Meridian Energy Investor Presentation

PG 1

Meridian Energy Investor Presentation
30 September 2019
Attached is a presentation Meridian Energy will be making at a series of investor meetings during October 2019.


ENDS
Neal Barclay
Chief Executive
Meridian Energy Limited

For investor relations queries, please contact:
Owen Hackston
Investor Relations Manager
021 246 4772
For media queries, please contact:
Claire Shaw
External Communications Manager
021 370 677

2019 Roadshow Presentation
OCTOBER 2019
2019 Roadshow Presentation
OCTOBER 2019

2
Electricity markets
OCTOBER 2019
2019 ROADSHOW PRESENTATION

3
New Zealand electricity market


A reliable, affordable and environmentally sustainable electricity system


A well functioning competitive market with high level of renewable resources and rational competition


Vertical integration is the prevailing market structure


Wholesale and retail market regulation provided by an independent regulator – The Electricity Authority (EA)


EA’s mandate is to deliver efficient market operation, security of supply, promote competition


No price controls, th
e non-competitive
transmission and distribution sectors have regulated rates of return
Source: Meridian
OCTOBER 2019
2019 ROADSHOW PRESENTATION

4
New Zealand electricity market
OCTOBER 2019
2019 ROADSHOW PRESENTATION
5
major
generators (all listed)
1
transmission grid
owner (state owned)
1
big industrial user
(Rio Tinto/Sumitomo smelter)
29
distribution
businesses (various ownership structures)
40
retail
brands
2.1
million
consumers(41 TWh pa)
32%
24%
6%
37%
1%
Annual consumption
Re siden tialCommer cialAgri cu ltu reIndustrialOther
60%
17%
5%
4%
12%
Annual generation
Hy droGeothermalBiog asWoodWindSolarOilCoalGasWa ste Heat
Agriculture includes forestry and fishing
Sources: Electricity Authority and Ministry of Business, Innovation and Employment
2%}

5
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 has brought better balance


Demand growth in the last decade has been modest


New renewable builds are being progressed
Source: Meridian
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2019 ROADSHOW PRESENTATION

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New Zealand demand


Underlying demand growth of 0.3% in FY19


Growth across sectors, lower seasonal agricultural load


Smelter off-take up 4% in FY19 with 4
th
potline


Decarbonisation is expected to support medium term demand growth
35
45
55
65
75
1998 2003 2008 2013 2018 202 3 202 8 2033 2038 2043 2048
TWh
Financial Year ended 30 June
Meridian demand forecasts
full decarbonisation
(incl. broader conversion
efficiency gains)
partial decarbonisation
underlying electricity demand
(incl. demand side efficiency)
Source: Meridian
OCTOBER 2019
2019 ROADSHOW PRESENTATION
5%
17%
20%
49%
6%
3%
Sector emissions
Ele ctricityRoad transportStati on ary en ergyAgri cu ltu ralIndustrial procesesWaste
Source: Ministry for the Environment

7
New Zealand demand


Tiwai smelter is 12% of national demand


CfD contract with Meridian on NZAS perpetual 12-month termination right


Additional 50MW contract signed in May 2018, bringing contract volume to 622MW


Aluminium remains a commodity exposed to cycles and Chinese supply decisions


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
Source: Meridian
OCTOBER 2019
2019 ROADSHOW PRESENTATION

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New Zealand supply


A series of planned and unplanned gas field outages is occurring


This fuel scarcity has pushed wholesale spot and forward electricity prices higher in the last year


Longer term supply has to manage existing thermal retirement and renewable repowering


And future decarbonisation-driven demand growth
Source: Meridian
OCTOBER 2019
2019 ROADSHOW PRESENTATION
0
10 0
200
300
400
500
600
2019
2021 2023 2025 2027 2029 2031 2033 2035 2037 2039
MW
Generation plant end of life profile
Gas
Coal/Gas
Geothermal
Wind
Di es el

9
New Zealand policy and regulation
Zero carbon

Zero Carbon Bill at Select Committee


Targeting net zero GHG emissi
ons (excluding methane) by
2050


Targeting a gross reduction of methane emissions of 24%-47% below 2017 by 2050


Establishes a new independent Climate Change Commission
Interim Climate Change Committee

ICCC report released in July


Recommends accelerated elec
trification, strong RMA
direction for wind development, value of hydro in freshwater decisions
Emissions trading scheme

Multiple ETS reforms, including industrial allocation phasedown from 2021
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2019 ROADSHOW PRESENTATION

TPM

EA recently published proposed TPM amendments


Proposes replacing current HVDC charge with benefit–based and residual charges
EPR

Electricity Price Review panel delivered its final report and recommendations to the Minister in late May, response is imminent


Main focus on improving outcomes for vulnerable customers
106
70
41
0
20
40
60
80
100
120
2019
202 2 sta tus
quo (RCP3)
Proposed
(2024?)
$M
Meridian's annual HVDC costs
10
New Zealand policy and regulation
Meridian actual
EA estimate
EA estimate
Source: Electricity Authority, Meridian
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2019 ROADSHOW PRESENTATION

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Australian market


Renewables are dominating new build generation


Surprising Federal election result likely to see more cautious policy settings


DMO
1
and VDO
2
both came into effect on 1
July, more price similarity in retailers’ offers


Spot and forward wholesale prices continue to be elevated; forward contracts remain in backwardation


LGC prices have dropped in the last year


Recent rise in LGC spot prices from the March 2019 trough


Forward LGC curve remains in steep backwardation (Cal20 $24/cert, Cal22 $10)


Coal plants are prog
ressively approaching
end of economic life (61% by 2040)
0
5
10
15
20
25
2019 202 1 202 3 202 5 202 7 202 9 2031 2033 2035 2037 2039
Nameplate GW
Coal generation capacity in NEM
Remaining coal
NSW
QLD
VIC
Source: AEMO, Aurora Energy Research
1
Default market offer
2
Victorian default offer
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Meridian Energy
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About Meridian


NZ$13b company, NZ’s largest listed company, 51% Government owned


Largest 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
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About Meridian


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


Vertically integrated
Australian position,
with a generation portfolio of wind, hydro and renewable offtake in Australia
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2019 ROADSHOW PRESENTATION

45%
35%
77%
98%
42%
33%
78%
98%
0%
30%
60%90%
120%
Women in the
business
Women in
senior roles
Engagement
Gender pay
equity
Workforce measures
FY19
FY18
15
Our people


98% gender pay equity


YWCA equal pay award


Gender Tick accreditation


Targeting 40% of women in leadership and senior specialist positions by 2020


Diversity and inclusion award at the 2019 NZ HR Awards


Nine day work fortnight at Manapōuri


Reshaped Customer Care work week


Changes in the Executive


8 LTI injuries in FY19, highest in 10 years
Source: Meridian
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Our strategy
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2019 ROADSHOW PRESENTATION
Our purpose:Clean energy for a fairer and healthier world.
Competitive marketsSustainabilityClimate action
TradingAsset managementRe-consentingFinancing
NZ retailAU retailNZ generationAU generationFlux earnings

17
Our sustainability leadership
Helping our customers


Replaced unfair prompt payment discounts with fairer, clearer pricing


Tailored payment plans, LevelPay, hardship support
Helping the climate


Net Zero Carbon across group emissions


Planting 1,000ha of forest, starting at Manapōuri


Aiming to halve operational emissions by 2030


Published NZ’s first climate risk report (TCFD)


Strong climate advocacy, 100% renewable generation
A new brand, articulating what we stand for:
Taking climate action
through generating
100% renewable energy
While making a difference to peopleAnd the environment
Our key sustainability goals:SDG13 Climate Action. SDG7 Affordable and
Clean Energy.
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Shareholder highlights


Six successive years of earnings and dividend growth since listing


Double digit shareholder
returns every year
since listing


High free cash flow, high payout ratio, progressive ordinary dividend policy


Structured capital management programme running to 2022


Balance sheet headroom to fund potential growth in three countries
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2019 ROADSHOW PRESENTATION
19%
33%
31%
17%
14%
59%
0%
20%
40%
60%
2014
2015
2016
2017
2018
2019
Financial Year ended 30 June
Total shareholder return

19
Meridian’s investment proposition
OCTOBER 2019
2019 ROADSHOW PRESENTATION
capital
manage-
ment
long term
sustainable
business
strong free
cash flow
customer
growth in
NZ
low capital
needs
retail
platform
changes
progressive
ordinary
DPS
Flux
continued
cost
discipline
customer
growth in
Australia
high free
cash flow
payout
medium
term new
generation
income
growth

20
Glossary
Hedging volumes
buy-side electricity derivatives excluding the buy-side of virtual asset swaps
Average generation price
the volume weighted average
price received for Meridian’s physical generation
Average retail contracted sales price
volume weighted average electricity price received from retail customers, less distributio
n costs
Average wholesale contracted sales price
volume weighted average electricity price received from wholesale customers (including N
ZAS) and financial contracts
Combined catchment inflows
combined water inflows into
Meridian’s Waitaki and Waiau hydro storage lakes
Cost of hedges
volume weighted average
price Meridian pays for derivatives acquired
Cost to supply contracted sales
volume we
ighted average price Meridian pays to suppl
y contracted customer sales and financial co
ntracts
Contracts for Difference (CFDs)
an agreement between parties to pay the difference between the wholesale electricity price and an
agreed fixed price for a
specified volume of electricity. CFDs do not result in the physical supply of electricity
Customer connections (NZ)
number of installation control points, excluding vacants
FRMP
financially responsible market participant
GWh
gigawatt hour. Enough electricity for 12
5 average New Zealand households for one year
Historic average inflows
the historic average combined water infl
ows into Meridian’s Waitaki and Waiau hydro storage lakes over
the last 84 years
Historic average storage
the historic average level of
storage in Meridian’s Waitaki catchment since 1979
HVDC
high voltage direct current link between
the North and South Islands of New Zealand
ICP
New Zealand installation control points, excluding vacants
ICP switching
the number of installation control points changing retailer supplier in New Zealand, recorded in the month the swi
tch was initiated
MWh
megawatt hour. Enough electricity for one average New Zealand household for 46 days
National demand
Electricity Authority’s reconciled grid demand
www.emi.ea.govt.nz
NZAS
New Zealand Aluminium Smelters Limited
Retail sales volumes
contract sales volumes to retail customers, including both non half hourly and half hourly metered customer
s
Financial contract sales
sell-side electricity derivatives excluding the sell-side of virtual asset swaps
TJ
Terajoules
Virtual Asset Swaps (VAS)
CFDs Meridian has with Genesis Energy and
Mercury New Zealand. They do no
t result in the physical suppl
y of electricity
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2019 ROADSHOW PRESENTATION

21
Disclaimer
The information in this presentation was prepared by Meridian Energy with due care and attentio
n. However, the information is
supplied in summary form and is
therefore not necessarily complete,
and no representation is made as
to the accuracy, completeness or
reliability of the
information. In addition,
neither the company nor
any of its directors, employees, shareholders nor any other person shall have liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or any information supplied in connection with it.This presentation may contain forward-looking statements and projections. These reflect Meridian
’s current expectations, based on
what it thinks are reasonable assumptions. Meridian gives no warranty or representation as to it
s future financial performance or
any future matter. Except as required by law or NZX or ASX listing rules, Meridian is not obliged to update this presentation after its release, even if things change materially.This presentation does not constitute financial advice. Further, this presentation is not and should not be construed as an offer to sell or a solicitation of an offer to buy Meridian Energy securities and may not be relied upon in connection with any purchase of Meridian Energy securities.
This presentation contains a number of non-GAAP financial measures, including Energy Margin, EBITDAF, Underlying NPAT and gearing. Because they are not de
fined by GAAP or IFRS, Meridian's
calculation of these measures may differ from similarly titled measures presented by other com
panies and they should not be
considered in isolation from, or construed as an alternative to, other financial measures determined in accordance with GAAP. Although Meridian believes they provide usef
ul information in measuring the
financial performance and condition of Meridian's business, readers are cautioned not to place undue reliance on these non-GAAP financial measures.The information contained in this presentation should be considered in conjunction with the company’s financial statements, which are included in Meridian’s integrated report for the year ended 30 June 2019 and is available at:
www.meridianenergy.co.nz/investors
All currency amounts are in New
Zealand dollars unless stated
otherwise.
OCTOBER 2019
2019 ROADSHOW PRESENTATION