Environment Day 3 May 2011 1 Agenda Agenda Renewable Energy - PowerPoint PPT Presentation

Presentation to the Morgan Stanley Environment Day 3 May 2011 1

Agenda Agenda • Renewable Energy Industry Context • Price Outlook and Scenarios • A Specialist Renewable Energy Business • Priorities and Outlook • Questions Presenters: Miles George Managing Director and CEO For further information please contact: Richard Farrell, Investor Relations Manager +61 8031 9901 richard.farrell@infigenenergy.com.au 2

Growth in Electricity Demand in Australia Renewable energy target is complementary to long term growth in electricity demand Forecast Australian Electricity Consumption (TWh) Wind Capacity Annual and Total Additions (MW) 1,400 14,000 350 Annual increase Total Required Capacity (MW) between 2015 and Annual Additions (MW) 1,200 12,000 300 2020 equates to ~60% of current 1,000 10,000 250 TWh total operating 800 8,000 200 capacity 600 6,000 150 400 4,000 100 50 200 2,000 0 0 0 2008 2010 2015 2020 2025 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Residential Commercial Metals Aluminium smelting Mining Manufacturing Annual Additions (MW) Total Required Capacity (MW) Other Source: Renewable Energy (Electricity) Act 2000. Amended up to Act no 69 (2010) Source: ESAA Fact Sheet and ABARE Australian Energy National and State Note: Assumes 32% average capacity factor, wind contributes 75% of total LRET Projections to 2029-30 • • Demand driven by robust outlook for economy RET legislation underpins the mandated increased demand for renewable energy • Average electricity consumption in the NEM is forecast • to grow by 2.1% per annum over the next decade Wind energy expected to increase to >11 GW by 2020 from ~2 GW today • Significant demand for carbon free electricity supply contracts driven by anticipation of a price on carbon and increase in voluntary green energy uptake 3

Renewable Energy Target has bipartisan support Large Scale Renewable Energy Target 50 arget (million RECs) 45 2012& 2013 target increased to 40 absorb oversupply of legacy 35 small scale (Deemed) RECs Growing opportunity restricted to 30 large scale projects and will require new capacity equivalent to 6 times 25 the current operating supply 20 Annual T 15 10 5 - Calendar Year Large scale operating supply Deemed Adjusted LRET Voluntary RECs • Significant capacity required from large scale supply sources • REC surplus working its way out of the system over the next 18 months to 2 years impedes early start • The LRET ends in 2030. Without a carbon price to support zero emission technologies beyond 2030, insufficient returns will diminish the chances of building enough projects to achieve the target in the timeframe • Current wholesale electricity prices will be insufficient to justify new-build renewables 4 economics beyond the LRET scheme

Good intentions - unintended consequences Subsidies and incentives to encourage residential PV systems have temporarily increased electricity tariffs, depressed LREC prices, and stalled investment in large scale generation Small Scale REC generation 30 55 Senator Wong Additional gross announces Small scale REC investigation into feed-in tariffs of 50 producers continue 25 RET scheme/prices to added to the up to $600/MWh LRET surplus until 45 REC (millions) 20 January 2011 $ per REC Receive up-front 40 5 RECs for every 15 MWh deemed to 35 be generated 10 Changes to the over a 15 year 30 RECs from heat pumps renewable scheme lifetime and residential solar hot announced - LRET 5 water and PV systems 25 to meet 90% of oversupply market target - 20 Jan 2009 May 2009 Sep 2009 Jan 2010 May 2010 Sep 2010 Jan 2011 2002 2002 2003 2004 2005 2006 2007 2008 2009 2010 Spot REC Price • Large and rapid increase in small scale generation reflective of overly generous subsidies • Volatility introduced into the REC market where certainty once existed. Market participants react to supply/demand balance and proposed legislative solutions • Exponential growth in solar PV installations resulted in the acceleration in delivery of the SRES target with temporary cost increases reflected in recent tariff determinations • Large scale investment has stalled due to uncertainty and overhang of small scale RECs in scheme • Large scale projects can deliver the majority of the target at a reasonable cost with the 5 support of good policy

Wind Energy leads RE Generation Technologies Wind energy is by far the most cost effective and proven utility scale renewable technology Comparative Cost Energy Generation Long term economics of wind energy 200 are supported by: 150 2009$/MWh • Low technology risk 100 • Zero carbon emissions • Rising fossil fuel prices 50 • Mandated renewable energy targets 0 0 10 20 30 40 50 60 70 80 90 100 • Introduction of a carbon price 2009$/t-Co2-e OCGT SC Brown CCGT IGCC Wind Range Source: ACIL Tasman: Fuel resource, new entry and generation costs in the NEM. April 2009; Wind Range - Infigen Investment in wind generation is New Investment by Technology (2009, $bn) substantially greater than competing Wind technologies 67 • Solar 24 Demand and investment will improve economics and efficiency Biomass & Waste 11 • Solar investment is predominantly Biofuels 7 small scale residential and highly Energy Smart Technologies 4 subsidised Small Hydro • Other marginal technologies are fuel and/or geographically constrained Geothermal 6 Source: United Nations Environment Program (ENEP), Global Trends in Sustainable Energy Investment (2010)

Agenda Agenda • Renewable Energy Industry Context • Price Outlook and Scenarios • A Specialist Renewable Energy Business • Priorities and Outlook • Questions 7

LREC and Electricity Price Outlook in Australia A bundled LREC and Electricity price signal above $100 per MWh is needed to support investment Large Scale Renewable Energy Certificates Wholesale Electricity Price Index Forward Price Curve Forward Price Curve 70.00 70.00 60.00 60.00 50.00 50.00 $ per LREC $ per MWh 40.00 40.00 30.00 30.00 20.00 20.00 10.00 10.00 0.00 - Spot Cal 11 Cal 12 Cal 13 Cal 14 Cal 15 2011 2012 2013 2014 Mid of Bid/Offer Spread Eastern Power Index National Power Index Source: d-cypha on 21 April 2011 Source: Mercari Environmental ECN Closing Rates on 19 April 2011 • Spot prices have recovered from the high $20’s in • Expected increase in wholesale electricity prices is due to demand and rising fuel costs December • LNG industry in Queensland progressing strongly and • Forward prices reflective of the cost of carry and contributing to current and near term price softness support new build in 2014 • New domestic coal and natural gas contracts are being • Forward traded volumes are thin and insufficent to priced at projected export parity levels support investment decisions • Carbon tax flagged in 2012 for 3-5 years followed by a • Carbon price uncertainty is a contributor to stalled market mechanism. Few details available. renewable investment 8

Renewables and a Carbon Price are complementary The expanded Renewable Energy Target and a price on carbon were always intended to be complementary measures to address climate change $/MWh Electricity REC RET scheme and 120 REC revenue end in 2030 100 As the renewable 80 Electricity revenue energy industry 60 stream without a develops a dual carbon price will not income stream is 40 support further required to generate 20 investment adequate returns 0 Electricity REC $/MWh 120 100 Under a carbon price scenario 80 whoelsale electricity No renewable subsidy 60 prices rise to reflect required as renewable 40 the cost of carbon technologies become 20 pollution cost competitive with 0 thermal generation • Illustrative examples only 9

The cost of uncertainty… Good policy is required as achieving the Renewable Energy Target will become difficult and more expensive unless there is investment certainty Electricity REC $/MWh Dual revenue stream available for a shorter 160 timeframe pushing 140 Oversupply and REC prices towards 120 resultant price signals penalty 100 means few new 80 projects will be 60 sanctioned in the early years 40 20 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 $/MWh Electricity REC 160 Timeframe to deliver adequate 140 Target continues to returns diminishes further. RECs 120 increase to 2020 will trade at penalty price for the requiring new build 100 remainder of the scheme and the target will not be achieved 80 60 40 20 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 • Illustrative examples only 10