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International Roadshow October 2019

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International roadshow October 2019 Putting our energy where it matters Disclaimer and important information This presentation may contain projections or forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those Furthermore, while all reasonable care has been stated in any forward-looking statement based taken in compiling this presentation, Contact on a number of important factors and risks. accepts no responsibility for any errors or omissions. Although management may indicate and believe that the assumptions underlying the forward- This presentation does not constitute investment looking statements are reasonable, any of the advice. assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that Numbers in the presentation have not all been the results contemplated in the forward-looking rounded and might not appear to add. statements will be realised. All logos and brands are property of their EBITDAF, underlying profit, free cash flow and respective owners. All company, product and operating free cash flow are non-GAAP service names used in this presentation are for (generally accepted accounting practice) identification purposes only. measures. Information regarding the All references to $ are New Zealand dollars usefulness, calculation and reconciliation of these measures is provided in the supporting material. Contact Energy / International Roadshow / October 2019 2 Dennis Barnes / Chief Executive Officer Dennis has been Chief Executive Officer of Contact since 2011. Dennis has completed Contact’s $2bn investment programme in renewable energy, flexible generation and companywide systems. He has provided industry leadership on topics as wide ranging as wholesale electricity market structures and health and safety reform. During 2015, Dennis successfully led Contact as its majority shareholder exited and Contact diversified its shareholding base and listed on the ASX. Prior to joining Contact, he was General Manager Energy Risk Management at Origin Energy where he oversaw Origin's significant and expanding operations in wholesale markets. Prior to Origin, Dennis held a number of positions operating in international energy markets; including managerial roles at Scottish and English electricity companies. Dennis' career began as a metallurgist with Alcan and he holds a BSc (Hons), GradDip (Marketing) and MBA. Contact Energy / International Roadshow / October 2019 3 Dorian Devers / Chief Financial Officer Dorian joined Contact in December 2018 as Contact’s Chief Financial Officer. Dorian has 20 years of financial and operational experience in industrial businesses. He is experienced in business transformations, having led successful turnarounds of businesses in both the UK and South Africa, and has successfully delivered a number of acquisitions, including ones in the Australian and New Zealand energy sector. He has governance experience having served on the Board of Afrox a publicly listed company and the largest industrial gases business in Africa, as well as being a previous Board member of Liquigas, a New Zealand LPG infrastructure business. Contact Energy / International Roadshow / October 2019 4 AGENDA 1 New Zealand electricity market 6-11 2 Contact’s business and value drivers 12-33 3 Why invest in Contact 34-43 4 Appendix 44-61 – Market in action, FY19 results extracts Contact Energy / International Roadshow / October 2019 5 New Zealand electricity market 6 NEW ZEALAND ELECTRICITY MARKET Spot Retailers Major electricity State-owned national Distribution Million generators pool transmission grid businesses (50 brands) consumers operator COMPETITIVE REGULATED MONOPOLIES COMPETITIVE “New Zealand serves as a model for effective energy markets and secure power system operation.” International Energy Agency (IEA) New Zealand 2017 Review Contact Energy / International Roadshow / October 2019 7 DEMAND National electricity demand (TWh) Annual consumption per household (kWh) 0.2% -0.6% 41.1 41.2 40.9 41.3 41.4 7,263 7,187 7,165 7,068 7,102 FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 Source: EMI Source: MBIE electricity statistics Agriculture Electricity consumption breakdown 6% While demand is Forestry/agriculture, food processing and Residential at a similar level to commercial have grown since the GFC. 32% 2008, there are Industrial This growth has been offset by ongoing encouraging signs of 38% reductions in demand from the pulp and paper sector as well as residential efficiency. demand growth in Source: MBIE electricity statistics some key sectors Commercial 24% Contact Energy / International Roadshow / October 2019 8 SUPPLY FUNDAMENTALS Clutha Waitaki Manapouri Taupo . Average annual generation of 3,900 GWh . Average annual generation of 7,000 GWh . Average annual generation of 4,800 GWh . Average annual generation of 4,000 GWh . Max storage of ~300 GWh . Max storage of ~2,500 GWh . Max storage of ~800 GWh . Max storage of ~500 GWh . Summer inflows . Shared between Genesis (Lake Tekapo) and . Highest inflow intra year volatility of all . Winter inflows . Wet to dry range of 1,000 GWh Meridian (all lakes downstream of Lake Tekapo) catchments . Wet to dry range of 1,300 GWh . Summer inflows . Wet to dry range of 2,000 GWh . Wet to dry range of 3,000 GWh National controlled storage (GWh) 4,000 3,000 2,677 Average 2,000 South Island 1,000 North Island 0 Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- 10 11 12 13 14 15 16 17 18 19 Source: NZX hydro Hydro storage is crucial, but limited; Maximum controlled storage of ~4 TWh spread across four key catchments, ~10% of annual demand of 41TWh. Contact Energy / International Roadshow / October 2019 9 SUPPLY FUNDAMENTALS National annual supply (TWh) Major Sources 43 thermal of generators flexibility Flexible thermal 8 production is required 2 Contact: “Dry year”: 2 gas and diesel Genesis’s coal with 15 year stock pile (extendable) contract for Daily and seasonal: 21 gas storage Gas storage -5 Genesis: “Wet year”: per annum of 10 coal and gas Gas storage seasonal renewables 5 5 Nova/Todd Winter peaks/ outages: firming required Energy: Diesel gas FY19 Geothermal Wind Co- Minimum Maximum Hydro Minimum Contingent/ emergency generation generation hydro thermal swing thermal (including hydro storage losses) Thermal generation is currently the most economic swing fuel to manage the seasonal supply and demand mismatch. Contact Energy / International Roadshow / October 2019 10 WHOLESALE PRICING Short-term external Wholesale and futures electricity pricing ($/MWh) factors that can influence the market 300 200 Long-dated futures (>12 months) Short-dated futures (<12 months) Monthly average spot price Aluminium 150 Wholesale electricity 100 Long-term prices average spot price = $80.16/MWh 50 0 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 Long-term pricing is linked to the long-run marginal costs of new renewable projects Long-dated futures have jumped +30% in last 12 months. to meet demand plus costs associated with firming renewable intermittency Average spot prices remain well above long-term average. Source: EMI wholesale pricing The market quickly responds to changes in supply and demand by sending price signals. Contact Energy / International Roadshow / October 2019 11 Contact’s business and value drivers Wholesale business 12 CONTACT WHOLESALE SNAPSHOT 84% Renewable generation 5 Geothermal stations Contact is an owner and 2 Hydro stations / 1 controlled storage lake operator of low-cost, long-life renewable generation assets and is developing its consented 4 Thermal stations geothermal development options. 8.9TWh FY19 generation 15 year contract for gas storage Contact Energy / International Roadshow / October 2019 13 CONTACT WHOLESALE SNAPSHOT • Operational experience on the world’s We have maintained a dedicated, internationally-recognised, subsurface team to: second longest electricity producing • Lower the cost of operations significantly – comfortably New Zealand’s geothermal field (Wairakei, since 1958). lowest cost geothermal operator. • Capability in construction management, • Investigate options to extend and improve generation at Wairakei consenting and stakeholder engagement. at the 2026 resource consent renewal. • Provide geothermal consultancy services internationally. Most recent geothermal developments Te Huka (2010) 28MW Bioreactor (2012) Te Mihi (2014) 166MW Tauhara (Pre-FID) Contact’s geothermal operations are significant in a global context with consents to expand production by ~67% Contact Energy / International Roadshow / October 2019 14 MACRO-ECONOMIC ENVIRONMENT Government policy Quality, long-life renewable assets Historically low cost of capital New Zealand is in the early stages of a decades-long transformation from Climate change reliance on fossil fuels to renewable electricity. Contact Energy / International Roadshow / October 2019 15 CLIMATE CHANGE AND REGULATION Potential electricity demand impact Potential renewable generation impact Potential wider electricity The New Zealand regulatory framework is being sector impact adapted to deliver on this societal imperative. Coal Net zero Climate phase out Electricity NZ carbon Transport Freshwater Change for electricity Pricing emissions policies reform Commission generation Review² by 2050 by 2030¹ Current Ban on Emission Tiwai Productivity Zero Transmission offshore Trading contract Commission Carbon Pricing oil and gas
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