Gas Market Outlook

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ORIGIN ENERGY
IMPROVING RETURNS IN ENERGY MARKETS
Investor Day
Melbourne
10 June 2015
Forward looking statements
This presentation contains forward looking statements, including statements of current intention, statements of opinion and predictions as to
possible future events. Such statements are not statements of fact and there can be no certainty of outcome in relation to the matters to which
the statements relate. These forward looking statements involve known and unknown risks, uncertainties, assumptions and other important
factors that could cause the actual outcomes to be materially different from the events or results expressed or implied by such statements.
Those risks, uncertainties, assumptions and other important factors are not all within the control of Origin and cannot be predicted by Origin
and include changes in circumstances or events that may cause objectives to change as well as risks, circumstances and events specific to the
industry, countries and markets in which Origin and its related bodies corporate, joint ventures and associated undertakings operate. They
also include general economic conditions, exchange rates, interest rates, regulatory environments, competitive pressures, selling price, market
demand and conditions in the financial markets which may cause objectives to change or may cause outcomes not to be realised.
None of Origin Energy Limited or any of its respective subsidiaries, affiliates and associated companies (or any of their respective officers,
employees or agents) (the Relevant Persons) makes any representation, assurance or guarantee as to the accuracy or likelihood of fulfilment
of any forward looking statement or any outcomes expressed or implied in any forward looking statements. The forward looking statements in
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Statements about past performance are not necessarily indicative of future performance.
Except as required by applicable law or the ASX Listing Rules, the Relevant Persons disclaim any obligation or undertaking to publicly update
any forward looking statements, whether as a result of new information or future events.
No offer of securities
This presentation does not constitute investment advice, or an inducement or recommendation to acquire or dispose of any securities in Origin,
in any jurisdiction.
2
Origin’s strategy of connecting resources to markets is pursued through its
3 businesses, 4 priorities and 5 measures that drive continued improvement
in Origin’s performance
A regional leader
in energy markets
Improving returns
in energy markets
businesses
TRIFR for our
safety
3
A regionally
significant position
in natural gas and
LNG production
Delivering
growth in natural
gas and LNG
Total Shareholder
Return for financial
performance
A growing
position in
renewable energy
Growing capabilities
and increasing
investment in
renewables
Net Promoter
Score for our
customers‟
advocacy
Capital
management
and funding
Engagement
survey for people
at Origin
RepTrak for
community
reputation
Improving Returns in Energy Markets
Frank Calabria, CEO
4
The energy market continues to rapidly change
Demand for gas is increasing
East coast gas demand1
East Coast Total Supply Demand
Wholesale electricity market remains oversupplied
with additional renewables required
Reserve energy margin (%)2
30%
PJ
2,000
1,500
Curtis Island Demand
Gas Fired Generation
Industrial
Residential
25%
1,000
20%
500
-
5
(1)
(2)
AEMO data
AEMO data and Origin modelling
15%
Consumers have more choice and are demanding more from their energy
provider
Strong retail competition for grid supply
6
Distributed generation increasingly affordable
Origin aspires to become the most trusted energy solutions provider
Customer centric organisation, using our knowledge of the customer to offer a range
of energy related products and services
Grid supply
7
•
Maintain flexibility of gas & electricity
(fuel & generation) portfolios
•
Pivot to renewables
•
Superior customer experience
•
World class cost structure
•
Leverage analytics & smart meter
technology to deliver new energy
solutions
Distributed generation
•
Leverage existing capabilities in
solar to take new propositions to
customers
•
Own and manage distributed
generation for the customer
•
Effectively integrate battery storage
and electric vehicles into customers‟
energy mix
ENERGY MARKETS
STRATEGIC
PRIORITIES
Becoming the most trusted energy solutions provider and improving
returns in Energy Markets require focus on four clear Strategic Priorities
8
A regional leader
in energy markets
A regionally
significant position
in natural gas and
LNG production
Improving returns
in energy markets
businesses
Delivering
growth in natural
gas and LNG
Build customer
loyalty & trust
Maximise the
value of the core
business
A growing
position in
renewable energy
Growing capabilities
and increasing
investment in
renewables
Grow new
products &
services
Capital
management
and funding
Engaged, high
performing teams
Origin has made significant progress on these Strategic Priorities
Progress to date
Maximise value of
the core business
Build customer
loyalty & trust
 Increased gas margins and market share
• Capture benefit of rising gas market
 Reduced cost to serve
• Remain competitive on cost of
electricity through flexibility; pivot to
renewables
 Generation portfolio performance and
reduced capital and operating
expenditure
 Improved consumer and SME
customer experience: complaints
down; new integrated digital platform;
proactive retention
 Improved customer satisfaction in the
Business segment
 Acumen Metering well established
 Solar – consumer and business
growth & PPA product launched
Grow new products &
services
Focus going forward
 Entered ACT market
• Lower CTS & improve capital efficiency
• “OMNI” customer experience
• Data and analytics to deliver new
products and services to the
consumer
• Grow new solar business model,
extending into batteries and other
home energy services
• Extend Acumen Metering capability
into consumer and SME markets
• Grow in embedded networks
9
Increased operating cash flow and reduced capital expenditure are
improving returns
Energy Markets EBITDA and Operating Cash Flow
$m
Energy Markets EBIT / Sales Margin
15%
1,600
1,200
10%
800
5%
400
0
FY2011
FY2012
1H EBITDA
FY2013
2H EBITDA
FY2014
1H OCF
FY2015
FY2011 FY2012 FY2013 FY2014 HY2015
2H OCF
Energy Markets Growth Capex
$m
0%
EBIT/Sales Margin
Carbon Adjustments
Energy Markets Productive Capital and
Operating Cash Flow Return
$m
12,000
1,000
16%
14%
10,000
800
12%
8,000
10%
600
6,000
400
8%
6%
4,000
4%
200
2,000
0
0
FY2011
10
2%
FY2012
1H Growth
FY2013
FY2014
2H Growth
FY2015
0%
FY2011
FY2012
Productive Capital (LHS)
FY2013
FY2014
OCF Return (RHS)
Energy Markets is continuing to deliver improved returns by…
Expanding Natural Gas margins
•
Maintain competitive cost of gas through legacy gas positions
•
Maximise value of ramp gas opportunities
•
Commencement of long dated and well priced gas sales contracts to other LNG projects
Maintaining Electricity margins
•
Maintain competitive cost of energy through a flexible fuel and generation portfolio
•
Well positioned for future development and growth
Building customer loyalty and trust
•
Maintain competitive pricing
•
Reduce churn
•
Sell further products and services
Reducing operating costs and capital expenditure
•
$100 million reduction in Natural Gas & Electricity cash cost to serve and Generation Opex across FY2015 and FY2016
•
Total capital expenditure in the core business reduced, with a further reduction of $50 million in FY2016 to ~$250 million
Growing Solar and Energy Services
•
Become #1 in the Solar market
•
Net loss of $25 million expected in FY2016
•
Breakeven by FY2017 and targeting 170 MW installed in FY2018
… with the key risk being the level of competition in retail markets
11
Energy Markets team
Frank Calabria
CEO
Greg Jarvis
GM Wholesale
& Trading,
Business
Sales
12
Tony Lucas
GM Energy
Risk
Management
David Smales
GM Generation
Rebekah
O’Flaherty
GM Marketing,
Sales &
Service
Jon Briskin
GM Retail
Customer
Operations
Phil Mackey
GM Solar &
Emerging
Businesses
Andrew Bills
GM LPG & HSE
Phil Moody
GM
Commercial &
Business
Services
Maximising Gas Value and Flexibility
Greg Jarvis, General Manager Wholesale & Trading and Business Sales
Gas portfolio flexibility in rising price environment
14
1
Gas demand increasing
2
Gas prices rising in all markets
3
Origin has a strong gas supply position ...
4
... and flexibility to manage shifting market
dynamics
Competitive advantage
in cost of gas
Increased gas market
share
Increased gas margins
East Coast demand increasing through LNG start up
East Coast Total Supply Demand
East Coast Gas Demand1
PJ
2,000
1,500
1,000
500
-
2010
2011
2012
2013
Curtis Island Demand
2014
2015
2016
Gas Fired Generation
2017
2018
Industrial
2019
2020
2021
2022
Residential
The tripling of demand has presented Origin with a number of significant
opportunities to maximise the value of gas
15
(1) AEMO data
Changing nature of east coast gas market and increasing production costs
leading to higher wholesale and retail gas prices
Australian domestic gas prices
are moving towards export parity
10.00
2014 prices
unusually low due
to ramp gas in QLD
8.00
$/GJ
A$/GJ
14.00
12.00
10.00
8.00
6.00
4.00
2.00
-
2011
2012 2013 2014
Domestic Spot Prices1
(1)
(2)
(3)
6.00
4.00
US$ US$ US$ US$
60/bbl 70/bbl 80/bbl 90/bbl
2.00
EnergyQuest Forecast
LNG Netback Prices 2
0.00
Once all the east coast LNG projects have secured all of their
feed gas, domestic gas prices will likely be driven by
production costs of new developments
16
Wholesale component of
retail tariff (NSW)3
2014
2015
2016
NSW regulated prices provided for an
increase of 18.4%3 in FY2015
Average calendar year spot prices across VIC, NSW, SA and QLD. All prices are to 31 December 2014.
EnergyQuest EnergyQuarterly November 2014 Report. Short-run LNG netback at Wallumbilla, based on 14.5% and 0.78 AUD/USD exchange rate
IPART, inclusive of carbon
Origin’s gas for power generation will be sold into the higher priced LNG
market ...
NEM Prices from 1 January 2015 to 8 June 2015
300
Options to call
back gas to run
generation at
prices above
$100/MWh, or
$10/GJ1
250
$/MWh
200
150
100
Average NEM pool
price of around
$35/MWh equates
to $3.50/GJ1
50
0
NEM pool price
Average NEM price (below $300/MWh)
... however, when electricity prices exceed the equivalent LNG sale price, Origin
has the option to call back gas to run its gas peaking portfolio
17
(1)
Assuming a heat rate of 10 GJ/MWh
In an increasingly tight market, access to reserves at competitive prices is
an advantage
PJ/a
300
250
Sources of Energy Markets‟ East
Coast Gas Portfolio
Ironbark
Other Purchases (Oil Linked)
APLNG purchases
Other Purchases (Price Review)
Other Purchases (Fixed Price)
Origin's existing equity gas
Equity resources (Bass
Gas and Otway) and long
dated contract with BHP /
Esso provides significant
volumes in the south
200
150
Beach gas contracted until
December 2024 plus Origin
equity gas (Cooper JV)
100
50
0
2014 2015 2016 2017 2018 2019 2020 2021 2022
2022 2023 2024 2025
Calendar
Year
Calendar Year
•
Gas from APLNG
contracted until 2034 at
legacy prices plus options
around further development
(Ironbark)
Additional supply expected from ramp gas and Speculant
Origin has significant equity and contracted resources at all major supply hubs
18
Access to gas reserves is complemented by transport capacity and
flexibility
Moomba
•
Historically Queensland gas has
flowed to the southern states, however
this will reverse once LNG trains are
operational
•
During ramp phase, gas flows
between Wallumbilla and Moomba can
swing up to 300 TJ/d
•
Origin able to manage swings in
market given access to bi-directional
transport and ability to monetise in the
electricity market through gas
generation
Wallumbilla
Movement of gas
19
Origin was the first to execute favourable gas transport agreements in
anticipation of changing market dynamics
Flexible gas transportation and generation portfolios have allowed Origin to
monetise available ramp gas in Queensland
Energy Markets Sources
and Uses of Gas
Sources
+28 PJ of ramp
gas
PJ
120
Uses
100
+6 PJ into
generation
80
-14 PJ of internal
sales from E&P
+5 PJ of
contracted gas
+13 PJ of
Business sales
60
40
20
0
H1
H1
H1
H1
FY2014 FY2015 FY2014 FY2015
Sources
20
Uses
Generation
Business
Retail
Ramp Gas
Equity
Contracted
•
28 PJ of ramp gas monetised in first half of FY2015
•
Up to 40 PJ of ramp gas expected to be monetised in second half of FY2015
Origin’s competitive advantages will allow it to continue to capture benefits
of rising gas prices, near term ramp gas opportunities, increasing sales
volumes and market share ...
Natural Gas Gross Margin
•
Continued rising domestic gas prices and cost
of gas benefit from legacy portfolio
•
Short term ramp gas benefit
•
Commencement of sales to other LNG projects
400
$ million
300
• QGC - up to 30 PJ in calendar 2014 & 2015
200
• GLNG – 365 PJ over 10 years from 2015
• GLNG – up to 194 PJ over 5 years from
2016
100
•
0
FY2011
FY2012
1H Financial Year
FY2013
FY2014
FY2015
Ability to call back gas during periods of high
electricity prices to run its gas generation
2H Financial Year
... while continuing to provide support to its flexible generation portfolio through the
ability to call back gas or to take additional ramp gas
21
Maximising Fuel and Generation Flexibility
Tony Lucas, General Manager Energy Risk Management
Fuel and generation flexibility in a market with uncertain demand
outlook and increasing renewable supply
23
1
Downside risk to the demand outlook
2
Increasing energy supply & volatility in the NEM
3
Electricity portfolio flexibility
4
Fuel flexibility
Competitive cost of
electricity
While some demand growth will come from LNG, increased solar
penetration and energy efficiency is expected to continue
Demand growth primarily in Queensland
Rooftop solar penetration continuing, with batteries
on the horizon
Electricity
Grid Demand1
NEMNEM
Demand
NEM Rooftop Solar PV Uptake2
250
20
200
16
PV Generation (TWh)
Sent Out Energy (TWh)
18
150
100
50
14
Around half of mass market PV
generation is exported to the grid
12
10
8
6
4
2
0
-
Residential
SME / Commercial Smelter
Industry
• Residential growth offset by efficiency
• Downside risk from solar penetration
LNG
Mass Market
Commercial
AEMO
• Falling systems costs makes solar PV competitive
with or without subsidies
• Increasingly more viable for SME and industrial
customers
Battery storage uptake and further industrial closures represents further risks
(1)
24 (2)
AEMO data, Origin assumptions on type of demand splits
Origin modelling and AEMO data. Assumes 16% capacity factor.
Gas-fired generation will decrease as gas prices rise, however with more
certainty on the 33 TWh RET, energy supply will increase as wind and/or
utility scale solar are built
Gas fired generation reduces in Queensland and
NSW as gas prices rise
Renewables build required
Wind Build Equivalent Required
Required Renewable Build To Meet 33 TWh RET
NEM Gas-Fired Generation1
TWh
25
35
30
GPG Generation (TWh)
20
25
15
• DA approved wind projects take
1-2 years to FID
• Wind build takes 1-3 years
depending on size & complexity
• Utility scale solar has a shorter
development timeframe
20
15
10
10
5
5
-
Existing
New Build
0
NSW
QLD
SA
VIC
Wind is most suited to the southern states where the demand outlook is more
subdued
25 (1)
(2)
Historical data and Origin modelling
AEMO and Origin modelling
Increases in renewables to achieve a 2020 RET will extend the supply curve
and place downward pressure on wholesale prices
Supply curve changes with additional 14 TWh of
renewables
Origin able to continue buying from the pool in a
suppressed wholesale price environment
Tier One Retailer - Level of vertical integration (TWh)
NEM supply bid stack 2015 - 20201
NEM Supply Bidstack - 2015 vs 20202
Limited increase
in net demand of
around 8 TWh
Marginal price of
generation remains
relatively constant
14 TWh of additional
renewables push out
the supply curve
Level of Integration (TWh)2
50
40
30
20
10
AGL
EA
Origin
Increase in renewable to 2020
Wind
Coal
Hydro
Gas
Energy
Low SRMC baseload generation with large take or pay fuel positions will
continue to run, placing further downward pressure on wholesale prices
26
(1)
(2)
Demand data from AEMO. Supply data based on Origin modelling. Renewable build based on a 33 TWh target.
FY2014. Generation data from NemSight. Demand from company reporting.
Origin’s LRET portfolio has flexibility to contract or build longer term
ORG
LRET
position
Origin‟s
LRET
position1- 33 TWh
Number of LRECs (millions)
8
7
6
5
4
3
2
1
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
ORG existing PPAs and contracts
ORG call options (non-firm)
Use of REC inventory
ORG Stockyard Hill Option
Mass Market REC liability
ORG Total REC liability
Origin has the option to bring in wind in the south or utility scale solar in
Queensland
27
(1)
REC liability based on growth in line with AEMO’s system demand
2030
The intermittency of wind will likely increase volatility for which Origin is
well placed to benefit through its gas-peaking portfolio
Intermittency of renewables increases reliance on
peaking generation support
Wind variability driving volatility in SA
Number of 5-minute periods per day where required
generator response exceeds coal flexibility to ramp both
up and down1
Price Volatility and Wind Generation in
South Australia
14th-16th January 2014: demonstrating correlation bewteen price volatility and
intermittent nature of wind generation
SA Dispatch Price ($/MWh)
20
15
10
5
800
700
10,000
600
8,000
500
6,000
400
4,000
300
2,000
200
2020
Ramp up required
Origin modelling
2025
Ramp down required
2030
100
14/01 11:20
14/01 14:20
14/01 17:20
14/01 20:20
14/01 23:20
15/01 2:20
15/01 5:20
15/01 8:20
15/01 11:20
15/01 14:20
15/01 17:20
15/01 20:20
15/01 23:20
16/01 2:20
16/01 5:20
16/01 8:20
16/01 11:20
16/01 14:20
16/01 17:20
16/01 20:20
16/01 23:20
-2,000
0
2016
(1)
12,000
0
Summer Winter Summer Winter Summer Winter Summer Winter
28
900
SA Intermiitent Genration (MW)
Average number per day relative to FY2015
25
14,000
South Australian Wind (RHS)
0
South Australian Spot Price (LHS)
Enough wind has received DA approval to meet the 5 GW of new wind
equivalent required under a 33 TWh target
5GW of wind required to be built, with 6GW already
having required approvals in place
More economic to build wind rather than pay
penalty
Status of Wind Development Options1
Required Breakeven REC Price2
12,000
180
140
8,000
120
6,000
REC price ($/certificate)
Wind Capacity (MW)
Under a 41 TWh target the
market was more likely to revert
to penalty, current 33 TWh
target more likely to be met
160
10,000
4,000
2,000
0
Wind Development Pipeline
FID / Ready to Progress
Permitting
Capacity Required by 2020
33 TWh RET
DA Approved
Planning/Development
100
80
60
40
20
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
Year of build
Scenario 1 ($85 build price, $45 black price)
Scenario 2 ($95 build price, $40 black price)
Penalty price
There is a window of opportunity to build over the next five years which will
be more economic than paying the penalty on the scheme
29
(1)
(2)
Based on publically available information
Origin modelling; assumes LRET scheme ends 2030 and no carbon price
2025
In a market which is expected to remain oversupplied Origin has a
competitive cost of electricity through its flexible generation portfolio with
a short position to the pool ...
Origin’s Generation Flexibility
Capacity
9,000
40
8,000
35
Hedge
Contracts
6,000
5,000
4,000
3,000
Peak
Electricity
Retail
Demand
Peaking
Intermediate
2,000
• Limited coal exposure
30
Energy (TWh)
Capacity (MW)
7,000
Energy
Business
25
• Sufficient capacity for $0/MWh
short-run renewables to come
into the portfolio
20
15
10
Gas
Retail
Coal
5
1,000
Pool or
Contract
Market
1
Baseload
• Renewables complement
existing peaking fleet, together
with call back options under
gas sales contracts
0
-
Peak Demand
Supply
Demand
Supply
Origin has the flexibility to run:
• Pumped-storage hydro generation
• Coal generation – base, intermediate
• Gas generation – base, intermediate, peaking • Purchase from the market
• Peaking distillate generation
• Gas portfolio can ramp up from
minimum generation levels to
capacity within one hour
... combined with a peaking fleet of over 3,000 MW and flexible call back options
under gas sales contracts that will add significant value as the level of renewable
generation in the NEM grows
30
(1)
Eraring operated at a 45% capacity factor in FY2014
Origin’s fuel position is heavily weighted to gas where market prices
are increasing $3.50/GJ+
Large portion of fixed priced gas in Origin‟s supply
position
Coal currently contracted to 2022, with options to
increase at low prices
Coal supply
Gas supply 2016 - 2030
2,500
2500
2000
Ironbark (new equity
gas)
2,000
Price Review
1,500
1500
PJ
1000
500
Origin's existing
equity gas
0
Legacy contracts
1,000
Fixed Price
APLNG purchases
New Contracts
PJ e
Oil Linked
1,100 PJ
of fixed
price gas
500
-
1
Origin is short coal, with flexibility to take more coal at low prices
31
Eraring’s fuel position is contracted at less than 40% of its total
capacity with high quality coal
Power station flexibility
Coal supply flexibility & increased ability to stockpile
Eraring fuel position (2017)
12
Coal tonnes p.a.
10
Ability to
source
additional
coal at low
prices
8
6
4
Limited
ToP
position
2
0
Contracted coal
Peak f uel f lexibility
Of f peak f uel
f lexibility
• Upgraded coal handling infrastructure, including rail unloader and coal stockpile (additional 2 mt capacity),
enabling Origin to take advantage of coal supply opportunities
• From 2017, 4mtpa firm coal contracted to 2022
• High quality coal lowering ongoing maintenance costs and avoiding requirement for significant ongoing capital
expenditure
32
Across the NEM energy costs are expected to be highest in Queensland
given LNG load and gas price increase
Queensland
•
Strongest energy growth due to LNG load
and withdrawn gas-powered generation
•
Highest capacity value due to significant
demand flex on hot days
New South Wales
•
Reduced southerly flows from QLD into NSW
•
Surplus capacity in short-mid term to respond to and
limit any price increases
•
Ageing asset fleet requires capital investment to
maintain historic capacity factors, absence of which
would result in increased market volatility
South Australia
33
•
High levels of wind installed
•
Low energy demand outlook but high
capacity value driven by intermittent supply
•
Most likely to be impacted by an increase in
gas costs due to dependency on gas fired
generation
Victoria
•
Lowest cost of energy and most over-supplied
market
•
Wind renewable build expected to be highest in
the southern markets
•
Further risk of large reductions in industrial
demand
The Victorian outlook remains subdued with a significant level of over-supplied
brown coal generation
Generation Operations
David Smales, General Manager Generation
Continuing to increase performance and lower costs through the
development and execution of effective asset management strategies
1
Effective asset management
Increased asset performance
2
Portfolio flexibility, scale & diversity
Increased capability & productivity
3
Integration of Eraring
Reduced operating costs
4
Gas generation portfolio
Reduced capital expenditure
5
35
Operational effectiveness
Continued execution of asset management strategies to maintain portfolio
flexibility and performance at lowest optimal cost
Controlling & optimising costs
Lowering capital requirements
Generation Capital Expenditure
Generation Capital Expenditure
Generation
Costs
Generation Operating
Operating Costs
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
Pre Eraring Acquisition
Post Eraring Acquisition
Future
Pre Eraring Acquisition
Increasing asset performance
Post Eraring Acquisition
Future
Improving productivity
PortfolioEquivalent
Equivalent Reliability
Factor
(ERF)(ERF)
Portfolio
Reliability
Factor
100%
Generation
GenerationEmployees
Employees
600
98%
500
96%
94%
92%
400
Pre Eraring
acquisition
90%
FY12
FY13
FY14
Portfolio ERF (Incl Eraring)
FY15
FY16
FY17
300
Pre Eraring acquisition
Post Eraring acquisition
Future
Optimised
Eraring ERF
Focused on achieving further reductions in operating cost and capital
expenditure from current levels of approximately $220m and $95m respectively
36
Origin’s Generation portfolio provides flexibility, scale and diversity to
support a competitive cost of electricity whilst also leveraging gas
transportation capability
A highly flexible Generation Portfolio with scale1
A proven capability to capitalise on market opportunities
From minimum output to maximum output in less than 1 hour
2
Flexibility to vary output by circa 85% across a load range 3
Shoalhaven Scheme
Pumped Storage
Hydro: 240 MW
2880 MW
630 MW
1974 MW
240 MW
5724 MW
c.15% 100%
Flexibility
in
MW
Output
840 MW
Coal
37
96 MW
0 MW
0 MW
CCGT
OCGT
Hydro
(1) Origin’s 6GW power generation portfolio consists of 5.7GW of Owned and Operated (O&O) assets and three Joint Venture Companies (50% ownership, non-operated).
(2) With all power stations in service and operating at minimum output (c.1.8GW), Origin’s O&O Portfolio is technically capable of achieving maximum output (c.5.7GW) in circa 52 minutes.
(3) Minimum load in this example relates to having all power stations generating minimum stable output (and with the Hydro power station at zero output). Excludes Cullerin Range WF & JV’s.
936 MW
Origin
Portfolio
Eraring continues to make a significant contribution to Origin’s
Generation portfolio and lowers its overall cost of energy
Contributing to Origin‟s lower cost of energy
Improving asset management performance
•
Achieved 37% improvement in safety performance
•
Integration into portfolio concluded ahead of schedule
•
Benefits delivered in excess of the acquisition case
•
Mid-life capital investment program concluded by end of
FY2017
100%
Eraring Operating Costs
Eraring Operating Costs
80%
•
60%
40%
Continued focus on improving cost and efficiency
20%
0%
Pre Eraring Acquisition
Post Eraring Acquisition
Future
Eraring
Expenditure
EraringCapital
Capital
Expenditure
100%
80%
60%
40%
20%
0%
Pre Eraring Acquisition
38
Post Eraring Acquisition
Future
Origin’s gas fleet continues to underpin the portfolio’s strong
performance track record, responding well to rapidly emerging market
opportunities
Improving asset management performance
Sustained high performance and flexibility
•
Summer availability >99% over the last four years
•
Start Reliability maintained under heavy utilisation
•
Lifecycle costs materially reduced through:
6
- active asset management and condition assessment
5
Electricity
Production
Gas Fleet
Electricity
Production
- Gas–Fleet
TWh Output
7
- component life extension and optimisation
•
Operating costs effectively controlled
•
Capital program is driven by utilisation (hours &/or starts)
4
3
2
1
0
FY12
FY13
FY14
Gas & Renewables
FY15 *
3,000
100%
2,500
90%
Starts
2,000
80%
1,500
70%
1,000
60%
500
0
50%
FY12
39
FY13
FY14
Starts
Start Reliability
FY15 *
Start Reliability (%)
Production
Activity
Gas Fleet
Production
Activity
- Gas –
Fleet
Generation’s Monitoring & Support Centre underpins asset management
strategies and operating model, providing systemic ongoing performance
improvement across the portfolio
Leveraging technology to help drive performance
•
•
40
Smart power generation data & analytics, reducing
commercial and technical risk, by:
•
Supporting fact-based decision-making in a complex and
fast-moving operating environment
•
Developing insights & creating innovative performance
improvement opportunities
Leveraging information & technology to deliver
performance improvement, via:
•
Predictive failure avoidance, focussed on minimising &/or
eliminating future commercial losses
•
Rapid response and fully coordinated failure recovery
from unplanned production events
•
Condition monitoring and risk-based optimisation
Employing industry-leading asset management practices
Building Loyalty and Trust
Rebekah O‟Flaherty, General Manager Marketing, Sales & Service
Jon Briskin, General Manager Retail Customer Operations
Continued execution of Origin’s customer agenda, improving loyalty and
trust while lowering cost to serve
1
2
Value-based retention
Improved net promoter score
Origin branded channels
Improved churn relative to market
3
Enhance customer experience
Increase products per customer
4
5
42
World class operating structure
Lower CTS
Customer led culture
Competition today is predominantly price led. Origin will continue to meet
the market on discounts to defend market share
Origin‟s Average Signed Discount Offers for Electricity and
Natural Gas (%)
VIC
Competitor offers in market
NSW
SA
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
QLD
Electricity and Natural Gas Churn Rates
Electricity and Natural Gas Market Share
25%
Electricity
Gas
20%
15%
Origin
30%
Origin
27%
10%
0%
Origin Churn
Market Churn
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
5%
Origin must continue to execute the customer agenda to build loyalty and trust,
the most powerful mitigant to the impacts of a highly competitive market
43
Data and analytics enable identification of high value customers, providing
a basis upon which Origin tailors offers and service levels
Based on Customer Lifetime Value
Delivering benefits for customers and Origin
Proactive retention of all customers
Differentiated treatments based on customer
value
In a competitive market, proactive retention is key to improving the customer
experience, improving churn relative to market and lowering cost to serve
44
Origin’s digital platform and sales / service operating model has enabled
customers to use Origin branded channels as the channel of choice
New integrated digital capability
Dedicated sales and service
centres
Higher internal sales channel mix
Higher
internal sales channel mix
Sales Channels
100%
80%
60%
81%
88%
Internal
93%
40%
External
20%
19%
12%
7%
0% internal channel
Lower
cost
FY2013
FY2014 9 months
to 31 Mar
2015
Channel acquisition costs
Digital
Channel
Acquiring and retaining
customers through our
own channels
45
Lower cost
Better
customer
experience
Deeper
customer
relationships
Third Party
Channel
Enhanced
brand and
reputation
Origin is moving towards an ‘OMNI’ customer experience ...
... offering customers greater flexibility and enabling an integrated experience
across channels with deeper customer insight
46
Origin is improving communication with its customers
Simpler, shorter communications
Keeping customers informed
Bill due reminder
Origin
Hi. Just a friendly
reminder t hat t he
balance of your
Elect ricit y bill for
is due 101/ 04/ 15
(acct no. 012345678).
Already paid? Pls
ignore! No reply
Transparent, concise, easy to understand
47
5% improvement in
on time payment
behaviour
Connection reminder
Origin
Hi. Your elect r icit y
connect ion for
1 Smith St is all set for
Wednesday. We need
access to t he meter and
if the power is currently
of f please ensure t he
mains swit ch st ays
of f unt il t he power is
reconnect ed. Thanks.
No reply.
34 point
improvement in Net
Promoter Score for
new connections
There will be further opportunities to improve customer interactions through
continued investment in data and analytics
Executing on the Retail Transformation project has enabled Origin to
improve operational metrics and bad debt exposure
Ombudsman complaints (per
1,000 customers)
1.6
9.0
May 15
1.1
4.9
Customers registered on
MyAccount
183k
967k
Customers taking up eBilling
157k
900k
25
20
680k
1.5%
10
1.0%
5
0.5%
0.0%
Bad and Doubtful Debts
Bad & Doubtful Debts (LHS)
$150
2.5%
2.0%
% of Billings (RHS)
1.5%
$100
1.0%
$50
0.5%
$0
0.0%
FY2013
48
2.5%
2.0%
0
Bad and Doubtful Debts ($m)
390k
3.0%
15
$200
Customers choosing Direct
Debit
Days Sales Oustanding (LHS)
90+ Day Debt / Billed Revenue (RHS)
90+ Day Debt / Billings %
Calls per customer
Days Sales Outstanding and 90+ Day Debt to
Billed Revenue Ratio
Days Sales Outstanding
Jun 13
Favourable movement in core metrics to date
FY2014
FY2015
% of Billings
Improving our operational performance
Benefits of Retail Transformation are evident in reducing cost to serve
Cash cost to serve down ...
Cash Cost to Serve ($m)1
800
600
400
... with further reduction from
•
Continued reduction in bad and doubtful debts
•
More efficient and streamlined credit collections
processes
•
Reduction in call volumes
•
Increased customer experience leading to less
complaints
•
BPO re-negotiation
•
Continued improvement in back office
processes
200
0
Cash cost to serve is on target to reduce $30m in FY2015, with a further $50m
improvement expected in FY2016
49
(1) Excludes Generation opex
Building loyalty and trust starts with our people, and our cultural
transformation is well under way
Reward & recognition tied to
customer experience
50
NPS operating model
New ways for our people to
help our customers
Origin’s journey to build customer loyalty and trust continues
Earlier
FY15
Entered ACT
market
Contact Centre
weekday hours
extended
Mobile
Payment
option
Refreshed
eBill
We‟re changing
No exit fees
No consumer D2D
No consumer cold-call
„My Home
Profile‟
„Energy
Manager‟
„My Account‟ online
portal
51
Customer Service
Hubs launched
NPS launched
„Moving with
Origin‟ experience
improved
Improved onboarding for new
customers
„Call me now‟
website button
„EasiPay‟
New Origin website
$
„Success Is‟ reward
& recognition
Value-based
proactive retention
Simplified
communications
Credit
Transformation
begins
Solar as a Service
Open
Saturdays
Solar
payment plans
Dedicated Sales &
Service Contact
Centres
Upfront credit
assessment
BPO contract renegotiation
New customer
touchpoints
Robotics to reduce
manual processing
Proactive
hardship
Personalised
treatment of
overdue accounts
Innovative new
energy products
New look
bill
More
personalisation of
interactions
ECHO App
SMS alerts &
notifications
Dedicated High
Value SME
customer service
Simplified products
& pricing
Expansion into
Embedded Electricity
Networks
Digital analytics
capability
„New Connection
with Origin‟
experience
improved
Simpler phone
options for
customers calling
Coming up
More digitisation of
Contact Centre
interactions
Origin continues to grow the core energy business into new areas
Entered ACT market
• Entered ACT market September 2014
• 6,600+ customers
• 50% accounts on dual fuel
• 25% of sales online
52
Growing Origin water and
embedded energy solutions
• Leading provider of centralised hot
water services to high density
residential developments in Australia
Growing multi product holdings
• Offering our customers a
complete basket of energy
solutions
• Now offering embedded energy
solutions
Building loyalty and trust not only improves retention and cost to serve, its a
necessary foundation for extending into other products and services,
including Solar
Leveraging our Capability
53
Deepening knowledge of the customer enabled through growing capabilities
in data and analytics
Core data sources ...
Digital
Product
Meter
Weather
Other external
54
... together with core
platforms ...
...deepening our knowledge
of the customer
Leveraging Capability – Floor Walks
Leveraging our capability in SAP
55
Metering capability through our
established Acumen Metering
business
Social media managing engagement
with our stakeholders
Growing Solar and Energy Services
Phil Mackey, General Manager Solar and Emerging Businesses
Growing new products and services
1
Origin will lead the solar market
2
Deliver Solar as a Service
Market share
Customer experience
3
Expand service offerings
4
Harness new technology
Products per customer
57
57
Solar will play a significant role in the future energy landscape; Origin
aspires to be #1 in rooftop solar
Residential
58
SME / Commercial
• Remaining addressable market greater than
5 million homes (owner occupied and
landlord)
• Delivered commercial solar projects and built
a substantial pipeline of which over 50% are
PPA projects
• Growth will be driven by falling costs and new
propositions being taken to market
• Strong value proposition for SME PPA and
actively pursuing this segment
• PPA sales now ~50% of total daily volume
following May launch
• Origin is seen as a leading credible counter
party for Commercial solar
59
Source: Origin, SunWiz
Origin remains committed to the growth of solar over the long term
Braemac Energy Pty Ltd
Ingenero Pty Ltd
Goodhew Pty Ltd
Nicholls Solar
Infinite Home Energy
Free Solar Pty Ltd
SolarSpec Pty Ltd
SolarBridge Pty Ltd
Recs r Us
Solar Australia
Homeworks Co Pty Ltd
Green & Gold Solar Australia
Enviro Green Trade Pty Ltd
Zen Technologies
CitiSolar QLD
Infinity Solar Pty Ltd
AGL Solar
Solar Juice Pty Ltd
Energy Matters Pty Ltd
80,000
Beyond Building
100,000
Chromagen Pty Ltd
P&N (Euro Solar, Sun solar)
Green Engineering
Premier Solar Shop
NU Energy
Modern Solar
SolarpowerRex
SolarGain
Origin Energy
True Value Solar
Origin’s track record provides significant experience and capability
120,000
Only two of the top 50 companies were installing
solar 10 years ago: Origin is one of them
60,000
40,000
20,000
0
Origin has been trialling, learning and building new capabilities across new
energy technologies, products and business models
2002: Origin delivers its
first solar offer in the
Australian market
2010: Origin installs its
10,000th system. Installs
first commercial systems
2014: Mitsubishi EV
relationships
Solar as a Service Trial
2011: Origin first
online solar sale
2008: Origin remote
digital system design:
a world first
2005: Home
products range in
market
2010: Transform JV
2015: Origin >80k solar
installations
>360k Retail customers with solar
Solar as a Service v2 launched
2012: Transform discontinued
ServiceStream partnership
Nissan EV relationship and
GoGet EV partnership
2004: Sliver
thin film pilot
factory
online
60
2009: Cogent
Energy acquired
2011: Origin „Smart
home‟ trial
2015: SME PPA
CHP portfolio >13MW
Chargepoint EV
Charging
Battery trials
Solar as a Service creates long term relationships with our
customers and delivers increased value for both parties
TODAY & THE FUTURE
Solar as a Service ... „Don‟t Waste Your Roof‟
• Delivers solar at $0 upfront - customer pays for kWh‟s generate
• Products offered: 7, 10 & 15 year terms for 3, 4 and 5kW products
• Tariffs are compelling being 30-70% below NEM retail tariffs:
e.g. Qld 5kW at 11c/kWh tariff
• Origin owns, maintains, monitors and services
Value Creation for customers and Origin
• Customers potential for payback from Day 1and receive a managed service
where Origin monitors and manages the asset
• Retains customer value from our existing customer base and wins new
customers:
• Delivers ~3x value (relative to direct sales) over a long term relationship
with customers
• Establishes long term relationship allowing x-sell and up-sell
61
Origin aspires to be #1 in the solar market by delivering on the key
value drivers
Lowest Cost To
Acquire
Value created
• Large, investable portfolio of energy assets
Lowest cost of
ownership
• Deeper, longer term customer relationships
• Greater value from each customer with
increased products per customer
Competitive Cost
of Finance
62
• Path to breakeven in FY17
Origin is leveraging its retail experience and harnessing opportunities to
deliver home energy services
10 years+ experience
delivering services into
homes
Appliances Retailing
HOT WATER SOLUTIONS
Extending service offers
Servicing Market
Moving to a deep
customer relationship
TODAY
Retail solar and
home appliances
EMERGENCY HOT WATER
• 24/7 emergency callouts
• ~400 thousand events per
year
TOMORROW
HEATING & COOLING
SOLUTIONS
Retail solar and home
appliances
SOLAR SERVICING
• 1.4m households installed
• Inverter replacement market
will grow significantly over
the next three years
Services
Connected
homes
63
Extending into other energy services and products, including
batteries
Our insights into battery use confirm that there
is not one battery that fits all
Origin is developing solutions that match
customer need with the right battery
• >12months of extensive analysis
• Customer needs for battery vary substantially
Conducting trial
• Retrofit to existing solar
• Installing Samsung ESS units
• Fit with new solar
• 3.6kWh integrated unit
• Flat tariff versus Time of Use customers
• Certified for Australia
• Grid defection unlikely
• Queensland, NSW, SA
Product suite
• Ongoing evaluation of a range of
potential suppliers
• Product selection dependent on:
00:00 - 00:30
00:30 - 01:00
01:00 - 01:30
01:30 - 02:00
02:00 - 02:30
02:30 - 03:00
03:00 - 03:30
03:30 - 04:00
04:00 - 04:30
04:30 - 05:00
05:00 - 05:30
05:30 - 06:00
06:00 - 06:30
06:30 - 07:00
07:00 - 07:30
07:30 - 08:00
08:00 - 08:30
08:30 - 09:00
09:00 - 09:30
09:30 - 10:00
10:00 - 10:30
10:30 - 11:00
11:00 - 11:30
11:30 - 12:00
12:00 - 12:30
12:30 - 13:00
13:00 - 13:30
13:30 - 14:00
14:00 - 14:30
14:30 - 15:00
15:00 - 15:30
15:30 - 16:00
16:00 - 16:30
16:30 - 17:00
17:00 - 17:30
17:30 - 18:00
18:00 - 18:30
18:30 - 19:00
19:00 - 19:30
19:30 - 20:00
20:00 - 20:30
20:30 - 21:00
21:00 - 21:30
21:30 - 22:00
22:00 - 22:30
22:30 - 23:00
23:00 - 23:30
23:30 - 00:00
• Flexibility
Peak demand (17/01/2014)
Low demand (10/09/2012)
Wednesday Winter (7/8/2013)
Saturday Winter (10/8/2013)
Wednesday Summer (5/2/2014)
Saturday Summer (8/2/2014)
• Economics
• Customer experience
Average Demand
64
Improving Returns in Energy Markets
Frank Calabria, CEO
65
Energy Markets Strategic Priorities
Progress to date
 Increased gas margins and market
share
 Reduced cost to serve
Maximise value of
the core business
 Reduced capital and operating
expenditure on generation portfolio
 Improved customer experience:
complaints down; new integrated
digital platform; proactive retention
Build customer
loyalty & trust
 Improved customer satisfaction in the
Business segment
 Entered ACT market
 Acumen Metering well established
Grow new products &
services
 Solar – consumer and business
growth & PPA product launched
Focus going forward
• Capture benefit of rising gas market
• Remain competitive on cost of
electricity through flexibility; pivot to
renewables
• Lower CTS & improve capital efficiency
• “OMNI” customer experience
• Data and analytics to deliver new
products and services to the
consumer
• Grow new solar business model,
extending into batteries and other
home energy services
• Extend Acumen Metering capability
into consumer and SME markets
• Grow in embedded networks
66
Energy Markets is continuing to deliver improved returns by…
Expanding Natural Gas margins
•
Maintain competitive cost of gas through legacy gas positions
•
Maximise value of ramp gas opportunities
•
Commencement of long dated and well priced gas sales contracts to other LNG projects
Maintaining Electricity margins
•
Maintain competitive cost of energy through a flexible fuel and generation portfolio
•
Well positioned for future development and growth
Building customer loyalty and trust
•
Maintain competitive pricing
•
Reduce churn
•
Sell further products and services
Reducing operating costs and capital expenditure
•
$100 million reduction in Natural Gas & Electricity cash cost to serve and Generation Opex across FY2015 and FY2016
•
Total capital expenditure in the core business reduced, with a further reduction of $50 million in FY2016 to ~$250 million
Growing Solar and Energy Services
•
Become #1 in the Solar market
•
Net loss of $25 million expected in FY2016
•
Breakeven by FY2017 and targeting 170 MW installed in FY2018
… with the key risk being the level of competition in retail markets
67
Thank you
For more information
Chau Le
Group Manager, Investor Relations
Email: chau.le@originenergy.com.au
Office: +61 2 9375 5816
Mobile: + 61 467 799 642
www.originenergy.com.au
68
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