ANZ Investment Bank Renewable Energy

1. SEI Perspectives from Abroad ANZ Investment Bank Renewable Energy • Sector: Wind • Geographic Region: Ireland • Speaker: Shane Bush (bushs@anz.com) • May, 2003

2. Contents 1. ANZ Investment Bank Renewable Energy Team 2. Bankability of the Irish Wind Market Structure 3. ANZ’s Approach to Structuring Non-Recourse Wind Debt 4. Other Debt Options 5. Offshore Wind

3. Section 1 ANZ’s Renewable Energy Team

4. ANZIB Renewable Energy Team Structured Finance Markets / Syndication London / New York London / New York Gary Griffiths Charlie Lachman Shane Bush Richard Chinloy Mark Clover Geoff Pack Charlie Wilson Beth Waters Paul Mason Ben Velezquez • Principal regions Western Europe North America • Established markets USA, UK, Ireland, Germany, Denmark, Italy, Spain, Portugal • Emerging markets Offshore wind, France, Benelux, Canada • Principal technologies Wind (onshore and offshore), CHP, methane capture, waste management / waste to energy, bio-mass • Products Project finance arranging and advisory, underwriting and syndication, construction, mezzanine, tax based finance, corporate finance and advisory

5. ANZ Renewable Energy Transactions Structured Finance 2002 Desert Sky Financing of an 150MW wind asset in Texas, US Arranger Portfolio Valuation 2002 Zilkha Renewable Energy Valuation of an operating wind asset and development portfolio business in UK / Australia Havoco Financial Advisor Structuring & Valuation 2002 Offshore Wind Debt and Equity structuring advice for an 108MW project offshore in UK Financial Advisor Structured Finance Structuring & Valuation 2003 Onshore Wind Debt and Equity structuring advice for onshore projects in UK Financial Advisor Structured Finance 2003 Westbury Windfarms Portfolio of wind assets in the UK with an aggregate capacity of 35MW Financial Advisor / Lead Arranger 2003 to be announced Portfolio of wind assets in US with an aggregate capacity of 230MW Global energy company Financial Advisor / Lead Arranger

6. Section 2 Bankability of Irish Wind Market Structure

7. Quantifiable Risk is Usually Bankable RENEWABLE ENERGY POLICIES Banks do not look for particular policies, but for the bankable characteristics of those policies • Long-term visibility & stability (10 years minimum) • Understandable and quantifiable risks • Limited market price risk in power purchase contracts (given banks experience of merchant power markets) • No threat of regulatory change once policy is in place, full confidence in long-term drivers as stated by policy-makers / regulators • Clear understanding of inter-play between renewable and other sector policies, particularly climate change & the EU’s proposed emissions trading system • Clarification as to how deregulating electricity markets and the changing position of incumbent suppliers will affect offtake counterparty credit

8. Grandfathering Essential IRISH MARKET Current Market: AER rounds • AER contracts are bankable - fixed price government risk • However, confirmation of the viability of ESB PES’s public service obligation levy in an increasingly deregulated market required • AER VI features with full indexation and accelerated upfront payments will improve debt terms available • Installed capacity growth to-date has been constrained by: • Planning Permission • Grid Connections • Small-Scale of Projects / Availability of Small-Scale Finance Future Market: New Policy Framework? • Market-based Mechanism e.g. UK (RO) or Italy (Green Certificates) • Fixed-Price Guaranteed Offtake e.g. Germany (REFIT) Law or Spain (Special Producer regime) • Tender-and-Bid Government Contracts e.g. Ireland (AER) • Fiscal Incentives e.g. US (Production Tax Credits)

9. Significant interest but knowledge lacking BANK MARKET Interest In Renewable Energy • Telecoms markets down • Conventional power markets down • Asset run - off • Growth potential • Entrance of quality sponsors • Pan European activity Issues • Regulatory risk • Project size • Balance sheet turmoil • Larger projects require international syndicates - lack of policy knowledge

10. Section 3 Project Finance

11. Deals structured for distribution are successful Terms • Credit effecting term and pricing • Better quantitative analysis effects term and cover ratios • Spreads widening • 25 - 50 basis points • Maturity reducing • The fifteen year norm is gone • 13 - 14 year tenors more common with structuring in back end • Banks realize the equity value reduces post year ten • Sponsor guarantees • Trigger ratings are rising as addition risk becomes harder to accept • Market flex required • Underwriting risk highest in five years

12. Three critical areas - credit risk, project risk and quantitative analysis ANZIB’s Methodology • Credit of sponsor and key project participants • Power purchaser • Sponsor • Turbine supplier • Quantitative analysis • Production uncertainty • Power purchase agreement • Operating margin • Economic risks • Project risk • Construction risk • Proven or non proven technology • Project life • Availability and power curve • Real estate • Transmission issues

13. Main credit issues lie with power purchaser Credit Quality • Power purchaser • Rated utility attracts senior debt on typical terms • Smaller projects may attract high yield debt without good credit off-taker • Lack of alternative off-takers mean power pricing needs to approach market pricing • Sponsor • Less concerns providing equity goes in up front • Debt equity ratios less important during operational phase but a focus during construction • Turbine supplier • Few suppliers with the balance sheet to support large projects • Little concern regarding contingent liabilities for older MW and below turbines • Larger turbines in combination with larger projects create more concern

14. Quantitative Analysis Quantitative analysis effects term and cover ratios • Term - Project life; term of principal contracts • Cover ratios - Cash flow volatility and its evolution throughout the life of the project Debt service cover ratio and loan term considerations • Project life 20yrs • Cover ratios vary according to production uncertainty • During first five years key issue for cover ratio is wind risk • During latter years key issue for cover ratio is wind risk and operating costs Break-even analysis key • Production / availability • Operating costs • Inflation

15. Production uncertainty key to leverage calculation Quantitative Analysis

16. Example Fixed Price PPA Structures B D MWh C / € A Years Quantitative Analysis Consequently, fixed price power purchase arrangements are needed to achieve adequate leverage. Price-production interplay risk is transferred to the offtaker .. PRICE VARIABLES Starting Price % of Price Escalated Grey vs Green Pricing Price Step-Up or Step- Downs PPA Term PPAs have many variables, both quantitative & qualitative, all of which can impact the debt structure and amount. The debt’s sensitivity to production, cost, inflation and interest rate risks can all be partially or largely driven by the PPA.

17. Operations expenditure key risk post warranty period Quantitative Analysis • Operating Margin • Operations risk increases with time • Service agreements available during the warranty period • Post warranty period - most debt still outstanding • Little track record of modern turbines running for 20 years • Gearboxes and other major components may require replacement • Operating margin profile over time important (e.g. escalating PPA?)

18. Inflation risk is real in long term financing Quantitative Analysis • Economic Risk • Inflation: hedged through escalating PPAs & cover ratio profile • Interest rates: typically hedged through SWAPs but with options to enjoy short-term low cost financing environment

19. Turbines up to 1.0 - 1.5MW considered proven Project Risks • Technology Risk • Proven technology or not proven? Rate of change of turbine capacity high • Existing fleet often limited as new turbine models are rolled out • Warranties are essential components of the turbine supply • Life of equipment - GL / DNV classification • Banks engineer

20. Warranty important for large turbines Project Risks • Warranty Overview • Credit of warranty counter-party increasingly important as contingent liabilities grow • Financing will look in detail at warranty provisions and no standardisation • Warranty terms range from two years to fifteen years • Typically cover power curve and availability (95% - 97%) • Availability is key to long term project performance • Power curve lower risk and difficult to test • Offset of availability and power curve • Extendable in case of serial under performance or parts failure • Serial failures

21. EPC contract not always required Project Risk • Construction • Considered low and commissioning risk also low • Modular nature of the construction • Short construction periods • Independence of turbine supply and balance of plant • Separation of turbine and balance of plant wraps is possible • Liquidated damages need to be seamless with warranty • Subsidy deadlines or PPA drop-dead dates increase delay risks

22. Section 5 Options

23. Options limited in current market Options Leasing • Monetisation of tax benefits Mezzanine debt • Lends itself to wind projects Further extension of loan term • Bank market considers the maximum term for wind debt is about 15yrs • Institutional investors • Bonds

24. Section 6 Offshore Wind

25. Renewable Energy Team Members bring unique experience to ANZ Investment Bank Offshore Wind Resume Financial Advisor to United Utilities Financial advisor to Tractebel Financial advisor to E - Connection Services • Contract structure • Financial modelling • Debt & equity structuring • Capital raising • Drafting of bid package • Project finance arranging and underwriting • Mezzanine debt

26. Three ‘new’ risk areas Offshore Wind ProjectsKey Differences with Onshore Wind • Technology risk • Offshore turbine models range from 2-5 MW • Some aspects of 3MW+ models are step-changes not scale-ups of MW-class turbines • 100MW+ projects mean significant contingent liabilities for suppliers • Construction environment • New risks • New participants in the industry with offshore service companies entering the market • Longer construction period • Operational environment • Accessibility due to weather constraints

27. Key to securing project finance for offshore wind is risk allocation Offshore Wind Projects Challenges to successful financing • Offshore specific risks allocated through tight contractual structure • Project company must retain quantifiable exposure to risk to raise senior bank debt • Modular contractual structure as seen in onshore projects not applicable • Risk sharing among project, EPC counter- party, turbine supplier and project operator • Higher level of sponsor commitment will be required over operational life • Project finance debt terms structured for syndication • Renewable energy project finance in Europe has been typically locally funded • Larger projects mean larger bank groups • Regulatory risk significant issue • Finance available but lower leverage than for onshore projects due to high capex and additional risks

28. Turbine supplier needs to stand behind reliability Offshore Wind Projects Contractual Issues • EPC Contractors • Fully wrapped at fixed price • Date-certain delivery • Lost revenue LDs to include potential loss of annual construction window • Assume a degree of accessibility risk • Offshore experience and credit quality important • Wind Turbine Supply Agreement • For 3MW+ models in particular, track record will be limited and therefore management of technology risk required through this and the operating contract • 5 years with potential to extend in case of failure • Fixed price service agreement • Accessibility folded into availability warranty to a certain extent • Upside sharing • Contingent liabilities on manufacturers’ balance sheet may require additional support

29. Insufficient mitigation of operational weather risk will reduce leverage Offshore Wind Projects Contractual Issues • O&M Contract • Long term contract possibly up to 10 years • Price-certain contract • Covers both routine and non-routine maintenance • Accessibility and availability risk included to certain extent • Upside-sharing • Power Purchase Agreement • Drop-dead dates (if included) to allow for missed construction window • Escalating price-structure desirable • Regulatory risk beyond 2008 - 2010 difficult • Fully take-or-pay, with no / few penalties for e.g. low availability • Lease • Decommissioning provisions begin after 15 years

30. Disclaimer Issued by Australia and New Zealand Banking Group Limited (“ANZ”). ANZ is incorporated with limited liability (A.B.N. 11 005 357 522) in the Commonwealth of Australia, and is regulated in the conduct of investment business in the UK by the Financial Services Authority (“FSA”). While the information in this document has been compiled by ANZ in good faith from sources believed to be reliable, no representation or warranty, express or implied, is made or given as to its accuracy, completeness or correctness. ANZ, its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of the contents of and/or omissions from this document. Renewable Energy Shane Bush Director & Head, Renewable Energy Å +44 20 7378 2813 y bushs@anz.com