How E.ON Is Working with Our Customers OFGEM: Options for Energy Buyers Seminar
How E.ON is working with our customers OFGEM: Options for Energy Buyers Seminar
Jon Doughty, Head of Strategic Accounts, E.ON UK 17th July 2007 Agenda
•Introducing E.ON UK •Market Context •What are E.ON doing? •Security of Supply – the bigger picture
Thema Datum Bereich Seite 2 Introduction to E.ON UK
• UK’s largest integrated power and gas company • Part of the E.ON group, the world's largest investor-owned power and gas company supplying around 40m customers in 20 locations In the UK: • Our Retail business is one of the largest in the UK, supplying electricity, gas and Home Energy Services to around six million Residential, Small Business and Industrial and Commercial customers. • Central Networks brings power to 4.9 million customers across central England through 133,000km of underground and overhead cables. • Energy Wholesale creates and trades electricity for a lower carbon future, producing electricity from its portfolio of world-class power stations, researching new technologies and trading energy.
Thema Datum Bereich Seite 3 Our expertise • E.ON has extensive experience and knowledge of both the UK and European energy markets allowing us to deliver a wide range of customer products and services to meet individual business requirements.
• E.ON UK offers a number of gas and electricity products designed to meet the differing energy patterns of a diverse range of businesses, whether it be a SME or a Pan European customer.
• E.ON has recently launched a retail facing Sustainable Energy Solutions business which offer technologies and sustainable energy solutions to businesses wishing to reduce their carbon footprint
• E.ON is committed to the UK energy market with £3bn being invested in renewable technology, generation capacity and gas storage to help with the future of security of supply.
Thema Datum Bereich Seite 4 BUSINESS SECTOR SHARE SUMMARY Electricity - Share of Meter Points Gas - Share of Meter Points 1 E.ON UK 24% 1 British Gas 51% 2 British Gas 21% 2 E.ON UK 22% 3 EDF Energy 20% 3 RWE npower 7% 4 RWE npower 14% 4 Total Gas and Power 6% 5 Scottish and Southern Energy 13% 5 Corona Energy 5% 6 Scottish Power 5% 6 Scottish and Southern Energy 3% 7 British Energy 0% 7 Shell gas Direct 2% 8 Total Gas and Power 0% 8 EDF Energy 2% 9 Gaz de France Energy Services 0% 9 Scottish Power 1% Other 3% 10 Gazprom Marketing and Trade 1% 11 Gaz de France Energy Services 0% 12 ENI 0% 13 Hydro Wingas 0% 14 Statoil 0% Other 0%
Electricity - Share of overall volume Gas - Share of overall volume 1 EDF Energy 18% 1 British Gas 19% 2 RWE npower 17% 2 Gaz de France Energy Services 16% 3 Scottish and Southern Energy 14% 3 Total Gas and Power 14% 4 E.ON UK 14% 4 E.ON UK 13% 5 British Energy 14% 5 Shell gas Direct 10% 6 British Gas 9% 6 Corona Energy 7% 7 Scottish Power 6% 7 Statoil 6% 8 Gaz de France Energy Services 5% 8 RWE npower 5%
9 Total Gas and Power 2% 9 Scottish and Southern EnergyThema 3% Datum Bereich Seite 5 Other 3% 10 Hydro Wingas 2% 11 ENI 2% 12 EDF Energy 2% 13 Scottish Power 1% 14 Gazprom Marketing and Trade 1% Other 0% Agenda
•Introducing E.ON •Market context •How are we working with our customers? •Security of Supply – the bigger picture
Thema Datum Bereich Seite 6 Gas prices have posed a significant challenge for energy
buyers NBP Gas Season Products over last 2 years 95
90 Winter 06/07 85 Summer 07 80 Winter 07/08 Summer 08 75 70 65 60
55 50
45 pence per therm per pence 40 35 30
25 20 15 10 07/05 08/05 09/05 10/05 11/05 12/05 01/06 02/0603/06 04/06 05/06 06/06 07/06 08/06 09/06 10/06 11/06 12/06 01/07 02/0703/07 04/07 05/07 06/07 date (mm/yy) Thema Datum Bereich Seite 7 And450 led to significant investment in gas infrastructure
400 Canvey Teeside
Grain 3 350 Dragon 2 South Hook 2
300 Grain 2 Dragon 1
South Hook 1 250 FLAGS
200 BBL MCM/D IUK2 150
Langeled 100 Grain IUK 1 50 Vesterled
IUK existing 0 Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Thema Datum Bereich Seite 8 A more diverse and complex supply situation has 450emerged UK Gas Flows April 2006 - July 2007
400
350
300
250
mcm/d 200
150
100
50
0 04/2006 04/2006 05/2006 06/2006 07/2006 08/2006 09/2006 10/2006 11/2006 12/2006 01/2007 02/2007 03/2007 03/2007 04/2007 05/2007 06/2007
Barrow Burton Point St Fergus Teeside Bacton Easington Theddlethorpe IUK Langeled BBLThemaLRS Datum MRSBereich SeiteSRS 9 With changing, complex fundamentals driving price volatility NBP Gas Seasonal Products 130%
120% Summer 08 Winter 07/08 110% Summer 07 Winter 06/07 100%
90%
80%
70%
60% Volatility 50%
40%
30%
20%
10%
0% 07/05 08/05 09/05 10/05 11/05 12/05 01/06 02/06 03/06 04/06 05/06 06/06 07/06 08/06 09/06 10/06 11/06 12/06 01/07 02/07 03/07 04/07 05/07 06/07 Date (mm/yy) Thema Datum Bereich Seite 10 The drivers for price volatility remain a feature are strong Indigenous supplies • Forecast decline of UKCS supplies at least 7% year on year • Operational failures a significant risk – Rough, CATs pipeline • Summer maintenance plans Weather • No guarantee that mild winter of 2006/7 will be repeated New Infrastructure • New infrastructure yet to be tested under circumstances of colder weather • Gas supply issues in other parts of Europe may influence interconnector flows • LNG terminals improve gasOther supply Price and Drivers open the UK up to global • competitionOil will remain for aLNG key driver of gas prices in the medium to long-term • Power and carbon prices may have significant short term influences • New sources of some information and lack of other information Thema Datum Bereich Seite 11 UK12 electricity could see future uncertainty and price 30% volatility10
8 25%
6 20% 22% 21% 21% 21% 20% 20% 20% Coal closure 4 20% 20% 19% 18% 18% Demand change Uncertainty timing for new-build 15% 2 Nuclear
New CCGT/other
0 Margin,10%wind Annaul GW change Annaul GW 10%
-2 2004/05 5% -4
Uncretain timing for coal closures -6 0%
Thema Datum Bereich Seite 12 •Introducing E.ON •Market Context •How are we working with our customers? •Security of Supply – the bigger picture
Thema Datum Bereich Seite 13 E.ON present a range of options to customers
Forward and Spot Tranche Purchasing with Unfix Opportunity Forward and for customer Spot Tranche Forward Purchasing to take Market reward/risk Trackers with Spot Forward Opportunity Market Trackers Fixed Term Fixed Energy + Pass Thru rd Extendable 3 Party Term All–in Fixed Price Fixed Term All–in Fixed Price
Product Complexity/Cost Thema Datum Bereich Seite 14 We work with customers to select the right option for them Focus on Relationship Management • Evaluate the product fit for the customer: ranging from fixed priced products (simplicity) to progressive hedging approaches • Dedicated Key Account Managers work with customers to understand customer requirements: ¾Key business drivers ¾Balance of control of absolute cost vs competitive position ¾Propensity to take risk ¾Need for simplicity or comfort with complexity ¾Decision making and governance process ¾Understand bespoke requirements • Monitor and review
Thema Datum Bereich Seite 15 We work with customers to select the right option for them Focus on Tailored Solutions
• The challenge of today’s energy markets have led to some customers requiring a more tailored approach • We are working with customers on an individual/small group basis to consider and provide: ¾Alternative indices to NBP gas in order to reduce exposure to volatility ¾Greater transparency of peak/residual purchase prices ¾Longer term virtual power station/spread-type arrangements ¾Flexible purchasing for multi-site, lower consumption users ¾Pan-European purchasing portfolio solutions • Bespoke solutions now become standard products in the future
Thema Datum Bereich Seite 16 Working with customers to address security of supply
Emergency and Commercial Sell-Back Propositions y Provides financial incentive if gas supplies are interrupted; • Emergency Sell Back triggered by Gas Balancing Alert or Advanced notice of potential gas supply emergency – customer agrees to stop using gas and gas sold back to E.ON at pre-agreed strike price • Commercial Sell Back triggered by market price reaching agreed strike price and E.ON retains option to interrupt even if NGT has not declared a gas supply emergency • Sell-Back Calculator developed to assist Account Managers in explaining the propositions and help customers to decide the price level at which they should set sell-back price • Work on-going to accurately value embedded optionality of customer load management in gas and power
Thema Datum Bereich Seite 17 Working with large customers on security of supply
Educating customers on obligations and planning y Hold forums targeted mainly at our largest gas and power customers, OFGEM key participant in the past; • Reminding and educating customers about roles, responsibilities and obligations associated with security of supply as well as explaining our Proposition offerings and how a customer can be prepared • Providing knowledge and examples to customers about how they can make Contingency plans • Additional forum for customers to express concerns and engage in security of supply debate • On-line bulletins and facility for all customers to get up to date
market information and provide emergency contact detailsThema Datum Bereich Seite 18 Emergency Planning Pack
Please email [email protected] if you would like to receive an Emergency Planning pack
Thema Datum Bereich Seite 19 Helping customers get the most out of their products
High volatility drives appetite for information
• Direct access wholesale market via B2B Trading desk • Regular updates on market prices and market events to help buyers understand and manage price volatility • Development and monitoring of purchasing strategy using price triggers • Developing purchasing and risk management strategies with customers • Creating market reports for customers that help them get the most from their selected product and inform their energy purchasing decisions • Providing insight on how to use and interpret new information flows • Working with colleagues in other E.ON market units to consolidate and share knowledge of other European energy markets Themato theDatum Bereich Seite 20 benefit of customers Summary y Price volatility set to remain a Prompt Volatility feature of UK gas and electricity markets y Range of standard purchasing options has increased and is now well understood
180% y Development of supporting Risk 160% management strategy and provision 140% 120% nulsdVolatility Annualised of information required to aid 100% decision making essential 80% 60% y Security of supply type options still 40% 20%
relevant 0% y Customer understanding of security of supply obligations and 02/01/2007 09/01/2007 16/01/2007 23/01/2007 30/01/2007 06/02/2007 13/02/2007 20/02/2007 27/02/2007 06/03/2007 13/03/2007 20/03/2007 27/03/2007 03/04/2007 10/04/2007 17/04/2007 24/04/2007 01/05/2007 08/05/2007 15/05/2007 22/05/2007 29/05/2007 Date requirements critical DayaheadJuly August Thema Datum Bereich Seite 21