1. Investing in Green Energy Glitnir Investment Management Mikko Linnanvuori This area is for placement of client logo

2. 2 Document Name Date Government policies drive the market Rising CO 2 concentration and subsequent climate change have not been part of the market mechanism  “Internalizing the externalities”. Implications on equity markets are primarily coming from government policies, not from climate change itself  Short-term consequences are hard to identify except melting glaciers and snowcaps, flood risk on lowlands and the growing probability of severe storms. A wide selection of carbon abatement policies are in use – the “all measures have to be taken” approach  Huge differences exist in the implicit cost per ton of carbon abatement. Government agendas will be putting more emphasis on the economics of carbon abatement – “preference for the most efficient methods” approach emerging?  A global carbon pricing mechanism would lead to this.

3. 3 Document Name Date The money is flowing in… European green funds received 15.2% of the total equity fund inflow in Jan-Jul 2007 (€4.6bn), up from 2.6% in 2006 and 0.6% in 2005. Global VC+PE investment has grown 15-fold in five years. The IPO pipelines are feeding the listed market  China and the US are the leading IPO markets. Source: New Energy Finance 0246810 China United States United Kingdom Germany India Australia Canada Taiwan 0246810 Solar Wind Biofuels Efficiency: demand side Biomass & Waste Fuel Cells Marine Mini-Hydro Power Storage Smart Distribution

4. 4 Document Name Date …and this shows in the market

5. 5 Document Name Date Marginal role in global energy production Total electricity capacity4 200 000 MW, growing 2-3% p.a.  Wind 74 000 MW ~0.2%  Geothermal 11 000 MW ~0.03%  Photovoltaic 7 000 MW ~0.02%

6. 6 Document Name Date Wind: the most mature market Wind power is the most mature sub-sector. Global installed capacity is expected to more than double by 2010. Subsidized, but has reached the cost level of conventional energy in the best locations. Leading countries are Germany, USA, Spain and India. The turbine market is well consolidated – the six largest players have a combined market share of 85%  Large power equipment companies have bought access to the market - most recently Alstom acquired Ecotecnia. Wind turbines are developing and growing, but no technology revolution is emerging. Offshore wind is the next growth area.

7. 7 Document Name Date Wind capacity is growing fast 2006-2010e CAGR: 21.3% 2006-2010e CAGR: 17.1% Source: World Wind Energy Association

8. 8 Document Name Date Wind multiples are high, but not extreme Source: World Wind Energy Association Source: Bloomberg

9. 9 Document Name Date Solar power: a long-term play, the near term market relies on subsidies Solar power is heavily dependent on government support  Germany was the first to introduce a favorable feed-in tariff - Spain, Italy, California (USA) and Korea have followed suit.  The German scheme offers a 20-year tariff guarantee, Spain offers 25 years.  The German tariff is currently 33.19 eurocent/kWh.  Grid price parity expected between 2020-2030, which will lead to explosion in market growth.  Solar is already competitive with Californian intra-day peak prices. Germany is the leading solar power market with 56% of new installations in 2006. Market is polysilicon capacity constrained  The market is expected to remain tight in 2008.  Current high profitability is not sustainable in the long run. Market growth at 28% CAGR through 2012 (Goldman Sachs). Some of the thin film technologies bypass silicon shortage.

10. 10 Document Name Date Solar multiples are, well, solar Source: Bloomberg

11. 11 Document Name Date Biofuels: a tricky market Biodiesel in Europe and ethanol in the US and Brazil Demand is mainly government-driven  The Brazilian market is based on lowest cost production.  Energy independence is the main driver in the US.  Trade barriers restrain global trade. Ethanol comprises 2% of global gasoline consumption. Three sets of players: oil majors, agriculture companies and specialized refiners. Biofuels are under pressure in most of the markets  The global ethanol price is low, weighing on Brazilian producers.  US ethanol is cheap and corn expensive.  European production struggles with high input costs. Ethical issues and concerns  Questionable energy and carbon balances.  Food prices, deforestation and work conditions. 2 nd generation biofuels emerging

12. 12 Document Name Date Biofuels Source: Bloomberg

13. 13 Document Name Date Energy efficiency Improving energy efficiency provides negative cost option to cutting emissions. There are still quick wins available for politicians e.g. replacing conventional light bulbs. Investing in energy efficiency solutions is rather complicated  Though a growing theme across industries, in most cases not the primary driver of business.  Valuations are at a more reasonable level (in some cases). The prime energy efficiency themes for investment are building insulation, vehicle fuel efficiency and energy-efficient products/solutions. A wide spectrum of target industries enables risk diversification, but opens up industry-specific volatility.