; Charts
Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

Charts

VIEWS: 0 PAGES: 309

  • pg 1
									Facts & Figures 2007
(Updated October 2007)
Forward-Looking Statement

RWE Facts&Figures 2007 contains certain forward-looking statements as defined by US federal
securities laws. This predominantly relates to the following statements:
    – Projections of revenue, income, earnings per share, capital expenditure, dividends,
      the capital structure and other financials;
    – Statements of plans or objectives for future operations or concerning the company’s future
      competitive position;
    – Expectations of future economic performance; and
    – Statements of assumptions underlying several of the foregoing types of statements, all of
      which are forward-looking statements.
Also words such as “anticipate”, “believe”, “estimate”, “intend”, “may”, “will”, “expect”, “plan”,
“project”, “should” and similar expressions are intended to identify forward-looking statements.
The forward-looking statements reflect the judgement of RWE’s management based on factors
currently known to it. No assurances can be given that these forward-looking statements will
prove accurate and correct, or that anticipated, projected future results will be achieved. All for-
ward-looking statements are subject to various risks and uncertainties that could cause actual
results to differ materially from expectations. Such risks and uncertainties include, but are not
limited to, changes in the general economic and social environment, business, political and legal
conditions, fluctuating currency exchange rates and interest rates, price and sales risks associated
with a market environment in the throes of deregulation and subject to intense competition,
changes in the price and availability of raw materials, risks associated with energy trading (e.g.
risks of loss in the case of unexpected, extreme market price fluctuations and credit risks resulting
in the event that trading partners do not meet their contractual obligations), actions by competi-
tors, application of new or changed accounting standards or other government agency regulati-
ons, changes in, or the failure to comply with, laws or regulations, particularly those affecting the
environment and water quality (e.g. introduction of a price regulation system for the use of power
grids, creating a regulation agency for electricity and gas or the introduction of trading in green-
house gas emissions), changing governmental policies and regulatory actions with respect to the
acquisition, disposal, depreciation and amortisation of assets and facilities, operation and con-
struction of plant facilities, production disruption or interruption due to accidents or other unfore-
seen events, delays in the construction of facilities, the inability to obtain, or to obtain on accep-
table terms, necessary regulatory approvals regarding future transactions, the inability to
successfully integrate new companies within the RWE Group to realise synergies from such inte-
gration and the potential liability for remedial actions under existing or future environmental
regulations and the potential liability resulting from pending or future litigation. Any forward-
looking statement is valid only as of the date on which it is made. RWE neither intends to, nor
assumes any, obligation to update these forward-looking statements. For additional information
regarding risks, investors are urged to consult RWE’s latest annual report, other reports recently
filed with the Frankfurt Stock Exchange or the SWX Swiss Exchange and the material furnished to
the US Securities and Exchange Commission by RWE.




                                                                                                         2
                                                                                           Table of Contents




Strategy, Structure and
Corporate Governance
Strategy
RWE’s Strategy – Stability and Growth: The Right Mix for Adding Value                       15
Operating Environment Provides Attractive Opportunities for RWE                             16
Leading Positions: Two Products – Three Markets                                             17
RWE Aims to Grow Its European Energy Business Along the Value Chain                         18
Benefits of Vertical Integration of the Energy Business in the RWE Group                    19
RWE’s Geographic Focus for External Growth                                                  20
Revenue and Workforce Focused on Core Regions (2006)                                        21
Stable Portfolio: 33% of Operating Result Derived from Regulated Businesses (2006)          22
RWE’s Utility Customers (2006)                                                              23
RWE’s Mid-Term Capex Programme                                                              24
How Growth and Efficiency Enhancement Capex will
Impact RWE’s Underlying Earnings Performance                                                25
RWE Acquisition Criteria                                                                    26
RWE’s Targets                                                                               27


Structure
RWE Group Divisions Effective January 1, 2007                                               29
RWE’s New Efficiency Enhancement Targets                                                    30
Major Shareholdings of RWE AG (I)                                                           31
Major Shareholdings of RWE AG (II)                                                          32
Major Shareholdings of RWE AG (III)                                                         33
Major Associates Accounted for Using the Equity Method                                      34
RWE Energy is Responsible for the Retail Business in Continental Europe                     35
RWE Energy’s Value-Oriented Retail Strategy                                                 36
Structure of RWE Energy                                                                     37
RWE Energy’s Regional Energy Companies with Supply and Service Offers for Distributors      38
Grid Operation, Grid Service and Customer Service are Organised as Independent Companies    39
RWE Energy: Services for Various Customer Groups                                            40
RWE Energy: Regional Energy Companies (RECs) in Germany (2007)                              41
RWE Energy:Non-German Regional Energy Companies (2007)                                      42
RWE‘s Position in Central Eastern European Markets:
Poland, Czech Republic, Slovakia, Hungary (2006)                                            43
Major Acquisitions since FY 1999/2000: Electricity                                          44




                                                                                                         3
                                                                            Table of Contents




Major Acquisitions since FY 1999/2000: Gas                                   45
Major Acquisitions since FY 1999/2000: Water                                 46
Major Divestments since FY 1999/2000: Core Business                          47
Major Divestments since FY 1999/2000: Non-Core Business                      48


Corporate Governance
Group Centre and Group Business Committee: Greater Management Efficiency     50
Corporate Governance Code – Legal Basis                                      51
Corporate Governance Code –
Implementation of Recommendations and Suggestions of the Code by RWE (I)     52
Corporate Governance Code –
Implementation of Recommendations and Suggestions of the Code by RWE (II)    53




                                                                                          4
                                                                                               Table of Contents




Utilities
Electricity
Energy Policy
CHP and REA
German Combined Heat and Power Generation (CHP) Act                                             55
German Renewable Energy Act (REA)                                                               56
Renewable Energy Surcharges Expected to Increase further                                        57
Emissions Trading
EU Emissions Trading: Key Facts                                                                 58
EU Emissions Trading Directive                                                                  59
Top-Down Allocation of Certificates: How Does it Work?                                          60
The Cap & Trade Principle                                                                       61
EU 15 Burden Sharing Targets by 2008/2012 Compared with 1990                                    62
Developments in Emissions of the Six Kyoto Gases between 1990 and 2005                          63
CO2 Emissions in the EU in 2005                                                                 64
CO2 Emissions in the EU in 2006                                                                 65
CO2 Emissions in the EU in 2005: Deficit (-) and Surplus (+)                                    66
CO2 Emissions in the EU in 2006: Deficit (-) and Surplus (+)                                    67
Germany’s Climate Target within the Scope of EU Burden Sharing Agreement                        68
CO2 Equivalent Emissions in Germany by Sector                                                   69
UK Climate Target within the Scope of EU Burden Sharing Agreement                               70
CO2 Equivalent Emissions in the UK by Sector                                                    71
The German National Allocation Plan for 2008 – 2012 (NAP II) vs. NAP I (2005 – 2012) (1/3)      72
German NAP II vs. NAP I (2/3)                                                                   73
German NAP II vs. NAP I (3/3)                                                                   74
United Kingdom: Key Elements of NAP II Approved by the EU vs. NAP I (1/2)                       75
United Kingdom: Key Elements of NAP II Approved by the EU vs. NAP I (2/2)                       76
Germany: Expected Impact of NAP II on RWE                                                       77
UK: Expected impact of NAP II on RWE                                                            78
Timetable: NAP II and beyond                                                                    79
Clean Development Mechanism (CDM) / Joint Implementation (JI): How Does it Work?                80
CDM/JI Projects Give RWE Access to Cost-Effective Reduction of Greenhouse Gas Emissions (I)     81
CDM/JI Projects Give RWE Access to Cost-Effective Reduction of Greenhouse Gas Emissions (II)    82
RWE‘s Target for the CDM/JI Market for 2008 – 2012: 90 Million Certificates (I)                 83
RWE‘s Target for the CDM/JI Market for 2008 – 2012: 90 Million Certificates (II)                84
Prices of EU Allowances for Emission Certificates                                               85




                                                                                                             5
                                                                                              Table of Contents




RWE’s Emissions Profile                                                                        86
CO2 Avoidance Costs through Building New Power Plants                                          87
Power Generation in Germany: CO2 Emissions per Plant Type                                      88
Climate Protection
RWE‘s Strategy for Climate Protection: The Measures                                            89
RWE‘s Strategy for Climate Protection: Modernising and Expanding Existing Power Stations       90
RWE Adopts Strategy to Reduce the Physical and Financial Exposure to Carbon                    91
The Technology of Today: Current Status of New Power Plant Projects in Continental Europe      92
The Technology of Today: Modernising RWE’s UK Power Plant Portfolio                            93
The Technology of Tomorrow:
Increase in Efficiency – the Priority Development Target for CO2 Reduction                     94
The Technology of the Future:
RWE to Gain Leadership in Europe in CO2-Free Power Plant Technology                            95
The Technology of the Future:
Electricity Generation with CO2 Separation and Storage – RWE Drives IGCC Technology forward    96
The Technology of the Future:
Operation Start-Up by 2014 Requires Parallel Development of Power Plant and CO2 Storage        97

Generation
Market Data
Shares of Primary Energy Sources in Total Electricity Generation in Europe (2006)              98
Development of the European Power Plant Portfolio from 2005 to 2030                            99
Europe Has an „Age Problem“                                                                   100
Age Structure of Power Plants in Europe in 2007 (I)                                           101
Age Structure of Power Plants in Europe in 2007 (II)                                          102
Development of Energy Consumption in Germany                                                  103
German Energy and Power Mix (2006)                                                            104
Generation Capacity in Europe Will Stay Tight                                                 105
Europe’s Total Generation Capacity: ~ 800 GW (2007)                                           106
Need for Capacity by Country                                                                  107
UCTE Systematic for Evaluating the Remaining Generation Capacity in Europe                    108
UCTE Expects Severe Capacity Shortage in Europe by 2020                                       109
CERA Expects Capacity Bottleneck in Europe as soon as 2009 (I)                                110
CERA Expects Capacity Bottleneck in Europe as soon as 2009 (II)                               111
Proposed New Plants with Different Fuel Mix in Each Country – Gas Projects are Dominant       112
Comparison of Proposed and Realistic Power Plant Projects                                     113
Coal Will Provide Largest Share of Generation Worldwide                                       114
Coal is Abundant Relative to Other Fuels                                                      115
CO2 Reduction through Higher Efficiency Essential for Hard Coal Plants                        116
Attractiveness of Coal and Gas Differs in Germany and the UK                                  117



                                                                                                            6
                                                                                   Table of Contents




Tight European Engineering Capacity                                                118
Construction Companies are also Constrained Due to China’s Demand                  119
Due to Limited Producer Capacity Essential Components are Scarce                   120
Scarcity Drives Costs: New-Build Power Station Costs up 30%                        121
Last But Not Least: Political Risks Impede Investment Plans                        122
UCTE Expects Capacity Bottleneck in Germany from 2015 Onwards                      123
Considerable Replacement Needed in Germany – Including Nuclear Phase-Out           124
Considerable Replacement Needed in Germany – Excluding Nuclear Phase-Out           125
Phase-Out of Nuclear Power Plants in Germany is another Tightening Factor          126
Substantial Investment in Capacity Needed in the UK to Replace Shut-Downs and
Meet Rising Demand (I)                                                             127
Substantial Investment in Capacity Needed in the UK to Replace Shut-Downs and
Meet Rising Demand (II)                                                            128
Large Combustion Plant Directive (LCPD):
Shut-Down of 13 GW by 2015 (or Earlier) in UK                                      129
UCTE Expects Capacity Bottlenecks in Czech Republic by 2020                        130
UCTE Expects a Negative Reserve Margin in Hungary by 2015                          131
UCTE Expects a Negative Reserve Margin in Poland by 2020                           132
EU Membership Forces Closure of Nuclear Power Plants in CEE Countries              133
Lignite is a Key Fuel in CEE Markets to Resolve the Capacity Issue                 134
Planned Power Plant Projects in Germany (I)                                        135
Planned Power Plant Projects in Germany (II)                                       136
Planned Power Plant Projects in Germany (III)                                      137
Planned Power Plant Projects in Germany (IV)                                       138
The ‘Marginal Power Plant’ Principle –
Key to Price Formation on the Wholesale Market in Germany                          139
German Merit Order: Theoretical Power Pricing with and without Emissions Trading   140
Remaining Power Generation Capacity in Europe                                      141
Remaining Power Generation Capacity in Germany                                     142
Balancing Power: How Does it Work?                                                 143
Factors Exerting a Major Influence on Electricity Wholesale Prices                 144
Comparison of Wholesale Prices in European Power Markets                           145
Electricity Prices in Central Eastern European Countries                           146
UK Merit Order: Theoretical Power Pricing with and without Emissions Trading
(at Wintertime with High Gas Prices)                                               147
Coal Price Development                                                             148
Development of Sea Freight Rates for Hard Coal                                     149
Main Sea Freight Trading Routes for Hard Coal                                      150
The UK Large Combustion Plant Directive                                            151




                                                                                                 7
                                                                                            Table of Contents




RWE
RWE Power Generation: No 2 in Europe                                                        152
RWE Market Shares in European Power Generation by Core Region (2006)                        152
RWE’s Share in German Power Generation Market Relative to Peers (2006)                      153
RWE Group Electricity Production by Primary Fuel (2006)                                     154
RWE Group Electricity Production by Region (2006)                                           155
RWE Group Power Plant Capacity by Region (2006)                                             155
The Role of Electricity Purchase Agreements at RWE Power in Germany (2006)                  156
RWE Group Generation Output and Capacity by Load Factor (2006)                              157
The RWE Power Division’s Power Plant Portfolio (2006)                                       158
RWE Power’s Major Power Plants in Germany                                                   159
RWE npower’s Major Power Plants in the UK (2006)                                            160
Age structure of RWE Power Plants in Germany in 2007 in MW (I)                              161
Age structure of RWE Power Plants in Germany in 2007 in MW (II)                             162
Thermal Efficiency of RWE’s German Power Plants                                             163
Lignite-Fired Power Generation: Higher Efficiency, Less CO2                                 164
RWE Lignite Production in the Rhenish Mining Area                                           165
Results of German Nuclear Consensus Talks: 810 TWh Nuclear Electricity Production for RWE   166
RWE Power‘s Decommissioning Concept for Nuclear Power Plants                                167

Electricity Trading
Market Data
Major European Electricity Trading Exchanges                                                168
RWE
European Power Trading (2006)                                                               169
UK Power Trading (2006)                                                                     170
RWE Trading’s Trading Volume in Europe                                                      171
RWE Trading: The Central Role has Evolved over Time                                         172
RWE Trading: The Group’s Wholesale Risk Pool and Portfolio Manager in Germany               173
RWE Trading: The Group’s Wholesale Risk Pool and Portfolio Manager in the UK                174
Short-Term Position Management: Managing Generation Assets More Efficiently                 175
What is Short-Term Position Management?                                                     176
RWE’s Counterparties in the Power Market in 2006                                            177
European Gas Trading (2006)                                                                 178
RWE’s Counterparties in the Gas Market in 2006                                              179
RWE‘s Risk Governance Structure                                                             180
RWE‘s Group Risk Management: Governance and Control Framework                               181
RWE’s Risk Management Infrastructure                                                        182
System of Risk Limits of RWE Trading GmbH                                                   183
RWE Trading: Credit Risk                                                                    184


                                                                                                          8
                                                                                      Table of Contents




Grid
Market Data
German Extra High-Voltage Grid Fees are in the Middle of the European Range
despite Price Increases Caused by the Political Environment                           185
Control Areas of Germany’s Transmission System Operators (2007)                       186
Germany has the Lowest Power Outages in Europe                                        187
Germany: Import and Export of Electricity (2006)                                      188
Transfer Capacities in Europe from and to Germany (Summer 2007)                       189
The German Energy Industry Act:
Regulating Grid Access and Grid Fees in the Electricity and Gas Markets               190
The German Energy Industry Act: Unbundling in the German Energy Market                191
The German Energy Industry Act: Unbundling in the RWE Group Structure                 192
The German Energy Industry Act: Key Elements of Grid Fee Calculation                  193
The German Energy Industry Act: Further Topics                                        194
Typical Grid Fee Calculation Models                                                   195
German Grid Fee Calculation: Two Models                                               196
Current Regulatory Model of Grid Fee Calculation in Germany                           197
RWE
Electricity: Grid Fee Applications of RWE for 2006/2007 and Cuts                      198
Gas: Grid Fee Applications of RWE for 2006/2007 and Cuts                              199
How Power in RWE’s Electricity Grid Gets to the Customer                              200
RWE’s German Electricity Grid (2006)                                                  201
RWE’s German Transmission Business (2006)                                             202
Grid Fees in Germany: RWE is below the Average                                        203

Electricity Supply
Market Data
The Largest Electricity Companies in Europe                                           204
Electricity Prices in the EU (I)                                                      205
Electricity Prices in the EU (II)                                                     206
Pan-European Comparison of the Portion of End Customer Electricity Prices
Accounted for by Taxes                                                                207
Structure of the German Electricity Market (2006)                                     208
Main Challenges Going forward in the German Electricity Market                        209
Structure of the UK Electricity Market (2006)                                         210
Since 1999, Competition is Real: Freedom of Choice for German Electricity Customers   211
Fees for Electricity Consumption in Germany                                           212
The Industry is Charged by Increasing Governmental Charges but
Net Electricity Prices are Decreasing                                                 213
Government Inflates German Electricity Bills                                          214



                                                                                                    9
                                                                                   Table of Contents




Government Charges Account for 40% of German Household Electricity Bills           215
The Largest Electricity Companies in Germany by Sales to End Customers             216
CEE Markets Show Opportunities for Attractive Growth                               217
Regulatory Framework in RWE’s Core Energy Markets of Central Eastern Europe (I)    218
Regulatory Framework in RWE’s Core Energy Markets of Central Eastern Europe (II)   219
German Tariff Increases: How it Works                                              220
RWE
RWE Shares in European Electricity Supply Markets (2006)                           221
RWE Electricity Customers by Core Region (2006)                                    222
RWE Group Electricity Sales Volume (2006)                                          223
Volumes Shifted away from the German Retail to the Emerging Wholesale Market       224
RWE Sells out of a Net Long Position in Germany (2006)                             225
RWE Electricity Sales by Customer Group (2006)                                     226
RWE npower: Value-Oriented Retail Strategy with Growing Customer Numbers           227
RWE npower’s UK Customer Base (2006)                                               228




                                                                                                10
                                                                                       Table of Contents




Utilities
Gas
Downstream
Market Data
Europe’s Largest Gas Companies (2006)                                                  230
Gas Price Setting in Germany (I)                                                       231
Gas Price Setting in Germany (II)                                                      232
Gas Border Transfer Prices (German Imports)                                            233
Increased Government Charges for German Household Gas Bills                            234
German Household Gas Prices Compared with Other European Countries                     235
German Household Gas Prices from 1999 to 2007 Compared with Other European Countries   236
Government Charges Included in the German Gas Price                                    237
The Structure of the UK Gas Market                                                     238
The German Gas Market (2006)                                                           239
Main Challenges Going forward in the German Gas Market                                 240
Grid Access in the German Gas Market                                                   241
Natural Gas Supplies in Germany (2006)                                                 242
European Gas Trading Points                                                            243
RWE
RWE Gas Midstream: Full Integration of RWE Group‘s Midstream Activities                244
RWE Shares in the European Gas Downstream Market (2006)                                245
Gas Customers of RWE in Europe (2006)                                                  246
Gas Sales of RWE by Customer Group (2006)                                              247
RWE Group Gas Sales Volume (2006)                                                      248
RWE Dea is Financial Hedge for the RWE Group                                           249
RWE Ranks Among the Top European Gas Players (2006)                                    250
RWE Transgas at a Glance                                                               251
RWE’s Regional Gas Distribution Companies: Nationwide Coverage in the Czech Republic   252
Relevant Institutions and Their Role in Regulating the Czech Gas Market                253
Status of Czech Gas Market Liberalisation and Regulation                               254
Czech Gas Market: Gas Price Setting Mechanism                                          255
Czech Gas Market: Basics of the Regulatory Framework                                   256




                                                                                                    11
                                                                                     Table of Contents




Transport
RWE
RWE’s Position in European Gas Transit Business                                      257
RWE’s New Entry-Exit System for the German Gas Market: The Two-Contract Model (I)    258
RWE’s New Entry-Exit System for the German Gas Market: The Two-Contract Model (II)   259
RWE’s German Gas Market Areas                                                        260
RWE’s German Gas Transmission Network                                                261

Upstream
The Value Chain of the Upstream Business                                             262
Classification of Reserves & Resources                                               263
RWE Dea’s Main Competencies                                                          264
Balanced Mix: RWE Dea’s Resource Portfolio                                           265
RWE Dea – Reserves/Resources (P50)                                                   266
RWE Dea’s Asset Resource Contribution (2006)                                         267
RWE Dea – Gas and Oil Production, Ambitious New Targets                              268
RWE Dea’s Key Performance Indicators                                                 269
Investment in Organic Growth: RWE Dea’s Capex Plan per Region                        270
Upstream Oil & Gas – Overview of RWE Dea’s Activities                                271

LNG
Liquefied Natural Gas (LNG) will be of Growing Importance for RWE                    272
How the Value Chain of Liquefied Natural Gas (LNG) Works                             273
How RWE Organises its Involvement in the Liquefied Natural Gas (LNG) Value Chain     274
Shipments of Liquefied Natural Gas (LNG) to Europe                                   275
Present Capacity of Liquefied Natural Gas (LNG) (2007)                               276
Forecasted World Wide Growth in LNG Capacity and Regasification                      277




                                                                                                  12
                                                                                           Table of Contents




Financial Information
RWE Share
Shareholder Structure of RWE AG                                                            279
RWE Share Profile                                                                          280
RWE’s Dividend Policy                                                                      281

Fixed Income Financing
RWE’s Centralised Treasury – Basis for Groupwide Financial Risk Management                 282
RWE AG: Flexible Funding Structure and Diversified Funding Sources                         283
Gross Financial Debt Currency and Interest Exposure                                        284
Maturity Profile of Capital Market Debt (I)                                                285
Maturity Profile of Capital Market Debt (II)                                               286
RWE AG: Financing Policy                                                                   287
Summary Cross Default Clause: Debt Issuance Programme RWE AG/RWE Finance B.V.              288
Structural Subordination in the RWE Group                                                  289
Credit Rating 2007 – RWE AG                                                                290
RWE AG: Financial Risks                                                                    291
RWE AG: Managing Interest Rate Risk – Asset/Liability Management                           292
RWE AG: Managing Foreign Exchange Risk                                                     293
RWE AG: Managing Financial Counterparty Risk                                               294
RWE’s Commodity Risk Hedging Principles                                                    295
RWE Bond Programme (I)                                                                     296
RWE Bond Programme (II)                                                                    297
RWE Securities                                                                             298

Nuclear Provisions
Nuclear Provisions                                                                         299
How the Size of the Provision is Determined                                                300
Split of Nuclear Provisions                                                                301

Pension Provisions
Pension Provisions: RWE‘s Proceeding for Setting
up a Contractual Trust Arrangement (CTA) and Pensionsfonds                                 302
Impact of Setting up a Contractual Trust Arrangement (CTA) and Pensionsfonds on RWE (I)    303
Impact of Setting up a Contractual Trust Arrangement (CTA) and Pensionsfonds on RWE (II)   304

Miscellaneous
RWE’s New Long-Term Incentive Plan (LTIP): Advantages                                      305
RWE’s New Long-Term Incentive Plan (LTIP): Plan Design                                     306
RWE’s New Long-Term Incentive Plan (LTIP): Performance Measure                             307
RWE’s New Long-Term Incentive Plan (LTIP): Payout Scheme                                   308
RWE’s New Long-Term Incentive Plan (LTIP): Payout Example                                  309
                                                                                                        13
           Strategy, Structure and Corporate Governance




Strategy




                                                   14
                                                                                                           Strategy




RWE’s Strategy – Stability and Growth:
The Right Mix for Adding Value

                                          Focus primarily on energy*)



                                                                s     Regional orientation

                                                                s     Cost leadership

           Electricity                                          s     Focus on high-value customers and
                                                                      regulated business
           Gas
                                                                s     Vertical integration

                                                                s     Synergies




                                    Focus on three European key regions



                                                                s     Focus on high-quality markets
           Germany
                                                                s     Strong presence with critical mass
           UK
                                                                s     Regional synergies
           Central Eastern Europe
                                                                s     No “problem zones“



*) Including remaining water activities in Germany and Central Eastern Europe.




                                                                                                               15
                                                                                                  Strategy




Operating Environment Provides
Attractive Opportunities for RWE

Competition in largely saturated markets
s Companies offering more than one product in a single region can save costs and thus gain
   a competitive edge
s RWE’s focused multi-regional portfolio creates a balanced risk profile

Growth in Central Eastern Europe
s Central Eastern Europe continues to grow at an above-average rate compared to Western
    European countries
s RWE entered these markets early and almost 14% of the Group’s profit comes from this region

Regulation of natural monopolies
s Companies that are able to control their costs and continuously improve their efficiency in
    regulated markets are able to realise good returns that have stable growth in the long term
    (German electricity and gas networks, Czech gas business and remaining Continental
    European water business)
s RWE has already experienced long-term success with operations in various regulated sectors
s 33% of the current profit is generated in regulated markets

Energy policy decisions
s RWE limits its exposure to political risks by its multi-regional concept




                                                                                                      16
                                                                                                        Strategy




Leading Positions: Two Products*) – Three Markets

                                                 Electricity supply              Gas supply



Germany                                                  No 1                        No 2

UK                                                       No 2                        No 3

Central Eastern Europe                           No 2 in Hungary,         No 1 in the Czech Republic,
                                                  No 3 in Slovakia,       leading position in Hungary
                                            starting position in Poland

Total Europe                                             No 3                        No 6



*) Including remaining water activities in Germany and Central Europe.




                                                                                                            17
                                                                             Strategy




RWE Aims to Grow Its European Energy Business
Along the Value Chain


                   Opportunities             Risks           Aspiration


  Upstream      s Good returns        s Overheated market
 oil and gas    s Organic growth                             Kick-off LNG

                s Leverage core       s Overbuilding
                  strength            s CO2
 Generation     s Privatisations

                s Advanced asset      s Margin reduction
                  optimisation
   Trading      s Increasing market




Transmission                                                Strengthen gas
                s Regulatory          s Regulation
                  outperformance


 Distribution

                s Expand customer     s Intensified
                  base                  competition
    Sales       s Privatisations




                                                                                 18
                                                                                                                      Strategy




      Benefits of Vertical Integration of the Energy Business
      in the RWE Group

                     Upstream (Generation)        Gas Midstream Energy              Supraregional       Electricity
                                                  (Commercial     trading           and regional        and
                  Power            Gas and oil
                                                  optimisation of                   electricity         gas supply
                  generation       production
                                                  procurement,                      and gas grids
                                                  transport and
                                                  storage)

Continental       RWE             RWE Dea          RWE           RWE Trading        RWE
Europe            Power                            Gas Midstream                    Energy

United            RWE                                                                                   RWE
Kingdom           npower                                                                                npower




      s       Integrated business model: strong presence along all parts of the energy value chain

      s       Stability and growth: well balanced portfolio of leading market positions in mature and
              growing markets in Europe




                                                                                                                          19
                                                                                     Strategy




RWE’s Geographic Focus for External Growth

q   Electricity
    Gas
s   Water




                            NETHERLANDS
                      UK                         POLAND

                                   GERMANY
                      LUXEMBOURG
                                       CZECH REPUBLIC
                                                  SLOVAKIA

                                          AUSTRIA    HUNGARY




s   UK:                Strengthen position as top tier power and gas player.

s   Netherlands:       Become a leading gas and power company.

s   Germany:           Strengthen gas position to complement power.

s   Eastern Europe:    Expand existing Central Eastern Europe positions
                       (and selectively occupy positions in South Eastern Europe).



s   European Gas:      Secure access to Liquefied Natural Gas.




                                                                                         20
                                                Strategy




Revenue and Workforce Focused on Core Regions
(2006)

External revenue by region

Germany                      61%




UK                           20%




Central Eastern
Europe                       10%



Other Regions                9%




Regional break down of RWE’s workforce

Germany                      61%




UK                           19%




Central Eastern
Europe                       19%




Other Regions                1%




                                                    21
                                                                                 Strategy




Stable Portfolio: 33% of Operating Result Derived from
Regulated Businesses (2006)

External Revenue

Unregulated business                         65%




Regulated business                           35%




Operating Result

Unregulated business                         67%




Regulated business                           33%




s     Regulated business includes:
      – German electricity and gas grids
      – German electricity supply for private and small commercial customers*)
      – Czech gas distribution and supply business
      – Gas distribution in Netherlands
      – Electricity supply in Poland and Hungary
      – Continental European water business



*) Since July 1, 2007 no longer regulated.




                                                                                     22
                                                          Strategy




RWE’s Utility Customers (2006)

in million1)

Electricity                                 20

Gas                           10

Water                              152)



1) Including customers of RWE minority holdings ≥ 20%.
2) Population served excluding water business for sale.




                                                              23
                                                                                                   Strategy




RWE’s Mid-Term Capex Programme

Average annual capex                                       € 5.0 bn p.a.
                                                             +/- 10%
                                                                           RWE npower
                                                                           € 600 m p.a. (+/-50%)
               € 4.0 bn p.a.              € 3.5 bn p.a.
                                                                           RWE Energy
                                            +/- 15%                        € 1,500 m p.a. (+/-20%)

Water
Division                  € 2.3 bn p.a.                                    RWE Dea
                                                                           € 600 m p.a. (+/-15%)


Energy                                                                     RWE Power
                                                                           € 2,300 m p.a. (+/-30%)



               2003 – 2006                2006 – 2010e     2007 – 2011e
                 Actual                   Previous Plan      New plan




    Approximately 40% of the total programme is dedicated to growth and efficiency
                   enhancement, thereby creating additional value.




                                                                                                       24
                                                                                                                        Strategy




How Growth and Efficiency Enhancement Capex will
Impact RWE’s Underlying Earnings Performance
in € billion


                            25.0

Maintenance                   7.0

Mandatory (grid)              1.4
                                         Efficiency
                              8.4      enhancement
Replacement                                                      9.9                             Operating result*):
                                       approx. 20%
                                                                 1.7                               + € 1,000 m p.a.
                                                                         149.0 TWh
                                            100%
Growth                        8.2                                 8.2                            EBITDA:
                                                                                                    + € 1,200 m p.a.

                       Total capex                    Growth/efficiency                         Average underlying
                      2007 – 2011e                   enhancement capex                         earnings impact after
                                                        2007 – 2011e                             finalising projects


*) Average impact. Depending on depreciation period, operating result lower in early years and higher in later years.




                                                                                                                            25
                                                                                    Strategy




RWE Acquisition Criteria

Strategic

s   Strengthening RWE’s position in converging European energy market

s   Evaluation of assets according to criteria of attractiveness
    – Growth potential
    – Risk profile
    – Available market position
    – Regulation

s   Quality of business

s   Synergy potential with existing assets and potential for
    stand alone efficiency enhancements



Financial

s   ROCE has to match WACC in the 3rd year of full inclusion of acquired assets
    (including goodwill)

s   IRR > Hurdle rate (after tax)

s   Single A rating

s   New cap for Group net debt (including pension provisions) set at € 22 – 24 bn




                                                                                        26
                                                                                                                     Strategy




RWE’s Targets


     Dividend              Recurrent net                 EBITDA                   Operating          Efficiency
                              income                                               result          enhancements



     For 2007:            Increase of at least           Growth of                 Growth of       € 600 m annual
dividend proposal            15% in 2007,            5%-10% in 2007           10%-15% in 2007,        earnings
  for payout ratio         average increase                                   average of 5% p.a.   contribution by
   of 70%-80%*)           of 10% p.a. in the                                    organic growth     year-end 2010
                          period 2007-2008                                    over the medium-
    as of 2008:                                                                       term
  regular payout
 ratio of 50%-60%
  of recurrent net
       income




                                                          Targets



*) The prerequisite is a successful IPO of at least the majority of American Water in 2007.




                                                                                                                         27
            Structure




Structure




                 28
                                                                                                 Structure




RWE Group Divisions Effective January 1, 2007


                                  RWE AG (Group Centre)

    RWE           RWE          RWE           RWE           RWE             RWE         RWE
    Power         Dea1)        Gas Mid-      Trading1)     Energy          npower      Systems
                               stream2)

   Generation   Upstream                                                  Generation
                Gas & Oil
                                                          Regional        Sales
                                                          Energy          npower
                                                          Companies




                                                          Trans-          Renewables
                                                          mission         npower
                                                          Grids           renewables
                                                          (Electricity/
                                                          Gas)




1) RWE Trading and RWE Dea included in the figures of RWE Power.
2) RWE Gas Midstream is included in the figures of RWE Energy.




                                                                                                      29
                                                                                                  Structure




RWE’s New Efficiency Enhancement Targets

Annual earnings contribution
in € million




                                                                   200

                                                                                  € 600 million
                                                200
                                                                                  annual
                                                                                  earnings
                             100
                                                                                  contribution
         100                                                                      in total
                                                                                  as of 2010
        2007                2008                2009               2010




s   Efforts will mainly focus on cost reductions from internal benchmarking processes
    and higher availability and increase in efficiency of our generation assets

s   Efficiency gains will be fully accretive to operating result

s   In addition, we aim to compensate for the cost inflation between 2007 and 2010




                                                                                                       30
                                                                                       Structure




Major Shareholdings of RWE AG (I)*)

RWE AG                                         Essen            Germany
Affiliates                                                                Stake in %
RWE Power Aktiengesellschaft                   Cologne, Essen   Germany       100.00
 GfV Gesellschaft für Vermögensverwaltung AG   Dortmund         Germany       100.00
 Kernkraftwerke Lippe-Ems GmbH                 Lingen (Ems)     Germany        99.25
 Kernkraftwerk Gundremmingen GmbH              Gundremmingen    Germany        75.00
 Mátrai Erömü Zártkörüen Müködö Rt. (MÁTRA)    Visonta          Hungary        50.96
 Rheinbraun Brennstoff GmbH                    Cologne          Germany       100.00
RWE Dea AG                                     Hamburg          Germany       100.00
 RWE Dea Norge AS                              Oslo             Norway        100.00
 RWE Dea Suez GmbH                             Hamburg          Germany       100.00
RWE Trading GmbH                               Essen            Germany       100.00
RWE Energy Aktiengesellschaft                  Dortmund         Germany       100.00
 RWE Energy Beteiligungsgesellschaft mbH       Dortmund         Germany       100.00
 RWE Solutions Aktiengesellschaft              Alzenau          Germany       100.00
 RWE Transportnetz Gas GmbH                    Dortmund         Germany       100.00
 RWE Transportnetz Strom GmbH                  Dortmund         Germany       100.00
 Thyssengas GmbH                               Duisburg         Germany       100.00
RWE Westfalen-Weser-Ems Aktiengesellschaft     Dortmund         Germany        79.97
 RWE Westfalen-Weser-Ems Netzservice GmbH      Dortmund         Germany       100.00
 RWE Westfalen-Weser-Ems Verteilnetz GmbH      Recklinghausen   Germany       100.00

*) As of June 30, 2007.




                                                                                            31
                                                                                                       Structure




Major Shareholdings of RWE AG (II)*)

Affiliates                                                                                Stake in %
RWE Rhein-Ruhr Aktiengesellschaft                Essen                   Germany              100.00
 Emscher Lippe Energie GmbH                      Gelsenkirchen           Germany               79.00
 EWV Energie- und Wasser-Versorgung GmbH         Stolberg                Germany               53.72
 rhenag Rheinische Energie Aktiengesellschaft    Cologne                 Germany               74.90
 RWE Kundenservice GmbH                          Bochum                  Germany              100.00
 RWE Rhein-Ruhr Netzservice GmbH                 Siegen                  Germany              100.00
 RWE Rhein-Ruhr Verteilnetz GmbH                 Wesel                   Germany              100.00
 RWW Rheinisch-Westfälische
 Wasserwerksgesellschaft mbH                       Mülheim an der Ruhr   Germany              79.79
 Stadtwerke Düren GmbH                             Düren                 Germany              74.95
RWE Key Account GmbH                               Essen                 Germany             100.00
Süwag Energie AG                                   Frankfurt/Main        Germany              77.58
 Süwag Netz GmbH                                   Frankfurt/Main        Germany             100.00
Koblenzer Elektrizitätswerk und
Verkehrs-Aktiengesellschaft                        Koblenz               Germany              57.50
envia Mitteldeutsche Energie AG                    Chemnitz              Germany              63.95
 envia Netzservice GmbH                            Chemnitz              Germany             100.00
 envia Verteilnetz GmbH                            Halle/Saale           Germany             100.00
 MITGAS Mitteldeutsche Gasversorgung GmbH Halle/Saale                    Germany              60.10
Lechwerke AG                                       Augsburg              Germany              89.87
 LEW Verteilnetz GmbH                              Augsburg              Germany             100.00
VSE Aktiengesellschaft                             Saarbrücken           Germany              69.33
 Energis GmbH                                      Saarbrücken           Germany              66.16
Netherlands
 RWE Energy Nederland N.V.                         Hoofddorp             Netherlands         100.00
 RWE Gas International B.V.                        Hoofddorp             Netherlands         100.00
 RWE Obragas N.V.                                  Helmond               Netherlands         100.00
Hungary
 Budapesti Elektromos Müvek Nyrt. (ELMÜ)           Budapest              Hungary              55.25
 Észak-magyarországi Áramszolgáltató Nyrt. (ÉMÁSZ) Miskolc               Hungary              54.26
Poland
 RWE Stoen S.A.                                    Warsaw                Poland               99.15
Czech Republic
 Jihomoravská plynárenská, a.s.                    Brno                  Czech Republic       50.11
 RWE Transgas, a.s.                                Prague                Czech Republic      100.00
 Severoceská plynárenská, a.s.                     Ústí nad Labem        Czech Republic      100.00
 Severomoravská plynárenská, a.s.                  Ostrava               Czech Republic        67.74
 Stredoceská plynárenská, a.s.                     Prague                Czech Republic       96.68
 Vÿchodoceská plynárenská, a.s.                    Hradec Králové        Czech Republic       66.57
 Západoceská plynárenská, a.s.                     Plzen                 Czech Republic      100.00


*) As of June 30, 2007.




                                                                                                            32
                                                                                      Structure




Major Shareholdings of RWE AG (III)*)

Affiliates                                                               Stake in %
RWE Gas Midstream GmbH                Essen              Germany             100.00
RWE Npower Holdings plc               Swindon            Great Britain       100.00

Water Division
 American Water Works Company, Inc.   Wilmington/Delaware USA               100.00
Others
 RWE Finance B.V.                     Zwolle             Netherlands        100.00
 RWE Systems Aktiengesellschaft       Dortmund           Germany            100.00

*) As of June 30, 2007.




                                                                                           33
                                                                                          Structure




Major Associates Accounted
for Using the Equity Method*)

Affiliates                                                                   Stake in %
RWE Power Aktiengesellschaft                  Cologne, Essen    Germany
 Großkraftwerk Mannheim Aktiengesellschaft    Mannheim          Germany          40.00
 TCP Petcoke Corporation                      Dover/Delaware    USA              50.00
RWE Energy Aktiengesellschaft                 Dortmund          Germany
 Cegedel S.A.                                 Luxembourg        Luxembourg       30.37
 RWE-Veolia Berlinwasser Beteiligungs AG      Berlin            Germany          50.00
 ZOV Zagrebacke Optpadne Vode d.o.o.          Zagreb            Croatia          48.50
RWE Westfalen-Weser-Ems Aktiengesellschaft    Dortmund          Germany
 AVU Aktiengesellschaft für
 Versorgungs-Unternehmen                      Gevelsberg        Germany          50.00
 Dortmunder Energie- und
 Wasserversorgung GmbH                        Dortmund          Germany           47.00
RWE Rhein-Ruhr Aktiengesellschaft             Essen             Germany
 Niederrheinische Versorgung und Verkehr AG   Mönchengladbach   Germany          50.00
 Regionalgas Euskirchen GmbH & Co. KG         Euskirchen        Germany          42.96
 RheinEnergie AG                              Cologne           Germany          20.00
 Stadtwerke Duisburg AG                       Duisburg          Germany          20.00
 Stadtwerke Essen AG                          Essen             Germany          29.00
envia Mitteldeutsche Energie AG               Chemnitz          Germany
 EVH GmbH                                     Halle/Saale       Germany          30.00
 SpreeGas Gesellschaft für Gasversorgung
 und Energiedienstleistung mbH                Cottbus           Germany          33.27
VSE Aktiengesellschaft                        Saarbrücken       Germany
 Kommunale Energie- und
 Wasserversorgung Neunkirchen AG              Neunkirchen       Germany          28.55
 Pfalzwerke Aktiengesellschaft                Ludwigshafen      Germany          26.69
Austria
 Kärntner Energieholding Beteiligungs-GmbH    Klagenfurt        Austria          49.00
Hungary
 Fövárosi Gázmüvek Zrt.                       Budapest          Hungary          49.83
 TIGÁZ Tiszántúli Gázszolgáltató Zrt.         Hajdúszoboszló    Hungary          44.17
Slovakia
 Vÿchodoslovenská energetika a.s.             Košice            Slovakia         49.00

*) As of June 30, 2007.




                                                                                               34
                                                                                       Structure




RWE Energy is Responsible for the Retail Business in
Continental Europe

   Wholesale/             Midstream                Retail                  Customers
   production              business               business



 Electricity        Wholesale   Retail business                      B2C
                     market/    of RWE Energy Group                  Private and
                    wholesale   s Portfolio management   Products,   commercial
 Power exchange      prices     s Sales activities       services    customers
 Over the counter


 Gas                                                                 B2B
                                                                     Industrial and
                                                                     corporate
 Contracts with                                                      customers
 gas producers                                                       Distributors




                                                                                            35
                                                                                                      Structure




RWE Energy’s Value-Oriented Retail Strategy


Development of volume and gross margin*)

RWE Energy electricity Germany



             Gross margin

    100%

             Sales volume




           2003               2004                2005                2006                 2007   …



Value-oriented retail strategy

s     Across all customer segments: value-orientation results in increasing total gross margin

s     Stabilisation of sales volumes achieved

s     With the phasing out of tariff approval in July 2007, competition will increase – provided
      sufficient margins make customer acquisition more attractive

s     The challenge for RWE Energy is to retain retail customers with attractive services/products
      at positive margins and in parallel to prepare the ground for acquiring new customers

*) Gross margin: Revenues minus (governmental charges + energy procurement + grid fees).




                                                                                                           36
                                                                   Structure




Structure of RWE Energy

                               Northern REC
                               RWE Westfalen-Weser-Ems
                               Central REC
                               RWE Rhein-Ruhr
                               Western REC
                               VSE
   German Regional
                               Southwestern REC
   Energy Companies
                               Süwag
                               Eastern REC
                               enviaM
                               Southern REC
                               LEW


                               Czech Republic
                               RWE Transgas a.s.
                               Hungary
                               RWE Energy Hungària Kft.
                               Slovakia
   Non-German                  VSE
   Regional Energy Companies
                               Poland
                               RWE Stoen
                               Netherlands
                               RWE Energy Netherlands
                               Austria
                               KELAG


                               RWE Transportnetz Gas
                               (German gas transport)
                               RWE Transgas Net s.r.o.
                               (Czech gas transport)
   Supraregional operations    RWE Transportnetz Strom
                               (German electricity transmission)
                               RWE Key Account GmbH


                               eprimo GmbH


                               RWE Aqua GmbH




                                                                        37
                                                                                                         Structure




RWE Energy’s Regional Energy Companies with
Supply and Service Offers for Distributors

Sales unit of Regional Energy Company (REC)

s   Supplying electricity and gas
s   Portfolio management electricity and gas



Network Partners Club                              REC                       Customer Service
                                                                             Company (CSC)
                                DSO       GSC      CSC       Sales     …

                                      Key Account Manager (KAM)
s   Comprehensive service                                                    s   Billing and balancing
    offering                              Value chain distributor            s   Customer support
s   Information platform          …       Grid    Billing    RPM     Sales
    (extranet)
s   Offer of consulting
    services, tools



Distribution                                                Grid Service Company (GSC)
System Operator (DSO)

s   Operating distribution system in                     s    Operating grids and assets
    line with EU unbundling                              s    Metering data management
s   Grid development planning                            s    Medium voltage plants, inspection,
s   Budget planning/targets to operator                       maintenance, analysis of insulating oil




                                                                                                              38
                                                                                                   Structure




Grid Operation, Grid Service and Customer Service are
Organised as Independent Companies


Transmission/distribution        Grid services                    Customer services
system operators

s   Grid development             s    Operate grids and           s    Operate call centres and
    planning                          equipment (e.g. mainte-          billing centres
s   Investment strategy               nance and repair)           s    Joint IT solutions
s   Maintenance strategy                                          s    Shared services
    and planning
s   Sale of grid system
    services




s   By creating independent entities, RWE Energy had fulfilled EU provisions on legal unbundling
    at an early stage.

s   At the same time, RWE Energy has created innovative platforms for regional cooperative
    ventures with municipal utilities.




                                                                                                        39
                                                                                                Structure




RWE Energy: Services for Various Customer Groups

Residential and Small   Business Customers      Industrial              Municipal /
and Medium Enter-                               Key Accounts            Regional Utilities /
prise Customers                                                         Municipal Customers

s   Supplies with       s   Supply with         s   Supply with         s   Supply with
    electricity, gas,       electricity, gas,       electricity, gas,       electricity, gas,
    water and               water                   water                   water
    services
                        s   Modular product     s   Integrated supply s     Energy supply
s   Support of resi-        and service             solutions               and wide-ranging
    dential customers       packages                                        services
    through local                               s   Energy systems,
    service centres,                                utility services    s   Partnership
    via Internet and                                and contracting         schemes with
    call centres                                    offers                  modular service
                                                                            packages
s   Regional trade                              s   Infrastructure
    fairs                                           management
                                                    solutions




                                                                                                     40
                                                                          Structure




RWE Energy:
Regional Energy Companies (RECs) in Germany (2007)




Northern REC




Central REC                RWE Westfalen-Weser-Ems
                           Dortmund
                     RWE Rhein-Ruhr
                     Essen                                    enviaM
                                                              Chemnitz




Southwestern REC                   Süwag
                                   Frankfurt am Main


                   VSE
Western REC        Saarbruecken


                                                 LEW
                                                 Augsburg




                                           Southern REC     Eastern REC




                                                                               41
                                                                                        Structure




RWE Energy:
Non-German Regional Energy Companies (2007)

REC Netherlands          REC Czech Republic                      REC Poland
RWE Energy               RWE Transgas               100%         RWE Stoen      99.2%
Nederland         100%




                                Hoofddorp
                                                        Warsaw
                                  Dortmund
                                               Prague
                                                           Košice
                                                        Miskolc
                                      Klagenfurt Budapest




REC Austria              REC Hungary                             REC Slovakia
KEH (KELAG)       49%    RWE Energy Hungaria       100 %         VSE             49%




                                                                                             42
                                                                                                           Structure




RWE‘s Position in Central Eastern European Markets:
Poland, Czech Republic, Slovakia, Hungary (2006)




                                               POLAND
                                                         Warsaw




                                     Prague                    Košice
                                    CZECH REPUBLIC
                                                    SLOVAKIA
                                         Bratislava         Miskolc

                                                    Budapest
                                                  HUNGARY




CEE key figures*)          Electricity        Gas          RWE’s current market shares
External revenue (€ million)    2,000       4,600                            Electricity     Gas   Water
Sales (TWh)                      22.5         142                       Generation   Sales
Total sales market share (%)         9         36
                                                           Poland
Customers (million)                3.6        4.3
Employees                       5,868       7,857
                                                           Czech
*) Including shareholdings ≥ 20%.                          Republic


                                                           Slovakia



                                                           Hungary




                                                                                                                43
                                                                                                   Structure




Major Acquisitions since FY 1999/2000: Electricity

Company                                   Year of      External Percentage of            Equity
                                      acquisition      revenue     participation          value
                                                    in € million                    in € million
                                                                                   RWE AG (old)
                                                                                        29,561
VEW AG, Germany                                                                        VEW AG
Merger with RWE AG (old)                    2000          4,817             100          5,852
Stadtwerke Duisburg AG, Germany             2000            403              20           n.p.*)
Turbogás Produtora Energética S.A.,                                     From 25
Portugal                                    2001            297            to 75            n.p.
KELAG, Austria                              2001            346               49            480
Energie- und Wasserversorgung
Bonn/Rhein-Sieg GmbH, Germany               2001            212            13.7             n.p.
                                                                        From 50
SSM Coal B.V., Netherlands                  2001            700           to 100            n.p.
                                                                     From 25.15
Stadtwerke Düren, Germany                   2001            110         to 74.95            n.p.
                                                                      From 71.5
Harpen AG, Germany                          2002            250           to 95             n.p.
GEW RheinEnergie AG, Germany                2002          1,455              20             n.p.
Stadtwerke Velbert GmbH,
Germany                                     2002             79              20             n.p.
Elettra (= Energy Holding
of Lucchini), Italy                         2002            120              25              70
RWE Innogy plc, UK                          2002          6,200             100           5,055
AERSA, Spain                                2002             10             100             n.p.
Stoen S.A., Poland                          2002            395              85             370
VSE, Slovakia                               2002            256              49             130
Wuppertaler Stadtwerke AG,
Germany                                     2003            426              20             n.p.
Great Yarmouth Power Ltd.                   2005            n/a             100             230
eprimo GmbH, Germany                        2007            100             100             n.p.


*) n.p. = not published.




                                                                                                        44
                                                                                                   Structure




Major Acquisitions since FY 1999/2000: Gas

Company                                   Year of      External Percentage of           Equity
                                      acquisition      revenue     participation         value
                                                    in € million                   in € million
                                                                        From 50
Thyssengas GmbH, Germany                    2000          1,113            to 75          n.p.1)
Nafta a.s., Slovakia                        2001             74              40            n.p.
Obragas Holding N.V., Netherlands           2002            162           90.05            330
        2)
Transgas + 8 regional distributors,
Czech Republic                              2002          3,145             100          4,140
Highland Energy
(Gas Fields North Sea), UK                  2002             22             100            181
VOG (Veba Oil & Gas), Germany:
German Oil & Gas Egypt GmbH                 2002               –             49            n.p.
RWE-Dea Norway GmbH                         2002               –             21            n.p.
                                                                        From 75
Thyssengas GmbH, Germany                    2002          1,259           to 100           n.p.


1) n.p. = not published.
2) 100% closed in June 2003.




                                                                                                        45
                                                                                                    Structure




Major Acquisitions since FY 1999/2000: Water

Company                                 Year of      External Percentage of              Equity
                                    acquisition      revenue        participation         value
                                                  in € million                      in € million
Thames Water plc, UK                      2000          2,247                100          7,100
ESSBIO, Chile                             2000             46              50.96            340
E’town Corporation Inc., USA              2000            190                100            670
ANSM, Chile                               2001             22                   –          n.p.1)
ESSEL, Chile                              2002             20               25.5            150
Water activities of the Iberdrola
Group (Ondagua, Pridesa), Spain           2002            148                 75             95
                                                               2)
China Water Company, China                2002           9.7                48.8            n.p.

RWW Rheinisch-Westfälische
Wasserwerksgesellschaft mbH,                                           From 14.3
Germany                                   2002             97             to 74.9           194

RWW Rheinisch-Westfälische
Wasserwerksgesellschaft mbH,                                           From 74.9
Germany                                   2002             97             to 79.8           n.p.
American Water Inc., USA                  2003          1,700                100          4,500


1) n.p. = not published.
2) Six months ended October 31, 2001.




                                                                                                         46
                                                                                               Structure




Major Divestments since FY 1999/2000:
Core Business

Company                                  Year of      External Percentage of        Equity
                                     divestment        revenue participation         value
                                                   in € million                in € million
Electricity/Gas
Lausitzer Braunkohle AG (Laubag),
Germany                                    2000           625           47.5
Vereinigte Energiewerke AG                                                          1,300 1)
(VEAG), Germany                            2000         1,901          32.5
Gelsenwasser AG, Germany                   2000           219          28.1           n.p.2)
Rhenag AG, Germany                         2001           191             –           n.p.
GASAG Berliner Gaswerke AG,
Germany                                    2001           499         11.95            n.p.
EMB Erdgas Mark Brandenburg
GmbH, Germany                              2001           176         44.93            n.p.
Erdgas Schwaben GmbH, Germany              2001           199            26            n.p.
STEAG AG, Germany                          2002           868          14.8            n.p.
BAWAG Bayerische Wasserkraft-
werke AG, Germany                          2002            34         49.99            n.p.
TOMAN Handels- und Beteiligungs-
gesellschaft mbH, Germany                  2002           116           100            n.p.
Stadtwerke Leipzig, Germany                2003           475            40            199
Canadian CONSOL Activities, USA            2003             –             –            n.p.
Bergemann GmbH/
Ruhrgas AG, Germany                        2003             –            3.5           224
                                                                  From 73.6
CONSOL Energy Inc., USA                    2003         2,257        to 48.9           218
                                                                  From 48.9
CONSOL Energy Inc., USA                    2003         2,257        to 18.5           405
CONSOL Energy Inc., USA                    2004             –           18.5           250
Motor-Columbus AG, Switzerland             2004             –             20
                                                                                       269
Atel AG, Switzerland                       2004             –           1.23
Portugen S.A., Portugal                    2004             –            100
Turbogas-Produtora                                                                     205
Energética S.A., Portugal                  2004             –            75
STE, Czech Republic                        2003             –            35             73
ISKEN A.S., Iskenderun, Turkey             2004             –            25            n.p.
Elettra GLL S.p.A., Brescia, Italy         2004           140            25            n.p.
RWE Solutions BU Transformers,
Germany                                    2004           142           100            n.p.
ƒ Piller GmbH, Germany                     2004           122           100            n.p.
ƒ Solutions Group1), Germany               2006         1,700           100            n.p.
KazGerMunai, Kazakhstan                    2006             –            25            n.p.
Harpen Italia Spa., Italy                  2006             –           100            n.p.
Harpen Immobilien GmbH &
Co KG/Harpen Immobilien
Verwaltungsgesellschaft mbH,
Germany                                    2007                         100            n.p.
Obragas Net/NetBeheer
Haarlemmermeer, NL                         2007             –              –           400
EKT Energie- und Kommunal-
technologie GmbH, NL                       2007            36              –           n.p.
1) Divested in a package.
2) n.p. = not published.                                                                            47
                                                                                                   Structure




Major Divestments since FY 1999/2000:
Non-Core Business

Company                               Year of       External       Percentage of         Equity
                                   divestment       revenue         participation         value
                                                 in € million                       in € million
Maquet AG, Germany                      2000             155                 100          n.p.*)
Chemical activities under the
brand name CONDEA                       2000           2,528                 100          1,300
Rheinelektra-Technik-Gruppe,
Germany                                  2001            342                 100            n.p.
Joint venture Shell & DEA Oil
GmbH, Germany                           2002                –                 50          1,500
HOCHTIEF
HOCHTIEF Verkehrswegebau-
Gruppe (RKB, Otto Rohr, Helmus),
Germany                                  2000             71                 100            n.p.
HOCHTIEF AG, Germany                    2004           1,975    From 46.5 to 9.56           750
                                        2005                    From 9.56 to 5.62            81
                                        2006                       From 5.62 to 0           201
Heidelberg
Heidelberger
Druckmaschinen AG, Germany               2001          5,303 From 56.15 to 50.01            317
Heidelberger                                                                             About
Druckmaschinen AG, Germany              2004           3,658 From 50.01 to 15.12         1,300
                                        2007               – From 15.12 to 7.84            229
Telecommunications
TeleColumbus GmbH, Germany              1999             169               48.75            n.p.
E-Plus Mobilfunk GmbH, Germany          2000           1,487               29.37          3,579
Aliatel a.s., Czech Republic            2005              90                39.7            n.p.
Environmental Services
ENSR Corp. (Group), USA                  1999            160                 100            n.p.
RWE Ambiente Italia S.p.A.
(Group), Italy                           2001            100                 100            n.p.
More than 50 RWE Umwelt AG
subsidiaries and joint ventures
Germany, Poland and Spain               2003             187                   –            n.p.
RWE Umwelt AG                           2005           1,830                 100            n.p.
RWE Thames Water
Sale of the international water
activities in Thailand, Spain,
Chile and Indonesia                2005 – 2006              –                  –              –
RWE Thames Water Holdings plc            2006               –                100          7,200


*) n.p. = not published.




                                                                                                        48
                       Corporate Governance




Corporate Governance




                                       49
                                                                                                            Corporate Governance




Group Centre and Group Business Committee:
Greater Management Efficiency

                                                Executive Board of RWE AG

                          Jürgen              Rolf Pohlig2)         Alwin Fitting          Ulrich Jobs3)         Berthold
                        Großmann1)                                                                              Bonekamp

 Business                                                                               s CEO of            s CEO of
 Responsibility                                                                           RWE Power           RWE Energy

 Group-level          s Corporate           s Controlling         s Human          sR&D
 Responsibility         Strategy            s Finance               Resources
                      s Legal /             s Risk Manage-          Management
                        Board Affairs         ment                s Environment /
                      s Group Corpo-        s Investor              Corporate
                        rate Informa-         Relations             Social
                        tion Office         s Accounting            Responsibility
                      s Environmental       s Tax                 s Security
                        and Energy          s Insurance
                        Policy
                      s Communica-
                        tions / Public
                        Affairs
                      s Executive
                        Resources
                        Development
                      sM&A
                      s Auditing
                      s Diversity
                        Office



                                                Group Business Committee

                                              Executive Board of RWE AG
                                                          +
                                     CEOs of operating management companies
                                                          +
                              Vice President Corporate Strategy, Mergers & Acquisitions
                                                          +
                                         Vice President Legal / Board Affairs



1) CEO of RWE AG since October 1, 2007 and successor of Harry Roels.
2) Member of the Executive Board of RWE AG since January 1, 2007; from May 1,2007 successor of Klaus Sturany.
3) Member of the Executive Board of RWE AG since April 1, 2007; from May 1, 2007 successor of Jan Zilius.

                                                                                                                            50
                                                                                       Corporate Governance




Corporate Governance Code – Legal Basis

s   The German Corporate Governance Code (the “Code”) presents essential statutory regula-
    tions for the management and supervision (governance) of German listed companies and
    contains international and national standards for good and responsible governance.
    The Code aims at making the German corporate governance system transparent and under-
    standable. A dual board system (“two-tier-board”) is prescribed by law for German stock
    corporations.

s   The German Transparency and Publicity Act (Transparenz- und Publizitätsgesetz) which came
    into effect on July 26, 2002, lays the legal foundations for the Code.

s   Key section: ”comply or explain“ principle in section 161 of the German Stock Corporation
    Act (AktG).

s   At present RWE complies with all recommendations of the Code in the version dated June 12,
    2006. Hence, RWE’s latest compliance declaration dated February 21, 2007 contains no
    restrictions.

s   Currently RWE is examining its compliance with the new recommendations of the Code on the
    latest version dated June 14, 2007, which came into effect on July 20, 2007. Amendment will
    be taken into consideration where required in the course of the next compliance declaration
    in spring 2008.




                                                                                                       51
                                                                                         Corporate Governance




Corporate Governance Code – Implementation of
Recommendations and Suggestions of the Code*)
by RWE (I)

s     General Meeting
      – Reports and documents required by law for the General Meeting are published on
        RWE’s Internet site
      – Easier upholding of rights (voting proxies, etc.)
      – Proxies can be contacted during the General Meeting
      – General Meeting is broadcast via the Internet

s     Managing and Supervisory Boards
      – Information and reporting commitments of the Executive Board
      – Representatives of the shareholders and employees prepare Supervisory Board
        meetings separately
      – Election of the members of the Supervisory Board individually
      – Sufficient number of independent members in the Supervisory Board
      – Suitable deductible for D&O insurance
      – Corporate Governance report in annual report
      – Remuneration report as part of the Corporate Governance report
      – Remuneration comprises fixed components and variable components
        in line with the Code
      – Stock options and comparable instruments are related to demanding, relevant
        comparison parameters
      – A cap for the stock appreciation rights under the Long-Term Incentive Programme
        has been agreed on
      – Salient points of the compensation system of the Executive Board and the concrete
        form of RWE’s stock option scheme and Long-Term Incentive Programme are published
        on the Internet
      – Chairman of the Supervisory Board outlines salient points of the compensation system and
        changes thereto to the General Meeting
      – Figures regarding the compensation of the Executive Board/Supervisory Board
        members are individualised in the remuneration report
      – Rules on directors’ dealings
      – By-laws regulate distribution of business and cooperation in Executive Board
      – By-laws to bundle existing rules for the Supervisory Board
      – Supervisory Board examines the efficiency of its activities on a regular basis



*) Version dated June 12, 2006.




                                                                                                         52
                                                                                        Corporate Governance




Corporate Governance Code – Implementation of
Recommendations and Suggestions of the Code*)
by RWE (II)

s     Supervisory Board committees
      – Have expanded authority
      – Addition of audit committee
      – Chairman of the audit committee is neither a former member of the Executive Board
        nor the Chairman of the Supervisory Board
      – Committee mandates are remunerated separately

s     High transparency
      – Use of electronic media for shareholder information
      – Fair disclosure via use of suitable media
      – Financial calendar

s     Audit of accounting and financial statements
      – Publication of interim reports
      – Observance of internationally recognised accounting standards
      – Upholding of publication deadlines
      – Content-based recommendations (including information on securities-
        oriented incentive systems, investment list, etc.)
      – Requirements of auditor reports to Supervisory Board



*) Version dated June 12, 2006.




                                                                                                        53
              Utilities




Electricity




                  54
                                                                        Utilities - Electricity - Energy Policy - CHP




German Combined Heat and
Power Generation (CHP) Act

Subject                    CHP Legislation

Term                       Effective since April 2002 as replacement for the old CHP-Act
                           from May 2000
                           Subsidy expires at the end of 2010

Aim                        Protection, preservation and modernisation of CHP plants for energy
                           conservation and CO2 reduction

Object of subsidy          Electricity actually generated in CHP plants (back pressure) which
                           supply grids (exclusion of internal consumption of industry)

Levels of subsidy          Specific subsidisation of CHP plants dependant on
                           – Commissioned since January 1, 1990
                           – Commissioned before December 31, 1989
                           – Modernised plants
                           – Block-type central cogeneration and fuel cell plants

Volume                     Planned cap until 2010: € 4.45 billion for CHP;
                           € 787 million in 2006; € 3,681 million since April 2002

Funding                    Allocation to total supplies to end customers from the public
                           supply grid

Limitation of the burden   Max. 0.05 ct/kWh for large consumers with a yearly consumption
for industry               of more than 100,000 kWh
                           Max. 0.025 ct/kWh for energy-intensive industry
                           (> 4% of energy costs of gross production value)

Passing-on clause          Grid operators have the right to pass on all feed-in payments




                                                                                                                55
                                                                                          Utilities - Electricity - Energy Policy - REA




German Renewable Energy Act (REA)

Subject                              Renewable Energy Legislation

Term                                 Effective since April 2000 and amended by August 1, 2004
                                     Different support of plants with service lives of up to 20 years

Aim                                  Supports introduction of renewables-based electricity generation plants
                                     and meets the emissions reduction target set by the federal government:
                                     12.5% electricity production from renewables by 2010 and 20% by 2020

Object of subsidy                    Electricity actually generated in renewable plants which supply grid

Levels of subsidy                    Different price schemes of renewable plants and different price
                                     schemes for new plants (wind, water, biomass, solar)

Volume                               Appr. € 7.7 billion feed-in tariffs in 2006 without following system costs
                                     (grid, balancing power);
                                     projection 2008: € 7.9 billion;
                                     will increase in the future without a cap;
                                     projection 2010: € 10.1 billion

Funding                              Amount allocated to total supplies to end customers from the public
                                     supply grid was 0.7 ct/kWh in 2006

Limitation of the burden             Hardship clause came into effect as of January 1, 2006; reduced
for industry                         amount of 0.05 ct/kWh if a company consumes more than 10 GWh and
                                     electricity costs are at least 15% of gross production value.

Passing-on clause                    Grid operators have the right to pass on all surcharge payments to
                                     the suppliers




Subsidy rates*) of REA
(ct/kWh)
Hydropower                                                                                                  3.7 – 9.67
Landfill gas, sewage gas, pit gas                                                                          6.65 – 7.67
Biomass                                                                                                     3.9 – 11.5
Geothermal energy                                                                                            7.16 – 15
Wind power                                                                                        5.5 – 8.7 (onshore)
                                                                                                 6.19 – 9.1 (offshore)
Photovoltaics                                                                                              45.7 – 62.4

Sources: VDEW, 2007. VDN, Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit
        (Federal Ministry for the Environment, Nature Conservation and Nuclear Safety).


*) Subsidy rates are under review.

                                                                                                                                  56
                                                                                      Utilities - Electricity - Energy Policy - REA




Renewable Energy Surcharges Expected to Increase
further
Development of power generated in accordance with the German Renewable Energy Act
(REA) and REA surcharges for 2000 – 2012 (forecast)

                                                             in TWh
       0      10      20      30      40      50      60      70    80      90        100 110       120    130


2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000


        0      1.0     2.0      3.0     4.0     5.0        6.0   7.0      8.0     9.0      10.0    11.0    12.0

                                                           in € billion



s    Power generated                                  s      Power generated (forecast)
––––– Feed-in fees                                    ––––– Feed-in fees (forecast)


Source: Verband der Netzbetreiber – e.V. – VDN beim VDEW (German Interconnected Power Grid Association),
       June 2007.




                                                                                                                              57
                                                           Utilities - Electricity - Energy Policy - Emissions Trading




EU Emissions Trading: Key Facts*)

s    In order to achieve its Kyoto targets, the EU must reduce greenhouse gas (GHG) emissions
     by 8% (1990 – 2008/12). Emissions Trading will be a key instrument for achieving Kyoto targets.

s    Within the EU burden sharing agreement, Germany is responsible for about 75% of the reduc-
     tion in GHG emissions. Its target is to lower emissions by 21%.

s    So far, Germany has achieved about 90% of its EU burden sharing goal while most EU countries
     are far behind. From 1990 to 2005, Germany reduced GHG emissions by 18.7%; the country
     is just 2.3 percentage points shy of achieving its goal.

s    UK emissions of GHG in 2005 were 15.7% lower than emission in 1990 compared with the
     target reduction of 12.5%. In addition the UK has a target to reduce CO2 emissions by 20%
     below 1990 levels by 2010.

*) As of September 2007.




                                                                                                                 58
                                                           Utilities - Electricity - Energy Policy - Emissions Trading




EU Emissions Trading Directive

s   Trading zone: EU 25 (from 2008 on: EU 27)

s   Participation: obligatory for facilities in all member states

s   Scope: combustion plants > 20 MW thermal capacity, petroleum refineries, coking plants,
    plants for the production and finishing of metals, cement, limestone, glass, ceramics, pulp,
    paper and cardboard

s   Basis for the regulation: Plant-specific CO2 caps introduced as condition for new approvals

s   Traded good: CO2 emission allowances (unit: 1 t CO2)

s   Allocation: through member states with the EU Commission’s supervision
    (2005 through 2007: ≥ 95% free of charge)

s   Excess emissions penalty:
    2005 through 2007: € 40/t CO2
    2008 through 2012: € 100/t CO2




                                                                                                                 59
                                                                Utilities - Electricity - Energy Policy - Emissions Trading




Top-Down Allocation of Certificates: How Does it Work?


                 National burden sharing agreement / Reduction obligation


                                          Breakdown by sector




          Participation in emissions trading                 No participation in emissions trading
 National Allocation Plan for 2008 – 2012 (NAP II)


 Electricity sector:          Industry:                       Trade/      Households      Transport
 e.g. Germany: Emission       e.g. Germany: Emission         Commerce/
 reduction by ca. 34% of      reduction by 1.25% of           Services
 historic level (2000 – 2005) historic level (2000 – 2005)
 before auctioning




      Breakdown by company (individual plants)




                                                                                                                      60
                                                Utilities - Electricity - Energy Policy - Emissions Trading




The Cap & Trade Principle

                                                                 Trading in
                                                                 emission allowances


                  Actual emission             Actual emission




                                                                              Actual emission

                                                 Emissions cap




      Plants A and B                Plant A                         Plant B



           2002                                     2010




       The plants receive emission allowances within the caps specified,
                       within the framework of the NAP.
      Operators can reduce emissions and/or trade in emission allowances.




                                                                                                      61
                                                                     Utilities - Electricity - Energy Policy - Emissions Trading




EU 15 Burden Sharing Targets by 2008/2012
Compared with 1990

in %

Austria                                     - 13.0

Belgium                                                - 7.5

Denmark                      - 21.0

Finland                                                                    0

France                                                                     0

Germany                      - 21.0

Greece                                                                                                           25.0

Ireland                                                                                       13.0

Italy                                                   - 6.5

Luxembourg        - 28.0

Netherlands                                              - 6.0

Portugal                                                                                                           27.0

Spain                                                                                           15.0

Sweden                                                                           4.0

UK                                           - 12.5

Total EU                                              - 8.0

                      30     25        20      15      10        5              5      10    15      20     25      30



Source: European Environment Agency.




                                                                                                                           62
                                                                    Utilities - Electricity - Energy Policy - Emissions Trading




Developments in Emissions of the Six Kyoto Gases
between 1990 and 2005

in %

Austria                                                                    18.1

Belgium                                          - 2.1

Denmark                                      - 7.8

Finland                                         - 2.6

France                                           - 1.9

Germany                          - 18.7

Greece                                                                         25.4

Ireland                                                                        25.4

Italy                                                                   12.1

Luxembourg                                                   0.4

Netherlands                                          - 1.1

Portugal                                                                                 40.4

Spain                                                                                              52.3

Sweden                                       - 7.4

UK                                  - 15.7

Total EU                                         - 2.0

                       40      30      20      10                  10     20      30   40     50     60



Source: European Environment Agency.




                                                                                                                          63
                                                           Utilities - Electricity - Energy Policy - Emissions Trading




CO2 Emissions in the EU in 2005

                 Average allocation of certificates p.a.            Emissions in 2005
                 in 2005 – 2007                                     in tons

Austria               32,900,512                                       33,372,841
Belgium                 62,114,734                                      55,363,232
Cyprus               5,701,075                                       5,078,877
Czech Republic            97,267,991                                         82,454,636
Denmark               33,499,530                                      26,475,718
Estonia              18,953,000                                      12,621,824
Finland                45,499,284                                      33,099,660
France                         154,909,186                                     131,271,511
Germany                                            498,390,019                                      474,606,747
Greece                  74,400,198                                       71,267,752

Hungary               31,660,904                                      26,039,009

Ireland               22,320,000                                      22,441,006
Italy                                223,070,435                                     225,875,412
Latvia               4,560,191                                       2,854,492
Lithuania            12,265,395                                      6,603,869
Luxembourg           3,358,323                                       2,603,349
Malta                762,822                                         n. a.

Netherlands               88,942,336                                         80,351,292
Poland                               237,838,568                                   202,315,622
Portugal               38,161,413                                      36,425,933
Slovakia              30,489,902                                      25,231,769
Slovenia             8,743,680                                       8,720,550
Spain                            178,838,295                                      183,620,415

Sweden               23,209,832                                       19,381,682
UK                                   224,831,370                                      242,476,625

Total EU                       2,152,688,994                                        2,010,553,823

                 0     100     200    300   400 2.000 2.100 2.200       100 200 300 400 500 1.900 2.000




                                                                                                                  64
                                                           Utilities - Electricity - Energy Policy - Emissions Trading




CO2 Emissions in the EU in 2006

                 Average allocation of certificates p.a.           Emissions in 2006
                 in 2005 – 2007                                    in tons

Austria             32,900,512                                        32,382,819
Belgium               62,114,734                                        54,775,326
Cyprus            5,701,075                                         5,259,273
Czech Republic          97,267,991                                          83,624,960
Denmark             33,499,530                                        34,199,588
Estonia            18,953,000                                        12,109,281
Finland             45,499,284                                         44,621,453
France                      154,909,186                                       123,291,801
Germany                                          498,390,019                                        477,557,439
Greece                74,400,198                                         69,965,151

Hungary             31,660,904                                        25,834,714

Ireland            22,320,000                                        21,702,789
Italy                            223,070,435                                        227,074,462
Latvia            4,560,191                                         2,940,685
Lithuania          12,265,395                                       6,516,911
Luxembourg        3,358,323                                         2,712,972
Malta             762,822                                           n. a.

Netherlands             88,942,336                                          76,701,187
Poland                             237,838,568                                     208,625,209
Portugal            38,161,413                                        33,083,879
Slovakia            30,489,902                                        25,543,243
Slovenia          8,743,680                                         8,842,182
Spain                         178,838,295                                        178,603,427

Sweden             23,209,832                                        19,880,711

UK                               224,831,370                                         251,134,835

Total EU                    2,152,688,994                                           2,026,984,297

              100 200 300 400 500 2.000 2.100 2.200                    100 200 300 400 500 1.900 2.000




                                                                                                                  65
                                                       Utilities - Electricity - Energy Policy - Emissions Trading




CO2 Emissions in the EU in 2005:
Deficit (-) and Surplus (+)

in %

Austria                     -1
Belgium                                           11
Cyprus                                            11
Czech Republic                                          15
Denmark                                                           21
Estonia                                                                     33
Finland                                                                27
France                                                  15
Germany                                  5

Greece                               4

Hungary                                                      18

Ireland                     -1

Italy                       -1

Latvia                                                                           37
Lithuania                                                                                  46
Luxembourg                                                        22

Malta                            n. a.

Netherlands                                       10

Poland                                                  15
Portugal                                 5
Slovakia                                                     17
Slovenia                         0
Spain                      -3
Sweden                                                   16
UK                    -8
Total EU                                     7

                 20   10                     10           20           30        40         50




                                                                                                             66
                                                             Utilities - Electricity - Energy Policy - Emissions Trading




CO2 Emissions in the EU in 2006:
Deficit (-) and Surplus (+)

in %

Austria                                    2
Belgium                                                     12
Cyprus                                                 8
Czech Republic                                               14
Denmark                           -2
Estonia                                                                              36
Finland                                    2
France                                                                 20
Germany                                        4

Greece                                             6

Hungary                                                           18

Ireland                                    3

Italy                             -2

Latvia                                                                               36
Lithuania                                                                                         47
Luxembourg                                                         19

Malta                                  n. a.

Netherlands                                                  14

Poland                                                      12
Portugal                                                    13
Slovakia                                                          16
Slovenia                          -1
Spain                                  0

Sweden                                                       14
UK                    - 12
Total EU                                           6

                 20          10                        10         20        30        40          50




                                                                                                                   67
                                                                    Utilities - Electricity - Energy Policy - Emissions Trading




Germany’s Climate Target within the Scope of
EU Burden Sharing Agreement

CO2 equivalent [t/a]

                 Emission of the                    Kyoto target for
                 six Kyoto gases                     the six gases
1,400
                1,230 million t*)                   974 million t*)
1,200             200 million t                         - 21.0%
                other Kyoto gases
1,000

  800

  600            1,030.2 million t
                       CO2
  400

  200

     0
                        1990                          2008/12



*) Additional burden of 29 mt/a due to the decision of the EU Commission from 11/29/2006.


Source: Zuteilungsgesetz (ZuG), (NAP II Germany).




                                                                                                                          68
                                                                       Utilities - Electricity - Energy Policy - Emissions Trading




CO2 Equivalent Emissions in Germany by Sector

CO2 equivalent [t/a]


1,400
                  1,230.3
1,200
                   200
                                                     974
1,000
                   158                                         291)
                                                    120.5
  800              220
                                                     334
  600
                   216.2
  400

                   436.1                            490.22)
  200

     0
                    1990                    Forecast 2008/12



s     Other Kyoto gases
s     Transport
s     Domestic/commerce
s     Industry
s     Energy sector
s     Industry and Energy sector


1) Additional burden due to the decision of the EU Commission from 11/29/2006.
2) Emission Trading System + installations which are not under the EU emissions trading regime.




Source: Zuteilungsgesetz (ZuG), (NAP II Germany).




                                                                                                                             69
                                                                     Utilities - Electricity - Energy Policy - Emissions Trading




UK Climate Target within the Scope of
EU Burden Sharing Agreement

CO2 equivalent [t/a]

                 Emission of the                   Kyoto target for
                 six Kyoto gases                    the six gases


800                763 million t                    617 million t
                  158 million t                        - 19.1 %
                other Kyoto gases
600
                                                      97 million t
400                605 million t                     520 million t
                       CO2                               CO2
200

   0
                        1990                           2008/12



Source: Department for Environment, Food and Rural Affairs — UNECE categories.




                                                                                                                           70
                                                                    Utilities - Electricity - Energy Policy - Emissions Trading




CO2 Equivalent Emissions in the UK by Sector

CO2 equivalent [t/a]


800                 763

700
                    158
                                                   617
600                                                97.1
                    127
500

400                 142
                                                  361.5
300                 105

200

                    231
100                                               158.4

    0
                    1990                  Forecast 2008/12



s       Other Kyoto gases
s       Transport
s       Domestic/commerce
s       Industry
s       Energy sector
        Other sectors


Source: Department for Environment, Food and Rural Affairs (DEFRA) — UNECE categories.




                                                                                                                          71
                                                         Utilities - Electricity - Energy Policy - Emissions Trading




The German National Allocation Plan for 2008 – 2012
(NAP II) vs. NAP I (2005 – 2012) (1/3)

Allocation element       NAP I for 2005 – 2007             NAP II for 2008 – 2012
Quantity                 499 million t CO2 p.a.            453 million t CO2 p.a., incl. 11 million t
                                                           for installations (mainly crackers
                                                           operated by the chemical industry)
                                                           that were not included in phase 1
Allocation method        “Grandfathering“ = allocation     Benchmarking (see next page)
                         free of charge on the basis of
                         historic emissions
                         Reference period: 2000 – 2002
Auctioning               No auctioning                     Auctioning of 40 million t (8.8%) that
                                                           are exclusively taken from the allocation
                                                           to the electricity sector
Compliance factor (CF)   CF = 93%, yet large number of CF = 98.75% of the volume of
[percentage of free of   special rules                     emissions in the reference period
charge allocation]       In principle, same compliance for manufacturing industry
                         factor for electricity sector and Approx. 66% of historic emissions
                         industry                          (2000 – 2005) for electricity sector
                                                           (before auctioning)




                                                                                                               72
                                                          Utilities - Electricity - Energy Policy - Emissions Trading




German NAP II vs. NAP I (2/3)

Allocation element       NAP I for 2005 – 2007             NAP II for 2008 – 2012
Allocation to existing   Based on historic emissions       s Specific emission benchmarks (EB):
installations                                                – 750 g CO2/kWh for hard coal and
(= in operation before                                         lignite
2003)                                                        – 365 g CO2/kWh for gas
                                                           s Further reduction of allocation by
                                                             a malus factor (MF) depending on
                                                             individual plant efficiency
                                                             (see next page)
                                                           s Full load hours (FLH) based on
                                                             historic utilisation of the plant
                                                             (average of 2000 – 2005)
                                                           s Allocation: Capacity x EB x FLH x MF
Allocation to new        ”14“ rule: 100% free of charge    s ”14“ rule is abandoned
installations            allocation based on best          s Emission benchmarks (see above)
                         available technology for the      s Full load hours based on standard
                         first 14 years of operation.        utilisation factors:
                         Cap at                              – 7,500 h/year for hard coal and gas
                         – 750 g CO2/kWh for coal and        – 8,250 h/year for lignite
                         – 365 g CO2/kWh for gas
Option rule              Allocation of certificates for    s Option rule is abandoned
                         plants that started operations
                         in 2003/2004 according to
                         expected emissions
                         Ex-post adjustment: Unused        s No ex-post adjustments
                         certificates have to be given
                         back




                                                                                                                73
                                                                       Utilities - Electricity - Energy Policy - Emissions Trading




German NAP II vs. NAP I (3/3)

Allocation element              NAP I for 2005 – 2007                        NAP II for 2008 – 2012
Transfer rule for               ”4 + 14” rule:                               Transfer rule is abandoned
replacement of old              s For the first four years, same
plants by more                     amount of certificates as for
efficient ones                     the old plant
                                s For further 14 years, 100% free
                                   of charge allocation needed for
                                   the new plant (based on the
                                   best available technology)
Reserve                         3 million t p.a. for new entrants            25 million t p.a., mostly for new
                                                                             entrants
Clean Development               No special rules                             Up to 22% of the allocation per
Mechanism1)/Joint                                                            plant can be covered by certifi-
Implementation2)                                                             cates from Clean Development
                                                                             Mechanism/Joint Implemen-
                                                                             tation projects
Malus rule                      Reduction of compliance factor               Malus factor: Further reduction of
                                by additional 15 percentage points           allocation if emissions exceed the
                                for power plants older than 30               following levels
                                years with efficiencies of                   – 990 g CO2/kWh for lignite
                                η < 31% in 2008/2009 (lignite)               – 750 g CO2/kWh for hard coal
                                η < 32% after 2009 (lignite)                 – 365 g CO2/kWh for gas
                                η < 36% after 2007 (hard coal)

1) Emission reductions through investment by an industrialised country in a country without reduction commitments
  are credited to the emission account of the investor country.
2) Emission reductions through investment by one industrialised country in a second industrialised country are
  credited to the emission account of the investor country.




                                                                                                                             74
                                                                  Utilities - Electricity - Energy Policy - Emissions Trading




United Kingdom: Key Elements of NAP II Approved by
the EU vs. NAP I (1/2)

Allocation element               NAP I for 2005 -– 2007                NAP II for 2008 -– 2012
Quantity                         245.4 million t CO2 p.a.              The overall cap is 246.2 million t CO2
                                 (= 736.3 million t CO2 for the        p.a. Total allocation to installations
                                 three-year trading period)            covered by phase 1 will be 236.6
                                                                       million t CO2 p.a.
Allocation to                    136.9 million t CO2 p.a.              The free-of-charge allocation to the
electricity sector               (= 410.7 million t CO2 for the        electricity sector is 107.4 million t
                                 three-year trading period)            CO2 p.a. including a contribution of
                                                                       7.9 million t CO2 p.a. to the new
                                                                       entrant reserve. Allocation free of
                                                                       charge based on benchmarks for the
                                                                       electricity sector using fuel and tech-
                                                                       nology specific emission factors
                                                                       s Coal plant meeting LCPD*) limits,
                                                                          CCGT and peaking plant based on
                                                                          category average load factors
                                                                          (2000 – 2003)
                                                                       s Coal plant opted out of LCPD
                                                                          emission limits based on 28.54%
                                                                          load factor
Allocation to other              108.5 million t CO2 p.a.              The allocation to other sectors is
industries                       (= 325.6 million t CO2 for the        121.5 million t CO2 p.a., including
                                 three-year trading period)            9.6 million t CO2 p.a. for new installa-
                                                                       tions not previously covered.
                                                                       Use of ”relevant emissions“ – the
                                                                       average of the highest three years
                                                                       emissions during the baseline period
                                                                       2000 – 2003.

*) Large Combustion Plant Directive.




                                                                                                                        75
                                                                       Utilities - Electricity - Energy Policy - Emissions Trading




United Kingdom: Key Elements of NAP II Approved by
the EU vs. NAP I (2/2)

Allocation element             NAP I for 2005 – 2007                 NAP II for 2008 – 2012
Auctioning                     Surplus allowances in the new         7% of allowances (17.2 million t CO2
                               entrant reserve will be sold rather   p.a.) will be auctioned. The auctioned
                               than auctioned.                       allowances will come from the electricity
                                                                     supply sector.
New entrants                   6.3% of allowances retained in new The new entrant reserve will be 6.6%
                               entrant reserve, with 4.6 million t   (total of 81.6 million t CO2 equivalent to
                               CO2 p.a. (= 13.9 for the three-year   16.3 million t CO2 on average p.a.) of
                               trading period) specifically ring-    total allocation allowances at the
                               fenced for new entrant Combined       following rates:
                               Heat and Power Generation (CHP)       s 100% to certified Good Quality CHP
                               plant.                                s To new entrants from the electricity
                               Allocation to new entrants based on       sector in line with incumbents, scaled
                               technology specific benchmarks, but       back to be consistent with reduced
                               with gas-specific emission factors in     allocation to this sector
                               the electricity sector.               s 95% to all other new entrants
Transfer rule                  No transfer rule. Closed plant does   No transfer rule. Closed plant does not
(for replacement of            not receive allowances in the year    receive allowances in the year following
old power plants)              following closure.                    closure.
Clean Development              No restrictions.                      All installations can use up to 8% of
Mechanism1)/Joint                                                    their allocation. For the electricity
Implementation2)                                                     sector this is equivalent to 9.3% of free
                                                                     allocations taking account of the
                                                                     auctioning deduction.

1) Emission reductions through investment by an industrialised country in a country without reduction commitments
  are credited to the emission account of the investor country.
2) Emission reductions through investment by one industrialised country in a second industrialised country are
  credited to the emission account of the investor country.




                                                                                                                             76
                                                                Utilities - Electricity - Energy Policy - Emissions Trading




Germany: Expected Impact of NAP II on RWE

CO2 emissions and free-of-charge allocation of RWE in Germany

in million tons

          147                                                   140
                              142                              +/- 5%
140
           29                 26
120

100

 80
                                            Free-of-charge
 60                                         allocation                                         Free-of-charge
          118                 116
                                            ca. 97%                                            allocation
 40                                                                                            (post auctioning)
                                                                                               approx. 55%
 20                                                                                            = ca. 75 – 80 million t
                                                                                               ± 5%
  0
         2006               2006                               Expected         Expected
          CO2                CO2                                range of       number of
       emissions         certificates                         annual CO2       certificates
                           granted                             emissions      granted p.a.
                                                             2008 – 2012      2008 – 2012



s     From contractually secured capacity
s     From own power plants




                                                                                                                      77
                                                                      Utilities - Electricity - Energy Policy - Emissions Trading




UK: Expected impact of NAP II on RWE

CO2 emissions and free-of-charge allocation of RWE in the United Kingdom*)

in million tons


             25
25
                                                                         20
                                                                      +/- 10%
20
                                   17

15


                                                Free-of-charge                                               Free-of-charge
10
                                                allocation                                                   allocation
                                                ca. 70%                                                      (post auctioning)
 5                                                                                                           approx. 70%
                                                                                                             = 14 million t


 0
          2006                  2006                                  Expected             Expected
           CO2                   CO2                                   range of           number of
        emissions            certificates                            annual CO2           certificates
                               granted                                emissions          granted p.a.
                                                                    2008 – 2012          2008 – 2012



*) Numbers for 2008 – 2012 exclude new build plant, in the second phase, additional CHP plant will be included in the scheme.




                                                                                                                                 78
                                                   Utilities - Electricity - Energy Policy - Emissions Trading




Timetable: NAP II and beyond


  March 16, 2007     Publication of approved UK NAP II with installation level allocation

   May 1, 2007       Greenhouse Gas Trading Scheme Regulations (2007) specifying approved
                     UK NAP II come into force

  June 22, 2007      Enactment of the German Allocation Act (NAP II) by the Bundestag

   July 6, 2007      German Allocation Act approved by the Bundesrat (Upper House)

  December 2007      World Climate Conference:
                     Start of negotiation of a post-Kyoto agreement in Bali

 February 28, 2008   Companies receive emission certificates for 2008

  April 30, 2008     Submission date for NAP I certificates referring to 2007

   2009 – 2011       Finalisation of the post-Kyoto agreement

       2009          Likely publication of revised EU Emissions Trading Scheme Directive




                                                                                                         79
                                                       Utilities - Electricity - Energy Policy - Emissions Trading




Clean Development Mechanism (CDM) /
Joint Implementation (JI): How Does it Work?

Project Cycle                   Players in the CDM Market         Players in the JI Market

       Project Design           Project Participant               Project Participant



     Letter of Approval         Host country‘s & investor         Host country‘s & investor
                                country‘s Designated National     country‘s Designated National
                                Authority, e.g. German Emis-      Authority, e.g. DEHSt in
                                sions Trading Authority (DEHSt)   Germany

         Validation             Inspection company                Inspection company
                                accredited by United Nations      accredited by UNFCCC,
                                Framework Convention on           so-called Accredited
                                Climate Change (UNFCCC)           Independent Entity
                                so-called Designated
                                Operational Entity

        Registration            UNFCCC CDM Executive Board        No registration at
                                                                  international level

Implementation & Monitoring     Project Participant               Project Participant
  of project performance



 Verification & Certification   Designated Operational Entity     Accredited Independent Entity
    of achieved emission                                          under supervision of the
          reduction                                               UNFCCC JI Supervisory
                                                                  Committee

    Emission Reduction          Issuance of Certified Emission    Transfer of Emission Reduction
       Certificates             Reductions (CERs) by UNFCCC       Units (ERUs) by host country
                                CDM Executive Board

Use under the EU Emissions
      Trading Scheme




                                                                                                             80
                                                                   Utilities - Electricity - Energy Policy - Emissions Trading




CDM/JI*) Projects Give RWE Access to Cost-Effective
Reduction of Greenhouse Gas Emissions (I)

  Clean Development Mechanism (CDM)
                                                                                  Investment
  Emission reductions through investment by
  an industrialised country in a country without
  reduction commitments are credited to the
  emission account of the investor country                     Germany/UK      Emission rights    e.g. China



  Joint Implementation (JI):
                                                                                  Investment
  Emission reductions through investment
  by one industrialised country in a second
  industrialised country are credited to the
  emission account of the investor country                     Germany/UK      Emission rights   e.g. Russia




*) Clean Development Mechanism (CDM), Joint Implementation (JI).


Source: UNFCCC; http://cdm.unfccc.int.




                                                                                                                         81
                                                                   Utilities - Electricity - Energy Policy - Emissions Trading




CDM/JI*) Projects Give RWE Access to Cost-Effective
Reduction of Greenhouse Gas Emissions (II)

Expected average annual certificates from registered
CDM projects by host country at the end of August 2007
in %


China                                     43.4


India                                     16.5


Brazil                                    10.5


Republic of Corea                           8.8

Mexico                                      3.8

Others                                     17.0




s    At the end of August 2007, the UN has approved more than 760 CDM projects that are
     expected to supply more than 1 billion certificates by 2012.

s    Much of the certificate volumes contracted are accounted for by Chinese projects,
     while India is leading in the number of projects.

*) Clean Development Mechanism (CDM), Joint Implementation (JI).


Source: UNFCCC; http://cdm.unfccc.int.




                                                                                                                         82
                                                      Utilities - Electricity - Energy Policy - Emissions Trading




RWE‘s Target for the CDM/JI Market for 2008 – 2012:
90 Million Certificates (I)

Projects by July 2007

100




 80




 60

                                                                     90


 40                     Lol


                  Validated                 Lol

                                         Validated
 20
                     In                     In
                  operation              operation

   0
              Contract volume     Risk adjusted volume              Target




                 The average price per contracted certificate is < 10 €.
            We expect to reach the target volume at 10 – 12 € per certificate.




                                                                                                            83
                                                        Utilities - Electricity - Energy Policy - Emissions Trading




RWE‘s Target for the CDM/JI Market for 2008 – 2012:
90 Million Certificates (II)

Contract volume by technology

N 2O                                12.58

Hydro                               13.18




CH4                                   0.45
Wind                                  3.01

Energy efficiency                     8.31

HFC23                                11.06




Contract volume by region

China                                37.09



Others                                0.35

Egypt                                 4.36



South Korea                           7.8




                   The average price per contracted certificate is < 10 €.
              We expect to reach the target volume at 10 – 12 € per certificate.




                                                                                                              84
                                                                                              Utilities - Electricity - Energy Policy - Emissions Trading




Prices of EU Allowances for Emission Certificates

        34

        32

        30

        28

        26

        24

        22

        20

        18
€/EUA




        16

        14

        12

        10

         8

         6

         4

         2

         0
                      Mar 05



                                        Jul 05

                                                 Sep 05
                               May 05




                                                          Nov 05

                                                                   Jan 06

                                                                            Mar 06

                                                                                     May 06

                                                                                               Jul 06

                                                                                                        Sep 06

                                                                                                                 Nov 06

                                                                                                                          Jan 07

                                                                                                                                   Mar 07

                                                                                                                                            May 07

                                                                                                                                                      Jul 07
                                                                                                                                                     Aug 07
             Jan 05




–––- EUA 07
–––– EUA 08


*) EUA = European Emission Allowance (Certificate for 1 t of CO2).


Source: RWE Trading.




                                                                                                                                                               85
                                                                     Utilities - Electricity - Energy Policy - Emissions Trading




RWE’s Emissions Profile

Germany: power produced in 2006 in TWh
(own plants only)

Lignite                                      67.92)

Nuclear energy                               47.3




Hard coal                                    19.7



Gas                                           9.93)

Hydro, others                                 3.4

Total                                      148.2



                                                                     CO2 emissions in 2006
                                                                       118 million tons



UK: power produced in 2006 in TWh

Hard coal                                    20.8




Gas                                          14.43)




Oil, others                                   1.3

Total                                       36.5



1) Excluding electricity procured from power plants not owned by
  RWE that we can deploy at our own discretion on the basis of       CO2 emissions in 2006
  long-term agreements, totalling 31.1 TWh (hard coal) and 2.5 TWh     24.7 million tons
  (water, other).
2) Including plant consumption by RWE opencast mines.
3) Including combined heat and power.

                                                                                                                           86
                                                                          Utilities - Electricity - Energy Policy - Emissions Trading




CO2 Avoidance Costs through Building New
Power Plants1)
Specific CO2 reduction costs
in €/t of CO2

Nuclear power                                     8 – 10                                                          Today

Lignite (BoA)                                          14 – 16

Hard coal                                                15 – 17

CCGT2)                                                     16 – 20

Wind                                                                                              44 – 69

Hydro                                                                                                        35 – 83

Photovoltaic                                                                                                  525 – 670

                                     0      10      20         30    40      50     60       70      80      90   100



1) Calculation of costs:
  – Related to old lignite units
  – Allocation of CO2 certificates is not taken into account
  – Subsidies for renewables are not considered
  – Rough estimation of costs of sequestration
  – A comparison with prices of European emission allowances is not possible on basis of this illustration
2) CCGT: Combined-Cycle Gas Turbine.




                                                                                                                                87
                                                                    Utilities - Electricity - Energy Policy - Emissions Trading




Power Generation in Germany:
CO2 Emissions per Plant Type1)

in kg/kWh
                                       CO2 emissions from new plant technology (BoA)2):
                                       0.95 kg CO2/kWh
                 1.2


                                                             0.9



                                                                                              0.5




               Lignite                                  Hard coal                        Natural gas



1) Unweighted factor per fuel specific installed capacity.
2) Lignite-optimised plant.




                                                                                                                          88
                                                                       Utilities - Electricity - Energy Policy - Climate Protection




RWE‘s Strategy for Climate Protection: The Measures

                                   Increasing energy efficiency ...
                                   ... invest in best available technology: lignite, hard coal, gas, Com-
 Energy efficiency
                                       bined Heat and Power Generation
                                   ... strong R&D: Develop new technologies e.g. fluidised bed drying,
                                       increasing steam parameters

                                   Substantial increase of current investment budget
 Renewable energies
                                   (€ 700 million over next five years)




 Clean Development                 € 150 million budget for developing international projects for the
 Mechanism1)/Joint                 reduction of greenhouse gas emissions
 Implementation2)                  (target: 90 million t 2008 – 2012)




                                   Industrial scale with coal gasification, CO2 sequestration and storage;
 CO2 free power plant              integrated project; 450 MW; 2014 commissioning




1) Emission reduction caused by investment of an industrialised country in a country without reduction commitments are
  credited to the emission account of the investor country.
2) Emission reduction caused by investment of one industrialised country in a second industrialised country are credited to
  the emission account of the investor country.


As of September 2007.




                                                                                                                              89
                                                           Utilities - Electricity - Energy Policy - Climate Protection




RWE‘s Strategy for Climate Protection: Modernising
and Expanding Existing Power Stations
Commissioning                                         2010         2015          2020


  Today
  Exploitation of existing efficiency potential
                                                                                          Efficiency
                                                                                          increases
  Tomorrow
  Increased efficiency due to new power plant technology



                                                                                        CO2 capture
  Beyond
                                                                                            and
  CO2-free power plant with CO2 capture and storage
                                                                                         storage




                                                                                                                  90
                                                                        Utilities - Electricity - Energy Policy - Climate Protection




RWE Adopts Strategy to Reduce the Physical and
Financial Exposure to Carbon

CO2 -mitigation in RWE Group:
Physical and financial measures and potential (m t/a)1)

 178            -72)
                         up to -73)
               RWE
                                       -184)
             planned
            new-builds Extension
                       of lifetime
                       of Biblis A
                                                up to -35)
                                                               143         -82)
                                      CDM/JI
                                               Renewables/
                                                                                    up to -83)
                                                   CHP
                                                new-builds                 RWE
                                                                                                   ?4)     up to -35)
                                                                         planned                                        -23)
                                                                        new-builds Extension     CDM/JI
                                                                                                                                 122
                                                                                   of lifetime            Renewables/
                                                                                                                      CO2-free
                                                                                   of Biblis B                CHP
                                                                                                                       power
                                                                                                           new-builds
                                                                                                                       plant




                       ~ 35 m t (-20%)

                                                                                         ~ 56 m t (-31%)



2006                                                         2012e                                                               2015e



Requirements for economically and ecologically reasonable CO2-mitigation
s Political framework allows for extension of lifetimes of nuclear power plants, an economic use
    of renewables and CO2-free coal technology.

s      Power plants with above average CO2 emissions will be decommissioned, as long as it is
       economic and security of supply will not be endangered.

1) Excl. growth investments and market induced load factor changes.
2) New-builds with decommissioning and lower load factors of old plants (depending on market conditions).
3) Depending on political framework; avoidance of emissions from old coal plants.
4) CDM/JI-projects for covering a maximum of 22% of CO2-allocation in Germany and 9% in UK
    (avg. 10-12€/t mix of price and costs); framework post 2012 not clear yet.
5) Avoidance of emissions from coal- and gas-fired plants.


As of August 2007.



                                                                                                                                   91
                                                             Utilities - Electricity - Energy Policy - Climate Protection




The Technology of Today: Current Status of New Power
Plant Projects in Continental Europe

   BoA 2/3                 s     Permit received in June 2005
   twin unit               s     Start of construction in January 2006
   Neurath                 s     Expected start of commercial operation: January 2010
   2 x 1,050 MW            s     Budget: € 2.2 billion




   Hard coal-fired         s     Announced in November 2005 (shares for municipalities
   power plant                   of up to 350 MW)
   Hamm                    s     Expected commissioning: 2012
   1,530 MW                s     Budget: € 2.0 billion




   CCGT*) plant            s     Preliminary approval received in December 2004
   Lingen                  s     Construction started in April 2007
   875 MW                  s     Expected commissioning: 2009
                           s     Budget: about € 500 million




   Hard coal-fired         s     Announced in November 2006
   power plant             s     Start of construction kept open
   Ensdorf                 s     Expected commissioning: 2012
   1,530 MW                s     Budget: € 2.0 billion




   Hard coal-fired         s     Announced in April 2006
   power plant             s     Start of construction: planned for 2007
   Eemshaven/              s     Expected commissioning: 2012
   Netherlands             s     Budget: € 2.2 billion
   1,560 MW



*) CCGT: Combined-Cycle Gas Turbine.




                                                                                                                    92
                                                             Utilities - Electricity - Energy Policy - Climate Protection




The Technology of Today: Modernising RWE’s UK
Power Plant Portfolio

  Replanting              s     Turbine contracts already placed
  steam                   s     All three units will be retrofitted by 2008
  turbines                s     Thermal efficiency will increase from 36.5% to 38.9%
  at Aberthaw             s     Additional capacity of 69 MW




  Replanting              s     Programme of turbine improvements underway
  steam turbines          s     All three available units will be upgraded by the end of 2007
  at Tilbury              s     Reduction of fuel input and emissions by up to 1.5%
                          s     Additional capacity of up to 15 MW per unit achievable




  Flue gas                s     Retrofit three units to comply with “Large Combustion Plant Directive”
  desulphurisation        s     Preliminary enabling work has begun
  at Aberthaw             s     Scheduled to be completed by 2008




  Upgrading               s     Investigating options for improving efficiency and output at Didcot B
  turbines at                   and Little Barford
  CCGT*) plants           s     Target heat rate improvement of +1%




  CCGT*) plant            s     Start of construction: 2007
  Staythorpe/UK           s     Expected commissioning: 2010
  1,650 MW                s     Budget: € 0.9 billion




  CCGT*) plant            s     Announced in August 2007
  Pembroke/UK             s     Planned efficiency of 59%
  2,000 MW                s     Expected commissioning: 2011
                          s     Budget: € 1.1 billion



*) CCGT: Combined-Cycle Gas Turbine.




                                                                                                                    93
                                                        Utilities - Electricity - Energy Policy - Climate Protection




The Technology of Tomorrow: Increase in Efficiency –
the Priority Development Target for CO2 Reduction

700°C power plant (hard coal & lignite)

s   Efficiency increase of 4%pts possible

s   Projects: COMTES700 – Component Test Facility for a 700 °C Power Plant – initiated by a
    group of major European power generators (incl. RWE) and material tests in existing
    power plants of RWE and others

s   Budget: € 22m

Lignite pre-drying / ALPC (Advanced Lignite Pulverised Coal)

s   Efficiency increase of 4%pts possible

s   Technology successfully proved, since 1993, at an RWE pre-drying plant in Frechen

s   To introduce this technology on a commercial scale, RWE has started the construction of a
    lignite pre-drying prototype plant at the BoA 1 plant (Niederaussem). Operations will start
    at the end of 2007.

s   Budget: € 50m for construction and operation

         Extra investment will lead to significantly improved efficiency rates and lower fuel
         consumption, so that electricity production may be kept constant and CO2 output
         be reduced




                                                                                                               94
                                                         Utilities - Electricity - Energy Policy - Climate Protection




The Technology of the Future: RWE to Gain Leadership
in Europe in CO2-Free Power Plant Technology

         RWE Power plans to develop and build a CO2-free 450 MW-coal-fired IGCC1) plant
  1      including CO2 transport and storage in Germany to demonstrate the whole CCS2)-
         chain. Commissioning is scheduled for 2014.



         In parallel, CO2 scrubbing for lignite and hard coal will be developed further for
  2      advanced conventional power plant technology, also as a retrofit option.




         In addition, RWE npower plans to build for over £ 1bn a clean coal 1,000 MW hard
         coal-fired power plant at Tilbury. In a scoping study RWE npower would see the
  3      existing station replaced with two 800 MW super critical coal-fired units. The power
         station will be designed to accomodate carbon capture and storage technology and
         would be operational by the middle of the next decade.



1) IGCC: Integrated Gasification Combined-Cycle.
2) CCS: Carbon Capture and Storage.




                                                                                                                95
                                                                     Utilities - Electricity - Energy Policy - Climate Protection




The Technology of the Future: Electricity Generation
with CO2 Separation and Storage – RWE Drives IGCC
Technology forward

     Oxygen                                                 IGCC1)
                                                                               Gas and
                                   Gasification                                                           Electricity
                                                                            steam turbine
                                                          Hydrogen
       Coal                                                                                               450 MWgross



                                              also usable as H2, or for SNG2),
                                                   methanol, fuel generation



1) IGCC: Integrated Gasification Combined-Cycle.
2) SNG: Substitute Natural Gas.




                                                                       pipeline for
                                                                      CO2 transport
                                                                       to storage




                                                                                                                            96
                                                            Utilities - Electricity - Energy Policy - Climate Protection




The Technology of the Future: Operation Start-Up
by 2014 Requires Parallel Development of Power Plant
and CO2 Storage
              Today   2007/2008                         2010                        2014

Power plant              Project            Planning,
                                                           Construction, start-up
                      development           approval

                  Decision on fuel source             License,                  Start of
                   (hard coal or lignite)            decision on               operation
                         and site                   construction


                        Screening, exploration,
                                                           Construction, start-up
CO2 storage                     licence

                                                      License,                  Start of
                                                     decision on               operation
                                                    construction


          The geological conditions prevailing in the depository will determine the
          quantities of CO2 stored at the start and how the volume can be increased.




                                                                                                                   97
                                                                            Utilities - Electricity - Generation - Market Data




Shares of Primary Energy Sources in Total Electricity
Generation in Europe (2006)

                    in %                                       in TWh

Austria                                                             61.95

Belgium                                                                85.34

Czech Republic                                                         84.46

Denmark                                                           46.55

Finland                                                                81.25

France                                                                                                   573.86

Germany                                                                                                       635.80

Greece                                                              59.50

Hungary                                                           36.52

Ireland                                                          26.10

Italy                                                                                    314.91

Luxembourg                                                      4.17

Netherlands                                                            98.50

Poland                                                                      162.18

Portugal                                                           47.53

Slovakia                                                         32.44

Spain                                                                                 302.03

Sweden                                                                      143.90

UK                                                                                           398.60

                    0      20    40     60        80    100        100      200    300    400     500   600

  s       Gas                                     s    Hydro
  s       Oil                                          Wind
  s       Coal/Lignite                                 Other
  s       Nuclear                                      Total power generation


  Source: Cambridge Energy Research Associates.




                                                                                                                         98
                                                                    Utilities - Electricity - Generation - Market Data




Development of the European Power Plant Portfolio
from 2005 to 2030

in GW*)

1,200 –
                                    Assumed CAGR:
1,000 –                                 1.15%


 800 –                  ~ 75GW                               ~ 400GW
                                     ~ 140GW
                                                                                   ~ 580GW
 600 –


 400 –


 200 –


     0–
    2005             2010          2015            2020      2025          2030

      Capacity required to cover peak loads
s     Addition of wind/hydro/biomass
s     Old plants


*) EU 27, Norway, Switzerland.
Source: Boston Consulting Group, EURPROG, UCTE, RWE, 2006.




                                                                                                                 99
                                                             Utilities - Electricity - Generation - Market Data




Europe Has an „Age Problem“

s   Last boom for the construction of conventional and nuclear power plants was in the 80s
    – Since then mainly gas fired power plants have been built
    – Ca. 40% of thermal and nuclear power plants older than 25 years

s   Hard coal plants
    – Ca. 60% older than 25 years
    – Replacement of all these (old) plants needed by 2030




                                                                                                         100
                                                                      Utilities - Electricity - Generation - Market Data




Age Structure of Power Plants in Europe in 2007 (I)

Hard coal (131 GW)                                        Lignite (60 GW)

Age (years)                                               Age (years)
>50 –                                                     >50 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 45 –                                                      45 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 40 –                                                      40 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 35 –                                                      35 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 30 –                                                      30 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 25 –                                                      25 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 20 –                                                      20 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 15 –                                                      15 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
 10 –                                                      10 –
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
  5–                                                        5–
    –                                                         –
    –                                                         –
    –                                                         –
    –                                                         –
  0–                                                        0–
    0         2       4        6       8   10   12   14           0        2      4       6      8

        ~70% in 2nd half of their lifecycle                       ~60% in 2nd half of their lifecycle

           Half lifetime (typically)


Sources: BCG, RWE.



                                                                                                                  101
                                                          Utilities - Electricity - Generation - Market Data




Age Structure of Power Plants in Europe in 2007 (II)


Gas/Oil (201 GW)                                 Nuclear (136 GW)

Age (years)                                      Age (years)
>50 –                                             >50 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 45 –                                              45 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 40 –                                              40 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 35 –                                              35 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 30 –                                              30 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 25 –                                              25 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 20 –                                              20 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 15 –                                              15 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 10 –                                              10 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
  5–                                                5–
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
  0–                                                0–
    0         4       8       12       16   20        0        4      8       12     16     20

        ~50% in 2nd half of their lifecycle               ~70% in 2nd half of their lifecycle

           Half lifetime (typically)


Sources: BCG, RWE.

                                                                                                      102
                                                                              Utilities - Electricity - Generation - Market Data




Development of Energy Consumption in Germany

Development by segment (2004 – 2010)

Electricity
                                  0.4% p.a.
in TWh

   532.7          535.7             539.5        548


    140.4          141.7            142.0
                                                                      s     Residential customers
    118.5         119.0             119.6                             s     Services
     16.2           16.2             16.3                             s     Transport
                                                                      s     Industry
    249.3         250.5             253.3                             s     Agriculture


      8.3            8.3              8.3
    2004           2005             2006         2010

Source: Eurelectric 2006, VDEW.




Gas
in TWh
                                         1.2% p.a.

                                                 1,054
                                    1,005
     962
                    993




      479           481               481




                                                                     s     Residential and commercial customers

      400           408               416
                                                                     s     Industry
                                                                     s     Power plants and district heating




       83            104              108

    2004           2005             2006         2010

Source: Bundesverband der Deutschen Gas- und Wasserwirtschaft e.V. (German gas and water federation), 2006; forecast
       derived from EU Commission, 2006.



                                                                                                                          103
                                                                            Utilities - Electricity - Generation - Market Data




German Energy and Power Mix (2006)*)

Primary energy consumption:
494 million tons of coal equivalent

Other                              36%

Natural Gas                        23%




Hard coal                          13%




Nuclear                            12%




Lignite                            11%

Renewables                          5%



Gross power generation: 636 TWh

Nuclear                           26%

Lignite                           24%




Hard coal                          21%




Natural Gas                       12%

Renewables                          9%

Other                               8%




*) Estimated figures.


Source: Arbeitsgemeinschaft Energiebilanzen (Energy Balance Working Group), VDEW.



                                                                                                                        104
                                                                  Utilities - Electricity - Generation - Market Data




Generation Capacity in Europe Will Stay Tight

s   Different sources e.g. Union for the Coordination of Transmission of Electricity (UCTE),
    Cambridge Energy Research Associates (CERA), IEA expect capacity bottlenecks already
    by 2009.

s   Major drivers for capacity bottlenecks:
    – Ageing power plants
    – Volatile gas prices (driven by oil prices)
    – Supply constraints for power plant components, scarcity of consented sites
    – Lengthy approval procedures for interconnector extensions
    – Political risks threatening investment plans for power plants and networks
    – Special drivers:
      • Nuclear phase out in Germany
      • Large Combustion Plant Directive (LCPD) in UK
      • Increased peak-load demand in France
      • Volatile hydro reservoir levels in Spain, Scandinavia, Austria, Switzerland
      • Decommissioning of old nuclear reactors in new EU member states




                                                                                                              105
                                                                  Utilities - Electricity - Generation - Market Data




Europe’s Total Generation Capacity: ~800 GW (2007)




                                                                 FINLAND

                                            NORWAY

                                                     SWEDEN



                                            DENMARK



                               UK     NETHER-
                                      LANDS               POLAND
                                    BELGIUM GERMANY
                                                      CZECH
                               LUXEMBOURG             REPUBLIC
                                                              SLOVAKIA
                                FRANCE          AUSTRIA HUNGARY ROMANIA
                                     SWITZERLAND
                                                 SLOVENIA
                                                              SERBIA AND
                                               CROATIA        MONTENEGRO
                                                     BOSNIA AND
                                                     HERZEGOVINA     BULGARIA
            PORTUGAL                           ITALY
                                                               MACEDONIA
                       SPAIN                               ALBANIA

                                                                         GREECE




Generation structure 2007
in GW
                               Total: 803 GW
               Wind                   37
    Other renewables                  53

                     Water           185


                Gas/Oil              201


             Hard coal               131
                Lignite               60
                Nuclear              136



Sources: BCG, RWE.

                                                                                                              106
                                                                              Utilities - Electricity - Generation - Market Data




Need for Capacity by Country

Expected new build by 2012 for thermal and nuclear power plants

Germany                                                         12%
                                                                           16 GW

France                                 2%
                                       2 GW

UK                                                             12%
                                                           10 GW

Spain/Portugal                                                 11%
                                                               11 GW

Scandinavia                                                       13%
                                                                12 GW

Italy                                       4%
                                            4 GW

Benelux                                                                14%
                                                   6 GW

Alps                                0,1%
            -6 GW

Poland                              0,1%
                     -2 GW

Balkan                                                                                             27%
                                                    7 GW

Romania                                 2%
                                      0-1 GW

Czech Republic                      0,1%
                                      0-1 GW

Denmark                                   3%
                                      0-1 GW

Bulgaria                                                                                                                36%
                                            4 GW

Slovakia                                                          13%
                                     1 GW

                    -5          0              5          10          15           20        25          30        35

       Average is 9% in Europe (72 GW)
s       New build in % of needed capacity by country by 2012
s       New build in GW


Sources: BCG, RWE, 2006.




                                                                                                                          107
                                                            Utilities - Electricity - Generation - Market Data




UCTE Systematic for Evaluating the Remaining
Generation Capacity in Europe

Installed national generating capacity
+ Hydro power stations
+ Nuclear power stations
+ Fossil fuel power stations
+ Renewable energy sources (other than hydro)
+ Not clearly identifiable energy sources

= National generating capacity
- Unusable capacity
  – Of which mothballed capacity
- Outages and overhauls (fossil fuel power stations)             5% – 10%

= Reliable available capacity
- Load

= Remaining capacity




                        Minimum criteria: For an individual country,
    remaining capacity should be at least 5% or 10% of the national generating capacity.




Source: UCTE.




                                                                                                        108
                                                                               Utilities - Electricity - Generation - Market Data




 UCTE Expects Severe Capacity Shortage in Europe
 by 2020

 Reserve capacity*)
 in GW

                                           65      68
 70
       59      61        61      61
 60

 50
                                                             42   43
 40

 30                                                                                         5% = Minimum
                                                                                            reserve capacity
 20

 10

  0

- 10
                                                                            -10     -4
- 20
       Jan Jul           Jan Jul           Jan Jul           Jan Jul        Jan Jul
         2007              2008              2010              2015           2020

 *) Basis: third Wednesday 11 a.m.; 25 European countries.
   Domestic generating plant capacity Europe: 623.2 GW (January 2007);
   estimated net generating plant capacity for 2007 – 2020 (UCTE), underlying consumption
   growth 1.8% p.a.


 Source: UCTE, January 2007.




                                                                                                                           109
                                                                  Utilities - Electricity - Generation - Market Data




CERA Expects Capacity Bottleneck in Europe
as soon as 2009 (I)

s    ”With solid demand growth and decommissioning plants underway, European electricity
     supply will be strained. The countries receiving investments won’t always be the markets
     where capacity will be needed, and some project pipelines seem inadequate in the face of
     impending retirements and projected increases in peak demand.”

s    “For the EU 15 as a whole, CERA sees a declining reserve margin, even after accounting for
     new projects. If only those projects currently under construction are built, the electricity
     market would be short of around 26 gigawatts (GW) in 2010 and the EU 15 reserve margin
     would fall from 22 percent currently to around 10 percent in 2010.”



Source: CERA, 2006.




                                                                                                              110
                                                                                 Utilities - Electricity - Generation - Market Data




CERA Expects Capacity Bottleneck in Europe
as soon as 2009 (II)
EU 15 reserve margin*) calculated by CERA
in %

30

25

20

                                                                                          Planning Reserve
15
                                                                                             Margin 15%

10

  5

  0 |    |             |      |       |    |   |              |       |        |       |       |       |       |          |     |
   1995 ‘96           ‘97    ‘98     ‘99 2000 ‘01            ‘02     ‘03      ‘04     ‘05     ‘06     ‘07     ‘08        ‘09   ‘10



      Reserve Margin



*) CERA definitions: Reserve margin is the difference between dependable capacity and peak demand divided by peak demand.
  Dependable capacity is firm capacity at peak; CERA’s forecast includes existing plants or plants under construction.


Source: CERA, 2006.




                                                                                                                                     111
                                                                 Utilities - Electricity - Generation - Market Data




Proposed New Plants with Different Fuel Mix in Each
Country – Gas Projects are Dominant

in GW
Projects > 300 MW by 2012




                                                       SCANDINAVIA




                                             DENMARK


                                                             POLAND
                                   UK

                                        BENELUX
                                              GERMANY CZECH REP.
                                                            SLOVAKIA

                                    FRANCE                                ROMANIA
                                                ALPS

                          IBERIA                            BALKAN
                                                                             BULGARIA


                                                         ITALY




s    Wind, hydro, other
s    Nuclear
s    Gas, cogeneration
s    Lignite
s    Hard coal


Sources: BCG, RWE, 2006




                                                                                                             112
                                                                Utilities - Electricity - Generation - Market Data




Comparison of Proposed and Realistic
Power Plant Projects

in GW

                           134                  ~60%




     Gas                   90
                                                                          80

                                                ~55%

                                                                          49

                                                                      Total: 15.8
Hard coal                  25
                                                ~60%                      15
                                                                          4.1
 Lignite                   13                   ~75%                      10
 Nuclear                    6                                               6
                                               ~100%
                       Announced                                       Realistic




s    Only 60% of the proposed gas power plant projects (by 2012) are realistic due to
     volatile gas prices and problems to secure critical components e.g. gas turbines.



Sources: BCG, RWE, 2006.




                                                                                                            113
                                                                      Utilities - Electricity - Generation - Market Data




Coal Will Provide Largest Share of Generation
Worldwide

World electricity generation
in TWh


35,000 –                            Conventional fossil fuels continue to
                                    dominate power generation out to
                                    2030 with coal comprising the
30,000 –
                                    greatest portion. This is despite gas
                                    having a higher rate of growth.
25,000 –


20,000 –


15,000 –


10,000 –


 5,000 –


       0–

       1971                      2002                   2010                  2020                    2030



s    Other
s    Oil
s    Gas
s    Coal (Hard coal and lignite)
s    Nuclear
s    Hydro


Sources: IEA, Morgan Stanley Research 2007.




                                                                                                                  114
                                                    Utilities - Electricity - Generation - Market Data




Coal is Abundant Relative to Other Fuels

Reserves/production rate
in number of years
                                                  155

                                                                 Implied number
                                                                 of years reserves
                                                                 would last if pro-
                                                                 duction continues
                                             65                  at present levels

             41




             Oil                            Gas   Coal*)



*) Coal = Hard coal and lignite
Sources: BP 2006, Morgan Stanley Research 2007.




                                                                                                115
                                                                         Utilities - Electricity - Generation - Market Data




CO2 Reduction through Higher Efficiency Essential for
Hard Coal Plants

CO2 emission per kWh


   Average,
   worldwide

  30%                          Average
 1,116 g CO2/kWh
                                EU 25

  480 g coal/kWh            38%                 State of the art
                                                  technology
                            881 g CO2/kWh

                            379 g coal/kWh          45%                700°C
                                                                     power plant
                                                    743 g CO2/kWh
                                                                                                                But:
                                                    320 g coal/kWh   > 50%                                   Efficiency
                                                                                                             losses of
                                                                     669 g CO2/kWh             CO2
                                                                                                          5 – 14%-points
                                                                     288 g coal/kWh          free plant


                                               |                                        |
                                             2010                                     2020

    ...%            Efficiency*)
  ...g CO2 /kWh     CO2 emission

  ...g coal/kWh     Use of fuel



*) Average data for hard coal plants.




                                                                                                                     116
                                                                             Utilities - Electricity - Generation - Market Data




Attractiveness of Coal and Gas Differs in
Germany and the UK

Germany
Power price                                               Min                Hourly Demand                               Max



                                      New Lignite                New Hard coal              New CCGT




                                                                                                     OCGT+CCGT
      Must Run1)            Nuclear                 Lignite                  Hard coal




                                                                                                                        Peaking2)
|            |          |           |        |         |        |         |               |          |                          |
0           10         20          30       40        50       60        70              80         90                         100
                                    Proportion of installed capacity (in %)

s       Large proportion of low marginal cost plant from nuclear, lignite, CHP and wind.
s       Load factor for new coal plant somewhat higher in Germany than in UK.

UK
Power price                               Min                    Hourly Demand                                   Max



                       New Hard coal                              New CCGT

                                                              Summer gas prices




       Inter-        Nuclear                    Hard coal                            CCGT
                                                                                                                   Peaking2)




     connector
    + Must Run1)


|            |          |           |        |         |         |         |              |          |                          |
0           10         20          30       40        50        60        70             80         90                         100
                                      Proportion of installed capacity (in %)

s       Higher share of high marginal cost plant.
s       New gas plant in UK has significantly higher load factor than in Germany.

1) Including renewables and CHP.
2) Oil, OCGT, hydro, etc.




                                                                                                                                     117
                                                                        Utilities - Electricity - Generation - Market Data




Tight European Engineering Capacity

New construction of coal power plants over time (Europe)1) 2)
                                                                                    Average
                                                                                    in GW/p.a.
                                                                         5.3
50                                                                                  5

40                                                                                  4

30                                                                                  3
                                                                         25
20                                                                                  2
            1.5                    1.6
                                                       0.7
10                                                                                  1
                                       3                                 13
               7                                            1
                     0.5               6
 0                                                          3                       0
      1990 – 1994            1995 – 1999           2000 – 2005       2006 – 2012

s    Hard coal
s    Lignite
     Average in GW/p.a.


1) 1990 – 2005: plants with a gross capacity over 150 MW.
2) 2006 – 2012: new-construction projects with a capacity >300 MW.


Sources: UDI, Platts, RWE, BCG 2006.




  Construction programmes for new coal-fired power plants are a challenge for engineering
                                 companies’ capacities.




                                                                                                                    118
                                                                   Utilities - Electricity - Generation - Market Data




Construction Companies are also Constrained
Due to China’s Demand

China’s installed capacity by fuel type 2005
in %

Thermal                           76%




Hydro                            23%




Nuclear                            1%



Wind                              <1%




China’s total installed capacity
in GW
900                                                 860

700                               622

500
                                 CAGR
                319
300                              >10%

100
  0
               2001              2006              2010f



s     China has the 2nd largest installed base in the world and is growing fast.

s     Thermal (esp. coal) will remain dominant in the foreseeable future.

Source: Alstom, Power in China – Analyst day 03/12/2007.




                                                                                                               119
                                   Utilities - Electricity - Generation - Market Data




Due to Limited Producer Capacity Essential
Components are Scarce




Key power plant components

   Transformers
   Control technology
   Steam turbines
   High pressure piping
   Steam generators
   Cooling technology
   Flue gas desulphurisation




                                                                               120
                                                                    Utilities - Electricity - Generation - Market Data




Scarcity Drives Costs: New-Build Power Station
Costs up 30%

s     "The global boom in coal-fired generation equipment orders, rising material costs and margin
      improvement by suppliers have forced new-build power station costs up by as much as 30%
      since 2005", European power plant developers told Platts April 20.”

s     “The hikes have come in two waves. Power generation equipment prices fell over a four-year
      period to 2004 as orders were few and far between, and competition among the big
      suppliers – GE, Alstom and Siemens – was fierce.”

s     "Over the next 18 months to mid-2006 prices rose about 15% as suppliers sought to improve
      margins," said an independent developer with several CCGT projects in continental Europe.
      "And now we've seen another 10 – 15% increase on the back of rising material costs, espe-
      cially steel, and rising sub-contractor costs."

s     “Some suppliers are refusing to fix the price of contracts in full until an order is firm, the
      developer said. "We are seeing some quotes in the market where suppliers are taking key
      items like boilers out and saying 'it is what it is when you place your actual order'. So you can
      sign a contract not knowing what the full price impact will be six or nine months later." For a
      number of years, given low orders, capacity in specialist manufacturing centres (such as for
      boiler tubing) was steady. Now orders are ramping up, existing capacity is stretched."

Source: Platts 04/23/07.




                                                                                                                121
                                                                  Utilities - Electricity - Generation - Market Data




Last But Not Least: Political Risks Impede
Investment Plans

s   Europe
    – Emissions Trading: National Allocation Plans 2008 – 2012 with reduced number of free
      certificates for generators, further significant reduction expected post 2012
    – Discussion of ownership unbundling of power networks

s   Germany
    – Emissions Trading: No guarantee of grandfathering for replacement plants post 2012
    – Tightening of anti-trust legislation
    – Phasing out of nuclear plants

s   Eastern Europe
    – Political uncertainty as regards liberalisation, privatisation and support for new entrants




                                                                                                              122
                                                                           Utilities - Electricity - Generation - Market Data




UCTE Expects Capacity Bottleneck in Germany
from 2015 Onwards

Reserve capacity*)
in GW
                       10.2 10.2
      9.9
10
                                                9.3
 9           8.7
                                         8.2
 8
                                                           7.2
 7                                                                  6.5                5% = Minimum
                                                                                       reserve capacity
 6

 5

 4

 3

 2
                                                                                1.5

 1                                                                        0.7

 0
      Jan Jul           Jan Jul          Jan Jul          Jan Jul         Jan Jul
        2007              2008             2010             2015            2020

*) Basis: third Wednesday 11 a.m.
  Domestic generating plant capacity Germany: 122.3 GW (January 2007);
  estimated net generating plant capacity for 2007 – 2020 (UCTE).


Source: UCTE, January 2007.




                                                                                                                       123
                                                                                 Utilities - Electricity - Generation - Market Data




Considerable Replacement Needed in Germany –
Including Nuclear Phase-Out

Age-related reduction in existing power plant capacities
in GW



                                                                           45 GW to be replaced
                                                                           between 2010 and 2020
100 –




 50 –




  0–

  2005                   2010                  2015                  2020                  2025                   2030

s     Other
s     Gas
s     Hard coal
s     Lignite
s     Nuclear
s     Hydro


Note: Including plants currently under construction. General plant lifetime is 40 years. Decommissioning of nuclear power
      plants under the terms of the German government’s nuclear phase-out programme.




                                                                                                                             124
                                                                                Utilities - Electricity - Generation - Market Data




Considerable Replacement Needed in Germany –
Excluding Nuclear Phase-Out

Age-related reduction in existing power plant capacities
in GW



                                                                           35 GW to be replaced
                                                                           between 2010 and 2020
100 –




 50 –




  0–

  2005                   2010                  2015                  2020                  2025                      2030

s     Other
s     Gas
s     Hard coal
s     Lignite
s     Nuclear
s     Hydro


Note: Including plants currently under construction. Decommissioning in each case after 40 years. If the remaining
     periods of operation for nuclear power plants specified in the German government’s nuclear phase-out programme
     are stipulated, the replacement requirements up to 2020 will be higher.




                                                                                                                            125
                                                                       Utilities - Electricity - Generation - Market Data




Phase-Out of Nuclear Power Plants in Germany is
another Tightening Factor

TWh remaining by 2000 according to Nuclear Energy Act

Obrigheim               14
Biblis A                62
Neckarwestheim-1        57
Biblis B                81
Brunsbüttel             48
Isar-1                  78
Unterweser             118
Philippsburg-1          87
Grafenrheinfeld        150
Krümmel                158
Gundremmingen B        161
Gundremmingen C        168
Philippsburg-2         201
Grohnde                201
Brokdorf               218
Isar-2                 231
Emsland                230
Neckarwestheim-2       236
                                 1970         ‘80         ‘90       2000        ‘10           ‘20          ‘30
                                                                            2006

s   Plant lifetime based on residual electricity generation
s   RWE asked for transfer of 30 TWh from Mülheim-Kärlich to Biblis A (lifetime extension till mid 2011)



         Replacement of more than 20,000 MW in nuclear power capacity required




                                                                                                                   126
                                                               Utilities - Electricity - Generation - Market Data




Substantial Investment in Capacity Needed in the UK
to Replace Shut-Downs and Meet Rising Demand (I)

Generation capacity development with no new build                                     Capacity margin
in GW                                                                                            in %

    90 –                                                                                          - 25

    80 –

    70 –                                                                                          - 20


    60 –
                                                                                                  - 15
    50 –

    40 –
                                                                                                  - 10
    30 –

    20 –
                                                                                                  - 5

    10 –

     0– |        |    |    |     |     |     |     |     |     |     |     |      |      |     | - 0
       2006                    2010                          2015                            2020

s   Other
s   Renewables
s   Gas
s   Coal
s   Nuclear
    Capacity margin
    Peak demand



s   Approximately 20 – 40 GW of new capacity (= 25 – 50% of total capacity) will be required by
    2020 to maintain margins.

s   Market fundamentals support a sustained return of value to the generation sector.




                                                                                                           127
                                                            Utilities - Electricity - Generation - Market Data




Substantial Investment in Capacity Needed in the UK
to Replace Shut-Downs and Meet Rising Demand (II)

New build required to maintain 20% capacity margin
in GW

45 –

40 –

35 –

30 –

25 –

20 –

15 –

10 –

 5–

 0–
         |    |   |   |     |    |    |    |     |     |      |     |      |     |      |
       2006               2010                       2015                             2020




                                                                                                        128
                                                                             Utilities - Electricity - Generation - Market Data




Large Combustion Plant Directive (LCPD):
Shut-Down of 13 GW by 2015 (or Earlier) in UK

Installation     Operator               Fuel       Installed   Number Number       Capacity     Capacity       FGD3)
                                                    capacity         of    of        opted        opted        status
                                                                boilers plant           in1)       out2)
                                                     (MWe)                           (MW)         (MW)
Drax             Drax Power             Coal           3,960        6          1       3,960               0   Fitted
Eggborough       British Energy         Coal           2,000        4          1       2,000               0   2 units fitted
Cottam           EDF Energy             Coal           2,000        4          1       2,000               0   Fitted
Ferrybridge      Scottish &
                 Southern Energy        Coal           2,000        4          2       1,000        1,000      Under construction
Fiddlers Ferry   Scottish &
                 Southern Energy        Coal           2,000        4          1       2,000               0   Under construction
Didcot A         RWE npower             Coal           2,000        4          1            0       2,000      No FGD
Tilbury          RWE npower             Coal           1,020        4          2            0       1,020      No FGD
Kingsnorth       E.ON UK                Coal           2,000        4          1            0       2,000      No FGD
Ratcliffe        E.ON UK                Coal           2,000        4          1       2,000               0   Fitted
Ironbridge       E.ON UK                Coal           1,000        2          1            0       1,000      No FGD
Rugeley          International Power    Coal           1,000        2          1       1,000               0   Contracting
West Burton      EDF Energy             Coal           2,000        4          2       2,000               0   Fitted
Peterhead        Scottish &
                 Southern Energy        CCGT           1,320        2          1       1,320               0   N/A
Longannet        Scottish Power         Coal          2,304         4          1       2,304               0   Contractor selected
Cockenzie        Scottish Power         Coal           1,152        4          2            0       1,152      No FGD
Aberthaw         RWE npower             Coal           1,500        3          1       1,500               0   Under construction
Kilroot          AES                    Coal/Oil        520         2          1         520               0   Under construction
Uskmouth         Uskmouth Power         Coal            393         3          1         393               0   Fitted
Littlebrook      RWE npower             Oil            1,370        3          1            0       1,370      No FGD
Fawley           RWE npower             Oil            1,000        2          1            0       1,000      No FGD
Grain            E.ON UK                Oil            1,300        2          1            0       1,300      No FGD
Total                                                33,839        71         25      21,997      12,972


1) Compliant with emission limits in LCPD.
2) Limitation of operating hours to 20,000 between 01/01/2008 and 12/31/2015. No requirement to fit FGD.
3) FGD: Flue gas desulphurisation.




                                                                                                                                 129
                                                                                   Utilities - Electricity - Generation - Market Data




UCTE Expects Capacity Bottlenecks in Czech Republic
by 2020

Reserve capacity*)
in GW

2.5
         2.2    2.2        2.2    2.1
2.0

                                           1.5      1.5
1.5
                                                                        1.1
                                                              1.0
1.0                                                                                            5% = Minimum
                                                                                       0.7     reserve capacity
                                                                              0.5
0.5

 0
         Jan Jul           Jan Jul          Jan Jul           Jan Jul         Jan Jul
           2007              2008             2010              2015            2020

*) Basis: Third Wednesday 11 a.m.
      Domestic generating plant capacity Czech Republic: 16.3 GW (January 2007);
      estimated net generating plant capacity for 2007 – 2020 (UCTE).


Source: UCTE, January 2007.




                                                                                                                               130
                                                                              Utilities - Electricity - Generation - Market Data




 UCTE Expects a Negative Reserve Margin in Hungary
 by 2015

 Reserve capacity*)
 in GW
          0.8               0.9    0.7
1.0                                          0.6
                 0.6
                                                     0.3                                  5% = Minimum
  0                                                                                       reserve capacity

-1.0

-2.0
                                                              -1.8 -1.9
-3.0

-4.0
                                                                            -4.2 -4.1
-5.0
          Jan Jul           Jan Jul          Jan Jul           Jan Jul      Jan Jul
            2007              2008             2010              2015         2020

 *) Basis: Third Wednesday 11 a.m.
       Domestic generating plant capacity Hungary: 8.1 GW (January 2007);
       estimated net generating plant capacity for 2007 – 2020 (UCTE).


 Source: UCTE, January 2007.




                                                                                                                          131
                                                                              Utilities - Electricity - Generation - Market Data




 UCTE Expects a Negative Reserve Margin in Poland
 by 2020

 Reserve capacity*)
 in GW

 10

       7.4
  8
                         6.9              6.8

  6
              4.2
                                3.8              3.5
  4
                                                            3.0

  2
                                                                     0.7                  5% = Minimum
  0                                                                                       reserve capacity

 -2

 -4

 -6

 -8
                                                                           -7.8   -7.9

- 10
       Jan Jul           Jan Jul          Jan Jul          Jan Jul          Jan Jul
         2007              2008             2010             2015             2020

 *) Basis: Third Wednesday 11 a.m.
   Domestic generating plant capacity Poland: 32.4 GW (January 2007);
   estimated net generating plant capacity for 2007 – 2020 (UCTE).


 Source: UCTE, January 2007.




                                                                                                                          132
                                                                 Utilities - Electricity - Generation - Market Data




EU Membership Forces Closure of Nuclear Power
Plants in CEE Countries

s   Bulgaria
    Nuclear power plant Kozloduy
    Closure of blocks 3 and 4 (440 MW each) by January 1, 2007

s   Slovakia
    Nuclear power plant Jaslovske Bohunice V1
    Closure of block 1 (220 MW) by December 31, 2006
    Closure of block 2 (220 MW) by December 31, 2008

s   Lithuania
    Nuclear power plant Ignalina
    Closure of block 2 (1,360 MW) by 2009




                                                                                                             133
                                                                                 Utilities - Electricity - Generation - Market Data




Lignite is a Key Fuel in CEE Markets to Resolve
the Capacity Issue

Lignite coal in selected CEE countries and Germany, 2005
                   Production1)       Reserves2)                                       Importance of lignite3)
                   in million t       in million t                                     in %

Germany                                 178                             41,000                  26
Poland                             62                                   14,000                        40
Czech Republic                 49                          1,200                                           49
Serbia/Montenegro             34                                       2,500                                     65
Romania                       31                                          3,000                  29
Bulgaria                      25                                       2,500                         35
Hungary                   10                                                   3,400        18
Macedonia                 6                                    1,700                                                  78
Bosnia and
Herzegovina               5                         350                                                         59
Slovenia                  5                        130                                            34
Kosovo                    3                                             5,000                                              100
Croatia               0                           50                                       13




s     RWE’s lignite position and experience give us a competitive advantage for upcoming
      privatisation projects in CEE countries.



1) Source: “Energy Statistics of OECD and Non-OECD Countries”, Edition 2006.
2) Sources: “Euracoal”; RWE.
3) Share of lignite in total power generation; Sources: VDEW, RWE.




                                                                                                                                 134
                                                                       Utilities - Electricity - Generation - Market Data




Planned Power Plant Projects1) in Germany (I)

Company                                 Planned location   Source         Net capacity       Commercial
                                                           of energy      in MW                operation
                                                                                          presumably till
Mark-E/Statkraft             Herdecke                      Gas (CCGT)2)          400               2007
RWE Power                    Weisweiler                    Gas                   540               2007
Statkraft                    Hürth                         Gas (CCGT)2)          800               2007
Trianel Power                Hamm-Uentrop                  Gas (CCGT)2)          800               2007
Vattenfall Europe            Hamburg-Tiefstack             Gas                   125               2007
E.ON/Vattenfall Europe       Brockdorf (extension)         Nuclear                60               2007
Remondis                     Stassfurt                     Waste                  25            2007/08
Braunschweiger Versorgungs AGBraunschweig                  Gas                   400               2008
Vattenfall Europe            Schwarze Pumpe
                             Spremberg (pilot
                             plant for Co2 free
                             power plant)                  Lignite                30                2008
Concord Power                Lubmin I                      Gas (CCGT)2)        1,200                2008
E.ON Energie/N-ERGIE/Mainova Irsching 5                    Gas                   800                2008
E.ON Energie                 Waldeck I (Edersee)
                             (replacement)                 Pump storage           70                2008
Infrasery Knapsack/Sotec     Hürth                         Waste                  30                2008
Stadtwerke Bremen            Location harbour              Waste                  30                2008
Vattenfall Europe            Rostock                       Waste                  20                2008
Vattenfall Europe            Rüdersdorf                    Waste                  30                2008
Norddeutsche Affinerie       Hamburg                       Waste                 100                2009
RWE Power                    Lingen                        Gas (CCGT)2)          875                2009
Advanced Power AG (CH),
Siemens Project Ventures     Bocholt                       Gas                   400                 2010
Iberdrola                    Mecklar-Marbach
                             (Northern Hesse)              Gas            1,000                      2010
RWE Power                    BoA 2/3, Neurath              Lignite        2,100                      2010
Stadtwerke Ulm               Blaubeuren                    Pump storage      45                      2010
STEAG/EVN                    Duisburg-Walsum               Hard coal        700                      2010
Vattenfall Europe Generation Boxberg                       Lignite          675                      2010
Nuon                         Frankfurt/Main                Gas              400                      2010
Electrabel                   Brunsbüttel                   Hard coal        800                      2011
Electrabel                   Northern Germany              Hard coal        800                      2011
EnBW                         Niedersachsen                 Compresssed
                                                           air storage  150-600                  2010/11
Vattenfall Europe                       Hamburg-Moorburg   Hard coal      1,680                  2011/12

1) Power plants > 20 MW net capacity.
2) CCGT = Combined-Cycle Gas Turbine.


Source: VDEW, February 2007, public press releases.




                                                                                                                   135
                                                                       Utilities - Electricity - Generation - Market Data




Planned Power Plant Projects*) in Germany (II)

Company                                 Planned location   Source         Net capacity       Commercial
                                                           of energy      in MW                operation
                                                                                          presumably till
E.ON Energie                  Irsching 4             Gas                         530               2011
E.ON Kraftwerke               Datteln                Hard coal                 1,000               2011
Energie- und Wasserversorgung
Mittleres Ruhrgebiet          Ruhrgebiet (open)      Hard coal                 1,100                 2011
Energiedienst AG (EnBW)       Rheinfelden
                              (extension)            Run-of-river                 74                 2011
STEAG                         Herne                  Hard coal                   690                 2011
Kraftwerke Mainz/Wiesbaden Mainz                     Hard coal                   800                 2011
RWE Power                     Ensdorf                Hard coal                 1,530                 2012
RWE Power                     Hamm                   Hard coal                 1,530                 2012
STEAG                         Lünen (possibly)       Hard coal                   690                 2012
Trianel Power                 Lünen                  Hard coal                   750                 2012
Vattenfall Europe             Berlin
                              (location still open)  Hard coal                   800                2012
Trianel Power                 Krefeld                Hard coal                   750                2012
Südweststrom/Iberdrola        Brunsbüttel            Hard coal                   800                2012
Dong Energy                   Lubmin                 Hard coal                 1,600                2012
E.ON/Stadtwerke Hannover      Großkrotzenburg        Hard coal                 1,100                2012
E.ON Energie/
Stadtwerke Hannover           Staudinger             Hard coal                 1,100                 2012
RWE Power                     Integrated Gasification
                              combined-cycle
                              power plant CO2 free Lignite or
                              (location open)        hard coal                   450                2014
Electrabel                    Northern Germany       Hard coal                   800                2014
E.ON/Stadwerke Kiel           Kiel                   Hard coal                   800                2015
Vattenfall Europe             Lichterfelde           Gas                         150                2016
Concord Power                 Lubmin II              Gas                       1,200                open
Electrabel                    South-West Germany/
                              Central Germany        Gas                         400                open
EnBW                          Karlsruhe              Hard coal                   820                open
EnBW                          Karlsruhe (possibly)   Gas                         410                open
EnBW                          Iffezheim (extension) Run-of-river                  38                open




*) Power plants > 20 MW net capacity.
Source: VDEW, February 2007, public press releases.




                                                                                                                   136
                                                                           Utilities - Electricity - Generation - Market Data




Planned Power Plant Projects*) in Germany (III)

Company                                 Planned location       Source         Net capacity       Commercial
                                                               of energy      in MW                operation
                                                                                              presumably till
Gesellschaft für Stromhandel            Ruhrgebiet             Gas                  400                open
GKM                                     Mannheim               Hard coal            800                open
Südweststrom/Iberdrola                  Northern Germany       Hard coal            800                open
Südweststrom/Iberdrola                  Bavaria (location 2)   Gas                  400                open
Stadtwerke Lippstadt/Essent             Lippstadt              Gas                  260                open
Buderus Edelstahl                       Wetzlar                Waste                 40                open
Kraftwerke Mainz-Wiesbaden              Mainz                  Hard coal            800                open
MIBRAG                                  Profen                 Lignite              660                open
N-Ergie                                 Dettelbach             Gas                  800                open
STEAG                                   Quierschied/Saarland   Hard coal            690                open
Südweststrom                            Bavaria (location 1)   Hard coal            400                open
Total                                                                            41,537

*) Power plants > 20 MW net capacity.
Source: VDEW, February 2007, public press releases.




                                                                                                                       137
                                                                                             Utilities - Electricity - Generation - Market Data




Planned Power Plant Projects in Germany (IV)



                                                                          Kiel
                                                                                                               Lubmin
                                                             Brunsbüttel
                                                                Stade
                                                          Hamburg-     Hamburg
                                                          Moorburg      Hamburg-
                                                                        Tiefstack

                                             Dörpen

                                             Lingen                                                 Berlin
                                                                                                Lichterfelde
                                                                                 Braunschweig                             Eisenhüttenstadt


                                 Bocholt     Hamm           Lippstadt                                                    Spremberg
                               Datteln    Lünen
                      Duisburg          Herne
                      Düsseldorf         Herdecke                                                              Boxberg
                       Neurath                                                                   Profen
                                                                        Mecklar-
                                Hürth                                   Marbach
                   Weisweiler


                                                         Frankfurt am Main
                                                      Mainz


                                                      Mannheim
                        Ensdorf         Quierschied

                                                       Karlsruhe
                                                                                           Irsching




Source: VDEW, February 2007, public press releases.




                                                                                                                                             138
                                                                        Utilities - Electricity - Generation - Market Data




The ‘Marginal Power Plant’ Principle – Key to Price
Formation on the Wholesale Market in Germany

in €/MWh




                       Capacity in demand



                                                        Total cost
                                                      Variable cost +
                                                      cost of capital
 Market price                                          Offer price




 Power
 plant
    1          2        3        4        5
        Short-term variable costs by power plant type (fuel + operating assets) + CO2


                       Supplied capacity in MW (staggered by offer price)



s       Daily demand on the European Energy Exchange (EEX) is met by a large number of electricity
        products based on a variety of energy sources. Every type of power plant (nuclear, gas, coal,
        etc.) has marginal costs in terms of usage.

s       Marginal costs are primarily determined by the ‘variable cost’ of fuel (incl. CO2) and operat-
        ing assets — costs that are incurred when the power station is up and running and must at
        least be earned back.

s       On the EEX, power plant capacity is drawn upon, starting from the lowest-cost option, until
        the demand is met.

s       The offer price of the last power station needed to satisfy this demand (‘marginal power
        plant’) determines the market price for all the other power stations.

s       Power prices are thus the result of the point at which supply and demand intersect. There-
        fore, to cover high demand, a gas-fired power plant with relatively high marginal costs would
        tend to determine prices, whereas to cover low demand, a more affordable coal-fired power
        station would be preferable.




                                                                                                                    139
                                                                          Utilities - Electricity - Generation - Market Data




German Merit Order: Theoretical Power Pricing with and
without Emissions Trading

                                                               Assumed range of power demand


                                                                             Marginal plant

                                                                                                       OCGT1)
                                                                                                        old
              Market price incl. CO2
Power price




                Impact of emissions trading                                                   CCGT2)
                on power price                                                                 new
                                                       CO2 costs of fossil fuel-
              Market price excl. CO2                     fired power plants

                                                                       Lignite   Hard
                                                              Hard       old      coal
                                        Nuclear     Lignite    coal               old
                                                     new       new
              Must run3)                               variable costs of power plants (excl. CO2)


                                                  Power installed



1) OCGT: Open-Cycle Gas Turbine.
2) CCGT: Combined-Cycle Gas Turbine.
3) Must run: run-of-river, wind, CHP.


Source: RWE.




                                                                                                                      140
                                                                              Utilities - Electricity - Generation - Market Data




Remaining Power Generation Capacity in Europe

    Status: December 2005                                         Status: December 2006
    in GW                                                         in GW

       611.3             Total European                             625.1
                         power plant capacity



       110.0             – Unusable capacity                         107.8


         27.0                                                         29.3
                         – Reserve capacity
        34.0             – Outages and overhauls*)                    32.9

    = 440.3           Reliable available capacity                 = 455.1




       369.5             – Load                                      368.1




        70.8             Remaining capacity                            87.0
          8.2            Import balance                                 2.4




*) Outages and overhauls of thermal power plants.


Source: Union for the Coordination of Transmission of Electricity (UCTE).




                                                                                                                          141
                                                                              Utilities - Electricity - Generation - Market Data




Remaining Power Generation Capacity in Germany

    Status: December 2005                                         Status: December 2006
    in GW                                                         in GW

      119.3             Total German power plant                    124.1
                        capacity

                                                                      22.9
         22.8           – Unusable capacity

           7.1          – Reserve capacity                              7.3

          5.5           – Outages and overhauls*)                       6.7

      = 83.9          Reliable available capacity                   = 87.2




        69.5            – Peak load                                    70.0




        14.4            Remaining capacity                             17.2

          1.2           Import balance                                  2.2




*) Outages and overhauls of thermal power plants.


Source: Union for the Coordination of Transmission of Electricity (UCTE).




                                                                                                                          142
                                                            Utilities - Electricity - Generation - Market Data




Balancing Power: How Does it Work?

                                                                                      Balanced
                               Minutes      Power station breakdown                   grid
                                                                                      situation
s   Starting Point:                0:00 –                                             Grid un-
    unbalanced grid situation                                            – 0:30       balanced
    (e. g. power station
    breakdown)
s   Primary
    – Automatic control at the
      generator/turbine           15:00 –
    – Normally coal-fired or
      nuclear power plants
s   Secondary
    – Manual control by the
      grid operator
    – Normally pumped storage 30:00 –
    Minute reserve
    – Manual control by the
      power plant dispatcher
    – Normally coal and gas fired
      power plants




                                                                                                        143
                                                                        Utilities - Electricity - Generation - Market Data




 Factors Exerting a Major Influence on Electricity
 Wholesale Prices


                                                    Oil prices

                           Gas prices                                Coal prices




           CO2 prices                                                              Uranium prices
                                              Thermal power plants




Wind                                                                                             Maintenance
                       Wind
                      power
                      plants

                     Hydro
                                              Electricity                     Power plants/
                     storage
                     and run-of-
                                                prices                           grids

                      river power                                                                     Technical
                       plants                                                                            faults
Precipitation
                           Air con-
                            ditioners/elec-
                               tric heaters
                                                             Lighting/
                                        Lighting         end consumer behavior

         Temperature                                                                       Vacations




                                                                       Public holidays
                            Clouds

 s     Factors of supply                           Time of day
 s     Factors of demand
 s     Factors of supply and demand



 Long-term factors

 s     Economic cycle
 s     Political decisions
 s     Capacity expansion/closures




                                                                                                                    144
                                                          Utilities - Electricity - Generation - Market Data




Comparison of Wholesale Prices in European Power Markets

Absolute development of 2008 base load forward prices

in €/MWh
85

80

75

70

65

60

55

50

45

40

35

30

25

  Jan          Mar     May   Jul     Sep      Nov       Jan     Mar        May        Jul Aug
  06           06      06    06      06       06        07      07         07         07 07



–––   UK
–––   Netherlands
---   France
–––   Germany
–––   Scandinavia


Source: RWE Trading.




                                                                                                      145
                                                                    Utilities - Electricity - Generation - Market Data




Electricity Prices in Central Eastern European Countries

in €/MWh
Forwards base load for 2007                                               Forwards base load for 2008



70                                                                                                       70

65                                                                                                       65

60                                                                                                       60

55                                                                                                       55

50                                                                                                       50

45                                                                                                       45

40                                                                                                       40

35                                                                                                       35

30                                                                                                       30

25                                                                                                       25

20                                                                                                       20

15                                                                                                       15

10                                                                                                       10

       Jul      Aug      Sep       Oct    Nov   Dec   Jan   Feb March Apr       May     Jun       Jul
       06       06       06        06     06    06    07    07   07   07        07      07        07


- - - Hungary
––– Czech Republic
––– Poland

Source: Traditional Financial Services.




s     Markets are illiquid due to regulation of wholesale prices by the regulatory authorities.




                                                                                                                146
                                                                  Utilities - Electricity - Generation - Market Data




UK Merit Order: Theoretical Power Pricing with and without
Emissions Trading (at Wintertime with High Gas Prices)


                                                  Assumed range of power demand


                                                                      Marginal plant         OCGT1)
Power price




              Market price incl. CO2


              Market price excl. CO2      CO2 costs of fossil
                                        fuel-fired power plants
                                        Coal                      CCGT2)                     Oil

              Must
                        Nuclear            variable costs of power plants (excl. CO2)
              run


                                       Power installed



Normal thermal efficiencies assumed.
1) OCGT: Open-Cycle Gas Turbine.
2) CCGT: Combined-Cycle Gas Turbine.


Source: RWE.




                                                                                                              147
                                                                                                                                                       Utilities - Electricity - Generation - Market Data




Coal Price Development

in €/t coal equivalent (ce)

85

80
                                         ø CIF-NWE 2004
                                           67.44 €/t ce
75

                                                                                               ø BAFA2) 2005                                             ø BAFA2) 2006
70
                                                                                                65.02 €/t ce                                              61.76 €/t ce

65

60

55
                                                  ø BAFA2) 2004
                                                   55.36 €/t ce                           ø CIF-NWE 2005                                             ø CIF-NWE 2006
50
                                                                                            57.27 €/t ce                                               59.23 €/t ce

45

40

35

30
              Sep 03
     Jul 03


                       Nov 03
                                Jan 04
                                         Mar 04


                                                           Jul 04
                                                                    Sep 04
                                                                             Nov 04




                                                                                                                 Jul 05
                                                                                                                          Sep 05
                                                  May 04




                                                                                               Mar 05
                                                                                                        May 05




                                                                                                                                   Nov 05
                                                                                                                                            Jan 06
                                                                                                                                                     Mar 06




                                                                                                                                                                                Sep 06
                                                                                      Jan 05




                                                                                                                                                                                         Nov 06
                                                                                                                                                                                                  Jan 07
                                                                                                                                                                                                           Mar 07
                                                                                                                                                                                                                    May 07

                                                                                                                                                                                                                             Q3 2007
                                                                                                                                                                                                                             Q4 2007
                                                                                                                                                                                                                                2008
                                                                                                                                                                                                                                2009
                                                                                                                                                              May 06
                                                                                                                                                                       Jul 06




                                                                                                                                                                                                                               Jul 07




–––– CIF-NW Europe
- - - - Forward TFS (Traditional Financial Services Ltd.)1)
–––– BAFA2) — monthly
- - - - BAFA2) — monthly (expected)


1) As of August 2007.
2) Bundesamt für Wirtschaft und Ausfuhrkontrolle (Federal Office of Economics and Export Control).




                                                                                                                                                                                                                                        148
                                                                                                                                                                                                                    Utilities - Electricity - Generation - Market Data




            Development of Sea Freight Rates for Hard Coal

            in $/t

            50

            45

            40

            35

            30

            25

            20
    16.66
11.27
            15

            10

               5

               0
            Jan 02
                     Mar 02
                              May 02
                                       Jul 02
                                                Sep 02
                                                         Nov 02
                                                                  Jan 03
                                                                           Mar 03
                                                                                    May 03
                                                                                             Jul 03
                                                                                                      Sep 03
                                                                                                               Nov 03
                                                                                                                        Jan 04
                                                                                                                                 Mar 04
                                                                                                                                          May 04
                                                                                                                                                   Jul 04
                                                                                                                                                            Sep 04
                                                                                                                                                                     Nov 04
                                                                                                                                                                              Jan 05
                                                                                                                                                                                       Mar 05
                                                                                                                                                                                                May 05
                                                                                                                                                                                                         Jul 05
                                                                                                                                                                                                                  Sep 05
                                                                                                                                                                                                                           Nov 05
                                                                                                                                                                                                                                    Jan 06
                                                                                                                                                                                                                                             Mar 06
                                                                                                                                                                                                                                                      May 06
                                                                                                                                                                                                                                                               Jul 06
                                                                                                                                                                                                                                                                        Sep 06
                                                                                                                                                                                                                                                                                 Nov 06
                                                                                                                                                                                                                                                                                          Jan 07
                                                                                                                                                                                                                                                                                                   Mar 07
                                                                                                                                                                                                                                                                                                            May 07
                                                                                                                                                                                                                                                                                                                     Jul 07




            –––– South Africa
            –––– USA — East Coast
            –––– Australia
            - - - - Colombia


            Source: Frachtcontor Junge & Co.




                                                                                                                                                                                                                                                                                                                              149
                                                                                    Utilities - Electricity - Generation - Market Data




 Main Sea Freight Trading Routes for Hard Coal

 Hard Coal Seaborne Trade 2006: 782 million t
 in million t

                            28
                                                                            8                  77

                                                                 API#2
                    28 CANADA
 To the                                                                  POLAND
Far East                                                                               COMMONWEALTH          63               Canada/USA
                                                                                       OF INDEPENDENT
                                                                                       STATES
                    USA

                                   69                                                                      CHINA


                                                                                                                    171
                                 COLOMBIA/
                                 VENEZUELA
                                                                            69
                                                                                                                INDONESIA
                                                                                                                         237
                                                                 API#4
                                                                     SOUTH AFRICA

                                                                                                                    API#3 AUSTRALIA




 Major products traded on worldwide coal markets

 API#2 The TFS API#2 is a monthly basket index for the ARA (harbours of Amsterdam, Rotterdam, Antwerpen) coal price
           with a basis of 6,000 Kcal/kg, CIF, ARA, NAR (net as received) calculated on the last business day of the month.
           Calculation: (MCIS NWE Steam Coal Marker Price + International Index) divided by 2.


 API#3 The TFS API#3® is a weekly (every Friday) basket index price with a basis of 6,700 Kcal/kg, GAD (gross air dryed)
           FOB Newcastle (Australia) and published on a weekly and a monthly average basis. Calculation: (FOB Newcastle
           Price + Barlow Jonker Index (BJI)) divided by 2.


 API#4 The TFS API#4® is a weekly (every Friday) basket index price with a basis of 6,000 Kcal/kg, NAR FOB Richards Bay
           (South Africa) and published on a weekly and a monthly average basis. Calculation: (FOB Richards Bay Price
           ascertained by McCloskey + SACR Spot Coal Price Index + FOB Richards Bay Price ascertained by Argus Media)
           divided by 3.


 API = All Publications Index
 CIF = Cost, Insurance, Freight
 CIS = Commonwealth of Independant States
 FOB = Free On Board
 The TSF API was a registered trade mark of the Tradition Financial Services Company (TSF).
 The TSF ascertains different API prices by a price survey from Argus Media and McCloskey.


 API-Index was renamed from July 2005 on in AM API#... (A for Argus Media and M for McCloskey).


 Source: Verein der Kohleimporteure (Coal Importers Association), 2007.

                                                                                                                                     150
                                                                                    Utilities - Electricity - Generation - Market Data




The UK Large Combustion Plant Directive

From 2008, UK coal and oil-fired power stations will be governed by the Large Combustion Plant
Directive. This sets new limits on the amounts of Sulphur Dioxide (SOx), Nitrous Oxides (NOx) and
dust power stations can emit.

s      Step 1
       Power stations must choose whether to be part of LCPD or to request a limited life
       derogation (opt out). All stations have now made this choice.

       Power stations which opt-out are allowed to run for 20,000 hours, or until 2015, which
       ever comes sooner.

s      Step 2
       Those power stations which are part of LCPD must choose to be governed in one of
       two ways:

       – Emission Limit Value (ELV)
         The power station must meet specific limits to the amounts of pollutants produced on
         a “milligramme per cubic metre of waste gas“ basis.*)

       – National Emission Reduction Plan (NERP)
         A company is given an overall allowance (= bubble: amount of a pollutant that can be
         emitted per year) of emissions it may produce.*)
         The emission allowances issued under NERP are tradable within a member state.



*) Due to the Environment Agency regulatory framework, those stations which choose ELV will be allocated an annual limit
    of emissions (called a company B limit) and those stations that choose NERP will be allocated site specific annual
    emission limit values.




                                                                                                                                151
                                                                    Utilities - Electricity - Generation - RWE




RWE Power Generation: No 2 in Europe

EU 25 (2006): 2,988 TWh

Others                            57%




EdF (incl. EnBW)                  20%




RWE*)                                 7%



E.ON                                  7%


Vattenfall                            6%


Enel                                  3%

*) Of which RWE Power: 6%, RWE npower: 1%.

Source: 2006 annual reports; Eurostat.



RWE Market Shares in European Power Generation
by Core Region (2006)
in %
100



 50

 40
                  31
 30

 20                                              17

                                      10
 10
                                                             4
  0
             Germany 1)               UK     Hungary 2)   Austria

1) Including contracted generation.
2) 2005 figure.

                                                                                                        152
Source: UCTE 2006, RWE.
                                                                           Utilities - Electricity - Generation - RWE




RWE’s Share in German Power Generation Market1)
Relative to Peers (2006)
RWE                        (184 TWh)               31%2)
E.ON                       (120 TWh)               20%




Others                     (158 TWh)               26%




Vattenfall Europe            (76 TWh)              13%




EnBW                         (60 TWh)              10%



1) Base: Net Generation in Germany (including self generators): 596 TWh.
2) Including contracted generation.


Source: Annual reports; RWE calculations.




                                                                                                               153
                                                                                        Utilities - Electricity - Generation - RWE




RWE Group Electricity Production
by Primary Fuel (2006)

in bn kWh
                                                  Total bn kWh: 329.8*)                                106.1
100

80             72.9                71.6

60
                                                    47.3
40
                                                                      24.3
20
                                   31.1                                                  7.6
  0                                                                                    2.5
              Lignite            Hard coal       Nuclear              Gas             Water          Electricity
                                                                                    and others       purchases



s     RWE capacity
s     Contractually secured capacity


*) The difference between 329.8 TWh of power generation output and 312.1 TWh of electricity sales
  is explained by grid losses.




                                                                                                                            154
                                                            Utilities - Electricity - Generation - RWE




RWE Group Electricity Production by Region (2006)

in bn kWh

                             Germany     UK              Other             Total
                                                     international
Lignite                          67.9            –             5.0             72.9
Nuclear                          47.3            –               –             47.3
Hard coal                        50.8         20.8               –             71.6
  thereof contracts              31.1                                          31.1
Gas                               9.9         14.4              –              24.3
Water and others                  5.9          1.3            0.4               7.6
  thereof contracts               2.5                                           2.5
Subtotal                        181.8         36.5            5.4             223.7
Electricity purchases*)          61.2         23.5           21.4             106.1
Total                           243.0         60.0           26.8             329.8



*) Net, excluding trading.




RWE Group Power Plant Capacity by Region (2006)

in MW

                             Germany     UK              Other             Total
                                                     international
Lignite                         10,015        –               714            10,729
Nuclear                          6,308        –                 –             6,308
Hard coal                        9,571    4,415                 –            13,986
 thereof long-term
 contracts                      6,483                                         6,483
Gas                             3,960     2,931                1              6,892
Water and others                3,297     2,026              123              5,519
  thereof long-term
  contracts                     2,261                                        2,261
Total                          33,152     9,372              910            43,434




                                                                                                155
                                                                         Utilities - Electricity - Generation - RWE




The Role of Electricity Purchase Agreements
at RWE Power in Germany (2006)

Total capacity*): 32.4 GW
RWE                                   73%
RAG (STEAG)                           12%
Others                                 9%

E.ON                                   6%




Total generation: 178.6 TWh

RWE                                   81%
RAG (STEAG)                           10%


E.ON                                   6%

Others                                 3%


*) As of December 31, 2006.




s     RWE has full entrepreneurial control over power plants

s     Long-term contracts from fossil-fired and hydro power plants

s     RWE can use most outside purchases until the end of the power plant’s useful life

s     Pricing is largely dependent on generation costs (fuel, CO2)




                                                                                                             156
                                                            Utilities - Electricity - Generation - RWE




RWE Group Generation Output and Capacity
by Load Factor (2006)

Output

Base load1)                                      86%



Peak load2)                                      14%

1) Base in Germany: lignite, nuclear, coal (70%),
  run-of-river, renewables, gas (cogeneration);
  base in the UK: coal (70%), gas, renewables;
  base for other international: lignite (70%), gas (70%),
  water, renewables.
2) Peak in Germany: coal (30%), gas (condensation), oil,
  pump storage;
  peak in the UK: coal (30%), oil, water;
  peak other international: lignite (30%), gas (30%).




Capacity

Base load3)                                      67%



Peak load4)                                      33%

3) Base in Germany: lignite, nuclear, coal (50%),
  run-of-river, renewables, gas (cogeneration);
  base in the UK: coal (50%), gas, renewables, water;
  base for other international: lignite (50%), gas,
  water, renewables.
4) Peak in Germany: coal (50%), gas (condensation), oil,
  pump storage;
  peak in the UK: coal (50%), oil;
  peak for other international: lignite (50%).




                                                                                                157
                                                                                       Utilities - Electricity - Generation - RWE




The RWE Power Division’s Power Plant Portfolio
(2006)*)

          Capacity Generation                                             Capacity Generation
          33.3 GW 184.0 TWh                                               32.4 GW 181.8 TWh
                                                   Others
                       2%                                                                    4%
            10%       5%                                                      10%            5%
                                                Natural gas
              11%                                                            11%
                            26%
                                                                                            26%
                                              Nuclear energy
             19%                                                             19%



                            27%
                                                  Hard coal                                 28%
             28%                                                             29%




                                                   Lignite
                            40%                                                             37%
             32%                                                             31%




           Continental Europe                                                     Germany


*) Including power plants that are not owned by RWE but which RWE can freely use thanks to long-term agreements.




                                                                                                                           158
                                                                             Utilities - Electricity - Generation - RWE




RWE Power’s Major Power Plants in Germany

    Lignite
    Nuclear
    Hard coal
    Gas
    Oil                                                         Rostock

v   Combined-Cycle
                                             Hamburg
    Gas Turbine



                                                                    Berlin




                          Dortmund
                       Essen


                     Cologne



                               Frankfurt am Main




                                     Stuttgart



                                                       Munich




                                                                                                                 159
                                                                           Utilities - Electricity - Generation - RWE




RWE npower’s Major Power Plants in the UK (2006)


v     Gas
      Coal
v     CCGT 1)
      Oil/Gas




                                                                                 Great Yarmouth 400 MW
                                                                           v

Didcot A            2,000 MW                                                     Little Barford      660 MW

Aberthaw B          1,500 MW                                                     Littlebrook D     1,370 MW

Didcot B             1,400 MW                                                    Tilbury B         1,020 MW

Fawley              1,000 MW




s     8.82) GW of conventional generation capacity (10% market share)

s     Flexible and diversified portfolio (coal: 47%, gas: 31%, oil: 22%)

1) CCGT: Combined-Cycle Gas Turbine.
2) Large-scale generation only.




                                                                                                               160
                                                                 Utilities - Electricity - Generation - RWE




Age structure of RWE Power Plants in Germany in
2007 in MW (I)
Hard coal (9,370 MW1))                            Lignite (10,090 MW1))

Age (years)                                       Age (years)
>50 –                                             >50 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 45 –                                              45 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 40 –                                              40 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 35 –                                              35 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 30 –                                              30 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 25 –                                              25 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 20 –                                              20 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 15 –                                              15 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –
 10 –                                              10 –
    –                                                 –
    –                                                 –
    –                                                 –
    –                                                 –                    4)
  5–                                                5–
    –                                                 –
    –                                                 –
    –   2)                                            –
    –                                3)               –
                                                                                5)
  0–                                                0–
    0   400 800 1200 1600 2000 MW                     0   400 800 1200 1600 2000 MW
     ~44% older than average                           ~50% older than average

         Average age of existing power plants      1) Without new builds
         Average age incl. new build projects      2) Voerde / GKM
         Existing RWE power plants                 3) Konvoi (Westfalen, Ensdorf)
         New build projects under consideration    4) BoA 1
                                                   5) BoA 2/3
                                                                                                     161
Source: RWE.
                                                                    Utilities - Electricity - Generation - RWE




Age structure of RWE Power Plants in Germany in
2007 in MW (II)
Gas/Oil (3,740 MW1))                               Nuclear (5,500 MW1))

Age (years)                                        Age (years)
  >50 –                                             >50 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   45 –                                              45 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   40 –                                              40 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   35 –                                              35 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   30 –                                              30 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   25 –                                              25 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   20 –                                              20 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   15 –                                              15 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
   10 –                                              10 –
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
    5–                                                5–
      –                                                 –
      –                                                 –
      –                                                 –
      –                                                 –
                          2)
    0–                                                0–
      0   400 800 1200 1600 2000 MW                     0   400 800 1200 1600 2000 MW
      ~74% older than average                            ~44% older than average

          Average age of existing power plants       1) Without new builds
          Average age incl. new build projects       2) CCGT Lingen
          Existing RWE power plants
          New build projects under consideration     Source: RWE.

                                                                                                        162
                                                                                              Utilities - Electricity - Generation - RWE




Thermal Efficiency of RWE’s German Power Plants

Weighted degree of efficiency
in %

                                                                             59
60

50
                                                     46               44
                     43
                                           38
40           36
                                                  Hamm, Ensdorf and
30                                                Eemshaven (NL)




                                                                             CCGT in Lingen
20
                     BoA 2/31)




10

  0
              Lignite                         Coal                     Gas


s     German average2)
s     Highest thermal efficiency of RWE’s power plant projects


1) Lignite-fired power plant with optimised technology.
2) Including capacities of power plants owned by RWE.




                                                                                                                                  163
                                                                   Utilities - Electricity - Generation - RWE




Lignite-Fired Power Generation:
Higher Efficiency, Less CO2

Thermal efficiency
in %
                            1975
50                          Weisweiler:
       1957                 600 MW
       Frimmersdorf:        η = 36.6                                                        2020
40     150 MW                                                                               700˚C-TBK
       η = 30.8                                                                             1,000 MW
                                                          2003           2009               η ≈ 50
30                          1970                          Niederaußem:   Neurath:
                            Niederaußem:                  BoA            BoA 2/3
            1966            300 MW                        1,000 MW       1,100 MW
20          Frimmersdorf:   η = 35.8                      η > 43         η > 43
            300 MW
            η = 31.4
10



0
    1957               1972                1987                  2003    2009              2020




Drop in CO2 emissions in million t/a
due to new 1,000 MW power plant



                                  - 30%                - 40%



           9.7

                                6.8
                                                    5.8



       η = 30.8%              η > 43%             η ≈ 50%
         1957                  2003                2020




                                                                                                       164
                                                                                    Utilities - Electricity - Generation - RWE




 RWE Lignite Production in the Rhenish Mining Area

 in million t lignite

      120


      100            Frimmersdorf-Süd

                                             Frimmersdorf-West                                  Garzweiler II
        80                                                       Garzweiler I


        60
                Fortuna-Garsdorf


        40                                                                              Hambach I
                           Frechen                    Bergheim

        20
                           Südrevier
                Inden                                                                    Inden I + II
                              Zukunft-West
         0
     1970         1975        1980     1985     1990      1995     2000     2005          2010       2015       2020
Number
of
mines 10            11          9       9         5        4         3          3           3          3         3
                                                           Actual values                     Mining capacity


 Position: January 2007.




                                                                                                                        165
                                                                                          Utilities - Electricity - Generation - RWE




Results of German Nuclear Consensus Talks:
810 TWh Nuclear Electricity Production for RWE

What does this mean for RWE’s nuclear power plants?

Biblis A1)                                                              62.0 TWh

Biblis B2)                                                              81.5 TWh

Gundremmingen B2)                                                       160.9 TWh

Gundremmingen C2)                                                       168.4 TWh

Mülheim-Kärlich                     Capacity to be transferred: 107.25 TWh

Emsland                                                                 230.1 TWh

                             1975     ‘80      ‘85     ‘90      ‘95 2000 ‘05           ‘10     ‘15         ‘20 2025



Presumed remaining operational lifetime given high capacity utilisation.

1) RWE Power has filed a request for permission to transfer 30 TWh of the Mülheim-Kärlich contingent or,
  alternatively, of the Emsland contingent.
2) Possible lifetime extension by transferring generation allowances.




                                                                                                                              166
                                                                              Utilities - Electricity - Generation - RWE




RWE Power‘s Decommissioning Concept for Nuclear
Power Plants

     35 – 40%                                about 50%                                   10 – 15%
   share of costs                           share of costs                             share of costs

      5 – 7 years                  10 – 12 years               2 – 3 years


                                              Dismantling


   Post operation           Nuclear decommissioning/          Conventional             Final disposal
        phase                      dismantling                dismantling/
                                                               demolition



– Power production        – Decommissioning of          – Decommissioning of
  has ceased.              contaminated buildings/          buildings/components
– Technical infra-         components                       which are no longer
  structure has to be                                       under legislation of
  operated further on.                                      the German Nuclear
– Fuel elements mean-                                       Act.
  while cool down in
  pond storage to be
  suitable for dry cask
  (CASTOR) storage.




                                                                                                                  167
                                                   Utilities - Electricity - Electricity Trading - Market Data




Major European Electricity Trading Exchanges




                                                                                  FINLAND
                                                           NORWAY
NordPool Oslo

                                                                     SWEDEN


                                                          DENMARK
European Energy Exchange (EEX) Leipzig
Amsterdam Power Exchange (APX)                UK
                                                    NETHER-
                                                    LANDS
APX Power UK London                                            GERMANY
                                                    BELGIUM
Powernext Paris

                                               FRANCE               AUSTRIA
Belpex Brussels




Omel Madrid
                                      SPAIN




Energy Exchange Austria (EXAA) Graz




                                                                                                        168
                                                                     Utilities - Electricity - Electricity Trading - RWE




European Power Trading (2006)

s    RWE core markets
s    Adjacent/correlated markets




                                                                     FINLAND

                                                NORWAY

                                                         SWEDEN



                                                DENMARK



                                   UK     NETHER-
                                          LANDS                POLAND
                                        BELGIUM GERMANY
                                                          CZECH
                                   LUXEMBOURG             REPUBLIC
                                                                  SLOVAKIA
                                    FRANCE          AUSTRIA HUNGARY
                                          SWITZERLAND

                                                         SLOVENIA




                    SPAIN




Continental Europe                                   s      Fully asset-backed trading operation
Total trading volume                8,000 TWh
RWE Trading volume                  1,217 TWh        s      Multi-energy approach through a combi-
  Physical                            753 TWh               nation of physical and derivative power,
  Derivative (incl. options)          434 TWh               gas, coal and oil trading

                                                     s      RWE Trading has a significant share in
                                                            the Continental European and Nordic
                                                            power trading markets.

                                                     s      Projects to develop trading systems in
                                                            Eastern European markets are on the way.




                                                                                                                  169
                                            Utilities - Electricity - Electricity Trading - RWE




UK Power Trading (2006)

s   RWE core markets
s   Adjacent/correlated markets




UK power trading
Total trading volume              760 TWh
RWE trading volume                272 TWh
  Physical                        257 TWh
RWE physical production            31 TWh




                                                                                         170
                                             Utilities - Electricity - Electricity Trading - RWE




RWE Trading’s Trading Volume in Europe

TWh
800
                                                       753
750

700
                                 678

650

600

550
                     522

500
                                                             464
450                        438         434

400

350

300

250

200

150

100

50

    0
                      2004        2005                  2006




s       Physical
s       Derivative




                                                                                          171
                                                                 Utilities - Electricity - Electricity Trading - RWE




RWE Trading: The Central Role has Evolved over Time

s    RWE Trading provides the integral link between generation and supply as a
     wholesale platform

s    RWE Trading pools commodity risks for the RWE Group in liquid markets




       1998                    2000              2002              2003                2004 ff.

     Pure spec          Provider of market   Best practice      Integrated         Joint short-term
       trader           information/route    blueprint for      wholesale         trading and asset
                         to the wholesale    risk control      risk pool and      dispatch function
                             markets                         portfolio manager         – STPM*)



*) Short-Term Position Management.




                                                                                                              172
                                                                                                                                                      Utilities - Electricity - Electricity Trading - RWE




      RWE Trading: The Group’s Wholesale Risk Pool and Portfolio Manager in Germany




                                Long-term gas                 Emissions Trading     World coal market        Wholesale
                               supply contracts                                                             power market
         Embedded
       lignite supply    Buys gas


                RWE Power                                                 RWE Trading                                            RWE Energy
                                                                                                                                                                                Industrial
       s   Long-term asset                                      s     Buys standard forward                         s         Sells to customers
           management                        Sells standard           products from RWE Power
                                                forward                                                  Buys       s         Buys back-to-back                            Small and medium
       s   Hedges with standard                products         s     Manages risk within               power                                                                 enterprises

           instruments                                                defined limits                                s         Locks in sales margin

                                                                                                                                                                              Municipalities
       s   Internal market maker               Buys CO2         s     Internal market maker for          Sells      s         Bears volume and            Sells
                                              certificates                                              power                                            power
           as regards retail for load                                 fuels and CO2                                           credit risk
           profiles/shape
                                                                                                                                                                               Residential

       s   Hedges fuels and CO2
           for power sold

                                                                    Transfers day-ahead position
                Transfer of generation
              capacity incl. fuels and CO2                                                                        Load profile
                                                                  RWE STPM*) Continental                                                                          *) Short-term Position Management.
                                          Buys                                                               Sells capacity
                                        and sells     s        Manages RWE’s short-term position             and services
                                                               (< 2 months) on the Continent,
                                                               including power plant dispatch, fuels,
                    Short-term/                                and retail load                                                  Balancing market
              spot market (< 2 months)
173
                                                                                                                                                   Utilities - Electricity - Electricity Trading - RWE




      RWE Trading: The Group’s Wholesale Risk Pool and Portfolio Manager in the UK




                                    Emissions Trading       World coal market        Wholesale          Wholesale
                                                                                     gas market        power market

                                                                        Buys and sells


        RWE npower Generation                                          RWE Trading                                     RWE npower Retail
                                             Transfer of                                                                                                                     Industrial
       s   Long-term asset                   capability       s     Buys capability from            Buys         s         Sells to customers
           management                         incl. CO2             RWE npower                     power
                                                                                                                 s         Buys back-to-back                            Small and medium
       s   Hedges CO2 for capability                          s     Manages the spread option                                                                              enterprises

           not yet transferred to             Buys CO2              within defined limits           Sells        s         Locks in sales margin       Sells
                                             certificates                                          power                                              power
           Trading
                                                                                                                                                                            Residential
                                                              s     Internal market maker for                    s         Bears volume and
                                                                    power, fuels and CO2                                   credit risk


                                                                       Option exercise

                                                                                                               Load profile                                    *) Short-term Position Management.
                                                                     RWE STPM*) UK

                                                     s       When an option is exercised, STPM*)
                                         Buys                                                             Sells capacity
                                                             manages generation capability until
                                       and sells                                                          and services
                                                             production (< 1 week)

              Spot market (< 1 week)                 s       Manages optionality of plants (dispatch                         Balancing market
                                                             including fuels) and retail load
174
                                                        Utilities - Electricity - Electricity Trading - RWE




Short-Term Position Management:
Managing Generation Assets More Efficiently


                                    RWE Energy



                                          Load Management




 RWE Power
             Asset Dispatch         Short-Term      Short-Term Trading
   Asset                             Position                               RWE Trading
Management                         Management




                                   Spot Markets                               Forward
                                                                              Markets


               Short-Term Position Management is a common function
     of RWE Power, RWE Energy and RWE Trading functionally lead by RWE Trading.




                                                                                                     175
                                                                 Utilities - Electricity - Electricity Trading - RWE




What is Short-Term Position Management?

s   STPM Continental Europe was formed with effect from January 1, 2004 to better minimise
    the risks and capture trading opportunities in the most volatile short-term energy markets.

s   STPM has the overall responsibility for positions within in the short-term markets:
    – STPM buys all Power Plant optionality from RWE Power as well as the RWE Power delivery
      obligations at market price.
    – STPM trades the Power plant option and is responsible for the actual plant dispatch.
    – STPM trades in commodities related to the Power plant option (power, gas, coal, CO2).

s   STPM is a profit centre within RWE Trading, staffed by experts from RWE Power, RWE Energy
    and RWE Trading and functional lead by RWE Trading.




                                                                                                              176
                                                                  Utilities - Electricity - Electricity Trading - RWE




RWE’s Counterparties in the Power Market in 2006

Continental Europe

s    107 counterparties

s    Counterparty examples: Atel, EdF, EGL, Electrabel, E.ON, Essent,
     Merrill Lynch, Nuon, Vattenfall




Top 10                              59%




Other counterparties                41%




UK

s    Approx. 40 counterparties

s    Counterparty structure: Overall traded volume

s    Counterparty examples: Barclays, EdF, J. Aron, Scottish Power



Top 10                              72%




Other counterparties                28%




                                                                                                               177
                                              Utilities - Electricity - Electricity Trading - RWE




European Gas Trading (2006)

s    RWE core markets
s    Adjacent/correlated markets
     Cross-border activities
     Hub (Trading location)




Title transfer facility (TTF)

National balancing point (NBP)

Zeebrugge




European gas trading
Total trading volume            5,326 TWh
RWE Trading volume                875 TWh
RWE Dea’s production          30 million m3
RWE npower generation and sales 64.5 TWh

1 TWh = 34.2 million therms




                                                                                           178
                                                               Utilities - Electricity - Electricity Trading - RWE




RWE’s Counterparties in the Gas Market in 2006

Continental Europe

s    Approx. 74 counterparties

s    Counterparty structure: Overall traded volume

s    Counterparty examples: Dong, EdF UK, Electrabel, Essent Energy, Exxon Deutschland,
     Gaselys, Nuon, RWE Transgas, Statoil ASA, Total Gas Power



Top 10                             65%




Other counterparties               35%




UK

s    Approx. 57 counterparties

s    Counterparty structure: Overall traded volume

s    Counterparty examples: Accord, Avon US, Barclays, BP Gas Marketing, Deutsche Bank London,
     EdF UK, Essent Energy, Merrill Lynch, SSE Energy, Total Gas Power



Top 10                             65%




Other counterparties               35%




                                                                                                            179
                                                                                                                                       Utilities - Electricity - Electricity Trading - RWE




      RWE‘s Risk Governance Structure


                                                                             RWE Group Centre


                                     RWE AG Executive Board                                                        Group Risk Management




                                                                          Group Business Committee


                                       Market Committee                                                                 Risk Committee


                                                                                                     Asset Book           Asset Book             Asset Book
                           New Product              Market Assessment
                                                                                                     Committee            Committee              Committee
                              Team                            Team
                                                                                                     Gas & Oil             Continent                 UK


                                                                                                                                       Carbon
                                                                                                                                       Working
                                                                                                                                        Group


           RWE Energy                           RWE Power                  RWE Gas Midstream                  RWE Trading                              RWE npower


        Portfolio Management                 Asset Management               Portfolio Management                 Trading Desks                   Retail Portfolio Management

                                                                                                             Asset Interface                         Asset Management


                                                  Short-Term Position Management (Continent)

                                                                                                                       Short-Term Position Management (UK)

            Risk Control                        Risk Control                     Risk Control                     Risk Control                            Risk Control
180
                                                              Utilities - Electricity - Electricity Trading - RWE




RWE‘s Group Risk Management:
Governance and Control Framework

                                       RWE AG


                                          CFO
                             Chairman of the Risk Committee



                       Head of                             Head of
                  Risk Management                       Group Finance



                              RWE AG Risk Committee


             RWE Gas Midstream                         RWE Trading
          Member of the Board (Finance)         Member of the Board (Finance)



     RWE Energy                      RWE npower                          RWE Power
       CFO                              CFO                                CFO



                                    RWE Divisions




                                                                                                           181
                                                   Utilities - Electricity - Electricity Trading - RWE




RWE’s Risk Management Infrastructure

   Group Executive Board of RWE AG     s   Definition of principles of risk policy
                                       s   Overall responsibility for commodity risk
                                       s   Definition of overall risk appetite
                                       s   Setting of global limits (market, credit)
     Delegation       Recommendation




RWE Group Risk Committee Commodities   s   Setting of company-specific limits
     (headed by CFO Rolf Pohlig)       s   Implementation of Group risk policy
                                       s   Approval of new commodities and markets
                                       s   Monitoring and auditing of risk compliance
       Approval,      Proposal         s   Deciding on “high risk“ or large
   Requirements,      Information          transactions
Recommendation                         s   Management of company-specific limits

     Group Management Companies        s   Specific risk strategy within limits
         with Commodity Risk           s   Operating risk management
                                       s   Operating decisions on individual
                                           transactions
                                       s   Development of new products and
                                           underlyings




                                                                                                182
                                                Utilities - Electricity - Electricity Trading - RWE




System of Risk Limits of RWE Trading GmbH

   Global limits for market                            RWE AG Board/
       and credit risk             granted by          Risk Committee

            restricts                             Delegation of competence



  Company-specific market risk                         Risk Committee
limits/single counterparty risks   granted by

            restricts                             Delegation of competence



        Limits for single
     desks/books/traders/          granted by    RWE Trading GmbH Board
   individual counterparties




                                                                                             183
                                                                     Utilities - Electricity - Electricity Trading - RWE




RWE Trading: Credit Risk

s     High Level Credit Policy
      – The Credit Policy is set by the Group Risk Committee of RWE AG
      – The Credit Policy contains both, an overall CVaR (Credit Value-at-Risk) limit and maximum
        individual counterparty limits and tenors (both based on the creditworthiness of a
        counterparty)

s     Robust Counterparty Risk Assessment and Monitoring
      – RWE Trading uses internal rating tools. The results of the internal rating tools are mapped
        with the results of the external rating
      – The rating tools deliver conservative results: Historically, internal ratings were on average
        one notch below external ratings, where available
      – All counterparties are monitored frequently and reviewed on a regular basis

s     State of the Art Measurement and Monitoring of Exposures
      – RWE Trading calculates potential future credit exposure (= potential replacement value)
        with a method similar to Value-at-Risk
      – In addition the current and the future settlement exposure is measured
      – Counterparty credit exposures are reviewed on a real-time basis

s     Clear Credit Incentives
      – Costs for credit capital are based on the rating of a counterparty
      – The traders are charged for credit risk

s     Driver of Credit Risk Mitigation
      – RWE Trading was a key driver of the EFET*) standards for power and gas
      – RWE Trading has now signed more than 130 EFET-agreements
      – RWE Trading has a leading role in the development of exchanges/OTC clearing



*) European Federation of Energy Traders.




                                                                                                                  184
                                                                                          Utilities - Electricity - Grid - Market Data




German Extra High-Voltage Grid Fees are in the Middle
of the European Range despite Price Increases Caused
by the Political Environment1)

                             Extra high-voltage grid fees in Europe2)

        €/MWh

          > 10                Hungary, Slovakia, Poland, Denmark East,
                              Lithuania, Portugal, Denmark West, Italy

         6 – 10               Ireland, Great Britain, Romania, Greece,
                              Slovenia, Germany, Czech Republic, Estonia

           <6                 Spain, France, Austria, Belgium, Norway,
                              Netherlands, Finland, Sweden




1) Incentives for renewables, approval procedures, system services included in grid fees.
2) Extra high-voltage (380 kV, 220 kV/very energy-intensive industries), T = 5,000 h/a.


Source: ETSO, overview of transmission tariffs in Europe – synthesis 2006 (published in June 2007).




                                                                                                                                185
                                       Utilities - Electricity - Grid - Market Data




Control Areas of Germany’s
Transmission System Operators (2007)




Vattenfall Europe Transmission GmbH




E.ON Netz GmbH




RWE Transportnetz Strom GmbH




EnBW Transportnetze AG




                                                                             186
                                                                                  Utilities - Electricity - Grid - Market Data




Germany has the Lowest Power Outages in Europe

Power outages
in min/a

350
           315
300

250

                         192
200
                                        171

150

100                                                    79
                                                                     59
                                                                                   43
 50                                                                                                 23

   0
         Norway        Sweden          Italy          UK           France        Austria      Germany


Source: EU Commission, 5th Benchmarking Report 2005, EU Commission, 4th Benchmarking Report 2004.




                                                                                                                        187
                                                                                    Utilities - Electricity - Grid - Market Data




Germany: Import and Export of Electricity (2006)


in GWh                            DENMARK                          SWEDEN
                                                                    3,100
                                 10,322




                                               584                 437



                                                                                       POLAND


   NETHERLANDS
                                                                                           1,046
                                   ∑ Import        53,399       2,266
                                   ∑ Export        61,923
     325
                                19,260


 BELGIUM                              GERMANY

                                                  405
   LUXEM-               5,033                                                   13,022
   BOURG
      785                    494
                                                                                 CZECH
                                                                                 REPUBLIC

                                   18,073      15,371

    16,232
  FRANCE                                                                            6,995


                                                                             AUSTRIA

               SWITZERLAND            1,572


Source: Verband der Netzbetreiber – VDN – e.V. beim VDEW (German Interconnected Power Grid Association), 2006.




                                                                                                                          188
                                                                                          Utilities - Electricity - Grid - Market Data




Transfer Capacities* in Europe from and to Germany
(Summer 2007)

in MW                               DENMARK                            SWEDEN
                                                   EAST                 600
                                   WEST            550
                                  1,500




                                                    550
                                                                       600
                                             950


                                                                                            POLAND


     NETHERLANDS
                                                                                                 1,200
                                                                800
3,900
                                 4,000



                                         GERMANY
                                                       800
                                                                                    2,100

                                2,700
                                                                                      CZECH
                                                                                      REPUBLIC
                                     2,060

                                                       1,600
      2,400

    FRANCE
                                                                                            1,400

                                                                                  AUSTRIA

                                  4,400
                SWITZERLAND



s     Transmission capacities between Germany and its neighbouring countries are small
      compared to capacities installed in Germany.

s     Wholesale markets in Germany, Austria and Switzerland are gradually converging;
      due to its size, Germany is the dominant sub-market.

* Transfer capacities should be considered separately and are not cumulative. (As of August 31, 2007).


Source: Verband der Netzbetreiber – VDN – e.V. beim VDEW (German Interconnected Power Grid Association), 2006.

                                                                                                                                189
                                                                                       Utilities - Electricity - Grid - Market Data




The German Energy Industry Act:
Regulating Grid Access and Grid Fees in the Electricity
and Gas Markets

                              Unbundling of grids from generation, wholesale and retail



                                                       (number of operators)




                                                                          Distribution
                                                  Transport            Bundesnetzagentur

                                                    Bundesnetz-
                                                                            (ca. 300)
                          Exchange
  Exploration/                                          agentur
                           Trading                                                                    Retail       Customers
  Generation
                             OTC                  (electricity: 4,
                                                    gas: 10)             Distribution
                                                                        Federal States
Competition           Competition                                        (ca. 1,200)              Competition

                                                    Regulation of grid access and
                                                             grid fees*)



*) Exemption of gas Transport System Operators from regulation if effective competition between Transport System
  Operators exists.




                                                                                                                             190
                                                                                     Utilities - Electricity - Grid - Market Data




The German Energy Industry Act:
Unbundling in the German Energy Market

                                 Legal                           Functional                  Accounting
                               unbundling                        unbundling                  unbundling

      TSO1)                  Obligatory                         Obligatory                  Obligatory3)
                         since July 13, 2005                since July 13, 2005         since July 13, 2005

                                                           Detailed rules to           Auditor’s certificate
                                                           unbundle staff, equal
     DSO2)                    Obligatory                   treatment programme         plus separate balance
   >100,000               since July 1, 2007                                           sheets and profit and
   customers                                                                           loss accounts must be
                                                                                       disclosed and sent
                                                                                       immediately to the
     DSO2)                                                                             regulator
   <100,000
   customers




1) TSO = Transport System Operator.
2) DSO = Distribution System Operator.
3) Implementation at the beginning of 1st fiscal year after law comes into effect.




                                                                                                                           191
                                                         Utilities - Electricity - Grid - Market Data




The German Energy Industry Act:
Unbundling in the RWE Group Structure

(RWE Rhein-Ruhr AG as an example)

 Integrated regional supplier (REC)

       RWE Rhein-Ruhr AG
       (subsidiary of RWE Energy AG)



               Supply/sales

               Administrative functions




               Customer service              Call centre/billing centre for supply
                                             and distribution.

               Distribution grid operators   DSO (Distribution System Operator)
                                             as defined by the EU Directive.
                                             Responsible for operation, dis-
                                             tribution etc., for electricity and gas.

               Grid service                  Responsible for operation,
                                             maintenance and grid development.




s Legally independent company




                                                                                               192
                                                                           Utilities - Electricity - Grid - Market Data




The German Energy Industry Act:
Key Elements of Grid Fee Calculation

s   All grid fees must be approved ex-ante. The first application for grid fees has been filed in
    October 2005 for electricity, and in January 2006 for gas. The fees applied for are deemed
    approved if the Bundesnetzagentur (BNetzA) has not objected to the application within six
    months. All ex-ante approvals can be revoked by the BNetzA at any time.

s   The permitted fraction of equity financed assets is restricted with 40%.

s   Current cost accounting for rate of return and imputed depreciation will continue to apply for
    all investments until December 31, 2005. The real rate of interest on equity (i.e. equity-
    financed regulated asset base) up to the introduction of the incentive regulation amounts to
    6.5% (electricity) and 7.8% (gas).

s   All investments as from January 1, 2006, will yield interest based on the method of inflation-
    adjusted historic cost accounting and be subjected to imputed depreciation. The nominal
    interest rate up to the introduction of the incentive regulation amounts to 7.91% (electricity)
    and 9.21% (gas).

s   Control of anti-competitive practices by benchmarking of company clusters.

s   Tax treatment:
    – No recognition of corporation taxes (incl. taxes on fictitious profit) until the incentive regu-
      lation has entered into force but recognition of “Gewerbesteuer” (trade tax).
    – Recognition of all taxes, as from introduction of the incentive regulation. At the same time,
      adjustment of the required rates of return.




                                                                                                                 193
                                                                         Utilities - Electricity - Grid - Market Data




The German Energy Industry Act:
Further Topics

s   Basic supply
    – Formal approval for customers at tariff rates until mid-2007. Afterwards regulation of prices
      exclusively by control of anti-competitive practices (cartel authority).

s   Balancing power
    – The Transmission Grid Operators (TSO) have to jointly invite tenders for balancing power
      across all balancing zones. Every TSO is entitled to source balancing power in his own
      control zone to the extent that system stability requires this.

s   Metering
    – Immediate opening of the market for hardware
    – Possibility of opening the general metering service by legal regulation of the government
    – Supplementary provisions through legal regulation

s   Reducing the burden on energy-intensive industries
    – The legislator will enable the regulatory authority to grant consumers with special load
      characteristics a reduction of up to 50% of grid fees. These costs will be passed through to
      the other grid users.




                                                                                                               194
                                                                            Utilities - Electricity - Grid - Market Data




Typical Grid Fee Calculation Models

          Historic cost accounting                             Current cost accounting

         1                          2                         3                            4

 Nominal historic       Inflation-adjusted         Regulatory                    Current cost
 cost accounting        historic cost              current cost                  accounting
                        accounting                 accounting                    (gross)
                        (“Realkapitalerhaltung”)   (“Nettosubstanzerhaltung”)




 Price changes are      Price changes are          Price changes for             Price changes for
 not taken into         only taken into            the part of the               the part of assets
 account                account if they are        assets financed by            financed with
                        occasioned by the          equity through                equity and debt
                        rate of inflation in       current costs/                through current
                        the return on              depreciation                  costs/depreciation
                        capital                    (+ return on capital)         (+ return on capital)




                                                                                                                  195
                                                                     Utilities - Electricity - Grid - Market Data




German Grid Fee Calculation: Two Models

Alternative recognition of capital costs (regulatory current cost accounting and/or inflation-
adjusted historic cost accounting) guarantee the company’s subsistance (no material impact
from differences in systems)

                       Model    Inflation-adjusted historic      Regulatory current cost
                                cost accounting                  accounting
 Item                           (corresponding to electricity    (corresponding to electricity
                                grid fee regulation for assets   grid fee regulation for assets
                                capitalised after 01/01/2006)    capitalised before 01/01/2006)

Depreciation                    Current cost                     Current cost (equity)/
                                                                 historic cost (debt)
                                linear, normal useful life       linear, normal useful life

Equity ratio                    Pre-determined (e.g. 40%)        40%

Interest on debt                WACC,                            Based on expense
                                inflation-adjusted or nominal
Return on capital               (equity/debt-weighted cost of    6.5%, inflation-adjusted
                                capital expense ratio)           (7.8% for gas grids)

Basis of return                 Total assets                     Equity
                                                                 (operating assets at current
                                                                 cost)




                                                                                                           196
                                                                                          Utilities - Electricity - Grid - Market Data




Current Regulatory Model of Grid Fee
Calculation in Germany*)
  Imputed carrying amount of fixed assets at                                    = Imputed carrying amount of
  historical costs capitalised before 01/01/2006 x (1 - equity ratio)             debt-financed fixed assets
+ Imputed carrying amount of fixed assets at                                    = Imputed carrying amount of
  current cost capitalised before 01/01/2006 x equity ratio                       equity-financed fixed assets
= Imputed carrying amount of fixed assets                                         Based on regulatory
  capitalised before 01/01/2006 [Old fixed assets]                                current cost accounting

+ Imputed carrying amount of fixed assets at                                      Based on inflation-adjusted historic
  historic cost capitalised after 01/01/2006 [New fixed assets]                   cost accounting
+ Carrying amount of financial assets
+ Carrying amount of current assets
= Operating assets

-   Tax portion of reserves subject to future taxation
-   Operating liabilities (provisions)
-   Interest-bearing debt
-   Advances and contributions in aid of construction and building connection
=   Regulated asset base


                                Imputed carrying amount of old fixed assets
x                                                                                                          = Quota regulated asset base
      (Imputed carrying amount of old fixed assets + Imputed carrying amount of new fixed assets)            for assets capitalised before
                                                                                                             01/01/2006
+                                                                                                            x Return on capital
                                                                                                             (currently 6.5%)

x                           Imputed carrying amount of new fixed assets
                                                                                                           = Quota regulated asset base
      (Imputed carrying amount of old fixed assets + Imputed carrying amount of new fixed assets)
                                                                                                             for assets capitalised after
                                                                                                             01/01/2006
                                                                                                             x Return on capital
= Imputed return on capital                                                                                  (currently 7.91%)

+ Imputed linear depreciation based on historic cost                            = Imputed depreciation of
  capitalised before 01/01/2006 x (1 - equity ratio)                              debt-financed capital assets
+ Imputed linear depreciation of current cost                                   = Imputed depreciation of
  capitalised before 01/01/2006 x equity ratio                                    equity-financed capital assets
= Imputed depreciation for assets capitalised before 01/01/2006                   Based on regulatory
                                                                                  current cost accounting

+ Imputed linear depreciation based on historic cost                              Based on inflation-adjusted historic
  for assets capitalised after 01/01/2006                                         cost accounting
= Depreciation for old and new fixed assets

+ Calculated Trade Tax
= Imputed cost including trade tax

+ Real debt expenses
+ OPEX (Cost of raw material, staff cost, maintenance,
  cost of other purchased material and services, overhead allocated costs etc.)
= Cost (basis for grid fees)

*) General example. Mixture between current cost accounting and inflation-adjusted historic cost accounting.




                                                                                                                                      197
                                                                                               Utilities - Electricity - Grid - RWE




Electricity: Grid Fee Applications of RWE for 2006/2007
and Cuts

TSO Electricity             -9%
RWE Transportnetz Strom
Grid revenue*) € 1.0 bn/a


Region North            -10%
RWE Westfalen-Weser-Ems
                                                                     Hamburg
Grid revenue*) € 0.8 bn/a


Region Centre           -11%
RWE Rhein-Ruhr                                      RWE
                                                                                                        Berlin
              )                                 Osnabrueck        Hanover
Grid revenue* € 1.3 bn/a



                                            Dortmund
                                                                                     Halle
                                         Gelsenkirchen                                       Leipzig
                                    Essen
                                                                                  enviaM               Dresden
                                    RWE
                                                                                               Chemnitz
Region Southwest        -14%
                                            Kevag         Süwag
Süwag Energie AG
                                  Koblenz
Grid revenue*) € 0.4 bn/a                             Frankfurt am Main
                                              Bad Kreuznach
Region West             -13%
                                   VSE          Pfalzwerke
VSE/energis
                                   Saarbruecken   Ludwigshafen
Grid revenue*) € 0.1 bn/a
                                                                            LEW

Region South            -12%                        Stuttgart
                                                                            Augsburg
Lechwerke
                                                                                   Munich
Grid revenue*) € 0.3 bn/a


Region East             -12%
enviaM
Grid revenue*) € 0.6 bn/a



*) Before regulation.




                                                                                                                             198
                                                                             Utilities - Electricity - Grid - RWE




Gas: Grid Fee Applications of RWE for 2006/2007
and Cuts

TSO Gas
RWE Transportnetz Gas
Grid revenue*) € 0.2 bn/a




Region North            -26%
RWE Westfalen-Weser-Ems
Grid revenue*) € 0.2 bn/a




Region Centre           -19%
RWE Rhein-Ruhr
Grid revenue*) € 0.1 bn/a                  Dortmund
                                       Essen
                                                                     Halle




Region Southwest        -14%
Süwag Energie AG
Grid revenue*) € 0.05 bn/a                       Frankfurt am Main

                               Bad Kreuznach
                                                        Dettingen
                                               Worms




Region East             -8%
Mitgas
Grid revenue*) € 0.1 bn/a



*) Before regulation.




                                                                                                           199
                                                                                Utilities - Electricity - Grid - RWE




How Power in RWE’s Electricity Grid Gets to
the Customer
Peak voltage 220kV/380kV
                     Transmission grid                                 Integrated power grid




                                                                                          TSO
Power plant
High voltage 110kV
                               Supra regional distribution grid                           DSO
                                                                           Transformer
                                                                           station



Large scale industry/railway transportation
Medium voltage 10/20kV
                     Regional distribution grid
                                                                           Transformer
                                                                           station



Small scale industry
Low voltage 230/400V

                                                                                   Transformer
                                                                                   station




Private households/commerce/lighting


Keyword TSO
s RWE Transportnetz Strom GmbH (transmission system operator – TSO) handles the RWE
    Group’s full range of transmission grid operations, encompassing the engineering, con-
    struction and management of 380 kV and 220 kV grids.
s Furthermore, RWE TSO Strom coordinates the exchange programme for the northern part of
    the European integrated power system.

Keyword DSO
s Distribution grid operations are handled by legally independent entities (distribution system
    operators – DSOs) beneath the regional companies of RWE Rhein-Ruhr, RWE Westfalen-Weser-
    Ems, LEW, enviaM, VSE/energis and Süwag.
s They oversee development plans, investment strategies, maintenance strategies and
    schedules as well as sales of grid services (including the calculation of grid fees) for medium
    and low voltage grids.
                                                                                                              200
                                                                                                     Utilities - Electricity - Grid - RWE




RWE’s German Electricity Grid (2006)


s   RWE grid regions
    in Germany




                                      Osnabrueck




                                 Dortmund
                                                                        Halle
                             Gelsenkirchen                                      Leipzig
                        Essen
                                                                                          Dresden

                                                                                  Chemnitz

                  Koblenz
                                         Frankfurt am Main




                       Saarbruecken          Ludwigsburg


                                               Stuttgart



                                                                   Munich




s   Circuit length of 334,800 km, with
    – 90,500 Substations and transformers
    – 4,050,000 Connections
    – 8,300,000 Meters

Length in km                                       German market                              RWE            RWE in %
Transport
(extra high voltage (380/220 kV))                             36,000                        11,350                    32
Distribution
  high voltage (110 kV)                                        75,200                       25,750                    34
  medium voltage (≤ 60 kV)                                   493,000                        93,300                    19
  low voltage (≤ 1 kV)                                      1,067,100                      204,400                    19
Total                                                      1,671,300                      334,800                     20



                                                                                                                                   201
                                                                  Utilities - Electricity - Grid - RWE




RWE’s German Transmission Business (2006)


    380 kV-grid
    220 kV-grid




                                  Lower Saxony
                                                                      POLAND


    NETHERLANDS              Osnabrueck


                    Dortmund North Rhine-
                              Westphalia
              Essen


                                            GERMANY

                                    Hesse
 BELGIUM          Bonn

              Rhineland         Frankfurt am Main
              Palatinate
                                                                 CZECH
     LUXEM-                                                      REPUBLIC
     BOURG
                                                    Bavaria


                               Karlsruhe
                                        Stuttgart

                            Baden-
     FRANCE                 Wuerttemberg




                                                                  AUSTRIA




Grid length (380/220 kV)                                                 11,350 km
Installed capacity in the control area                                       40 GW
Electricity transmitted                                                   170 TWh
Number of schedule transactions per day                                       2,500
Grid customers (380/220 kV-grid)                                                 71
Trader/balancing group supervisors                                              340
Effective demand 2006 (RWE control area including grid losses)          29,500 MW




                                                                                                202
                                                                                    Utilities - Electricity - Grid - RWE




Grid Fees1) in Germany: RWE is below the Average

in €ct/kWh



9
             Residential and
          commercial customers
8

7

6

                                                  Medium industrial
5
                                                     customers

4

3
                                                                                  Large industrial
                                                                                     customers
2

1

0
                Low voltage                         Medium voltage               Extra high voltage


s     National price range
s     Average
s     RWE Energy Group2)


1) As of December 2006.
2) Volume weighted grid fees of the majority participations of RWE in Germany.


Source: VEA (Bundesverband der Energie-Abnehmer e.V.), own calculations.




                                                                                                                  203
                                                                           Utilities - Electricity - Electricity Supply - Market Data




The Largest Electricity Companies in Europe

Consolidated electricity sales volume
in bn kWh*)

EdF (FRA)                       633
E.ON (GER)                      365
RWE (GER)                       312
Vattenfall (SWE)                195
ENEL (ITA)                      159
Endesa (ESP)                    162
Suez (Electrabel) (FRA)         157
EnBW (GER)                      119
Iberdrola (ESP)                 100
British Energy (GBR)             58



*) Last completed fiscal year in each case. Net figures, excluding proprietary trading.


Source: RWE, September 2007.




                                                                                                                               204
                                                                         Utilities - Electricity - Electricity Supply - Market Data




Electricity Prices in the EU (I)

Comparison of electricity bills in 2006 and 1998
for households*) in selected EU countries
in €ct/kWh

Denmark                                                                                               s     Jan 1998
                                                                                                      s     Jul 2006
Netherlands

Italy

Germany

Sweden

Ireland

Belgium

Austria

Portugal

France

Spain

Great Britain

Poland

Finland

Czech Republic

Hungary

Greece

                    0          5           10           15           20          25          30



*) Basis: three-person sample household with average annual consumption of 3,500 kWh;
  prices are converted according to Eurostat purchasing power indices.


Source: Eurostat.



                                                                                                                             205
                                                                           Utilities - Electricity - Electricity Supply - Market Data




Electricity Prices in the EU (II)

Electricity prices for industrial customers*) in July 2006
in selected European countries
in €ct/kWh

Italy
Ireland
Belgium
Germany
Great Britain
Portugal
Netherlands
Spain
Greece
Sweden
Czech Republic
Hungary
Austria
Poland
Finland
France

                     0               2               4               6                 8            10             12



*) Basis: industrial customers with a consumption of 2,500 kW/4,000 h/a,
  prices excluding tax converted in purchasing power indices.


Source: Eurostat.




                                                                                                                               206
                                                                             Utilities - Electricity - Electricity Supply - Market Data




Pan-European Comparison of the Portion of End
Customer Electricity Prices Accounted for by Taxes1)

Taxes
in %

Denmark
Netherlands
Sweden
Germany2)
Austria
Italy
Finland
France
Belgium
Spain
Lithuania
Ireland
Greece
Portugal
UK

                      0               20               40               60              80




1) Share of tax of electricity prices per 100 kWh for private households.
2) Components of price like German Renewable Energy Act, German Combined Heat and Power Generation Act and
  concession fee included. As of July 2006.


Source: VDEW, Eurostat.




                                                                                                                                 207
                                                        Utilities - Electricity - Electricity Supply - Market Data




Structure of the German Electricity Market (2006)

Number of companies

    4                                 Major



   ≈ 60                                              Regional



  > 800                               Local           Local

                      Net electricity consumption of 529 TWh                    Electricity supply
                       47%                    27%         22%       4%         to final customers

                      Industry            Private        Trade, Others
                                        households    commerce,
                                                      public insti-
                                                        tutions



Source: VDEW, 2007.




                                                                                                            208
                                                         Utilities - Electricity - Electricity Supply - Market Data




Main Challenges Going forward in the German
Electricity Market

Segments                 Market trends                        Critical success factors
General
                         High prices, volatility and          s Apply value-oriented sales
                         liquidity dominate the market          policy, especially in periods
                                                                of high energy prices
                                                              s Benefit from market
                                                                opportunities
B2B
Industrial and           Customers purchase more           s Intensify knowledge about
corporate customers      professionally. Increasing market   customers
Distributors             know-how and demand for           s Market tailor-made products,
                         structured products                 increase product innovation
                                                             rate, and improve time-to-
                                                             market
                                                           s Bundle know-how and processes
B2C
Private and commercial   Increasing competition and           s Enhance customer retention
customers                churn rates in Germany                 by service leadership
                                                              s Achieve process excellence &
                                                                improve cost-to-serve




                                                                                                             209
                                                                       Utilities - Electricity - Electricity Supply - Market Data




Structure of the UK Electricity Market (2006)


                      Over 30 electricity generators




                     1 transmission system operator



                    7 distribution network operators,
                     operating 14 distribution zones



                              7 major suppliers

                 Net electricity consumption 350 TWh

                 212 TWh                                   115 TWh


   Industrial & commercial customers                Residential customers




Source: RWE, Department for Business Enterprise & Regulatory Reform, UK, 2007.




                                                                                                                           210
                                                                         Utilities - Electricity - Electricity Supply - Market Data




Since 1999, Competition is Real: Freedom of Choice for
German Electricity Customers

Industry and Business

Customers who signed a
new contract with their
existing supplier                            59%

Customers who switched
vendors                                      41%




Commerce*)

Customers who signed a
new contract with their
existing supplier                            50%

Customers who did not
change their agreements                      43%

Customers who switched
vendors                                       7% (= 210,000)



Households

Customers who did not
change their agreements                      53%

Customers who signed a
new contract with their
existing supplier                            37%




Customers who switched
vendors after moving house                    3%
Customers who switched
vendors                                       7% (= 2.7 million)

*) Companies with up to 50 employees.
Source: Verband der Elektrizitätswirtschaft e.V. (German Electricity Association), July 2007 and VDEW, August 2007.

                                                                                                                             211
                                                                         Utilities - Electricity - Electricity Supply - Market Data




Fees for Electricity Consumption in Germany

State-caused charges for all electricity customers
in € billion

14

                                                                                                     12.06     12.43
12                                                                     11.35          11.84


10                                                       9.48
                                           8.5
8
                           6.92

6

            4.08
4


2


0
            1999           2000           2001          20022)         2003           2004           2005      2006



s     Electricity tax                                            s     Erneuerbare-Energien-Gesetz
s     Licensing fees                                                   (German Renewable Energy Act)1)
                                                                 s     Kraft-Wärme-Kopplungsgesetz
                                                                       (German Combined Heat and Power Act)2)



1) Previously Stromeinspeisegesetz (Electricity Feed-In Act), since April 2000: German Renewable Energy Act.
2) Old Combined Heat and Power Act of May 2000 replaced by new Combined Heat and Power Act in April 2002.


Source: Verband der Elektrizitätswirtschaft e.V. (German Electricity Association), September 2006.




                                                                                                                             212
                                                                                  Utilities - Electricity - Electricity Supply - Market Data




       The Industry is Charged by Increasing Governmental
       Charges but Net Electricity Prices are Decreasing

       Development of industrial*) electricity prices (including electricity tax)
       1998 = 100%                                                                                                          Change
                                                                                                                            (1998 = 100%)

                                                                                                                123          120    + 20.0%
                                                                                                                23%         25%
100                                                                                                    104
                95                                                                       95                                        + 1,250%
2%                                                                                                     22%
               4%                                                         85
                                                                                        20%                                              - 3%
                                                           73            19%
                              64             69
                                                           9%
                                             9%
                              6%

98%            91%           58%            60%            64%           66%            75%            82%     100%         95%




1998          1999           2000          2001           2002           2003          2004            2005    2006         2007



       s     Taxes, levies & fees
             Renewable Energy Act, Combined Heat and Power Act, electricity tax.
       s     Net electricity prices
             Generation, transmission and sales



       *) Medium voltage, purchase of 100 kW / 1,600 h to 4,000 kW / 5,000 h.


       Source: Verband der Elektrizitätswirtschaft e.V. (German Electricity Association), July 2007.




                       In 2000, the industry had a liberalisation advantage of € 5.6 billion.

                      In 2007, industrial net electricity prices were below the level of 1998.




                                                                                                                                      213
                                                                                   Utilities - Electricity - Electricity Supply - Market Data




        Government Inflates German Electricity Bills

        Average monthly electricity bill of a three-person household (3,500 kWh/a)
        in €/month                                                                                                              Change
                                                                                                                                (1998 = 100%)
                                                                                                                            60.20     + 20.5%
                                                                                                                56.76
                                                                                                        54.43
                                                                                       52.38
49.95                                                                    50.14
               48.20                                      46.99
                                                                                                                39.2%       40.7%      + 98.4%
24.7%                        40.66          41.76                                                       39.9%
               29.9%                                                                    39.7%
                                                                         39,7%
                                           40.0%          39.8%
                             38.1%



75.3%          70.1%         61.9%          60.0%         60.2%          59.5%          60.3%           60.1%   60.8%       59.3%        - 5.1%




1998           1999          2000           2001          2002           2003           2004            2005    2006        2007



        s    Taxes, levies & fees
             Renewable Energy Act, Combined Heat and
             Power Act, licensing fees, electricity tax and
             sales tax.
        s    Net electricity prices
             Generation, transmission and sales.


        Source: Verband der Elektrizitätswirtschaft e.V. (German Electricity Association), July 2007.




                          Gains resulting from deregulation are being eroded by additional
                                         burdens imposed by policymarkers.




                                                                                                                                       214
                                                         Utilities - Electricity - Electricity Supply - Market Data




Government Charges Account for 40% of German
Household Electricity Bills1)

20.36 ct/kWh break down as follows (as of January 2007):

State:                8.18 ct/kWh                                 Wholesale Price/Grids/Sales:
                                                                    12.18 ct/kWh
Value-added tax2) 3.25 16%
                                                                               Grid Fee/Metering/
                                                                                    Energy Data
                                                                      6.39     31% Management
Electricity tax      2.05 10%
                                                   40%

Concession fee        1.79 9%

Renewable                                                                                Wholesale
Energy Act           0.80 4%                                          5.48    27%           Price3)

Combined Heat                                                                            Sales and
and Power Act        0.29 1%                                          0.31      2%       marketing



1) 3,500 kWh/a.
2) VAT at 19%.
3) Wholesale prices for prorated purchases for 2007.


Source: VDEW, get AG, RWE, July 2007.




                                                                                                             215
                                                   Utilities - Electricity - Electricity Supply - Market Data




The Largest Electricity Companies in Germany
by Sales to End Customers

in billion kWh*)

E.ON AG, Düsseldorf                         90.3
RWE AG, Essen                               89.3
EnBW AG, Karlsruhe                          58.4
Vattenfall Europe AG, Berlin                22.6
EWE AG, Oldenburg                           10.5
Stadtwerke München GmbH, Munich              9.2
MVV Energie AG, Mannheim                     8.8
GEW RheinEnergie AG, Cologne                 8.1
N-ERGIE AG, Nürnberg                         6.0
Stadtwerke Hannover AG, Hanover              4.7



*) Including consolidated participations.


Source: VDEW, 2006.




                                                                                                       216
                                                                             Utilities - Electricity - Electricity Supply - Market Data




CEE Markets Show Opportunities for Attractive Growth

                                                 Electricity                             Gas
                                            1)                          2)         1)
CEE markets                         Volume                     Growth        Volume              Growth2)
                                    TWh                         % p.a.       bcm                   % p.a.
Poland                               145                            2.8       15                      1.2
Czech Republic                        75                            2.7       10                      1.6
Romania                               59                            2.5       18                      1.4
Bulgaria                              42                            2.7        5                      5.1
Slovakia                              28                            0.0        7                      3.7
Hungary                               35                            2.1       15                      1.6
Slovenia                              13                            2.3        1                      2.6
Croatia                               16                            2.0        3                      n.a.
Serbia                                35                            3.0        3                      n.a.


Other RWE core markets              Volume1)                   Growth2)      Volume1)            Growth2)
                                    TWh                         % p.a.       bcm                   % p.a.
Germany                              562                            0.4       90                      1.9
UK                                   413                            1.5      100                      0.5
Benelux                              209                            2.0       62                      0.9



1) Total sales to end customers.
2) Expected annual growth 2005 – 2010.


Source: European Union/CARDS (Community Assistance for Reconstruction, Development and
          Stabilisation), RWE estimates, VDEW/VDN.




                                                                                                                                 217
                                                                          Utilities - Electricity - Electricity Supply - Market Data




Regulatory Framework in RWE’s Core Energy
Markets of Central Eastern Europe (I)

Electricity

                                       Poland            Czech Republic               Slovakia            Hungary
Liberalisation
Eligible customers              All customers          All customers             All customers       All non-residential
                                                                                                     customers1)
 Degree of liberalisation2)     100%                   100%                      100%                60%
 Next step                      –                      –                         –                   December 1, 2008
 Date of completion             July 1, 2007           January 1, 2006           July 1, 2007        July 1, 2007
Regulation
Regulatory authority            Energy Regulatory Energy Regulatory Regulatory Office Hungarian Energy
                                Office (URE)      Office (ERU)      for Network       Office (MEH)/Min.
                                                                    Industries (URSO) for Economics &
                                                                                      Transport (GKM)

Regulation levels               Transmission           Transmission              Transmission        Transmission
(within value chain)            Distribution           Distribution              Distribution        Distribution
                                Supply                                           Supply for          Supply to
                                                                                 households          public utility
                                                                                                     market

Price-setting mechanism         Separate approval Third party access             Tariff regulation   Tariff regulation
                                of network fees   tariff: revenue                Price cap/rate of   Price cap with
                                                  cap/rate of return             return ex-ante      nationwide tariffs
                                                  ex-ante                        (ex-post control)
                                                  (ex-post control)



1) Eligible customers can switch between the regulated and open markets.
2) Share of eligible customers’ electricity consumption of entire consumption.
  Source: 4th benchmark report of the EU Commission, 2005.




                                                                                                                              218
                                                                           Utilities - Electricity - Electricity Supply - Market Data




Regulatory Framework in RWE’s Core Energy
Markets of Central Eastern Europe (II)

Gas

                                        Poland            Czech Republic             Slovakia                Hungary
Liberalisation
 Eligible customers              All customers          All customers          All customers            All customers1)
 Degree of liberalisation2)      100%                   100%                   100%                     100%
 Next step                       –                      –                      –                        –
 Date of completion              July 1, 2007           January 1, 2007        July 1, 2007             July 1, 2007
Regulation
Regulatory authority             Energy Regulatory Energy Regulatory Regulatory Office Hungarian Energy
                                 Office (URE)      Office (ERU)      for Network       Office (MEH)/Min.
                                                                     Industries (URSO) for Economics &
                                                                                       Transport (GKM)
Regulation levels                Transmission           Transmission,          Transmission             Storage (theoreti-
(within value chain)             Distribution           Distribution,          (method of               cally regulated
                                 Supply                 Supply4),              regulation:              access only for
                                                        Storage                benchmarking)            public market,
                                                                               Distribution (incl.      practically it works
                                                                               cost of balancing)       like a regulated one).
                                                                               Supply for               Transmission
                                                                               households5)             Distribution
                                                                               (despite they are        Supply to
                                                                               eligible, i.e. free to   public utility market
                                                                               choose supplier,
                                                                               fixed price set by
                                                                               regulator)
Price-setting mechanism          Separate approval Third party access Tariff regulation3) 5)            Tariff regulation3)
                                 of network fees   tariff: Revenue     Price cap/rate of                Price cap with
                                                   cap/rate of         return ex-ante                   nationwide tariffs
                                                   return ex-ante                                       Regulation of entire
                                                   (ex-post control)                                    price (supply to
                                                   Supply4): regulated                                  public utility market,
                                                   margin/cost +                                        storage, trans-
                                                   principle                                            mission and distri-
                                                                                                        bution) except end
                                                                                                        customer prices on
                                                                                                        the free market)

1) Eligible customers can switch between the regulated and open markets.
2) Share of eligible customers’ electricity consumption of entire consumption.Source: 4th benchmark report of the EU Commission, 2005.
3) Regulation of entire price (supply, storage, transmission and distribution) except for eligible customers (transmission and distribution).
4) Regulation of natural gas supply was reintroduced for the whole market following the first year of market opening as extraordinary
  measure of Energy Regulatory Office. Eligibility to choose the supplier is not touched by this measure. The price regulation of supply
  (for dominant supplier with a market share > 40%) ended on April 1, 2007.
5) Proposed new legislation framework currently in approval process of Parliament – proposed price regulation of all customers
  (including business ones) until 2009 and households and small businesses until 2011: also proposed regulation of electricity
                                                                                                                                        219
  generation and electricity/gas wholesale market (wholesale price).
      German Tariff Increases: How it Works

                               Electricity prices                           Gas prices                                  Electricity grid fees          Gas grid fees
      Eligible customers       All customer groups                          All customer groups                         All customer groups            All customer groups


      Authority responsible    Ex-post control by the responsible           Ex-post control by the responsible          Federal Regulatory Office,     Federal Regulatory Office,
      for approval/authority   Cartel Office                                Cartel Office                               for grid operators with less   for network operators with
      responsible for                                                                                                   than 100,000 customers         less than 100,000
      prevention of abuse                                                                                               responsible ministry of the    customers responsible
                                                                                                                        federal state                  ministry of the federal state

      Beginning of the process Individually, dependant on the term          Changes in heating fuel price development: Submission of application Submission of application
                               of contracts                                 gas price related to the light/heavy heating six months before the price six months before the price
                                                                            fuel price with a time lag                   increases                   increases
                                                                            Individually, dependant on the term
                                                                            of contracts

      Process                  Ex-post control by the responsible           Gas tariffs follow the price development Grid tariffs follow cost          Grid tariffs follow cost
                               Cartel Office                                of light heating oil (residential and small development + limited          development + limited
                               For large commercial customers,              commercial customers) and heavy heat- margin                               margin
                               industrial customers and distributors:       ing oil as well as other energy sources
                               regular negotiation                          (large commercial and industrial




                                                                                                                                                                                       Utilities - Electricity - Electricity Supply - Market Data
                                                                            customers). Gas tariffs for distributors
                                                                            follow a mixture of price development of
                                                                            light and heavy heating oil. Adjustments
                                                                            for all customer groups usually quarterly,
                                                                            for industrial customers in individual
                                                                            cases monthly

      End of the process       For residential and small commercial         For residential and small commercial       Changes announced to            Changes announced to
                               customers, price changes must be             customers, price changes must be           grid users (e.g. website,       grid users (e.g. website,
                               announced individually to each customer      announced individually to every customer letter to all customers)          letter to all customers)
                               6 weeks before they come into force and      6 weeks before they come into force and
                               an announcement must be published in         an announcement must be published in
                               daily papers                                 daily papers
                               For large commercial customers, industrial   For large commercial customers, industrial
                               customers and distributors, after regular    customers and distributors, individual
                               negotiation individual information,          information, dependant on terms of
                               dependant on terms of contract               contract
220
                                                                     Utilities - Electricity - Electricity Supply - RWE




RWE Shares in European Electricity Supply Markets
(2006)

in %

100



50

40
                                         32
30

20              16                17
                                                    15

 10                                                              7              6

  0
            Germany               UK   Hungary   Slovakia*)   Austria*)      Poland



*) Including investments ≥ 20%.




                                                                                                                 221
                                                Utilities - Electricity - Electricity Supply - RWE




RWE Electricity Customers by Core Region (2006)

in million

                        Total: 15.8   Netherlands     0.2
                                      Austria         0.2
                                      Slovakia        0.6
                                      Poland          0.8
                                      Hungary         2.1

  Indirect customers
           (including      4.7
 investments ≥ 20%)

                                      Germany


    Direct customers        7.2
                                                                      4.1



                        RWE Energy                               RWE npower




                                                                                            222
                                                                                    Utilities - Electricity - Electricity Supply - RWE




RWE Group Electricity Sales Volume (2006)1)

January – December
in TWh

                             Germany             UK            Poland         Hungary           Others       Total


Private and
commercial customers                29.3           22.3               3.3             5.6           0.6         61.1
Industrial and
corporate customers                 52.4           34.1               2.9             5.4           0.1         94.9
Distributors                        69.1                              1.3             4.8           0.5         75.7
Electricity trading
(net of electricity
purchased from
third parties)                     80.4                                                                         80.4
Total                             231.2            56.4               7.5           15.8            1.2        312.12)




1) Deviations from figures published in the 2006 annual report are a result of consolidated Group figures.
  These figures are not divisional figures.
2) Difference between electricity production and electricity sales volume due to grid losses,
  own consumption of lignite mines and pumping electricity.




                                                                                                                                223
                                                                             Utilities - Electricity - Electricity Supply - RWE




Volumes Shifted away from the German Retail to the
Emerging Wholesale Market

Development of sales structure



Pre-Market                                                                              Competition
Opening (1998)                                                                                (2006)


Total Germany         453 TWh                          +16%                                 524 TWh


RWE Group1)           167 TWh                          +13%                                 189 TWh




                                             Emerging wholesale market                    Wholesale
                                                                                             42%



                       Retail                Declining share of direct retail
                       100%                                                                 Retail
                                                                                            58%



                  External sales                                                       External sales2)




s      RWE kept up with growth of German electricity market

s      With liberalisation a liquid wholesale market developed, wholesale prices became
       transparent

s      Share of direct retail market decreased due to shift of volumes to wholesale

s      The challenge for RWE is to retain retail customers with attractive services/products at
       positive profit margins



1) 1998: Comprising RWE (old) and VEW (Merger to RWE (new) in 2000).
2) Total volume of 189 TWh excludes EEG-/KWKG-volumes of approximately 32 TWh,
    EEG/KWKG are German laws referring to renewables/CHPs.




                                                                                                                         224
                                                                     Utilities - Electricity - Electricity Supply - RWE




RWE Sells out of a Net Long Position in Germany (2006)


Procurement                                                   243.0 TWh              Net long position
contracts of                                                                         sold to wholesale
RWE Energy                                                                                     market
                                                               80.4 TWh
subsidiaries/                      243.0 TWh
EEG purchases
                                     61.2 TWh
                                                                                         Grid losses/
                                                              162.6 TWh
                                                                                    own consumption
                                     33.6 TWh                  11.9 TWh
RWE Power’s
long-term purchase                                                                Sales to private cus-
agreements                                                                         tomers, businesses,
                                    148.2 TWh                 150.7 TWh          industrial customers,
Own production*     )
                                                                                    and power utilities


                                     “Longs”                   “Shorts”



*) Including power generated by subsidiaries of RWE Energy.




                                                                                                                 225
                                                   Utilities - Electricity - Electricity Supply - RWE




RWE Electricity Sales by Customer Group (2006)

RWE Energy

Industrial and corporate customers   37%



Private and commercial customers     24%




Distributors                         39%

                                           Total: 158.7 billion kWh



RWE Power

Electricity trading                  73%



Distributors                         14%




Industrial and corporate customers   2%

Private and commercial customers      1%

                                           Total: 96.8 billion kWh


RWE npower

Industrial and corporate customers   61%




Private and commercial customers     39%




                                           Total: 56.4 billion kWh


                                                                                               226
                                                                    Utilities - Electricity - Electricity Supply - RWE




RWE npower: Value-Oriented Retail Strategy with
Growing Customer Numbers
Development of customer numbers
in million accounts
                            6.2       6.1      6.3       6.9
(of which dual fuel)       (1.2)     (1.4)    (1.6)     (2.1)




Gas                         1.9      1.9       2.0      2.5




Elecricity                  4.3      4.2       4.3      4.4




Dec 31                     2003     2004      2005     2006




Value-oriented retail strategy

s     Price volatility in wholesale gas and power prices has continued

s     Competition remains intense

s     However, RWE npower has increased customer numbers by 700,000 since December 2003

s     The number of dual fuel customers increased by 75% since 2003

s     Successful branding and price proposition

             RWE npower is continuing to build a value-oriented customer portfolio




                                                                                                                227
                                                               Utilities - Electricity - Electricity Supply - RWE




RWE npower’s UK Customer Base (2006)




                                                                               Northern Electric




                                                                           Yorkshire Electricity



                                                                      Midlands Electric Board




s   Critical mass thanks to 6.9 million accounts
    – 4.4 million electricity accounts
    – 2.5 million gas accounts

s   Midlands, Yorkshire and Northern Electric customer bases to be combined.

s   “npower” brand attracts nationwide customer awareness.




                                                                                                           228
      Utilities




Gas




         229
                                                        Utilities - Gas - Downstream - Market Data




Europe’s Largest Gas Companies1) (2006)

Gas sales volume
in billion m3

ENI (ITA)                              89
E.ON (GER)                             87
Gasterra (NED)                         78
GdF (FRA)                              71
Wintershall (GER) 2)                   35
RWE (GER)                              34
Gas Natural (ESP)                      27
Distrigaz (BEL)                        17
VNG (GER)                              15



1) No information on Centrica available.
2) Estimated.


Source: RWE market analysis made from annual reports.




                                                                                             230
                                                                        Utilities - Gas - Downstream - Market Data




Gas Price Setting in Germany (I)

s   Natural gas prices track heating oil prices with a certain delay while smoothing out peaks
    and troughs along the entire supply chain (importer, regional/local distributors and end
    customers).

s   The price link for importers, distributors and deliveries to large consumers is established auto-
    matically via contractually binding formulas (sliding price formulas with escalator clauses).

s   Gas prices are linked to the relevant substitute energy source, including the following major
    ones:
    – For local distributors (to supply private customers): gasoil
    – For large consumers: fuel oil
    – For power generation: fuel oil and coal

s   Common escalator clauses stipulate:
    – The 6/3/3 rule for local distributors: 6-months average with a lag of 3 months, valid for
      3 months (example: if the gas price was adjusted effective October 1, 2006, average oil
      prices from January 1, 2006 to June 30, 2006 would be considered in the sliding price
      formula; the resulting gas price would then be valid until January 1, 2007).
    – The 3/1/3 rule for large consumers: 3-months average with a lag of 1 month, valid for
      3 months (example: if the gas price was adjusted effective October 1, 2006, average oil
      prices from June 1, 2006 to August 31, 2006 would be considered in the sliding price
      formula; the resulting gas price would then be valid until January 1, 2007).




                                                                                                             231
                                                                     Utilities - Gas - Downstream - Market Data




Gas Price Setting in Germany (II)

s   Gas prices for residential and commercial customers are not determined using sliding price
    formulas. Instead, they are determined independently by the local gas utility (e.g. RWE West-
    falen-Weser-Ems), taking supplier price trends into account.

s   Using formulas to help determine gas prices is not unique to Germany. This practice is com-
    mon in other gas-importing Western European countries as well. Even on markets where
    prices are not linked to oil (e.g. the UK and USA), gas prices track oil prices, albeit with
    higher peaks.

s   Advantages of linking prices to oil:
    – Consumer protection: Linking prices to oil keeps gas producers from having too much
      market power (supply oligopoly), keeping gas prices high. In addition, short-term fluctua-
      tions in gas prices, which are often a cause of consumer uncertainty, can be avoided.
    – Security of investment: Linking prices to oil ensures that gas remains competitive com-
      pared with other major sources of energy such as heating oil, in turn ensuring that the
      substantial sums of money invested by gas producers to produce gas and by gas utilities to
      construct, expand and maintain grids are secured.




                                                                                                          232
                                                                                                                                                                  Utilities - Gas - Downstream - Market Data




                            Gas Border Transfer Prices (German Imports)

                            Import prices (excl. gas tax)
                            in € ct /kWh

                             2.4

                            2.2

                            2.0

                            1.8

                            1.6

                             1.4

                            1.2

                             1.0

                            0.8

                             0.6
Apr 02

         Jul 02

                  Oct 02

                           Jan 03

                                    Apr 03

                                             Jul 03

                                                      Oct 03

                                                               Jan 04



                                                                                 Jul 04

                                                                                          Oct 04

                                                                                                   Jan 05

                                                                                                            Apr 05

                                                                                                                     Jul 05

                                                                                                                              Oct 05

                                                                                                                                       Jan 06

                                                                                                                                                Apr 06

                                                                                                                                                         Jul 06

                                                                                                                                                                    Oct 06

                                                                                                                                                                             Jan 07



                                                                                                                                                                                               Jul 07
                                                                        Apr 04




                                                                                                                                                                                      Apr 07




                            Source: Bundesamt für Wirtschaft und Ausfuhrkontrolle (German Federal Office of Economics and Export Control), 2007.




                                                                                                                                                                                                        233
                                                                                   Utilities - Gas - Downstream - Market Data




Increased Government Charges for German Household
Gas Bills*)

Rate                                                                                                      Change
in €/month
                                                                                     114.29              + 93.4%

                                                                         105.80

                                                                                            28.91        + 86.5%

                                                              88.40             25.26

                                                  80.67
              75.79                   77.77
                            71.92                                   22.86

                                            18.02       21.79
                    17.75
                                17.21
  57.04


        15.16
                                                                                            85.37        + 95.9%
                                                                                80.54

                                                                    65.54
                    58.04                   59.75       58.87
                                54.71
        41.88




 01/01/      01/01/       01/01/     01/01/      01/01/       01/01/      01/01/      01/01/
  2000        2001         2002       2003        2004         2005        2006        2007

s    Levies: gas tax, value added tax, concession fees
s    Generation, transport and sales


*) Average gas bill of RWE Westfalen-Weser-Ems for a three-person household consuming 20,000 kWh/a.




                                                                                                                        234
                                                                                       Utilities - Gas - Downstream - Market Data




German Household Gas Prices
Compared with Other European Countries

All-gas household: annual consumption: 23,500 kWh*)
in € ct/kWh (incl. taxes)


10

9

8

7

6

5

4

3

2

1

0
     DEN       SWE        GER        ESP      FRA       BEL      NED       ITA         AUT   GBR      CZE     POL

*) Cooking, hot water and heating.


Source: Eurostat 2007; prices for July 1, 2007, based on purchasing power standards.




                                                                                                                            235
                                                                  Utilities - Gas - Downstream - Market Data




German Household Gas Prices from 1999 to 2007
Compared with Other European Countries

All-gas household: annual consumption: 23,500 kWh*)
in € ct/kWh (incl. taxes)

 10


   9


   8


   7


   6


   5


   4


   3


   2


   1


   0

    1999           2000              2001       2002    2003   2004     2005         2006        2007



       Belgium                         Spain
       Austria                         France
       Germany                         Netherlands
       Italy                           United Kingdom


*) Cooking, hot water and heating.


Source: Eurostat, 2007.



                                                                                                        236
                                                                                     Utilities - Gas - Downstream - Market Data




Government Charges Included in the German Gas Price

Import/production,
transportation, storage
and distribution                 72%




Value added tax                  16%




Gas tax                            9%


License fee                        2%


Prorated production levy           1%




Some 28% of the gas price*) payable by an all-gas household is allocable to taxes and levies
              (gas tax, license fee, production levy and value added tax).



*) Example based on the average price per kWh for an all-gas household (as of January 2007) with a consumption of
  20,000 kWh: approx. 4.48 €ct/kWh in accordance with Eurostat.


Source: Bundesverband der deutschen Gas- und Wasserwirtschaft e.V. (German gas and water federation), 2007.




                                                                                                                          237
                                                                      Utilities - Gas - Downstream - Market Data




The Structure of the UK Gas Market

                     Production / Import / Export




                       Producers and shippers




                          1 gas transporter




                     4 gas distribution operators




                          9 major suppliers

                       Total supply 1,047 TWh

           424 TWh              258 TWh             365 TWh

                               Industrial &
   Conversion to power &
                               commercial     Residential customers
  other energy industry use
                                customers




Source: RWE, 2007.




                                                                                                           238
                                                                                   Utilities - Gas - Downstream - Market Data




The German Gas Market (2006)

    German Producers                            Foreign Producers




         Supra-regional long distance gas companies Level 1
               (with direct access to import/production)
          Ruhrgas, VNG, BEB, Wingas, RWE Gas Midstream




                   Regional long distance gas companies
                      Level 2 (without direct access to
                             import/production)
                              Erdgas Münster,
                     GVS, Bayerngas, SFG, Avacon, GU,
                        FGN, EVG, EWE, RWE WWE




                                                Over 700 regional and
                                                  local distributors




                             Final Customers
              (Private households and commercial customers,
                          industry, power plants)




                          Total supply 1,005* TWh


         108* TWh                 416* TWh                  481* TWh


     Power generation              Industrial          Residential and small
       (public supply)            customers           commercial customers


*) Preliminary figures.


Source: Bundesverband der Deutschen Gas- und Wasserwirtschaft e.V. (German gas and water federation), 2007.
                                                                                                                        239
                                                                Utilities - Gas - Downstream - Market Data




Main Challenges Going forward in the German
Gas Market

Segments         Market trends                       Critical success factors
General
                 Import dependency increases, few    s Improve the position in the market;
                 players dominate the upstream         foundation of RWE Gas Midstream
                 business                              to bundle RWE’s non-regulated gas
                                                       business – supply contracts, trans-
                                                       port and storage capacity rights,
                                                       procurement
                                                     s Source the gas supply needs of the
                                                       RWE Group
                 Increasing competition in midstream s Foundation of RWE Gas Midstream
                 business                              to grow RWE’s gas business sub-
                                                       stantially
                                                     s Fulfil intermediary role in the gas
                                                       value chain
                 LNG will play an important role     s Monetising RWE’s upstream reserves
                                                     s Development and implementation
                                                       of new projects
                 Evolving of liquid hubs             s Centralise portfolio management
                                                     s Presence at all relevant hubs and
                                                       virtual trading points
B2B
Industrial and   Customers purchase more             s Intensify knowledge about
corporate        professionally. Competition           customers and market products
customers        increases, especially in the          according to customer needs
Distributors     distributor segment                 s Design innovative market products
                                                       to meet customer needs
B2C
Private and      Increasing competition in the       s Adapt to customer needs
commercial       German Gas Market. New              s Development of acquisition
customers        competitors enter the market.         strategies
                                                     s Evaluation of new markets




                                                                                                     240
                                                                                             Utilities - Gas - Downstream - Market Data




Grid Access in the German Gas Market

                                                              Source of gas/
                                                              Point of import
                            MARKET SECTOR

                              Entry contract




                                                                    VTP

                                                           Long-distance grid
                                                               operator
Two-contract model




                                       Grid connection point




                                                               Regional grid
                                                                 operator


                                      Grid connection point




                                                           Local grid operator

                              Exit
                              contract

                            MARKET SECTOR


                                                              End consumer



       VTP             VTP = Virtual trading point, where trading activities can be transacted



Source: RWE.



s                    System implemented in October 1, 2007.

s                    Cooperation agreement signed by RWE to actively promote competition.

s                    As of October 2007, there are 16 market areas with a virtual trading point (VTP) in each,
                     throughout Germany.

s                    This enables unlimited access within each market area.
                                                                                                                                  241
                                                                                   Utilities - Gas - Downstream - Market Data




Natural Gas Supplies in Germany (2006)

Total volume: 1,005 TWh*)

Russia                          352 TWh          35%

Norway                          271 TWh          27%




Netherlands                     191 TWh          19%




National                        151 TWh          15%

Denmark/
United Kingdom, others            40 TWh           4%



*) Preliminary figure.


Source: Bundesverband der deutschen Gas- und Wasserwirtschaft e.V. (German gas and water federation), 2007.




                                                                                                                        242
                                                                                                                                          Utilities - Gas - Downstream - Market Data




European Gas Trading Points

                        le   d
                    ter
                Ves
                                   ed
                                  g el
                                 Lan




                                                                           N o rp




                                                                                            Europipe 1+2
                                                                                                                       DENMARK
                                                                             ipe
                                           e ip

                                                            e
                                                      Zeepip
                                       Franp




                                                                                                                            Ellund




 UNITED                                                         Balgzand                                   Emden   DEUDAN
KINGDOM                                                                             Oude
 (NBP)*     )
                                                  L                                                                               NET
                                             BB                                                                                      RA

                                                                NETHERLANDS
   Bacton                                                          (TTF)*    )

                                                                                                                                        Frankfurt an der Oder
                                 Zeebrugge                 Zelsate
                    IUK
                                                                                                                GERMANY
    Dunkirk                                                                                                  (EGT/BEB* / WG/  )

                                                      BELGIUM              Bocholt
                                                                                                              RWE/ONTRAS)
                                                      RT                               AL
                                                           R         S‘Gravenvoeren WED
                   Blaregnies

                                                                      Aachen                                                                          St. Katherina
                                                           LUXEMBOURG
                                                                                      TE
                                                                                      NP




                                                                                                                                                     CZECH
                                                                                                                   L
                                                                                                            MEGA                                    REPUBLIC
                  FRANCE
                   (PEG)                                                                                                                 Waidhaus
                                                                    Obergailbach


                                                                                                                                                                WAG

                                                                                                                                        Oberkappel                    Baum-
                                                                                                                                                                      garten
                                                                                           Wallbach                                                    G              (CEGH)
                                                                                                                                                     TA

                                                                           SWITZERLAND                                                                     AUSTRIA
                                                                                                                              Tarvisio


                                                                                           Griesspass




      Gas trading point
      Transport routes


*) National gas trading systems.


Source: RWE Trading.

                                                                                                                                                                               243
                                                                                                    Utilities - Gas - Downstream - RWE




      RWE Gas Midstream: Full Integration of
      RWE Group‘s Midstream Activities

                                             RWE Gas Midstream

                                             Consolidation, optimisation and growth
                                             platform for RWE’s unregulated gas midstream
                                             business

                                             s Gas procurement for RWE Energy’s supply
 RWE Power                                     operations                                                               RWE Power

                                             s Gas procurement for RWE Power’s power plants

                                             s Management of gas sales for RWE Dea
                    of supply arrangements




  RWE Dea
                       Economic transfer




                                             s Commercial responsibility for all liquefied




                                                                                                           Supplying
                                               natural gas (LNG) activities
                                                                                                                       RWE Trading*)
                                             s Non-regulated gas transport, transit and
                                               storage
RWE Trading*)
                                             s Functional responsibility for gas trading

                                             Medium-term
                                             s Merge with RWE Trading to form an all
RWE Energy                                     commodity midstream company                                             RWE Energy




      *) RWE Trading is the outlet for Gas Midstream into the traded wholesale markets and RWE Trading sources gas for RWE npower.




                                                                                                                                       244
                                                                          Utilities - Gas - Downstream - RWE




RWE Shares in the European Gas Downstream Market
(2006)

in %

 100
                                                           82
  80

  60
                                                                   41
  40

  20
                        8                 8                                 7
    0
                   Germany               UK                CZ*)   HUN*)    NL*)



*) Including investments ≥ 20%, supply to end customers.




                                                                                                       245
                                                        Utilities - Gas - Downstream - RWE




Gas Customers of RWE in Europe (2006)

in million



                          Total: 7.7
                             0.3       Others


                             2.0
                             2.1       Hungary




                             2.3*)     Czech Republic
                             5.0


  indirect customers
            (including       2.1
participations ≥ 20%)                  Germany
                                                               2.5
    direct customers         1.0

                         RWE Energy                       RWE npower




                                                                                     246
                                                Utilities - Gas - Downstream - RWE




Gas Sales of RWE by Customer Group (2006)

RWE Energy

Industrial and corporate customers 39%




Private and commercial customers   25%




Distributors                       36%



                                         Total: 285.8 billion kWh

RWE Power

Distributors                       86%

Industrial and corporate customers 14%




                                          Total: 25.0 billion kWh

RWE npower

Private and commercial customers   83%



Industrial and corporate customers 17%




                                          Total: 50.1 billion kWh



                                                                             247
                                                             Utilities - Gas - Downstream - RWE




RWE Group Gas Sales Volume (2006)

January – December
in TWh

                       Germany     Czech      UK          Others        Total
                                  Republic
Private and
commercial customers       27.2        36.3        41.4        7.0        111.9
Industrial and
corporate customers        51.1        44.2     9.6            17.7       122.6
Distributors              105.7        15.9     4.8               –       126.4
Total                     184.0        96.4    55.8           24.7        360.9




                                                                                          248
                                                                                   Utilities - Gas - Downstream - RWE




RWE Dea is Financial Hedge for the RWE Group
                            Financial
    Equity Gas/Oil          hedge          Gas fired power
    (Upstream)                             generation and
    6.5 bcm                                gas sales
                                           (Downstream)
                                           39 bcm
RWE Dea                                   RWE Power
                                          RWE npower
                                          RWE Energy




s     Being active in all stages of the value chain we can balance our earnings.

s     Financial hedge against fuel price volatility in power generation business and gas supply
      especially in UK. Currently the equivalent of some 17% of our gas sales volume and of the gas
      used in our power stations is covered by RWE’s own oil and gas production.

s     To capture margins and value in the upstream part of the value chain

s     To increase value through organic growth, mainly based on exploration, field development,
      and farm-in agreements

s     RWE wants to grow the upstream gas business largely in selected focus regions
      (Northwestern Europe, North Africa)



As of 2006.




                                                                                                                249
                                                                                               Utilities - Gas - Downstream - RWE




RWE Ranks Among the Top European Gas Players (2006)1)

                                         RWE Dea          RWE Energy          RWE npower             RWE Group


Gas reserves in oil equivalent
(in million m3)                                 63.3                    –                      –             63.3
Gas production in bn    m3                       3.0                    –                      –              3.0
Storage capacity in bn m3                        1.9                 4.22)                     –              6.1
                            3)
Pipelines in km (total)                             –           116,395                        –         116,395
  Gas transport grid                                             23,713
  s Germany                                                       7,152
  s Abroad                                                       16,561
  Gas distribution grid                                          92,782
  s Germany                                                      33,583
    – Transformer stations                                        9,800
    – Connections                                               648,000
    – Meters                                                    847,000
  s Abroad                                                       59,199
Customers in millions                               –                 7.7                  2.5               10.2
Sales volume in bn kWh                            25                 286                   50                361
External revenue in € bn                         1.74)               9.7                   1.8              13.2



1) Excluding RWE Trading.
2) Including potential extensions.
3) Share in German grid: Transmission System Operator 11%, Distribution System Operator 10%.
4) Including oil revenue.




                                                                                                                            250
                                                                                                                 Utilities - Gas - Downstream - RWE




RWE Transgas at a Glance


    GERMANY                                                                                                    POLAND


         HPS Olbernhau                     Ústi n. Labem
                                  MTS Hora Sv. Kateřiny



                                                                   Hradec Králové

                                                                                                                            Ostrava
                                           Praha                              CZECH
                                                   CS Kouřim                                                               SF Třanovice
                                     SF Háje                                  REPUBLIC
                          Plzeň                                                               SF Lobodice
HPS Waidhaus                                                                                                    SF Štramberk


                                                                                       Brno
                                                                      CS Kralice
                         CS Strážovice                                                                                        SLOVAKIA
                                                 CS Veselí n.L.
                                                                      CS Hostim
                                         České Buděljovice                                                  SF Tvrdonice
                                                                              SF D. Dunajovice
                                                                                                      HPS Lanžhot
                                                                                        CS Břeclav

                                                                  AUSTRIA



     Transgas headquarter                                                           Inland transfer station
     Gas transmission system                                                        Transfer and metering station
     Very-high pressures system                                                     Underground storage facility
     Compressor station                                                             Headquarters of regional distribution companies
     Border transfer station



s    Transgas is the holder of exclusive licence for Transmission System, Storage System and
     Supplies of natural gas in the Czech Republic

s    RWE has a 100% stake




                                                                                                                                              251
                                                                         Utilities - Gas - Downstream - RWE




RWE’s Regional Gas Distribution Companies:
Nationwide Coverage in the Czech Republic


    GERMANY                                                              POLAND



                             SČP


                                                  VČP
                                   PP
                                                       CZECH            SMP
                  ZČP              STP                 REPUBLIC


                                                          JMP
                                    JČP                                         SLOVAKIA




                                             AUSTRIA



s    Majority owned by RWE



s    Total number of customers: approx. 2.27 million

s    Gas consumption: industry: 55%; commercial: 13%; households: 32%




                                                                                                      252
                                                                               Utilities - Gas - Downstream - RWE




Relevant Institutions and Their Role in Regulating
the Czech Gas Market

s   Market regulation is monitored by 3 institutions:
    – Energy Regulatory Office (ERO)
    – State Energy Inspection Board
    – Ministry of Trade and Industry

s   The Ministry of industry and trade is basically responsible for approving new investment
    projects; it also refines energy policies, issues basic legislation (Energy Act and related
    explanatory decrees).

s   ERO is an autonomous authority, which is responsible for the regulation of the Czech energy
    market. Mostly important, ERO handles the granting of licences and the regulation of TPA
    tariffs to networks.

s   The State Energy Inspection Board is authorised to assess buyer and seller behaviour and
    recommend sanction to the ERO.




                                                                                                            253
                                                                                 Utilities - Gas - Downstream - RWE




Status of Czech Gas Market Liberalisation and
Regulation
s   The opening of the Czech gas market has been finalised at the beginning of 2007.

s   The regulation of natural gas supplies (restriction on the allowed margin), re-introduced for
    the whole market as an extraordinary measure of the Energy Regulatory Office (ERO), finished
    at the end of first quarter 2007. The option to choose the supplier has not been affected by
    this measure.

s   The transmission system operator unbundled from RWE Transgas, a.s., has been operating
    since the beginning of 2006 as an independent company with limited liability – RWE Transgas
    Net, s.r.o. The unbundling of distribution companies was finished at the beginning of 2007.

s   Following the unbundling of system operators, the network assets transferred to the newly
    established company are revaluated according to Czech accounting standards. Since the
    setting of regulatory parameters follows these standards, discussions on the acknowledgement
    of revaluated asset values and corresponding revaluated depreciation have emerged. The
    Energy Regulatory Office has decided not to acknowledge revaluation fully and has postponed
    the decision on the grounds that further analysis of investment needs in asset reproduction is
    necessary. The differences between the values acknowledged by the regulator and the
    accounting values have a direct impact on the financial results of the respective companies.

s   The other parameters of the regulatory formula for transmission and distribution respect the
    framework for the 2nd regulatory period (2005 – 2009) set by ERO. The regulator decided to
    apply the so called ”zero year” principle with respect to the allowed costs, which means fur-
    ther escalation from the basis set prior to the current regulatory period. The additional costs
    related to unbundling are adjusted by ERO and are reflected as separate cost elements over
    the remaining years of the regulatory period.

s   The regulation of gas storage in underground storage facilities of RWE is currently being
    discussed by ERO and the relevant authorities. Although the access to storage is defined by
    the valid Energy Act as to be negotiated, ERO regulates the tariffs applied on flexibility services
    provided by RWE Transgas to regional distribution companies and consequently to the end
    customers. The discussion focuses mainly on the definition of the market relevant for setting
    an appropriate price, which would not represent a risk of massive export of Czech storage
    capacities abroad.

s   ERO has amended the decree on the organisation of the gas market (Market Model) in order to
    facilitate the access of new subjects to the Czech gas market. The new Market Model effective
    from January 1, 2007 introduces a virtual trading point for the settlement of all commercial
    transactions in the Czech market, changes the transmission capacity tariff to an Entry-Exit
    system and introduces changes in commercial balancing. The physical balancing of the net-
    work has been delegated to the transmission system operator, which changes the role of the
    market operator.

s   The regulatory decree laying down the rules for the setting of regulatory parameters and the
    details of the regulatory formula is to be amended in 2007. Amendment of the Energy Act is
    expected in the course of 2008. Future amendment of the Market Model decree is expected
    in 2008.

                                                                                                              254
                                                                                   Utilities - Gas - Downstream - RWE




Czech Gas Market: Gas Price Setting Mechanism

    The “value            Gross Trade
      chain“                              Commodity1)        Storage        Distribution    Transmission
                            margin

                                          Typical price
                                          construction    nTPA2), tariffs
       Price              supervised
                                            linked to      limited by        regulated       regulated
    composition             by ERO
                                           other fuels        ERO
                                            (oil, coal)



     Portion of
                            4-8%           70 - 80 %         4-8%            15 - 20 %        3-5%
     end price



                        RWE Transgas        Foreign
                                                                                Gas
                                           producers         RWE                               RWE
       Entity                                                               Distribution
                         Regional Gas       (Russia,      gas Storage                      Transgas Net
                                                                             company
                           company          Norway)




s     External factors influence approx. 70-80% of the end price of natural gas



1) Including transit to Czech Republic.
2) Negotiated third party access.




                                                                                                                255
                                                                              Utilities - Gas - Downstream - RWE




Czech Gas Market: Basics of the Regulatory Framework

                 Escalation of Costs, Depreciation and Regulated Asset Base



s   Costs: ”Inflation - X” escalation (Inflation is composed of Producer Price Index (PPI) and
    wage growth in industries index); for DSOs also growth in number of connected off-take
    points. Incentives stem from outperfomance potential over the X-factor set by ERO.

s   Depreciation: ”PPI” escalation (DSOs) or actual book values with 2 years time lag accounted
    every year (TSO);

s   Regulated Asset Base: ERO defines the value, which forms the basis. Annual planned net
    investments are added on top of the basis. Ex-post corrections reflect actual net investments
    (DSO) or book values (non-regulated) with 2 years time lag (TSO).

s   Unbundling: ERO acknowledges the adjusted value of extraordinary costs which are related
    to the unbundling of system operators from vertically integrated companies.

s   Revaluation: For regulatory purposes, ERO currently only partially acknowledges revaluated
    depreciation of revaluated assets (according to Czech accounting standards). For further
    details please see page 256.




                                                                                                           256
                                                                                                                                     Utilities - Gas - Transport - RWE




RWE’s Position in European Gas Transit Business




                                                                                                                                 y
                                                                                                                            go
                                                                                                            s




                                                                                                                            en
                                                                                                          ht
                                                                                                       Lig




                                                                                                                     s

                                                                                                                          Ur
                                                                                                                     es
                                                                                                   n
                                                                                                er




                                                                                                                   gr
                                                                                             rth




                                                                                                                Pro
                                                                                        No
                                                                           e
                                                                        rop
                                                                     Eu
                                                                 m al
                                                              Ya




                             Transgas
                                           St                                                                   uz
                                             eg                                                          Soy
                                                  al
                               L
                             GA

                                   WAG
                           ME




                                                                            Macedonia




                                       G               HAG
                                     TA
                                           SO
                                             L




                                                                         ia /
                                                                   gar
                                                             Bul




    Production field
    Pipeline operational



s   Significant position in transit of Russian natural gas to Europe

s   Direct long-term contractual relations with Gazexport




                                                                                                                                                                257
                                                                                   Utilities - Gas - Transport - RWE




RWE’s New Entry-Exit System for the German Gas Market:
The Two-Contract Model (I)

s   ƒ Transportnetz Gas signed a cooperation agreement with other grid operators, which
    allows for gas to be transmitted under standardised conditions. ƒ thus offers its customers
    flexible ways to have gas fed in and out of the grid in the various market areas. ƒ customers
    will be able to transmit gas across grid levels and grid operators within market areas with just
    one entry contract and one exit contract.

s   The new grid access model stipulates the following conditions for gas grid operators:
    – Non-discriminatory access
    – Efficient grid access suitable for the masses business
    – A transaction- and transmission path-independent system
    – Flexible usability and manageability of system capacity
    – Common contractual standards among grid operators
    – Simplest possible switch of suppliers – for household customers as well

In terms of grid access, this means:

s   Conclusion of just two contracts
    – All suppliers/transmission customers are able to supply an end consumer/customer
      by making just two bookings.
    – Only one entry contract and one exit contract will be needed.
    – All other measures required to process grid access will be carried out and agreed on
      by the grid operators amongst themselves.

s   Market areas covering multiple grid operators
    – Vertically integrated grid market areas that cover several grid operators enabling transmission
      customers to make flexible use of booked capacity are defined. Within these market areas,
      customer switches will be possible based on a simplified method.
    – As of October 2007, there will be 16 market areas nationwide. RWE Transportnetz Gas is
      responsible for the overarching management of balancing zones for two market areas.
    – A market area is as a system of interlinked grids operated by various grid operators, in
      which gas of uniform quality is transmitted. Each market area starts at the entry points
      and extends as far as the exit points at the gas customers' sites.

s   RWE Transportnetz Gas and E.ON Gastransport agreed on a cross-property cooperative ven-
    ture for their L-gas grid operations in order to simplify grid and promote competition starting
    on October 1, 2008. This is the date on which the two TSOs plan to combine their L-gas
    market segments.




                                                                                                              258
                                                                                    Utilities - Gas - Transport - RWE




RWE’s New Entry-Exit System for the German Gas Market:
The Two-Contract Model (II)

s   Virtual trading points
    – Virtual trading points, at which gas can be supplied and traded, will be established in every
      market area at the supra-regional long-distance gas grid level.
    – Access to these virtual trading points will be obtained via an entry contract/entry capacity
      booking with the supra-regional grid operator and an exit contract/exit capacity booking
      with the grid operator who owns the exit point.
    – There will be no need to book capacity separately for purely trading gas at these points.
      This is supposed to facilitate trading as long as there is sufficient liquidity at these points.

s   Switching suppliers
    It is possible to switch between suppliers (without increasing capacity) within the same
    market area, without performing additional capacity checks.

s   Management of balancing zones
    Overarching management of balancing zones for each market area will be handled by the
    balancing system operator. All transmitted gas is accounted for as part of this process.

s   Possibilities of gas trading in the RWE Entry-Exit System
    – Through an Internet marketplace RWE transmission customers are enabled to trade with
      each other.
    – Virtual trading points increase the flexibility of the traders.
    – RWE takes part in the Internet platform ”trac-x” (implemented by several German Transport
      System Operators) where gas customers can trade transmission capacity.




                                                                                                               259
                                                                                                       Utilities - Gas - Transport - RWE




RWE’s German Gas Market Areas

s   ƒ’s transmission network consists of 26 entry- and 1,000 exit-points or zones.




                                             Rheine
                                                                 Minden
NETHERLANDS
                                                                 Bielefeld


                                         Muenster

                             Wesel
                                                                       Paderborn
                             GBF Hamborn                         GBF Weine
                                      Dortmund
                  Duisburg
                                                                                 Warburg

         Moenchen-                                                Winterberg           Kassel
         gladbach             Duesseldorf



                                  Cologne


      Aachen
               GBF Broichweiden                         Siegen                             GERMANY
                                  Bonn



BELGIUM
                                            Koblenz


                                                          Frankfurt am Main




     LUXEM-                                           Bad Kreuznach
     BOURG
                                     Idar-Oberstein


Market area                                     Calorific value
comprimising subgrids                           of natural gas
                                                        kWh/mN3
      RWE I (H-Gas)                                    10.6 - 12.8           GBF Gas blending facilities
      RWE II (L-Gas)                                    9.5 - 10.7               Hydraulic separation
      Sections of the ƒ grid
      which are downstream of
      other market areas




                                                                                                                                  260
                                                                                                     Utilities - Gas - Transport - RWE




RWE’s German Gas Transmission Network

s    The transmission network of RWE Transportnetz Gas has a total length of 6,800 km and
     includes seven subgrids.


                                     s Emden

                                         s Bunder Tief




                    Vlieghuis s

                              s UGS Kalle
                                                               s Rahden
                                         s Emsbueren                   s Petershagen-Lahde
                                              Bad Essen s            s Petershagen-Wietersheim
                                  Rheine Velpe s                       Minden
                           s s Ochtrup                               s Rehme
NETHERLANDS                UGS
                                                Herringhausen      s
                                      Glandorf s             s     Melbergen
                           Epe                             Bielefeld
                                                             s Heepen                                               s UGS
        s Zevenaar                        Muenster         s Ummeln                                                   Staßfurt
                                 s Duelmen             s Rheda-Wiedenbrueck
                                        Ahlen s s Beckum
             s UGS Wesel                  s Werne-Stockum
               Xanten                                             Paderborn
                       GBF Hamborn                        GBF Weine
                                  Dortmund                               s Warburg
                                            s Schwitten
            Duisburg                  Hagen
                          Langen-             s Eisborn
                                      s s Iserlohn
                      s
          Duisburg South berg s
                                                                     Winterberg       Kassel
                             Duesseldorf
                Moenchen-   s LNG        s Halver
                gladbach      Nievenheim s Klueppelberg            s Bad Berleburg

    Haanrade s GBF Broichweiden
Verlautenheide s                                          s Weidenau
               Aachen                                      Siegen                       GERMANY
 Lichtenbusch s                                           s Zeppenfeld
                                  Bonn



BELGIUM
                                             Koblenz


                                                             Frankfurt am Main




      LUXEM-                                             Bad Kreuznach
      BOURG
                                     Idar-Oberstein



Subgrids                     Calorific value of natural gas
                                                           kWh/mN3
       RWE market area I (H-Gas)                                             GBF Gas blending facilities
       comprising subgrid                                 10.6 - 12.8      LNG Liquefied natural gas facility
       RWE market area II (L-Gas)                                          UGS Underground gas storage facilities
       comprising subgrid                                   9.5 - 10.7           Hydraulic separation
       Southern                                             9.6 - 10.4     s     Entry-points
       Southeastern                                        10.9 - 12.2           Main direction
       Eastern                                              9.6 - 10.4
       Northeastern                                         9.6 - 10.1
       Northern                                             9.6 - 10.1
       Out of the subgrid system


                                                                                                                                 261
                                                                                      Utilities - Gas - Upstream




The Value Chain of the Upstream Business

 Licencing                     Exploration              Development            Production


s Participation         s Seismic               s Drilling              s Operation
  in bid rounds         s Data processing       s Engineering           s Transport
s Farm in               s Drilling              s Construction          s Sale
                                                  (field and
                                                  infrastructure)



Actual       thousand   Expenses    € million   Capex       € million   Production    million
Licenses         km2    2006                    2006                    2006             boe



RWE Dea          140    RWE Dea          242    RWE Dea          480    RWE Dea             42




                                                                                                          262
                                                                                                          Utilities - Gas - Upstream




Classification of Reserves & Resources

                                                Range of uncertainty
                                      P90                P50                P10
                              90% chance of more 50% chance of more 10% chance of more
                                than the estimate  than the estimate  than the estimate

                         C1                                                               On production
                                                                         3P
            Commercial
Reserves




                                 1P                    2P                                 Under
                                                                         Proved
                         C2      Proved                Proved                             development
                                                                       + Probable
                                                     + Probable
                                                                       + Possible         Planned for
                         C3                                                               development
            commercial




                         S1
               Sub-




                                                                                          Discovered
                                 Low estimate         Best estimate     High estimate
                                                                                          (contingent)
Resources




                         S2

                         E1
                                 Low estimate         Best estimate     High estimate     Undiscovered
                                                                                          (prospective)
                         E2




                                                                                                                              263
                                                                                               Utilities - Gas - Upstream




RWE Dea’s Main Competencies

Reservoir simulation (3D)           Extended reach drilling                   Frac technology




Human resources                                          Technical expertise

s 984 *) professionals + joint venture                   s In-house know-how of state of the art E & P
    companies in Egypt (1,184 professionals)                  technologies from formation evaluation,
                                                              geostatistical modeling, uncertainty
                                                              estimation to dynamic reservoir modeling
Activities                                               s Laboratory for applied geoscience, core
                                                              analysis, production chemistry including
s Operatorship in 35 exploration (43% of total)               stimulation and mud design
    and 22 production licences (37% of total)            s Extended reach drilling
s Operator of producing fields                           s Offshore operation in sensitive National Park
    in Germany (on/offshore), Egypt (offshore)                environment
    and UK (offshore)                                    s High pressure and high temperature drilling
s Partner in producing fields in Germany,                s Multi frac technology
    Norway, Denmark, UK and Egypt                        s Gas storage construction and operation

*) Status interim report September 30, 2006.




                                                                                                                   264
                                                                                                                             Utilities - Gas - Upstream




        Balanced Mix: RWE Dea’s Resource Portfolio
                                                        1,000
                                                Large




                                                                                                                                           Egypt
                                                         100
               Prospective Resources Expectation (E)




                                                                     Libya
                                                                                                                                       Norway
                                                                    Poland
                                                                                                                                      Germany
Undiscovered




                                                          10
                                                                                                                                          Algeria
                                                                                                                                              UK



                                                           1



                                                                                                                                      Denmark
                                                Small




                                                                                                                                           Dubai
                                                           0

                                                                0            1                   10                    100        1,000
                                                            Small                                                             Large
                                                                                          Discovered
                                                                             Reserves (C) + Contingent Resources (S)



        Opportunities for growth

        s Egypt, Algeria, Libya
          Growth potential concentrated in North Africa

        s Norway
          Limited growth potential based on large single opportunities with long lead times

        s Germany
          No significant growth potential, due to maturity

        s UK
          Mainly mature region




                                                                                                                                                    265
                                                                    Utilities - Gas - Upstream




 RWE Dea – Reserves/Resources (P50)

 in million bbl oil equivalent — end of year status

  1,400

                                                      1,258
 1,200

                                                                    Gas:
                                       1,019                        Replacement rate
 1,000                                                              > 100%
                                                       574


    800
                 754

                                        451

    600
                 356



    400
                           314                        684
                                        568    299            278
                           118
    200          398                           124            124
                                                                    Oil:
                                                                    Replacement rate
                           196
                                               154            154   = 100%
       0
                       2006               2008e         2010e       Outlook



      Natural gas resources
      Natural gas reserves
      Crude oil resources
      Crude oil reserves


Reserves = proved + probable.
Resources = S1 + S2.




                                                                                        266
                                                                                            Utilities - Gas - Upstream




RWE Dea’s Asset Resource Contribution (2006)

Discovered reserves + resources (C+S)1)               Undiscovered (risked) resources (E)
(RWE Dea share)                                       (RWE Dea share)

North Africa/                                         North Africa/
Middle East        50%                                Middle East      72%



Germany            26%                                Europe/CIS1)     21%



Europe/CIS1)       24%                                Germany           7%



                         Total: 1,068 million boe                            Total: 1,948 million boe



Discovered reserves + resources (C+S)2)        in %   Undiscovered (risked) resources (E)          in %
Egypt                                           37    Egypt                                          38
Germany                                         26    Libya                                          31
Norway                                          17    Norway                                          9
Algeria                                         12    Poland                                          8
UK                                               6    Germany                                         7
Denmark                                          1    Algeria                                         3
Libya                                            1    UK                                              3


1) CIS = Commonwealth of Independent States.
2) Without Kazakhstan volumes.




                                                                                                                267
                                                                                      Utilities - Gas - Upstream




RWE Dea – Gas and Oil Production, Ambitious New Targets

Target: Doubling of annual production by 2013 (million boe)

 80




 60
                                                         1%
                                                       ~1
                                                  GR
                                                CA                          55

 40


                             18

 20


                             18                                             20

    0
                          2006*)                                           2013e



        Gas
s       Oil



s       Organic growth through defined development projects

s       Growth of P50 reserves (9% CAGR 2006 – 2010) through conversion of existing resources

s       Growth of resources by stepping up exploration in all core areas

s       Number of exploration/appraisal wells quadrupled since 2005 (10 → approx. 40 wells)

s       High exploration/appraisal success ratio maintained (approx. 60%)



*) Excl. Dubai and Kazakhstan production volumes.




                                                                                                          268
                                                                                                    Utilities - Gas - Upstream




RWE Dea’s Key Performance Indicators

Indicators                                                                  RWE Dea    Worldwide
                                                                                         Industry
                                                                                        Average*)
                                                                      2001 – 2005     2001 – 2005
Reserve life (P90)                          years                              12.5          13.9
Reserve replacement rate (P50)                 %                              172.0         167.8
Reserve replacement costs (P50)            $/bbl                                3.7           5.5
Production costs                           $/bbl                                4.1           7.4


*) Source: Herold Global Upstream Performance Review – 2006 Final Report.




                                                                                                                        269
                                                                                                       Utilities - Gas - Upstream




Investment in Organic Growth:
RWE Dea’s Capex Plan per Region

                                           2006     Average p.a.
in € million                                          2007 – 10
Germany                                       75          ca. 60       Gas: further production wells and
                                                                              compression facilities
                                                                       Oil: further production wells at offshore
                                                                              field Mittelplate
                                                                       Storage: extension of storage capacity
Europe/CIS*)                                265           ca. 190      UK: Southern North Sea
                                                                       Norway: Barents Sea; Norwegian Sea
                                                                       CEE/Russia: new ventures
North Africa                                140           ca. 350      Egypt: offshore Nile Delta
                                                                       Libya, Algeria
RWE Dea                                     480          ca. 600


*) CIS Commonwealth of Independent States (Soviet union succession states).




Additionally ca. € 150 million p.a. exploration expenses as of 2007 (not categorised as capex)




                                                                                                                           270
                                                                                             Utilities - Gas - Upstream




Upstream Oil & Gas – Overview of RWE Dea’s Activities


                                                NORWAY

                                                         DENMARK

                                           UK                POLAND
                                                       GERMANY




                                                              MALTA



                                            ALGERIA          LIBYA     EGYPT

      Production
      Production/exploration
      Exploration



North Sea/Barents Sea                                        Germany
s Mature region                                              s Mature region
s RWE Dea holds position in Norwegian oil                    s RWE Dea holds strong position in oil and
  production and is increasing gas                             gas production and gas storage
  production in UK                                           s Objective: Stabilise production
s Objective:
  – Bring on stream new gas fields in UK
  – Commence Liquefaction of Natural Gas
    export from Norwegian Snøhvit field

North Africa                                                CEE1) / Eastern NV2)
s High potential region                                     s High potential region
s RWE Dea holds outstanding position in                     s RWE Dea holds licenses in Poland
  gas reserves in Egypt and owns licences in                s Objective:
  Libya and Algeria                                           – Identify and assess projects in Russia,
s Objectives:                                                   Ukraine and Caspian Region to establish
  – Boost gas production and Liquefaction                       an upstream position
    of Natural Gas export in Egypt by inten-
    sive drilling and field development
  – Intensify exploration in Libya and
    Algeria



1) Central and Eastern Europe.
2) Eastern New Ventures (Russia and Caspian Region).

                                                                                                                 271
                                                                                             Utilities - Gas - LNG - Market Data




                 Liquefied Natural Gas (LNG) will be of Growing
                 Importance for RWE

                                                                                                            Snøhvit liquefaction
Liquefaction
Regasification




                                                                                                         GATE (NL) regasification




                                                                                                         Adria LNG regasification
Liquefaction




                                                                                                             Algeria liquefaction
                                                                                                              Egypt liquefaction
                                                                                                               Libya liquefaction



                     Existing
                     Under construction
                     Proposed



                 s LNG offers customers flexibility and alternative supply sources.

                 s LNG offers producers the opportunity to capture best market price on a global basis
                   (something that pipeline gas does not always do).

                 s LNG markets continue to be clustered regionally around the Americas, Europe and North East Asia,
                   but growing interaction offers increased opportunities to those that control LNG production,
                   shipping and regasification.




                                                                                                                           272
                                                        Utilities - Gas - LNG - Market Data




How the Value Chain of Liquefied Natural Gas (LNG) Works

                         Gasfield



Pipeline




Liquefaction        Liquefaction-Plant
                   Gas: ~ 600 m3 with 15°C


                    LNG: 1m3 with -162°C

Storage

                                    Vessel transport volume (standard range):
Shipping                            135 – 155 thousand m3 LNG
                                    ≈ 81 – 93 million m3 regasified volume
                                    ≈ 495 – 565 thousand boe
Storage

                    LNG: 1m3 with -162°C



                   Gas: ~ 600 m3 with 15°C
Regasification    Regasification-Terminal



Pipeline




                 Transport         Power
                  System         Generation




                                                                                     273
                                                                                       Utilities - Gas - LNG - RWE




How RWE Organises its Involvement in the Liquefied
Natural Gas (LNG) Value Chain

  Upstream                        Liquefaction          Shipping                Regasification


  s   Norway            s   Norway                s Charter             s Gate (NL)        
  s   Egypt             s   Egypt                   contracts
  s   Algeria           s   Algeria                                     s Adria (CR)       
  s   Libya             s   Libya


                RWE Dea´s focus
                                                 RWE Gas Midstream



s RWE aims to connect production areas in North Africa with its core regions and/or monetise
  optionalities of delivering LNG to other gas markets.

s RWE evaluates options to enter into liquefaction in Egypt and is interested in building
  a position in Algeria and Libya as well.




                                                                                                            274
                                                                                  Utilities - Gas - LNG - Market Data




Shipments of Liquefied Natural Gas (LNG) to Europe

in billion cubic metres/year

                            Turkey    Spain   Belgium   France   Greece   Italy    Portugal     UK
Algeria                      4.60     2.80     3.35      7.35     0.45    3.00                  2.00
Egypt                                 4.80     0.25      2.30     0.04    0.10                  0.96
Libya                                 0.72
Nigeria                      1.12     7.10     0.16      4.23                        1.97
Oman                                  1.00
Qatar                                 5.00     0.36
Trinidad & Tobago                     3.00     0.16                                             0.60
Total                        5.72     24.42    4.28     13.88     0.49    3.10       1.97      3.56




Europe’s import of LNG is showing a growing tendancy because
s indigenous gas production is dropping
s a more diversified portfolio of gas supply is desired
s new regasification infrastructure is being built



Source: BP Statistical review 2007.




                                                                                                               275
                                                                              Utilities - Gas - LNG - Market Data




Present Capacity of Liquefied Natural Gas (LNG) (2007)

in million tons/year

                                Existing capacity   Capacity under construction              Total
Australia                                                                                    20.2
North West Shelf                           12.20                           4.40
Darwin LNG                                  3.60
Brunei                                                                                         7.2
Brunei LNG                                  7.20
Indonesia                                                                                    29.1
Arun LNG                                    3.00
Bontang                                    18.50
Tangguh                                                                    7.60
Malaysia                                                                                     24.0
MLNG                                       24.00
USA                                                                                            1.5
Kenai                                       1.50
Peru                                                                                           4.2
PLNG                                                                      4.20
Russia                                                                                         9.6
Sakhalin                                                                  9.60
Nigeria                                                                                       17.5
NLNG                                       17.50
Algeria                                                                                      20.3
Skikda                                      2.80
Arzew                                      17.50
Egypt                                                                                        12.7
ELNG                                        7.20
SEGAS                                       5.50
Libya                                                                                          0.7
Marsa el-Brega                              0.70
Trinidad and Tobago                                                                          14.5
Atlantic LNG                               14.50
Equatorial Guinea                                                                              3.4
EGLNG                                       3.40
Norway                                                                                         4.3
Snøhvit                                                                   4.30
Yemen                                                                                          6.7
Yemen LNG                                                                  6.70
Oman                                                                                         11.0
Oman LNG                                     7.30
Qalhat                                      3.70
Qatar                                                                                         77.5
QatarGas                                   13.40                          27.80
RasGas                                     19.00                          17.30
Abu Dhabi                                                                                      5.7
Adgas                                       5.70

                                                                                                           276
Source: Gas Strategies, 2007.
                                                                                     Utilities - Gas - LNG - Market Data




Forecasted World Wide Growth in LNG Capacity and
Regasification

in bcm/a
800

700

600

500

400

300

200

100

    0
        2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

s       Existing/Under Construction Atlantic Basin capacity
s       Existing/Under Construction Middle East Capacity
s       Existing/Under Construction Asia Pacific capacity                                    Liquefaction

s       Possible new Atlantic Basin LNG capacity plus debottlenecking                        capacity

s       Possible new Middle East LNG supply plus debottlenecking
s       Possible new Asia Pacific LNG capacity plus debottlenecking
–––- Existing and Under Construction "Existing"
                                                                                             Regasification
–––– As above plus a conservative view on known projects "Mid Case"
                                                                                             capacity
–––– As above but with more bullish view and allowance for future projects "High Case"


Notes to the data
s The graph flattens as we get to around 2014/2015. This is because there is not as reliable
  information about what projects (liquefaction and regasification) will be built futher out in
  time. Existing liquefaction capacity is that already built, and under construction which is
  defined as those projects for which a Final Investment Decision has been taken. Possible new
  liquefaction capacity is based on announced plans and includes debottlenecking of existing
  facilities. Existing regasification capacity takes into account only those regasification projects
  that exist or are firmly committed. The "Mid Case" considers known regasification projects and
  takes a conservative view of how many will actually be built.

Comments
s A more than doubling of the global LNG business within 10 years is a virtual certainty, and the
  growth could be higher. Regasification capacity outstrips liquefaction capacity. Surplus is as a
  result i.a. of opportunism of investors and extra capacity in order to exploit regional arbitrage.
                                                                                                                  277
Source: Gas Strategies and other industry sources, 2007.
                        Financial Information




Financial Information




                                        278
                                                                        Financial Information - RWE Share




Shareholder Structure of RWE AG

                                                 Shares of the subscribed capital
                      6   1                       1 Capital Research and Management
                5                                    Company                              5%
                                                  2 Other institutional shareholders     53%
                                                     Institutional shareholders total: 58.0%


      4
                                                 3   RW Energie-Beteiligungs-
                                       2             gesellschaft mbH & Co. KG         10%
                                                 4   Other municipal shareholders      16%
                                                     Municipal shareholders total:     26%
            3
                                                 5   Private shareholders              14%
                                                 6   Employee shareholders              2%
                                                     RWE AG total:                    100%




s     260,000 shareholders own                   Shares of the voting rights
      562.4 million shares                           RW Energie-Beteiligungs-
s     Foreign investors own approx.        43%       gesellschaft mbH & Co. KG      11.1%
      of the capital, broken down as follows         Capital Research and Management
      – USA/CAN                            16%       Company                         5.1%
      – UK                                 13%
      – Continental Europe excl. Germany 13%
      – Rest of the world                   1%
As of July 2007.
w




      Free Float*)                        89%
      (excluding RW Energie-Beteiligungs-
      gesellschaft mbH & Co. KG)




*) Ordinary shares.




                                                                                                    279
                                                                  Financial Information - RWE Share




RWE Share Profile

                                      Non-par-value shares
Number of shares         523,405,000                         39,000,000
                         common shares                       preferred shares
Reuters                  RWEG.F                              RWEGpr.F
Bloomberg                RWE GY                              RWE3 GY
ISIN                     DE 000703 7129                      DE 000703 7145
German Security
Identification No.       703712                              703714
Swiss Security ID code   1158 883                            1158 890
US CUSIP No. (ADR)       74975E303
Listings                 Germany – official –
                         Frankfurt/Main
                         Düsseldorf
                         Xetra
                         Abroad
                         SWX Swiss Exchange
                         (secondary listing)
                         New York, OTC trading
                         (Sponsored
                         level-one ADR programme
                         for common shares)




                                                                                              280
                                                                                              Financial Information - RWE Share




RWE’s Dividend Policy

Dividend yield based on year-end price of RWE ordinary shares




         2.1%            3.2%              4.5%              4.0%            3.7%            2.8%          4.2%




Dividend per share



                                          Bonus
                                          € 0.10




         € 1.00          € 1.00           € 1.00            € 1.25           € 1.50         € 1.75         € 3.50

     2000/01             20011)            2002             2003             2004           2005           2006



Payout development

Dividend in € million
2,500

                                                                1,968
2,000
                                                                             Payout ratio   Payout ratio
1,500                                4%
                                  + 3 GR                                         of             of
                                    CA                                       70% – 80%2)    50% – 60%
                                                    984
1,000                                844
                        703
           619
  500

     0
           2002        2003          2004          2005         2006            2007e         2008e



1) Truncated fiscal year of RWE AG from July 1 to December 31, 2001.
2) The prerequisite is a successful IPO of the majority of American Water.



                                                                                                                          281
                                                                Financial Information - Fixed Income Financing




RWE’s Centralised Treasury – Basis for Groupwide
Financial Risk Management

                                        External Market




                                              FX deals
          Capital market                 (incl. derivatives)                 CP programme

                                           Interest deals
              Ratings                                                        Money market
                                         (incl. derivatives )




                                             RWE AG




         Liquidity transfer                   Hedging                        Intercompany
           via cashpool                  (fx, interest rates)                   loans




                                        RWE Subsidiaries




s   RWE AG acts solely as external counterparty for financial transactions
    (excluding regulatory requirements)

s   Centralised Group Treasury has the overall responsibility for treasury operations

s   Central database for a groupwide financial risk management




                                                                                                         282
                                                                       Financial Information - Fixed Income Financing




RWE AG: Flexible Funding Structure and
Diversified Funding Sources
Available credit facilities1) 2)

 25
              € 20 bn
 20                                                    for liquidity      s    Available
                                                       back-up and        s    Utilised
 15                                                    refinancing

 10            € 14.3
                 bn                         $ 5 bn        € 4 bn
    5
                                        $ 0.5 bn         € 0.0 bn
    0
        Medium-term note Commercial paper Fully committed
           programme       (up to 1 year)   syndicated loan
         (up to 30 years)                 (€ 2.0 bn 364 days)
                                           (€ 2.0 bn 5 years)

s       Access to substantial committed and uncommitted lines

s       Strong and stable operating cash flow trend going forward



Breakdown of funding sources1)

Bonds & bank loans             92%



Commercial paper                 2%

Other                            6%




s       RWE is able to utilise a diverse range of funding sources

s       More than 80% of debt at fixed interest rates, no rating triggers, no financial covenants

s       Going forward: bonds will continue to play a dominant role



1) As of June 30, 2007.
2) Excluding uncommitted bilateral lines.

                                                                                                                283
                                                              Financial Information - Fixed Income Financing




Gross Financial Debt Currency and Interest Exposure1) 2)

Gross financial debt (as of June 30, 2007: € 17.9 billion) currency




£                                        40%




$                                        40%




€ /others                                20%



1) Including cross-currency swaps.
2) As of June 30, 2007.




 With debt in foreign currencies we hedge the translation risk of our international activities.



Gross financial debt interest exposure

Fixed                                    85%



Floating                                 15%




Long-term financed (> 1 year): 77% of gross financial debt
Short-term financed (< 1 year): 23% of gross financial debt




                                                                                                       284
                                                               Financial Information - Fixed Income Financing




Maturity Profile of Capital Market Debt1) (I)
Total: € 16.5 bn2)
                                           € bn
       0.0           0.5       1.0         1.5          2.0         2.5           3.0
2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033
                                                                                        s     RWE AG/RWE Finance
2035                                                                                          American Water
                                                                                        –––– Capital market debt
2037

2053                                                                                    1) Capital market debt
                                                                                          excluding commercial
2055                                                                                      paper programme as of
                                                                                          July 31, 2007.
       0     2       4     6   8     10    12   14     16      18    20      22   24    2) Nominal value outstanding.
                               € bn (Capital market debt)

Liability side is controlled via maturity structure and fixed/floating mix
Maturity range       0 – 3 Years   4 – 7 Years 8 – 12 Years      >12 Years
in € bn                      3.4           4.3           3.2           5.6
Relative share              20%           26%          20%            34%
Cumulative                  20%           46%          66%          100%
                                                                                                                 285
                                                                 Financial Information - Fixed Income Financing




Maturity Profile of Capital Market Debt (II)

s   No refinancing of debt maturing 2007
    – > € 2 bn in capital markets instruments
    – > € 1 bn in other financial liabilities (bank debt, leases, commercial paper)

s   Strong cash flows to allow for potential further reduction in gross financial debt

s   Structural subordination to diminish after water sale




                                                                                                          286
                                                                              Financial Information - Fixed Income Financing




RWE AG: Financing Policy

s     Cap for net debt of € 22 – 24 billion

s     Centralised funding by RWE AG

s     Cash pooling agreements in place in our core regions

s     RWE AG has domination and profit and loss sharing agreements*) with all of its important
      German subsidiaries

s     Clear cross default principles

s     No financial covenants



*) Agreement is pursuant to the articles 291 – 305 of the German Stock Companies Act.




                                                                                                                       287
                                                                              Financial Information - Fixed Income Financing




Summary Cross Default Clause*): Debt Issuance
Programme RWE AG/RWE Finance B.V.

s     Events of default include cross default on capital market debt owed by the Issuer, or any
      Principal subsidiary for an amount greater than € 50 m

s     Principal subsidiaries are defined as consolidated companies, which account for 5% of group
      sales and 5% of overall assets in the latest audited statements



*) For legal definition please see terms and conditions of the current information memorandum.




                                                                                                                       288
                                                                                  Financial Information - Fixed Income Financing




Structural Subordination in the RWE Group1)

                 RWE AG (A+/A1) / RWE Finance B.V. / Consolidated German Subsidiaries2)
                                                85%



            RWE Npower Holdings plc                                      Thames Water Aqua Holdings GmbH




                       RWE                                                     American            E’town Corp.
                     Npower plc                                                 Water
                        <1%                                                      14%




                                                                                                  Elizabethtown
                                                                                                     Water Co.
s     For sale



1) Figures as of June 30, 2007.
2) Associated by profit & loss sharing agreement. Note: Structure simplified; percentages indicate quantity of group
  external gross financial debt held at entity/group of entities including bonds, bank loans and leases.




                                                                                                                           289
                                                                Financial Information - Fixed Income Financing




Credit Rating 2007 – RWE AG

Standard & Poor’s (A+, “negative outlook”)

s   A+ rating with “negative outlook“

s   The ratings reflect the group's strong competitive position in the German electricity market,
    which provides the majority of group earnings and has delivered sustained strong operating
    performance. The ratings also reflect the group's strong financial profile. These strengths are
    partially offset by the weakening of RWE's business profile following the sale of its regulated
    water operations and its reliance on competitively exposed generation for future growth.

s   RWE's financial profile is strong for the ratings. The negative outlook, however, reflects some
    near-term uncertainty about the direction of RWE's strategy, financial and acquisitions policies
    – in part due to planned changes in senior management – and the manner in which RWE could
    releverage its balance sheet. To maintain the ratings, RWE needs to restrict itself to moderate-
    scale or low-risk acquisitions, and maintain conservative financial policies. The outlook could
    be revised to stable if RWE maintains its current strong financial profile.



Moody’s (A1, “stable outlook”)

s   A1 rating with ”stable outlook”

s   RWE's financial profile is underpinned by an improving trend, particularly following receipt of
    the proceeds generated and/or expected from the divestment of its UK and US water activities.
    The company's business risk profile combines its strong and vertically integrated electricity
    and gas supply business in Germany with a substantial regulated asset base that generates
    predictable and strong cash flows.

s   The stable outlook reflects RWE's business risk profile and the stable characteristics of the
    cash flows generated by its core operating activities. The rating outlook also reflects the
    expected divestment of American Water, and assumes that the interests of shareholders and
    debt holders are appropriately balanced. Moody's will continue to monitor use of the resultant
    proceeds.




                                                                                                         290
                                                                  Financial Information - Fixed Income Financing




RWE AG: Financial Risks

Main financial risk factors are:


     Interest rate risk        Foreign exchange (FX) risk            Counterparty risk


                   Interest-bearing debt


                Assets under management


                                        Investments


                  Other financial positions, e.g.: derivatives, collaterals


                                                FX hedges for commodities




s   RWE Group companies are subject to strict risk management

s   Financial derivatives are not to be used for speculative purposes and serve only to hedge
    risks arising from operations




                                                                                                           291
                                                                  Financial Information - Fixed Income Financing




RWE AG: Managing Interest Rate Risk –
Asset/Liability Management

s    Assets:
     – Measurement of portfolio duration vs. benchmark duration
     – Analysis of value at risk of bond portfolio (VaR € 42.1 m*))

s    Liabilities:
     – Measurement of market values and value at risk of financial debt and derivatives
       (portfolio view; VaR € 5.1 m*))
     – Sensitivity analysis of interest rate curve movements for net interest and the
       underlying market values
     – Target/actual comparison of net interest



*) As of December 31, 2006.




                                                                                                           292
                                                               Financial Information - Fixed Income Financing




RWE AG: Managing Foreign Exchange Risk

s    Transaction risks:
     – Subsidiaries are obliged to hedge all incoming and outgoing foreign exchange (FX)
       payments with RWE AG
     – RWE AG decides whether to pass the risk on to external counterparties or to manage
       the risks itself

s    RWE AG’s net FX exposure:
     – Measured and valued on a daily basis (VaR € 0.3 m*))
     – Risk management by means of:

      1           VaR limits      2 Annual stop-loss limits   3     Scenario analysis




*) As of December 31, 2006.




                                                                                                        293
                                                                Financial Information - Fixed Income Financing




RWE AG: Managing Financial Counterparty Risk

s   Financial transactions are executed with approved financial counterparties only
    on the basis of ISDA agreements

s   Approved counterparties are required to have a minimum long-term rating of A-/A3

s   The exposure limit of each approved financial counterparty itself depends on the rating
    of the financial counterparty; exposure ranges between € 500 m and € 0 m

s   Counterparty exposures are monitored weekly based on marked-to-market exposure

s   Whenever limits are exceeded, collaterals are called in to mitigate counterparty risks
    effectively




                                                                                                         294
                                                               Financial Information - Fixed Income Financing




RWE’s Commodity Risk Hedging Principles

s   As a matter of principle, liquid risks of the generation companies RWE Power and
    RWE npower (generation) are transferred to RWE Trading.

s   The downstream companies RWE Energy and RWE npower (retail) hedge their exposure
    back-to-back with RWE Trading.

s   RWE Trading manages liquid commodity risks within a clearly defined limit structure,
    granted by the Risk Committee. Positions are managed jointly with proprietary trading
    books, thus enabling RWE Trading to manage its overall risk position without frictions.

s   The benchmark for all transactions between RWE Trading and the other Group companies
    are market prices. This ensures that no sales contract is concluded below the appropriate
    wholesale benchmark.

s   In the short-term window, all of the Group’s commodity positions including fuels are pooled
    in one central unit: Short-Term Position Management (STPM). This ensures the optimal
    dispatch of the generation assets, and the optimal use of optionality and flexibility in
    contracts with suppliers and customers.




                                                                                                        295
                                                                       Financial Information - Fixed Income Financing




RWE Bond Programme (I)

Major bonds issued by the RWE Group*)




                                         n
                                         n


                                       io
                                      io


                                    ill
                                   ill


                                 m




                                                                                              de
                                m
                       nc ue




                                                                                     t r te

                                                                                               t)
                                 s
                              ar
                              €




                                                                                            en
                                                                                             )


                                                                                  os Da




                                                                                  KN Co
                             in
                   rre Iss




                                                                              (%
                            te
                          Ye
                          in




                                                                                          ec
                        Da
                          y
           y




                                                          it y




                                                                                                               o
                                                                               (W y
                                                                               (m est
                                                                         on
         nc


               Cu me




                        e


                       in




                                                                                     r it




                                                                                                              -N
                      m




                                                                                      )
                                                          ur
                     e
      rre




                                                                       up



                                                                                    r




                                                                                                          IN
                  rm




                                                                                  cu
                   lu




                   lu




                  su




                                                                                 te
                                                        at
    Cu




                                                                     Co
               Vo




               Vo




                                                                               Se
                                                                               In




                                                                                                         IS
               Te



               Is




                                                       M
RWE AG: Private Placements (DIP)
JPY    5,000.00      29.96    5     08/28/2002   08/28/2007        0.780      08/28/2006   795689   XS0152725890
HKD      385.00      36.37    5     09/10/2002   09/10/2007      floating     06/11/2007   748532   XS0154040439
EUR      100.00     100.00    7     06/03/2002   06/03/2009        5.625      06/03/2007   795686   DE0007956864
NOK      350.00      43.91    7     10/28/2002   10/28/2009        7.000      10/28/2006   748535   XS0156891292
EUR      100.00     100.00   15     11/15/2002   11/15/2017      floating     05/15/2007   748536   XS0158243013
EUR      750.00     750.00   30     02/14/2003   02/14/2033        5.750      02/14/2007   748537   XS0162513211
NOK      250.00      31.36    7     06/18/2003   06/18/2010        4.890      06/18/2007   748538   XS0170287238
SGD       50.00      24.13    7     07/08/2003   07/08/2010        2.300      07/08/2007   748539   XS0171753600
CZK      750.00      26.10    6     07/22/2003   04/22/2009      floating     04/23/2007   748541   XS0172975111
JPY    3,000.00      17.98    7     09/16/2003   09/16/2010        1.248      09/16/2006   748542      ED1673117

RWE Finance BV: Public Bonds (DIP)
EUR    1,357.00 1,357.00       6 04/26/2002      10/26/2007         5.500     10/26/2006   855326   XS0147030042
EUR    1,282.00 1,282.00       7 04/20/2001      04/18/2008         5.375     04/20/2007   648660   XS0127984317
GBP      500.00    741.29      7 07/03/2003      08/17/2010         4.625     08/17/2006   878796   XS0170731847
EUR    2,200.00 2,200.00      11 04/26/2002      10/26/2012         6.125     10/26/2006   855327   XS0147030554
GBP      750.00 1,111.93      11 04/26/2002      06/03/2013         6.375     06/03/2007   855329   XS0147048259
EUR      650.00    650.00     10 07/23/2004      07/23/2014         4.625     07/23/2006   A0DAN1   XS0196302425
EUR      850.00    850.00     15 04/20/2001      04/20/2016         6.250     04/20/2007   648661   XS0127984747
EUR    1,200.00 1,200.00      15 07/23/2003      07/23/2018         5.125     07/23/2006   957955   XS0172851650
GBP      650.00    963.68     20 04/20/2001      04/20/2021         6.500     04/20/2007   648663   XS0127992336
GBP      600.00    889.55     20 07/03/2003      12/06/2023         5.625     12/06/2006   878761   XS0170732738
GBP      950.00 1,408.45      28 04/26/2002      06/03/2030         6.250     06/03/2007   855328   XS0147048762
CHF      500.00    302.32      5 07/02/2003      12/18/2008         2.000     12/18/2006   957828   CH0016141324

RWE AG: Promissory Notes (Standalone)
HKD      500.00     47.24     7                  02/16/2009        floating

Total: RWE AG/
RWE Finance    14,163.27



Currency exchange rates
    €        CHF        CZK         GBP       JPY          NOK           PTE         USD         HKD       SGD
  1.00      1.6539   28.7315       0.6745   166.8700      7.9713       200.4820     1.3538     10.5843    2.0719



*) As of June 30, 2007.




                                                                                                                   296
                                                                   Financial Information - Fixed Income Financing




RWE Bond Programme (II)

Major bonds issued by the RWE Group*)




                                        n
                                        n


                                      io
                                     io


                                   ill
                                  ill


                                m




                                                                                         de
                               m
                      nc ue




                                                                                t r te

                                                                                          t)
                                s
                             ar
                             €




                                                                                       en
                                                                                        )


                                                                             os Da




                                                                             KN Co
                            in
                   rre Iss




                                                                         (%
                           te
                         Ye
                         in




                                                                                     ec
                       Da
           y




                         y




                                                         it y




                                                                                                          o
                                                                          (W y
                                                                          (m est
                                                                    on
         nc


               Cu me




                       e


                      in




                                                                                r it




                                                                                                        -N
                     m




                                                                                 )
                                                         ur
                     e
      rre




                                                                    up



                                                                               r




                                                                                                     IN
                  rm




                                                                             cu
                   lu




                   lu




                  su




                                                                            te
                                                       at
    Cu




                                                                  Co
               Vo




               Vo




                                                                          Se
                                                                          In




                                                                                                   IS
               Te



               Is




                                                      M
American Water (not included: more than 200 private placements between below $ 1 million up to several
hundreds of million US$)
USD       33.00       24.38   20 11/21/1997 11/01/2017       7.080 05/01/2007             US70865FAA12
USD       20.00       14.77   30 02/15/1991 01/15/2021       9.690                            708653B#6
USD      150.00      110.80   30 09/27/1996 09/01/2026       7.800 03/01/2007             US708653AB62
USD      101.00       74.60    7 12/21/2006 12/21/2013       5.390                        US708653AB62
USD       37.50       27.70   10 12/21/2006 12/21/2016       5.520                        US708653AB62
USD      429.50      317.26   12 12/21/2006 12/21/2018       5.620                        US708653AB62
USD      532.00      392.97   15 12/21/2006 12/21/2021       5.770                        US708653AB62

Miscellaneous other bonds:
                  1,229.50

Total
American Water: 2,191.98

Total bonds
issued:               16,355.25



Currency exchange rates
    €        CHF        CZK        GBP       JPY          NOK        PTE       USD         HKD        SGD
  1.00      1.6539   28.7315      0.6745   166.8700      7.9713    200.4820   1.3538     10.5843     2.0719



*) As of June 30, 2007.




                                                                                                              297
                                                       Financial Information - Fixed Income Financing




RWE Securities

Securities in RWE’s Group accounts as of 12/31/2006

Securities held as non-current assets:     €  1,047m
Securities held as current assets:         € 16,788m
Total securities:                          € 17,835m




Fixed income                         82%




Equities/other                       18%




                                                                                                298
                                                                         Financial Information - Nuclear Provisions




Nuclear Provisions

s   Provisions for uncertain liabilities as per IAS 37

s   Public-law liabilities under Sec. 9a of the Germany Nuclear Energy Act

s   Provisions are made for

    1) Disposal of spent nuclear fuel assemblies
       Flasks, transport, conditioning, intermediate and final storage

    2) Decommissioning of nuclear power plants
       Post-operation phase, deconstruction, removal, final storage

    3) Disposal of radioactive operating waste (e.g. cleaning cloths, oils, resins)
       Conditioning, flasks, intermediate and final storage

s   Since 98/99 FY: recognition of provisions as per IAS 37

    Inflation of current cost to the assumed disposal date by a set inflation rate;
    then discounting of the result back to today (discount rate 5.0%)




                                                                                                              299
                                                              Financial Information - Nuclear Provisions




How the Size of the Provision is Determined


    Material is earmarked
        for disposal

            w

          Step 1:                       Step 2:




                                                        w
 Determine disposal costs at       Inflation by price
     current price level            increase rate k                 Future cost
                                                                 (as per IAS 37):
                                                                market value of costs
                                                                     in n years,
      Present value of                    Step 3:             when disposal takes place
                               w




         future cost                 Discount by rate i
                               (i = 5.0% p.a. before taxes)



    Transfer to provisions

            w
              t0                                                         tn




                                                                                                   300
                                                   Financial Information - Nuclear Provisions




Split of Nuclear Provisions

in € million

                            As of                  As of
                        Dec 31, 2006           Dec 31, 2005




                             453                   431




                            4,213                 4,190




                            4,168                 4,054




Total:                      8,834                 8,675




s    Disposal of radioactive operating waste
s    Decommissioning of nuclear power plants
s    Waste disposals of used fuel assemblies




                                                                                        301
                                                                                       Financial Information - Pension Provisions




Pension Provisions: RWE‘s Proceeding for Setting
up a Contractual Trust Arrangement (CTA) and
Pensionsfonds*)
RWE to externalise the pension provisions into a CTA and Pensionsfonds*)

s      Reasons for setting up a CTA/Pensionsfonds*):
       – Increased transparency allowing better international comparison
       – Increased transparency of funding for pension liabilities
       – Additional protection of pensions against insolvency

s      Timing for the process:
       – Q1 2007 transfer of approx. € 7.8 bn assets into the CTA
       – Later this year, transfer of a portion from the CTA into the Pensionsfonds*)
         to cover the pension liabilities of the retired employees
       – Remaining on-balance sheet pension liabilities (€ 3.8 bn) will be transferred into the
         CTA/Pensionfonds*) in the following years

s      Neutral from Rating Agencies’ perspective



*) Separate legal entity under the supervision of the German Federal Financial Supervisory Authority (BaFin);
    legal standing differs from that of typical UK and US pension funds.




                                                                                                                            302
                                                                                       Financial Information - Pension Provisions




Impact of Setting up a Contractual Trust
Arrangement (CTA) and Pensionsfonds on RWE*) (I)

What has been the impact on the balance sheet?

s      Assets: ”Marketable securities” and ”Other non-current financial assets” will decrease.

s      Liabilities: ”Pension provisions” will decrease.

s      Underfunding or overfunding of the CTA / Pensionsfonds*) will be addressed on the balance
       sheet as ”pension provisions” or ”pension asset”, respectively.

s      Actuarial losses and gains that may arise after initial funding date will be reported off-
       balance-sheet in the notes, unless they pass certain thresholds (see comment under impact
       on P&L).

             Reduction of balance sheet total.



What has been the impact on the P&L?

s      ”Interest and similar income” on approx. € 8 bn (later € 12 bn) assets will decrease.

s      ”Interest accretion to non-current provisions” on approx. € 8 bn (later € 12 bn) assets will
       decrease (current discount rate 4.5% Germany, 5.10% – 5.90% international).

s      To the extent that either underfunding or overfunding occurs from actuarial losses or gains,
       it will be accounted for in the notes. This amount is recognised as income or an expense
       over the employees’ average remaining working lives to the extent that it exceeds 10% of
       the greater of the benefit obligation or the fair value of the plan assets.

             Neutral impact on P&L as long as ”expected return on plan assets” equals to
             actual investment returns yielded in the past.



*) Separate legal entity under the supervision of the BaFin (German Federal Financial Supervisory Authority);
    legal standing differs from that of typical UK and US pension funds.




                                                                                                                            303
                                                                                       Financial Information - Pension Provisions




Impact of Setting up a Contractual Trust
Arrangement (CTA) and Pensionsfonds on RWE*) (II)

What is the impact on the cash flow statement?

s      No outflow of funds for initial funding because only securities were used.

s      Reduced cash flows from assets because of the reduction in assets carried on the
       balance sheet.

s      The outflow of funds for pensioners will decrease and will disappear after full funding.

s      Outflow of funds for annual contributions to the funds.

             Neutral impact over the lifetime of the provisions. But the downside effects
             (increase in fund outflows for annual contributions and shortfall of cash proceeds
             from assets) will exceed the shortfall of fund outflows for pensioners in the
             early years.



*) Separate legal entity under the supervision of the BaFin (German Federal Financial Supervisory Authority);
    legal standing differs from that of typical UK and US pension funds.




                                                                                                                            304
                                                                          Financial Information - Miscellaneous




RWE’s New Long-Term Incentive Plan (LTIP):
Advantages
(first issue in Q2, 2005)

s   RWE introduced a new Long-Term Incentive Plan in January 2005 with performance incen-
    tives for RWE executives.

s   The new LTIP targets the achieved Total Shareholder Return of the RWE share compared to its
    peer group.

s   Sustained performance compared to relevant competitors is rewarded.

s   Country-specific differences are adjusted. To ensure that LTIP grant levels are competitive
    within our core markets, they are driven by local market practice.

s   Vesting period is extended to three years.

s   The volume of the new LTIP and its expected costs reflect the business situation of RWE.

s   RWE group board members and board members of management companies have to invest
    their own money.

s   An increase of the share capital is not necessary.

s   All principles of the Corporate Government Code are met.




                                                                                                          305
                                                                         Financial Information - Miscellaneous




RWE’s New Long-Term Incentive Plan (LTIP):
Plan Design

s   The participants receive a conditional grant of performance shares. A performance share is
    a conditional right to receive a payment at the end of a three-year vesting period.

s   Depending on how the performance targets are met at the end of the performance period,
    a portion of these shares vest.

s   The gain of the participants equals the final number of shares multiplied by the RWE share
    price at vesting.




                 Vesting / Performance Period                                   Payout is
Conditional                                               Achievement       determined on
                          Year 1 Year 2 Year 3         of performance      RWE share price
  grant
                                                           targets           development
                                                                              (ordinary)




                                                                                                         306
                                                                                                  Financial Information - Miscellaneous




RWE’s New Long-Term Incentive Plan (LTIP):
Performance Measure

s      Total Shareholder Return (TSR) is used as measure for the performance of the share.

s      The TSR includes capital gains and reinvested dividends.*)

s      RWE’s TSR over the three-year-period is compared to that of a defined peer group.

s      The DJ STOXX Utilities Index has been chosen as peer group. The index includes 34 Euro-
       pean utilities.

s      To determine the TSR, the average stock price of last the 20 days before grant allocation and
       before the end of performance period will be considered.



*) On the dividend date, the share price is marked down by the amount of the dividend. The TSR therefore assumes that
    the dividend is reinvested to reflect the entire return for the shareholder (capital gain + dividend).




                                                                                                                                  307
                                                                                            Financial Information - Miscellaneous




RWE’s New Long-Term Incentive Plan (LTIP):
Payout Scheme

s      Three-step-process to determine the payout:

       1) At grant of the shares: Determine the weighting of all companies in the DJ STOXX
          Utilities Index, excluding RWE.

       2) At the end of the three-year-period: Rank these companies according to their achieved
          three-year-TSR.1)

       3) Add up the weightings of those companies, whose TSR has been outperformed by RWE.
          This sum will be squared and multiplied with a factor of 1.25.
          Formula2): (X% of the index weight)2 x 1.25 = Allocation.

s      A minimum of 25% of the index have to be outperformed in order for any shares to vest.

s      The maximum grant is limited to the three times (2005) respectively two times (2006)
       individual grant award.



1) If the index has changed over the past 3 years, the weightings need to be re-calculated for the remaining companies,
    not taking into account the new companies.
2) Formula smoothes the potential payout profile.




                                                                                                                            308
                                                                           Financial Information - Miscellaneous




RWE’s New Long-Term Incentive Plan (LTIP):
Payout Example

s      A grant of 1,000 performance shares depending on different share prices at vesting.




Companies                        Weight in Index
                                      in %

    1. Corporate 1                    19.17

    2. Corporate 2                    9.78

    3. Corporate 3                    5.34

    4. RWE

    5. Corporate 5                    6.12
                                                                Sum of companies
     ...                               ...                      outperformed 5. – 34. = 65.71%

34. Corporate 34                      2.54




             53.97% of Performance shares vest



Share price                       Payout (1,000 x 53.97% = 540 shares)

€ 40.27         (540 x 40.27 =) € 21,746

€ 45.00         (540x 45.00 =)    € 24,300

€ 48.00         (540 x 48.00 =) € 25,920

€ 51.00         (540 x 51.00 =) € 27,540




                                                                                                           309

								
To top