Deal Flow in North America vs. International Factors to Consider October 7, 2008

1. Deal Flow in North America vs. International Factors to ConsiderOctober 7, 2008 Scott G. Mackin Partner Denham Capital Management LP

2. Denham Capital Management LP • A global private equity firm which invests across the energy and commodities sectors worldwide • Twenty-nine seasoned investment professionals based in Boston, Houston, Short Hills, NJ, London, and Sao Paulo • More than $4.25 billion in assets under management • Invested over $2.2 billion of capital in 40 portfolio companies worldwide Power Location of Denham investments to date Energy Infrastructure NaturalResources

3. Power and Renewables at a Glance • Overall themes: • Reserve margins are under strain; power infrastructure has been largely ignored in many countries • IEA predicts electricity demand will double worldwide by 2030, with 40% of that growthoccurring in Brazil, India, China, Indonesia and Russia; commodity price increases creating power needs in emerging countries • Over $11 trillion of investment needed to build new and replace old generation • Increasing carbon-related concerns are driving renewables growth worldwide • Only ~25% of the world’s hydro reservoirs have been tapped for power, so emerging countries with such resources will focus on them • In Brazil, where hydro accounts for roughly 80% of power, the power carbon footprint is one-fourth that of other countries on average • Wind is becoming prevalent in China and India • Developed economies are using a variety of incentives for wind, solar, and other renewables • Chinese manufacturing is increasingly being used for traditional power, wind and solar technologies/equipment • Small and mid cap companies with a need for more capital are under stress • U.S. • Despite diminishing reserve margins and $300 billion of needed investment in generation and transmission between now and 2016, inherent risks to building new traditional generation remain • Pricing signals still relatively short term and long-term PPAs hard to come by • Lack of clarity on carbon costs • NIMBYism • M&A of existing assets has been very active with an eye to valuation upside in regions with diminishing reserve margins • Renewables market is still largely tax credit driven but is growing • Large international strategics have bought in at hefty valuations • Energy efficiency has been largely untapped

4. Power and Renewables at a Glance (cont’d) • EU • Renewable focus has been cutting edge and capital intensive • Wind returns no longer attractive in many countries on shore. Select markets and off shore may still be attractive • Wind M&A valuations high; good exit market for solar? • Difficult market for new hydro • Coal being increasingly offset with wood pellets • Deregulation will cause some disruption and attractive M&A activities in select regions • Emerging markets • Access to fossil fuels is a pinch point • Coal will be significant throughout Asia/South Africa • Transportation of coal in India and gas in Brazil (hydro dominated) is difficult • Access to LNG evolving • Longer term attractive pricing signals are increasingly prevalent • Small hydro and biomass is attracting a lot of attention • Africa needs to show it can contract long-term. South Africa now has a crisis and will need large and small IPP’s • Energy efficiency awareness growing, helped by Kyoto • The significant growth in renewables and energy efficiency has provided multiple opportunities to locate value dislocation and capture higher returns

5. International Increasingly, Feed-In Tariffs and Standard Offer Programs Well-developed carbon markets Higher pricing environment Challenges unique to foreign investments U.S. Tax credits Renewable Portfolio Standards (RPS) Voluntary carbon markets Uncertainty around initiatives going forward Baseload renewables with grid parity are favored U.S. vs. International Renewables Constructs

6. International Initiatives to Drive Renewables Have Generally Worked Quite Well • A growing number of countries in Europe and throughout the world are adopting digressive tariffs as a tool to rapidly achieve specific levels of renewable energy generation • Germany added nearly 24,000 MW of renewable energy capacity (~14% of total power consumed) between 1998 and 2006, allowing it to meet its 2010 renewable energy target by late 2007 • Spain has also experienced an explosion of new renewable energy projects and currently sources 10% of the nation’s electricity demand from wind power • Spain’s solar PV market quadrupled in 2007 compared with 2006, allowing it to reach its 2010 goal of 400 MW of solar by the end of 2007/regulatory uncertainty on new tariff regime has just been resolved • Both Italy and Greece should expect tremendous growth in PV capacity additions as a result of feed-in tariffs recently enacted • 19 of 27 EU member states have adopted feed-in tariffs in addition to countries in Asia (China and Thailand), South America (Brazil), the Middle East (Algeria) and others • Canada (Ontario) has employed a standard offer program • SOP makes it easier for operators of small renewable energy generating facilities to participate in electricity supply systems by supplying power through their local electricity distributors and being paid a fair and stable price for the power they provide • Ontario has signed contracts in excess of 1,300 MW’s in just over one year, 9 years ahead of schedule • Early returns: • The goal of bringing solar costs to grid parity may or may not be in reach medium term, but panel costs by all accounts will come down dramatically in 2009, as the entire chain of manufacturing becomes more and more competitive • Wind has been closer to parity, but WTG availability and cost increase issues have been significant

7. Advanced International Carbon-Trading Markets Offer Additional Upside • In 2005, the Kyoto Protocol established a market-based approach to reducing greenhouse gas emissions • The treaty created an international emissions trading system and two project-based mechanisms, Joint Implementation and the Clean Development Mechanism, which together are designed to provide participating countries with additional means for meeting emissions targets • Under the Kyoto Protocol, the international market for trading in carbon emissions has experienced tremendous growth as experts estimate the size of the market exceeded $60 billion in 2007 alone • A vast majority of the market activity comes from the European Union’s Emission Trading Scheme (EU ETS) • An influx of capital into the market has steadily increased emission reduction prices • A strong carbon market offers multiple benefits for renewable project developers through means of: • Supplying additional revenue • Enhancing project economics (increasing IRR) • Improving risk profile through contracted sales of emission credits • Adding the possibility of less capital infusion through pre-selling

8. The U.S. Approach Has Been Less Effective • The U.S. approach to renewable power (excluding hydro) has relied primarily on a limited carrot and stick approach that thus far has resulted in only 4% of US installed power production capacity and 2% of electric energy supply being renewable • Federal Tax Credits: The Production Tax Credit (PTC) and Investment Tax Credit (ITC) program (just renewed) has been characterized by one to two-year eligibility windows, periods of policy lapses and uncertainty surrounding renewals as expiration dates approach • Tying renewable incentives to tax policy introduces daunting unrelated issues such as “pay as you go” tax policies • Uncertainty has made for a challenging investment climate and has contributed to the rising cost of renewables. Extension of solar credits through 2016 takes pressure off for solar • Tax credits are useful only to businesses that have a large tax liability to offset, which excludes the majority of developers of renewable energy projects • Using third party tax-oriented equity has generally been doable but increases transaction complexity and limits pure leverage • Limits the efficacy of all entrepreneurs to play and slants the playing field to large, well capitalized entities • Direct revenue-based initiatives would enable a broader base of entrepreneurs to compete, but it is unclear how this gets implemented given states’ jurisdiction over utility rates Source: American Wind Energy Association

9. State-Level Efforts • Twenty-eight states and the District of Columbia are implementing mandatory or voluntary RPS criteria • Several of these states are requiring 15-20% of electricity be supplied from renewables by 2020 • Tight compliance time frames and aggressive targets have ledto a dramatic increase in demand for the most scalable and broadly available renewable power resource – wind power • Despite Europe’s success in carbon trading, no U.S. federal law at present requires companies to curb their carbon dioxide emissions or participate in a trading program • Currently the US utilizes a voluntary system, a product of which is the Chicago Climate Exchange where ~40 companies voluntarily trade emission credits Numerous states across the US have joined together in an effort to rein in greenhouse gas emissions Certain states incentivize residential solar applications with subsidies, rebates and net metering schemes

10. International Opportunities Are Not Without Issues • Foreign Exchange Risk • Need to distinguish nominal from effective currency: For example, oil is effectively priced in USD worldwide • The cost of an FX hedge is influenced by the shape of the currency “forward curve” • The higher the interest rates of the target currency relative to the home currency, the more the forward rates for that currency will cheapen over time (and potentially the higher implicit discount rate attributable to your buyer on exit) • The forward curve is not necessarily predictive, but it needs to be acknowledged as eroding expected home currency returns • Sovereign Risk • Risks to sovereign credit of target country can be hedged with sovereign credit default swaps (CDS) • Transfer and convertibility of currency, and “creeping appropriation” (taxation, royalty rates, etc) often also insurable • FCPA • Tax Considerations for Formation, Operations and Exit • Tax structures should be created to match likely exit and use of operating cash flows • Foreign country withholding tax and corporate tax can be mitigated using debt and hybrid instruments • Local country tax on exit proceeds can be minimized by using HoldCos of treaty countries • If multiple project deal, obtain an understanding of foreign jurisdiction consolidation rules and ability to offset losses and income between projects