Hydro pump storage PP in Estonia

1. Energiasalv Hydro pump storage PP in Estonia

2. Energy sources in Baltics • Content • Content Three distinctive modes of electricity generation represented on a large scale Overview Primary energy sources in Baltics (2009) • Baltic electricity markets inherited powerful North-West Russian electricity system and are still largely isolated power markets from the rest of the EU • The trading in the Baltic electricity market is carried out by bilateral contracts between large utilities, not via spot-market, wholesale market practically non-existent • Estonian oil-shale based electricity production, albeit with relatively low energy efficiency, is a dominating energy source • Due to its environmental risks, lower competitiveness and limited amount1, the key issue is to reduce its consumption at the expense of renewable energy alternatives • By virtue of the electricity full liberalisation market program announced in 2007, 35% of Estonian energy market was set to be opened from 1 January 2009 and full opening is scheduled for 1 January 20132 • Cost-based electricity pricing will be converted into market-based pricing • In Latvia electricity is generated mostly by three Daugava hydro power plants • Lithuanian energy production is substantially dependent on decommissioning of Ignalina nuclear power plant (INPP) • After the decommissioning of INPP Lithuania to rely heavily on local gas PP and electricity import, this is further exacerbated by lack of viable interconnections with Poland, Sweden and Finland • According to the EU directive, the remaining INPP unit 2 has to be decommissioned by the end of 2009 • Source: Freenergy, Eesti Energia • At the current extraction level of 40-50 million tonnes per year, it is estimated to last about the next 50-60 years • Latvian and Lithuanian electricity markets are opened from 1.07.2007

3. Energiasalv Baltic electricity market • Primary origin of energy sources: Estonia – local oil-shale, Latvia – local hydro, imported energy and natural gas, Lithuania – nuclear and imported • Total annual gross power consumption amounts to around 29 TWh/year: • Estonia – 9 TWh/year • Latvia – 8 TWh/year • Lithuania – 12 TWh/year • Due to environmental reasons and physical amortization there will be shutdowns of several major power plants in Baltics • Lithuania to shut down Ignalina nuclear plant in 2009 • Estonia to shut down ca 41% of capacity of oil shale power plants by 2016 (4x250 MW + 2x200 MW remains out of existing 2,380 MW) • Agreement on the construction of flue gas desulfurization installations on 4 Eesti Power Plant’s units was signed in March 2009 • Although the new plants are planned to be developed, these will require large-scale investments and will not be probably completed before 2016 • It is estimated that there will be a substantial gap between production and consumption capacities in Baltic states amounting to as high as 2,500 MW by 2017 • In addition, 1,500 MW of capacities will be based on natural gas imported from Russia, being therefore with limited reliability and having upwards price pressure • Importance of the issues of “energy security” and “energy independence” is increasing Production capacity shortage in the wake of worn-out infrastructure Overview Energy production capacities and future imbalance, 2007-2015 Shutdown of Elektrenai Lithuanian Power Plant, 2007 Peak load is foreseen to grow at 4% per annum Estonian electricity market full liberalisation, 2013 Shutdown of Ignalina Nuclear Power Plant, 2009 Gap tp be filled Shutdown of old energy blocks in Narva Power Plants, 20151 • Source: Freenergy • All old pulverised combustion boilers have to be closed by the end of 2015 according to EU Directive on the limitation of emissions into the air from large combustion plants

4. Existing grid connection Planned grid connection Interconnections in the Baltics • Content • Content Energiasalv Transmission capacity to outside Baltics is limited Overview Grid connection in the Baltic states and actual power flow in 2007 • Electricity system of all three Baltic countries is connected only to the IPS/UPS interconnection based on agreements with eastern neighbours Russia and Belarus, with the exception of Estlink (350MW), which is the only interconnection with EU network • Estlink 2 (650 MW) is planned to be built by 2013 • Governments of the three Baltic States decided to work on the integration of the Baltic electricity market into CEE regional electricity market, UCTE • After decommissioning of Ignalina in 2009, the trading and thus, the usage of pan-Baltic electricity connections is expected to increase considerably • Baltic transmission capacity is limited to around 900-2,200 MW, implying 300-750 MW import capacity per country from third countries • From 2010 the grid capacity becomes insufficient if no new power plants will be built. Such a situation might lead to disruptions in electricity supply and limitation on power imports within the Baltic countries • In order to adjust to the changing environment, especially the closure of Ignalina, besides the new links to neighbouring countries, additional links are considered • Planned new interconnections: • 2010 Fennoscan 2: Finland-Sweden 500/800 MW • 2011-2013 Estlink-2, 650 MW • 2013-2016 Lithuania-Poland, 1000 MW • 2015-2016 Lithuania-Sweden, 700MW • Possibly additional Latvia-Sweden and/or Estonia-Sweden links will be built 800 MW 650 MW 350 MW Exported: 707 GW Imported: 442 GW Net export: 265 GW Exported: 2,016 GW Imported: 19 GW Net export: 1,997 GW 400 MW Exported: 3 GW Imported: 478 GW Net export: -475 GW Exported: 1,524 GW Imported: 195 GW Net export: 1,329 GW 1,000 MW 1,000 MW Exported: 376 GW Imported: 200 GW Net export: 176 GW Exported: 1,392 GW Imported: 3,239 GW Net export: -1,847 GW 2,000 MW 2,000 MW 1,000 MW Exported: 2,001 GW Imported: 3,603 GW Net export: -1,602 GW 700 MW Exported: 1,978 GW Imported: 852 GW Net export: 1,126 GW 1,000 MW • Source: Baltso

5. Energiasalv Balancing capacities needed 1 700 MW of reserve and balancing capacities to be built • National Electricity Development Strategy sets the target of wind energy installed capacity of 900 MW by 2018 • Significant share of wind energy in the country’s electricity balance leads to the eminent need for wind farms’ balancing capacities • The Strategy envisages building up 1 800 MW of reserve and wind parks’ balancing capacities by 2018 • Wind balancing: 900 MW • Peak-load reserve: 300 MW • Emergency reserve: 600 MW • Possibilities to balance wind energy with other countries’ electricity systems are limited due to insufficient grid connections • Need for internal solution for balancing and maintaining the reserve capacities Overview Need for reserve and balancing capacities in Estonia MW

6. Energiasalv Balancing electricity prices Electricity price spread to increase in the upcoming years • Significant fluctuations in Estonian balancing electricity prices • Average price of the most expensive 1 000 hours in 2009 was EUR 59/MWh, while the average price of the cheaperst 1 000 hours was EUR 15/MWh, meaning the spread of 44 EUR/MWh • As wind energy will play more importnat role in country’s electricity generation, the respective spread is projected to increase due to fluctuating nature of wind energy production • Limited interconnection capacity of the Baltics with UCTE and the start of free trading with electricity should contribute to the increase in the spread • Large and even increasing in the future spreads in electricity prices would support the business model of hydro pump storage power plant that would sell electricity when prices are high and buy it when prices are low, thus generating profits on the price spread Balance electricity price fluctuations in Estonia (2009) Average price of the most expensive 1 000 hours EUR 59/MWh Spread EUR 44 /MWh Average price of the cheapest 1 000 hours EUR 15/MWh Source: Elering

7. Energiasalv Hydro pump storage power plant Ideal solution for provision of balancing power to wind energy Project snapshot Distribution of electricity prices • Hydro pump storage power station – most efficient way for balancing wind farms • Projected 500 MW installed capacity • Upper reservoir is the Baltic sea, while the lower reservoir is a granite mine • Synergy created with granite mining • The power plant is projected to be commissioned by 2017 Spread Hours in a year Pump storage sells electricity at high prices Pump storage buys electricity at low prices Pump Storage power plant design Activities so far • ǺF carried out pre-feasibility study • LOI signed with the Port of Tallinn regarding the land plot • Efficient logistic site for granite realisation • Upper reservoir would be Gulf of Finland • Port territory is industrial land according to the detail plan • Seawater intake scheme design completed Next steps • Geological studies, EIA and preliminary design • To set up a granite cluster in cooperation with Estonian Road Administration • Need to agree the subsidy scheme with the government

8. Energiasalv Hydro pump storage power plant Strong project with positive impact on the environment • Need for wind energy balancing capacities in the region • Ideal solution for balancing of wind farms and as a reserve capacity station due to short start-up times • Low investment per MW due to low cost of reservoirs • Synergy arising from granite mining • No reliance on imported resources, no gas Strong bussiness concept Positive impact on the environment • Realisation of the hydro pump storage would allow reducing production of energy from oil shale, meaning significant reduction of CO2 emissions • Expected CO2 reduction per annum: 1,5 MT of CO2 • Hydro pump storage with contemplated capacity of 500 MW would allow1,5 TWh production of wind energy per annum • No CO2 emissions and no related expenses Preliminary design Upper reservoir Sub-station Entrance to maintenance tunnel Management centre Electrical grid tunnel Lift High pressure pipe Maintenance tunnel Turbines Lower reservoir Low pressure pipe

9. Energiasalv Hydro pump storage power plant Location on the Baltic sea coast with good grid infrastructure Contemplated location • Planned location of the station is Muuga Port • Good grid connections in the planned location • Preliminary land agreement with Port of Tallinn signed

10. Energiasalv Project developer: Energiasalv Organizational structure Energiasalv Hydro pump storage project Developer Voolu Energia Competence in granite mining 50% Management of 4E Competence in development and management of renewable energy projects 25% 25% Vardar Eurus Freenergy Investors 35% EBRD 70% Vardar A/S 65% Estonian private investors 30% NEFCO • 4 Energia is focused on developing renewable energy projects and operating wind parks • Vardar Eurus AS, a company registered in Norway, is 70% owned by Vardar, a Norwegian power company, and 30% by NEFCO, the Nordic Environment Finance Corporation • NEFCO is an international finance institution established by 5 Nordic countries with operations in CEE countries, Russia, Belarus and Ukraine, its portfolio comprises nearly 300 small and medium-sized projects in different sectors

11. Energiasalv Experienced project development team Hands-on experience in renewable energy and granite mining Lembit Vali Energiasalv CEO • Education: • Tallinn Technical University – Electrical Engineering • Previous employment: • Elering, Estonian national grid company – CEO • Estonian Energy – Technical Director, a member of the management board • Narva Elektrijaamad (Narva Power Plants) - CEO • Main accomplishments: • Extenstive experience in power industry since 1973 • Worked on top management positions in energy sector for 18 years foto Peep Siitam Voolu Energia CEO • Education: • Tallinn Technical University- M.Sc. in civil engineering • Estonian Business School - MBA • Previous employment: • Vool - Co-founder of of the company having majority shareholding in Maardu Granite Mine • Merko Mines - Chairman of the management board • Estonian Energy Technology Program -Program Manager • Main accomplishments: • Chartered Engineer since 1998 • Substantial experience as a member of top management in the Baltic leading construction companies foto • Education: • Tallinn Technical University - Thermal Engineering • Previous employment: • Eesti Energia, Director of Business Unit of Renewable Energy. Main responsibility was to establish and run • power plants using renewable energy sources – wind, hydro, biomass • Ministry of Economic Affairs, Department of Management of State Companies • Estonian Privatization Agency, Project Manager for IPO’s • Main accomplishments: • Renovation of Estonian biggest hydro power plant – Linnamäe HPP • Building of Estonian first wind park – Virtsu wind park • Several feasibility studies and project management about CHPs Martin Kruus (CEO of 4 Energia) foto Kalle Kiigske (CFO of 4 Energia) • Education: • Estonian Business School – Banking and Financial Management • Previous employment: • United Partners Group, Pan-Baltic investment bank, Partner, responsible for merchant banking and investments • AS Hansa Capital – leading asset-based finance company in the Baltics, Russia and Ukraine with total assets over EUR 1,7 billion, Hansa Capital is the industry’s largest company in Eastern Europe and among top 50 in Europe, Member of Board and Head of Factoring and Trade Finance Several positions in Factor Chain International (Amsterdam, the Netherlands) - Member of the Communication Committee, Member of the Internal Audit foto