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Innovations & Strategies for Troubled Times Renewable Energies: Government Incentives and Success Stories April 29,

Innovations & Strategies for Troubled Times Renewable Energies: Government Incentives and Success Stories April 29, 2009 Washington, D.C. Renewal Energies: Government Incentives & Success Stories. Introducing Our Panel: Tim Unger, Andrews Kurth LLP, U.S.A. (Moderator)

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Innovations & Strategies for Troubled Times Renewable Energies: Government Incentives and Success Stories April 29,

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  1. Innovations & Strategies for Troubled Times Renewable Energies: Government Incentives and Success Stories April 29, 2009 Washington, D.C.

  2. Renewal Energies: Government Incentives & Success Stories Introducing Our Panel: • Tim Unger, Andrews Kurth LLP, U.S.A. (Moderator) • Tillman Pfeifer, Taylor Wessing, Germany • Jes Anker Mikkelsen, Bech-Bruun, Denmark • OP Vaish, Vaish Associates, Advocates, India • Pedro Seraphim, TozziniFreireAdvogados , Brazil

  3. Renewable Energies: Government Incentives & Success Stories What We’ll Cover: • The U.S.: Recent developments, incentive programs, renewable portfolio standards, cap and trade, and results to date • India: Overview of renewable energies in India, incentives, legal framework, key obstacles, key players • Germany: Factors driving growth of renewables in the EU generally and Germany in particular, including the legal framework, tariffs and more • Denmark: Response to the global challenge, the growth of wind power in Denmark, Danish energy legislation, upcoming UN Climate Change conference • Brazil: Ethanol in Brazil, sugar cane-based ethanol, market facts common myths, business opportunities • Panel discussion and your questions

  4. Renewable Energies: United States Renewal Energies in the United States Tim Unger, Andrews Kurth LLP tunger@andrewskurth.com Tel: +1 713 220 4370

  5. Renewable Energies: United States Recent Developments in the U.S.: In the last four years, U.S. Congress has passed: Two energy bills (2005 and 2007 ) and, Two economic bills, the 2008 Bailout Bill and the 2009 Stimulus Bill containing provisions promoting renewable energy AND there is still at least one more energy bill to come this year. In addition, state and local governments have passed legislation promoting renewables.

  6. Renewable Energies: United States Government Incentives Grants: a) Federal: Approximately $2 billion allocated for 2009 for invention and innovative projects Grants in lieu of investment tax credits of up to 30% of the capital cost of certain renewable projects. b) States: Some states also provide limited grants for renewable energy projects.

  7. Renewable Energies: United States Government Incentives Cont’d. Guarantees: a) Federal Energy Policy Act of 2005 authorized the Department of Energy (DOE) to issue loan guarantees for green projects that employ improved technologies. This Act authorized more than $10 billion in loan guarantees. 2009 Stimulus Bill extended the authority of the DOE to issue loan guarantees and appropriated $6 billion. It also expanded the projects eligible for guarantees to include renewable energy projects that generate electricity or thermal energy and facilities that manufacture related components, electric power transmission systems, and innovative biofuels projects. Power Purchases Federal agencies, some state and local governments and government owned utilities will purchase electricity produced by renewable energy sources under long-term contracts.

  8. Renewable Energies: United States Government Incentives Cont’d. Tax Incentives: a) Federal Investment Tax Credits or Grants: ITC of up to 30% of the capital cost for certain renewable projects or a grant of up to 30% of the cost of the project. 2) Production Tax Credits PTC of up to 2.1 cents per kilowatt hour for up to 10 years for certain renewable projects. Accelerated Depreciation 5 and 7 year accelerated depreciation schedule for certain renewable energy projects. State/Local Property tax reductions a) abatements b) limitations c) PILOT Payments 2) Sales tax reductions

  9. Renewable Energies: United States Renewable Portfolio Standards States 31 states already have Renewable Portfolio Standards which require electrical utilities in their jurisdiction to purchase a minimum level of electricity from renewable energy sources. Federal Both the current versions of the 2009 House and Senate Energy Bills contain a national Renewable Energy Standard. The House bill requires 6 percent of electricity to come from renewable energy by 2012 and 25 percent in 2025. The Senate bill requires 16% of electricity to come from renewable resources by 2019 and 20% by 2021.

  10. Renewable Energies: United States Cap and Trade States Some states in the Northeastern, Midwest and Western USA have already implemented carbon cap and trade programs. Generally speaking such programs set a limit or “cap” on the carbon that can be emitted, and entities are issued emission permits allowing them to emit a specific amount of carbon. Entities that need to increase their emissions must buy credits from those who pollute less. The transfer of allowances is referred to as a “trade”. In theory, those that can reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society. Federal The 2009 House energy bill provides for a cap and trade system, and it is expected that there will eventually be such a provision in a Senate bill as well.

  11. Renewable Energies: United States Results Since 2005 wind capacity in the USA has nearly tripled from 9,000 MWs of capacity to over 25,000 MWs to make the USA the world leader in installed wind power capacity. Between 2003 and 2007, solar power capacity increased 33% but from a very low level of about 300 MWs to 400 MWs. Germany by comparison has over 4,000 MWs. Notwithstanding the above, as of the end of 2007 renewable energy (exclusive of hydro) produced only 2.5% of total net electricity generation.

  12. Renewable Energies: Germany Renewal Energies in Germany Tilman Pfeifer, Taylor Wessing t.pheifer@taylorwessing.com Tel: + 49 40 36 80 30

  13. Renewable Energies: Germany Global and European trends in renewable energy investments, $bn Public Markets 24 % ~40% Asset Financing 68 % VC/ PE 8 % Sources: Global Trends in Sustainable Energy Investment 2007, UNEP; Clean Energy and Renewable Market Worldwide, hkc22.com; Taylor Wessing

  14. Regulation in favor of environmentally friendly sources Renewable Energies: Germany 4 factors driving RE growth First level factors Supporting factors Increasing energy demand Concern with environment Significant business opportunities in renewable energy Concern with security of energy supply Technology development Higher hydrocarbon prices (oil, gas, carbon) Central EU-policy is to increase the share of RE in energy consumption to 20% by 2020 All factors are sustainable therefore assuring a strong market growth

  15. Renewable Energies: Germany Investments in new RE projects opposed to the turnover generated from RE projects in 2007, Germany, € m abt. 14.5 bn • Hydropower is largely exploited • Investment shares reflect level of technology maturity, policy incentives and investor appetite • Due to technology maturity, most energy generation projects aim at sectors wind, biomass and solar. • Market maturity increasingly leads to M&A transactions in Europe abt. 11 bn

  16. Renewable Energies: Germany Investments In WIND ENERGY Installed MW, EU27 • Europe accounts for more than half of all installed wind energy capacity in the world. Capacities in the US are also growing strong. • Germany and Spain are the two major markets (ranking 2nd and 3rd in the world after the US). • Market trends are: • Increasing power per turbine boosting efficiency (from 1,848 MW average power/ turbine in 2006 to 1,923 MW in 2008) • growing importance of offshore wind farms (with 2 online offshore wind turbines for testing purposes standing against 76 wind offshore farms currently being planned or built in Germany) + 11% + 7.5% New 2008 End 2007 Source: Emerging Energy Research; BMU-Publication "Renewable Energies in Figures – National and International development"

  17. Renewable Energies: Germany Investments in SOLAR ENERGY Two methods of exploitation Photovoltaic electricity generation Solar thermal energy 4,594 • technology for harnessing solar energy for thermal energy • low-, medium-, or high-temperature collectors 294 489 Installed grid connected PV-capacity, MWp +1100 EUR 4.7bn investment in new facilities 42.7% of total investment in renewable energy projects in Germany 2007 2005 2007 2006 Source: Emerging Energy Research; BMU-Publication "Renewable Energies in Figures – National and International development"

  18. Renewable Energies: Germany Investments in BIOMASS ENERGY Two methods of exploitation Electricity generation Heat generation Heat supply from Biomass in the EU, Final Energy (TWh) Electricity supply from Biomass in the EU, Final Energy (TWh) 527 531 522 513 Wood/ Woodwaste 521 Biogas 4 Municipal Waste 6 2002 2003 2004 2005 2002 2003 2004 2005 2006 Source: Emerging Energy Research; BMU-Publication "Renewable Energies in Figures – National and International development"

  19. Renewable Energies: Germany Legal Framework in Europe – location matters! • EU Member States gave a binding commitment to meet • 20 % of EU’s total energy consumption • (Targets are for Germany 18% (status in 2005: 5.8%), Denmark 30% (17%), Spain 20% (8.7%), Italy 17% (5.2%) and Netherlands 14% (2.4%)) and • 10 % of fuels from renewables by the year 2020 • In order to reach these goals, Member States implemented national incentive systems • Methods of promoting renewables vary across European countries. However, feed-in regulations such as the German approach prove particularly effective. Feed-in regulation Quotas system/ green certificates Feed-in regulation and quotas system Tax incentives Other Source: Emerging Energy Research; BMU-Publication "Renewable Energies in Figures – National and International development"

  20. Renewable Energies: Germany General function of the German Renewable Energy Sources Act (EEG) Grid Operator • The feed-in regulation promotes planning and investment reliability by • forcing grid operators to connect renewable energy projects without delay and prior in ranking and • ensuring fixed remuneration rates allowing for a profitable operation (whereas these rates decrease over time) • The EEG focuses on promoting energy generation out of hydropower, biomass, geothermal energy, wind energy, solar radiation energy, and landfill gas and biogas. Fixed remuneration for a period of 20 years Feed-in tarif according to EEG Renewable Energy Project

  21. Renewable Energies: Germany Overview of Feed-in Tariff Regulations

  22. Project Developer Investor Share Purchase Agreement Project Development Agreement Cross boarder Investments possible 100% Subsidiary Technical Maintenance & Operations Agreement Financing Institutions Private Ltd Partnership Construction Company Renewable Energy Project EPC Agreement Real Estate Owners Hardware Suppliers (e.g. Enercon, Vestas, Repower, Conergy) Grid Operator Renewable Energies: Germany Renewable energy projects have a stable and simple structure

  23. Renewable Energies: Germany Renewable energy projects are long-term in nature Feed-in tariffs in Germany are guaranteed for numerous years, thereby allowing amortisation cumulative earnings cumulative costs feed-in tariff Technological progress (eg necessity for modernization) is the main limitation

  24. Renewable Energies: Denmark Renewal Energies in Denmark Jes Anker Mikkelsen, Bech-Bruun jam@bechbruun.com Tel: + 45 72 27 35 86

  25. Renewable Energies: Denmark Renewal Energies: A Global Challenge: Why we need sustainable alternatives to the conventional energy sources? To meet the world’s increasing energy consumption in the future: In 2050 there will be 9 billion people; The world’s energy consumption is expected to double from 2002 to 2030; Fossil fuels will at some point run out.

  26. Renewable Energies: Denmark Renewal Energies: A Global Challenge (2): To stop the dramatic climate changes we are experiencing; Use of fossil fuels in the energy causes emission of a range of greenhouse gases and air pollutants. Global warming is thought to be the consequence of greenhouse gases. Air pollutants acidify the environment

  27. Renewable Energies: Denmark Wind power: An unlimited supply and it’s free! 13,000 barrels of oil per year are needed to match 1 V90-3.0 MW wind turbine. Takes 3 hours for a V90-3.0 MW wind turbine to supply the average European family with electricity for an entire year.

  28. Renewable Energies: Denmark Wind power: Five good reasons (1) 1. Clean Does not produce CO2 or other greenhouse gases. Does not use drinking water Global warming is thought to be the consequence of greenhouse gases. Air pollutants acidify the environment 2. Fast A wind power plant can be get up and running within a year This means a quick return on the investment.

  29. Renewable Energies: Denmark Wind power: Five good reasons (2) 3. Predictable The prices of oil and gas can fluctuate The price of wind is predictable: always free 4. Competitive Wind power can compete on price with conventional sources of energy. There are no charges for CO2 emissions 5. Independent The wind is everywhere, it’s free and there is an unlimited supply The wind knows no borders and has the power to free countries from energy dependence on others

  30. Renewable Energies: Denmark Wind power: Wind conditions in Denmark RED: 8-9 m/sec YELLOW/ORANGE: 7-8 m/sec GREEN: 6-7 m/sec BLUE: <6 m/sec

  31. Renewable Energies: Denmark Wind power-Onshore wind turbines

  32. Renewable Energies: Denmark Wind power- Offshore wind turbines

  33. Renewable Energies: Denmark Denmark: Energy Consumption and Share by Renewables (1) Since 1980 the DK economy (GDP) has grown 78%. Energy consumption has been stable. CO2-emissions have been reduced. Today, biomass accounts for about 70% of renewable energy, but the wind power share increases year by year.

  34. Renewable Energies: Denmark Denmark: Energy Consumption and Share by Renewables (2) In 1980, renewable energies covered 3.4% of total energy in consumption in Denmark. In 2007, renewable energies covered 19% of total energy consumption in Denmark. Wind power covers 21% of Danish electricity consumption

  35. Renewable Energies: Denmark Compare: Global Energy Consumption and Share by Renewables Today, wind power’s share of global power consumption in just 1%. Because of the targets set in EU, China and the U.S., this share is expected to grow to at least 10% by 2020.

  36. Renewable Energies: Denmark Wind power – Environmental impact • Since wind power in the energy production does not result in emissions to the air, there is a great environmental benefit in using wind power • The greenhouse effect – In 2006, wind power reduced the emission level (in DK) in tonnes by: • Acidification of the environment – In 2006 wind power saved nature (in DK) from discharge of the following materials:

  37. Renewable Energies: Denmark The Wind Power Industry Facts: • The Danish wind power industry has created more than 20,000 jobs in Denmark. • The Danish wind power industry is the world’s largest and has 40 % of the global market share. • With a 20 % market share, and 38,000 wind turbines installed, Vestas is the world’s leading supplier of wind power solutions; • 90 % of the Danish production is sold abroad; • In 2007 the Danish wind power industry export increased to DKK 35 billion ( EUR 4,6 billion). • Growth expectations for the wind power industry are greater than growth expectations for the Chinese economy • The yearly instalment capacity is expected to increase with about 17 % to 2011. Top export markets for the Danish wind industry: Expected global enlargement:

  38. Renewable Energies: Denmark Danish Energy Legislation (1) The Danish government platform from Nov. 2007; Denmark shall be a green and sustainable society, 100 % independent of reliance on fossil fuels The Danish government has signed a broad-ranging energy agreement that ensures; The development of renewable energy, increased energy efficiency and more research into energy technologies To achieve these goals, the parliament has adopted various laws, among others; ”Law on the promotion of renewable energy” ”Law on bio-fuels”

  39. Renewable Energies: Denmark Danish Energy Legislation (2)

  40. Renewable Energies: Denmark COP 15 – Climate Change Conference in Copenhagen Denmark is hosting the 15th UN climate change conference in December 2009. The convention is a framework convention = a comprehensive tool for the reduction of greenhouse gas emissions, but contains no binding obligations to reduce them.

  41. Renewable Energies: Denmark COP 15 – Climate Conference in Copenhagen (Cont’d) In 1990, the UN General Assembly decided to begin formulating its first real climate convention. In 1992, United Nations Framework Convention on Climate Change (UNFCC) was signed by 154 countries in Rio de Janeiro, Brazil (today 192 have ratified). The first Conference of Parties (COP) took place in Berlin in 1995. COP is the highest organ in climate negotiations. General objective is to stabilise the atmospheric content of greenhouse gases

  42. Renewable Energies: Denmark COP 15 – Climate Conference in Copenhagen (Cont’d) COP 14 - Took place in Poland and was “the year of ideas.” COP 15 - Will be “the year of negotiation” - countries will enter into genuine negotiations on concrete proposals; The focus of negotiations in Copenhagen is to create a new agreement that will take effect in 2012, when the Kyoto Protocol`s first commitment period expires The new agreement will be built upon the following main elements; CO2-reductions Adaption to climate change Technology development and transfer Financing and investment

  43. Renewable Energies: India Renewal Energies in India O.P. Vaish, Vaish Associates Advocates opvaish@vaishlaw.com Tel: + 91 98 101 94 217

  44. Renewable Energies: India Renewable Energy sector in India Large potential; 80 GW of electric power to be built by 2012; 14 to 20 GW from Renewable Sources. • Biomass: • Current potential estimated at 16,000 MW • Cumulative installed capacity: 1,141 MW only • Wind • Fifth largest in the world in terms of installed capacity • Potential estimated (till 2020): 22,500 MW • Installed capacity: 9, 645 MW • Hydro: • Potential: 150,000 MW • Installed capacity: 34,660 MW • PV Solar: • Potential estimated: 20 MW per square kilometer • Addition of 9.50 million sq. meters by 2012

  45. Renewable Energies: India Fiscal Incentives: 80 % Accelerated depreciation No industrial clearances required Five year tax holiday Soft loans for equipment manufacturing Import of project equipment freely allowed A 50% subsidy on projects based on urban waste 100% foreign investment as equity- permitted Joint Ventures (JVs) encouraged Special Economic Zones (SEZs) for renewable power equipment manufacture

  46. Renewable Energies: India Legal and Regulatory Framework: Electricity - a concurrent subject under the Constitution. Central and State governments enact laws on the subject. • Electricity Act, 2003: • Section 61(h) : Tariff structure to encourage RE • Section 86(1)(e) - Regulatory Commission may specify purchase obligation for licensee from renewable energy • Rural Electrification Policy, 2006: • Access to all households at reasonable rates; • Minimum lifeline consumption of one unit per household

  47. Renewable Energies: India Legal and Regulatory Framework Cont’d: • National Draft Policy Statement on New & Renewal Energy: • Increasing the electricity generation from renewables by 2020; • Solar water heating mandatory in urban areas by 2012; • Accelerating bio-fuel development; • Establishing renewable energy development funds in states; • Solar roof-top lighting system in 10,000 govt. buildings • National Electricity Policy, 2005: • Exploit feasible renewable power potential; • Encourage private participation; • Reduce capital costs; • Promote competition.

  48. Renewable Energies: India Key Obstacles to Development of RE Sources: RE projects in remote locations 90% of small hydro potential in hilly areas – no industry, no demand Capital barrier - huge investment required in early stages of research and development Price distortions between conventional and renewable energy Technological Barriers – Lack of established technologies Low conversion efficiency - high costs

  49. Renewable Energies: India Key Players: India is amongst one of the top five Renewable Energy investment destinations. The current market has seen participation of, among others, the following companies as Manufacturers/Investors: Indian Companies • Suzlon • Enercon (India) Limited • Vestas Wind Technology India Private Limited • Tata Group • RRB Energy Limited • Moser Baer Signet Solar Jyoti Ltd. Laxmi Overseas Ltd. NTPC Ltd. Reliance Industries General Electric Vedanta Group

  50. Renewable Energies: India Key Players Cont’d: Foreign Companies • Indian Energy Limited, Guernsey, UK • Asian Development Bank (ADB), GE Energy Financial Services, Kyushu Electric Power Company and Brookfield Renewable Power in Joint Venture with NTPC • Beck Energy, Germany 4. China Light and Power, Hong Kong 5. MAN Solar Millenium GmbH of Germany in Joint Venture with Suryachakra Power Venture Pvt. Ltd. 6. Astonfield Renewable Resources Ltd (ARRL) 7. Generacion Eolica Group

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