Booz & Company

Understanding Lignite Generation Costs in Europe

Summary

Prepared for PPCBooz & Company

GermanyPoland

Czech

Romania

BulgariaSerbia

Turkey

Greece

We assessed sizable lignite operations in eight European countries

1

Germany– 21.5 GW – 185.4 Mt

Poland– 9.6 GW – 64.3 Mt

Czech Republic– 9.6 GW– 43.5 Mt

Greece– 5.2 GW– 62.2 Mt

Serbia– 4.0 GW– 37.5 Mt

Romania– 4.5 GW– 32.1 Mt

Bulgaria– 3.5 GW– 30.4 Mt

Turkey– 8.3 GW – 70.0 Mt

Overview of Lignite Generation in Europe(2012)

1) Including processed productsSource: UDI, Euracoal, Booz & Company Analysis

Assessed Countries - Sizable Lignite Operation Countries out of scope (< 2 GW)

Country– Installed capacity– Lignite production1)

Prepared for PPCBooz & Company

The assessment is based on publicly available data sources using reports of associations and annual reports of relevant companies

2

Sources of AnalysisData Source

Reports on lignite mining of relevant associations for the year 2012– Euracoal – Market report– Debriv – Lignite in Germany– Eurostat, Statistical Office of Serbia, Turkish Statistical Institute– IEA Statistics – coal information– Stoll, Niemann-Delius, et al – Der Braunkohletagebau

Annual Reports– PPC (Greece)– Vattenfall (Germany)– MIBRAG (Germany)– PGE (Poland)– Severoceske doly (Czech Republic)– EPS (Serbia)– Maritsa Iztok (Bulgaria)– TPP Maritsa East 2 (Bulgaria)– Complexul Energetic Oltenia (Romania)– EÜAS (Turkey)– TKI (Turkey)

Relevant market data– EEX

Implications

All analysis can be reproduced based on publically available information

Where possible the assessment is based on data of one key player in the relevant market

Reports of lignite associations and annual reports allow to validate assumptions and orders of magnitude

Some cost drivers such as ash content, water levels, etc. have not been assessed and directly used to estimate costs, however, larger cost differences are included given use of annual reports where possible

Assessment of Greek lignite generation costs is based on publically available PPC data

Source: Booz & Company Analysis

Prepared for PPC Booz & Company

Labour as well as material and service costs with similar levels per excavated m³ across all countries

3

Assessment of Lignite Generation Costs (2012)

1) Based on annual report data where available

Source: Euracoal, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Excavation Costs (EUR / m³)

&

2.12

2.45

2.23

2.17

2.45

2.45

3.80

2.12

Mining Labour Costs (EUR/m³)

0.89

Turkey

Romania

Greece

(PPC)

1.10

Serbia 1.00

Bulgaria 1.13

1.10

Poland 1.10

Czech

Republic 1.71

Germany 0.95

Material and Service Costs1) (EUR/m³)

1.23

1.35

1.35

1.23

1.04

1.35

2.09

1.17

Prepared for PPC Booz & Company

Ex

ca

va

tio

n

Co

sts

(EU

R /

m³)

PPC with average cost per ton of lignite given average stripping ratio and excavation costs

4

2.122.452.232.172.452.45

3.80

2.12

0

2

4

4.655.785.164.566.126.374.536.15

50

20

10

0

PPC

8.82

19.71

Germany

11.88

Serbia

9.60

Bulgaria

8.64

Romania

19.60

Poland

21.32

43.75

Turkey

9.58

Greece (PPC) Czech Republic

Str

ipp

ing

Rati

o

(m³

/ t)

Co

ntr

oll

ab

le

Lig

nit

e C

osts

(EU

R /

t)

Lignite Excavation and Energy Costs

Note: Lignite sources with stripping ratio above 15 m³/t will most likely be a theoretical resource, but not be mined in reality

Source: Euracoal, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

&

2.101.19

20

0

17.85

2.36

4.30

2.31

3.98 8.00

2.50

8.70

2.60

5.18 5.60

2.90

PPC

4.17

4.53

2.20

Ø 4.70 2.93 3.98 5.40 3.26 3.84 6.46 4.17

Ø 9.97 11.15 9.75 13.23 7.07 8.58 15.83 8.82

Prepared for PPC Booz & Company

Adding non-controllable costs keeps PPC in the same relative position compared to the other European systems

5

Full Lignite Costs on a per Ton Basis (2012)

1) FTE in lignite mining according to Euracoal deducted by FTE in Achlada mine and M.E.T.E mine

Source: Euracoal, IEA, Eurostat, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Controllable Lignite Costs (EUR / t)

Non-Controllable Lignite Costs (EUR / t)

Full Lignite Costs (EUR / t)

+

6.00

11.88

6.43

2.65

9.92

7.31

8.36

7.48

0 10 20 30 40 50 600 10 20 30 40 50 60

4.65

PPC 8.82

Greece

(PPC) 9.58

Turkey 43.75 5.78

Serbia 9.60 5.16

Bulgaria 8.64 4.56

Romania 19.60 6.12

Poland 21.32 6.37

Czech

Republic 19.71 4.53

Germany 11.88 6.15 13.63

13.68

16.05

17.66

10.65

11.59

12.89

0 10 20 30 40 50 60

19.36

7.21

28.63

28.07

11.29

15.58

16.03

55.63

PPC 14.82

29.52

Prepared for PPC Booz & Company

Combining lignite per ton costs with calorific value leads to highly different full lignite costs per GJ

6

Full Lignite Costs (1) (2012)

1) Including depreciation and cost of capital

Source: Euracoal, IEA, Eurostat, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Calorific Value (kcal / kg)

Full Lignite Costs (EUR / GJ)

&

1,863

2,771

1,767

1,720

1,350

1,791

1,150

900

2,000 4,000 3,000 1,000 5,000 0

2,747

2,460

1,959

1,959

4,911

1,850

3,000

PPC 1,200

1,500 1.94

1.87

2.10

1.47

1.49

1.36

0 1 2 3 4 5 6 7

3.76

PPC 2.95

3.74

6.16

2.12

1.92 0.98

4.07

2.38 0.91

2.35

Full Lignite Costs (EUR / t)

13.63

12.89

13.68

16.05

17.66

10.65

11.59

0 25 50

16.03

19.36

55.63 Turkey

15.58

Serbia

PPC 14.82

Greece

(PPC)

11.29

29.52 Romania

Poland

Bulgaria 7.21

28.63

Czech

Republic 28.07

Germany

Prepared for PPC Booz & Company

Lignite generation costs differ substantially across Europe with Greece exhibiting the highest cost of around 60 EUR/MWh, mainly due to structural differences (calorific value of lignite)

7

44.22

27.93 28.82

40.67

23.33 33.14 35.98

45.05

0

10

20

30

40

50

60

70

80

90

100

EUR / MWh

PPC

59.93

Greece

(PPC)

77.82

Turkey

92.62

Serbia

45.68

Bulgaria

41.63

Romania

69.38

Poland

65.30

Czech

Republic

52.05

Germany

67.85

Full Lignite Generation Costs

(2012)

Source: Euracoal, IEA, EEX, Eurostat, Annual reports, Debriv, UDI, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

System Average

(EUR / MWh) 53.60 38.97 38.60 54.19 31.57 40.32 52.73 59.93

Prepared for PPC Booz & Company

Eliminating structural differences (calorific value) show what Greek lignite generation cost could be

8

Hypothetical Cost of Lignite Generation in Greece Changing Calorific Value of

Greek lignite to match the Calorific Value of lignite in other countries EUR / MWh

PPC with other

countries’ average

lignite quality:

51.1

59.9

50.852.4

54.553.0

51.0

45.6

49.8

0

5

10

15

20

25

30

35

40

45

50

55

60

PPC with

Greek

lignite

PPC with

Turkish

lignite

PPC

withSerbian

lignite

PPC with

Bulgarian

lignite

PPC with

Romanian

lignite

PPC with

Polish

lignite

PPC with

Czech

lignite

PPC with

German

lignite

Source: Euracoal, IEA, EEX, Eurostat, Annual reports, Debriv, UDI, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis