Investing In Australia`s Energy Market

1. INVESTINGINAUSTRALIA’S ENERGYMARKET An International Perspective GDFSUEZ AustralianEnergy February2014

2. Contents GDFSuezOverview KeyInvestmentConsiderations   • • • • TheBasics–WhyisElectricityImportant? ProjectEconomics–TheFundamentals TheDeal –KeyStakeholders RenewableGenerationProjects inAustralia LocalIssues  • • • • • • • RecentTrendsinAustralianEnergyDemand ImpactofPVUptake&EnergyEfficiency Declining IndustrialEnergyConsumption MaturityofRenewableTechnologies GenerationAlternatives EastCoastLNGConstruction Whereto fromhere? GDFSUEZ AustralianEnergy InvestinginAustralia’sEnergy Market HowdoesAustraliaStackupInternationally? Questions  

3. GDFSuez Overview Energy Europe Energy International GlobalGas& LNG Energy Services SUEZ Environment Infrastructures Latin America North America UK-Europe GDF SuezEnergyInternational MiddleEast, Turkey& Africa Asia Australian Energy GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 1

4. GDF SuezAustralian Energy PowerGeneration Exploration& Production Trading&Portfolio Management Supplyand Infrastructures SalesandEnergyServices GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 2

5. KEYINVESTMENT CONSIDERATIONS The Basics – Whyis ElectricityImportant? Project Economics – The Fundamentals The Deal– KeyStakeholders Renewable GenerationProjects in Australia

6. The Basics–Whyis Electricity Important? Technical stuff aside… GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 3

7. ProjectEconomics–TheFundamentals Whatdoyouneedforagenerationprojecttobeeconomic? 1 Marketcharacteristics Marketfundamentalsandgrowthpotential Rightproject,righttime Strategicfit,operationalsynergies    Manageable 2 Financialcharacteristics Fundingandfinancing Balancesheetimpact Appropriateriskallocationandmanagement    ViableProject 3 Commercialenvironment Experiencedandwillingcounterpartiesand contractors Skilled,affordableandproductiveworkforce   Luck Uncertain 4 Regulatoryenvironment Supportiveregulatoryframework Stablelegalinstitutionsandpolicy Labourpolicy    GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 4

8. The Deal–KeyStakeholders Debt Equity AttractingEquity: Maximiseshareholderreturn Suitablereturnoninvestment, givenrisks Usuallymorewillingtoaccept volatility in ratesof return   Project PPA/Offtake Generation Licence  OEMs (equipment) Major Contractors ConvincingDebt: Fixedrateof return Confidencethatdebtwillbe repaid ontime,withinterest Don’tlike variabilityand:   Connection reement Operations Agreements Co Ag En FuelSupply Agreements LTSA Environmental Approvals FuelTransport Agreements  EBA • Dislike merchantmarket exposure Dislikebelow-investmentgrade entities Lawyers, Engineers, Insurers, Accountants, Taxexperts,etc. Land Agreements • Regulatory Approval (FIRB) GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 5

9. RenewableGenerationProjects in Australia LocationandTiming: FinancingIssues: Connectiontogridcostsmaybe prohibitive: Locationssuitableformaximising generation(wind/solar)are remote. Trade-off: Highvoltage –extremelycostly: Lowvoltage – greaterlosses. Connectionoflargegeneration installationsnecessarilydistorts marketin short-term. Mostlywind–largecapacity, intermittentgeneration Largelyvia non-recourseproject finance,butincreasinglyself-funded bymajors. PowerPurchaseAgreements(PPA) providerevenuecertaintyforloan duration–neededtobebankable.    PPAbuyersseekfirmingdeals.   Long term PPAs may be risky. 15yearPPA +optionto extend Debtcoverage Equity coverage Merchantmarketexposure T= 0 T= 10 T= 15 GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 6

10. LOCALISSUES RecentTrends inAustralianEnergyDemand Impact of PV Uptake & EnergyEfficiency Declining IndustrialEnergy Consumption Maturityof Renewable Technologies Generation Alternatives EastCoastLNG Where tofrom here? HowdoesAustraliastackup Internationally? GDFSUEZ AustralianEnergy

11. RecentTrendsinAustralianEnergyDemand Energydemandappearstohavepeakedin 2008:  2013demandwas 16.8TWhlower thanits 2008peak • • SAannualdemandisactuallylowerthan2000-levels. QLDhasrecordedthegreatestandmostsustainedincreaseindemand. Source: AEMO *IncludesSnowyregion GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 7

12. ImpactofPV UptakeandIncreasing Energy Efficiency ‘Peakclipping’phenomenonas a result of: - Solar PV: biggerand cheaper installations, Increasinglyefficient electrical appliances, - - Activedemand-side management. Source:AEMO GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 8

13. Declining Industrial Energy Consumption Case Study:Aluminium Significantreductioninaluminiumsmelting activitysince2008peak. Largedropoffinworldaluminiumpriceswith mildrecoverysincethen. ToolateforseveralAustraliansmelters: 300MWKurriKurri(NSW)closedin2012, Doubtsaboutfutureof360MWPoint Henry(VIC). ExcludingPointHenry,smeltersrepresent 2,400MWofdemandacrosstheNEM. Source: WorldBank GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 9

14. Maturity of Renewable Technologies Source:EPRItechnologystatusdata2010 Hydro: offerslimited scopeforfurtherdevelopment orexpansion. Solarthermal:remainsinterruptibleandisexpensive. Wind:gaininggreaterdemandpenetration,howeverstill interruptibleand stillposessometechnologyrisk. GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 10

15. Generation Alternatives Source:AEMONEFR2013 Newthermalcapacity(ifany): Renewables LikelytobemetbyOCGTwithcapacityfor conversiontoCCGT, Economicsofthermalplantuncertaininmedium termgivenlowenergydemandandpossibilityof internationalpricelinkageofgas,blackcoal, Nothermalplantunderconstructionor committed. RETpredominantlymetbywindcapacity, Intermittentbynatureanddoesnotprovidea significantlevelofdependablepeakcapacity, InvestorsrequirePPAsaspricestendtobe highwhen(because)windislow,especiallyin SouthAustralia. GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 11

16. East Coast LNG Construction ThreelargeLNGexportterminals underconstruction. 33mtpagasdemandbyLNGterminals representsthreetimescurrenttotal eastcoastgasdemand AssumingJapaneseLNGdemand remainshigh,internationalgasprice linkagecouldsignificantlyincrease costofdomesticgas-fired generationasdomesticgascontracts rolloffandarereplacedbyoil-,JCC- indexedcontracts. Withgas pricesof$8–12/GJ… ...coupledwith - - weakeningdemandand removalofthecarbontax, newgasfiredgeneration projectsmaybecome increasinglyuneconomic. GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 12

17. Wheretofromhere? Keytrendstolookoutfor: • Difficulttopredictchangesindomestic demand, ContinuedweaknessinEurozoneeconomies, PersistentlyhighAustraliandollar (or,purposefuldevaluationofUSD byFed), • • • Highcostof doingbusinessinAustralia. • Howsustainableis currentgrowthin China andotheremergingeconomies? ImpactofrestartofJapanesenuclearpower onworldLNGdemand? • Source: AEMO 49GW ofJapanese nuclear powerreplaced bygas,oiland coal… willit last? Source: RBA Source: OilPrice.com Source: AFR GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 13

18. How does Australia stack up Internationally? ‘Noreserve deficitsinNew SouthWales,Victoria, South Australia, or Tasmaniauntil after2022-23.’ AEMOESOO2013 Tosummarise: Investment in theAustralian electricitysector has some head winds Clean EnergyAct has fostered greatuncertainty Therearemany elementsto investment considerations,butif there’s onething that’scertain …    Weworkinan exciting, challengingand ever-changing environment. GDFSUEZ AustralianEnergy–InvestinginAustralia’sEnergyMarket 2014 14

19. QUESTIONS? WeiLiao EnergyTrader Trading&PortfolioManagement GDFSUEZAustralianEnergy Ph:0396178454 Mob:0478881459 Email:Wei.Liao@gdfsuezau.com GDFSUEZ AustralianEnergy InvestinginAustralia’sEnergy Market www.eeaust.com.au