NZX RETAIL INVESTOR EVENING MANAGEMENT PRESENTATION
NZ ELECTRICITY SECTOR ELECTRICITY COMPANIES MARKET CAP Main participants are listed $B ▪ Five large retailer generators 10 9 ▪ $10b free float 8 7 ▪ Defensive, high yield characteristics 6 ▪ Frequently seen as bond proxies 5 4 ▪ Competing in a market with low growth in 3 the last decade 2 1 0 Meridian Mercury Contact Genesis Trustpower Source: NZX MERIDIAN TOTAL SHAREHOLDER RETURN 33% 35% 31% 30% 25% 19% 20% 17% 14% 15% 10% 5% 0% 2014 2015 2016 2017 2018 Financial Year ended 30 June Source: Meridian Meridian Energy Limited NZX Retail Investor Presentation October 2018 2
MERIDIAN ENERGY $8.5b company, listed in 2013, 51% Government owned ▪ Largest of the five retailer generators ▪ 420,000 customers in three countries ▪ Diversified NZ customer sales, weighted towards business, commercial and agricultural ▪ 40% of generation covered by Tiwai Point contract (price guarantee, not physical supply) ▪ Strong sustainability focus Meridian Energy Limited NZX Retail Investor Presentation October 2018 3
MERIDIAN ENERGY NZ’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 NZ wind farms, two in Australia ▪ Proven success operating in a high wind environment ▪ Backed with more than a decade of construction and operational experience Meridian Energy’s Benmore power station ▪ Typical long generation position to manage variable hydro inflows Long-term competitor in Australia ▪ Recent acquisition of further renewable generation and offtake agreements Meridian Energy’s Manapōuri power station Meridian Energy Limited NZX Retail Investor Presentation October 2018 4
HOW WE MAKE MONEY Selling Buying electricity we electricity from generate to the wholesale Selling the wholesale market for electricity $M market customers to retail Selling that 2,400 customers electricity to the wholesale Selling market electricity Costs of the Buying to 2,000 inter island Maintenance, electricity wholesale high voltage customer generated customers link service, IT, by other salaries, companies 1,600 1,039 -1,194 insurance 1,200 86 -127 435 195 800 -259 16 -154 400 666 629 Australian retail and generation 0 Retail Wholesale Generation Cost to Cost of Acquired Australian Transmission Operating Other EBITDAF Contracted Contracted Spot Supply Acquired Generation Earnings Costs Costs Sales Sales Revenue Contracted Generation Spot Sales Revenue Meridian Energy Limited NZX Retail Investor Presentation October 2018 5
NZ ELECTRICITY DEMAND DEMAND FORECASTS Little demand growth in the last decade TWh NZ Historical Demand 90 ▪ + Economic growth Transpower ▪ + Positive net migration 80 MBIE - High MBIE - Low ▪ - Industrial and manufacturing closure 70 Productivity Comm. - High Productivity Comm. - Low ▪ - Warmer than average temperatures 60 Meridian - High ▪ - Growing impact of technology and Meridian - Low 50 efficiency gains 40 ▪ +/- Variable irrigation load depending on 30 rainfall 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050 Source: Meridian Future demand growth is expected ▪ Likely to be modest in the short term, estimated between 0.5% and 1% pa on average ▪ New generation capacity will be needed, probably after 2021 ▪ Older plant retirement will add to the need for new generation Meridian Energy Limited NZX Retail Investor Presentation October 2018 6
NZ ELECTRICITY DEMAND Zero Carbon New Zealand by 2050 NZ 2016 SECTOR EMISSIONS ▪ Agriculture means NZ has one of the 3% 5% 6% highest per capita rates of emissions Electricity 17% ▪ 32 million tonnes of carbon emissions Road transport from the wider (non-agricultural) sector Stationary energy* could be removed through electrification Agricultural ▪ Converting all fossil fuel-based energy use 20% 49% to renewables could add 75% to electricity Industrial processes demand Waste ▪ Depending on the rate of electrification, Source: Ministry for the Environment equivalent of two or more mid-sized wind NZ CONSENT MATURITY GWh farms needed annually over the longer Geothermal Gas Wind Tidal Hydro 15,000 term ▪ Consent maturity is near dated 12,000 9,000 6,000 3,000 *manufacturing (including milk processing), construction and commercial sectors and 0 domestic heating 201820192020202120222023202420252026202720282029203020312032203320342035 Source: Meridian Meridian Energy Limited NZX Retail Investor Presentation October 2018 7
POLITICS AND REGULATION REAL RESIDENTIAL ELECTRICITY COST New Zealand c/KWh 20 ▪ Policy support is increasing the pace of 18 NZ’s climate change actions 16 ▪ Government’s electricity price review has 14 12 delivered its first report 10 ▪ Energy affordability can be an issue 8 6 ▪ Low income households need better 4 support Energy and other component 2 Lines component ▪ Competition is high, customer 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 engagement varies Source: Ministry of Business, Innovation and Employment ▪ Industry delivers high quality supply ▪ Distribution and transmission could be more efficient Australia ▪ Lack of coherent energy policy to support renewables ▪ Electricity is highly politicised Meridian Energy Limited NZX Retail Investor Presentation October 2018 8
TIWAI POINT ALUMINIUM SMELTER 12% of New Zealand’s total annual demand ▪ CfD contract with Meridian on NZAS perpetual 12-month termination right ▪ International aluminium is recovering, LME prices up 13% in the last year ▪ Additional 50MW contract signed ▪ 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 New Zealand Aluminium Smelter, Tiwai Point Meridian Energy Limited NZX Retail Investor Presentation October 2018 9
NEW TECHNOLOGIES Solar ▪ Solar uptake increasing in NZ as economics slowly improve ▪ NZ residential capacity factors are low (13%-15%) and payback high (13 years) ▪ Commercial solar opportunities are being developed ▪ Grid scale solar unlikely in NZ 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 NZX Retail Investor Presentation October 2018 10
NEW TECHNOLOGIES Batteries ▪ Battery value for energy management is in load shifting (high to low price periods) ▪ Grid scale unlikely in NZ due to large hydro storage ▪ Grid scale possible in Australia with subsidy support ▪ Solar and batteries to achieve residential off-grid in NZ remains very expensive (20 year payback) ▪ Batteries also offer other value: ▪ Back-up power ▪ Grid and transmission support ▪ Avoided infrastructure costs Meridian Energy Limited NZX Retail Investor Presentation October 2018 11
CLIMATE CHANGE We have seen ▪ No significant change to catchment inflows over the last 100 years ▪ Some seasonal shift in inflows; drier autumns, wetter summers ▪ Snowpack and glaciers getting smaller It is projected to get Genesis Energy’s Tekapo B power station ▪ Wetter in our catchments, including in winter ▪ With bigger individual rain storms ▪ Drier in irrigation areas ▪ Warmer everywhere ▪ Windier at our wind farms, especially in winter Contact Energy’s Clyde Dam Meridian Energy Limited NZX Retail Investor Presentation October 2018 12
SHAREHOLDER VALUE Strong free NZ retail cash flow load Long term Retail Capital Low capital sustainable platform management needs business changes High Potential Income Growth Flux High free Medium Progressive Powershop cash flow term new ordinary DPS franchise payout generation into the UK Customer Continued cost growth in discipline Australia Meridian Energy Limited NZX Retail Investor Presentation October 2018 13
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