RWE AG CA-AP En, SEITE 1 Mitigating effects of „phasing in“ the auctioning of CO 2 -emission allowances after 2012

RWE AG CA-AP En Page 2 Summary >Factoring the value of CO 2 certificates into electricity prices promotes investment in greenhouse gas efficient, best available power plant technology >New plant projects’ value even exceeded the value generators cashed in from grandfathering in NAP 1 >Investments in new power plants promote growth and employment (the economic boost in connection with current and projected power plant building programs is valued at > 50 billion EUR) and helps stabilise electricity prices. >A number of power plant building programs have been cancelled due, amongst other things, to the uncertainties surrounding the future direction of European emission trading. Building projects with an investment volume of 20 billion EUR are at risk >Full auctioning countervails power plant investment because it drives up new plants’ full costs (esp. for coal fired plants). Delays in investment will drive up electricity prices beyond the levels required for cost efficient climate protection >Phasing in the auctioning of emission allowances in the 3rd trading period after 2012 can mitigate this effect at the consumer’s benefit.

RWE AG, CA-AP En, SEITE 3 Emission trading led to electricity prices at which new power plants became economically viable , 2000: Spot prices; : Forwards for the following calendar year €/MWh Base load 1 Development of wholesale electricity prices since deregulation 1. Trading Period Full costs of new coal-fired power plants CO 2 -Effect >CO 2 began affecting prices in the German electricity market during the 1st European emission trading period ( ). >Pricing CO 2 into the electricity price played a major role in making investments in new power plants economically viable >This resulted in German electricity producers starting major power plant building programs >Factoring CO 2 into electricity prices promotes investment in green house gas efficient, best available power plant technology

RWE AG CA-AP En Page 4 New plant projects’ values even exceed the value cashed in from grandfathering ~ 16 billion € German electricity suppliers‘ estimated financial benefit from the allocation of free allowances Value of German power plant projects started during the 1st emission trading period ( ) In the 1st emission trading period ( ) some 16 billion € in financial benefits through free CO 2 emission allowances accrued to German electricity producers Free allocation led to a favourable investment climate. The value of power plant projects started during the 1st trading period exceeds the value of the free allowances 2008 ff. ~ 19 billion € power plant projects started in the 1 st trading period Further projects worth some 20 billion. € dependent on the post-2012 direction of emission trading Source: BDEW, RWE Project cancellations! Uncertainty about post-2012 emission trading, local resistance, high fuel and commodity prices, put the investment boost at risk!

RWE AG CA-AP En Page 5 Power plant building programs = economic recovery plan without state aids >New coal-fired power plants are among Germany‘s biggest investment projects >Power plant building programs have a high multiplicator effect, with a great number of companies from different branches involved >Example: RWE‘s 2.2 billion EUR investment in the BoA 2&3 power plant project generates a growth effect totalling more than 3 billion EUR. >Current and currently foreseen power plant building projects amount to a 50 billion EUR boost to the economy Building new power plants: involvement by sector (indicative) Engineering Building and services Other Source: RWI

RWE AG CA-AP En Page 6 Full auctioning of CO 2 emission allowances drives up new plant costs, delays investment, inflates electricity prices Other costs Fuel costs Investment costs CO 2 costs Change in the economic viability threshold as illustrated by the example of a new coal-fired power plant Economic viability threshold with 100% auctioning Economic viability threshold with „phasing in“ Source: Carbon Emissions – Emissions in remission?, Deutsche Bank, London, October 2008; RWE-Estmates Assumption: 30 €/t CO 2 Full costs of a coal- fired power plant [1.000 MW] >With 100% auctioning, suppliers have to spend more on CO 2. The economic viability threshold rises significantly >Investment projects for new power plants get delayed. They are only started when resulting capacity bottlenecks drive up prices to levels covering increased full costs >Result: 100% auctioning causes a major increase in electricity prices >“Phasing in“ the 100% auctioning can significantly mitigate this effect, as the price-driving effect of CO 2 costs is incurred gradually. „phasing in“ In : ~ 50% non-free allocation! Effect of electricity prices: ~2,50 €/MWh

RWE AG CA-AP En Page 7 The economy benefits from “phasing in” >“Phasing in” mitigates rises in electricity prices related to CO2 >Half of the mitigating effects of “phasing in” benefit electricity customers,the other half electricity suppliers >The mitigating effect leads to domestic customers consuming more and industrial customers having lower production costs >Electricity producers have a greater incentive to invest more  “Phasing in“ has positive economic effects due to multiplicator effects ~ 20 billion € Mitigated effect due to „phasing in“ (via lower electricity prices and CO 2 costs vis-a-vis 100% auctioning) Effect of “phasing in“ Source: RWE estimates bases on external studies (Öko-Institut, WWF, EWI) Assumption: 30 €/t CO 2 11 billion € 9 billion € billion € investments Consumption, cheaper production Suppliers Customers Economic boosts