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Presentation at EWEC 2006, Athen Finance & Insurance Session

Financing of wind power developments within the context of market based support mechanisms and related political risks. Presentation at EWEC 2006, Athen Finance & Insurance Session Inger-Anne Blindheim – GreenStream Network AS. Agenda. Introduction to GreenStream Network

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Presentation at EWEC 2006, Athen Finance & Insurance Session

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  1. Financing of wind power developments within the context of market based support mechanisms and related political risks Presentation at EWEC 2006, Athen Finance & Insurance Session Inger-Anne Blindheim – GreenStream Network AS

  2. Agenda • Introduction to GreenStream Network • The Swedish – Norwegian elcertificate market • Case study: Austevoll Wind AS – 21 MW • Conclusions

  3. GreenStream Network • Largest independent company within consulting and trade of CO2 and green certificates in Northern Europe • Annual trading volume of above 10 TWh green certificates • Key competence: • Calculate and demonstrate green values • Analyse and optimize trading strategies for green values (certificates, CERs and EU allowances) • CDM/ JI project: PIN, PDD, registration and ERPAS or portfolio management of CERs • Development and financing of renewable energy projects – in co-operation with the owners and technical advisors • For most windpower projects, green values are the key to profitability and financing • Owned by the management (60%) and HSH Nordbank /HSH Gudme Investment Bank • Annual turnover 2005: 1,8 million Euro – credit rating AAA • 20 employes – offices in Norway, Sweden, Finland, Germany, France, Estonia and Lithuania • Environmental Finance: Best Broker of the year 2004 and 2005 – trade of green certificates in Europe ex-UK

  4. Outline of the Swedish-Nowegian elcertificate market (1/2) • The Swedish elcertificate market started up in May 2003 • Original target operation of a joint Swedish-Norwegian elcertificate market from January 1, 2006 - postponed to January 1, 2007 ......... • Proposed to last up to 2030 • Purpose: • release large scale investments in renewable energy, • decreased fossile fuel production; and • improved power balance

  5. Outline of the Swedish-Nowegian elcertificate market (2/2) • 15 years elcertificate production period per project • Each power consumer (except energy intensive industry) obliged to consume a certain quota of renewable energy through elcertificates • Increasing elcertificate quota level combined with penalty fee for non-compliance • Elcertificates can be freely traded in the market: spot, futures, forwards • Elcertificates can be accumulated and saved • Technology neutral?

  6. 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 Oct Oct Oct Oct Oct Oct Oct Oct Oct Nov Nov Nov Nov Nov Nov Nov Nov Nov Dec Dec Dec Dec Dec Dec Dec Dec Dec Jan Jan Jan Jan Jan Jan Jan Jan Jan Feb Feb Feb Feb Feb Feb Feb Feb Feb Mar Mar Mar Mar Mar Mar Mar Mar Mar Apr Apr Apr Apr Apr Apr Apr Apr Apr May May May May May May May May May June June June June June June June June June Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Clarify Clarify Clarify law law law principles principles principles in in in 15/02 (?) 15/02 (?) 15/02 (?) 15/02 (?) 15/02 (?) 15/02 (?) 15/02 (?) 15/02 (?) 15/02 (?) Law Law Law Law Law Law Law Law Law proposal proposal proposal proposal proposal proposal proposal proposal proposal Feb Feb Feb - - - June June June law law law proposal proposal proposal 20/06 (?) 20/06 (?) 20/06 (?) 20/06 (?) 20/06 (?) 20/06 (?) 20/06 (?) 20/06 (?) 20/06 (?) Approval Approval Approval Approval Approval Approval Approval Approval Approval coordination coordination coordination with with with Sweden Sweden Sweden to to to to to to to to to parliament parliament parliament parliament parliament parliament parliament parliament parliament at at at the the the Energy Energy Energy comittee Committee comittee 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 Oct Oct Oct Oct Oct Oct Oct Oct Nov Nov Nov Nov Nov Nov Nov Nov Dec Dec Dec Dec Dec Dec Dec Dec Jan Jan Jan Jan Jan Jan Jan Jan Feb Feb Feb Feb Feb Feb Feb Feb Mar Mar Mar Mar Mar Mar Mar Mar Apr Apr Apr Apr Apr Apr Apr Apr May May May May May May May May Jun Jun Jun Jun Jun Jun Jun Jun Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden 01/11 01/11 01/11 01/11 01/11 01/11 01/11 – – – – – – – 01/12 01/12 01/12 01/12 01/12 01/12 01/12 possible possible possible possible possible possible possible public public public public public public public review review review review review review review 17/3 17/3 17/3 17/3 17/3 17/3 17/3 law law law law law law law proposal proposal proposal proposal proposal proposal proposal to to to to to to to March March March March March March March - - - - - - - June June June June June June June law law law law law law law proposal proposal proposal proposal proposal proposal proposal 20/06 20/06 20/06 20/06 20/06 20/06 20/06 Approval Approval Approval Approval Approval Approval Approval and and and and and and and additional additional additional additional additional additional additional law law law law law law law modification modification modification modification modification modification modification the the the the the the the parliament parliament parliament parliament parliament parliament parliament at at at at at at at the the the the the the the energy Energy energy energy energy energy energy comittee comittee comittee comittee comittee Committee comittee Clarify Clarify Clarify Clarify Clarify law law law law law principles principles principles principles principles in in in in in coordination coordination coordination coordination coordination with with with with with Norway Norway Norway Norway Norway Time-schedule for the elcertificate market

  7. Risk of market based incentives • Political risk • Price risk • Hedging premiums

  8. Price development – Nord-Pool over 30 days

  9. 530 480 430 Elcertificate 380 Powerprice Elcert+Powerprice 330 280 230 180 7.9 8.6 5.7 1.8 22.9 22.4 19.5 17.6 15.7 11.8 5.10 1.11 24.1 18.2 17.3 15.4 12.5 26.8 19.10 15.11 12.12 26.11 23.12 Price development – power and elcertificate market SEK/MWh

  10. Austevoll Vind AS – 21 MW, Norway Austevoll Vind AS

  11. Austevoll Vind AS – Norway • 3 small projects, total 21 MW located within a distance of 15 km • Some of the best wind-parks in Norway: • Stable wind-speed of 7,9 to 8,3 m/s • Close to existing grid • Low infrastructure costs • Grid connection confirmed • Power deficit in the surrounding area • Mild weather-conditions and no icing • Increasing power prices • Elcertificates could contribute to approx. 40% increased income on top of the power prices • Internal rate of return on equity > 24%

  12. Austevoll Vind AS – Norway Comparison elcertificate vs. investment support regime

  13. Conclusions • Properly adapted market based incentives with high ambition level for renewable energy may result in: • The most cost-efficient projects with lowest marginal cost will be developed first • Only the best projects will be developed • Higher return on investment for investors at the current maximum investent support level in the EU – 25 % • Renewable energy projects more competitive to fossile and nuclear power • In a market based power system, the elcertificate market will result in investments in new capacity, reducing the pressure for increased power prices for the consumers • Price risk for market mechanisms may be handled through risk hedging, but the project owner looses part of the upside in return of safe sleep • Political risk must be minimalized through: • Efficient political processes • A clear legal framework ensuring a predicable, long term market (minimum 20 years horizon) • Cross-border systems – one government can not change the market system itself • Investment support regimes are subject to annual budget allocations, • Investments in the range of 10 – 15 TWh required to improve the Norwegian power balance will be a heavy burden on the annual budgets • Lead time for project development is 4 – 7 years. Will investors build up a sufficient project pipeline under an uncertain investment support scheme subject to annual government approvals?

  14. Thank you for your attention! Please contact us: Project finance Inger-Anne Blindheim Mob: + 47 480 39 511 Proj. fin./certificates/pol. risk Arne Jakobsen Mob: + 47 920 89 032 Green certificates Europe Thomas Müller Mob: + 49 521 8750 484 CDM/JI Tommi Tynjälä Mob: + 358 40 840 8003 Trade of EU allowances Jussi Nykänen Mob: + 358 40 840 8001 GreenStream Network Ltd.www.greenstream.net firstname.lastname@greenstream.net Erottajankatu 1 Stureplan 4 C Lysaker Torg 8 Zur Bülte 12 FIN-00130 Helsinki S-11435 Stockholm N-1366 Lysaker 33739 Bielefeld Finland Sweden Norway GermanyTel. +358 40 840 8000 Tel. +46 70 618 8003 Tel. +47 6752 1131 Tel. +49 173 601 0380Fax +358 9 278 2600 Fax +46 8 463 1010 Fax +47 6752 1199 Fax +49 521 8750 580

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