npower’s Energy Journey How we energised our energy management

Contents

▲ Where did we start

▲ Where we are now

▲ How we did it

▲ Building on the basics and going forward

▲ Summary of savings

Performance Indicator

2010 Outturn Value Compared to 2009

npower energy usage 61.0 GWh 7.2%

Total energy spend £5.55m 7.8%

CO2 produced 28,800 Tonnes 7.5%

# Sites not supplied by npower

14 No Change

Electricity Price npower 2010 – £91.00/MWh (Retail price No VAT)

The beginning − 2010

09

Performance Indicator

2015 End of Year Forecast

Compared to 2010

npower energy usage 31.5 GWh -48%

Total energy spend £3.33m -40%

CO2 produced 14,600 Tonnes -49%

# Sites not supplied by npower

0 -100%

Electricity Price npower 2015 – £105.57/MWh (Retail price No VAT)

Where we are now – 2015

How did the Sustainability team achieve this?

Forecasting Measure Targeting Controlled Energy Budget

Single Group Account Minimise Monitor

AM

R

ISO

50001

EA

SY

Management Systems

Monthly Report Year on year comparison

Flex Purchasing

Carbon intensity target Sub-metering CO2 Reduction

Encompass Ska Gold Refits

New Equipment

Au

dits

Ben

ch

mark

ing

▲ Monthly comparison and communication of energy spend against budget.

▲ Comparisons of year on year energy reduction by sites.

▲ AMR & sub-metering ensures accurate data. and has been installed across the entire portfolio.

▲ Collaborating with the optimisation desk to forecast site specific consumption and cost.

▲ Targeting using benchmarks e.g. 2008 CRC Committee carbon intensity reduction target of 50% reduction by end of 2015 (Currently at 56.13%)

▲ Future possibility of rating each segment of the business by their energy consumption.

Business area

Total billed year to date (exc VAT)

Budget year to date (exc VAT)

Difference

Electricity

Corp Gen and Ren £355,848.90 £377,162 -£21,313

Retail £754,708.88 £783,573 -£28,864

£1,110,557.78 £1,160,735 -£50,177

Gas

Corp Gen and Ren £43,359 £69,556 -£26,196

Retail £53,997 £119,108 -£65,111

£97,356.86 £188,664 -£91,307

£1,207,914.64 £1,349,399 -£141,484

Site MPAN Jan Feb Mar

Swindon – Trigonos 2000027385659 -9% -8% -5%

Worcester – Oak House 1410627113007 -20% -21% -16%

Oldbury – Birchfield House 1414236103000 -5% -2% -30%

Oldbury – Birch House 1410705013000 -10% -15% -25%

Solihull – Princes Way 1419570413007 -9% -15% -43%

Worcester – Acorn House 1413056013004 -5% -5% -18%

Peterlee – Tyne House 1507889210116 -12% -7% -5%

Kingswinford – Larch House UPS 1424340100003 -15% -15% -35%

Leeds – Limewood House 2300001075238 -8% -15% -25%

Leeds – Scarcroft House 2300001080655 -17% -6% -14%

Hull – Bridge House 2390000004330 -13% -19% -43%

Thornaby – Phoenix House 1599001010597 -11% -3% -14%

Peterlee – Tees House 1580000269492 -10% -12% -38%

Taking control − three easy steps to drive performance

▲ Encompass, AMR and sub-meters work together to empower the energy manager and facilities.

▲ Building Management systems are centralised and optimised from data analysis.

▲ Site audits can focus on specific issues already identified.

▲ We have also acquired and implemented the prestigious ISO 50001 Energy Management System to ensure effective energy monitoring & were the first of the ‘Big 6’ to achieve this.

▲ The SKA system is used for all major site refits, npower is currently UK and World leader with 7 Gold awards.

▲ System ensures all refits are conducted in a sustainable and energy efficient way at no additional cost.

▲ It includes a list of recommended energy efficient technologies.

▲ If this is adhered to and refits are conducted in an innovative way then a Ska standard can be awarded – we achieve the Gold standard on all our refits.

▲ Benefits include an enhanced capital allowance and a brilliant place to work.

▲ Energy Performance contracts trialled.

▲ State of the art UPS systems installed in Limewood House and Rainton House

▲ Fantastic energy savings from PIRs, LED lighting installations

▲ Voltage optimisation at 11 major sites.

▲ Smart STOR generators to generate revenue and reduce TNUoS charges through the npower TRIAD prediction service.

▲ Using the EASY initiative (Environment, Action, Sustainability, You) to engage the workforce, empower individuals and unify sustainable activities.

Winners of the 2013 Excellence in Carbon Reduction Award

Building on the basics ▲ Flexible Purchasing

▲ By combining our site supplies into one group account we took advantage of npower’s flex contract, whilst being the first ever customer allowing us to test the contracts and strategy setting.

▲ In 2013 we saw a 12% (£297,225) saving against an equivalent fixed-contract energy price.

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47

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51

53

55

57

59

61

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

RWE npower fixed v. flex cost (£/MWh)

Fixed Contract Price @ 31/08/2011 (£/MWh) Market Average for Strategy (£/MWh) npower Flex Price (£/MWh)

Building on the basics ▲ Leading The Way In Princes Way

▲ Ska Gold rated refit including the Energy Innovation Centre – 3rd floor A-block.

▲ 44MWh generated by Solar PV at Princes Way – enough to power the site for two weeks.

▲ STOR generation at site capable of net export during peak times with a second generator currently being fitted.

▲ Sub-metering with AMR installed to better understand energy consumption.

▲ This has resulted in a brilliant place to work and to show our customers how an energy company manages it’s energy.

▲ Total income from wind, solar and STOR in excess of £175k p.a.

Across RWE Group UK

Driving performance with the CRC Energy Efficiency Scheme & ESOS

The npower Sustainability team is also responsible for managing the CRC Energy Efficiency Scheme, Carbon Trust Standard and ESOS submissions for all RWE Group companies in the UK.

The team drive reductions in CO2 emissions across Trading, Generation, Energy Services and Retail arms of the company.

This reduces the spend on CO2 permits, which is currently in excess of £270k at £12 per Tonne with permits going up this year. This allows us to engage customers with the success of our efficiency journey.

Our ISO50001 accreditation also aids ESOS compliance & helped finalise our >70TWh ESOS submission for RWE in the UK.

Our next steps

Driving Performance –

Further refine data analysis

and forecasting

Challenge – Install

brilliantly innovative

energy solutions

Focus – Develop new

finance opportunities to reduce

our CAPEX spend

Collaboration – Work with

I&C, SME and Energy Service

to develop new products

Customer First – Share our energy efficiency

journey with I&C and SME customers

Accountability – Review performance with

external audits which has led to several awards

Respect – Continue to respect

the needs of our employees and customers.

To summarise

Performance Indicator Savings in 2014 compared to 2010

RWE npower energy usage 30.5 GWh

Total energy spend £2.22m

CO2 production 14,200 Tonnes

Cost of CO2 permits (£12/Tonne) £233k

Total Annual Saving £2.45m (44%)

Appendix

Npower’s DBM Offering

DBM Silver

DBM Gold

DBM Platinum

Pro

du

ct s

up

po

rt

Strategy

consultation and

design service

Strategy design &

recommendations

No obligation for npower

to deliver budget

VaR tool and mandated

volumes

Can opt up to DBM

Platinum during contract

term

Strategy design

service

Active exposure

management

Npower appointed as

agent to deliver the

agreed strategy and

guarantee a cap/floor

for the commodity

budget

Budget written into

contract

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Building a Hedging Strategy that fits your Risk Appetite

To build an effective risk management strategy we need to set risk appetites against four key parameters:

The budget level will control the degree to which you are happy to let the market move from ‘today’s’ levels in order to preserve downside

opportunity. It is essentially your risk capital

The hedging window is the amount of time you wish to hedge volume for, a long period will provide greater opportunity to hit markets averages

while shorter windows increase the level of fundamental understanding. The Hedge deadline determines how far in advance of delivery you wish to

be 100% hedged and know your final achieved price

The holding period and path flexibility control the level of flexibility afforded to trade execution in order to optimise based on market

intelligence. Opportunity vs. Emotion

The exposure to prompt markets – determines your contract mix. Seasons vs. Quarters vs. Months or day-ahead

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Min Hedge

Max Hedge

14% Hedged Monthly

86% Volume Hedged Before Seasonal Contract Expires

Setting the Budget

Part of a successful risk management

strategy is understanding your budget

By understanding your maximum and

target commodity costs you can ensure

you stay within those limits.

‘Contracted Budgets’ will ensure you lock

in wholesale prices before they rise too

far.

Our systems will be configured to provide

warnings based on observed volatility

and VAR in a single day.

Budgets can be set at contract level or

broken down seasonally.

‘Target Price Levels’ allow you to close

out positions to secure lower wholesale

rates in case they rise again

These don’t have to be set if you do not

want to limit potential gains.

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The DBM Platinum product contractually guarantees you

will not fall below your commodity budget

Target Price Level

Contracted Budget

Current

market

Risk Capital

Active Management

Budget price = forward market + volatility allowance

Summer 2016 Baseload = £40/MWh

Volatility allowance = 10%

Budget = £45/MWh * 110% = £44/MWh

Close out to limit upside risk

Close out to lock in profits

The optimisation desk’s approach combines fundamental analysis with risk analytics to best execute the hedge path

within the tolerance limits set out and guaranteed within the strategy.

The desk develops a structured approach to hedging based around an

average hedge path which is determined by hedging window and the

deadline to become fully hedged

The longer the hedging window the greater opportunity to ensure that a

contracts market average can be achieved. Statistically speaking you

increase the sample size to achieve a more reliable mean

Depending on your business requirements you may require achieved

commodity costs in advance of the actual commodity delivery and therefore

there is flexibility to bring forward the hedging deadline

A degree of tolerance is beneficial in order to provide the flexibility to

acceralate or decelerate hedging in order to take advantage of bullish or

bearish runs, respectively

Hedged

Volume

20

Time

Exposure

Average Hedge Path

Tolerance

Example hedge profile

Hedging

Deadline

Hedging Window

Strategies are loaded into our fully supported Oracle position management system.

Configured alongside budget and daily VaR reporting. The customer and the Optimisation Desk receive daily position

emails, VaR and P&L reports alongside market updates and analysis.

This flexibility to deviate long/short against an average profile has helped import customers take full advantage of the

recent bearish trends through 2015 while saving the bacon for export customers given their long hedge profile and ability

to accelerate

Setting the Hedge Path Profile

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Strategy Item High Medium Low

Seasonal Hedging 50% 70% 90%

Prompt Hedging 50% 30% 10%

Min/Max Volume 10MW 6MW 3MW

Budget Level 15% 10% 5%

Holding Period 6 months 3 months 1 month

Hedge Window 1 years 1.5 years 2 years

Strategy Risk Level

Selecting the Right Contract Mix – 2014 DBM Performance

Optimisation Desk Performance 2014

The full benefit of the Optimisation Desk hedge

performance passed onto the customer.

Absolute DBM 2014 P&L - £850k

Value delivered of nearly £4/MWh

DBM RORAC – 42%

Price quality across the portfolio contributes to P&L

73% of DBM customer trades inside spread

In 2014 customer shown full benefit of £0.12/MWh

Hedging Strategy – Risk Metrics

P&L measurement typically includes

… analysing changes in portfolio value due to movements in the forward curve

… but could include performance vs. market average or budget, price quality vs. spread

etc.

Value at Risk measures the potential loss in portfolio value

… at a user-configured probability (usually 95th percentile = 1/20 worst case)

… using observed market volatility

… and random sampling of potential prices

Return on risk adjusted capital compares P&L to VaR enabling us to assess

performance against risked capital

… calculate potential losses (anything to the left of the 50th percentile) up to the 95th

percentile

… work out the difference between P50 and P95 (the amount of £ risked that results in a

loss)

… and dividing P&L by the risked capital - typical levels are ~20%

Wholesale market liquidity and spread analytics alongside netting opportunities

Is +£10k P&L risking £100k better than +£5k risking £20k?

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Bespoke Reports to Suit

Risk Analytics Available