Dg2

Business Case DG-1 Project number:

DVLPL07507

Date of submittal: 02/01/2008

BC Name: Pakość II Author: Radosław Koćwin Location / Region: Pakość II

Country: POLAND BIO-TH SWAC BIO-DIG WOL PV WOS Real Est En Infra Project Size (MW): 22

1. Project description Project:

Location: project Pakość II is located in central part of Poland in Kujawsko-Pomorskie voivodship; Wind Turbines Generators are planed to be located between Inowrocław city, Pakość and Janikowo town; the coordinates for the centre of this location are 52°46'42.72"N 18°11'04.57"E; estimated size of wind park is planned for 22MW from 11, 2MW wind turbines;

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Satalite map of Pakość II with Wind Turbine Generators location:

Project: Value drivers in this location are: o On of the best areas for wind conditions in Poland average wind speed about 6,5 m/s, o grid application process in progress, o in this location there are already some smaller turbines set by another investors; General Market situation: o Wind energy production in Poland rapidly grows. In 2004 142,3GWh was produced with wind, in 2006 it was 245,5GWh. Still it was just 0,16% of total energy production in Poland; according to the plans in 2010 there should be 2,3% coming from wind energy of the total consumption (7,5% renewable energy in years 2010-2014); o local energy utilities are obliged to buy all renewable electricity produced on its distribution area (the green certificate which follows the produced energy, depending on the contract between to parties can be sold together or on the Polish Power Exchange to anybody), energy produced by a wind farm has to be bought at the market price which right now is rapidly growing – approx. 185PLN per MW/h plus the amount you can get from green certificates which is always close to 240PLN per MW/h – the so called buy out price which you have to pay to fulfil your obligation regarding the percentage of green energy bought each year; Total income is therefore approx 425 PLN/MWh (=~ 110 euro/MWh) o In 2008 in Poland starts a new EU found programme called The Operational Programme Infrastructure and Environment. For years 2007-2013 the total amount of subsidy will reach 37,6 bilion EUR (27,9 bilion from UE and 9,7 bilion from polish government). The percentage of the subsidy to the total amount of investment, possible to obtain is not known yet but for wind parks subsidy only apply to those in which to total amount of investment exceed 20milion PLN. Development applications should be ready in February 2008. The responsible organization for the implementation of this programme is The Ministry of Regional Development (more information will be available in February 2008. For now is difficult to say if we are already entitled on this stage of our projects to apply for this subsidy so we have not taken this subsidy into account in the feasibility calculations.. Off taker of electricity will be one of the energy operators in this case – Enea. The seller of green energy will have to sign a contract with the Energy Company and energy will be sold on at the current market price. Certificates of origin are registered on the Polish Power Exchange which is responsible for their managing and trade.

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Map of energy operators in Poland.

2. Position 2.1. Land position / concession Project: -

Project will be based on land lease agreement with potential Landlords the price for this location is 22 000PLN per turbine per year and lease contract signed for 25 years; land lease agreement is set with one Landlord for 300ha land situation in Poland is very specific because plots belonged to farmers are very small in general however the price paid for a land lease is still relatively very small reaching in most attractive areas 50-60k PLN per turbine.

2.2. Political position General: Policy: Position of local and regional political authority is based on polish government plans which state that sustainable energy sources should increase to 7,5% until 2010 and 14% until 2020 and wind energy is one of the most promising sources to fulfill this obligation. The quota obligation is fulfilled by a obligee if the share of RES-E in the overall electricity sales to end-users amounts to not less than: -

3.6% in 2006,

-

5.1% in 2007,

-

7.0% in 2008,

-

8.7% in 2009,

-

10.4% in 2010-2014

-

15% in 2020.

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Tarrifs: In Poland the main support system for renewable energy is based on quota obligation applied to all sellers of electricity to end users on the territory of Poland. The support scheme uses green certificates which are originating from the guarantees of origin issued by the President of the Energy Regulatory Office (see official website). The Guarantee of Origin is a document, issued for the whole RES-E production over a certain period. Green certificates are issued on the basis of Guarantees of Origin for every 1 kWh of production . The green certificates become valid at the moment of recording the Guarantees of Origin on the recording account of the entity that is entitled to them. The number of green certificates corresponds to the energy volume specified in a certain Guarantee of Origin. The green certificates have unlimited duration, they expire only when the Guarantee of Origin has been redeemed. The Guarantee of Origin may be redeemed fully or partially. The redemption of the Guarantee of Origin causes the expiry of all or a part of underlying green certificates. The current Polish energy legislation policy foresees the duration of the quota obligation support scheme till 2014. Aspects related to the Guarantees of Origin and green certificates are regulated by the amended Act called the Energy Law (the Act of 10th April 1997, see Polish version), in particular by the parts addressed to renewable energy sources. From 1st October 2005 the Polish Power Exchange (Towarowa Giełda Energii S.A. PolPX) manages the registry of green certificates and their trade. The results from the green certificate market presented by the Polish Power Exchange are not differentiated for sorts of RES-E such as wind energy (onshore or offshore), hydro energy, solar energy, biomass combustion etc. Also the Energy Law has in general no special arrangements for particular sorts of renewable energy and as such also not for offshore wind energy. The redemption of Guarantees of Origin must take place till 31 March each year for the previous st year (e.g. till March 31 2007 for the year 2006) and is obligatory as a proof of fulfilling the obligation. Energy companies can also pay a so-called ‘buy out price’ which amounts to 240 1 PLN/MWh (62.41 Euro/MWh ). Development and permitting procedures: Before one can start the construction works, you have to prepare all necessary permits and documents. One of the key stages on the path towards acquiring the building permit and putting the wind farm into operation is the amendment of the local development plan. Its statements define the purpose of use of the area as well as possibilities for future building. Parcels usually appointed for the project are defined as an agricultural area, which means we have to complete the full amendment procedure for the local plan in order to acquire the building permit in line with our intentions. The procedure to amend the development plan takes about 18 months. As part of the amendment procedure of the development plan, in some cases an EIA has to be done. This may increase the time to prepare an application to amend the development plan. In the case of Golczewo the development plan has to be amended as it does not foresee the installation of wind turbines yet. Following the development plan amendment it is necessary to obtain the decision on development conditions (given by the municipality stating the plot borders, it’s development plan and destination and the size of potential construction), which allows to apply for the most crucial document - the building permit. The procedure to obtain the decision takes about 4-6 months. Thereafter the building permit can be obtained and this takes about 1-2 months. Total procedure therefore lasts approximately 2 years. So far wind projects have not been delayed by public protests or appeals. The strong support from the government is one reason and usually there is also quite a good local support for wind projects as both the landowners and the municipalities profit from a wind farm.

1

Exchange rate from 23rd August 2007 1€= 0.26 PLN

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2.3. Available resource Project: The wind data for Poland have been plotted by Anemos (see map hereunder). For individual projects the wind speed can be estimated at this moment – no wind measurements are made yet – with the wind maps of Anemos. For this project the wind speed is estimated by Ecofys to be 6.5m/s on hub height.

2.4. Grid connection General: In parallel to the permitting procedure the project has to be discussed with the power utilities. The possibility to obtain the technical requirements for connection to the grid is the most vital issue. The Minister of the Economy Ordinance of December 15th, 2000 on the obligation to purchase the electricity from unconventional and renewable sources sets obligatory share indices for the electricity from unconventional and renewable sources in the total volume of electricity turnover. In practice, power utilities have to purchase the amount of renewable electricity corresponding to their annual turnover volume. However, there are too many wind power applications so not all applications can be rewarded. The usual procedure is to ask first for initial grid conditions. For this the developer has to contract a specialised company that makes an initial grid study. This study gives an indication on the changes to get a (affordable) grid connection. If the result is positive, a more extensive study will be performed, indicating in detail how the wind farm should be connected. The total procedure takes about 3 + 9 months for the initial and detailed study respectively. The grid application process for Pakość II can be started (application for the conditions of connecting to the grid has not been filed yet). This is only possible when you can proof that you own or lease the described land and when you submit detailed electrical specifications of the wind turbines.

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Project: In April 2008 Evelop applied for a grid connection. According to the letter from Enea there is 22MW available to connect to the grid. However before a final decision can be made on the grid connection, a detailed electrical expertise is required. Hopefully this expertise could start in Q3 2008.

3. Cooperation 3.1. Partnerships Project: -

We do not have partners in this project.

3.2. Stakeholders Project: -

Major stakeholders and their involvement (goals/ role) in the project (description of partners and clients) – Not applicable

4. Financial project analysis 4.1. Investment estimate -

-

Initial estimate of Capex + basis of estimate: o Turbines 1.25 Meuro/MW (incl foundation and transformer) o Grid connection 100.000 euro per km grid cable (for Pakość II 5 km) o Park cable 100.000 euro per km cable (for Pakość II 5 km) o Roads and crane pads 250.000 euro Devex estimate, referring to budget format in annex 1 o 600.000 euro

4.2. Financial assumptions -

-

Income from energy produced (PPA): wind park owners usually sign contracts for a maximum of 10 years with a grid operator with a fixed price for total amount of electricity and green certificates. Support regime per MWH (present regime + outlook) The price of green certificates grows at the moment because the pay out price grows each year and the number of green certificates is not sufficient. There is a chance that the price of green certificates can drop in case that supply of green certificates will be higher then real demand but it is hard to estimate when green electricity production reaches this point. There is also plan to open from September 2008 our green certificate market, in this case most of them will be sold outside the country with a higher price and the pay out price in this case can rise even more rapidly. Other financial facilities (local / national subsidies, tax facilities): possibly we can obtain subsidy on a wind farm from the EU-funds (see section 2.2). It is not known yet what the possibilities are so we did not include them in the feasibility calculations. Financing (interest rate, ROE, leverage) The bank loans differ of course depending on the amount of investment financed by the investor between 4-7% of interest (has to be checked and negotiated with the banks) Taxes (company tax, depreciation scheme, local taxes) The company tax is a 19%; According to yearly depreciation scheme wind turbines are listed as objects of land and sea engineering with yearly amortisation deduction of 4,5%. Opex assumptions (fuel, other inputs, O&M, insurance): for Opex expenses we assume: o 1.2 ct/kWh for a full service O&M contract o 0.5% of Capex for machine breakdown insurance o 0% of turnover for loss-of-income insurance o 22.000 PLN/turbine for land lease o 100.000 euro/year for management fee o 2% local tax

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4.3. Cash flow analysis -

Cash flow overview for project life span (annex 2) Analysis results: o RoE pre tax 18% o RoE after tax 12% o DSCR average 1.6

4.4. Sensitivity analysis -

Major sensitivity elements o Tariff can be 10% lower o Net yield can be 10% lower or higher Effect on result o 10% lower tariff: RoE after tax= 6% o 10% higher yield: RoE after tax = 16 % o 10% lower yield: RoE after tax = 9%

5. Planning -

-

Preliminary development planning: o DG1 – start development Q1 2008 o DG2 – consent achieved Q3 2009 o DG3 – start construction / FC Q1 2010 o DG4 – start generation Q4 2010 Overview of required human resources (internal / external) o See DEVEX spreadsheet in annex 1 o internal ~ 2000 hours o Ecofys ~ 100.000 euro o external ~ 330.000 euro

6. Feasibility / risk summary Major risk for Evelop wind development in Poland: many competitors trying to obtain localizations feasible for wind parks together with grid connection available, having strong man power sources they will try to finish most of projects until 2013; Greenfield projects with insufficient staff and tools available can lead to the situation when most of areas feasible will be already in possession of our competitors. Resume Strenghts: International company with good reputation Office in Poland People with broad experience – not only in wind energy Opportunities: Chance to develop wind park with relatively small costs of investment Opportunity to build up revenue from green electricity Chance to get a financial support from EU found

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Weakness: Insufficient number of staff Lack of business cars which are necessary for projects developers who should spend most of time out of office Lack of simple tools like for instance gsm device Threats In case the percentage of green electricity reach the mandatory level and above the price of green certificates on the Polish Power Exchange can drop

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7. Proposal / recommendation to the board -

Go / no-go advise, and consequences of the opposite decision

General:

We advise to continue the development of wind projects in Poland for the following reasons: • We have a basis in Poland: an office and staff and expertise to develop projects • There are opportunities to acquire and develop projects in Poland. There is a substantial potential of at least several hundred MW so a valuable contribution to the overall target of Evelop can be made. • The wind climate in Poland is moderate, there are sufficient sites in Poland with a reasonably good wind speed (6,5 m/s) • The green electricity prices + income from green certificates (together amounting to 105 euro/MWh) generate sufficient income to realise feasible projects If we do not pursue this opportunity we miss the possibility to realise several hundred MW of wind projects.

Project: We advise to start the development of this project. If we do not pursue this opportunity we miss the possibility to realise a 22 MW wind project. The project has a good chance for success: • The land has been secured, • The wind speed has been estimated at 6.5 m/s • The grid connection is available Next steps are to start wind speed measurements and a detailed grid analysis to secure the grid capacity.

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Annex 1: Project budget (devex estimate) PROJECT DEVEX / BUDGET EST IMAT ION Project name Request ow ner Project number Area Size (MW) Capex est (M€) Devex TPD / BD Start date End date

Fase 1. Business case

sub-total 1 2. Development

sub-total 2 3. Contracting

sub-total 3 TOTAL DEVEX

€

Example ebe devlfr07545 WOL 12 14,400,000 € 595794 (=4.1%) XXX 01/01/2007 12/31/2010

Deliverables

business developer technical project developer financial project developer contract manager project (construction) manager operations manager project director

OOP=

yes/no planned 140 120 160 160 140 100 applicable year bd tpd fpd cm pm om

Position Resource assessment Feasibility / risk assessment DG1 proposal Mngmnt phase 1 DG1

all all all

Cooperation Location Resources / fuels Basic engineering / prel. design Consents (mod, telecom, airport, etc) Permitting Energy contracts (LOI/MOU level) DG2 proposal Mngmnt phase 2 DG2 Contract strategy Cooperation Resources / fuels Detailed Design elaboration Tendering Energy contracting Financial contracting DG3 (=Investment) proposal Mngmnt phase 3 DG3=FC

all all all all all

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bd= tpd= fdp= cm= pm= om= pd=

all

all all all

2006 2007 2007 2007 2007

2007 2007 2007 2007 2007 2008 2008 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009

32 0 2 8 42

24 2 10 10 16 62

32 72 18 16 8 12 110 52 36 100 20 444

20

pd

8

6

8

0 8 0

26

414 446

Internal Costs €7,360 €240 €1,200 €4,040 €3,040 €15,880 €4,960 €9,920 €2,160 €1,920

20 6

80 48 16 32 0 282 40 100

20 184 82 690

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6

200

8 8 24 36

0

0

166 40 52 0

88 0 0 44

36 0 0 20

318 132 326 132

56 56

8 8 40 40 52 8 60 70 40 318 326

€14,880 €9,440 €6,880 €12,000 €62,160 €5,440 €13,760 €0 €17,600 €58,640 €15,040 €65,440 €45,760 €8,000 €229,680 €307,720

Out of Pocket costs

hrs

Ecofys tariff cr comp

0 6 24

79

30

€82

48 48 48 450

79

594

120 0 60

€99

130

80

260 884

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€119 €105

3rd parties OOP

Budget

€0 €564 €1,896 €0 €0 €2,460

€0 €0 €0 €0 €0 €0

€7,360 €804 €3,096 €4,040 €3,040 €18,340

€0 €0 €4,152 €5,280 €7,040 €42,582 €0 €0 €0 €59,054

€0 €0 €50,000 €0

€4,960 €9,920 €56,312 €7,200

€10,600 €0 €0 €0 €60,600

€0 €0 €15,600 €0 €6,600 €8,800 €0 €0 €31,000 €92,514

€10,000 €12,000 €20,000 €0 €0 €100,000 €0 €0 €142,000 €202,600

€68,062 €9,440 €6,880 €12,000 €174,774 €5,440 €23,760 €12,000 €53,200 €58,640 €21,640 €174,240 €45,760 €8,000 €402,680 €595,794

Annex 2: Cashflow analysis

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Annex 3: Risk table Risk

Item

Mitigation

Development Cooperation

•

•

Location

•

Possible competition from other developers

•

Resource (wind/sun/bio)

•

Exact wind data not known yet

•

Consenting / stakeholders Permitting

•

N.a.

•

•

Municipality may not cooperate.

•

Delay

•

Procedures may take long

•

Contracting Technology

•

Grid

•

Obtain Wind turbines in time against right terms Grid connection

O&M

•

n/a

•

PPA/HPA

•

Get PPA signed

•

Subsidies

•

Get green certificate contract signed

•

Insurance

•

n/a

•

Finance – Loan

•

Get loan agreement signed

•

Finance – Eq

•

n/a

•

Prob

Get overview of possible competitors. Secure position by obtaining grid connection and (exclusive) agreement with municipality. We will make a first estimate based upon electronic wind maps. Then wind speed measurements on site.

10%

Sign agreement with municipality on amendment development plan and permitting procedure Contract right companies to assist in permitting and grid connection procedures.

15%

•

Via framework contracts

25%

•

See text BC. We will ask for grid connection in steps (initial + detailed grid study) to minimise risks and obtained clarity asap

Imp

15%

50%

5%

Start early enough with signing LoI with off taker, specifying contract terms Start early enough with signing LoI with off taker, specifying contract terms

20%

Start early enough with signing LoI with off taker, specifying contract terms

20%

20%

* L = Low; M = Medium; H=High; F=Factual / Fatal

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