020 targets achievable? The transmission challenge 3
Contracted generation Contracted new generation 80 GW as at 1 Feb 2012 Contracted generation (GW) 90 80 70 60 Connection requests Timing 50 40 Awaiting consents / scoping Subsequent amendments 30 Financial commitment Conversion rate historic vs. future Connection charges and security 20 10 0 Type Status Consented Under construction Transmission investment timing Gas Nuclear Interconnector Wind Data source: National Grid TNQCU Feb 2012 Other (including CCS) 4
Generation closures LCPD, IED, asset age and economics drive closures Closure of coal and oil plant Conversion to biomass Mothballing of CCGT plant Timing of existing generation closure notices charges Impact on margin Peak demand ~58GW vs. current connected generation of 89GW NGET Base scenario assumes very limited peak demand growth to 2018 13 GW of new generation under construction or with consents Change under gone green (GW) 0 Oil (5) (10) Coal (15) Nuclear (20) Gas (25) Generation closures to 2020 Existing power station closures ~25% of total capacity by 2020 5
Current status of generation projects Generation consented or under construction 13 GW 4.5 GW currently under construction 1 GW CCGT 2 GW wind Contracted generation (GW) 14 12 10 8 6 4 Consented 8.5 GW with consents 2 Under construction 5 GW CCGT 2 GW wind 0 Type Status Gas Interconnector Wind Other (including CCS) 6
Are the 2020 targets achievable? 2020 Transmission connected renewable generation (GW) Gone Green target Currently connected Contracted 0 5 10 15 20 25 30 35 40 45 130 projects at an average of 300MW each 70 average projects required (a c. 55% conversion rate) 2020 renewables target is challenging, but achievable Data source: National Grid TNQCU Feb 2012; Connected renewable generation excludes pumped storage. 7
A line of sight to achieving the 2020 renewables target 2020 Transmission connected renewable generation (GW) Gone Green target Currently connected Contracted 0 5 10 15 20 25 30 35 40 45 Under construction Consents approved Awaiting consents Scoping 2020 renewables target is challenging, but achievable Data source: National Grid TNQCU Feb 2012; Connected renewable generation excludes pumped storage. 8
A line of sight to achieving the 2020 renewables target 2020 Transmission connected renewable generation (GW) Tidal Wave Gone Green target Currently connected Contracted Biomass 0 5 10 15 20 25 30 35 40 45 Woodchip Onshore wind Offshore wind Securing offshore wind, particularly round 3, is critical Data source: National Grid TNQCU Feb 2012; Connected renewable generation excludes pumped storage. 9
Plus significant non-renewable generation connections 2020 New transmission connected non-renewable generation (GW) Interconnector Nuclear Contracted Other 0 5 10 15 20 25 30 35 40 45 CCGT Clean coal Data source: National Grid TNQCU Feb 2012 10
m (nominal) m (nominal) The transmission challenge New sources of energy Different demand profiles Greater supply and demand variability Greater geographical spread of supply Environmental targets Asset replacement 3,000 NGET business plan expenditure: 3,000 NGGT business plan expenditure: 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500-2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21-2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Opex System Operator Capex Non-Load Related Capex Load Related Capex Load Related Capex (incremental) CAGR in RAV gas and elec transmission ~10% including assumed ~3% RPI over the RIIO price control Total gas and electricity transmission 30bn capital and operating costs in RIIO business plans 2013-2021 11
Summary 80GW contracted generation 20GW of generation closures by 2020 under gone green 2020 targets challenging, but achievable Offshore wind will be critical to achieving 2020 targets Significant transmission investment expected 12
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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Gone green scenario Gone Green is constructed such that the renewable energy and carbon emissions targets are always achieved. A bottom-up approach is used starting with the finest level of detail practical. Summary: AGR nuclear plant receives 5yr life extensions beyond the closure dates in Slow Progression First new nuclear plant connects in 2019/20 The majority of existing coal plant closes by 2023 due to a combination of the IED and the age of the plant 4GW of coal with CCS connects post 2023 in addition to the Government funded pilot project Existing gas-fired plant is assumed to close at around 25 years of age A total of 13GW of new conventional CCGT plant connects over the period 7GW of new gas plant with CCS is included in the scenario from 2023 The build up of wind generation reaches 26GW of wind capacity in 2020 (17GW offshore) and 47GW in 2030 (37GW offshore) Marine generation develops more quickly than in the Slow Progression scenario reaching 4GW in 2030 * Total capacity includes transmission connected generation plus embedded generation ** Low carbon generation capacity includes renewable generation capacity plus nuclear and CCS 2020 2030 Generation capacity (Tx / Total)* 101GW / 115GW 128GW / 147GW Renewable generation capacity 36GW 64GW Low carbon generation capacity** 48GW 94GW Electric vehicles 1.8m (4TWh) 13.5m (40TWh) Heat pumps (domestic households) 1.2m (6TWh) 8m (60TWh) Transmission connected generation (GW) 140 120 100 80 60 40 20 0 Nuclear Coal Gas Offshore Wind Onshore Wind Other Renew able Interconnector Other 14
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Slow progression scenario Slow Progression is similar in concept to the forecasts of earlier years. Projections are prepared for electricity and gas demand on the transmission networks using econometric modelling at a sector level. Renewable energy and carbon emission targets are not met until after their deadlines. Summary: AGR nuclear plant receives 5yr life extensions unless otherwise announced First new nuclear plant connects in 2021/22, with a slower build up of new nuclear capacity than in Gone Green or accelerated Growth The majority of existing coal plant closes by 2023 due to a combination of the IED and the age of the plant No new coal plant is built apart from the government funded pilot project with CCS coal plant assumed to prove uneconomic Existing gas-fired plant remains open for longer than in Gone Green A significant amount of new gas-fired generation is constructed between 2015 and 2023 in order to maintain the required levels of capacity. A total of 21GW of new conventional CCGT plant is included in the scenario by 2030 6GW of new gas plant with CCS is included in the scenario from 2023 The build up of wind generation is lower in this scenario with 20GW of wind capacity in 2020 (11GW offshore) and 32GW in 2030 (23GW offshore) Marine generation is assumed to develop very slowly with larger scale generation not connecting until around 2027 2020 2030 Generation capacity (Tx / Total)* 96GW / 107GW 110GW / 123GW Renewable generation capacity 26GW 41GW Low carbon generation capacity** 38GW 59GW Electric vehicles 0.7m (0.9TWh) 4.5m (12TWh) Heat pumps (domestic households) 0.4m (0.8TWh) 0.4m (0.8TWh) Transmission connected generation (GW) 120 100 80 60 40 20 0 * Total capacity includes transmission connected generation plus embedded generation ** Low carbon generation capacity includes renewable generation capacity plus nuclear and CCS Nuclear Coal Gas Offshore Wind Onshore Wind Other Renew able Interconnector Other 15
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Accelerated growth scenario Accelerated Growth uses the same demand projections as Gone Green but assumes that offshore generation builds up far more quickly. There is no requirement for extra life extension for nuclear AGR plant as in Gone Green. Renewable energy and carbon emission targets are met early. Summary: AGR nuclear plant receives 5yr life extensions unless otherwise announced First new nuclear plant connects in 2019/2020 Significant amount of new coal plant closes due to a combination of the IED and the age of the plant 4GW of coal with CCS connects post 2023 in addition to the Government funded pilot project Existing gas-fired plant remains open longer as a back-up for the significant amount of wind capacity A total of 13GW of new conventional CCGT plant connects over the period 5GW of new gas plant with CCS is included in the scenario from 2023 The build up of wind generation reaches 42GW of wind capacity in 2020 (33GW offshore) and 59GW in 2030 (49GW offshore) Marine generation develops at a slightly quicker rate than in the Gone Green scenario albeit reaching around the same level in 2030 2020 2030 Generation capacity (Tx / Total)* 117GW / 131GW 137GW / 156GW Renewable generation capacity 51GW 74GW Low carbon generation capacity** 58GW 100GW Electric vehicles 1.8m (4TWh) 13.5m (40TWh) Heat pumps (domestic households) 1.2m (6TWh) 8m (60TWh) Transmission connected generation (GW) 160 140 120 100 80 60 40 20 0 * Total capacity includes transmission connected generation plus embedded generation ** Low carbon generation capacity includes renewable generation capacity plus nuclear and CCS Nuclear Coal Gas Offshore Wind Onshore Wind Other Renew able Interconnector Other 16