Clean Energy Council - Presentation by Michael Fraser

AGL Energy Limited

The Importance of Reforming the Renewable Energy Target

Michael FraserCEO and Managing Director

Clean Energy Council Annual Conference

May 2010

2

Disclaimer

The information in this presentation:

› Is not an offer or recommendation to purchase or subscribe for securities in AGL Energy Limited or to retain any securities currently held.

› Does not take into account the potential and current individual investment objectives or the financial situation of investors.

› Was prepared with due care and attention and is current at the date of the presentation.

› Actual results may materially vary from any forecasts (where applicable) in this presentation.

› Before making or varying any investment in securities in AGL Energy Limited, all investors should consider the appropriateness of that investment in light of their individual investment objectives and financial situation and should seek their own independent professional advice.

» Clean Energy Council Annual Conference» May 2010» AGL Energy Limited

3

› Importance of the 26 February reforms

› Sustainable Energy within the context of global energy market transformation

› Renewable Energy Target:

» MRET and the reforms of 2009

» Unintended consequences of complementary policies

» Reforms announced on 26 February

» Fundamental shift in supply options

› Downstream customer impacts:

» Impacts on prices

Agenda


4

› 26 February reforms of the Renewable Energy Target were welcomed by the industry

› There are serious consequences flowing from any delay in passage of the legislation:

» Loss of jobs

» Loss of investment confidence

» Flow on effects for confidence in energy policy generally

› Objective of the reforms have bipartisan agreement

› No reason why the legislation should not be passed immediately

Importance of the 26 February reforms


5

» CEDA CEO Vision Series» July 2009

Transformation of Global Energy Markets

6

Energy Market Transformation

Global energy markets are undergoing significant transformation. Energy policy makers are responding to three key issues:

Issue Global Policy Response

Australian Policy Response

Climate Change Greenhouse gas emissions trading

CPRS (deferred)

Energy Security Renewable energytargets

20% Renewable Energy Target

Fuel Poverty Energy efficiency schemes

Emerging state-based schemes


7

Global policies driving renewable investment

Since mid-2009, a number of new policies have been announced that will drive renewable investment – Australian policy is consistent with global trends

Country/State Renewable Mandate

Spain 22.5% renewable by 2020

US – Colorado 30% renewable by 2020

US - Alaska 50% renewable by 2025

Israel 10% renewable by 2020

Kuwait 5% renewable by 2020

» Source: DB Climate Change Advisors


8

Renewables provide fuel cost certaintyIn an environment of increasing global commodity prices, renewable technologies provide certainty of fuel cost


Source: Bloomberg (2010)

9

More than half of new installed capacity globally was renewable

New investment


Source: New Energy Finance (published 2009)

Investment in Wind

Investment in Other Renewable

Investment in Fossil Fuel Generation

52

88

110

$US bns 2008

10

Investment in renewable technologiesAll technologies have a role to play – growth in global investment has been significant particularly for wind and solar


Source: PEW Centre (2010)Average growth rates of investment in wind and solar are 49% and 120% respectively

11

Trend is forecast to continueWind and biomass forecast by IEA to be the technologies of choice in developed countries through to 2020

Source: International Energy Agency (2009)


12


The Evolution of Renewable Policy –MRET to RET to....

13

The Expanded Renewable Energy Target…

Pre-1997 generation - 15,000 GWh

Original MRET: 9,500 GWh

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Renewable Target (GWh)

Pre-1997 Renewable Baseline

Old MRET (9,500 GWh by 2010)

Expanded RET (45,000 GWh by 2020)

Historical renewable generation

Source: Roam, AGL Corporate Affairs


xRET: 45,000 GWh

14

› Additional subsidies for solar hot water and solar PV have driven substantial uptake of these technologies in recent years

› Recent example: solar hot water

› Recent example: solar PV

Role of complementary policies

Rebate State Incentives

RECs Total Subsidies

$1,600 $500 $910 $3,010

FiT RECs Total Subsidies

$10,500 $4,650 $15,150


15

Historical REC creation

Source: Office of the Renewable Energy Regulator (2010)


RECs from SHW and solar PV grew substantially due to complementary policies. This negated the need for new investment.

16

Role of complementary policiesREC prices declined substantially as complementary policies drove creation of RECs from SHW and PV preventing new investment


$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Sep-03 Mar-04 Sep-04 Mar -05 Sep-05 Mar -06 Sep-06 Mar -07 Sep-07 Mar -08 Sep-08 Mar -09 Sep-09

$/REC

Reform announced

Expanded MRET Announced

Drought Impacting Hydros

SHW & PV Increases REC Bank

17


Reforms of 26 February – Driving Growth in Renewables

18

› Small scale renewable energy scheme

» Fixed $40 per certificate price for solar PV and solar hot water

» All other technologies remain in the LRET

» Uncapped quantity

› Similar to ‘feed-in tariff’

› Uptake dependant upon numerous factors including

» Ongoing complementary policies such as feed-in tariffs and capital rebates

Small scale renewable energy scheme (SRES)


19

Large scale renewable energy target (LRET)LRET to drive investment of up to 10,000 MW of new renewable investment


20

Impact of Renewable Policy Setting

Source: AGL Greenhouse modeling

Fundamental changes required to generation mix.

New Build Generation MixYears of Forecast - 2010 to 2020

2,800MW

5,500MW

5,500MW

4,500MW

9,500MW

1,200MW

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Original 2006 forecast(ETS, 2% MRET)

Current 2010 forecast(ETS, 20% Expanded RET)

Cap

aci

ty r

eq

uir

ed

(M

W)

Coal Plant CCGT Base Plant OCGT Peak Plant Renewable Plant

Renewables dominate

OCGT peaking plant displaces CCGT base plant


21


Downstream Customer Impacts

22

› At a REC price of $90, impacts of LRET are estimated to be about 1% pa (real) on electricity bills over the next decade

› This should be contrasted with recent price increases driven by network charges of 10-15% (real) pa for three years

› Important conclusion: renewable targets are only a minor contributor to rising electricity prices

Cost impacts - LRET


23

› 26 February reforms of the Renewable Energy Target were welcomed by the industry

› There are serious consequences of the legislation not being passed before a Commonwealth election

› Objective of the reforms have previously had bipartisan agreement

› No reason why the legislation should not be passed immediately

› With the legislation passed, the industry is ready to commit billions of dollars with associated increases in employment and economic activity

Conclusion


24

Further information

AGL Sustainability Report (online and concise summary)

www.aglsustainability.com.au

AGL Sustainability Blog

http://aglenergy.wordpress.com

John HobsonHead of Investor Relationsphone: +61 2 9921 2789

Mobile: +61 (0) 488 002 460e-mail: [email protected]

Nathan VassHead of Media

phone: +61 2 9921 2264mobile: +61 (0) 405 040 133

e-mail: [email protected]


http://www.aglsustainability.com.au/�

http://www.aglsustainability.com.au/�

http://aglenergy.wordpress.com/�

mailto:[email protected]�

mailto:[email protected]�