EDP’s internationalization strategy and the USforumcompetitividade.org/wp-content/uploads/2016/... · 6/7/2016 · First Inovcity in Brazil (Aparecida) 2011-2016 New hydro growth

Lisbon, June 7, 2016

EDP’s internationalization strategy and the US

Presentation to the Portuguese-Unites States Friendship Association and the American Club

Eduardo Catroga, President of the General and Supervisory Board of EDP

Agenda for today

1 EDP’s 40 years overview and 2015 portrait

2 EDP’s internationalization waves into Brazil and Spain

3 EDP’s bet on renewables and expansion into new geographies namely the USA

4 The USA as a main driver of EDP’s 2016-2020 Business Plan

EDP commemorates 40 years as was “born” in 1976 as a state owned company, with roots as old as 1890. Privatization started in 1997 and reached 100% in 2013

19761889

Start of the electric public lighting service in Lisbon

Creation of EDP as a state-owned company, vertically integrated, merging 14 regional companies nationalized in 1975, to “promote and satisfy social and economic development demands for the whole population“ (Decree Law nº 502/76, 30 June)

Start of Brazil operations, with minority acquisitions in grids (Ampla) and generation (Lajeado, 1997)

1996

Acquisition of a controlling position in Hidrocantábrico in Spain

2001

Acquisition of Horizon in the USA. Expansion of international growth in renewables

2007

2007

20011976

1996

1909

1991 1994/5

Legal unbundling of transport, distribution and production activities

Legally transformed into a public limited company

70,01%

1997

31,3%

2000

xx %Privatization process main steps: Portuguese State ownership position at EDP

25,3%

2004

4,14%

2011

• Presence in 14 countries

• ~60% EBITDA outside Portugal

• “Regulated” company (~90% of regulated or long term contracted EBITDA)

• Renewables growth focus

2015

Mandatory spin-off of Transmission Operator, REN

0%

2013

3

The first 10 years were very challenging to EDP’s financial health, which was recovered only in the 1990’s, creating conditions for a new vision of growth

EDP from 1976 until 1995 Why going international

▪ Need for a growth story to back initial privatization: Expand access to growth opportunities, backed by political support

▪ Leverage strong technical expertise to add value in markets where it would be required

▪ Diversify portfolio and underlying risks of liberalization/unbundling process in domestic market

▪ First 10 years financially challenging due to integration of regional assets and political turbulence

▪ Government interventions in the business management

▪ Pure domestic player with monopoly on Generation, Transmission and Distribution

▪ 1990-1995 financial health recovery to prepare the company for the future and for initial privatization

4

Since 1996 EDP has pursued growth into new geographies, new technologies and even outside the energy sector…

Growth to other geographies:• Looking for higher natural growth• EU internal market competition

Diversification into other sectors:• Liberalization driven• Being a multiutility

Dash for gas:• CCGT convergence• Being a multiutility

Growth in renewables:• Environment – energy EU policy• Low risk high growth opportunity

1996 - Starting in Brazil – electricity distribution2001 - Spanish HidroCantábrico 40% acquisition2004 – EDP’s capital increase (€1.200 million) and reaching 96% of HidroCantábrico

1998 – Telecommunications diversification – Optimus1999 – Water and sewage with Thames Water (25,5% share in Chilean Essel)2000 – ONI fixed network company starts operations2000 - Expanding in IT using EDINFOR

1999 – 14,27% in GALP Energia2003 – HidroCantábrico buys 62% of NaturCorp, later named Naturgas2004 – EC did not approve exchange of GALP shares to control Gas de Portugal; later a share in Portgas was bought

1996 – EDP´s first Portuguese wind farm2005 – Merger of Spanish and Portuguese wind assets2007 – USA Horizon Wind Energy acquisition2007 – Creation of EDP Renewables and IPO in 2008

5

… turning EDP into a top global sustainable energy utility, with ~11 million clients around 4 continents and a leader in renewable energy

A top …

€ 3,9 Bn EBITDA(42% in Portugal)

~11 million clients(5,4 millions in Portugal)

… global …

12.000 workers(31 nacionalities)

in14 countries (4 continents)

+140.000 shareholders (mostly foreign investors)

… sustainable energy company

60% of generated energyfrom renewable sources

4rd largest wind operatorin the world

€ 15 Bn revenues

Note: figures refer to 2015

with

6

1,6 1,6

0,40,7

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EBITDA Investment

7

Without the internationalization process from 1997-2015, EDP would have seen its EBITDA stagnate in nominal terms

EDP’s EBITDA and investment in Portugal (€ Bn)

Electricity demand growth 1997-2015

Cumulative inflation 1997-2015 47%

+53%

Cumulative investment 1997-2015 15 €Bn

7

Today EDP has presence in 14 countries, with ~12.000 employees of 31 different nationalities. ~60% of its EBITDA in 2015 came from outside Portugal

(1) Presence with EDP Renewables only. Note: Figures for Portugal, Spain and Brazil include EDP Renewables business

USA and Canada(1)

378 Employees4.233 Installed capacity (MW)

Brazil2.972 Employees3.256.829 Electricity customers2.601 Installed capacity (MW)25.713 Electricity distribution (GWh)

Portugal6.683 Employees5.443.510 Electricity customers567.907 Gas customers10.045 Installed capacity (MW)42.227 Electricity distribution (GWh)6.907 Gas distribution (GWh) Spain

1.863 Employees1.011.941 Electricity customers836.668 Gas customers5.962 Installed capacity (MW)9.168 Electricity distribution (GWh)27.093 Gas distribution (GWh)

United Kingdom(1)

37 employees

China(Macau / Hong Kong)

France and Belgium (1)

50 Employees435 Installed capacity (MW)

Poland and Romania(1)


Italy (1)


12%

42%

Weight in EDP’s group total EBITDA 2015

México5 employees

AngolaOffice

%

22%

19%

5% RoE

Note for Portugal:• 23.306 maximum of employees, 1987;• 6.683, in 2015,With quality improvement and lower tariffs.• 100% electricity market share in 1999;• 52% electricity market share in 2015.

8

EDP’s international expansion fostered an unprecedent growth and is the foundation of the Group’s positioning as a reference utility globally

EBITDA1 breakdown by country, € BnNumber of countries where EDP is present

100%

61%42%

17%22%

23% 12%2,5

2015

3,9

19%

1996

4%

2005

1,72

1 Renewables EBITDA from each geography is included in the values of the respective geography2 EBITDA from the whole Group in 1996 (i.e., including operations in Brazil), converted from PTE to EUR at 1 EUR=200.482 PTE; data for 1995 not available

Number of shareholders

14

31

201520051995

Installed capacity, GW

100%71%

41%

25%

24%

17%

12,6

4%

1995

7,3

11%

2005

6%

2015

24,3

1

2005

>140.000

1995 2015

1 8 9Reference shareholders (>2%)

Others

9

The shareholder structure of EDP has evolved to be geographically diverse with a core group of strategic shareholders

Shareholder structure in Dec-2015

21.35%

3.02%

16.97%

5.00%7.19%4.06%

2.44%2.38%

2.27%

35.3%

China Three Gorges 21.35% (China)

Guoxin International 3.02% (China)

Capital Group Companies, Inc. 16.97% (USA)

BlackRock, Inc. 5.00% (USA)

Oppidum 7.19% (Spain)

Senfora BV 4.06% (UAE)

BCP 2.44% (Portugal)

Sonatrach 2.38% (Argelia)

Qatar Investment Authority 2.27% (Qatar)

Others 35.3%

10

Agenda for today





11

Throughout the last 20 years, EDP has focused its expansion on four main geographies: Brazil, Spain, Central Europe and United States

1 Brazil

2 Spain

3 Europe (RES)3 US (RES)

MacauHong Kong

12

Brazil was the first step in the international expansion process of EDP, with partnerships being key for the initial phase

1

20161995 2000 20102005

1995Entry in Brazil with initial focus on distribution -acquisition of a stake in CERJ

1997First invest-ment in hydro generation with 25% stake in Lajeado

2001Auction won for Peixe Angical, reinforcing hydro business

2000Creation of EDP BrasilS.A.

1998-99Acquisition of stakes in Bandeirante (directly) and in Escelsa and Enersul(indirectly), reinforcing distribution business

2005EDP BrasilIPO

2007Acquisition of first thermal plant - Pecém(50%) (2015 - 100%)

2008First renewables investments

2010-2016First investment in energy services (2010; acquisition of APS in 2015). First Inovcity in Brazil (Aparecida)

2011-2016New hydro growth with Jari, CachoeiraCaldeirão and São Manoel hydro plants

Why Brazil?

Competitive advantages such as deep market knowledge and cultural affinity (e.g., same language)

Opportunities in privatization programs at time of entry

Favorable institutional context and strong government support at time of entry

MAJOR MILESTONES

13

20 years later, EDP has a very relevant role in the Brazilian energy market across the whole value chain

4th largest private energy production player

5th largest private distribution player

4th largest private energy retailer (by sales)

2,7 GW installed capacity

~75% from hydro

>25.000 GWhdistributed energy

~ 3,3 million clients

>10.000 GWhcommercialized energy

~3.000 employees

Superior Performance

€ 829 M EBITDA1

The Best in Corporate Governance model and awards in Ethics and Transparency

~10% market share

1

Note: figures refer to 20151 21% of EDP Group

Importance to the Brazilian economy

14

EDP’s presence in Spain ranges through the whole energy value chain and complements its domestic market operations

2

1 Equivalent Interruption Time for Installed Power

20162001 20112006

2001Entry in the capital of Hidrocantábrico(later HC Energía)

2002Acquisition of up to 40% of Hidrocantábrico, with EDP assuming a controlling position

2003Acquisition of 62% of NaturCorp(later Naturgas), through Hidrocantábrico

2004Increase in the stake of EDPin Hidrocantábrico to 96%, consolidating EPD as the 3rd

Iberian player in electricity

2008-09Acquisition of several electricity and gas distribution assets outside Asturias, increasing the number of distribution clients by 55% and 36% in electricity and gas, respectively

2012HC Energía leads in quality service in Spain, with continuous quality improve-ments in the grid, yielding the best result in TIEPI1 (28 min)

Why Spain?

Natural extension of the domestic market given geographic proximity

Reinforcement of EDP’sposition as a top Iberian player

MAJOR MILESTONES

2013Project InovGrid starts in Spain with the mass installation of smart meters in the Asturiancity Pola de Siero

15

EDP has a very strong presence in Spain across the entire value chain

4th electricity and 2nd gas distributor

3rd electricity and 2nd gas retailer

~6 GWinstalled capacity

Electricity generation in 3 Spanish provinces

>9.000 GWhdistributed electricity

>27.000 GWhdistributed gas

>16.000 GWhcommercialized electricity

>26.000 GWhcommercialized gas

Importance to the Spanish economy

~1.900 employees

Superior Performance

€ 759 M EBITDA1

4th largest electricity producer

2

Note: figures refer to 20151 19% of EDP Group. Includes renewables business in Spain 16

Agenda for today





17

EDP started to invest in renewables in 1996, although only after 2001 became a growth development vector, turning EDP into an Iberian lead player by 2007

1996

First marginal strategic efforts to diversify energy sources with environmental concerns

2001

• First wind park built in 1996 (Parque Eólico da Fonte da Mesa - 10 MW)

• In 2001 ENERNOVA had 4 wind parks in Portugal with 40MW

• Investment in renewables was less than 2% of EDP’s total investment

• In 2001 Portugal established a goal of “having, in 2010, 39% of electricity from renewable sources”

• Strong Iberian growth in greenfield projects

• Consolidation of players

• Entrance into other europeancountries with greenfield projects

Goal: establish a strong position in the Iberian market

2007

3

Note: Portugal reached a 50% renewables electricity share in 2010 18

EDP was able to anticipate the growth renewables would bring to the sector

FONTE: Lazard’s Levelized Cost of Energy v.3.0 and v.9.0; Global Wind Energy Council

Wind onshore LCOE1, €/MWh

World renewables installed capacity, GW

1 Unsubsidized levelized cost of energy upper limit in the US

EDP was able to foresee the strong potential of renewable energy, and particularly wind onshore, ahead of most of its competitors

-7% p.a.

2015

70

2000

>250433

17

2015

+24% p.a.

2000

Why Renewables?

Growing climate energy policy concerns

Segment with very strong growth potential

Coherent framework of investment incentives

3

19

Wind onshore has become the most competitive source of energy which will continue to fuel growth

LCoE average Europe, €/MWh (2014 real terms)

3

20

EDP Renewables was created as a legal entity only ~10 years ago and already represents around 30% of EDP Group’s business

2010 20162005

2007Creation of EDPR as a sepa-rate company to manage all the renewables assets the EDP Group already had in Portugal, Spain and France

2008EDPR IPO

2009EDPR enters the Brazilian wind onshore market

2007-08Expansion to the US through the acquisition of Horizon Wind Energy (2007) and Hydra Energy’s pipeline (2008)

2007-08EDPR expands its operations to Poland (2007) and to Belgium and Romania (2008)

2010EDPR is awarded the wind offshore project Moray Firth, entering the UK

2014EDPR enters Mexico through an electricity supply agreement for a wind farm with a Mexican mining company

2005Entry in the wind business in France (first market outside Iberia)

2010EDPRexpands into Canada and Italy

1 Includes Renewables business in Iberia

MAJOR MILESTONES

3

21

Today EDPR is the 4th largest wind operator in the World with 9,7 GW of installed capacity in 12 countries,

5.091 MW

204 MW

EDP Group company focusedon wind and solar investments

Leader in the most competitive renewable technology

Worldwide portfolio

#4 worldwide wind player

4.412 MW

Young assets withlong residual life

Quality asset base generating predictable revenues

WINDONSHORE

12COUNTRIES

6YEARS AVG. LIFE

95%CONTRACTED in 2016

77.5%EDP SHAREHOLDING

3

EDP Renewables 2015

22

2007

Installed Capacity (MW)

1.254

US (% EDPR) 41%

GWh 1.465

Net Capacity Factor 30%

Employees 197

$ million

EBITDA 42

EBIT 4

KEY DATA EDPR IN UNITED STATES

EDPR entered the US in 2007, through the acquisition of Horizon Wind Energy a Texas based developer. Horizon had a small fleet of operational wind farms and a large

pipeline of projects at different stages of maturity

2007

EDPR entered the US market in 2007, through the acquisition of a local wind developer with a quality development pipeline…

Installed Capacity by state, Dec 2007 (MW)

396

333

172

151

101

101

Illinois

Texas

New York

Oklahoma

Minnesota

Oregon

Why the US?

Market with relatively low explored renewables landscape

High growth potential, given ambitious renewables targets in some states and tax benefits

Potential for long-term power purchase contracts (PPA)

3

23

…which quickly gained scale over the last years and now the USA represents 40% of EDPR’s EBITDA (17% annual growth)

MAJOR MILESTONES

Fast initial growth Acquisition of Horizon Wind Energy (~560

MW) Acquisition of Hydra Energy’s pipeline (~1,050

MW) Self-development of further wind projects

Slower growth pace

Consolidation efforts

Entry in new geographies (e.g., California)

Increased competitiveness in getting new attractive wind locations

5

3

1

4

0

2

1.000

800

200

400

0

600

1,5

2007

2,2

10

3,22,9

0908

+6% p.a.

Installed capacityGW

EBITDA$M

+29% p.a.

13 15

4,4

14

4,0

11

3,4 3,73,6

12

3

24

2007 2015 CAGR

Installed Capacity (MW) 1.254 4.382 17%

US (% EDPR) 41% 45%

GWh 1.465 11.030 29%

Net Capacity Factor 30% 32% 1%

Employees 197 383 9%

$ million

EBITDA 42 513 37%

EBIT 4 216 67%

KEY DATA EDPR IN UNITED STATES

From 6 States in 2007, EDPR now owns and operates wind farms in 12 US States. We also count on a team of

383 dedicated employees, who focus on optimizing installed base and executing future growth projects

2015

In USA EDPR has today ~4,4GW of wind capacity across 12 States with a team of 383 employees

Installed Capacity by state, Dec 2015 (MW)

797

701

468

401

400

400

388

300

208

101

101

99

Illinois

Indiana

Oklahoma

Iowa

Kansas

Texas

New York

Oregon

California

Washingt…

Minnesota

Ohio

3

25

Investment benefits from Tax incentives

The preference for the US market comes from its stable and attractive regulatory framework for renewables, mostly based in Tax incentives and long-term PPAs…

“Production TaxCredits” (PTC)

AcceleratedTax depreciation

(MACRS)

Renewable energy targets, defined at

state level

State tax incentives

RPS – Renewable Portfolio Standards,

will secure the “green value” in the

future.

• The USA financial support to renewables is to the investment and not based in a preferred buying tariff, like in EU.

• This explains the difference in average price“Investment Tax

Credits” (ITC)(30%)

3

26

Federal Level State Level

The long term bilateral contracts, PPA’s type, are not only with distributors, but also with credible large companies

Long term bilateral contracts (15 – 20 years) with well known USA companies, allowing:• Competitive price;• Long term fixed price, avoiding electricity price risk;• Green publicity, as promoters of RES.

In 2015 for EDPR:• 70% of the energy of new wind farms to be finalized in 2016 and 2017 were sold using

these contracts;• 5 contracts (Home Depot, Amazon, Philips, General Motors, Bloomberg).

3

27

Agenda for today





28

EDP’s future strategy further reinforces its presence in international core markets, particularly the USA

62% of net investments 2016-20 are outside Iberia, of which >50% in the USA

Net Investments: avg. €1,4bn/year in EDP’s Business Plan 2016-20

Breakdown of accumulated Net Investments(1): 2016E-20E (%)

(1) Net Investments include capex and financial investments in the period and €1.6bn of financial divestments of minority stakes in wind farms by EDPR in 2016-20; (2) North America includes: US, Canada and Mexico

Breakdown of Recurrent EBITDA by geography: 2015-2020E (%)

29

Increasing 2014-17 Business Plan…

…into a new Business Plan with stronger capacity additions and technological mix

Capacity Additions(MW; %)

Total of 3.5 GW capacity additions

65%

10%

15% 700 MW/year2016-2020

NorthAmerica1

Brazil

Europe

Notes: (1) North America includes: US, Canada and Mexico

10%

Solar PV

Drivers

Wind Onshore: fully competitive technology

Solar PV: Increasing its competitiveness

Capacity Additions(MW; %)

Total of 2 GW capacity additons

60%

20%

20% 500 MW/year2014-2017

United States

Emerging Markets

Europe

Projects with long-term visibility & low risk profile

EDP R 2016-20 Business Plan based on +0.7 GW per year, keeping the US and wind onshore at the core of EDPR growth strategy

30

EDPR forecasts further growth in the US, with an increase of ~50% of its installed capacity by 2020

600

700

500

400

200

100

0

800

300

9006,6

1918172015

EBITDA$M

EDP R in USAInstalled capacityGW

202016

4,4

Additional 2,2 GW installed capacity in the US coming mostly from wind on-shore (+1.8 GW), but also from solar PV (+0,4 GW)

Estimates from BP 2016-2020

31

Wind and Solar PV (utility scale) to sum 70% of additions thru 2030

Notes: Source: IHS Energy North America Renewable Energy Power Market Forecast 2016-2030

35% 37%

37% 27%

26%29%

2% 7%

Current Fiscal Policy2016-2023

Long-term Policy2024-2030

152 GW 70 GW

Windonshore

Solar PV (utility)

Solar PV (non-utility)

Other

Increasing demand from non-utility companies, already representing 50% of PPAs signed in 2015

Wind Onshore & Solar PV (utility scale)

Regulatory support certainty (PTCs/ITCs)

already competitive in Western region and some Central states

Wind

Solar PV

c.7 GW expected annual capacity additions until 2023

(incentives progressively decreasing)

Technological progress

RPS demand

Coal retirement

Solar to benefit from longer ITC extension(30% ITC until 2019; decreasing to 10% until 2030)

US renewables growth to be driven by wind, gradual solar competitiveness and regulatory support certainty

USA Policy

32

In conclusion…

• During the last 10 years the USA has been a key priority in EDP’s investments andwill continue to be in the following years, due to its growth potencial and clear rules for renewables development

• EDP has a long history, marked by its successful international expansion, growth and privatization…

• …But the future brings new challenges and EDP needs to continue to face the structural trends in the industry over the next years.

33

Documents

EDP’s internationalization strategy and the USforumcompetitividade.org/wp-content/uploads/2016/... · 6/7/2016 · First Inovcity in Brazil (Aparecida) 2011-2016 New hydro growth