Public Private Partnerships in the Baltics and Europe Vilnius, November 2006 I. The Energy Sector in the Baltics 3. Renewable Energy Transactions in Europe Thomas Wexler Partner, Projects Group Berwin Leighton Paisner LLP, London Vilnius, 23 November 2006 [ ]

Renewable energy: necessity or luxury? Global demand for energy is increasing Traditional energy sources (fossil fuels) –Decline in resources –Dependence on imports –Volatility of exporting regions such as the Middle East and Russia Impact of fossil fuels on environment –Increase in green-house emissions lead to international action via the Kyoto Protocol and successor treaties –Increase in extreme weather conditions –Financial and economic consequences (as well as human consequences)

Renewable energy: part of the solution Renewable Energy Sources (RES) –Solar –Wind –Hydro –Biomass –Geothermal –Wave/Tidal Possible use of RES –Heating Solar thermal Geothermal Biomass –Electricity Solar PV Hydro Wind (on/off-shore) Wave/tidal –Fuel Biofuels

Renewable energy: already in use today Approximate share of RES in energy consumption: –Latvia (35%), Sweden (30%), Finland (24%), Austria (20%) Approximate share of RES in electrical consumption: –Austria (78%), Latvia (50%), Sweden (46%), Slovenia (30%) Germany: leading photovoltaic market in the world, delivering over 400MWp to the grid Hungary: largest user of medium and low temperature geothermal energy in Europe Source: Figures for 2004 taken from “2005 European Barometer of Renewable Energies” by EurObserv’ER

Renewable energy: key characteristics Renewable energy projects –Smaller in scale than traditional energy projects –Geographic variations depending on local resources –Local generation Technologies –Smarter and more efficient technologies –Investment costs have fallen Regulatory environment –National support/incentives for certain technologies –Mandatory national/international targets impact on market for renewables Off-take market –Certainty of demand –Products: energy/electricity regulatory certificates and levy exemption certificates –Emissions trading market

Renewable energy: project financing a renewables project Renewable energy projects: –Various factors provide for a degree of uncertainty: regulatory environment (permits, subsidies) market for product intermittent / uncertain “feedstock” new technologies In a project financing context: uncertainty means risk and risk needs to be allocated

Project financing: renewable energy off-take agreements Scope and content of off-take agreements vary depending on RES Term –Creativity may be needed to achieve a financeable term Off-take profile –Flexibility needed to reflect volatility of feedstock supply Incorporate regulatory incentives to maximise revenue –Regulatory certificates and levy exemption certificates –Certificates issued under Emissions Trading regime –Financial benefits obtained under balancing/connection codes Assessing the value of additional incentives and benefits

Project financing: construction contract Construction agreements –Generic issues availability of suitable contractors prepared to work on a lump sum turn key basis liability for completion of construction work long-term warranties from turbine suppliers –Technology issues market for licensed technology interface issues between EPC contractors and licensors

Project financing: feedstock and financing Feedstock supply agreements –Terms of supply agreements vary significantly –Use of framework supply agreements Financing Agreements –Debt/equity ratios vary significantly –Security package direct agreement assigning rights under contracts to lenders

Project financing: other issues Licensing and planning requirements –Onerous licensing requirements can impact on construction and operation –Complex and lengthy planning process impact on the scope to develop renewable energy projects Compliance with environmental law: allocation of responsibility

Project financing renewable energy projects: conclusion Renewable energy projects are set to increase Project financing will increasingly be used for renewable energy projects Understand the characteristics and “uncertainties” of each project Creativity needed to manage the “uncertainties” in a project financing context

Vilnius, 23 November Renewable Energy Transactions in Europe Thomas Wexler Partner, Projects Group t: +44 (0) e: Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA t: +44 (0) f: +44 (0) www.blplaw.com