Renewable energy in the Baltics Martin Kruus Nov 2008

Onshore wind portfolio under 4energia management 2 Wind ParkStatusMWMWh/yFE/VECapacity PakriESTIn operation18, /9032,9% Virtsu IESTIn operation1, /2532,7% Virtsu IIESTIn operation6, /2526,7% EsivereESTIn operation8, /2529,8% Viru-NigulaESTUnder construction24, /10030,6% SudenaiLITUnder construction14, /5029,0% ToomaESTUnder construction24, /5032,0% VanakülaESTUnder construction9, /10030,5% PaldiskiESTUnder development50, /2030,0% Virtsu IIIESTUnder development6, /2529,9% MockiaiLITUnder development12, /5036,3% DundagaLATPlanning50, /5029,7% KundaESTPlanning6, /036,6% Total230, ,8% Sudenai Mockiai Dundaga Kunda Viru-Nigula Paldiski Pakri Vanaküla Tooma Esivere Virtsu II Virtsu I Virtsu III 4energia operating wind farm 4energia wind farm under * - FE – Freenergy, VE – Vardar Eurus

Our first - Pakri wind park

Our biggest - Hiiumaa offshore wind park 1000 MW Viljandi Hiiumaa WP Estlink Lihula Aulepa Kanapeeksi

Latest layout based on EIA investigations, depth up ca 30

6 Content Why wind energy? Status of wind energy Challenges/solutions

Why wind energy?: IPCC consensus

8 EU target EU Energy Commission has set the important “3 x 20” target to support renewable energy development to increase the share energy produced of renewable sources to 20% of total energy production (currently it is about 13%) to reduce the emissions of fossil fuels by 20% both targets should be achieved by year 2020 EU climate package to reduce carbon dioxide emissions by 40 percent by 2020 compared to 1990 levels EU 20% target Share of renewable energy in total energy consumption (2005)

Demand increase of fossil fuels 9 World marketed energy use by fuel,

Demand versus phase-out of existing equipment 10 Power capacity renewal in EU25

Security of supply in EU

Electricity prices are increasing 12 Source: NordEnergi, SEB Enskilda German fixed 2008 tariff for wind: €80.3 / MWh Sep 00Sep 01Sep 02Sep 03Sep 04Sep 05Sep 06Sep 07Sep 08Sep 09Sep 10Sep 11Sep 12Sep 13 EEX average spot prices (Base load)Futures EUR/MWh Electricity regulated sale price Estonia 08

Wind energy has proven history

Baltic reason (1) 14 Shutdown of Elektrenai PP Shutdown of Ignalina NPP Shutdown of old blocks in Narva PP

Baltic reasons (2) – high carbon content

16 Baltic reasons (3) – long coastline with good wind Source:

Status of wind energy in Baltics 17

Wind Energy framework development in Estonia Energy Act Feed-in 5,1 cent/kwh. Indexed. PP period not fixed Electricity Market Act Feed-in 5 cent/kwh. Indexed. PP period Long-term Energy Strategy RES 5,1% by 2010, 10% by 2020 Electricity Market Act Amend. Feed-in 5,2 cent/kwh. Flat. PP period Limit with grid Losses 20-50MW El Market Act Amend. Feed-in 7,4 cent/kwh Limit 200 GWh/a or RE support 5,4 cent/kwh+el price Limit 400 GWh/a Day ahead hourly forecast!

Wind Energy Production in Baltic States 19 Total Installed Wind Capacity in Baltic States and 4energia Share MW Support limitation of 400 GWh Cap 400 GWh/y Nice trend but support in all Baltic countries is limited to MW!

20 Baltic electricity mix today New RE is still not visible in statistics!

21 Challenges/solutions Lack and instability of legal framework Administrative barriers for independent power producers Lack of grid development Transparency of competition with utilities Insufficient financial support Increasing investment costs Financing Lack of interconnections to EU market and lack of local balancing power for wind energy

Day ahead prognosis of wind energy Pakri wind park Oct 2008

Baltic, Nordic PMs discuss energy with Barroso. BNS, BRUSSELS, Oct 15, BNS - Heads of government from the Baltic states, Finland, Sweden, Denmark and Poland and the president of the European Commission, Jose Manuel Barroso, talked about the Baltic Sea region's energy issues and in particular building new power links The Commission has suggested a plan of action to work out by 2010 detailed plans to building new electricity and natural gas links. The European Commission has already drawn up a Baltic energy links plan, the Baltic Investment Program (BIP), which covers a second underwater power cable connecting Estonia and Finland as well as a Polish-Lithuanian electricity bridge and Sweden's electricity links with Latvia and Lithuania. Speaking about the financing of new projects, the prime minister confirmed that investments can be obtained from both EU and the European Investment Bank.

New energy plan for Estonia (draft)

Local balancing power solutions Spinning reserve of thermal power plants Hydro pump storage Gas turbines Hydrogen production Smart grid and demand side regulation and micro production Heat accumulators Special state co-funded research center is planned

Green certificate trading Source:

Still there is a myth that wind energy is so expensive Wind energy is subsidized only first years Its not correct to compare the wind energy to existing power plants built in 60’s or 70’s In order to integrate national electricity systems into common EU wide electricity market new heavy investments into the grids and reserve capacities has to be made anyhow. Not only incase of wind energy. Also new fossil power plants need investment support Eesti Energia has turned to government for billions of state aid in order to build new capacities Latvia has a plan to cover investment costs of new gas/goal power plants from EU funding or/and grid fees The forward prices in European Electricity Exchange are in the level of 80 EUR/MWh. This is comparable with subsidized wind energy price, not speaking about the wind energy price after subsidy period 27

28 Conclusion – wind energy will come one way or another

29 Thank you! Martin Kruus Chairman of the management board Nelja Energia OÜ (4energia) Tel