RWE East RWE Hrvatska Croatian Energy Association WEC

RWE East / RWE Hrvatska Croatian Energy Association, WEC national committee, 23 th Forum Zagreb, November 28 th, 2014 HOW TO DEFINE AND IMPLEMENT AN ENERGY POLICY IN LIGHT OF NEW EU GUIDELINES FOR THE YEAR 2030? Ingo Block, RWE Hrvatska RWE HR PAGE 1

Agenda 1. 2. 3. 4. RWE Introduction EU Climate policy 2030 German „Energiewende“ Energy company strategies RWE East Hrvatska November March 20142013 PAGE 2

RWE Group – Acting along the whole energy value chain RWE Hrvatska Source: RWE Fact Book, 10/2014, Page 8 RWE East November March 20142013 PAGE 3

RWE Group – Acting all over Europe Ø Ø Ø 49 GW plant capacity (No. 2 in EU) 270 GWh electricity sales 1, 145 TWh electricity traded More than 16 mill. electricity customers app. 100. 000 customers in Croatia More than 7 milll. gas customers Figures as of Dec 2013, [Croatia as of Dec 2014 RWE Hrvatska Source: RWE Fact Book, 10/2014, Page 13 RWE East November March 20142013 PAGE 4

RWE – 115 years experience in energy business and 15 years in energy market liberalisation We know what we are talking about We are challenged by these mega trends in Europe - Decarbonisation - Decentralisation - Innovation We are the trustful partner of the energy transition in Europe! RWE East Hrvatska November March 20142013 PAGE 5

EU climate policy CO 2 Reduction Efficiency Renewables EU leaders agreement March 2007 1990 - 20% 2020 - 20% EU leaders agreement 23 October 2014 1990 Ø Ø Ø - 40% EU and nationally binding targets EU ETS sector – 43%, Non-ETS sector – 30% [ref. 2005] Non-ETS: target to be broken down to national targets for every Member States (burden sharing) ETS: cap to be tightened to - 2. 2% /a Market Stability Reserve Ø Ø EU binding target not to be broken down to binding national targets for Member States (but they can chose to set national targets) 2030 - 27% Ø Ø EU indicative target to be reviewed in 2020, aiming at 30% for 2030 RWE East November 2013 PAGE 6

Germany being the forerunner with “Energiewende” – but what does it mean for market participants? > 100. 000 s of new energy producers benefiting from generous RES FIT > Million private households paying the invoice for “Energiewende” > 20 b ill. € /a > Industrial/commercial customers benefiting from decreasing wholesale prices – not only in Germany but in Europe as a whole Who kno ws? Conventional power plant operators suffering huge losses due to sharply reduced load factors and decreased wholesale prices … Who kno > … but they are the backbone of secure supplies! ws? RWE East November 2013 PAGE 7

EU and in particular Germany by renewables support schemes provoked a steep photovoltaic boom … Photovoltaic capacity in Europe Key messages > Photovoltaic (PV) boom in Germany ongoing incentivated by - drastically falling module prices - generous subsidies Ø 37. 950 MWp PV as of 30. 09. 2014 > Other EU countries, mainly Italy, but also France and UK catching up > PV will continue their growth - system parity will be reached for more and more customers - …due to decreasing PV prices - …and even with reduced subsidies RWE East November 2013 PAGE 8

… pushing inflation of electricity bills in Germany … Source: BDEW, German. Energy and Warter Association, May 2014 RWE East November March 20142013 PAGE 9

… and reducing plant margins and load factors (Germany) Short-term variable costs [€/MWh] Without power production under the Renewable Energy Act Demand Steep curve because the demand is price-inelastic in the short term midday Market price midday Hydropower Nuclear Lignite (new/old) Short-term variable costs [€/MWh] Hard coal (new/old) With power production under the Renewable Energy Act Market price midday Gas (new/old) Demand Oil midday Margin loss New market price REA Generation capacity 37, 9 GWp PV + 35, 4 GW Wind power as of 9/2014 RWE East, October 7, 2014 PAGE 10

Decentralisation of the energy industry is the future RWE East November 2013 PAGE 11

Offering customers more than only commodity > Home automation > Networked home appliances > Heat, electricity storage, decentralised generation (Photovolatics, CHP) > Electro mobility > Energy consulting > Energy efficiency RWE East November 2013 PAGE 12

Europe needs consistent energy & climate policy to really protect climate and to retain competitiveness > ETS is basically the only market mechanism to efficiently steer CO 2 / GHG emissions > Not integrating the non-ETS sector and setting different targets (renewables and energy efficiency) severely harm ETS efficiency as well as insufficient flexibility to deal with economic depression > Market stability reserve may lead to some improvements but sustainable effects on higher CO 2 prices are doubtful > Thus multi-regulation approach instead of single market approach of ETS may determine climate energy & climate policy in the future > EU will step further on with the internal energy market in many areas but contradictive approach in climate protection may harm competitiveness of EU in the world RWE East November 2013 PAGE 13

Thank you for your attention For further information about RWE: http: //www. rwe. com/web/cms/mediablob/de/108808/data/2495606/54/rwe/investorrelations/praesentationen-videos/praesentationen/Facts-Figures-2014. pdf RWE HR 25/09/2020 PAGE 14

Back Up RWE HR 25/09/2020 PAGE 15

EU ETS - CO 2 surplus until 2020 Source: Öko-Institut RWE HR 25/09/2020 PAGE 16

EU ETS – Price projection until 2030 Source: Point Carbon, Sandbag RWE HR 25/09/2020 PAGE 17

…. share of taxes & levies amount to more than 50% Source: German. Energy and Warter Association, May 2014 RWE East November March 20142013 PAGE 18

. . . reducing operation and challenging economics of our conventional power plants Utilization of a German CCGT unit 2009 compared to 2011 Production in June and July 2009 Production in June and July 2011 MW MW Juni 2009 Juli 2009 Juni 2011 Juli 2011 RWE East November 2013 PAGE 19

RWE was pushed to be the European first mover in order to tackle volatile Renewable power generation with a conventional power fleet Where are we today? e. g. Coal Power plant 700 MW RWE is European frontrunner for Operational excellence. This allows improvement processes over the value chain, having different approaches as power plant manufacturers RWE gathered experiences to boost power plant parameter for market driven operation including fast. demand tracking and short optimized start-up time. The complete overhaul planning was adopted to market conditions with longer operational times and shorten revision periods Within its International fleet RWE executed several optimisation and efficiency programs considering different cultural characteristics The RWE internal elaborated work safety program reduced the overall LTIF values down to less than 3 Problem: De. SOx from the 80‘s under dimensioned - objective: SOx 400 mg/m 3 200 mg/m 3 - National coal to Import coal Budget 75 -90 Mio € Solution: Optimisation of existing equipment instead of new built Start: End: 2010 2012 Resources: 3 FTE during period time Other: Punctual support for quality checks and overhead Invest new solution 8 mio € instead of MTP planning with 75 mio. € Internal result: MTP reduction of 67 mio. € RWE East, October 7, 2014 PAGE 20