Global Challenges and Opportunities

1
Global Challenges and Opportunities

• ROLE OF REGULATORY DRIVERS IN WIND MARKETS

Jonathan Johns (Partner) Ernst Young Renewables
Waste and Clean Energy Group Tel 44 1392
284300 Fax [phone] jjohns_at_uk.ey.com www.
ey.com/renewables
9 May 2007
2
Climate change wind still requires support

• Governments and business are dealing with climate
  change on a global basis
• There are insufficient resources in the supply
  chain to satisfy demand.
• Countries are competing for renewable energy
  resource, financial and corporate capital
• Feed in tariffs build capacity costs have been
  an issue
• In liberalized markets, the market based green
  certificate mechanism tends to be preferred
  distortions can occur
• Cap and Trade carbon schemes curtail the
  activities of high carbon intensity industries
  rather than act as incentives for new renewable
  capacity they are helpful in JI/CDM territories

3
Incentives are not enough

• Energy production and supply chain can undermine
  otherwise effective mechanisms
• Changes in policy direction produce uncertainty
• Any renewable energy policy needs to be part of a
  coherent climate change strategy as a whole with
  complimentary measures focused on
• power production
• transport fuel
• heat and energy efficiency
• European countries tend to be driven by national
  guidelines
• However, non-European markets tend to be
  regionally driven.

4
United States of America
(Regional) 1
Tariff Mechanism US0.019/kWh Production Tax
Credit (expires 2008)

• Debate about long term renewal vs cost to
  consumer/tax payer
• Debate over Federal Renewable Portfolio Standard
  (RPS)
• RPS obligation in 24 states district of
  Columbia, eg Texas 5,880MW by 2015
• Oregon introduced RPS April 2007

Q1 2007 Country Attractiveness Indices
Long-term Wind Index position
5
India
(Regional) 2
Tariff Mechanism Regional Feed In Tariff

• Individual states operate feed in tariffs and
  some renewable energy obligations, eg Tamil
  Nadu PPA fixed at INR 2,750/MWh (46/MWh) with
  10 renewable energy target, Rajasthan 20 year
  PPA at INR 2,960/MWh (50/MWh)
• Accelerated tax depreciation of 80 per annum
• 10 year tax holiday for generating power
• Excise duty benefits renewable assets

Q1 2007 Country Attractiveness Indices
Long-term Wind Index position
6
Canada
(Regional) 7
Tariff Mechanism CAD0.01/kWh Production
Incentive

• Federal Production Incentive available for up to
  10 years for projects constructed within the next
  4 years
• Established provincial targets, eg, Quebec
  3,500MW wind energy by 2013, Ontario target 2,700
  MW by 2010

Q1 2007 Country Attractiveness Indices
Long-term Wind Index position
7
China
(National) 5
Tariff Mechanism Government Tender

• National targets 2010 5GW, 2020 30GW
• Obligation on local grid operators to purchase
  any renewable energy produced within its locality
• Competitive tender for projects, power tariffs
  allocated per project
• Projects 100MW and over gain fixed price
  concession from National Government
• Projects less than 100MW not guaranteed a fixed
  tariff
• Concessions from US46 US65/MWh

Q1 2007 Country Attractiveness Indices
Long-term Wind Index position
8
In conclusion

• Will carbon eventually become the common
  currency?
• Its early days yet
• Investors need to be careful about market
  selection and future regulatory risk
• Talk incorporates material from Jonathan Johns
  US Senate hearing, April 2007
• Link to testimony www.senate.gov/finance/sitepa
  ges/hearing041207a.htm

9
Knowledge leadership
Q1 2007 Country Attractiveness Indices Webcast 22
May 2007
E-mail mtoy_at_ey.uk.com
10
Disclaimer

• This preliminary document has been prepared by
  Ernst Young. The information and opinions
  contained in this document are derived from
  public and private sources which we believe to be
  reliable and accurate but which, without further
  investigation, cannot be warranted as to their
  accuracy, completeness or correctness.
• This information is supplied on the condition
  that Ernst Young, and any partner or employee
  of Ernst Young, are not liable for any error or
  inaccuracy contained herein, whether negligently
  caused or otherwise, or for loss or damage
  suffered by any person due to such error,
  omission or inaccuracy as a result of such
  supply. In particular any numbers, initial
  valuations and schedules contained in this
  document are preliminary and are for discussion
  purposes only.
• The UK firm Ernst Young LLP is a limited
  liability partnership registered in England and
  Wales with registered number OC300001 and is a
  member practice of Ernst Young Global.