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AGL E Li it d AGL Energy Limited Renewable energy: Renewable energy: Policies set for growth Mi h l F M i Di t d CEO Michael Fraser, Managing Director and CEO Macquarie Conference - Sydney 5 May 2010 AGL External

Macquarie Conference - Keynote presentation by Michael Fraser

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Page 1: Macquarie Conference - Keynote presentation by Michael Fraser

AGL E Li it dAGL Energy Limited

Renewable energy: Renewable energy: Policies set for growth

Mi h l F M i Di t d CEOMichael Fraser, Managing Director and CEO

Macquarie Conference - Sydney

5 May 2010

AGL External

Page 2: Macquarie Conference - Keynote presentation by Michael Fraser

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.currently held.

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

W d ith d d tt ti d i t t th › 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 li bl ) i thi t ti applicable) in this presentation.

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

Macquarie Conference - Sydney

5 May 2010

AGL External

Page 3: Macquarie Conference - Keynote presentation by Michael Fraser

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Agendag

› S&P revised treatment› S&P revised treatment

› Drivers of renewable energy globally

› Domestic policy settings

› AGL’s Wind strategy

› Upstream Gas – Creating value

› NSW Electricity Privatisation

› Summary

Macquarie Conference - Sydney

5 May 2010

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Page 4: Macquarie Conference - Keynote presentation by Michael Fraser

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S&P revises treatment of wind farm PPAs1S& e ses t eat e t o d a sSignificant enhancement in capital efficiency.

› S&P spent considerable time understanding risks associated with PPAs

› 50% reduction in the notional capital to be applied to PPAsp pp

› AGL’s balance sheet capacity immediately improved by ~$360 million

› Maintaining BBB rating is important for business purposes

› Increases capacity to around $900 million

› Improved capital efficiency substantially enhances AGL’s ability to fund future growthfuture growth

1. Power Purchase Agreements

Macquarie Conference - Sydney

5 May 2010

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Page 5: Macquarie Conference - Keynote presentation by Michael Fraser

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Debt Capacity ebt Capac tyAGL has significant headroom to fund organic growth.

LEGEND

S&P 100%Weight

ion

Closing FY10 Debt

Operating cash flow after dividends

S&P 50% Adjust.

$ m

ill Capex

Headroom

Macquarie Conference - Sydney

5 May 2010

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Renewables: A global growth storyMajority of newly installed capacity globally was renewable.

S N E Fi ( 2009)$US b 2008

e e ab es g oba g o t sto y

Source: New Energy Finance ( 2009)$US bn 2008

Wi d

52

110

Wind

Other Renewable

Fossil Fuel Generation

88

Macquarie Conference - Sydney

5 May 2010

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Page 7: Macquarie Conference - Keynote presentation by Michael Fraser

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Renewables: A global growth storyWind and Hydro the primary renewable energy sources.

Source: International Energy Agency (2009)

Macquarie Conference - Sydney

5 May 2010

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Page 8: Macquarie Conference - Keynote presentation by Michael Fraser

8Technology cost curve

350» Source: ACIL Tasman AGL Roam MMA

Wind currently has a substantial cost advantage.

300

» Source: ACIL Tasman, AGL, Roam, MMA

200

250

/M

Wh

)

150

LR

MC

($

/

50

100

0

Brown Coal Black Coal CCGT OCGT Wind Solar PV Wave Solar thermal

Macquarie Conference - Sydney

5 May 2010

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Page 9: Macquarie Conference - Keynote presentation by Michael Fraser

9REC prices reflect policy uncertainty

Penalty raised to reflect rising cost of renewable projects.

$100

$/REC

$80

$90

$100

$60

$70Expanded MRET announced SHW & PV increases REC Bank

$30

$40

$50

$10

$20

Drought impacting Hydros LRET reform announced

$0

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

Macquarie Conference - Sydney

5 May 2010

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Page 10: Macquarie Conference - Keynote presentation by Michael Fraser

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Impact of Renewable Policy SettingFundamental changes required to generation mix.

New Build Generation MixNew Build Generation MixYears of Forecast - 2010 to 2020

20000

Coal Plant CCGT Base Plant OCGT Peak Plant Renewable Plant

9 500MW14000

16000

18000

d (

MW

)

Renewables dominate

4,500MW

9,500MW

1,200MW

8000

10000

12000

ity r

eq

uir

e

Renewables dominate

Delay to CPRS reduces

2 800MW

5,500MW

5,500MW

2000

4000

6000

Cap

aci Delay to CPRS reduces

the demand for CCGT as coal-fired generation remains in service

Source: AGL Greenhouse modeling

2,800MW

0

2000

Original 2006 forecast(ETS, 2% MRET)

Current 2010 forecast(ETS, 20% Expanded RET)

Macquarie Conference - Sydney

5 May 2010

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Page 11: Macquarie Conference - Keynote presentation by Michael Fraser

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Renewable Energy Certificate (REC) obligationse e ab e e gy Ce t cate ( C) ob gat o sRegulatory framework necessary to facilitate investment.

› Macarthur (365MW) conditional commitment

› Federal legislation requires AGL to surrender approximately 9 million RECs per annum by 2020

› Strong pipeline of › Strong pipeline of development opportunities

› Proven capability in site selection, project development and performance

1. Excludes long-term supply agreements and Voluntary REC demands.

Macquarie Conference - Sydney

5 May 2010

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Page 12: Macquarie Conference - Keynote presentation by Michael Fraser

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Australia has a world class wind resourceust a a as a o d c ass d esou ce

d b

Average wind speeds (metres per second)

› Wind resource is best in Tasmania and areas in Western Australia, South Australia and VictoriaAustralia and Victoria

› NSW, Queensland and the Northern Territory have limited large scale have limited large scale wind potential

› The best wind sites have already been takenalready been taken

> 86-84-6<4<4

Source: CSIRO

Macquarie Conference - Sydney

5 May 2010

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Page 13: Macquarie Conference - Keynote presentation by Michael Fraser

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Wind farms: Success factorsd a s Success acto s

A number of critical issues can mean success or failure of a wind farm development:farm development:

› Wind resource

› Land access (support by landowners)( pp y )

› Capital cost

› Connection access: (cost, loss factor, grid capacity)( , , g p y)

› Wind farm scale (to absorb certain fixed cost)

› O&M costs (typically only around 2% of capital cost per year)

Macquarie Conference - Sydney

5 May 2010

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Page 14: Macquarie Conference - Keynote presentation by Michael Fraser

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Wind farms: Cost profiled a s Cost p o eSignificant local content built into cost structure.

Total Capital Cost EPC Cost

% % %

90%

4%

2% 2% 2%

55%

10%

12%

6%2%

55%

15%

Pre Development

EPC Cost

Balance of Plant

Wind Turbine GeneratorElectrical (inc Switchyard)TransportBalance of Plant

Project Management

Contingency

pTowerCivilEngineering

Macquarie Conference - Sydney

5 May 2010

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Page 15: Macquarie Conference - Keynote presentation by Michael Fraser

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Wind resource drives turbine selectiond esou ce d es tu b e se ect o

› Wind speed generally increases with height

Location of Hallett 1 turbines & wind speeds

› Wake effects reduce yield and drives turbine spacing

› Hallett Wind Farm stages 1, 2 and 4 are classic wind farm sites with are classic wind farm sites with prevailing winds perpendicular to ridge

Wind Rose for Hallett 1

N

Macquarie Conference - Sydney

5 May 2010

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Wind project diversity improves reliabilityd p oject d e s ty p o es e ab tyGeographical diversity enhances the level of ’firm’ generation.

Wattle Point Hallett 1 Pool Price

70

80

90

100

MW

)

$1,000

$10,000

$/M

Wh)

40

50

60

70

genera

tion (

M

$100

l pool price

($

0

10

20

30

Win

d g

$1

$10

Regio

nal

0Sun 06 Mon 07 Tue 08 Wed 09 Thu 10 Fri 11

Half hour time increments (6-12 April 2008)

$1

Macquarie Conference - Sydney

5 May 2010

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Page 17: Macquarie Conference - Keynote presentation by Michael Fraser

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AGL projects delivering high capacity factorsG p ojects de e g g capac ty acto sOperational performance exceeds investment assumptions.

1

Macquarie Conference - Sydney

5 May 2010

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Strong growth pipelineSt o g g o t p pe eProvides strategic depth and optionality.

Project Nominal Capacity (MW) Location Type Project Status Definition

Bogong 140 Victorian Alps Hydro Commissioned Completed

McKay Creek Up Rate 10 Victorian Alps Hydro Commissioned Completed

Hallett 2 71 SA - Hallett Wind Commissioned Completed

H ll tt 4 132 SA H ll tt Wi d U d C t ti C itt dHallett 4 132 SA - Hallett Wind Under Construction Committed

Werribee Expansion 2 VIC - Werribee Biogas Under Construction Committed

Oaklands Hill 67 VIC - West Wind Under Construction Committed

Hallett 5 52 SA – Hallett Wind Under Construction Committed

NERATIO

N

Macarthur 365 VIC - West Wind In Development, JV with Meridian

Conditional Commitment

Barn Hill 130 SA - Redhill Wind DA Approved Probable

Hallett 3 80 SA - Hallett Wind In Development PossibleWABLE

GEN

Crows Nest 150 QLD - Toowoomba Wind Permitted Possible

Ben Lomond 150 NSW - Armidale Wind Landowner Agreements in Place Possible

Coopers Gap 300 QLD Kingaroy Wind Landowner Agreements in Possible

REN

EW

Coopers Gap 300 QLD - Kingaroy Wind gPlace Possible

Other 3 Projects totalling up to 600 Various Various Under Review Possible

Macquarie Conference - Sydney

5 May 2010

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Upstream Gas – Positioning For Growth

› Targeting 2 000PJ of certified 2P reserves

Exploration program slowed in line with current gas market conditions.

Upst ea Gas os t o g o G o t

› Targeting 2,000PJ of certified 2P reserves

› 2P reserves entitlement up 18% (201PJ); 3P reserves entitlement up 36% (839PJ)

› Camden reflects production depletion only; reserves certification at Camden and Gloucester is planned for the end of financial yearp y

AGL share of CSG reserves As at 31 Dec 09 As at 30 Jun 09 Change

PJ 2P 3P 2P 3P 2P 3PPJ 2P 3P 2P 3P 2P 3P

Moranbah (50%) 506 1,027 497 1,079 2% -5%

Gloucester (100%) 423 630 423 630 - -

Camden (100%) 126 170 129 173 -2% -2%

Spring Gully (various, small) 7 9 7 9 - -

Sub-Total 1,062 1,836 1,056 1,891 1% -3%

ATP 364P back-in rights (50%)* 246 1,307 51 413 382% 216%

Total 1,308 3,143 1,107 2,304 18% 36%

* Under a 50-year project agreement that commenced in 2000, AGL has no effective exploration rights (or ongoing cost obligations) within exploration tenement ATP 364P as these were assigned to Arrow Energy Limited. However, AGL is entitled to participate up to a 50% interest in any commercial development by contributing its share of past costs. Past costs are anticipated to be less than $0.05/GJ.

Macquarie Conference - Sydney

5 May 2010

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NSW electricity privatisation S e ect c ty p at sat oDisciplined bidding approach if process proceeds.

› NSW Government still working toward opening data rooms mid-year

› AGL previously stated will look at all assets

› Opportunity to scale up

› Only bid for assets if accretive to EPS

› Maintain BBB credit rating

› Any capital raising to favour existing shareholders

Macquarie Conference - Sydney

5 May 2010

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Page 21: Macquarie Conference - Keynote presentation by Michael Fraser

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SummarySu a y

› Significant progress with renewable policies

» Legislation scheduled for May/June 2010g y/

» Requires up to $30 billion of investment

› Delay to CPRS will impact future generation mix

› AGL’s renewable portfolio strategically well-positioned

» First-mover advantage with large portfolio of sites

› Capacity to leverage balance sheet› Capacity to leverage balance sheet

» S&P revision frees additional capacity

Macquarie Conference - Sydney

5 May 2010

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Page 22: Macquarie Conference - Keynote presentation by Michael Fraser

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Further Information / Contactsu t e o at o / Co tacts

A range of information on AGL Energy Limited including ASX & Media Releases, Presentations, Financial Results, Annual Reports and Sustainability Reports is available from our website: www.agl.com.au

Alternatively, contact:

INSTITUTIONAL INVESTORS S U O S O S& ANALYSTSJohn Hobson

Head of Investor RelationsAGL Energy Limited

RETAIL INVESTORS & MEDIANathan Vass

Investor Relations & MediaAGL Energy Limited

phone: +61 2 9921 2789Mobile: +61 (0) 488 002 460

e-mail: [email protected]

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

e-mail: [email protected]

Macquarie Conference - Sydney

5 May 2010

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