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Renewable Energy ConferenceInvestors’ View on the Renewable Sector*080610

*connectedthinking

Investors’ View on the Renewable Sector with Some BusinessCases

• Increased interest in Cleantech• Some experiences from Sweden• Investment considerations• Conclusions

Section one

• Increased interest in Cleantech• Some experiences from Sweden• Investment considerations• Conclusions

Öhrlings PricewaterhouseCoopers

Cleantech can be defined as any product, service or process thatcreates efficiency gains that has a positive environmental impact

• 1980´s EnviroTech driven by regulatory decisions and “save the world” incentives• Late 1990´s Cleantech driven by economic decisions and a entrepreneurial mentality• Cleantech: Resource management through Resource Lifecycle

• Variety of Resources:- Water - Power- Fuels - Commodities- Material - Chemicals- Air - Emissions

• Affects most Industries:- Utilities - Agriculture- Chemicals - Consumer- Electronics - Service- Industrials - Transportation- Manufacturing

Increased interest in Cleantech

Öhrlings PricewaterhouseCoopers

There are four major driving market forces behind the expansionin cleantech

• Resource constraints- Energy supply and demand imbalances- Shortage of clean air, water and power- Aging power and water delivery infrastructure

• Global competition- Increasing focus on resources efficiency and cost of production- Corporate responsibility for product life LCA

• Tightening environmental regulation- Acceleration of global concern and government mandates- Public awareness and shareholder influence

• Technological advances- Ability to apply advances in other fields to resource constraints problems- Biotech, communication, advances materials etc

Increased interest in Cleantech

Öhrlings PricewaterhouseCoopers

EU has set ambitious targets on Renewable Energy that provideinvestment incentives

• EU sets targets of 20 % from Renewable Energy to 2020- Current level 6,5 %- an intended increase of > 200 % in 13 years!

• and EU leads the way in Initial Public Offering - 55 % of world value• 4 EU countries had 20 % or more Renewable energy use in 2004

Increased interest in Cleantech

> 20 %

Source: EU

Öhrlings PricewaterhouseCoopers

The projected major increase in biomass and wind are alsosignificant drivers of cleantech investment

• 130 % increase in Renewable used in electricity production- Significant increase projected in wind and biomass- Increase also in biogas, photovoltaics

• 80 % increase in biomass in heating• Biofuels the only large scale substitute for petrol and diesel in transport

Increased interest in Cleantech

Wind + 350 %

Solid biomass + 300 %

Source: EU

Öhrlings PricewaterhouseCoopers

As a result dramatic increase in Clean-Tech investments in 2006have been projected worldwide

• Cleantech investments exploded in 2006- 70 % relates to energy- air, water and waste still to come

Increased interest in Cleantech

Cleantech Venture Capital by Segment (2004-2006)*

-

0,50

1,00

1,50

2,00

2,50

2 004 2 005 2 006

Year

US

$bn

SustainabilityWasteWaterAirEnergy

*Source: The Cleantech Report, Lux Research Inc.www.luxresearchinc.com/cleantech

Öhrlings PricewaterhouseCoopers

…and Sweden is no exception

• Energy and environmental investmentshas increased 300 % last from Q4 2006to Q1 2007.

- but counts for only 4 % of totalinvestment

• 74 % of the venture capital companiessee “Cleantech” as the most interestingsector for future investments.

Increased interest in Cleantech

Cleantech Venture Capital InvestmentsGlobal and Sweden (2004-Q1 2007)

0

500

1000

1500

2000

2500

2004 2005 2006 Q1 2007US

$ m

illio

ns0

50

100

150

200

250

300

350

400

450

500

MSE

K

World Cleantech venture capitalSweden SVCA Energy&Environmental Tech

Öhrlings PricewaterhouseCoopers

….but despite some increase in investments the Europeancleantech sector still lags internationally

• But US leads the in venture capital – 72 % of world value

• …….and in patents issued – 46 %

• Where are the European Cleantech venture capital?- 40 % of European Cleantech investments from the UK – driven by

government support

• .. or where are the European Cleantech companies?- Possible signs of a bubble?

Increased interest in Cleantech

Section two

• Increased interest in Cleantech• Investment considerations• Some experiences from Sweden• Conclusions

Öhrlings PricewaterhouseCoopers

Renewable Energy Investment value drivers

• Cost of capital (WACC)

• - Market risk premium 4,5 %according to PwC poll March 2007

• Systematic risk, Beta 0,8 – 1,1

• Possible size premium

• Electricity future spot price

• Green certificate future price

• Bioenergy fuel market development

• Governmental regulations

Investment considerations

0

200

400

600

800

1000

1200

1996

1999

2002

2005

2008

2011

2014

2017

2020

2023

2026

2029

2032

Spotpris Forwardpris PwC High PwC Middle PwC Low

0

50

100

150

200

250

300

350

400

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Elcertifikat PwC High PwC Middle PwC Low

Section three

• Increased interest in Cleantech• Investment considerations• Experiences from Sweden• The Business Case• Conclusions

Öhrlings PricewaterhouseCoopers

The number of Cleantech companies have increaseddramatically since the early 1980s

Experiences from Sweden

• Cleantech – broad definition thatincludes several types of companies

• Cleantech not a new phenomenon –companies specialising in efficiency,cleaning, waste etc have existed for along time

• Since around 2000 correlation withOMX index noticable indicating anincreased interest from the capitalmarkets

New Cleantech Companies by Year and Sector

Consultancies

Recycling &WasteAgriculture

Production &industryMaterialAir &Environment

Water

Transport

Energy-efficiency

EnergyinfrastructureEnergy storage

Energyproduction

Öhrlings PricewaterhouseCoopers

CleanTech companies have now reached different levels ofmaturity

Noticeable Swedish Cleantech Companiesby expansion phase• Predominantly companies in energy

production and efficiency, andtransport in line with current prioritisedareas

• Two thirds are in start-up or growthphases

• Air & Environment only in growth andmature

• Least amount of firms in mature stage

Seed Start-up Growth Mature

Consultancies

Recycling & Waste

Production & industry

Material

Air & Environment

Water

Transport

Energy-efficiency

Energy infrastructure

Energy storage

Energy production

Experiences from Sweden

Section four

• Increased interest in Cleantech• Investment considerations• Experiences from Sweden• The Business Case• Conclusions

Öhrlings PricewaterhouseCoopers

Future electricity price dominant value driver for cleantechinvestments

• Case study:

• Investment in power productionbased on biofuels

• Cost of equity 8 %

• WACC 6,9 %

• Electricity price dominant valuedriver

• Fuel price also significant impacton value

The Business Case

-70%

-80%

-105%

-35% 31%

75%

23%

209%

Green certificateLow/High

Fuel price High/Low

ReinvestmentHigh/Low

Electricity priceLow/High

Sensitivity Analysis

Öhrlings PricewaterhouseCoopers

The sector offers great potential but also high risk

The Business Case

Scenarioanalysis of Investment in cleantech (Example)

-285 %

147 %

Base case "Worst case" "Best case"

Val

ue

Section five

• Increased interest in Cleantech• Investment considerations• Experiences from Sweden• The Business Case• Conclusions

Öhrlings PricewaterhouseCoopers

Investments in cleantech will increase based on the strongunderlying fundamentals but still some way to go

§ Cleantech is today a result of economic drivers andentrepreneurship

§ Strong economic fundamentals and moreconnected to the financial markets

§ EU sets ambitious targets on Renewable Energy

§ Major increase in biomass and wind are projected

§ US leads the in venture capital – EU a slow-starter

§ Dramatic increase in world Clean-Tech investmentsin 2006 where USA leads the way and Europefollower

§ Possible signs of increase in investments also inSweden

Conclusions

Öhrlings PricewaterhouseCoopers

Investments in cleantech will increase based on the strongunderlying fundamentals but still some way to go

§ Great underlying market potential incleantech§ However, market largely determined by

political decisions such as greencertificates and subsidies

§ Lack of seed capital during early investmentstage to date

§ Majority of investments in energy – wasteand water undercapitalised

§ Investment in power production based onbioenergy is heavily dependent on futureelectricity price

Conclusions

Thanks for Your Time!

Martin GaveliusDirectorSustainable Business Solutionsmartin.gavelius@se.pwc.com

Johan EricsonManagerEnergy & Utilityjohan.ericson@se.pwc.com

© 2004 Öhrlings PricewaterhouseCoopers Gruppen AB. Att mångfaldiga innehållet helt eller delvis ärförbjudet enligt lagen (1960:729) om upphovsrätt till litterära och konstnärliga verk. Förbudet gällervarje form av mångfaldigande genom tryckning, kopiering etc. *connectedthinking är ett varumärkeinom PricewaterhouseCoopers LLP.