Green Star Alternative Energy Inc.

BEACON EQUITY RESEARCHAnalyst: Victor Sula, Ph.D.Initial Report September 17th, 2008

Green Star Alternative Energy Inc.7676 Hazard Center Drive, Suite 500San Diego, California 92108

Tel: 619-497-2555Fax: 619-542-0555

E-mail: [email protected] [email protected]: www.greenstarae.com

Company IntroductionGreen Star Alternative Energy Inc. (GSAE) is a U.S.-based commercial wind farm developer. The Company is currently evaluating wind farm energy proj-ects in Europe, the United States and China.

GSAE is expanding its presence in Europe, the world’s largest and most com-petitive wind market, by acquiring Serbian wind power company Notos d.o.o. and its sister company Sirius Regulus d.o.o., which owns the land used for the various Notos projects. On August 26, 2008, the Company signed a Letter of Intent to acquire both businesses and make them its wholly owned GSAE subsidiaries. With the Notos acquisition, GSAE will becomes one of only 15 companies licensed to buy and sell energy to the Republic of Serbia, and the only company able to generate and sell its own wind energy in that market.

Notos is developing projects located in the northern regions of Serbia which will create a wind turbine portfolio for GSAE exceeding 300 MW by 2013 and representing about 3.5% of Serbia’s total energy capacity. The projects will be

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OTC PK: GSAE$2.20$5.70

Speculative Buy56M (post acquisition)

$123M6,800

Analyst: Victor Sula, Ph.D.Initial Report September 17th, 2008

Green Star Alternative Energy, Inc. (OTC PK: GSAE) 2

overseen by EnergoProjekt, the state-owned-and-operated engineering body which governs the approval pro-cess for all of Serbia’s energy creation projects.

Robust demand for wind energy

The U.S. Department of Energy predicts 71% growth in world energy consumption between 2005 and 2030. High oil prices and concerns regarding greenhouse gas emissions have created strong interest in clean energy and in wind power, which is one of the least expensive and most easily deployed energy sources. According to the Global Wind Energy Council, cumulative capacity of wind energy installations will reach 149.5 GW by the end of this decade, more than double present installed capacity. According to Clean Edge research, the wind energy market will grow from $11.8 billion in 2005 to $51.1 billion by 20151.

Tax incentives encourage wind energy deployment

In the United States, federal authorities are encouraging new wind energy installations through a 2 cent per kWh Production Tax Credit (PTC) on electricity generated from renewable energy resources, including wind, biomass, geothermal and hydropower2. The PTC system was renewed in 2007, and again in April 2008 when the U.S. Senate overwhelmingly approved an amendment to the Clean Energy Stimulus Act, providing for a one-year extension of the Production Tax Credit. The credit can be claimed for 10 years.

This year, the EU issued a directive to boost overall consumption of renewable energy from the current 8.5% to 20% by 2020. Since 2000, 30% of all installed electricity generating capacity in the E.U. has come from wind power. Europe’s wind energy installations have more than quadrupled from 13 GW in 2000 to 57 GW at year-end 2007.

Wind energy opportunity in northern Serbia

GSAE has identified a tremendous market opportunity in developing and supplying wind power for electricity in the Republic of Serbia. The northern part of Serbia has a strong local southeast wind (“kosava”) to sustain wind power. The Serbian area very suitable for the development of wind farms is Vojvodina AP since almost two-thirds of the region has wind speeds that consistently exceed 4 m/s. The Pannonian Plain, north of the Danube River, covers approximately 2,000-square kilometres, and has all basic infrastructures, from roads to the electricity grid, needed to support wind generation. Wind speeds in excess of 5 m/s can be found in several locations in Serbia, including Bela Crkva, Indija, Irig, Sombor, Novi Sad, Vrsac and Zrenjanin.

Investment Highlights


2www.bbwindpartners.com/bbw-industry-overview/bbw-regulatory-overview.aspx

1 http://www.cleanedge.com/reports-trends2006.php

Analyst: Victor Sula, Ph.D.Initial ReportSeptember 17th, 2008

Green Star Alternative Energy, Inc. (OTC PK: GSAE)

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GSAE is acquiring wind energy projects in Serbia

GSAE has signed a Letter of Intent to acquire Serbian companies Notos d.o.o and Sirius Regulus d.o.o. Notos is developing two large wind energy projects in northern Serbia which together represent 300 MW of wind energy capacity by 2013. Following this acquisition, GSAE becomes one of only 15 companies licensed to buy and sell

energy to the Republic of Serbia and the only company able to generate and sell its own wind energy in that market.

300 MW of new wind power to be brought on-line by 2013

Notos is assessing potential wind farm sites across Serbia and plans to develop wind farms on sites covering 2,300 hectares. These sites already have the necessary infrastructure for wind farms such as available land, civil work, electrical work, transmission lines, approach roads, etc. Notos is currently working to bring a 20 MW wind farm on-line in Serbia’s Belo Blato region in the municipality of Zrenjanin, Vojvodina. Notos plans to develop its second wind farm in the Sombor region of northern Serbia, which will have a capacity of over 280 MW by 2013.

Multiply revenue streams

With the acquisition of Notos completed, the Company will start generating meaningful revenues from:

Power trading: Notos is one of only a handful of electricity marketing and trading companies licensed to • conduct business in Serbia;

Sale of electricity from wind power: GSAE is committed to developing wind farms with a total capacity of • more than 300 megawatts;

Sale of green house gas emissions credits: A 20 MW wind farm can reduce CO2 emissions by 74,400 tons per • year. The average price per ton for reduced CO2 is around EUR 24; and

Sale of farm produce: the Company plans to develop a wheat farm on its 2,300 hectare wind farm sites.•

Assuming wind farm development proceeds according to schedule, GSAE anticipates having wind energy pro-duction capacity of 300MW by 2013, which will produce annual revenues of approximately EUR 200 million and net income of EUR 156 million.




The Company’s business model focuses on wind power generation and distribution of electricity in select world markets. GSAE is currently evaluating potential wind energy project development opportunities in Europe, the United States and China.

On August 26, 2008, the Company announced its intent to acquire Serbian companies Notos d.o.o and Sirius Regulus d.o.o. Subject to completion of due diligence and negotiations, GSAE will acquire all of the outstanding capital stock of Notos and Sirius Regulus.

Notos operates through three divisions:

Notos Wind Energy, which specializes in generating electricity from wind energy;•

Notos Power Trading, which focuses on energy trading opportunities in Serbia; and •

Notos Agri, which will market agricultural products sourced from cultivated land on the Company’s wind farms.•

Notos Wind Energy is assessing potential wind farm sites across Serbia and will be developing wind farms on sites covering 2,300 hectares. These sites already have transmis-sion lines, approach roads, and other infrastructure to sup-port wind farming. Notos’ first project is a 20-MW wind farm in Serbia’s Belo Blato area. The company also plans to develop a second wind farm in the Sombor region of northern Serbia, which is expected to reach a generation capacity of over 280 MW by 2013.

Notos Power Trading has been awarded licenses for elec-tricity trading in the Republic of Serbia, and is one of only a handful of companies able to trade electricity in that mar-ket. Moreover, when its wind farm projects are completed, it will be the only entity owning its own wind-generated electricity (through Notos Wind Energy) available for trade. The Company is also negotiating with several large energy-trading firms in Europe to expand its network of potential customers.

Following the acquisition of Notos and Sirius Regulus, GSAE expects to begin generating meaningful revenues from electricity sales, power trading and the sale of farm crops. Revenues will also be derived from the sale of green-house gas emissions credits (GHG).


Business Model



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Growth strategy

The Company is developing cost-effective wind energy solutions and is building its business through technol-ogy innovation, acquisitions, strategic partnerships and identifying underserved markets.

GSAE intends to grow from a single market energy provider and marketer to a corporation spanning at least three continents – Europe, North America and Asia. New markets will also present new challenges, requiring the Company to adapt its technology to match differing electrical systems, grid requirements and temperature suitability. To meet these challenges, GSAE plans to maximize product reliability through increasing automated operations, systemically identifying areas needing improvement and diversifying geographically, thus limiting exposure to risks associated with local weather conditions and regulations.

The Company’s goal is to capture a major share of the regional market for wind power energy generation and distribution. To accomplish this goal, it plans to:

Locate superior wind resources able to support a commercial wind energy facility;•

Pursue permitting and zoning licenses that allow wind farm development;•

Design the layout of the turbines based on known technical constraints; •

Review potential sources for construction materials; •

Design the site track layout and access junctions;•

Raise sufficient capital to develop its wind farms and market wind-generated electricity;•

Establish alliances with top engineering, procurement and construction firms around the world;•

Enter markets that are underserved by the competition;•

Build a strong customer base; and•

Leverage relationships with international companies to expand its services globally.•


Business Model



The Company’s Notos subsidiary is developing wind energy projects in north-ern Serbia which are expected to provide approximately 300 MW of wind tur-bine capacity by 2013.

The northern part of Serbia is characterized by a strong local southeast wind suitable for wind farms. The Vojvodina AP region of Serbia has wind speeds consistently exceeding 4 m/s over almost two-thirds of its area. The Pannonian Plain, north of the Danube River, covers approximately 2,000 square kilome-ters and has the necessary infrastructure, from roads to an electricity grid, to support wind farms. Constant wind speeds in excess of 5 m/s (the prerequisite level for wind-powered electricity) can be found in the Bela Crkva, Indija, Irig, Sombor, Novi Sad, Vrsac and Zrenjanin regions of Serbia.

The Company’s wind energy projects will:

Enable the sale of carbon credits;•

Leverage existing infrastructure and power markets;•

Supply the growing energy markets of Serbia and surrounding European countries;•

Establish the Company as a leader in renewable energy generation in the region;•

Help reduce greenhouse gas emissions;•

Create local employment;•

Contribute to local community development;•

Maximize use of wind farm land to grow wheat for the local community; and•

Demonstrate the potential for renewable energy development.•

Belo Blato project

Notos Wind Energy plans to develop its Belo Blato project in the area north of Belgrade in the river delta of cen-tral Banat in the municipality of Zrenjanin. This location is nestled between the banks of the Tisa River and the Begej delta, where the surrounding fields experience constant winds.


Wind Farm Projects



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The Company has secured 89 hectares of land permitted for wind power generation and agriculture. The Belo Blato project will produce 20 MW of clean wind power, supplying 6,000 homes with electricity. To date, all neces-sary permit applications have been made, including applications for a license to produce electricity, applications to the Municipality of Zrenjanin for a development license for Belo Blato, and a Letter of Intent from EPS (Elec-tricPower Industry of Serbia – a national electrical utility) for cooperation on the project.

Notos Wind is evaluating Vestas V52-850 kW wind turbines for the site. The highly efficient operation and flex-ible configuration of the V52 make this turbine suitable for a variety of wind conditions. In addition, the V52 is

cost-effective to transport and install. Vestas has erected more V52s than any other turbine in its portfolio – more than 2,100 turbines have been installed worldwide.

The Vestas V52-850 kW turbine is a pitch-regulated turbine with a 52-meter diameter, three-bladed rotor. The speed of the rotor can vary from 14.0-31.4 rpm, allowing optimal energy capture at both high and modest wind speeds. It is available in five different tower heights, ranging from 44m to 74m, and equipped with OptiSpeed, which maximizes the aerodynamic efficiency of the rotor in response to changing wind conditions. Even at times with low wind, this turbine can still achieve optimal output, as Vestas OptiSpeed allows the speed of revolution to vary by as much as 60%

Sombor region project

The second, much larger wind energy project, located in the Sombor region within Serbia’s Vojvodina AP, is in the final stages of negotiations. This development will yield a capac-ity of 280 MW. The wind farm will be developed on a 2,200-hectare property, which will also provide the opportunity for cultivation and sale of farm produce.


Wind Farm Projects




The Republic of Serbia is located in the central part of the Balkan Peninsula on the main route linking Europe and Asia, occupying an area of 88,361 sq. km. Serbia is bordered by Hungary to the north; Romania and Bulgaria to the east; the Republic of Macedonia and Albania to the south; and Croatia, Bosnia and Herzegovina and Mon-tenegro to the west. With a 2008 GDP estimated at $81.892 billion ($10,985 per capita), the Republic of Serbia is considered an upper-middle income economy by the World Bank. Serbia has been occasionally called a “Balkan tiger” because of its strong economic growth, which has averaged 6.6 % annually over the past three years.

Serbia’s total installed power generating capacity is estimated at 8,400 MW3. In 2007, almost 39,000 GWh of elec-tricity was produced, an all-time high for production of electric power in Serbia.

At present, there is only one producer and distributor of electrical power in the Republic of Serbia – EPS (Elek-troprivreda Srbije). This state-owned entity is responsible for meeting all of Serbia’s electricity requirements.

According to a recent report issued by EPS, Serbia needs new power plants to increase its energy system capacity by at least 1,400 MW. Due to a lack of funds for independent construction financing of new energy capacity, EPS has expressed interest in providing necessary funds through direct foreign investments.

Source: http://ec.europa.eu/energy/electricity/south_east/doc/7/market_serbia.pdf

Model of Serbian market design, EPS and EMS structure

Serbian Electricity Market

3www.eps.co.yu/publikacije/godisnji_izvestaji/ARenglish07.pdf



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Serbian wind energy potential

Renewable energy makes up only 5.6% (9,928 GWh) of Serbia’s energy supply and is produced mainly by hydro power plants. The potential for renewable energy resources including wind energy is very significant and ex-ceeds 3.8 Mtoe4 . Experts estimate technologically justified wind potential of around 0.2 million tons of oil equiv-alent in Serbia, which could replace 10% of electric energy consumption. Based on current technology levels, wind generators could supply about 1,300 MW of installed power, which is approximately 15% of the total energy capacity of Serbia.

Serbian wind generators could potentially produce about 2.3 TWh of electric energy annually. Areas of major wind power potential in Serbia, identified by the EPS survey, include Jastrebac, Stara Planina, Kopaonik, Juhor, Suva Planina, Tupižnica, Krepoljina, Ozren and Vlasina, as well as the city of Vršac. Especially attractive for for-eign investors is Vojvodina. Almost two-thirds of this region experiences wind speeds consistently exceeding 4 m/s, and constant levels of 5 m/s can be found in Vršac (leading with 6.27 m/s), Bela Crkva, Inđija, Irig, kikinda, Sombor, Novi Sad and Sremska Mitrovica.

Wind energy is the fastest-growing segment of the $650 billion annual world electricity market5. The global wind energy market has been growing at the amazing rate of nearly 30% per year for the last 10 years, and experts see no end in sight. According to the World Wind Energy Association (WWEA), 19,696 MW of new wind energy ca-pacity was added in 2007, representing about $37 billion in investment. This increased global installed capacity to 93,849 MW, which represents an increase of 31% compared with 20066. The American market, fuelled by the Production Tax Credit (PTC), and China, which doubled capacity, led in total installed capacity. Europe leads the pack in terms of new installations and represents 41.9% of the world wind power market7.

Currently installed wind power capacity generates 200 TWh per year, equalling 1.3% of global electricity con-sumption. In some countries and regions, wind energy already contributes 40% or more. The Global Wind Energy Council (GWEC) forecasts that the global wind market will grow 155% to 240 GW by 2012, equalling an investment of more than $277 billion. Electricity produced by wind energy will exceed 500 TWh in 2012 and account for close to 3% of global electricity consumption8.


Industry Outlook

Source: http://ec.europa.eu/energy/electricity/south_east/doc/7/market_serbia.pdf

Serbian Electricity Market

4www.westbalkan.um.dk/NR/rdonlyres/608A27DA-EA77-4D0C-81A8-42A3EB67081A/0/SerbiaWindenergypotential.pdf5www.massmegawatts.com/strategy.htm6www.wwindea.org/home/images/stories/pr_statistics2007_210208_red.pdf7www.suzlon.com/Content/Publication/AnnualReports_PDFs/Annual_Report_07-08.pdf8www.gwec.net/index.php?id=30&no_cache=1&tx_ttnews[tt_news]=143&tx_ttnews[backPid]=4&cHash=773fe52939




Source: www.gwec.net/index.php?id=30&no_cache=1&tx_ttnews[tt_news]=143&tx_ttnews[backPid]=4&cHash=773fe52939

Cumulative capacity 1995-2012, GW

Annual Wind Power Development

Source: BTM Consult ApS - March 2008



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Five nations (Germany, the United States, Denmark, India and Spain) account for 73% of the world’s installed wind energy capacity9. Asia and China in particular will be central to the future of the global wind energy mar-ket because of this region’s insatiable demand for energy and existing industrial infrastructure. China is becom-ing a major powerhouse for turbine production.

U.S. wind power market

In 2006, President Bush emphasized a national imperative for greater energy efficiency and a more diversified energy portfolio. This led to a collaborative effort to explore a modeled energy scenario in which wind would provide 20% of U.S. electricity by 2030. To meet that 20% target, U.S. wind power capacity would need to ex-pand more than 300 GW. This growth represents an increase of more than 290 GW within 23 years10.

The U.S. wind power industry shattered all previous records in 2007 with 45% growth and more than 5,200 MW installed. New capacity will generate 16 billion kWh of clean, cost-effective electricity in 2008, equivalent to powering more than 1.5 million American homes11. American cumulative installations in 2007 were 26,921 MW.

European Union wind power market

Europe is still the largest wind power market while North America and Asia are rapidly gaining shares. In terms of new, additional capacity, Europe installed 43,6% of new global capacity last year, followed by North America (28,5%) and Asia (26,6%)12. Since 2000, European installed wind capacity has increased almost six-fold from 9.7 GW to 52 GW. European cumulative installations were 51,339 MW at year-end 2007, up from 48,069 MW at year-end 2006.


9www.moneycontrol.com/news_html_files/pdffiles/mar2007/indowinden.pdf10www.20percentwind.org/20percent_prepublicationversion_Ch1.pdf11http://awea.org/pubs/documents/Outlook_2008.pdf12www.wwindea.org/home/images/stories/pr_statistics2007_210208_red.pdf

Pacific1 .3%

1 .2 GW

N.America1 9.9%

1 8.7 GW

Asia1 7 .1 %

1 6.1 GW

Africa & M.East

0.5%0.5 GW

L.America & Caribbean

0.5%0.5 GW

57 .1 GW 60.7 % Europe

Cumulative capacity by region, year-end 2007

Source: www.gwec.net/index.php?id=30&no_cache=1&tx_ttnews[tt_news]=143&tx_ttnews[backPid]=4&cHas




Chinese wind power market

China has set a goal of generating 20,000 MW from renewable energy sources by 201213. China has expanded its wind energy installations 93% per year since 2004. It has emerged as the most promising wind energy market with 146.4% growth in installations in 2007. The country now ranks as the fifth-largest installer of wind energy capacity, with 5.9 GW at year-end 2007. China has made remarkable progress in building up its own wind indus-try. More than 40 companies in China are now involved in turbine manufacture. By 2010, this country is expected to represent the largest wind energy producer globally.

Legislative framework for wind energy

United States

The Production Tax Credit or PTC system is unique to the United States and can be viewed as a variant of the fixed price system. PTC provides an incentive of 2 cents per kilowatt hour to encourage the production of elec-tricity from renewable energy resources, including wind, biomass, geothermal and hydropower14. The credit can be claimed for 10 years, beginning on the date the qualified facility is placed in service. To qualify, the facility must begin operating before the credit expires.

European Union

Up until now, an important factor behind the growth of the European wind market has been strong policy sup-port both at the EU and national level. In January 2007, the European Commission released its “Strategic Energy Review” (also called “Energy Package”), which is a comprehensive set of 19 documents intended to shape EU energy policy in the medium- and long-term. The package proposes an overall target of 20% of EU energy con-sumption coming from renewable energy sources by 2020.

People’s Republic of China

The Chinese government published its Renewable Energy Law in February 2005. This law was complemented by two regulations defining the pricing and cost sharing of renewable energy power, and promoting renewable power grid connection. In September 2007, the National Plan for Renewable Energy Development was issued. This plan officially confirms a renewable energy target of 10% of total energy consumption by 2010, and 15% by 2020. Moreover, it calls for five GW of grid-connected wind capacity installed by 2010 and 30 100-MW wind farms to be established.

Kyoto Protocol

13 http://en.wikipedia.org/wiki/Wind_power#cite_note-814 www.bbwindpartners.com/bbw-industry-overview/bbw-regulatory-overview.aspx



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The Kyoto Protocol was signed in December 1997 and became effective in February 2005. The Kyoto Protocol aims to reduce greenhouse gas emission 5.2%15 by 2012 to below 1990 levels and is a voluntary treaty signed by some 172 countries, including the European Union, Japan and Canada.

The United States signed the Kyoto Protocol but has neither ratified nor withdrawn from the agreement. The signature alone is symbolic, but the Kyoto Protocol is non-binding on the United States unless ratified.

The penalty for non-compliance in the first phase, which ends in 2008, is €40 per ton of carbon dioxide equiva-lent. In the second phase, from 2008 to 2012, the penalty climbs to €100 per ton of CO2.

The Kyoto Protocol sets limits on carbon emissions by the world’s developed economies based on a prescribed number of “emission units.” The Protocol allows countries that have “spare” emissions units (i.e. emissions permitted but not “used”) to sell their excess capacity to countries that exceed their limits. Countries not able to meet Protocol standards will be able to “buy” compliance, but the price may be steep. The higher the cost, the more pressure these countries will feel to use energy more efficiently and promote the development of low emissions alternative energy sources.

Emission Trading

Emission trading introduces flexibility into a system where participants must meet emissions targets. These participants may be countries (as in the case of the Kyoto Protocol), or companies (as in the case of a domestic emissions trading schemes). Participants can buy units if their emissions exceed limits or sell units if their emis-sions are below limits. This trading market, which assigns an economic value to reducing emissions, encourages investment in more cost-effective technologies. Emissions trading is expected to help reduce overall global com-pliance costs. All international transfers fall under the umbrella spelled out by the emissions trading policy in the Kyoto Protocol. Various emissions reduction trading schemes exist inside and outside the scope of the Kyoto Protocol. These trading schemes are part of the commitment by countries, regions and individual companies to reduce CO2 emissions.

Emissions trading schemes have been formalized in the following markets:

1. United Kingdom Emission Trading Scheme (UK ETS);

2. European Union Emission Trading Scheme (EU ETS) ;

3. New South Wales Abatement Scheme (Australia);

4. California Climate Change Register;

Kyoto Protocol

15http://economictimes.indiatimes.com/articleshow/1937685.cms




5. Chicago Climate Exchange (CCX); and

6. European Climate Exchange (ECX);

Widely accepted global currencies in carbon trading are CERs, CCX/ECX CFI; ERUs and EUAs.

CERs

Holders of CERs are entitled to:

Make money by trading CERs. The new market for trading greenhouse gases is growing rapidly, and various • analysts expect the market to be worth between $10 billion and $1 trillion by 2010.

Participate in the fight against global warming. Every CER generated is evidence of reduced world net green-• house gas emissions.

According to many carbon finance participants, the outlook for CERs prices continues to be bullish, but there remain some significant questions regarding supply and demand. Many analysts are predicting an insufficient supply of CERs compared to demand.

Analysts predict European demand alone at around 275 million CERs annually between 2008 and 2012. If de-mand from non-European countries is also considered, global demand could exceed 1.5 billion CERs through 2012. EcoSecurities analyst Jack Macdonald told Reuters that CERs demand could easily exceed three billion tons, or double the expected supply of 1.5 million tons.

In early September 2008, CERs prices on the European secondary market ranged around €24, as quoted by Point Carbon EUA OTC.

GSAE plans to develop multiple revenue streams. Following the acquisition of Notos, the Company will be po-sitioned to derive revenues from:

Power trading;•

Sale of electricity from wind power;•

Sale of green house gas emissions credits; and •

Sale of farm produce.•

GSAE Revenue Outlook and Valuation



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Power trading division

GSAE’s Notos subsidiary will be one of only a handful of electricity marketing and trading companies licensed to do business in Serbia. That country’s electricity market allows for both the import and export of power. Serbia’s power trading market is estimated at 10 TW in size, with 70% for importing and 30% available for exporting.

The Company is currently negotiating with several large energy trading firms in Europe to expand its network of potential customers. A European partnership would facilitate more rapid expansion by creating a larger plat-form for Notos Wind and its generated electricity. GSAE expects to become the only company in Serbia produc-ing its own wind energy available for export.

Wind power division

Notos Wind plans to produce electricity from wind farms. It is preparing to construct its first wind farm, which will be the 20 MW Belo Blato project. For this project, the Company has secured 89 hectares of land permitted for wind power and agriculture in the municipality of Zrenjanin, Vojvodina. Permits are being processed and the Company expects construction to begin in early 2009.

Over the next five years, GSAE plans to develop wind farms with a total capacity of more than 300 megawatts.

Notos Agri division

Notos Agri will optimize the value of the Company’s wind farm land by producing and selling farm crops. The division plans to develop a wheat farm on its 89 hectare Belo Blato site. The second project, located in Serbia’s Sombor region within Vojvodina AP, is in the final stages of negotiations and will consist of a 2,200-hectare wind farm, which will also provide an even larger opportunity for cultivation and sales of farm produce.

Green house gas emissions credits

As a result of wind farm development, GSAE will be able to sell green house gas emission credits to other indus-trial companies. A 20 MW wind farm can reduce CO2 emissions by 74,400 tons per year. Assuming an average credit price per ton of EUR 24, GSAE could report annual credit revenues in a $1.8 million range. Going forward, expansion projects could significantly enhance emissions credit revenues.

Assuming wind energy production capacity of 300 MW, GSAE anticipates generating annual revenues of ap-proximately EUR 200 million and net income of EUR 156 million by 2013.

GSAE Revenue Outlook and Valuation



The estimated cost of constructing a 1 MW wind energy facility is EUR 1.0 million. This includes all grid connec-tions and substation requirements. Notos estimates the necessary land acquisition for larger developments will be completed by year-end 2008 and cost approximately EUR 4.0 million, to be paid in equal installments over 72 months.

We estimate GSAE’s post-acquisition share count will increase to 56 million and assume an increase in shares outstanding to 150 million by year-end 2013 as the Company use equity sales to finance wind farms development. We estimate GSAE will need to raise roughly EUR 300 million through a combina-tion of equity and debt sales.

Peer comparison

Given its multiple revenue streams, we think GSAE should trade at valuation multiples comparable to other wind energy and also electric utilities stocks. Over the long-term, we believe wind energy invest-ment momentum will modify and that wind ener-gy stocks will trade at P/E multiples comparable to utility companies.


Revenue and income forecasts, EUR

Source: Analyst estimates



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Given the Company’s early development stage, unfinished projects and need for additional financing, we value GSAE at a discount to the utility peer group and at a 12 times forward P/E multiple. Multiplying our 2009 EPS estimate of $0.48 (EUR 0.37) by a 12 times forward P/E multiple, we derive a $5.70 target price for GSAE shares.

Improvements in wind generation technology are reducing deployment costs and making wind energy com-petitive with other power sources. In addition, environmental concerns and governmental support are enhanc-ing wind energy growth rates worldwide. We believe GSAE is well-positioned to capitalize on wind energy sales opportunities, initially in Serbia and eventually worldwide; we are initiating coverage of GSAE shares with a rating of Speculative Buy.


Comparative analysis

Source: Yahoo Finance



ManagementInvestment Risks

Development-stage status

While GSAE has two wind energy projects in development and has made impressive progress in securing land and permitting, there is no assurance that these projects will be completed in the scheduled five-year time frame, if at all. The Company expects construction of its first project to begin in early 2009 with the first turbine operat-ing in the second quarter of 2009.

Additional capital required to execute development plans

The Company is targeting wind farms with a total capacity of 300 MW by 2013. The estimated cost of construct-ing these facilities is EUR 300 million. There is no guarantee that GSAE will be able to raise the needed capital for developing these projects.

Threat from alternative energy sources

Alternative energy resources such as hydro or solar power may become more economically viable and limit the deployment of wind energy as a power source. In addition, if oil prices decline significantly, wind energy’s com-petitive advantages over fossil fuel are reduced.




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Management

Mr. Gilcud has nearly 20 years of experience leading high-growth companies. He served as president and a director of Fresh Creek Holdings Ltd. from 1990 to 2000, and as president and CEO of Baha-mas Transport Ltd. from 2000 to 2007. He earned bachelor’s and mas-ter’s degrees in economics and political science from the University of Minnesota-Minneapolis.

Mr. De Castro brings a wide variety of financial experience to Green Star Alternative Energy. Concurrently Mr. De Castro serves as an asset and liability analyst for North Shore Credit Union. From 2002 to 2006, Mr. De Castro was vice-president in charge of energy sector analysis for Altus Capital Corp. From 2004 to 2007, he was a consultant to SBS Ltd. on alternative energy. Mr. De Castro holds a bachelor’s degree in actuarial science from Simon Fraser University.

Mr. Andrić has been involved in the alternative energy sector for the last seven years. His prior position as a director of Scientific Biofuel Solutions Ltd. gives him insight into alternative energy solutions. He previously served as a business consultant to Maraccot Industries, Bangkok, Thailand; director of sales and marketing for Active Energy, Vancouver, Canada and a consultant to Tidewater Management, Van-couver, Canada. Mr. Andrić is a graduate of the University of Sport in Beograd, Serbia.

Mrs. Rajičić has solid experience in both material and human resourc-es. Her background includes stints as sales manager for Agroil S.A, Athens; director for RRK Electronics Ltd, Athens; financial director for Seal Commercial S.A., Athens; and director for Sirius Regulus, Bel-grade. She has a track record of increasing corporate profitability.

Mr. Braun works as a consultant to financial funds investing in East-ern Europe. He is a graduate of the Goethe University in Frankfurt, Germany. His career began as an analyst for Deutsche Bank in the closed funds sector. He then moved to ARC Financial Consulting in New York, where he spent several years in analysis and industrial finance. He continues to serve ARC as an independent advisor for Eastern European investments.

Peter GilcudChiefExecutiveOfficer

Jesse Medeiros De CastroChiefFinancialOfficer


Miodrag AndrićPresident&FounderofNotos

Lara RajičićVicePresident&Co-founderofNotos

Robert BraunFinancialAdvisorofNotos



Mr. Zebić has a background in banking, stock exchange law and corporate law within Serbia and Montenegro. He currently serves as chief legal advisor to European Construction, Serbia; chief legal advi-sor to MPC Holding, Serbia; chief legal advisor for Merrill Lynch in Serbia, and director of JugoPetrol’s Foreign Trade Division. His edu-cation from the Faculty of Law, Belgrade, includes Course 9 - Euro-pean Union Laws, Banking and Stock Market Laws, and International Business Law.

Miloš ZebićLegal Advisor of Notos




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Disclaimer

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Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Ex-change Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

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To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (includ-ing, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

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I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consul-tant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

Green Star Alternative Energy Inc.

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