35, boulevard des Capucines75002 ParisTél: (33-1) 53 45 40 00Fax: (33-1) 53 45 40 10 www.cgrlegal.eu

Project Finance

Private Equity in the Wind Energy Industry

Philippe Raybaud

Partner, Corporate Department

Private Equity in the Wind Energy Industry

• Private equity, in its largest meaning, would be any activity where investors entrust their money to professionals so that they invest it in companies according to certain predefined investment criteria.

• This presentation will be focused on the role of investment funds in financing wind farm projects (asset finance).

Private Equity in the Wind Energy Industry

In 2007,

– US$ 148.4 billion* invested in the clean energy sector worldwide;

– 57% of which for new renewable energy capacity (US$ 84.5 billion)*;

– Out of these US$ 84.5 billion*, US$39 billion* for new wind farm projects, adding another 21 GW* of new capacity worldwide.

* figures taken from UNEP’s Publication on Global Trends in Sustainable Energy Investment 2008

New Investment by Sector Asset finance new investment by Sector. 2001-2007* (in million of US$)

Sector 2001 2002 2003 2004 2005 2006 2007

Wind $2,849.36 $3,300.62 $6,061.54 $9,416.47 $17,213.27 $23,267.33 $39,050.00

Solar $242.03 $39.43 $461.71 $406.37 $1,080.44 $5,003.00 $17,728.29

Biofuels $426.38 $722.68 $1,054.17 $803.78 $4,498.69 $14,418.50 $16,717.79

Biomass & Waste

$711.31 $750.75 $1,134.17 $911.86 $2,859.96 $5,936.62 $8,631.17

Other Renewables

$386.16 $299.98 $603.15 $822.06 $1,893.00 $1,722.65 $2,361.58

Total $4,600 $5,100 $9,300 $12,400 $27,500 $50,300 $84,500

Number of deals

Disclosed no 17 38 44 77 281 330 544

Total no 103 130 197 267 502 547 906 Note: Grossed-up values based on disclosed deals. The figure represents new investment, i.e. for new-build projects only, and therefore excludes acquisitions and re-financing. Numbers in brackets refer to (disclosed / total deals)

* UNEP’s Publication on Global Trends in Sustainable Energy Investment 2008 - Dataset

Private Equity in the Wind Energy Industry

- Continuous increase of the overall investment in new generating capacity mainly fuelled by new investment in wind farm projects

- Investment in solar projects is quickly picking up

New Investment by Region

Asset finance new investment by region. 2001-2007 (in million of US$)

Region 2001 2002 2003 2004 2005 2006 2007

United States $1,261.18 $1,216.75 $3,763.50 $2,061.79 $6,319.79 $16,330.18 $16,327.72

EU Europe $2,033.56 $2,707.67 $3,095.28 $6,407.30 $13,702.22 $19,534.96 $38,839.06

Other OECD $608.20 $241.99 $973.05 $2,181.27 $2,972.45 $3,253.86 $6,980.07

China $197.34 $322.69 $568.08 $236.50 $1,775.40 $4,770.35 $10,828.71

India $207.43 $274.99 $470.48 $577.39 $628.90 $661.83 $2,298.40

Brazil $22.50 $142.76 $148.83 $93.32 $540.10 $3,827.06 $5,015.53

Africa $30.83 $22.87 $201.60 $272.78 $269.57 $1,333.29 Other Non-OECD $285.03 $175.84 $272.65 $601.40 $333.73 $1,700.30 $2,865.98

Total $4,600 $5,100 $9,300 $12,400 $27,500 $50,300 $84,500 Numbers of deals

Disclosed no 17 38 44 77 281 330 544

Total no 103 130 197 267 502 547 906

Note: Grossed-up values based on disclosed deals. The figure represents new investment, i.e. for new-build projects only, and therefore excludes acquisitions and re-financing. Numbers in brackets refer to (disclosed / total deals)

* UNEP’s Publication on Global Trends in Sustainable Energy Investment 2008 - Dataset

Private Equity in the Wind Energy Industry

- Europe attracted the largest investment, but China, Brazil and India are becoming significant players

- With the Obama administration, wind turbine manufacturers expect a significant increase of new wind farm projects in the US

Private Equity in the Wind Energy Industry

- Infrastructure Investment Funds are very active in the acquisition and/or financing of wind farm projects

- Private equity financing for clean energy projects was estimated at approximately US$ 10 billion worldwide in 2007

Main Features of Infrastructure Fund’s investments:

- low risk, low return

- long term investments

- priority on risk diversification (countries, turbines, etc.)

- investments are typically made with a high leverage of debt, but some funds make 100% equity investments

Minimizing risk as much as possible is crucial:

- Extensive technical, legal, tax and financial due diligence on the project;

- No development risk to be taken by the fund: risk allocation under the Share Purchase Agreement and Development Service Agreement;

- No construction risk to be taken by the fund: turnkey-type construction agreements with maintenance agreement;

- In the current market, funds even refuse to take financing risks.

Examples of infrastructure investment fundsInfrastructure

FundsDIF Renewable Energy and

DIF Infrastructure IIAllianz Renewable Energy

FundsAkuo Investment SICAR

Size of fund DIF RE:€ 140 millionsDIF I I: € 150 millionsDIF I II: € 500 to 750 millions (€ 200 millions committed at first closing)

Fund I: € 450 millionsFund II: € 500 millions (expected)

€150 – 225 millions(Fund not closed yet. Last closing expected in March 2010)

Strategy PPP projects and renewable energy projects.

Captive Allianz fund investing in renewable energy projects

Investment in renewable energies, with a large part of the deal flow expected to be provided by Akuo Energy

Countries of Investment

Europe (mainly France, Germany, Netherlands, Spain)

Eurozone Mainly Turkey, Poland, Italy, France

Individual Investments

€ 5 to 80 millions (equity) € 20 to 100 millions € 1 to 15 millions (equity)

Duration of Investments

Fund Duration – 10/12 years Valuation of projects on full life of project

Life of project 5 to 7 years

Target IRR Not disclosed Not disclosed 8 to 16%

Leverage of Debt Financing

Between 20/80 – 30/70 No debt financing100% equity

15/85

Private Equity in the Wind Energy Industry

The current credit crunch has not significantly reduced the deal flow of infrastructure investment funds:

- the valuation of wind farm projects has gone down;

- more projects are on the market, as developers tend to encounter more difficulties to finance them;

- infrastructure investment funds are experts in project finance;

Private Equity in the Wind Energy Industry

The current credit crunch has not significantly reduced the deal flow of infrastructure investment funds:- some infrastructure investment funds finance the whole

project with equity (Allianz funds);

- the increase of margins applied by banks on interest rates (spread) tend to be at least partly set off by the decrease of base rates;

- banks continue to show interest in financing energy generating facilities.

Consequences of the current credit situation on infrastructure funds:

- The bank financing process is much more difficult and tends to take much longer;

- Credit Facility Agreements contain more stringent provisions and in particular market flex clauses;

- Infrastructure investment funds will only take very limited risks on wind farm projects;

- Some fear that asset financing of wind energy projects may become even more difficult in the future.

35, boulevard des Capucines75002 ParisTél: (33-1) 53 45 40 00Fax: (33-1) 53 45 40 10 www.cgrlegal.eu

Project Finance

Private Equity in the Wind Energy Industry

Philippe Raybaud

Partner, Corporate Department