Renewable Energy Country Attractiveness Indices · The Country Attractiveness Indices take a...

Ernst & Young Renewable Energy Group

Overview of Indices and GlossaryPage 1

The Sub-Prime Credit Crunch and RenewablesPage 2

Global HighlightsPage 4

All Renewables Index at Q3 2007Page 5

Long-term Wind Index at Q3 2007Page 6

Near-term Wind Index at Q3 2007Page 7

Commentary – High-scoring CountriesPage 8

Marine and Offshore IssuesPage 11

Q3 2007 WebcastPage 12

Euromoney and Ernst & Young Renewable Energy Awards 2007Page 12

Commentary – Guidance NotesPage 13 & 14

United States Renewable Energy Attractiveness IndicesPage 14The Ernst & Young Country Attractiveness Indices provide scores

for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. The indices are updated on a regular basis.

Financing a sustainable future

Q3 2007

rE n E wa b l E En E r g Y gr o u p

Renewable Energy Country Attractiveness Indices

rE n E wa b l E En E r g Y Co u n t rY at t r a C t i v E n E s s in d i C E s1

M&A Mergers & Acquisitions

MW Mega Watt (1,000kW)

MWh Mega Watt hour (1,000,000Wh)

PE Private Equity

PPA Power Purchase Agreement

PTC Production Tax Credit (US)

PV Photovoltaic

ROC Renewables Obligation Certificate (UK)

RPS Renewables Portfolio Standard (US)

SEZ Special Economic Zone

Comments and Suggestions

Overview of IndicesErnst & Young Renewable Energy GroupWith a dedicated 50-strong team of international advisors operating from our UK member firm, supported by a network of over 65 experienced professionals from our member firms worldwide, Ernst & Young’s Renewable Energy Group helps clients to increase value from renewable energy activity. Members of the Group provide advice and services in the following areas:

Financial advisory and valuationFinancial modeling and structuringTaxationFinance raisingAsset value optimizationMarket entry strategyProcurement strategyPPA tenderingFeedstock strategyTransaction supportPE adviceIPO adviceJI/CDM financingStrategic partneringStrategy review

TechnologiesOnshore and offshore windBiomassBiofuelsEnergy from wasteWave and tidalSolarFuel cellsCHPLandfill gasHydro

ContactFor further information on our services, and for future copies of the Indices, please contact Jonathan Johns, Andrew Perkins, or Ben Warren:

Tel: +44 [0]1392 284 300 E-mail: [email protected] Web: www.ey.com/renewables

GlossaryAET Average Energy Tariff (Spain)

BWEA British Wind Energy Association

CHP Combined Heat and Power

CDM Clean Development Mechanism

EEG Erneuerbare Energien Gesetz

GC Green Certificate

GW Giga Watt (1,000MW)

IPO Initial Public Offer

JI Joint Implementation

Long-term Indices Refers to both All Renewable Index and Long-term Wind Index

We would welcome your comments or suggestions on any aspect of the Indices. Tailor-made attractiveness surveys and market reports can be provided taking account of specific corporate objectives.

Please contact the Renewable Energy Group for further details.

The Ernst & Young Country Attractiveness Indices provide scores for national renewable energy markets, renewable energy infrastructures, and their suitability for individual technologies. The Indices provide scores out of 100 and are updated on a regular basis.

The main Indices (All Renewables and Long-term Wind) are referred to as the ‘Long-term Indices’. The Near-term Wind Index takes a two-year view with slightly different parameters and weightings (see below).

The Country Attractiveness Indices take a generic view and different sponsor/financier requirements will clearly affect how countries are rated. Ernst & Young’s Renewable Energy Group can provide tailor-made studies to meet specific corporate objectives. It is important that readers refer to the guidance notes set out on pages 13 and 14 when referring to the Indices.

Long-term IndicesThe Long-term Indices are forward looking and take a long-term view, hence the UK’s high ranking in the Wind Index, explained by the large amount of unexploited wind resource, strong offshore regime and attractive tariffs available under the ROC system. Conversely, although Denmark has the highest proportion of installed wind capacity to population level, it scores relatively low because of its restricted grid capacity and reduced tariff incentives.

All Renewables IndexThis Index provides an overall score for all renewable energy technologies. It combines Individual Technology Indices as follows:

Wind Index — 75% (Comprising Onshore Wind Index and Offshore Wind Index)Solar Index — 10%Biomass and Other Resource Index — 15%

These Technology Indices have been re-weighted in Q3 2007, as discussed on page 4, Global Highlights.

Individual Technology IndicesThese Indices are derived from scoring:

General country-specific parameters (the Renewables Infrastructure Index), accounting for 35%Technology-specific parameters (the Technology Factors), accounting for 65%

Renewables Infrastructure IndexThis provides an assessment by country of the general regulatory infrastructure for renewable energy (see page 13).

Technology FactorsThese provide resource-specific assessments for each country (see page 13).

Long-term Wind IndexThese Indices are derived from scoring:

The Onshore Wind Index - 74%The Offshore Wind Index - 26%

Near-term Wind IndexNear-term Wind Index takes a forward-looking two-year view based on the parameters of most concern to a typical investor looking to make an investment in the near term. The Index gives scores for onshore and offshore separately. For parameters and weightings see page 14.

rE n E wa b l E En E r g Y Co u n t rY at t r a C t i v E n E s s in d i C E s 2

The Sub-Prime Credit Crunch and RenewablesThe turmoil affecting the credit markets over the summer has left many investors reeling from over-exposure to certain sectors, such as the sub-prime mortgage market. At the time, many feared that banks would close to new business, that private equity would take a downturn and that monies flowing into clean energy could dry up as a result.

Impact on debtDebt often plays a key role in funding expansion, M&A and infrastructure activities, and as soon as credit liquidity suffers there is a direct knock-on effect on securing much needed financing.

In regions with strong regulatory support and proven resource (e.g., wind, biomass or solar), renewable energy offers a relatively low-risk option for investors and debt financers. In addition, global demand for renewable energy assets is such that major utilities, oil and gas companies and corporates are competing for position in the development and operation of projects, as well as for supply chain capabilities.

This security is not afforded to all renewable technologies. Biomass, biogas and biofuels are highly exposed to variations in commodity and feedstock prices, wave and tidal technologies are still competing for development capital, while technologies such as geothermal rely on public markets to raise equity for new and often speculative exploration. These stocks will inevitably be more volatile until a particular technology (in the case of marine) or site-specific resource (in the case of geothermal) is proven at scale and in the long term.

To assess the impact of the credit crunch, we asked a number of lenders whether their appetite for lending to renewable energy projects had been affected.

In this survey 85% of project finance respondents regarded the credit crisis as having no or little impact on their lending decisions for renewable energy projects.Does the credit crunch improve renewable energy as an area to lend into due to tariff support?

Improve 15%

No impact 85%

According to the survey, all lenders believed that pricing could be affected. Some lenders also indicated that their appetite for merchant financing was lower as a result of the turmoil, while others would have less capital available to underwrite projects and that the volume of business could decline overall.Which of the following are most affected by the credit crunch?

Volume 50%

Cover ratios 15%

Appetite for merchant financing 1

Pricing 100%

“Banks have been struggling to get things through their credit committees”“The ability to syndicate is key”

Impact on EquityClean energy companies have seen impressive growth over the last two years, with an average of around 110% growth since October 2005, according to Wilderhill Clean Energy Index (NEX).

Data collated by Ernst & Young on selected renewable energy stocks, including manufacturers and developers, shows that wind and solar companies have fared better over the past two years than other major world indices (see chart on page 3).

(continued on page 3)


Since a downturn during mid-2006, solar companies have seen share prices continue to rise, with only a brief correction during the credit crisis in July this year. Wind and biomass companies, on the other hand, appear to have suffered more from this summer’s credit crunch, which is perhaps because these companies are project finance-led, rather than solar companies which tend to raise funding for manufacturing and technology development. Since July 2007, wind companies have seen their share prices recover slightly, while biomass stocks have not.

Average P/E by sectorPrice-earnings (P/E) data of solar companies shows values of Internet company levels, although many of these companies are at an early stage and hence their valuations may be exaggerated.

Sector Average P/E

Solar 312

Wind 77

Biomass/biogas 33

Source: Ernst & Young – average of P/E data obtained from Company InfoGator.

Despite the bullish attitudes of investors, a continued squeeze on the credit markets is likely to have some impact on high-volume syndicated deals and projects involving less mature technologies. It will be interesting to see the effects in M&A values. Paradoxically, the sub-prime credit crisis could well reinforce the growing appreciation of renewables as the hot investment sector with real cash flows and strong long-term growth prospects.

Jonathan Johns Ernst & Young Renewable Energy Group,

Exeter, UK

The Sub-Prime Credit Crunch and Renewables

Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07

Renewable Energy and Other Indices Performance 2005 - 2007

0.5

1

1.5

2

2.5

3

3.5

4

Inde

x

FTSE (All Share)

NEX (Wilderhill)

Wind (E&Y)

Solar (E&Y)

Biomass (E&Y)

Renewable Energy and Other Indices Performance 2005 - 2007

Source: Ernst & Young – Rebasing of FTSE All Share Index plus data collected by Ernst & Young on over 30 listed renewable energy companies (developers and manufacturers but excluding marine, geothermal and biofuels)


Global HighlightsThe Technology Parameters have been re-weighted in Q3 2007, giving more emphasis to biomass (increased from 5% to 10%) and solar (increased from 5% to 10%), while reducing the contribution of onshore wind (decreased from 60% to 55%) and offshore wind (decreased from 25% to 20%). Other renewables remain unchanged at 5% of the total. This has had an impact on the scoring, particularly in countries with a high reliance on wind power within their renewable energy mix.

All Renewables IndexThe US retains top position following another quarter of high legislative activity at state level.

As anticipated, Germany’s position improves, climbing to second, after proposed increases to its renewable energy targets and amendments to the Renewable Energy Act.

India is displaced to third, despite gaining a point, and Spain moves to fourth place.

The UK is relegated to fifth position due to industry criticism of proposed changes to the planning regime.

China loses a point but remains at sixth position.

Near-term Wind IndexThe US increases its lead at the top of the Near-term Wind Index with 2007 expected to be a record year for onshore wind. India takes second place from Spain with expectations of strong growth to continue over the next two years. The UK falls two places in the Near-term Wind Index due to continued delays and red tape in the planning process.

Market Activity, Q3 2007As part of the Spanish Framework Agreement in which Gamesa is expected to provide 450MW of operating wind energy projects, Babcock & Brown Wind Partners (BBW) acquired a 70% stake in the Conjuro wind farm (total capacity 17MW) in July for US$25.7m followed by the acquisition of the remaining 30% in August. In a related transaction, BBW acquired from Gamesa a 96% stake in the Valdeconejos 32.3MW wind farm for US$68m. Gamesa has also signed a US$609m deal with Endesa for the supply and installation of wind turbines totalling 500MW which it intends to use in Spain.

In two of the largest renewables deals of the year, International Power paid US$2.5b for the 648MW Trinergy wind portfolio in Italy and Germany, comprising 495MW in operation and 67MW under construction in Italy and 86MW in operation in Germany. Meanwhile Energias de Portugal (EDP) completed the acquisition of US onshore wind developer Horizon Wind Energy

from Goldman Sachs for US$2.7b, financed through a US$3b syndicated loan. Following the two transactions, International Power will have 1GW of operational capacity and 117MW under development, whereas EDP will have almost 3.8GW of wind power in operation.

E.ON AG is to increase its onshore wind market presence through a US$1.4b acquisition of Airtricity’s North American wind business, which includes around 210MW onshore wind in operation, 880MW in construction, over 1GW in advanced development and a further 5GW in early stage development across the US and Canada. The deal follows E.ON AG’s acquisition in July of Energi E2 Renovables Ibéricas from Danish utility DONG Energy for EUR722m (US$1.0b), which included 260MW onshore wind and other renewables in Spain and Portugal plus around 560MW wind farms in development. The transactions are part of E.ON AG’s plans to invest EUR3b (US$4.3b) in renewable energy by 2010.

BBW acquired offshore wind power developer Bluewater Wind for an undisclosed amount. The terms of the acquisition have not been disclosed; however the Bluewater development team will stay intact under new ownership and continue with its offshore plans. Bluewater has projects in various stages of development in Rhode Island, New York and New Jersey and is planning a 150 turbine, 450MW wind farm off the coast of Delaware which is expected to cost about US$1.6b.

German renewables developer Epuron has acquired Panergia, a Spanish developer of solar thermal electricity generation (STEG), PV and small wind projects. Following this deal, Epuron’s pipeline for large scale solar power plants will stand at 150MW. Epuron has also announced plans to develop a 1GW wind farm in New South Wales, Australia and will submit a development application for the project in March 2008. The project is estimated to cost US$1.8b and construction is expected to start in 2009.

BT, the UK-based telecoms group, has revealed plans to develop up to 250MW of wind power at a cost of up to GBP250m; the largest wind project outside the energy sector. The company has a provisional target of 100MW by 2012 and has applied for planning permission for test masts at three sites in the UK.

Statkraft and global consumer goods and paper company Svenska Cellulosa Aktiebolaget (SCA), have formed a joint venture for the development of seven wind farms in Sweden which would be capable of producing around 2.8TWh of renewable energy per year. Approximately US$2.4b is expected to be invested in the wind farms.

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Ranking* CountryAll

RenewableWind index

Onshore Wind

Offshore Wind Solar

Biomass/ Other Infrastructure***

1 (1) US** 73 74 80 58 75 66 75

2 (5) Germany 66 64 64 66 74 67 64

3 (2) India 65 66 75 44 61 60 66

4 (2) Spain 64 64 70 49 71 57 73

5 (2) UK 62 64 63 67 50 58 64

6 (6) China 60 65 68 56 45 49 63

7 (8) Italy 59 58 63 44 68 56 64

8 (7) Canada 58 61 66 48 42 50 64

8 (8) France 58 59 60 54 60 56 61

10 (8) Portugal 57 58 63 46 62 49 64

10 (8) Greece 57 59 63 49 59 44 60

12 (12) Ireland 53 57 58 55 36 46 61

13 (13) Sweden 52 52 52 52 44 53 53

14 (14) Australia 51 51 47 60 44 47 61

15 (14) Denmark 49 51 47 60 44 46 61

16 (14) Belgium 48 52 50 57 36 36 53

16 (17) Norway 48 50 50 50 32 48 53

16 (17) Netherlands 48 50 48 56 45 40 49

19 (19) Poland 47 50 52 45 42 35 46

20 (20) Japan 45 46 48 40 48 34 51

20 (21) Brazil 45 45 49 35 45 41 44

22 (21) New Zealand 43 47 50 38 33 32 45

23 (23) Finland 38 36 36 37 27 56 41

24 (24) Turkey 36 37 38 33 38 27 35

25 (25) Austria 35 30 41 N/A 48 48 49

The US stays at pole position and gains a point in the All Renewables Index due to several states signing up to ‘25 by 25’ energy plans (see High-scoring Countries, page 8).

Germany has jumped from fifth to second place following the announcement of proposed new renewable energy targets of 27% by 2020 and 45% by 2030. It is expected that the current EU ‘20% by 2020’ target will be exceeded under the EEG.

India and Spain are displaced by Germany, although India gains an index point, moving ahead of Spain, due to national capital subsidies and tax benefits for solar investors as well as revised state policies and tariffs in Tamil, West Bengal and Andhra Pradesh states (see High-scoring Countries, page 9).

The UK falls to fifth place as industry criticized the recent Planning Bill issued by the UK government. According to the BWEA, at least 1.3GW of projects currently awaiting planning need to be consented by the end of 2007 if the

UK is to meet its 2010 renewable energy target. The UK would have fallen further had the proposed changes to planning not been made.

China retains its position following the announcement of new penalties on grid operators that do not purchase electricity from grid connected renewable energy projects.

Italy moves up from eighth to seventh, displacing Canada due to proposed amendments to the green certificate scheme. The period for projects to sell green certificates has been extended from 12 to 15 years and a proposal has been made to increase the renewable energy supply obligation by 0.5% every year between 2007 and 2012 (it currently rises by 0.35% each year).

Finland has announced plans for a feed-in tariff for biogas plants under 20MW, with further details to be released later in 2007. The scheme is likely to come into effect in 2008.

Source: Ernst & Young * Ranking in Q2 2007 All Renewables Index in brackets.** This indicates US states with Renewable Portfolio Standards (RPS) and favorable renewable energy regimes.*** Combines with each set of technology factors to generate the individual technology indices.

All Renewables Index at Q3 2007

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Long-term Wind Index at Q3 2007

The US and India once again hold the top two spots. The UK loses a point and drops from joint second to joint fourth place.

China moves into third position, gaining a point as a result of increased penalties on non-compliant grid operators. Germany gains one point and settles at joint fourth with Spain after positive amendments to the German Renewable Energy Sources Act (see High-scoring Countries, page 10).

Increased local support for onshore wind farms means France gains two points and moves up two places, displacing Portugal and Ireland. Recent transactions show that successful developers are those that can work with local government to locate and define the wind power development zones (ZDEs) within which onshore wind projects have access to the fixed feed-in tariff of up to EUR82/MWh for the first 10 years and between EUR28/MWh and EUR82/MWh for the following five years.

Australia gains a point as a result of a tripling of the country’s clean energy target to 15% by 2020. The proposed changes will increase the Mandated Renewable Energy Target (MRET) from 9,500GWh by 2010 to 30,000GWh by 2020, but more importantly broadens the eligible mix of technologies to include non-renewable ‘low carbon’ sources. The new targets make a small impact in the All Renewables and Long-term Wind Indices as it is not yet known how big a part renewables is likely to play in meeting these goals.

New Zealand gains a point in both the All Renewables Index and Long-term Wind Index following an announcement by the Prime Minister Helen Clarke of a commitment to achieve 90% renewable electricity by 2025 (it currently stands at 70%). Renewables are also likely to benefit from the proposed new emissions trading scheme, which is to be implemented by 2012.

Ranking* Country Wind Index

Onshore Wind

Offshore Wind

1 (1) US** 74 80 58

2 (2) India 66 75 44

3 (4) China 65 68 56

4 (2) UK 64 63 67

4 (4) Spain 64 70 49

4 (6) Germany 64 64 66

7 (7) Canada 61 66 48

8 (8) Greece 59 63 49

9 (10) France 59 60 54

10 (9) Portugal 58 63 46

10 (10) Italy 58 63 44

12 (10) Ireland 57 58 55

13 (13) Sweden 52 52 52

13 (13) Belgium 52 50 57

15 (15) Denmark 51 47 60

15 (17) Australia 51 54 56

17 (15) Netherlands 50 48 56

17 (17) Norway 50 50 50

17 (17) Poland 50 52 45

20 (20) New Zealand 47 50 38

21 (20) Japan 46 48 40

22 (22) Brazil 45 49 35

23 (23) Turkey 37 38 33

24 (24) Finland 36 36 37

25 (25) Austria 29 41 N/A

Source: Ernst & Young* Ranking in Q2 2007 Long-term Wind Index in brackets. ** This indicates US states with Renewable Portfolio Standards (RPS) and favorable wind regimes.


Near-term Wind Index at Q3 2007

The Near-term Wind Index takes the perspective of an investor looking to make a commitment within the next two years. The methodology and weightings used are given in the Guidance Notes on page 14.The US remains top of the Index, its score increasing by one point following a report by the American Wind Energy Association estimating installed wind capacity to top 3GW in 2007. Figures analyzed by Ernst & Young show that the US could install in excess of 2.5GW in 2008 and nearly the same again in 2009. India has overtaken Spain to take second place in the Index as India is expected to put on nearly 2GW of onshore wind power in 2008 and 2009, compared to around 3GW over the same two years in Spain. China gains four points but remains in fourth place ahead of Germany on the back of continued expectations of strong growth in installed capacity in the near term.

France increases its score by four points and moves from eighth to sixth place as a result of the level of activity and interest in the country, which could see significant levels of deployment from consented projects over the next two years.The UK drops one point and two places from sixth to eighth as expectations are for a slowdown in the level of projects being consented and built as a result of the time-consuming planning process and concerns that changes proposed by government will not address sufficiently the key issue of sub-50MW wind farms. There are also residual concerns over grid pricing and the ability to gain connections. The UK also has the greatest short-term offshore potential, with five farms in operation, six projects currently under construction and seven projects with sites awarded.Finland drops to the bottom of the Index following the government’s support for biogas as the preferred renewable energy source.

Ranking* Country Wind Index

Onshore Wind

Offshore Wind+

1 (1) US** 91 91 40

2 (3) India 73 74 N/A

3 (2) Spain 68 68 36

4 (4) China 62 62 34

5 (5) Germany 61 56 70

6 (7) Canada 56 56 70

6 (8) France 55 47 84

8 (6) UK 49 49 N/A

9 (9) Italy 47 47 N/A

10 (10) Portugal 47 47 N/A

11 (11) Ireland 42 41 50

12 (12) Greece 41 41 N/A

12 (12) Australia 41 41 N/A

14 (14) Brazil 39 34 N/A

14 (16) Denmark 39 26 52

14 (15) Belgium 39 36 45

17 (18) Netherlands 37 30 47

18 (16) Poland 36 37 27

19 (19) Sweden 35 34 39

19 (19) Norway 35 35 N/A

21 (21) Turkey 32 32 N/A

21 (21) New Zealand 32 32 N/A

23 (23) Japan 30 30 N/A

24 (25) Austria 24 24 N/A

24 (24) Finland 24 24 N/A

Source: Ernst & Young* Ranking in Q2 2007 Near-term Wind Index in brackets.** This indicates US states with Renewable Portfolio Standards (RPS) and favorable wind regimes. + Countries with no offshore development expected to reach construction in the next two years have been excluded from the Near-term

Offshore Wind Index.


Commentary — High-scoring Countries

US – Production Tax Credit

The Senate and the House of Representatives have both passed versions of the Energy Bill; however there appears to be little overlap on key issues such as the Federal Renewable Portfolio Standard (FRPS), Production Tax Credit (PTC), Renewable Fuels Standard (RFS) and fuel economy standards, and as such the Energy Bill is some way from becoming law. In two separate bills which were subsequently merged, the House of Representatives approved both a federal standard mandating 15% renewable energy consumption and the four year extension of a federal production tax credit which had been rejected by the Senate. The 15% mandate would require investor-owned utilities to source 15% of their energy from wind, solar, geothermal or other renewable projects by 2020. Renewable energy production tax credits would be extended from 2008 to 2012 and a 30% tax credit for solar energy and fuel cell investment to 2016.

The Internal Revenue Service (IRS) has released out a Revenue Procedure stating that the commonly used PTC ‘flip’ structure will not be challenged for wind transactions (ie. partnerships or Limited Liability Corporations in which the partners’ interests change significantly) so long as the structure falls within the ‘safe harbor’ guidelines. Typically a flip occurs once the equity investor has achieved its desired yield through its receipt of tax benefits, including tax credits and depreciation, and cash. The IRS Revenue Procedure explicitly applies to wind and not to geothermal, biomass or solar projects.

In terms of individual state policies, Oregon legislature approved an expansion of the state’s tax credit for renewable energy projects to 50% of build costs and an increase in the size of renewables projects eligible for credit to US$20m.

Illinois signed the state’s renewable portfolio standard into law which would require 25% of the state’s power to come from renewables sources by 2025. Ohio presented an energy plan that includes a new energy portfolio standard requiring 25% of power to come from advanced energy sources by 2025, energy efficiency benchmarks and policies to encourage financing and development of renewable energy projects within the state. New Mexico regulators have passed rules mandating solar and wind resource levels as the state implements the renewable energy portfolio standard it passed in early 2007.

New funding legislation in California, in the form of the Solar Water Heating and Efficiency Act has been signed into law. The 10 year funding program will provide US$250m of investment subsidies to support solar thermal energy systems, with the aim of achieving 200,000 installations by 2017.

Texas has approved plans for eight ‘competitive zones’ for wind energy which are expected to encourage the financing and building of new transmission lines, which has been a key issue for the state.

Similarly, Senator Harry Reid of Nevada has introduced the Clean Renewable Energy and Economic Development Act. This new legislation calls for the provision of additional financing options for the building of new grid lines and connections which would enable the transmission of renewable energy, especially from remote areas of the country where renewable energy resources could generate at least 1,000MW of electricity, to those with growing electricity demand.

Q3 has also been a strong quarter for US-based wind turbine manufacturers, with Clipper Windpower signing a contract with BP Alternative Energy for the supply of 300MW of the 2.5MW Liberty turbines, and GE winning a US$330m order from Airtricity for 250MW of 1.5MW turbines, scheduled for delivery in 2009. Meanwhile, Airtricity’s North American wind development business has been sold to E.ON AG for US$1.4b (see Market Activity, page 4).

Ranking Q3 07 Q2 07

All Renewables Index 1 1

Long-term Wind Index 1 1

Near-term Wind Index 1 1

Source: Ernst & Young

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India – Feed in Tariff

The Indian government announced plans to introduce new clean energy measures, stating that it expects to adopt a feed-in tariff for solar energy, similar to those implemented in many countries in Europe, by early 2008. A new policy unveiled by the government in September entitles investors in solar power projects to capital subsidies and tax benefits.

At the Solar India conference in July, the Indian Minister of State for Renewable Energy announced that a fund of US$130k will be made available for the development of renewable energies as part of the five-year plan from 2007 to 2012.

The Andhra Pradesh state government plans to launch a policy for harnessing wind energy providing incentives to the private developers. This new wind policy will offer incentives to encourage investment.

In Tamil state, the Electricity Regulatory Commission has set 10% as the minimum proportion of renewable energy that each power distributor needs to purchase. In addition, the Tamil Nadu Electricity Board is also attempting to boost wind energy by setting up additional infrastructure aimed to drive 100% wind evacuation in the state.

In solar, the West Bengal Electricity Regulatory Commission is developing a solar PV feed-in tariff scheme for the state which is likely to be announced within six months although no details of the scheme are known as yet.

Industry lobby ASSOCHAM and Ernst & Young have carried out a study into India’s unexploited biomass potential. The study, entitled Mitigating Climate Change: The Indian Perspective, revealed that India could generate 2.5GW of power from urban, municipal and industrial wastes in Indian cities by 2010.

Indian wind turbine manufacturer Suzlon has unveiled a three-year expansion plan to invest nearly US$1.4b to almost triple its production capacity by 2009.

India’s Indowind Energy has listed on the Mumbai Stock Exchange securing a 25% premium over the issue price.

Ranking Q2 07 Q1 07





Germany – Feed in Tariff

Germany has exceeded the government’s target of generating 12.5% of electricity from renewables by 2010. Environment Minister Sigmar Gabriel has stated that Germany will aim to provide 45% of total power generation from renewable energy by 2030 with the intermediate target for 2020 being raised from 20% to 27%.

Q3 2007 saw amendments being made to the Renewable Energy Sources Act, which are expected to take effect as of 2009. The report outlined the government’s intention to amend the subsidy, calling for a reduction in the solar power tariff in favor of greater support for the offshore wind industry. The point at which premium tariffs for offshore wind are reduced has consequently been pushed back from 2008 to 2014 and the environment minister proposed that the annual decline in wind tariffs be cut to 1% from 2%. It

was also recommended that the current specification that grid costs will be suffered by the grid operators if construction begins before 2012 is to be scrapped.

In solar, a booming international market for silicon wafers has led to a doubling of revenues for PV systems integrators, including Conergy and Phoenix Solar, both of which have reported almost doubled sales year on year. Over half of their orders are from international countries, with the US and South Korea bringing the highest growth. In addition, PV module maker Solon is expanding its production capacity to 500MW by the end of 2008.

Centrotherm Photovoltaics AG, German PV manufacturing equipment supplier, made its debut on the Prime Standard of the Frankfurt Stock Exchange. The proceeds of the IPO amounted to US$263m.

German wind turbine manufacturer REpower Systems has formed a joint venture with Abeking & Rasmussen Rotec to manufacture offshore rotor blades for wind energy turbines.

E.ON AG has announced a commitment to invest US$4.1b in renewable energy, in particular offshore wind power, by 2010 and plans to increase its wind power capacity by more than 500MW.

Ranking Q3 07 Q2 07


Long-term Index 4 6

Near-term Index 5 5



Spain – Fixed Premium

The major development in Spain this quarter was the legislation approved by the government to allow offshore wind parks to be built off the Spanish coast; however the government will first need to conduct a study to identify where the wind farms can be set up. Concerns about the visual impact of offshore turbines and the potential effect on the not insignificant tourism industry in Spain have prevented offshore wind farms from being constructed in the past. As a consequence, the government has stated that environment ministry clearance will be required for all offshore wind farms.

Iberdrola’s renewables business, Iberenova, plans to list in December 2007, a move that is expected to see about 20% of Iberenova go public.

The whole renewables business is valued at between EUR16b (US$21.5b) and EUR20b, with a renewable energy capacity of over 6.5GW and a development portfolio of approximately 38GW.

Eolia Renovables has announced its intention to launch an IPO in November 2007 with the aim of raising money for acquisitions in Europe, India and the US.

One of the most significant transactions this quarter involved the acquisition by E.ON AG of Energi E2 Renovables Ibéricas from DONG Energy for EUR722m (US$1.0b) (see Market Activity, page 4), significantly increasing E.ON AG’s presence in Spain’s onshore wind market.

Spain’s largest grid connected solar plant has begun operating in Salamanca and is expected to generate 13.8MW. Solar, wind and biogas project developer Epuron has acquired Panergia, a Spanish developer of solar thermal electricity generation (STEG) projects.

Two Spanish companies, property developer Grupovi and project developer Ecotecnia, signed a JV agreement to develop 25MW of solar farms in Spain in 2008.

Ranking Q3 07 Q2 07




UK – Obligation and Traded Green Certificate

Wind energy executives have advised that the government’s proposals for changes to the planning permission process for renewables projects are unlikely to ensure that the industry meets its 2010 target. At the moment nearly 8GW of wind projects are in the planning stage, unable to begin construction until consent is given.

The proposed changes to the planning regime, announced in the Queen's speech and contained in the Planning Bill, are likely to have a positive impact on projects over 50MW in size, but do not address the significant issue of sub-50MW renewable generation.

The UK government has given planning approval for the Wave Hub project off the coast of Cornwall in South West England. This represents the final regulatory hurdle for the GBP28m (US$55.8m) project. In tidal, the Department for Business, Enterprise and Regulatory

Reform has ordered an immediate study into the feasibility of a barrage to generate electricity in the Severn Estuary. The Severn Estuary’s funnel shape gives it the second highest tidal range in the world at more than 14 metres.

In company news, the EDF Energy Northern Offshore Wind Scheme has been given the go-ahead to build a 90MW offshore wind farm off Cleveland on the north-east coast of England. The farm will consist of 30 turbines and will generate enough electricity for around 60,000 households.

UK- and US-based investment manager, Christofferson Robb & Company has acquired 100% of the 300MW Thanet offshore wind farm project from Warwick Energy Limited (WEL). WEL will continue to manage the construction and operation of the project.

A proposed 66MW Devon Wind Power wind farm in north Devon has been given the go-ahead by UK Energy Minister Malcolm Wicks. The project would be capable of providing approximately 30% of the area’s electricity consumption.


Ranking Q3 07 Q2 07





Marine and Offshore Issues

North SeaClipper Windpower has unveiled plans to develop its 7.5MW Britannia offshore wind turbine at the New and Renewable Energy Centre in Blyth, Northumberland, UK. The company has negotiated a GBP5m (US$10m) investment package from the regional development agency One North East which will include finance and access to offices, development, testing and assembly facilities over a two-year period.

Greater Gabbard Offshore Winds Ltd has secured a contract for offshore wind turbines from Siemens, estimated to be worth over US$750m. The offshore wind farm is to feature 140 3.6MW wind turbines, located off the coast of Suffolk, UK in the outer Thames Estuary with a maximum power generating capacity of 500MW.

German grid operator E.ON Netz has said it plans to spend EUR300m (US$420m) on new undersea cabling in the North Sea to link commercial offshore wind farms to the onshore transmission grid. The company has contracted ABB Ltd to supply the power equipment. Meanwhile E.ON AG announced its plans to build the proposed Humber Gateway offshore wind farm, with up to 83 turbines and 300MW.

Norwegian energy group Norsk Hydro and German engineering firm Siemens recently announced that they have joined forces in a partnership to research and build a floating wind turbine, hoping to have the first turbine generating in the North Sea by 2009.

Vestas suspended the sale of its V90 turbine for offshore projects due to recurring faults with the gearboxes. The turbine is still being sold onshore.

Floating wind turbine technology developer Sway has completed a US$26m private placement, representing a 50% stake in the company with Statoil holding 25%. The proceeds of the placement will be used to commercialize the company’s patented technology that enables the construction of floating offshore wind turbines.

Irish SeaRWE npower has begun construction of its 90MW wind farm on the Rhyl Flats off the coast of north Wales. Siemens will supply and install 25 of its 3.6MW turbines with construction planned to begin in 2008. The wind farm is expected to be operational by 2010.

Lunar Energy and E.ON AG have announced a proposal to build one of the world's largest tidal stream power projects off the Welsh coast in the UK. Construction is expected to start in 2008 and the proposed scheme is to be operational by 2010.

Atlantic OceanBabcock & Brown acquired offshore wind power developer Bluewater Wind for an undisclosed amount. The terms of the acquisition have not been disclosed however the Bluewater development team will stay intact under new ownership and continue with its offshore plans. Bluewater has projects in various stages of development in Rhode Island, New York and New Jersey and is planning a 150 turbine, 450MW wind farm off the coast of Delaware which is expected to cost about US$1.6b.

Pacific OceanCanadian wind project developer NaiKun has signed a professional services agreement with energy distribution company Enmax, to develop the 320MW Hecate offshore wind farm that represents the first phase of the proposed 1,750MW offshore wind farm near Prince Rupert, British Columbia, Canada.

Canadian wave energy company Finavera Renewables has completed construction and successfully commissioned its AquaBuoy 2.0 wave energy converter 3.2km off the coast of Newport, Oregon, USA. The AquaBuoy will remain on location until early November after which work will begin on a next-generation wave converter.

Investment vehicle REH has entered into an agreement with wave energy system developer Carnegie to work together on the development of offshore projects in the Southern Hemisphere. Australia-based Carnegie has held talks with the Victorian Government about a potential 50MW, US$450m wave energy project off the coast of Portland, Victoria.

Indian OceanEDF and Renewable Energy Holdings have signed a Memorandum of Understanding to develop offshore wave energy projects. This also gives EDF exclusive rights to use REH’s CETO technology for offshore wave energy schemes in the Northern Hemisphere and on Reunion Island in the Indian Ocean. EDF will develop each project through special purpose companies but REH retains first option to participate in any of the projects.

Yellow SeaChinese state-owned power companies, China Guangdong Nuclear Power and China Longyuan Electricity Power are to develop a 300MW offshore demonstration wind farm in Rudong, Jiangsu Province, China.


Q3 2007 Webcast

Renewable energy generation is developing and evolving at a rapid pace worldwide. Wind and solar energy have experienced double-digit annual growth for the past 10 years, and global investment in the renewable energy sector reached an estimated US$100b last year alone.

Renewable energy markets are highly complex, being dependent on diverse and often changing government support mechanisms. Different renewable energy technologies have achieved various degrees of maturity, and the economic attractiveness of a given technology will vary depending on the markets in which it is deployed and the support it is given.

The Renewable Energy Country Attractiveness Indices have been running since the beginning of 2003 and are distributed exclusively to over 3,000 industry participants each quarter. It provides scores for 25 national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies, and have been widely quoted by both the industry and national press

Also featured for Q3 2007 will be the Biofuels Country Attractiveness Indices, which rank the attractiveness of individual markets for biologically derived renewable fuels incorporating both ethanol and biodiesel.

You are invited to join the Ernst & Young Webcast in December 2007 to hear our panellists discuss:

The Sub-Prime Credit Crunch and Renewable EnergyKey movements in the Renewable Energy Country Attractiveness IndicesOverview of Ernst & Young’s new United States Renewable Energy Attractiveness IndicesMarine energy and offshore wind issuesMovements in the Biofuels Country Attractiveness Indices

You will have the opportunity to raise issues and questions and vote on key issues.

Please contact Mandy Toy on +44 [0]1392 284395 or e-mail [email protected] for further details.

To listen to last quarter’s Webcast or register for the next Webcast click here or go to www.ey.com/webcasts.

Euromoney and Ernst & Young Global Renewable Energy Awards 2007The 4th Euromoney and Ernst & Young Global Renewable Energy Awards were held at Riverbank Plaza in London on the evening of 24 September 2007, attended by over 250 industry professionals.

Established in 2004, the Awards endeavor to recognize the projects, companies and individuals that make a significant contribution to the renewable energy sector. The Awards take place alongside the Renewable Energy Finance Forum, Europe’s leading renewable energy finance conference, and provide an opportunity to celebrate the achievements in the private sector that drive continued growth in the renewable energy industry worldwide.

This year two new categories were introduced to the Awards: the Legal Advisor of the Year and Climate Change Investment Programme of the Year. These additions reflect both the growing importance of climate change initiatives and also the significant role of legal advisors in the renewable energy sector.

Nominations for 2007/2008 open early next year, therefore now is the time to start considering those most active companies deserving recognition at next year’s Awards.

The Euromoney and Ernst & Young Global Renewable Energy Awards 2007 Winners were:

IPO of the Year First Solar, Inc

M&A of the Year Suzlon Energy Ltd & REpower Systems AG

Equity Deal of the Year - Infrastructure Schmack Biogas AG

Equity Deal of the Year - Technology Energy Photovoltaics Inc

Senior Debt Deal of the Year - Breeze ThreeUniCredit HypoVereinsbank

Entrepreneurial Developer of the Year Airtricity

Corporate Developer of the Year Acciona Energia

Emerging Technology Promoter of the Year Grupo Ibereolica

Most Enterprising New Market Entrant of the YearDongyang & SunTechnics

Legal Advisor of the Year Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates

Climate Change Investment Programme of the YearTesco Plc

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Commentary — Guidance Notes

Long-term IndexAs stated on page 1, the Individual Technology Indices, which combine to generate the All Renewables Index, are made up as follows:Renewables Infrastructure Index — 35%Technology Factors — 65%

These Guidance Notes provide further details on the Renewables Infrastructure Index and the Technology Factors.

As noted on pages 1 and 4, the Technology Indices have been reweighted to take into account the increasing contribution of biomass and solar.

Renewables Infrastructure IndexThe Renewables Infrastructure Index is an assessment by country of the general regulatory infrastructure for renewable energy. On a weighted basis, the Index considers:

Electricity market regulatory risk — 29%: Markets that are fully deregulated score higher, as they have experienced the ‘market shock’ on underlying wholesale prices that this transition may exert. While this may not affect current projects, these effects are particularly important when considering long-term investment prospects.Planning and grid connection issues — 42%: Favorable planning environments (low failure rates and strong adherence to national targets) score highly. Grid connection scoring is based on the ease of obtaining a grid connection in a cost-effective manner. The score also takes account of the degree of grid saturation for intermittent technologies.Access to Finance — 29%: A market with a mature renewable energy financing environment, characterized by cheap access to equity and good lending terms, will score higher.

This generic Renewables Infrastructure Index is combined with each set of technology factors to provide the Individual Technology Indices.

Technology FactorsThese comprise four Indices providing resource-specific assessments for each country, namely:

Onshore Wind IndexOffshore Wind IndexSolar IndexBiomass and Other Resources Index

‘Other’ renewable energy (RE) resources include small hydro, landfill gas, wave, tidal, and geothermal technologies. Energy from waste is not considered. Each of the Indices consider, on a weighted basis, the following:

Power offtake attractiveness — 19%: This includes the price received, the potential price variation, and length of PPAs granted. Higher scores are also achievable if a government guarantees the power offtake rather than merchant offtakers.Tax climate — 11%: Favorable, high-scoring tax climates that incentivize renewable energy generation can exist in a variety of forms and/or structures. The most successful incentives and structures have been direct RE tax breaks or brown energy penalties, accelerated tax depreciation on RE assets, and tax-efficient equity investment vehicles for individuals.Grant/soft loan availability — 9%: Grants can be available at local, regional, national, and international levels; and may depend on the maturity of a technology as well as the geographical location of the generating capacity. Soft loans have historically been used in pioneering countries of RE technologies to kick-start the industry. High scores are achieved through an array of grants and soft loans.Market growth potential — 18.5%: This considers current capacity compared to published targets. Higher scores are given if ambitious targets have been made and policy framework is in place to accelerate development. The realism of targets are also taken into account as well as the seriousness with which they are being pursued (e.g., penalties in place for non-compliance). Current installed base — 8%: High installed bases demonstrate that the country has an established infrastructure and supply chain in place, which will facilitate continued growth and in particular encourage the re-powering of older projects. Resource quality — 19%: For example wind speeds and solar intensity.Project size — 15.5%: Large projects provide economies of scale and a generally favorable planning environment, which facilitates project development financing.


Near-term Wind IndexAs stated on page 1, the Near-term Wind Index focuses on factors of most immediate concern to near-term investment in wind energy. The scoring follows the same methodology as for the Long-term Wind Index, but with a more focused set of parameters and a tailored weighting. Therefore the Indices consider on a weighted basis the following for both onshore and offshore wind separately:

Power offtake attractiveness – 27% Tax climate – 8%Resource quality – 14%Market growth potential (mid-2007 to mid-2009) – 40%Project size – 11%

In the Offshore Wind Near-term Index, countries with no projects estimated to reach construction in the next two years (to end-2009) are excluded.

It should be noted that the market growth potential score is based on a view taken on the basis of a range of business analysts’ forecasts and Ernst & Young’s own market knowledge. There is significant variation between analysts’ views on each market, and within some markets the variation is greater than in others. The forecasts used are a market view only and the scores in no way guarantee that the forecasted capacity will be built.

While comparisons have been made between scores in the Long-term and Near-term Wind Indices, it should be emphasized that, due to the different weightings and parameters used, these cross-comparisons are of a narrative nature only and by no means indicate any quantitative valuation.

Commentary — Guidance Notes (continued)

New for 2007 – United States Country Attractiveness Indices

Rank StateAll Renewables

Index Wind index Solar Index* Biomass IndexGeothermal

IndexInfrastruture

Index**1 Texas 74 77 71 64 67 67

2 California 71 68 77 77 77 60

3 New Mexico 70 72 74 54 69 71

4 Oregon 69 68 71 67 76 73

5 Iowa 69 72 57 66 55 67

Extract from United States All Renewables Index at Q3 2007

Source: Ernst & Young * Solar Index represents the index scores for both large- and small-scale solar** Combines with each set of technology factors to generate the individual technology indices

This table represents an excerpt from the first issue of the United States Renewable Energy Attractiveness Indices. Up to now, the Ernst & Young Country Attractiveness Indices have included reporting on the US as a single renewable energy market. The US Indices provide a quantitative rating for all 50 of the US states based on their respective renewable energy markets,

renewable energy infrastructures and suitability for individual technologies. Note that while the basic methodology for constructing the Indices is the same, the weighting of certain data points is not the same. As a result, the results of the Country Attractiveness Indices and the United States Attractiveness Indices are not directly comparable.

To receive the new United States Country Attractiveness Indices, please contact Michael Bernier or Roshni Patel:Michael Bernier, +1 (617) 859 6022, [email protected] Patel, +1 (617) 723 1053, [email protected]

Ernst & Young Renewable Energy GroupWith a dedicated 50-strong team of international advisors operating from our UK firm, supported by a network of over 65 experienced professionals from our member firms worldwide, Ernst & Young’s Renewable Energy Group helps clients to maximize value from renewable energy activity. Members of the Group provide advice and services in the following areas: Financial advisory and valuation Financial modelling and structuring Taxation Finance raising Asset value optimization M&A Market entry strategy Procurement strategy PPA tendering Feedstock strategy Transaction support PE advice IPO advice Carbon economy advice Strategic partnering Strategy review

Ernst & Young was ranked the leading project finance advisor in the Americas, Europe, Middle-East and Africa between 2001 and 2006 by Project Finance International

Contact: Jonathan Johns, Andrew Perkins or Ben Warren Tel: +44 [0]1392 284 300 E-mail: [email protected] Web: www.ey.com/renewables

© 2007 EYGM Limited.

All Rights Reserved.

About Ernst & Young

Ernst & Young, a global leader in professional services, is committed to restoring the public’s trust in professional services firms and in the quality of financial reporting. Its 114,000 people in 140 countries pursue the highest levels of integrity, quality, and professionalism in providing a range of sophisticated services centered on our core competencies of auditing, accounting, tax, and transactions. Further information about Ernst & Young and its approach to a variety of business issues can be found at www.ey.com/perspectives. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited does not provide services to clients.

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This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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