CBI energy conference 2011 - Tony Quinlan


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Presentation by Tony Quinlan, finance director, Drax, at the CBI's energy conference. London 2011.

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CBI energy conference 2011 - Tony Quinlan

  1. 1. CBI Energy ConferenceReforming the Electricity Market 22 February 2011June 2011Tony Quinlan – Finance Director, Drax Group plc
  2. 2. AgendaIntroduction to DraxElectricity Market Reform Drivers of Change Independent Generator Requirements Assessment of ProposalsSummary and Conclusions1 Drax Group plc CBI Presentation – June 2011
  3. 3. Introduction to DraxIndependent Merchant Generator Indicative Annual Net Output / Supply from VerticosStrategic value 100 Largest, most efficient UK coal-fired power station 50 4GW – supplies 7% of UK electricity Total Supply less Flexibility – provides key support TWh 0 Total Generation = services to grid c.50TWh pa -50Position in UK power market Net physical short position of Verticos is -100 E.ON EDF SSE CNA SPW RWE c. 50TWh per annum Drax can supply c. 40% of net short via Generation Supply wholesale power market Indicative Net Output* from Independent GeneratorsStrategic direction Progressively decarbonise generation Others Drax through biomass  2010: highest renewable output from single UK facility Conoco Expansion of direct supply through Phillips Haven Power Intergen GDF Suez / Intl Power2 Drax Group plc CBI Presentation – June 2011 *Excludes volume sold to Verticos under tolling contracts
  4. 4. Electricity Market Reform Policy Objectives and Independent Generator Requirements Key drivers of change As an IPP(1) – what does Drax need? Ageing fleet Security of supply c. 25% out of  Reliable and Regulatory Investment service by 2020 dependable stability signals Decarbonisation Affordability 30%+ electricity  Mitigate fuel poverty Liquidity Appropriate from renewable sources by 2020 and maintain beyond two support for competitiveness years biomass 20% CO2 reduction by 2020 (vs. 1990) (1) IPP = Independent power producer 3 Drax Group plc CBI Presentation – June 2011
  5. 5. Electricity Market ReformAssessment Regulatory Investment Biomass Liquidity stability Signals Support Feed-in-tariffs for low carbon      No windfalls  Compels  Bankable vs.  Possible index generation  Cost effective trading targets to fuel costs Capacity payments for ? ? ? ?  Proposal too  Proposal  Need adequate  Need to reward back-up little too late adverse to return for flexibility generation wholesale mkt capacity Carbon price     support  Windfalls  Distorts  Not bankable  No net CO2  Political risk wholesale mkt vs. targets reduction Emissions Performance = =  =  New unabated Standard coal unlikely4 Drax Group plc CBI Presentation – June 2011
  6. 6. Summary and ConclusionsComplementary mix of generating technologiesrequired to deliver policy objectives Biomass GenerationUK target: 30%+ electricity from renewables by2020 (vs. c. 7% today) Financial impact significant – DECC estimates price increase of c. 40% Low carbon More reliable / flexible generation required as backup for intermittency Low costBiomass can make a significant contribution Low risk4th largest energy source after oil, coal and gas Carbon neutral when sustainably managed Cost effective, secure and flexibleLarge scale biomass generation throughexisting coal plant is significantly cheaper thanoffshore windWorking with Government to make this a reality5 Drax Group plc CBI Presentation – June 2011
  7. 7. DisclaimerThese presentation slides (and any subsequent discussions arising thereon) may contain certain statements, statistics andprojections that are or may be forward-looking. The accuracy and completeness of all such statements, including, withoutlimitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for themanagement of future operations of Drax Group plc (“Drax”) and its subsidiaries (the “Group”) are not warranted orguaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events anddepend on circumstances that may occur in the future. Although Drax believes that the expectations reflected in suchstatements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a numberof factors, many of which are beyond the control of the Group, which could cause actual results and developments to differmaterially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to,factors such as: future revenues being lower than expected; increasing competitive pressures in the industry; and/or generaleconomic conditions or conditions affecting the relevant industry, both domestically and internationally, being less favourablethan expected. We do not intend to publicly update or revise these projections or other forward-looking statements to reflectevents or circumstances after the date hereof, and we do not assume any responsibility for doing so.In making these presentation slides available, Drax makes no recommendation to buy, sell or otherwise deal in shares in theGroup or in any other securities or investments whatsoever, and you should neither rely nor act upon, directly or indirectly,any of the information contained in these presentation slides in respect of any such investment activity. Past performance isno guide to future performance. If you are considering engaging in investment activity, you should seek appropriateindependent financial advice and make your own assessment.Recipients in jurisdictions outside the United Kingdom should inform themselves about and observe any applicable legal orregulatory requirements in relation to the distribution or possession of these presentation slides to or in that jurisdiction. Inthis respect, neither Drax nor any of its connected persons accepts any liability to any person in relation to the distribution orpossession of these presentation slides to or in any such jurisdiction.By accepting these presentation slides, you agree to be bound by the above conditions and limitations.6 Drax Group plc Investor Presentation – June 2011
  8. 8. CBI ConferenceReforming the Electricity MarketJune 2011