Safe project conditions for renewable energy – a challenge for a clean future Peter Klessascheck, Head of Project Management Vilnius, 24 November 2010

2 German engineered wind turbines Index oPowerWind GmbH oRisks in project financing oImpact on Lithuanian Renewable Energy Law

3 German engineered wind turbines PowerWind GmbH at a glance oFounded in 2007 oHeadquarters: Hamburg (Germany) oProduction facility: Bremerhaven (Germany) oProducts: oPowerWind 56 (900 kW) oPowerWind 90/100 (2500 kW) o141 employees oFully owned by Warburg Pincus, an international growth investor Source: BFB

4 German engineered wind turbines 33 WECs installed, 8 under construction, 32 more sold as of 22 nd November USA Poland Azerbaijan Germany Italy Romania Bulgaria

5 German engineered wind turbines Risks in project financing

6 German engineered wind turbines Wind energy converters are usually owned by a Special Purpose Vehicle. This SPV has to pay all investment costs. Investment costs

7 German engineered wind turbines Typical investment costs for a wind energy project WEC oBlade markings/aviation lights (according to building permit) oShadow flicker modules (according to building permit) oTransport (costs depending on distance and accessibility of site) oCrane (costs depending on distance to site and local availability) oTransformer/switchgear (depending on project characteristics) Infrastructure oRoads and crane areas oSoil investigations oFoundations oGrid connection!  extreme high costs in Lithuania due to tender system, presently there is no other regulation oCompensation payments for impacts on environment

8 German engineered wind turbines Dividend distribution and loan paid back to share holders Investment costs Investors Equity money Income from energy sold One part of the SPV’s capital is invested by share holders. This loan is paid back later by the SPV’s profits. The SPV’s only financial income is generated by the WEC.

9 German engineered wind turbines The main part of the SPV’s capital is financed by a bank. The credit is paid back later by the SPV’s income. Debts and amortization Dividend distribution and loan paid back to share holders Financing Bank Investment costs Financing of investment costs, financed capital Investors Equity money Income from energy sold

10 German engineered wind turbines In a rating procedure, the financing bank evaluates the probability that the financed capital can‘t be paid back by the SPV as agreed in the credit contract. In general, the bank analyses the main risks caused by commercial, technical and legal impacts.

11 German engineered wind turbines Typical topics analyzed in the rating procedure oReports, studies (e.g. wind at site) and expertise oThe technology used  WECs with type certificates are preferred oPermits for installation and operation of the WEC according to the planned conditions oLegal aspects in contract and permits oReliability of the equity investors oEstimation of future energy consumption and related prices oBusiness plan  Due to the unstable Lithuanian Law on Renewable Energy, the price per kWh and the law’s period of validity is uncertain

12 German engineered wind turbines Debts and amortization Financing Bank Investment costs Financing of investment costs, financed capital Investors Equity money Income from energy sold Beside the debts and amortization the SPV has to pay the monthly operation costs. Operating costs Dividend distribution and loan paid back to share holders

13 German engineered wind turbines Typical operating costs for a WEC Land lease payments 4-8% of annual revenues Land lease payments 4-8% of annual revenues Technical & commercial management 1,5-2,5% of annual revenues Technical & commercial management 1,5-2,5% of annual revenues Service 13% of annual revenues (Full service contract = 1.1 Cent/kWh) Service 13% of annual revenues (Full service contract = 1.1 Cent/kWh) Reserves Repairs Insurances

14 German engineered wind turbines The only income a SPV can generate comes from sales of the energy produced. This source is essential for paying off the financed capital, the operation costs and finally a dividend to the investors! Wirtschaftlichkeitsanalyse Energy produced Financial capital + Operating costs + Dividend Without a reliable Lithuanian Law on Renewable Energy, neither banks nor investors will invest in the clean technology to the benefit for all of us.

15 German engineered wind turbines Impact on Lithuanian Renewable Energy Law GermanyLithuania Consequence for Lithuanian projects Present rate of equity 15-20%40% Fewer potential investors Small projects Access to grid Guaranteed by Renewable Energy Law Tender system High risk and high demand on working capital already in planning phase  Avoid tender system Period of guaranteed feed- in tariff Guaranteed up to 20 years (depending on potential of production site) No regulation any more (but 5 years are in- sufficient in order to receive bank financing) High risk for bank  no financing or very high interest rates  Price should be fixed for at least 13 years

16 German engineered wind turbines Thank you for your attention PowerWind GmbH Kehrwieder Hamburg - Germany T + 49 (0) F + 49 (0) Insert Photo

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18 German engineered wind turbines Wirtschaftliche Bedeutung: Arbeitsplätze Stand: 9/2005

19 German engineered wind turbines With its full range of features, the PowerWind 56 perfectly matches the technical challenges of the site in Azerbaijan oHighest energy yield in wind class II oFull-scale converter ensures that the system is suitable even for weaker grids oThree active cooling systems enable the turbine to be installed and operated also in regions with extreme climatic conditions oCompact design allows inexpensive transportation and installation even in locations with weak infrastructure