MERIDIAN ENERGY LIMITED INVESTOR ROADSHOW PRESENTATION
THE NEW ZEALAND ECONOMY MERIDIAN ENERGY LIMITED INVESTOR ROADSHOW PRESENTATION Meridian Energy Limited Investor Roadshow Presentation 2
THE NEW ZEALAND ECONOMY Stable, open, market orientated economy � High ease of doing business and low corruption rankings � Seven years of economic expansion, now entering a mature phase � Slowing economic growth as housing market, construction and population growth cools � Terms of trade are strong and government spending is stimulatory, suggesting middling rates of GDP growth � Capacity contraints may see wage growth and rising inflation � Reserve Bank’s official cash rate is expected to stay at record low rate until 2020 Meridian Energy Limited Investor Roadshow Presentation 3
THE NEW ZEALAND ELECTRICITY MARKET Meridian Energy Limited Investor Roadshow Presentation 4
THE NEW ZEALAND ELECTRICITY MARKET Delivering a reliable, affordable and environmentally sustainable electricity system � A well functioning market, characterised by: “New Zealand serves as a model � Quality renewable resources for effective energy markets and secure power system operation” � Progressive regulatory settings International Energy Agency (IEA) � Stable political environment New Zealand 2017 Review � Rational market competition � Vertical integration is the prevailing structure � Wholesale and retail market regulation provided by an independent regulator – The Electricity Authority (EA) � EA mandate to deliver efficient market operation, security of supply, promote competition � No price controls, non-competitive distribution sector has regulated rates of return Meridian Energy Limited Investor Roadshow Presentation 5
THE NEW ZEALAND ELECTRICITY MARKET 5 major generators (all listed) 1 transmission grid 29 distribution 33 retailers owner (state owned) businesses (44 brands) (various 1 big industrial user ownership (Rio Tinto/Sumitomo structures) smelter) 2.1 million consumers (41 TWh pa) Sources: Electricity Authority and Ministry of Business, Innovation and Employment 2017 GENERATION MIX 2017 CONSUMPTION MIX Hydro Geothermal Agriculture/ Forestry/ Biogas Fishing Wood Industrial Wind Solar Commercial (incl. Oil Transport) Coal Gas 82% renewable Residential Waste Heat Meridian Energy Limited Investor Roadshow Presentation 6
THE NEW ZEALAND ELECTRICITY MARKET � New Zealand’s hydro generation is managed against limited controlled storage � Bulk of hydro inflow is anti-correlated to winter demand peak � Thermal capacity and fuel storage manages potential hydro inflow deficit and other renewable intermittency � Efficient and well-functioning wholesale market manages this supply risk � Significant oversupply has existed in the market, older thermal plant closure is bringing better balance � Demand growth in the last decade has only been modest Meridian Energy Limited Investor Roadshow Presentation 7
THE NEW ZEALAND ELECTRICITY MARKET � Market will be the key enabler of greater NZ 2016 SECTOR EMISSIONS decarbonisation in New Zealand 3% 5% 6% � 42% of non-agricultural carbon emissions Electricity could be removed over time through 17% Road transport electrification Stationary energy* � Converting this fossil fuel-based energy use Agricultural Industrial processes to predominately renewables could add 20% 75% to current electricity demand Waste 49% � Depending on the rate of future *manufacturing (including milk processing), construction and commercial electrification, significant new generation sectors and domestic heating Source: Ministry for the Environment will be needed DEMAND FORECASTS TWh � Unsubsidised renewables are likely to form NZ Historical Demand 90 Transpower the bulk of new generation 80 MBIE - High MBIE - Low 70 Productivity Comm. - High Productivity Comm. - Low 60 Meridian - High Meridian - Low 50 40 30 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050 Source: Meridian Meridian Energy Limited Investor Roadshow Presentation 8
THE NEW ZEALAND ELECTRICITY MARKET � New Zealand Government is conducting a REAL RESIDENTIAL ELECTRICITY COST review of electricity prices c/KWh 18 � An initial paper has been released: +4% � Energy affordability can be an issue since 2009 15 � Low income households need better +28% support since 2009 12 � Competition is high, customer engagement varies Energy and other component Lines component 9 � Industry delivers high quality supply 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Ministry of Business, Innovation and Employment � Distribution and transmission could be more efficient AVERAGE RESIDENTIAL BILL 1% 3% � New Zealand residential electricity prices Generation 13% are 20% lower than the OECD average and 32% Distribution 40% lower than Australia Transmission 13% � Pricing from the competitive parts of the Retail electricity supply chain have been flat in GST real terms since 2011 11% Metering 27% � Historical distribution cost increases have Other resulted in higher residential prices Source: Electricity Authority Meridian Energy Limited Investor Roadshow Presentation 9
THE NEW ZEALAND ELECTRICITY MARKET Tiwai smelter is 12% of national demand � CfD contract with Meridian on NZAS perpetual 12-month termination right � Meridian’s modelling suggests smelter is currently making healthy cash profits � Additional 50MW contract signed in May 18 � Aluminium remains a commodity exposed to cycles and Chinese supply decisions � Meridian not expecting smelter closure, change in ownership may occur � A smelter closure would trigger further South Island grid investment (majority of lower South Island generation can be dispatched now) � Greater HVDC capacity and North Island line uprating possible in the medium term Meridian Energy Limited Investor Roadshow Presentation 10
MERIDIAN ENERGY Meridian Energy Limited Investor Roadshow Presentation 11
ABOUT MERIDIAN ENERGY � NZ$8b company, listed in 2013, 51% Government owned � Largest and most liquid of five listed New Zealand retailer generators � The only New Zealand electricity company with a customer and asset base diversified across different countries � Strong environmental, social and governance focus � 40% of New Zealand generation covered by a price guarantee contract with Rio Tinto/Sumitomo’s New Zealand aluminium smelter Meridian Energy Limited Investor Roadshow Presentation 12
ABOUT MERIDIAN ENERGY � New Zealand’s largest generator, all production from renewable sources � Seven big hydro stations – flexible plant with the country’s largest storage � With low operating costs and capital needs � Five New Zealand wind farms and proven success operating in a high wind environment � Backed with more than a decade of construction and operational experience � Typical long generation position to manage variable hydro inflows � Generation portfolio of wind, hydro and renewable offtake in Australia Meridian Energy Limited Investor Roadshow Presentation 13
STRATEGIC FOCUS Support retail growth & protecting Champion benefits of our generation legacy competitive markets � Contribution of hydro to 100% � Competing vigorously renewable aspiration � Leadership in sustainability in � Maintaining a best in class New Zealand and Australia generation portfolio � Supporting wholesale liquidity � Best placed renewable energy pipeline Clean energy for a fairer & healthier world Grow New Zealand retail, through Grow overseas earnings, through � Simpler systems � Expansion of challenger brand � Reduced cost � Strengthening our vertically � Faster adoption integrated position � Flux client success � Relentless focus on customer experience Meridian Energy Limited Investor Roadshow Presentation 14
SHAREHOLDER HIGHLIGHTS � Five successive years of earnings and EBITDAF $M dividend growth since listing 700 � Double digit shareholder returns every year 666 657 650 since listing 650 � High free cash flow, high payout ratio, 618 progressive ordinary dividend policy 600 585 � Structured capital management programme running to 2022 550 2014 2015 2016 2017 2018 � Strategic focus on potential market growth Financial Year ended 30 June Source: Meridian in three countries TOTAL SHAREHOLDER RETURN % 33% 35% 31% 30% 25% 19% 17% 20% 14% 15% 10% 5% 0% 2014 2015 2016 2017 2018 Financial Year ended 30 June Source: Meridian Meridian Energy Limited Investor Roadshow Presentation 15
NEW TECHNOLOGIES � Solar uptake increasing in New Zealand as economics slowly improve � New Zealand residential capacity factors are low (13%-15%) and payback high (13 years) � Commercial solar opportunities are being developed � Grid scale solar unlikely in New Zealand in the near term with competing land uses and winter peak demand � Solar uptake is much higher in Australia with subsidy support � Residential capacity factors and paybacks are better in Australia � Grid scale development is happening in Australia as costs decrease significantly Meridian Energy Limited Investor Roadshow Presentation 16
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