Strategic Challenges for Energy Companies

1. Strategic Challenges for Energy Companies Dr. Stefan ULREICH, E.ON SE 25thFORUM: ENERGY DAY IN CROATIA Zagreb, 18th November 2016

2. Disclaimer This presentation may contain forward-looking statements based on current assumptions and forecasts made by E.ON Group Management and other information currently available to E.ON. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. E.ON SE does not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to conform them to future events or developments.

3. Agenda • The German „Energiewende“ is just an example forother energy transitions taking place globally • There is no way back: “Energiewende” is a now global trend driven by innovation not by politics – and digital is a key element • The energy landscape becomesincreasingly complex • Utilities need to adopt their business models aggressively to this environment

4. Energy turnaround in Spain driven by gas and renewables Stagnation since financial crisis Source: Red Eléctrica de España (Spanish TSO)

5. Energy turnaround in the US driven bysuccess of unconventional gas U.S. dry natural gas production trillion cubic feet billion cubic feet per day History Projections 2013 Shale gas and tight oil plays Tight gas Other lower 48 onshore Coalbed methane Alaska Lower 48 offshore Source: EIA, Annual Energy Outlook 2015 Reference case

6. Energy turnaround in China driven bydramatic economic growth China’s net electricity generation by fuel type, 1985– 2014 in TWh Source: BP Statistical Review of World Energy 2015

7. Agenda • The German „Energiewende“ is just an example forother energy transitions taking place globally • There is no way back: “Energiewende” is a now global trend driven by innovation not by politics – and digital is a key element • The energy landscape becomesincreasingly complex • Utilities need to adopt their business models aggressively to this environment

8. Dynamic innovation and technology are driving changes on energy markets Examples Global PV in GW Global Wind in GW • Renewable energy: substantial size Europe 2014: 72% of new installations (22% in 2000) USA 2015: 68% of new installations KNOWNKNOWNS • PV: cost decrease beyond expectations 1990 1980 2000 1990 1990 1990 1990 Module price Price decreased by 20% each time the installed capacity doubled 1990 2010 1990 Cumulative production • Shale gas: technology „Hydraulic fracturing” 2012 US Gas Net importer with 42 bcm 2040 Increasing gas resources change global macro economics Net exporterwith 165 bcm Source: IEA PVPS, Bloomberg New Energy Finance

9. Photovoltaic: Continuous cost reduction PV system price, Germany[<100kWp System] PV electricity costs vs. end-customer costs [€ct/kWh] End-customer price Germany End-customer price Italy KNOWNKNOWNS PV costs Germany PV costs Italy 2013 2013 2017 2019 2021 2023 2025 Investment for customers with high own consumption positive without subsidies Dependency on subsidies reducing by further cost reductions andadditional appliances increasing the own consumption. Source: http://www.photovoltaik-guide.de/pv-preisindex

10. Batteries: Costs have reached the turning point Costs for batteries [€/kWh] Investment in PV + battery:positive KNOWNUNKNOWNS • Electric vehicles reduce costs forLi-ion batteries by > 50% by 2020. • Market leader Tesla“Giga-factory” will produce more than the current global production volume Source: UBS, Tesla, Umicore

11. Innovations will dynamically reinforce each other “e-Home Energieprojekt 2020” Interdisciplinary field of research with technical & customer oriented questions: main research on VRDT* / batteries / customer satisfaction / e-Vehicles Photovoltaic Air conditioning E-mobility Smart metering Transparent energy consumption Intelligent local distribution system Battery storage KNOWNUNKNOWNS Ad *: VRDT = Voltage regulated distribution transformer Source: E.ON Innovation Center Distribution

12. Digitalization, Big Data & „Internet of things“: Integral part of our life in the future • Exploding data volumes New smart home Appliances and internet Intelligent thermostat Improved automation DSO-grid Control center intelligent grid • 3rd generation of the internet – the „internet of things” connects • 1 bn people via PCs • 6 bn. People via mobile phones • 28 bn. „things” in 2020 KNOWNUNKNOWNS Improved „operations management“ OMS Estimated annual data Roll-out of GIS in the grids Terminals & automated substations Smart home and end customer data Intelligent Power Meters Today Time Source: based on EPRI (assuming a 1 million customers energy supply company incl. grid and sales activities)

13. Agenda • The German „Energiewende“ is just an example forother energy transitions taking place globally • There is no way back: “Energiewende” is a now global trend driven by innovation not by politics – and digital is a key element • The energy landscape becomesincreasingly complex • Utilities need to adopt their business models aggressively to this environment

14. The future energy system is highly complex and will have implications on all our businesses Gas Power Heat Customers Hydro Nuclear CHP Energy Mgmt. Transm. NG from DK,NO,RUS P2G Via transm- or distr. grid Industry System Mgmt System Mgmt System Mgmt Import/Export Wholesale - Price signalling Substation automation E-mob. Solar thermal PV BG fermentation Distr. MV/LV Energy Mgmt. Heat plant System Mgmt BGgasification Individual family houses, business premises & offices PV White goods Storage Mini-/micro CHP Gas mob.

15. Agenda • The German „Energiewende“ is just an example forother energy transitions taking place globally • There is no way back: “Energiewende” is a now global trend driven by innovation not by politics – and digital is a key element • The energy landscape becomesincreasingly complex • Utilities need to adopt their business models aggressively to this environment

16. Challenge 1: build smarter energy systems

17. DSO as enabler of the energy turnaround in GW Lions’ share of renewable integration takes place in the DSO-grid e.g. in the German case mainly in E.ONs DSO grids TOP 5 comparison:Installed capacity in the DSO-grids of E.ON in Germany > 26 GW. Wind & Solar PV. in % der GWh > 60 % in 2014 70 60 Ziel der Bundesregierung für 2025: 40 % Ahead of the energy transition:E.ON Grid: 60% renewable share (2008) This share is the German goal for 2025. 50 40 30 20 15% 10 0 • Consequence: DSO best suited to steer system flexibility • intermittent generation dominantly connected to DSO-grid • future flexibility sources almost only DSO-connected • Proximity to customers = easy data exchange. 2000 2002 2004 2006 2008 2010 2012 2014

18. Sales providing customer solutions • Strong regional presence with lots of experience • Tailor-made customer-solutions • Realized > 4,000 decentral plantsespecially CHP and heat • Operating over 220 local and district heating systems (heat sales: 3.600 GWh) • Again solid growth in 2015 • Decentral solutions conventional • Decentral solutions renewables • Local and DistrictHeating system • Further energy transition projects e.g. storage

19. Challenge #2: building smarter energy supply chains Atlantic Basin Pacific Basin +139 bcma from 2013 +29 bcma from 2013 Europe +95 bcma 23 (+8) 21(+21) North America 90 (-19) 38(+38) Asia Middle East 10 (+7) Americas +21 bcma Global LNG trade growth 2013-20 +49% Asia +344 bcma Middle East +14 bcma 35 (+8) 63 (-4) 4(+1) Africa 15 (+3) 121 (+91) LatinAmerica 3 (-3) Oceania Seaborne LNG trade to 475 bcma by 2020 with Europe acting as a balancing market Source: Wood Mackenzie

20. Challenge 3: Consider Value of Integration Strategy Empowering customers. Shaping markets. Transformation One2two: Best in both worlds New profiles Empowering customers Shaping markets

21. Thank you for your attention!