CPFL Energia 2015 Challenges and Outlook
•
0 likes•438 views
The document discusses key recent events and challenges facing the electric power industry in Brazil, including a 20.2% tariff cut, canceled auctions, and deteriorating hydrologic conditions. It outlines CPFL Energia's agenda for addressing issues like the risk of rationing in 2015, cash flow issues for distributors, and improving sector attractiveness. The document also provides an overview of CPFL Energia and its strategic focus on distribution, renewable generation, and high-value services.
Recommended
Recommended
More Related Content
What's hot
What's hot (20)
Similar to CPFL Energia 2015 Challenges and Outlook
Similar to CPFL Energia 2015 Challenges and Outlook (14)
More from CPFL RI
More from CPFL RI (20)
Recently uploaded
Recently uploaded (20)
CPFL Energia 2015 Challenges and Outlook
- 1. © CPFL Energia 2015. Todos os direitos reservados. Welcome
- 2. © CPFL Energia 2015. Todos os direitos reservados. Challenges and perspectives for CPFL Energia
- 4. • PM 579 – tariff cut by 20.2% • A-1 Auction canceled • Hydrologic scenario starting to deteriorate Key recent facts in the electric power industry 4 201420132012 • Involuntary exposure of discos • A Auction (May/2013) had no offers • Presidential Decree 7,945: CDE guarantees cash flow of Distributors • A-1 Auction (Dec/2013): only 41% of demand was met • Below-average rainfall • Growing involuntary exposure of discos • Presidential Decree 8,221: ACR account covering expenses with thermal dispatch and involuntary exposure • A Auction: meets 57% of demand for May/14 onwards • GSF affecting generators • Eletrobras delayed the transfer of CDE of tariff subsidies • 11th worst hydrologic scenario
- 6. 6 1. How to face the rationing threat in 2015? 27th worst in history Reservoir levels in SIN | % ENA of 2015 | % LTA Evolution of NIPS Power Load in 2015 | GW Thermal plant dispatch | GW (1) Through November Wet Dry Year1 SE/MW 67% 106% 82% South 137% 162% 157% NIPS 71% 114% 89% CPFL estimate for 2015: -1.9%
- 7. Tariff Reality 7 2. How to mitigate the cash unbalance of distributors without funds from Treasury or ACR account? Tariff flags | Jan/15 % change in average price in R$/MWh Residential at CPFL Energia Extraordinary Tariff Review | Mar/15 (1) Source: Aneel; (2) Balance of regulatory assets and liabilities (-) tariff flags not homologated by Aneel. Accumulated CVA at distributors2 CPFL | R$ billion Repositioning of items further apart from the tariff coverage: CDE Quota: from R$ 1.7 billion in 2014 to R$ 22.6 billion in 2015 Costs with energy acquisition: • Itaipu: +46% for distributors S/SE/MW • 18th Adjustment Auction: high contracting cost (R$ 387.07/MWh) • Contracts by availability during green flag pricing Mechanism created to reduce cost volatility at distributors and minimize the cash issue - DEFINITIVE Considers costs of thermal generation and exposure to PLD (hydrologic risk, ESS and involuntary exposure) Earnings from Tariff Flags 1 (R$ billion) 2012 2013 2014 1Q15 2Q15 3Q15 0.4 0.2 0.9 1.0 1.5 1.9+109% 67% Tariff flags 48% 19% RTE/RTA
- 8. GenerationDistribution Electric power industry: recent measures indicating higher rates of return for projects 8 Regulatory WACC [%] Auction Prices [R$/MWh] Source: ANEEL; CCEE HPP Itaocara Thermal plants by availability +8% +36% +34% Transmission +43% Solar Wind SHPP +45% +55% +28% 3. How to regain the sector attractiveness for new investments? Regulatory WACC [%]
- 9. Application of the new methodology for CPFL Piratininga generated a gain of R$ 43.5 million/year 9 In general terms, discussions around the methodology of 4CPTR yielded positive results compared to the current 3CPTR rules 4th Tariff Review Cycle | Main changes in methodology CPFL Piratininga 3CPTR (R$ million) WACC of 8.09% (vs. 7.50% in 3CRTP) +17.1 Remuneration of special obligations +10.4 Technical Losses +22.3 Sharing of Other Revenue +6.7 Unrecoverable Losses -8.0 Xpd Factor of 1.53% + market adjustments/UCs (1.11% in 3CRTP) -5.1 3. How to regain the sector attractiveness for new investments? RAB methodology (3rd phase PH023) Main Equipment: weighted average of prices throughout the tariff cycle > mitigates risk of significant price fluctuation BAR: maintained pricing methodology as a function of power assets, with restated formula > increases BAR revenue COM & CA: Pool of Reference Prices - rewards companies that buy more efficiently >Application in PTRs from 2017 Aspects yet to be discussed: Remuneration on fully-depreciated assets Non-technical losses - incentive for efficient companies Irrecoverable Revenues - increased aging in 4CPTR Excess demand and excess reactive - rules for sharing
- 10. Aneel established the parameters to ensure a minimum level of investments and service quality 4. How to enable the process of renovating concessions for the Distribution segment? 10 CPFL Energia distributors renewing their concessions in 2015 The parameters do not pose a risk for CPFL Energia group distributors • 19 distributors do not currently meet financial requirements valid from 2020 • 16 of 19 do not meet quality requirements either Possibilities for Consolidation 1) DEC/FEC 3Q15 LTM; 2) EBITDA 3Q15LTM; 3) QRR (RTA 2014); 4) Net Debt (Sep/15); 5) Regulatory reference simulated with Selic at 12.87% p.a. Indicator must be ≤ 1/0.8*Selic in 2019 and ≤ 1/1.11*Selic in 2020. Net Debt4/(EBITDA – QRR) vs Limits 2019 and 2020 EBITDA2 and EBITDA (-) QRR3 vs Limits 2017 and 2018 FinancialOperating | Consolidated 5 Ds 1 1 SAIDI SAIFI
- 11. 11 5. How to solve the impact of GSF for generators? • Hydroelectric generators may mitigate the hydrologic risks by paying a risk premium • Unique rules for Regulated (ACR) and Free (ACL) Contracting Environments • ACR: generator pays premium (of up to R$9.50/MWh) to mitigate the effects of GSF • ACL: the generator acquires at least 5% of the physical guarantee allocated in ACL in existing reserve energy through 2018 (risk premium of R$10.50/MWh) General Rules • Number of plants: 41 (7 HPPs and 34 SHPPs) • Exposure Level: 760 MW average • Exposure ACR: 77% (586 MW average) • Exposure ACL: 23% (174 MW average) • Refund of 2015 GSF: up to R$ 158 million (impact on EBITDA) CPFL Perspective Next steps Approval by Senate: Nov. 24, 2015 ANEEL Regulation Necessary corporate approvals Adhesion of generators: by Dec. 18, 2015
- 12. • Did not allow electricity sales in the free market 6. How to re-submit HPPs not renewed in 2012? 12 Change in rules of auctions of un-renewed generation concessions: PM 579/12 • Allows electricity sales in the free market (up to 30%) PM 688/15 (Official Letter 384/15) • No payment of granting bonus • Winning bid offering the highest discount from the ceiling tariff • Did not remunerate investments in expansion • With payment of granting bonus • Winning bid offering the highest granting bonus and lowest tariff • Remunerates investments in expansion Auction became more attractive and indicated more adequate prices
- 14. Dry periodWet period (91% of thermal plants) With an ENA of 90% of LTA and thermal dispatch of 70%, the expectation is to reach Nov/16 with reservoir levels close to the average of the 1997-2014 period. Reservoir Level Scenarios for 2016 1. Hydrologic scenario 14
- 15. 15 2. Macroeconomic scenario for 2016 GDP | YoY change (%) Inflation | IPCA inflation - YoY change (%) Payroll | YoY change (%) Source: IBGE and LCA Industrial Production | YoY change (%)
- 16. Evolution of PDA in R$ million Collection ruler | 14 actions aimed to find the most effective recovery 16 3. Delinquency and PDA
- 17. Distribution Segment 4. Outlook for CPFL Energia 17 4CPTR is already a reality for CPFL Piratininga and will be implemented at the 5 small distributors in 1Q16 New parameters valid for distributors with renewed concession Balance of CVA tends to decrease as cumulative values are transferred to tariffs • CPFL Piratininga: Oct/15 • CPFL Santa Cruz / CPFL Leste Paulista / CPFL Sul Paulista / CPFL Jaguari / CPFL Mococa: Mar/16 • CPFL Paulista: Apr/16 • RGE: Jun/16 Expected behavior for CVA balance
- 18. Generation Segment 4. Outlook for CPFL Energia 18 Expansion of CPFL Renováveis Expenses with GSF for the portion adjusted by the ACR rule will be avoided from 2016 and the risk premium will be paid only from 2020 (new cash outflow), after the end of refunding Note: Physical Guarantee (annual) and prices restated through Beginning of agreement term of Morro dos Ventos II wind farm Annual revenue: R$ 18 million Startup of Campo dos Ventos and São Benedito wind farms Annual revenue: Free Market Startup of SHPP Mata Velha Annual revenue: R$ 16 million Startup of Pedra Cheirosa wind farm Annual revenue: R$ 60 million Startup of SHPP Boa Vista II Annual revenue: R$ 48 million 2016 2017 2018 2019 2020
- 20. CAGR 2010- LTM 3Q15 11.6% 20.6% 3.0% EBITDA EBITDA Margin CAGR 2010- LTM 3Q15 4.3% -0.1% Trading2 173 Conventional Generation 1,388 CPFL Energia Consolidated2 4,033 Distribution 1,99349% 34% 4% 13% Renewable Generation 509 Net Revenue | R$ million EBITDA | R$ million Net Income | R$ million LTM 3Q15 Breakdown of Adjusted EBITDA1 R$ million 20 CPFL Energia - Overview • Largest private player in the Brazilian electric power industry • Leading distributor through 8 subsidiaries • Second largest private generator holding interest equal to 3,129 MW3 of installed capacity, of which 94% from renewable sources • Leader in Renewable Energy in Brazil • One of the most profitable operations of energy Trading and high-value Services. Net Income Net Margin 1) Adjusted by regulatory assets and liabilities and non-recurring items; excludes holding company; 2) Commercialization in the free market and Services; 3) Considering CPFL's share of each generation project
- 21. 21 Debt Leverage1 | R$ billion 3,570 3,830 3,886 3,736 3,835 3,755 3,971 Adjusted EBITDA1.2 R$ million Adjusted Net Debt1 /Adjusted EBITDA2 Inc. CVA adjustment to cash balance Exc. CPFL Renováveis If we exclude CPFL Renováveis, the group's growth driver, leverage ratio would stand at 2.66x Evolution in cash balance and CVA3 | R$ billion 5,622 4,8084,8014,999 4,134 2,616 +17% YTD CVA receivables through 3Q15 affecting our cash balance. Adjusting by this cash balance, the net debt/EBITDA ratio would be 2.98 times in 3Q15 1) Criteria adopted in financial covenants; 2) LTM EBITDA; 3) Balance of regulatory assets and liabilities (-) dynamic pricing not homologated by Aneel.
- 22. Distribution
- 23. J H M A B D C L K E G I F Creating value Destroy ing value Regulatory EBITDA ActualEBITDA CPFL has been creating value through Operating Efficiency 23 1) Source: CPFL; Bank of America – Merrill Lynch Report (Jun. 17, 2015) 100% Creates value Destroys value Operating Efficiency Regulatory PMSO / Actual PMSO (%) Regulatory EBITDA vs. Actual EBITDA1 Expectation to resume real EBITDA growth after the application of 4CPTR CPFL Piratininga: +12.0% in Regulatory EBITDA CPFL continues to create value with actual EBITDA exceeding regulatory EBITDA 3CPTR Regulatory EBITDA vs. Actual EBITDA CPFL Historical (R$ billion - constant currency) Actual EBITDA Regulatory EBITDA +28% +40%
- 24. Transfer of operating costs in 4CRTP CPFL Group leading the efficiency ranking 24 1) CPFL Santa Cruz, CPFL Mococa, CPFL Leste Paulista, CPFL Sul Paulista and CPFL Jaguari have efficiency rates in 4CRTP ranging from 77% to 100%, with the rates under 4CRTP exceeding the ones in 3CRTP for all companies. Efficiency is measured by the gap between the company and the benchmark Disco Relative efficiency – reference for cost target (4CPTR) 122% 126% 126% Transfer of operational costs above real costs % of Relative Efficiency of Larger Distributors1 Y=kmofgrid,marketandcustomers X = costs Efficiency Threshold 93%95% 98%100% 3 CRTP 4 CRTP 76% 69% Industry Average 99%100%
- 25. Smart distribution was a key theme addressed by the Project "Energy in the City of the Future" Vision of the Future of Distribution is directly associated with Smart Grids: • The smart grid technology will provide increased network monitoring capabilities and greater quality and commercial opportunities • Smart Grids will boost the amount of information available, which will be used in innovative ways to optimize operations and services CPFL is preparing itself for the future challenges of Distribution 25
- 26. Emergency Dispatch 26 The past: The future: System intervention or self-healing Automatic failure detection Real-time information for customers Intelligent meter • Reduced unnecessary travel; • Shorter average service; • Reduced SAIDI (optimization of possibilities of network maneuvering); • Greater customer satisfaction (real-time information); • Optimization of service to nearly 600,000 tickets every year. Gains
- 27. Reading and Delivery 27 The past: Reading Energy bill Delivering the bill Payment Making the payment The future: Smart Metering Center and/or automatized software Data networkIntelligent meters Bill via e-mail and/or app (consumption management) • Greater employee safety (reduced travel and exposure to risk) • Data gathering from load curve and customer consumption profile; • More sustainable process (reduced use of paper). Gains
- 28. Payment overdue Dispatch Disconnection Dispatch ReconnectionMaking the payment Disconnection and Reconnection 28 The past: Making the payment The future: Smart Metering Center and/or automatized software Data networkIntelligent meters Energy disconnection • Increased safety of employees (reduced need to travel and confront customers); • Reduced delinquency (improved disconnection management, more subsidies to propose bill due date, etc.); • Improved understanding of customer profile (more gathered data available). Gains
- 30. CPFL Geração focuses on operating efficiency PMSO / Physical guarantee (R$/MWh) PMSO / Installed capacity (R$/MW) +30% -22% Genco 1 Genco 2 Genco 3 Genco 4 Genco 5 Genco 1 Genco 2 Genco 3 Genco 4 Genco 5 PMSO1 / Physical guarantee (R$/MWavg) | 2014 Note: (1) PMSO excludes Epasa's fuel costs PMSO1 / Installed capacity (R$/MW) | 2014 30 Sector average Sector average
- 31. • Operating Efficiency with Innovation & Technology • Strategic Growth Note: Reference ID CPFL plants between 85% and 93%, ID from 2016 between 92% and 94% (1) Abrage Annual Report 2014; (2) Companies' filings CPFL Geração: operating efficiency and strategic growth Average availability by Agent | HEP (%) Domestic Agents1 International Agents2 31 CPFL Geração Strategy • Leader in operating efficiency, becoming an international benchmark • Enable growth with value creation
- 33. Evolution of Installed Capacity (MW) - CPFL Renováveis Visible growth through development of high quality pipeline 1,039MW of projects with a highly confident execution profile, ready to sell energy in the next 12 months Pipeline of projects in three of the four renewable sources 3,453MW Ready to sell energy in the next 12 months 33 CPFL Renováveis: Evolution of the Company's portfolio SolarBiomassWindHydro
- 34. 399 519 148 34 70 75 42 251 19 1,032 150 285 365 385 375 161 280 294 46 200 370 940 175 532 131 13 1 1 3 CPFL Renováveis: Portfolio Diversification Source: Company - ANEEL and company websites; Updated through Nov/2015; Note: (1) Installed capacity in operation (MW) and considering players with at least 1% of market share. Largest player in the renewable energy industry1 Small hydro (SHPP) Biomass Solar Wind 333 2,135 Under construction 1,802 940 844 532 400 375385 366 336355 232 297 434 Biomass Solar Wind Small hydro (SHPP) 34
- 35. 35 CPFL Renováveis: Recent evolution and Strategic Guidelines Adjustments to EBITDA Energy Generation (GWh) EBITDA (R$ million) CAGR 32.0% Note: (1) EBITDA excludes non-recurring effects. Between 2013 and 2015, the two main non-recurring impacts were the cost of GSF and extraordinary energy purchases to meet contracts. • Efficiency of Operations • Growth with value creation CPFL Renováveis Strategy • High operating performance and efficacy in management, supported by controls, processes, systems, organizational structure and institutional presence • Creating value by implementing generation, M&A and innovation projects CAGR EBITDA 30.3% ADJUSTED EBITDA1 34.6%
- 37. Ranking of Trading Companies CPFL Brasil: the best operating result despite the lower energy volume compared to the competition 37 Source: CCEE (Public Reports); Companies' Financial Statements. There are no financial data available for all key commercialization companies General Market Share – 10 largest | 2014 EBITDA (R$ million) EBITDA – Key Players | 2014
- 38. 38 CPFL Brasil: Portfolio Evolution and Strategic Guidelines CAGR 2010-15 13.2% CAGR 2010-15 31.5% • Profitability • Volume • New Products CPFL Brasil Strategy • Continue to figure among the top commercialization players, maintaining EBITDA margin and maximizing value • Grow sales of conventional and incentivized energy, expanding presence in retail • Explore synergies through energy management services offered to customers Free Customers | Conventional + Special Free Customers | Special
- 40. 40 CPFL Energia Strategy Distribution Generation Renewable Commercialization Services
- 41. 41 Sustainability Actions Raising awareness about the strategic relevance of the Sustainability Platform Establishing formal sustainability targets for internal leaderships Results - 2015 Integrated platform based on the strategic plan, with 6 themes, 17 leverages, 63 indicators and short and medium-term goals Sustainability goals published on CPFL's website (of all indicators, 82.5% have been achieved1) Officers and managers have sustainability goals Recognition • Component of ISE since its first edition, in 2005 • 40 companies of 19 industries - Market cap of R$ 1.2 trillion • Component of DJSI Emerging Markets for the fourth consecutive year • 86 companies achieved the Dow Jones requirements (17 Brazilian, of which 3 are in the power industry) • Component of MSCI for the second consecutive year • Formed by companies with the highest ESG standards in their industries • Transparent reporting of greenhouse gas emissions since 2006 • Best company in Management of Water Resources in Latin America - 2015 Welfare Until 1999 Social Responsibility 2000 to 2006 Corporate Sustainability Added to business from 2007 Level of incorporation of the theme Sustainability Increasingly more comprehensive concept of responsibility Note: (1) Data for 2014. 2015 data will be available in Feb/2016.