A new Energy Policy for the new EU Commission

Matthias DürrHead of the Brussels Representation, RWE AG

17th December 2014

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Agenda

A new Energy Policy for the new EU Commission

1. The RWE Group: Europe is our market

2. Choices to be faced for future Climate and Energy Policy

3. The EU 2030 framework

4. The reality of the energy market

5. The way forward

Conventional PowerGeneration

RWE Generation

Supply/DistributionNetworksGermany

RWE Deutschland

SupplyNetherlands/Belgium

Essent

SupplyUnited Kingdom

RWE npower

Central Easternand SouthEastern Europe

RWE East

Renewables

RWE Innogy

UpstreamGas & Oil

RWE Dea

Trading /GasMidstream

RWE Supply & Trading

As of 31 December 2013.

Europe is our market

RWE Group structure

We generate about € 54 billion in revenue.

We employ 66,000 employees.

We produce about 3 billion cubic metres of gas and

We generate about 217 billion kilowatt-hours of electricity.

We sell 271 billion kilowatt-hours of electricity and 335 billion kilowatt-hours of gas.

We supply nearly 16 million electricity and about 7 million gas customers.

We have about 370,000 shareholders.

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Choices to be faced for future Climate and Energy Policy

1. How many goals and instruments to apply:

– Role of renewables / efficiency targets vs. CO2 goals needs careful justification

2. How to support renewables:

– whether the capacity (MW) or the output (MWh)

3. How much “economics” can be maintained in policy decisions:

– Should price of power reflect long-run costs and play optimal role in decarbonisation

– Is more cost-reflective consumer pricing structure better for a market-based approach? Should the fixed part of price reflect all fixed costs along supply chain?

RWE AG

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Choices to be faced for future Climate and Energy Policy

4. How much can be expected from the Energy Only Market?

– Role is to achieve efficient dispatching of plants - without acceptance of scarcity pricing it may not adequately incentivise investment in renewables or ensure supply security

– Therefore a capacity mechanism may be required (already under consideration)

5. How curtailing any one source of power (e.g. nuclear, lignite) will affect:

– Dispatching of other national sources and imports

– Prices, supply security, and emissions

6. How much will national goals achieve in the context of European / International targets and how will national policy decisions impact on other Member States and EU Policies?

RWE AG

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Greenhouse gas emissions

Renewable energy

Energy efficiency

until 2020

-20 %

reference year 1990

20 %of energy consumption

20 %absolute reduction compared to business as usual

until 2030

-40 %

reference year 1990

27 %

of energy consumption

27 % absolute reduction in compared to business as usual

Inter-connectivity

10 %

15 %from national capacity

New targets: from 20/20/20 (+10) to 40/27/27 (+15)

Decisions taken by the European Council

- Only CO2 reduction target will be translated into national binding targets

- Renewables and efficiency targets are EU level targets

- Energy efficiency target is only indicative

- New governance structure to coordinate EU and national policies transparency, predictability, regional cooperation

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EU 2030 framework

Assessment from RWE’s perspective E

U20

30

ove

rall

• Despite the economic crisis, EU sticks to its climate-protection agenda

• 40% CO2 emissions reduction target: ambitious but feasible when fair burden sharing between Member States

• ETS will be strengthened through higher linear reduction factor and MSR

• stable and higher CO2 prices and increased trust in the system

ET

S

• Need for back-up capacity is recognised – a first step towards a European approach for capacity mechanismsC

RM

• Abstention from binding renewable targets at national level: positive signal for more market and more flexibility

ren

ew

ab

les

• Non-binding target allows a market-based approach and gives room for better framework conditions

en

erg

y

eff

icie

nc

y

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The reality of the energy market

Generation business under pressure – not only in Germany

1) Rough profitability analysis for 2013 to 2015 in % of installed capacity of RWE’s conventional generation portfolio (economic stake) in Germany, United Kingdom and the Netherlands (in total ca. 44 gigawatts) based on market parameters as of January 2013

Revenues of the conventional power plants of RWE1)

For 20-30% of the plants, electricity revenues don’t even cover the O&M costs

O&M costs Depreciation Capital costs

For 5-15% of the plants, electricity revenues only cover the O&M costs as well as parts of the depreciations

For 5-15% of the plants, electricity revenues cover the costs of operation and maintenance (O&M) as well as depreciations, but not the capital costs

For 50-60% of the plants, electricity revenues cover all costs (incl. capital costs)

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The principle: one goal - one instrument

Non-discriminatory system to reward availability of firm power generation capacity

Market integration of renewable energy

Goal: Security of supply Goal: Affordable electricity

A reformed ETS with a long-term target to reduce CO2 emissions

Goal: Climate protection

The way forward

A new policy framework and a new energy market design

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A market for firm capacity may supplement the energy only market – kind of an airbag or insurance

€/Megawatt hour

Generation Trading Transport Sales ConsumerEEG

€/Megawatt hour

€/Megawatt firm capacity

Supplement the energy-only-market by a market for firm capacity. Retailers (decentralized) or grid operators (centralized) define, how much firm capacity is reguired. They buy required firm capacity from power plant operators. Power plant operators must deliver, once the market gets tight.

new

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Our way into the future…

„Smart Country“

„Smart Operator“

Thank you very much for your attention!