DNV – Managing Risk

DNV – Managing Risk DNV corporate presentation [Rene Arikas] [25.11.2008]

More than 140 years of managing risk • Det Norske Veritas (DNV) was established in 1864 in Norway • The main scope of work was to identify, assess and manage risk – initially for maritime insurance companies © Det Norske Veritas AS. All rights reserved

New risk reality • Companies today are operating in an increasingly more global, complex and demanding risk environment with “zero tolerance” for failure • Climate change • Increased demands for transparency and business sustainability • Stricter regulatory requirements • Increasing IT vulnerability © Det Norske Veritas AS. All rights reserved

Technology Outlook 2015 DNV Research and Innovation’s assessment of developing trends [Rene Arikas] [25.11.2008]

Global Trends ENERGY – OPPORTUNITY AND THREATS The world is facing energy-related threats: • Not having adequate, secure supplies of energy at an affordable price • The environmental damage caused by consuming too much of it The need to curb the growth in fossil-energy demand, to increase geographic and fuel supply diversity, and mitigate climate-destablising emissions is more urgent than ever. In next 8 years China will install 800 GW of power plants, 90% of them will be coal fired! © Det Norske Veritas AS. All rights reserved

Global Trends ENERGY – OPPORTUNITY AND THREATS World energy consumption shows a surge, especially in developing countries. Projected energy demand with respect to energy source © Det Norske Veritas AS. All rights reserved

Wind power – Blowing in the wind Trends towards 2015: • Wind power established in many countries. The focus of wind industry installations will shift to North America and Asia. • China and India will become the most attractive countries in the world for renewable energy investment and projects by 2012, with an expected installed capacity of 5GW in 2009. • By 2015 the wind power capacity is expected to be more than double. Under “business as usual” conditions, the wind energy capacity will grow from 75GW installed in 2006 to around 160GW by 2012. • The number of multi MW turbines will increase. Average wind turbine rotar diameter has grown from 15 m (50 kW/1980) up to 124m (5 MW). Older and smaller turbines are being upgraded by multi-megawatt turbines. © Det Norske Veritas AS. All rights reserved

Wind power – Blowing in the wind Trends towards 2015: • Huge wind turbines being installed offshore. Offshore installations, outside visual range from shore, will reduce wind farm location conflicts. The majority of offshore instllations will be in shallow water, but some floating, deepwater protoypes (5+MW) will be installed and tested. • A market for small wind turbines. Small wind turbines (0,1 kW up to 100 kW) are especially suitable for decentralised solutions. • Renewables combined with energy storage. Combining energy storage with renewable electricity production alleviates the intermittent nature of renewable energy sources. © Det Norske Veritas AS. All rights reserved

Wind power – Blowing in the wind OFFSHORE – OUT OF SIGHT, BUT IN THE WIND Locating wind farms in the ocean has the dual advantages of offering higher and more predictable wind speeds, while avoiding potential conflicts with other land users. Current designs of offshore wind turbines are based on bottom-fixed towers in water depths up to 30 meters. Based on experience from the offshore, deepsea oil and gas industry, floating tower support structures are under development in USA and Europe. © Det Norske Veritas AS. All rights reserved

Wind power – Blowing in the wind STORAGE OF WIND ENERGY Electricity has to be used at time of production, and the time-dependent imbalance, between demand and supply of electric power is solved by storing energy. Bulk storage includes hydro-electric storage, hydrogen/fuel cell systems, and compressed air energy storage (CAES). © Det Norske Veritas AS. All rights reserved

Wind power – Blowing in the wind Technology towards 2015: • New blade designs are being developed, e.g. lighter and stiffer blades, and active designs that can reduce loads. • Novel drive trains with direct generators (no gear box), use of rare earth permanent magnets allowing smaller generators, and distributed drive trains will come commonplace. Hydraulic energy transmission will allow generators to be positioned at the base of floating systems. • Off-grid solutions, with horizontal as verical axis turbine models, will appear in the small turbine wind market. • Power electronics e.g. converters, controls, and power components, will be more reliable, reducing failures that need non-planned intervention. • Remote control and surveillance technology will be applied, as more wind turbines are installed and are placed more remotely © Det Norske Veritas AS. All rights reserved

Wind power – Blowing in the wind Technology towards 2015: • Innovative tower that are self-erecting, or tower climbing cranes and tracks, will eliminate the need for expensive cranes. Towers will be built of concrete and steel. • Adaptations of the marine environment: • New, inexpensive floater designs, with affordable and reliable anchoring systems. • Onshore limitations (e.g. aero-acoustics) may cease to be major design drivers, allowing higher tip speeds, lower chords, and reductions in loads. • Three-bladed, up-wind turbines may eventually be replaced by two-bladed, downwind, more flexible machines. © Det Norske Veritas AS. All rights reserved

Wind power – Blowing in the wind Possible challenges Risk aversion: investors and lenders are concrened with a wide array of risks, such as the quality of the wind, changing regulatory and political environments, relevant transmission issues, and reliability of technology. Supply chain bottlenecks: global demand for wind turbines is currently exceeding the capacity of the industry, and important components are in short supply. The wind turbine industry is faced with a considerable challenge in managing the total supply chain. Transmission limitations: The best locations for renewable production are often located away from the market, and transmission cost reduce their competitveness. © Det Norske Veritas AS. All rights reserved

Climate Change Outlook for Climate Change Services [Rene Arikas] [25.11.2008]

Human societies are dependent on and maintained by a continuous flow of energy. Moving developing economies further and growth in the world population result in increasing energy demands. Currently the dominant economically available energy resources are fossil based with varying carbon content (coal, oil, and natural gas). The Challenge – Decarbonise the Economy © Det Norske Veritas AS. All rights reserved

The Challenge – Decarbonise the Economy • The increased concentration of GHG in the earth atmosphere leads to increase global temperatures. • The atmospheric CO2 concentration as an average over 2007 was 383 parts per million1 • Unless the strong connection between economic growth and GHG emissions are broken, the world is now on a path that is clearly not sustainable • Preventing catastrophic and irreversible damage of the global climate requires a major decarbonisation of the world energy resources. We could be heading for a global temperature increase of up to 6oC 1) ref Carbon Dioxide Research Group Scripps Institution of Oceanography (SIO) University of California. From IPCC © Det Norske Veritas AS. All rights reserved

The Carbon Market Ref: The World Bank, May 2008 • CDM market: China dominates, Africa emerges • China was the biggest seller (73% of CDM transactions). Countries in Africa and eastern Europe and Central Asia (1%) has emerged in the carbon market. • CDM delivers on clean energy • Two-third of the transaction volume in the project based market are related to energy efficiency and renewable energy. © Det Norske Veritas AS. All rights reserved

CDM Market Faces Challenges • Procedural inefficiencies and regulatory bottlenecks have strained the capacity of the CDM infrastructure • Out of 3188 projects in the pipeline (May 2008), 2022 are at validation stage • Market participants report that it is currently taking them up to six months to engage a Designated Operational Entity (DOE), causing large backlogs of projects even before they reach the CDM pipeline • Projects face an average of 80 days to go from registration request to actual registration. The Executive Board (UN) has requested a review of several projects received for registration, has rejected some of them, and has asked developers to re-submit their projects using newly revised methodologies. • Project are currently taking an average of one to two years to reach issuance from the time they enter into the pipeline. • Complex rules and capacity constraints • Delays can and do impact carbon payments. • Private companies and commercial risk. • Companies involved have not treated the risks involved in utilising these financial instruments. © Det Norske Veritas AS. All rights reserved

Carbon Market Outlook • Carbon Market momentum is strong for now • Created by regulation, it’s biggest risk is caused by the absence of market continuity beyond 2012 and this can only be provided by policymakers and regulators. • The CDM is at a crossroads • The EC post 2012 EU ETS proposal may have a negative effect on the project-based market. By linking additional EU ETS demand for CDM and JI credits to the success of post 2012 global climate change negotiations, there is a risk of slowing down the momentum. • Time to re-think the CDM • The CDM’s biggest strength is the ability to bring developing and developed countries together to reduce emissions cost-effectively. As these efforts are being scaled up, the future success of the CDM market is dependent on solving the current challenges. • The forest for the trees • Next version of CDM needs to move away from methodologies that tries to account for the last ton reduced from the atmosphere, and focus on catalysing step changes in emissions trends and on creating incentives for large-scale, transformative investments programs. © Det Norske Veritas AS. All rights reserved

Climate Change represents an opportunity • The climate change encompasses a wide area of sciences, technologies and challenges that are interlinked. • Solutions to mitigate emissions • Solutions to adapt to changes • The Climate Change Services IBU will focus on • Continued growth in validation and verification of CO2 quotas • Develop competence and DNV business in dedicated industrial sectors Climate Change Impacts human & natural systems Adaptation Adaptation Emissionsconcentration Socio-economicDevelopment Path Mitigation © Det Norske Veritas AS. All rights reserved

Profit and loss accountability CDM validation and verification JI determination and verification Energy Efficiency services Validation and verification of emission of voluntary schemes offset projects (VCS, Gold standards etc) ISO 14064 (GHG accounting and verification) Carbon footprint Carbon Neutrality CCS Academy and Network Governance (in addition to P&L services) EU ETS verification IBU Services © Det Norske Veritas AS. All rights reserved

DNV Organization • Hub and spokes structure, resource center and accredited unit • About 90 fulltime employees globally • Global capacity is our limitation – lack of qualified people • Cultural differences and local Kips is a challenge to the global service © Det Norske Veritas AS. All rights reserved

Complaints: Often also other causes than “time” • Clients not providing sufficient evidences to DNV requests for corrective action and clarifications (Cars, CLs) • Disagreement with client on the answers to Cars and CLs (DNV disapproves the answers given, typically Norway taking the last “fight” on technical details/ interpretations) • DNV waiting for more information from local project developer, while global client is not informed of the local communication • Changes in EB requirements or EB interpretations during the validation/ verification process • Delay due to lack of capacity – globally and in Oslo (especially for difficult methodologies or “borderline” projects with no easy yes/no solutions) © Det Norske Veritas AS. All rights reserved

DNV – Managing Risk