Presentation by Andrew Greer (Airtricity) at the CBI NI energy conference. February 2012

1. CBI Northern Ireland Energy Conference
29th February 2012
“Suppliers perspective on Energy Supply in NI”
Andrew Greer
Airtricity

2. 1. NORTHERN IRELAND IN CONTEXT
2. CHANGES IN GB MARKET
3. KEY ISSUES FOR CUSTOMERS

3. With recent market volatility the
Purchasing Dilemmas for 2012;
Buy Now or Wait?
Fixed or flexible?
Length of Contract?
All in the context of;
•Internal pressure to reduce costs
•Budget Risk v Market Risk
•Commodity & FX volatility

4. NORTHERN IRELAND IN CONTEXT
FUEL MIX
NORTHERN IRELAND
UK
SEM Fuel Mix 2010-2011 UK fuel mix 2010-2011
Renewables
Oil 2% Other 1.7%
Renewables 7.9%
12%
Coal 28.9%
Nuclear 17.3%
Coal 16%
Peat 6%
Gas 64%
Natural Gas 44.2%

5. Historic Average Monthly SMP and GB Gas (NBP)
100 80
90
70
80
60
Monthly NBP average (GBp/therm)
Monthly SMP Average (€/MWh)
70
50
60
50 40
40
30
30
20
20
10
10
Average monthly SMP (€/MWh)
Average monthly GB gas (GBp/therm)
0 0
SMP values are highly correlated to GB gas prices

6. Fuel Mix for 2011 outlines Ireland’s Addiction to Gas

7. NORTHERN IRELAND IN CONTEXT
GB GAS INFRASTRUCTURE

8. NORTHERN IRELAND IN CONTEXT
GAS INFRASTRUCTURE
Source: Gazprom UGSS

9. GB Natural Gas Production & Gross Imports (TWh)
• GB Net Production lowest level in 17 years
• 2011 production c 40% of peak production in 2000
• 2011 - Imports exceed Production for the first time

10. GB Natural Gas Consumption & Gross Exports (TWh)
1,400
1,200
1,000
800
Exports
600
GB Net Consumption
400
200
-
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
p
• 2011 Net Consumption lowest level since 1995
• Combination of milder weather & reduced gas generation
• 17% lower consumption than 2010
• 2011 – Record exports – higher than during peak GB Production

11. GB Natural Gas Imports(TWh)
700
600
500
Other LNG
400
Qatar
300 Norway Pipeline
Other Pipeline
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 p
• Imports Rise to offset reducing GB Production
• Norway key Pipeline flow (c40% of imports)
Liquefied Natural Gas (LNG) increase substantially in the last 2 years
• Qatar now accounts for c 40% of total imports

12. GB Natural Gas Exports(TWh)
200
180
160
140
120
Ireland
100
Netherland
80 Belgium
60
40
20
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 p
•
• 2011 GB Exports Rise to record levels
• Exports to ROI increase 80% since 2000
– 2011 – 58.3 TWh c 64% for power generation

13. •Gas cooled to -162C
•Volume reduction – 1/600th
•Largest Importer – Japan
•Largest Exporter - Qatar

14. ENERGY PRICE TRENDS
LNG - Price Setter
.
• Tightening global LNG Market
– Increased re-Gasification Plants
– High Plant Utilisation
– Next 4 years will only see limited production increases
• Around 30% of LNG cargos on spot market ie non contract , balance
largely shipped to Asia on oil-indexed long term contracts
– Behaviour of Qatar crucial on availability of spot cargos
• Other Key Factors include
– Japanese Market & extent of gas generation substitution v Nuclear
– Availability of LNG tankers
– Availability of spot cargos
– UK long term contract position
– Iran

15. UK LNG GAS SUPPLIES PASS THROUGH GULF

16. Future Issues Impacting Pricing
•Producer behaviour – in particular Qatar
– Maintenance schedules & unscheduled outages
•Gazprom (Russia)/Statoil(Norway) reaction to market ie production
v price
•Economic factors – Global slowdown, Greek debt, European
uncertainty, Asian Growth – China & India
• Geopolitical events eg Middle East, Earthquakes
•Northern Hemisphere weather
•Oil indexation (European Pricing) & future FX volatility
•Germany & a non – nuclear future
•Trading Sentiment - UK market traded 17 times physical demand

17. Current Issues
• Dec & Jan unseasonably mild – reduced consumption
• Prices trended downwards
• Feb saw exceptional cold weather hit mainland Europe
& Eastern GB
• Prices reacted with large increases & 6 year day-ahead
highs
• Higher oil prices and weaker dollar have contributed to
increasing forward prices
• S12 hit a 3 month high over 62p/therm
• Storage being replenished after cold snap
• Supporting prices as storage injection continues
• Exports to Europe to replenish storage
• Concern over LNG shipments to Europe

18. Other factors Influencing SEM Prices
• Other Fuel costs eg Coal
• Demand Forecast
• Temperature
• FX
• Wind generation
• Unplanned outages
• Maintenance
• System Constraints
• Carbon costs
• Interconnectors

19. Key Issues for Customers to
Consider When Considering Energy
Procurement

20. 1. Understanding the key market drivers and their
fundamentals
2. What is your risk appetite ?
- Timing is everything
3. Understanding the products available
– Energy Pricing strategy including small print
– Pass-through costs
– Greenness
4. Shopping Around
5. Managing Use
6. Energy Brokers

21. Risk Appetite
Energy Procurement Strategy is dependent on the appetite
for risk within an organisation
• What strategy will your current corporate governance
permit?
• Have you looked at alternative products?
• Internal skill base v external consultancy?
• Risk Management Strategy reflected in the energy product
selected
Budget Risk v Market Risk
• Relative Priority of Budget Risk v Cost Competitiveness
Dilemma 1: Fix prices and set Dilemma 2: Price linked to wholesale
budget: market:
What if market falls? What if market rises?

22. Fixed Price Contract – Timing is Everything
Apr-12
Apr
-12
07/01/11 07/03/11 07/05/11 07/07/11Date 07/09/11 07/11/11 07/01/12
Pricing of 12 Month contract Commencing 1 April 2012

23. Products Available to Meet Your Risk Appetite
• Fixed Price Contract
• Index Linked eg ICE
• Pool Price Pass-through
• Flexible fix/unfix

24. Don’t forget about the Pass-through costs
• Duos, Tuos, SEMO, PSO, SSS, NIROCS
• Over 40% % of total bill
– Future investment in network upgrades to support decarbonisation
– Inflation
– Smaller volumes to recover fixed costs
– Impact of EU targets/legislation e.g. Carbon
• 2010 & 2011 have seen changes in Duos & Tuos shape
• More cost reflective
• Has changed pricing signals particularly around winter peak
• NIROC increasing to 0.081 ROC per MWh from 1 April
• Currently 0.055 ROC per MWh

25. SHOP AROUND - WHAT CAN AIRTRICITY OFFER?
Offer a range of competitive electricity products
–Fixed price contracts of varying durations
–Ability to advance purchase
–Flexible purchasing options including
–Gas linked electricity pricing
–Fix/unfix
Work with you or your appointed broker in delivering
your agreed procurement strategy

26. MANAGING YOUR ENERGY USE
REDUCING ENERGY USAGE
• ADVICE
Number of independent organisations offer energy management advice
(Invest NI + Carbon Trust)
• AUDITS AND SURVEYS
Each Business is different – savings can be found in places ranging
from:
Simple Behavioural Changes Major Energy Efficiency Investments

27. Credit
• Tough economic environment
• Credit is just another risk to manage
• Each supplier will have their own criteria
• Security could be requested

28. Stop Press - Shale Gas or “Fracking”
• Transformed US Natural Gas Market
• USA basically self sufficient in gas
• Taken out of acquisition market
• Considering exporting gas as LNG
• Dramatic reduction in gas pricing (27/2/12)
• Henry Hub Spot $2.59/Mmbtu ( 16.4p/therm)
• UK Day ahead c 61p/therm
• Pricing at levels which is deterring further investment
• Gives US large energy users a huge cost advantage
• What will the UK do?

29. Conclusions
• Prices have a global dimension
• Prices are volatile
• Keep an eye on the fundamentals
• Review your procurement approach & strategy
• Consider doing something different
• Shop around

30. Thank you
Andrew.Greer@airtricity.com
02890 437470