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									                            STRICTLY PRIVATE & CONFIDENTIAL




Lexicon Partners

Recent Trends in Wind M&A




April 2008
                                   STRICTLY PRIVATE & CONFIDENTIAL




1
Introduction to Lexicon Partners




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                                                                    STRICTLY PRIVATE & CONFIDENTIAL


Lexicon Partners

   Independent corporate finance advisory firm

   Focusing on financial services, utilities and infrastructure sectors

   Based in London and Hong Kong

   Since 2000, Lexicon has advised on over 140 completed transactions with
    combined value of approx £55 billion

   Dedicated Utilities and Infrastructure Team of 19 professionals with >150 years of
    combined relevant sector experience

   Strong relationships with trade and financial investors, lending banks and other
    sector counterparties


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Lexicon’s Recent Renewable Energy Credentials

    Raising equity and debt for Eclipse Energy’s Ormonde offshore wind farm

    SSE’s acquisition of Airtricity in 2008

    Sales by Englefield and Arcapita of interests in UK wind portfolio Zephyr in 2007

    Good Energies on transactions in the solar sector in 2006 and 2007

                            Ongoing   €1,455 million               2008   £145 million                  2007      £145 million                   2007




    Raising equity and debt capital               Acquisition by            Sale of Arcapita’s 33% interest         Sale of Englefield’s 33% interest
       for the Ormonde Project          Scottish and Southern Energy of      in the Zephyr wind portfolio             in the Zephyr wind portfolio
                                           Airtricity Holdings Limited


     Lexicon Partners advisers to          Lexicon Partners advised            Lexicon Partners advised                Lexicon Partners advised
           Eclipse Energy                Scottish and Southern Energy                  Arcapita                            Englefield Capital




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                     STRICTLY PRIVATE & CONFIDENTIAL




2
Trends in Wind M&A




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                                                                 STRICTLY PRIVATE & CONFIDENTIAL


Recycling Capital

   Development / contrarian capital exiting

   Increasingly a big balance sheet game
       Large utilities and financial investors
       Increased risk and capital intensity
       Offshore wind becoming more important

   More sustainable model – low cost capital, long term investors

   Debt market conditions may slow M&A volumes




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                                                                    STRICTLY PRIVATE & CONFIDENTIAL


Strong Trade Appetite

   Large utilities setting up specialised renewable energy units




   Renewable policy seen to be a key driver of growth

   Improve visibility of renewable investments and strategies

   Possible IPOs

   Scale of investment required now large enough to be meaningful

   Strong preference for control
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                                                                 STRICTLY PRIVATE & CONFIDENTIAL


New Categories of Equity

   Increasing M&A activity by non-trade financial investors as sector matures
       Australian wholesale and retail funds
       North American and European pension funds / insurance companies
       Infrastructure funds
       Petrodollars
       Sovereign wealth funds
       Niche private equity
       Institutional investors – listed wind funds

   Execution risk with some




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                                                                   STRICTLY PRIVATE & CONFIDENTIAL


Financial Investors

   Strong interest in contracted operational and/or in construction wind portfolios

   Will need management resource for investments

   Will seek to financially gear investments

   Refinancing upside

   Single digit equity IRRs for appropriately de-risked assets

   More challenging to value development pipelines … but evolving

   Increasing interest in solar



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                                                              STRICTLY PRIVATE & CONFIDENTIAL


Lessons from Recent Wind M&A

                 Airtricity                                  Zephyr

   Importance of bidder speed                Significant financial investor
                                               interest in minority stake
   Understand key motivations of seller
                                              Wide process to maximise interest
   For multi-asset / large portfolio
    opportunities: focus DD on value          Value attributed to potential
                                               refinancing and repowering
   Understand where development
    value / upside is                         Building relationship with trade
                                               player




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                                                                                                            STRICTLY PRIVATE & CONFIDENTIAL


Development Pipelines

   Strategics better able to attribute value

   Weighted probability project by project

    Site Selection
                             Wind Resource              Site               Environmental
                                                                           Test                            Test               Planning
      and Land                                                                                      Interconnection
                              Assessment            Configuration            and Permits                                     Permission
     Acquisition



   Land rights            Collect and          Review wind            Coordinate permit      Interconnection        Review
    negotiations            analyse wind          analysis / likely       process                 assessment              conditions
                            data                  planning
   Prospect                                      conditions             Conduct                Make grid              Handover to
    potential sites        Capacity factor                               environment             application             construction team
                            evaluation           Discussions with        impact analysis
   Prospect pipeline                             planners
    acquisitions
                                                 Finalise turbine
                                                  envelope

                                                 Agree site
                                                  configuration
                                                  internally


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                                                                    STRICTLY PRIVATE & CONFIDENTIAL


Repowering

   Investors willing to attribute up-front value to repowering potential

   Most efficient use of best wind sites and existing infrastructure

   Strong support by local and central government

   Local community supportive

   Larger, but fewer, turbines

   Incumbent advantages

   In interest of all stakeholders to encourage repowering of brownfield sites



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                                                                  STRICTLY PRIVATE & CONFIDENTIAL


JV / Zephyr Structures

   Co-investment JV to acquire operating, de-risked assets from utility

   Utility
       Efficient management of capital
       Reduce cash flow requirements to fund future capex
       Maintain control of offtake and ROCs
       Maintain management and operational control
       Presentational / accounting considerations

   Pension / infrastructure fund(s)
       Establish relationship with strategic partner
       Access to origination pipeline


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                                                                           STRICTLY PRIVATE & CONFIDENTIAL


JV / Zephyr Structures (continued)


                                                              Financial
                        Utility
                                                             Investor(s)

[M anagement Services             [Shareholders Agreement]
     Agreement]

  [Power Purchase         [50]%                               [50]%
    Agreement]
                                                         [Portfolio
                                     Operating Wind        Credit                   Banks
                                         JV Co.          Facilities]




                                         Asset
                                       Companies



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                                                                STRICTLY PRIVATE & CONFIDENTIAL


Bid Fatigue

   Lots of competing opportunities

   Buy-side often resource-constrained and/or weary of highly competitive processes

   Implications for sell-side
       Flag early
       Make life easy for bidders
       Detailed IM and financial model – focus on key assumptions
       Articulate upsides
       Vendor due diligence
       Build bidder confidence in opportunity and process




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                                                                   STRICTLY PRIVATE & CONFIDENTIAL


Buyer Concerns

   Value allocation: operating / construction / development / management

   Opportunity / transaction cost

   Execution risk

   Procurement issues
       Sellers’ market
       Turbine / raw material costs
       Reservation fees
       Bias towards larger customers

   Greenfield issues: capital at risk in development; grid; planning


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                                                                  STRICTLY PRIVATE & CONFIDENTIAL


Future Trends?

   Co-investment JVs

   Aggregation / consolidation of cottage industry and sub-scale portfolios

   Capital markets activity

   Wind services

   Clean tech

   Expanding the definition

   Increasing interest in solar



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                                                        STRICTLY PRIVATE & CONFIDENTIAL


Contact Details


                           Andrew Donovan

                           Lexicon Partners

                        No. 1 Paternoster Square

                          London EC4M 7DX




                         Tel: +44 207 653 6044

                  Email: adonovan@lexiconpartners.com



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