EDP: Wind Power – Generation output rose 36%

In 9M09, EDP’s volume performance was marked by (1) clear evidence of demand stabilisation in Iberia, (2) 36% increase in wind power output and (3) outperformance of our liberalised generation vs the Spanish market (-4.5% vs market’s -13% YoY in 9M09) prompted by load factors slightly above the sector average and by our generation mix.

Electricity distribution – The volume distributed in Portugal declined 1.6% in 9M09 or 2.7% adjusted for temperature and working days, whereas in Spain the decline was more pronounced, at 4.8%. Notwithstanding this, both markets showed some signs of stabilisation in 3Q09: Portugal’s demand was virtually unchanged and Spain’s demand was down by just 1.6% YoY. In Spain, electricity distributed by HC Distribuición in the region of Asturias declined 7.7% in 9M09.

Gas distribution – Total supply points increased 4.9% YoY in 9M09 supported by a 12% increase in Portugal. Volumes distributed declined 5.6%, penalised by lower demand from the industrial segment and reflecting the mixed impact of (i) a 1.3% increase in Portugal following a recovery in 3Q09 (+4.8%); and (ii) lower volumes in the Basque Country and Asturias, Spain (-7.4%YoY), following deterioration in 3Q09 (-13% YoY) resulting from the higher weight of industrial consumption in the quarter.

Wind Power – Generation output rose 36% YoY in 9M09, broadly in line with the increase in installed capacity in the last 12 months (+39%, +1,380MW EBITDA). In 9M09, capacity additions totalled 482MW (372MW in US, 60MW in Spain, 14MW in Brazil and 36MW in the Rest of Europe), on track to achieve 2009YE target. In Sept-09, there was 1.3GW under construction, of which 866MW in Europe and 427MW in US. In US, output rose 57% YoY in 9M09, helped by a 53% YoY increase in installed capacity and flat load factors (at 31%). Notwithstanding the 100bp YoY increase in load factors in the 3Q09, operations were affected by below-the-average wind resources. In Europe, output rose 16% YoY in 9M09, backed by a 28% YoY increase in installed capacity and slightly lower load factor. Despite the improvement in load factors in 3Q09 (+100bp YoY), operations were penalised by lower wind resources in EDPR’s regions. Even so, operations in Spain continued to deliver above-the-sector load factors, widening the premium vs the average to 180bp in 9M09.

LT Contracted generation in Iberia – Electricity generation plants operating under PPA/CMEC in Portugal are entitled with a stable contracted gross profit and an 8.5% RoA before inflation and taxes, adjusted for the ratio real vs. programmed availability levels rather than output. In 9M09, output rose 29% YoY, with generation mix reflecting a very dry period, particularly in 2Q09 and 3Q09: coal output surged 53% YoY, while hydro output grew only 6.7% (-22% YoY in 3Q09). In 9M09, hydro production factor was slightly higher YoY at 0.68 (vs 0.63 in 9M08) but fell short of average hydro year (1.0).

Liberalised generation – Generation output dropped 4.5% in 9M09, outperforming Spain’s conventional generation (-13% YoY). Despite higher contribution from coal (+9.4% YoY) and hydro technologies (+16% YoY), our output was affected by lower CCGT (-14% YoY on a very weak 1Q09) and nuclear output (-7.5% YoY due to longer than expected outage in 1Q09). Notwithstanding the 7.8% YoY decline output in 3Q09 (vs -8.6% in Spain), our fleet kept utilisation rates slightly above the sector’s average in 3Q09: CCGTs at 56% (vs Spain’s average 50%) and coal pants at 35% (vs Spain’s average of 34%). In Aug/Sep-09, the Lares CCGT (groups 1&2) started up a test period, with commercial operations expected to happen in Oct-09.

Supply – In 9M09, volumes of electricity supplied to our liberalised costumers surpassed our output by 12%. In Portugal, volumes supplied to our retail clients grew by 339% reflecting the increase in the client base (+36% YoY) and the new breath provided by 2009 tariffs to the growth of the liberalised supply in industrial segment. In Spain, volumes supplied rose 23% YoY, following a 140% YoY expansion in the clients base. This growth was prompted by the end of the option to choose last resort supplier for all industrial and residential clients (excluding low-voltage consumers whose contracted power is less than or equal to 10 KW). In turn, the volume of gas sold in the liberalized market in Spain dropped 11% YoY (-16% YoY in 3Q09) affected by a drop in demand from large industrial clients, even more acute in 3Q09.

EDP’s 1H09 results will be released on October 29th after market close. A conference call will be hosted by EDP’s CEO, Mr. António Mexia on October 30th at 10:00 am GMT.