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Presentation to EWEA 17 th March 2009. Project Financing of Offshore Wind projects. Today’s Presentation. Corporate Finance. Introduction to Investec Bank PLC Bank overview Project and infrastructure team overview Power team overview Completed deals Project Financing offshore wind

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Project Financing of Offshore Wind projects

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    1. Presentation to EWEA 17th March 2009 Project Financing of Offshore Wind projects

    2. Today’s Presentation Corporate Finance • Introduction to Investec Bank PLC • Bank overview • Project and infrastructure team overview • Power team overview • Completed deals • Project Financing offshore wind • Historic deals • Key recent developments • Key requirements for project financing offshore wind • Construction period risks • Operation period risks • Conclusion

    3. An introduction to Investec Key Features • Specialised Investment Bank • Core market coverage: Europe, North America, Australia and New Zealand, Southern Africa • Over 6,000 people in the group • Market cap c.£1.5 bn (as at Dec ’08) Approach • Client/Relationship focused • Not “all things to all people” • Sector specialisation • Strength and flexibility Operating profit* (£538m) by business Other Activities 7.0% Property Activities 6.8% Private Banking 36.0% Asset Management 14.3% Investment Banking 14.4% Capital Markets 21.5% *before goodwill impairments, non-operating items and taxation. The numbers are reported in terms of IFRS for Mar 2008. A distinctive specialist banking group

    4. Project and Infrastructure Offering Corporate Finance • Integrated team of 40 professionals (plus support from corporate finance team as and when required) • Diverse team including financial advisers, bankers, engineers, developers and lawyers • London: covering UK (PPP) / EME (Power and renewable / Transports) / World (Telecom) • Toronto: covering North America market (PPP / Transport / Power & Renewable) • Australia: covering mainly Australia / New Zealand (PPP / Transport / Power & Renewable) • South Africa: covering South Africa and Africa – active across the spectrum (Advisory, Senior, Junior & equity) PPP • Investec generally provide advisory services to sponsors bidding for PPP infrastructure projects (eg: Hospitals, Prisons, schools etc.) and corporate / M&A transaction services • Team consistently rated in the top 5 advisor over the past 10 years • Repeat clients including Innisfree, Skanska Transport • Investec generally provide advisory services to sponsors bidding for large transport projects (eg: light rail, roads, public transport) corporate / M&A transaction services • Clients include the likes of Siemens, Bombardier, Laing • Current involvement on Tel-Aviv railway project, Thameslink Telecom • Investec mainly provides high yielding debt and equity funding for telecom infrastructure • Clients includes telecom operators and technology company rolling out infrastructure (eg: Wifi, Wimax) • Investec generally provide mezzanine and subordinated financing (including equity financing) and corporate / M&A transaction services • Clients typically include developers, large or small (eg: Airtricity, BCI) • Given market disruption, appetite for acquisition of secondary assets (junior / senior) • Also acting as independent developer (Australia, South Africa) Power and Renewables

    5. Power & Renewable Strategy Corporate Finance • In the power sector, Investec pursues a five-leg strategy reflecting current market conditions: • Core Mezzanine lending to project / developers €5 - €30m – ability to bring interested parties alongside us • Proven Technology: Wind / PV / CSP / Biomass/Landfill gas • Europe, North America, Australia, South Africa • Giving status of market, investment in good secondary assets (equity / Junior / Senior) • Continue existing development / co-development activities • BCI (Greece) • Australia (in-house development) • South Africa (in-house development) • Selective participation in senior debt facilities • €10 - €30m amounts with attractive pricing • Meaningful role / proportion of debt • Advisory opportunities • Third party capital raising (debt / equity)

    6. Selected Transactions Kruger Energy, Canada • Investec provided C$22.0m to partially finance an equity investment in an advanced construction stage 101.2MW wind farm located along the north shore of Lake Erie in Ontario, Canada. The project consists of 44 Siemens turbines. Falck Renewables, UK • Falck arranged financing for twowind farms totalling 72.5 MW - Cefn Croes in Wales, Boyndie in Scotland. Subsequently Investec provided a £10 million mezzanine financing across both projects, taking a combination of both contracted and pure merchant pricing risk

    7. Selected Transactions Selected recent advisory transactions Thanet Offshore Wind Ltd, UKInvestec was mandated to lead arrange a £150 million mezzanine loan facility for Thanet Offshore Wind, a 300MW project off the south coast of England. The sponsor subsequently sold the project to Vatenfall without provision of our facility. Airtricity, UK/IrelandInvestec provided a €40 million financing at Airtricity’s corporate level, under which the repayment is reliant on distributions from a portfolio of underlying projects. This allowed Airtricity to monetise future cashflows from a 130MW portfolio of operational wind farms in the UK and the Republic of Ireland.

    8. Selected Transactions IVPC Wind, Italy • Investec was a mezzanine lender to UPC’s IVPC wind projects in Italy – the largest project financed wind farms in the world at the time. We subsequently provided subordinated funding for the acquisition of the projects by Trinergy Limited EBV/Gamesa, Germany • Investec provided (an undisclosed amount) of equity bridge financing for Viridis Clean Energy in their acquisition of a portfolio of five wind projects totalling 44 MW in Northern Germany from EBV. • EBV were Gamesa’s German wind power development company

    9. Selected Transactions – Wind Development Australian Wind Development Investec has set up an in-house wind development team. In the past two years it has successfully permitted several projects, some of which was sold to local utilities. One of these projects (Collgar – 240MW) is currently in the market to seek project finance and is expected to close in Q2 2009 BCI Wind, Greece Investec is working in a joint venture with a local developer on a pipeline of >125MW of wind projects. We are providing equity, including initial funding for project development and turbine deposits, along with financial advisory services, particularly in dealing with third party senior debt lenders.

    10. Historic offshore wind deals – Q7 / Princess Amalia (closed October 2006) Corporate Finance • 120 MW project (60 Vestas V-80 Turbines) • EUR 219m Senior debt (Senior Gearing c.57%) + EUR 17m Mezz • Revenue from sale of electricity (PPA) plus green certificates @97EUR/MWh for 10 years under Dutch law • 2 separate construction contracts (Vestas & Van Oord) • Long Term O&M by Vestas • Basic ratio: DSCR>1.35 under P90 wind projections • Debt maturity 9.5 years after completion, partial cash sweep • Senior margin c.1.25% - 1.95% • €30m contingent facility available during construction • €160m unconditional L/C facilities provided to contractors • “Starting point” for the current Belwind deal.

    11. Historic offshore wind deals – Thornton Bank / C-Power Offshore Belgium (Closed May 2007) Corporate Finance • 30 MW project (6 Repower 5MW turbines) • €106m Senior debt (Senior Gearing c.70%) + €20m Mezz • Revenues from sale of electricity (PPA) plus green certificates @107EUR/MWh min. for 20 years by law • 3 separate construction contracts (Repower, Dredging Fabricom, ABB cable) • Long term O&M by Repower • Basic ratio: DSCR>1.30 under P90 wind projections • Debt maturity 15 years after completion • Margin c.1.10%-1.90% • €11m Contingency Facility available during construction • €21m Unconditional L/C facilities provided to contractors • Equity bridge facility provided to sponsors

    12. Financing Offshore Wind Farms – key recent trends Corporate Finance • Developers selling to utilities prior to financial close: • UK: Sale of 50% of Greater Gabbard (via SSE) from Fluor to Npower Renewables • UK: Purchase of Eclipse Energy and Thanet by Vattenfall AB • Germany: ENBW purchase of Eos Offshore and Offshore Ostsee from WPD • Therefore, utilities are financing more offshore wind farms than banks. • Private Equity interest in the sector • CRC, Thanet, UK • Blackstone, Meerwind, Germany • Marginal economics: key positive factors • Improved support regimes in Germany, UK • Higher wind yield offshore • Some cost reductions now beginning (e.g. vessels, steel prices) • Marginal economics: key negative factors • Total project costs have risen very strongly in recent years to c.€3m/MW and more with contingencies etc • Availability and cost of debt

    13. Recent developments in Offshore Wind Project Finance Corporate Finance • Limited number of completed true limited recourse project finance deals • Q7 / Princess Amalia and Thornton Bank / C Power • Small number of banks open for the sector • Rabobank, Dexia, BOTM, HSH Nordbank, NIBC, Fortis, others? • Hence, important role for the EIB • e.g. Belwind, Horns Rev extension • Impact of the credit crunch – TBD! • Higher margins [2.50% - 3.0%+] offset by lower swap rates • Senior gearing - around [60-70%], lower without firm revenue floor • Club deals rather than syndication • More robust risk allocation • Space for mezzanine debt • Outcome of current potentially project financed deals awaited • Belwind, Greater Gabbard, Nordergrunde • Thereafter: an ongoing cost of capital and risk comparison for some utilities

    14. Key construction requirements Corporate Finance • Bankable turbines • History of “issues” with turbines • Need to understand exactly the extent of the testing / running which has been done on the equipment • Bankable turbine contracts • Genuine power curve and availability warranties for turbines • Appropriate payment schedule milestones • Bankable turbine suppliers • Potential need to pay potentially significant liquidated damages or other amounts under warranties • Siemens, Vestas, Multibrid and others on basis of parent company guarantees?

    15. Key construction requirements – mitigating interface risk Corporate Finance • Potential causes of Liquidated Damages mismatch: • Contractors unlikely to assume full responsibility for the knock-on costs and delays to the other contractors and the project as a whole • Potential for mismatch between receipts from contractor causing delay and contractor claiming leaving project company exposed due to: • Caps on contractors’ liability • Ground condition and weather risk may remain with project company in certain circumstances • Design integration risk • Hence: • Preference for EPC (if ever achievable!) • Alternatively, two contract approach: turbine supply and installation / balance of plant contracts • Each contractor taking responsibility for their vessel availability • More than 2 contracts leads to extensive interface risk • Mitigants • Very detailed analysis and allocation of responsibility for all interfaces in advance • Experienced contractors

    16. Key construction requirements – other key risks Corporate Finance • Geotechnical / site condition risk • Responsibility for undertaking surveys • Extent of surveys • Ground condition risk with foundation designer / installer or project company? • Weather risk - real potential to restrict construction access. Mitigants: • Analysis of wave height and comparison with vessel requirements when performing critical tasks • Float in the programme sized on reasonable worst case • Contractors take at least statistical norm risk • Vessel and key equipment availability risk • Vessel owners [historically?] in commanding position • Hence poor certainty on availability and vessel contracts • If risk taken by project company usually need for backup vessel spread and slack in programme • Strong preference for strong contractors to take the risk of suitable vessel availability • Experienced vessel and installation crews crucial • Additional mitigants to the above risks: • Time and cost contingencies appropriately sized given harbour / site locations and schedule between the two • Back up plans for key pieces of installation equipment and vessels

    17. Operation period risks and mitigants Corporate Finance • Maintenance risk • Clearly more complex and costly due to location • Limited (and mixed) track record to date • Maintenance strategy • Vessel vs helicopter • Ownership / availability of vessel or helicopter (e.g. Bard) • Maintenance of cables and foundations • Mitigants: • Strong O&M maintenance contract with turbine supplier • Remove exclusions to availability warranties and maintenance obligations: e.g.: “corrosion” / “damage caused by water or sand” • Prudent numbers for: DSCR, availability assumption: below 95%, wind yield • Build in spare capacity in grid connection and substation • Comprehensive insurance • Spare parts – contractual responsibility for provision and cost

    18. Conclusion Corporate Finance • Huge opportunity • Offshore wind is crucial to meet EU renewable targets • Growing supply chain and increasingly experienced teams • Consistent, reliable and continuing government support is crucial • Most projects likely to be financed on balance sheet by utilities over the next few years • Given size of sector still likely to be a significant volume of Project Financed deals • Investec Bank PLC is open for new mezzanine and equity business in renewables

    19. James DonaldsonInvestec Bank 207 597 3663+44 7932 043 103