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Approach to European Wind Power markets

Approach to European Wind Power markets. by Henrik Balle Senior Project Manager Markets & Acquisitions – Wind power DONG – Danish Oil and Natural Gas. Oil and gas prod. Production today. Near-term production. Longer-term production.

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Approach to European Wind Power markets

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  1. Approach to European Wind Power markets by Henrik Balle Senior Project Manager Markets & Acquisitions – Wind power DONG – Danish Oil and Natural Gas

  2. Oil and gas prod. Production today Near-term production Longer-term production DONG well situated between Scandinavia and Northern Europe DONG market DONG distribution Natural gas pipeline – owned by DONG Transmission net – owned by the Danish state Natural gas pipelines partly owned by DONG Gasled natural gas transmission system Natural gas storage owned by DONG Ormen Lange Trondheim Kollsnes Oslo Kårstø Stavanger Sleipner Göteborg St. Fergus Harald Nybro Syd Arne Tyra København • Currently 100% state-owned • IPO scheduled for 2007 • State ownership to stay above 50% Lübeck Easington Dublin Emden Den Helder Bacton ProArc London Zeebrugge Dunkerque 250 km

  3. INTERGAS SUPPLY Integrated energy company with revenue of EUR 3.6 billion* Integrated energy company with revenue of EUR 3.6 billion* 0.5 billion* 0.4 billion 1.2 billion* 1.5 billion* E&P Generation Renewables Infrastructure Sales Offshore Wind Onshore Wind Hydropower Electr. & gas customers Gas customers Electr. distribution Gas distribution • Reserve base of more than 350 million boe • Hereof 40 bcm gas • Three focus areas • The Danish part of the North Sea • Mid-Norway • West of the Shetland Isles • Effective and diversified conventional electricity production • 6,200 MW capacity (coal, gas, and bio mass) • Large wind capacity in Denmark and abroad (600 MW) • Significant wind power projects in Denmark and abroad • Hydropower in Norway and Sweden (500 MW) • Two natural gas storages (760 million m3) • Gas distribution • 100,000 customers • Electricity distribution • 900,000 customers • International gas infrastructure (Sweden, Holland and Germany) • Sale of approx. 8 bn m3 natural gas and significant volume of power • 1,000,000 customers in Denmark • Market leader in Denmark and Sweden • Niche player in Germany and Holland ProArc * DISCLAIMER: Based on arithmetic calculations. Figures include unaudited figures and DONG’s own estimates and serve for illustration purpose only. Figures assume all agreed DONG acquisitions are successfully completed

  4. Wind assets following merger with Energi E2/Elsam As part of the purchase of Elsam shares from Vattenfall DONG will swap assets, including wind farms ProArc Vattenfall will take over a number of wind energy assets, but the new wind business will remain a major player

  5. Portfolio of development projects in European growth markets Off-shore pipeline for 2006-10 – around 2,300 MW (est.) Offshore projects under development: DE: Borkum Riffgrund 161+372 MW UK: Scarweather Sands 45 MW Walney 450 MW London Array 333 MW Shell flats 90 MW West of Duddon Sands 167 MW Burbo Bank 45 MW DK: Nysted II 100 MW Horns Reef II 200 MW Existing pipeline is focused on European growth markets On-shore pipeline for 2006 only – around 200 MW (est.) Onshore projects under development: Pipeline consists of several medium to large scale projects (>20 MW) ProArc

  6. Strategic Market Approach / Risks Basis will be a perception of markets in North West Europe: A Central Nordic Footprint ProArc Home market 1. priority 2. priority

  7. Relevant market overview ~ Risk perspective Risk rating Total rating Medium /high Medium/low Low High High 7 + 9-10 + 9 + 7 + 4 + ProArc

  8. Other markets ~ Risk perspective Risk rating Total rating Medium /low Low Medium 7 + 9 + 7 + ProArc

  9. Non-systematic / Project specific risks (internal risks) Systematic/generic risks (external risks) Define WACC for each market Build into cash-flow projections IRR To what extent does project survive relevant hurdle rate – if at all?? No Yes WACC – Weighted Average Cost of Capital / Hurdle rates Risk assessment ProArc

  10. Definition of WACC/Hurdle rate The definition of WACC for each market includes : • Impact of generic wind risk • Impact of Offtake/market risk (income) • General/average O&M risk (costs) • Relation/sensitivity between fixed and variable costs • General construction/completion risk • Average lending to investments (50-80%) • Long term interest risk impact • Credit risk margin ProArc

  11. Stages of Project and relevance of risks Off-take Technology Grid interconnection Construction offshore O & M Construction onshore Grid interconnection O & M Counterpart/-Credit Technology Technology Wind Wind Counterpart/-Credit Off-take Political Political Phase 1 Early Development Phase 2 Late Development Phase 3 Construction Phase 4 Operation ProArc Photo by Gunnar Britse: Nysted Offshore Wind farm, Denmark

  12. Examples of WACC/Hurdle rates IRR/Return on relevant markets - Risk assessment/WACC =CREATION OF VALUE on investment !! ProArc

  13. Thank you for listening!? Henrik BalleSenior Project ManagerDONG RenewablesTel. +45 4517 1582Mob. +45 2096 1065 Fax. +45 4517 1282heb@dong.dk ProArc

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