DONG Energy's strategic challenges

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DONG Energy's strategic challenges

• Jonny Trapp Steffensen, Consultant, Group RD

ESSAM 2009, Aarhus School of Business, 26.06.09
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DONG Energy at a glance
DKK million
Key figures

• 1 in Danish energy markets
• 4 in Nordic power generation
• Integrated business model
• Diversified gas sourcing strategy being realised
• Geographic focus on Northwest Europe
• 73 owned by Kingdom of Denmark (Aaa/AAA) with
  minimum 51 until at least 2015

(1)
(2)
EBITDADKK 13,622 million
Note (1) New operating segments implemented
(see appendix)Note (2) 25 adjusted for special
hydrocarbon tax
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• DONG Energy's vision
• Our business
• Strategic challenges

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DONG Energy is the merger of six companies in
2006
Overview
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Overview

• DONG Energy is one of the leading energy
  companies in Northern Europe
• We are headquartered in Denmark. Our business is
  based on procuring, producing, distributing and
  trading in energy and related products in
  Northern Europe
• We employ more than 5,000 people and generated
  DKK 60 billion in revenue in 2008

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Our vision
Overview/Layouts/picture layouts

• DONG Energy's vision is to provide reliable
  energywithout CO2
• We are focused on
• Guaranteeing a reliable supply of energy
• Minimizing our environmental impact as we
  transform natural resources into energy for our
  customers
• Acting responsibly to ensure sufficient energy
  supplies, not only for our own generation, but
  also for generations to come
• Maintaining ongoing accountability in our
  strategies, ongoing decision-making, and
  day-to-day conduct

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Our values

• Result-oriented We run an efficient company that
  is focused on creating value.
• Responsible We show consideration for
  people,the environment, and markets in all our
  actions.
• Responsive We are open to new ideas and are
  willing to act accordingly.

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• DONG Energy's vision
• Our business
• Strategic challenges

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Business overview
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Exploration Production
Exploration Production explores for and
produces oil and gas. The exploration and
production activities are carried out in Danish,
Norwegian, UK, Faroese and Greenland waters.
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Exploration Production Licence areas
The exploration and production activities focus
on oil and gas in Denmark, Norway, the UK (West
of Shetland area), the Faroe Islands and
Greenland. This business area includes a stake
in Gassled, which comprises the entire gas
pipeline network from the Norwegian fields to
continental Europe and the UK, and the ownership
of Denmarks only oil pipeline, which connects
the North Sea oil fields with mainland Denmark.
Licence areas
EXPLORATION AND PRODUCTION LICENCES
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Generation
Generation produces power and heat from
efficient power stations and renewable energy
sources. Generation is a market leader within
design, construction and operation of offshore
wind farms and clean coal technology.
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Generation DONG Energy power plants
DONG Energypower plants
BREAK DOWN OF POWER PRODUCTION 2007
19,780 GWh
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Renewable energy sources
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Distribution
Distribution is responsible for DONG Energys
power and gas distribution and natural gas
storage activities in Denmark. Distribution
distributes power across the metropolitan area
and North Zealand, and gas across southern
Jutland and South and West Zealand.
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Power and gas distribution
In the overall supply infrastructure,
distribution is the last link in the transmission
of power and gas from generation source to end
customer. The power distribution operations are
concentrated around the northeastern part of
Zealand, while the gas distribution operations
cover southern Jutland and South and West
Zealand. DONG Energy also owns and operates a gas
storage facility near Stenlille on Zealand.
INVESTMENTS BY ACTIVITY
DKK 1,426 million
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Markets
Markets sells power, natural gas and related
products to more than one million customers in
Denmark, Sweden, Germany and the Netherlands. The
customers include residential, industrial, public
sector and wholesale customers
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Markets Business areas
Markets takes care of the purchase and sale of
gas and power, and related products and services
in Northern Europe. Markets also operates parts
of DONG Energys infrastructure and manages the
Groups portfolio of long-term purchase
contracts.
PHYSICAL TRADING IN MARKETS
Electricity and natural gas customers
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• DONG Energy's vision
• Our business
• Strategic challenges

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Example 1

• Climate change

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The climate challenge is a result of human
development

• Massive population growth
• Urbanisation
• Continuous economic growth
• Increased energy demand

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Climate change
The 2 C stabilisation target
Policy toolbox The EU is leading with the
"cap-and-trade" system for CO2 emissions. 20 CO2
reduction target for 2020

• Source IEA, World Energy Outlook 2008

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Climate change is caused by CO2 emissions from
several sectors
Global CO2 emission by sector
Kilde IPCC 2007
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Generation
DONG Energy's vision
Vision Reliable energy without CO2
TODAY'S PRODUCTION
85
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Roadmap to adressing the climate challenge
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DONG Energy contributes to less CO2 from energy
and transport
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Intelligent Use of Biomass Is the Answer
Ethanol
C5 Molasses
Cellulosic biomass (Waste)
Lignin biofuel
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DONG Energy Is Constructing a Demonstration Plant

• Input
• 30,000 t wheat straw
• Output
• 5.4 mill. l ethanol
• 8,250 tons biofuel
• 11,250 tons C5-molasses
• Investment
• 40 mill, incl.
• 10 mill gov't support
• To be in operation by
• late 2009

Location Kalundborg, Denmark
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DONG Energy contributes to less CO2 from
buildings and industry
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DONG Energy contributes to less CO2 from waste
and agriculture
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What if Danish solutions were transferred to
China?

• Solutions implemented in Denmark would have
  significant impact if adapted in the development
  of new Chinese infrastructure to meet the demands
  of a growing economy.
• Thermal efficiency in coal fired power stations
  in China in 2030 at current Danish level could
  reduce CO2 emissions with 19 in China and 5
  globally. It would save 35 of coal consumption
  for power generation.
• Using biomass in China in 2030 at current Danish
  level could reduce CO2 emissions with 5 in China
  and 2 globally
• Wind power in China in 2030 at current Danish
  penetration level could reduce CO2 emissions with
  14 in China and 4 globally.
• Electric cars at 20 market penetration in China
  in 2030 could reduce CO2 emissions with 1 in
  China and 0,3 globally
• Approximations based on IEA World Energy Outlook
  2008 and Danish statistics

Reduction by replacing 7 coal fired power.
Larger reduction if combined with high efficiency
and CHP.
Increasing average efficiency in 2030 from 35 to
55 through high temperatures and CHP
Replacing 20 coal power require investing in 750
GW wind and infrastructure for integration.
20 of total car stock of 270 mill. in 2030.
Electricity from renewables enhance the reduction
markedly.
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Example 2

• International growth

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An attractive project pipeline within offshore
wind
Projects covered by Siemens agreement
Existing projects
"First Supply"
Operational
"Additional Supply" (potentially)
Projects under construction
"Optional Supply"
West of Duddon Sands 165 MW(2014)
HR II 209 MW (2010)
Potential Kattegat project (400MW)
HR I 72 MW
Barrow 45 MW
Walney III360 MW (2012)
Nysted 132 MW
Burbo 90 MW
London Array I 315 MW (2013)
Borkum Riffgrund 129 MW (2013)
E.ON partner in London Array
GFS III 72 MW (2010)
) MW figures represent DONG Energy's share of
the projects
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Example 3

• Transformation of energy

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Integration of even more "wind" into our energy
system

• Today Denmark exports a large part of our
  windpower at low prices
• The Danish Technical Systems Operator has stated
  that Denmark "hands out windpower for 18.700
  families for free"
• An extra 1000 MW of windpower in western Denmark
  will produce 3,8 TWh of which 3,2 TWh will be
  exported
• The majority of the power needed for the electric
  cars can be sourced through reduced export. Our
  preliminary calculationsshow that 70 of the
  necessary power can be provided that way

When windpower production peaks, the power export
peaks too
Production hours sorted by the amount of windpower
Source for diagram Energinet.dk.Data from
western Denmark, 2005. Source for windpower being
given away for free Ingeniøren.dk, 2008. Source
about export from 1000 MW windpower DONG Energy
calculations.
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Instead of a conclusion a few questions

• How green are governments and consumers on a
  wider scale?
• What must energy businesses do differently?

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Thank you for your attention!
Jonny Trapp Steffensen Group RD Jonst_at_dongenergy.
dk Phone [phone]