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Private Equity & the role of the IPP

Private Equity & the role of the IPP. Mike O’Neill CEO, Element Power. Element Power. Global renewable energy “development IPP” Backed by Hudson Clean Energy PE fund Established late 2008 Acquired Helium Energy – Sept 2008 Extensive portfolio of wind and solar PV assets. Element Power….

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Private Equity & the role of the IPP

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  1. Private Equity & the role of the IPP • Mike O’Neill • CEO, Element Power

  2. Element Power • Global renewable energy “development IPP” • Backed by Hudson Clean Energy PE fund • Established late 2008 • Acquired Helium Energy – Sept 2008 • Extensive portfolio of wind and solar PV assets

  3. Element Power… …establishing its footprint

  4. Management Team …establishing its footprint Chairman Pedro Barriuso CEO Mike O’Neill CEO North America Ty Daul COO North America Raimund Grube Founder – Helium Energy Headed Renewable Energy and Engineering Units – Iberdrola Commercial Director – RES 15 years in the sector Head of development in the US – PPM Energy Lead role in unregulated power business – Entergy Managing Director, Midwest & Western US – PPM Energy Gas Project Developer – Enron

  5. Hudson Clean Energy Partners Solar Wind Biofuels Other • Tremendous sector knowledge: 150+ years combined clean energy experience • Extensive experience making and profitably monetizing investments • Over $1.5 billion invested in leading clean energy franchises and assets at Goldman Sachs • Generated a 82% gross IRR, 2.2x multiple, 2.2 year average holding period

  6. Role of Private Equity in Renewable Energy Investing First Project Company Technology Business Company Pilot Plant Demo Plant Commercial Portfolio Stage Development Strategy Expansion Plant Finance Venture Capital Private Equity Buyout Investment Infrastructure Style Equity PIPES Angel / A D Round / EXIT - IPO B Round / C Round Round Sector Knowledge Technology Expertise Company Building Project Market Investment Sector Knowledge Financial Engineering Finance Knowledge Attributes Management Building Market Knowledge Capital $ 100 + $ 100 + $ 5 million to $ 20 million $ 20 million to $ 100 million Deployed million million Private Equity • Private equity plays a crucial role in investment life cycle of renewable energy • Provides essential scale-up capital to grow companies beyond venture stage

  7. Energy Incumbents Expand Clean Energy/ Carbon Portfolios Private Equity and the M&A are Vital to the Scale-Up of the Clean Energy Sector Stand Alone Clean Energy/ Carbon Free Co’s VC PE/ Hedge Fund Infra-Structure Funds Strategic Sale • To achieve the appropriate scale, clean energy companies will require the investment discipline and capital typically found in the private equity and hedge fund sectors • Venture-backed companies rarely access public market capital without private equity or hedge fund capital • Since 2005, only a few notable exceptions: Comverge, EnerNOC, Oxford Catalysts and Hoku Scientific Equity Infusion IPO Hatch Companies Secondary Sale Scale-Up of Companies

  8. Massive Investment Needed to Roll Back C02 Emissions • The “ACT” scenario (investment in existing technologies) predicts additional investment needs at $17 Trillion between now and 2050 – an average of $400 Billion per year • The “BLUE” Scenario (investment in future technologies including those not yet market-competitive) predicts additional investment needs of $45 Trillion between now and 2050 – an average of $1.1 Trillion per year • Cumulative Clean Energy investment to date (2008): $535.7 Billion • The International Energy Agency projects substantial additional investments in Clean Energy to 2050, necessary to bring global CO2 emissions back to current levels. Cumulative Clean Energy investments: Source: Cumulative Clean Energy investment to date: New Energy Finance. Projected additional investment: ‘Energy Technology Perspectives 2008’, International Energy Agency.

  9. New U.S Stimulus Offers Sizeable Demand Boost • Congress has adopted a stimulus goal to double renewable energy generation by 2011 and is expected to adopt a 10% renewables penetration goal by 2012 • $134 billion of new capital investment and renewable energy infrastructure required by 2011; $217 billion required by 2012(1) • Pace of investment in renewable energy and energy efficiency expected to increase dramatically over prior three-year period(2) • Hudson Estimates • (2) 2006 - 2008 cumulative installed capacity; Alternative Energy e-Track; 2009- 2012: Hudson estimates

  10. Major Public Market Participants • The largest renewable energy companies still have substantial room to grow before challenging the incumbent energy players • Current clean energy public market caps a mere fraction of traditional energy firms • Potential issues: inability to deploy capital in scale, lack of liquidity and volatility Source: Bloomberg (6 March 2009)

  11. Main Wind Energy Share Prices, 2008 - Present

  12. Headwind Facing Clean Energy Sector Equity Investments into Clean Energy Companies by Quarter (1) Pronounced drop in investment H2 2008 • In light of the current market turmoil, public market capital declined precipitously in Q4 2008 • However, private equity and hedge funds continue to invest at a steady pace Source: New Energy Finance (1) Includes Iberdrola Renovables initial public offering

  13. Optimal Environment for Private Capital X Optimal Environments for Investment Banks and Corporations • Institutional balance sheets dominate investments • High quality opportunities are the scare resource • Leverage and liquidity drive returns LOW Availability of Capital HIGH Optimal Environments for Private Capital We are here • Private capital pools dominate investments • Investment capital is the scare resource • High quality opportunities drive returns

  14. Rising Scale of Private Equity Estimates based on assumption that private equity maintains its share of 2008 dollars invested in renewable energy Source: New Energy Finance; Hudson estimates

  15. Wind Energy Ownership • Dominated by utilities but some key IPP owners

  16. The Role of the IPP • Fills the gaps between utility ownership • Critical to “kick-start” renewable energy investments in new markets • Pre-consolidation “warehousing” for small, distributed operating RE assets • Typically privately funded utilising structured finance based on monetisation of renewable incentives • Increase in the presence of infrastructure funds • - low risk, low yield, long term cash flow

  17. Challenges to the IPP Model • Competition from utilities • Global liquidity crisis in banking sector • Leverage and tenure of project finance drastically reduced • Private equity funding more selective • “Denominator effect” • The “M” word can no longer be mentioned • - limited ability to take benefit of upside in electricity prices • Current market benefits serious and well funded players

  18. Thank you! • Mike O’Neill • CEO, Element Power • mike.oneill@elpower.com • www.elpower.com

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