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Confidential The Russian Power 2006 7 th International Forum Alexander Abolmasov Alternative energy vs Traditional Zindel Investment Partners

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  1. 1. Zindel Investment Partners Alternative energy vs Traditional Alexander Abolmasov Confidential The Russian Power 2006 7th International Forum
  2. 2. Small installed capacity, but fast growth Fuel share/growth rate matrix, 2005 20%Other(geothermal, Wind turbines 18% solar, wind, 59 GW Renewable Energy Existing Capacities, 2005 et etc) 16% Power capacity annual growth, % 14%Biomasspower 44 GW 12% 10% 8%Geothermal combustibleSmall hydro power renewables Solar thermalpower 6%9,3 GWand wastepower66 GWOcean (tidal) 0,4 GW 4%powerSolar PV, grid-natural gas hydroSolar PV, off-0,3 GW connected grid 2%oil coal3,1GW 2,3 GWnuclear 0% 0%5%10%15% 20% 25% 30% 35% 40% Fuel share of TPES,%Source: REN21 2006 Renewables Global Status Report, IEA,ZIP estimates 2
  3. 3. Costs Turnkey investment costs ($/kW), 2004Typical Ene rgy Costs (ce nts/kW h), 2005 Integrated gasif ication C os ts of central grid supplies : natural gascombined cy cle (IGCC)C os ts of central gridCombined cy cle (CCGT) s upplies: c oalTraditionalresourcesElectricity grid suppliesAdv anced high temperature f rom f ossil f uels (av arage)and pressure design on coalModern power stations on coal Thermal power station(traditional) on coalMarine Energy Marine energyGeotherm al power(plant s ize: 1-100 MW ) Geothermal powerSm all hy dro (plant size: 1-10 MW ) Small hy dro powerGrid connec ted photov oltaic s(2500 kW h/m 2 per y ear)Grid connected photov oltaicsAlternativeSolar therm al powerresources(plant s ize: 1-100 MW ) Solar thermal power Of f -shore wind(turbine size: 1,5-5 MW )Wind energy On-shore wind (turbine size: 1-3 MW ) Biom ass powerBiomass energy (plant size: 1-20 MW )3 8000 05 1015 20 25 30 350 1000 2000 3000 4000 5000 6000 7000Power lePrice WholesaonsumerPower PriceRetail
  4. 4. Alternative energy response to global trendsRising fuel prices (~2 times since 2000) Improved technology leads to high profit margins Government support (subsidies and penalties)Fossil fuels prices$80.00$7.00$70.00$6.00$60.00 $5.00$50.00 $4.00 $40.00 $3.00 $30.00$2.00 $20.00$1.00 $10.00 $0.00$0.001984 1985198619871988 1989 1990 1991 1992 1993 19941995 1996 1997 19981999 20002001 2002 2003 20042005 Source: Bloomberg, ZIP estimates oil crude prices, $ coal pricesnatural gas prices 4
  5. 5. But Substantial by Value 368 global renewable companies with mcap $222bn. TOP 50 with mcap $222bn. 5
  6. 6. Alternative energy indices 25070 American Stock Exchange indices:60WilderHill Clean Energy Index (ticker: ECO); 200 WilderHill New Energy Global Innovation Index (NEX);50Cleantech Index (CTIUS). 150 NASDAQ indices:40CLEN Clean Energy Index;Corr = 0,79 30 100 NASDAQ Clean Edge US Index. World alternative indices:20International Economic Platform for Renewable Energies (IWR) 50RENIXX - Renewable Energy Industrial Index;10Best performing stocks:0 0Share price Share price MarketMay-05Oct-04Nov-04 Dec-04Jan-05 Feb-05 Mar-05Jun-05 Jul-05Oct-05 Nov-05Dec-05 Jan-06Feb-06 Mar-06 Sep-04 Sep-05Aug-04 Apr-05Aug-05Apr-06 Source: Bloomberg changechangeCap1M, % 1Y, % ($mln)SectorECO indexOil prices Biofuels (Ethanol)16,1229,4 20020 Archer-Daniels-Midland CoSolar Energy59,94 435,83168 Solarworld AGFuel Cells 7,29 131,61377 Energy Conversion Devices SolarworldArcher-Daniels-Midland Co Energy Conversion Devices6080504570504060354050303025402030201520101010 5 6 0 00 Dec-02 Dec-03Dec-04 Dec-05 Jan-04Jul-04 Oct-04Jan-05Jul-05 Oct-05Jan-06Jul-06Apr-03Aug-03Apr-04 Aug-04 Apr-05Aug-05 Apr-06Aug-06Apr-04Apr-05Apr-06 Jan-03 May-03Jan-04 May-04 Jan-05May-05Jan-06 May-06 Sep-03Sep-04Sep-05 Sep-06
  7. 7. There has been a rush of initial public offerings by biofuels companiesBiopetrol IndustriesBiofuels Corp35 35030 30025 250 Volatile stocks, but the capital 20 200 markets have an appetite for 15 150 these and many other 10 100 renewable projects. 5 50 0 0Mar-06Dec-05Jan-06 Feb-06Apr-06 May-06Jun-06 Jul-06Aug-06 Jun-04 Aug-04Oct-04 Dec-04Feb-05 Apr-05Jun-05 Aug-05Oct-05 Dec-05Feb-06 Apr-06Jun-06 Aug-06 Nov-05Investors believed in futurereturns. Raised 13,3m in IPO, June 2004 (AIM) Raised 74m in IPO, November 2004 (Switzerland) 92% of market cap Market Capitalization at IPO 22m Market Capitalization at IPO 80,4m Stabilization: where fair value D1 Oils EOP Biodiesel 25 600 lies? 500 20400 15Overoptimistic investors? 300 10 200IPO too early? 5 100 0 0 Mar-06 Oct-04 Dec-04Feb-05Apr-05 Jun-05Aug-05 Oct-05Dec-05Feb-06 Apr-06Jun-06Aug-06Sep-05 Oct-05 Dec-05Jan-06 Feb-06Apr-06May-06 Jun-06Jul-06 Aug-06 Nov-05 7 Raised 13m in IPO, October 2004 (AIM)Raised 26m in IPO, September 2005 (Germany) 90% of market cap Market Capitalization at IPO 34m Market Capitalization at IPO 28,9mSource: Bloomberg
  8. 8. Biodiesel will only become more attractive as oil prices increase Announced Capacity US average fuel prices, US$/gallon 1000010000 3.5900038000 2.57000 thousands tons2 6000 1.550005,75% EU Target1 4000 31843000 0.5Source: Clean Cities Alternative Fuel Report, DOE 20000 1150 Nov 2004 Mar 2005Sep 2005 Feb 2006 Jun 20061000 0Gasoline DieselEthanol B85 Biodiesel B2020022005 2010t 8 Source: Morgan Stanley, ZIP estimates
  9. 9. European Diesel Refining Capacity 2005Rotterdam: (52m) European Refining Capacity:Shell 20m Finland: Western Europe 526mBP 18mNeste Oil - 10mExxon 10m Mediterranean Europe 174mOther 4mGermany: (96m)Hamburg:Shell - 10mUK: (87m) Ingolstadt:OMV - 5mCoryton:Antwerp: (37m)BP 10mEsso 5mTotal SA 17mOther 7mFawley:Exxon 13mExxon 16m Karlsruhe:Other 7mShell 5mKillingholme:Total SA 10mEsso 4mConocoPhillips 10mRuhr 4mConocoPhillips 3mPembroke:Chevron 10m Wilhelmshaven:Total SA 4m ConocoPhillips 10mStanlow:Lingen:Shell 12m BP 4mTeesside: Schwedt:PetrolPlus 5m Shell 4mRuhr 4m Italy: (95m)Other 3m ENI - 24mLe Havre: (34m)Exxon - 19mGelsenkirchen:Total SA 16mBP 13m ISAB - 18mExxon 14mSaras 15mSpergau:Shell 8mTotal SA 11m Other 17mGreece: (20m) Hellenic 14m Hellas 6mSpain: (60m)Repsol 35mFos-sur-mer: (36m)CEPSA 25m 9Total SA 17mExxon 13mShell 6mSource: Morgan Stanley
  10. 10. Case-study 1: Biodiesel company D1 Oils PLC BUSINESS MODEL Key value drivers:Own Key value drivers: fully integrated, global biodiesel business plantationsfully integrated, global biodiesel business model;D1 Oils model; low-cost and highly efficient feedstock low-cost and highly efficient feedstock Jatropha Curcas which is sourced for ~365/ton Jatropha Curcas which is sourced for ~365/tonContractRefiningRaw Materialsfrom joint-venture plantations in India, Asia Pacific from joint-venture plantations in India, Asia Pacific Farms and Africa (this compares with ~600/ton for and Africa (this compares with ~600/ton for rapeseed); rapeseed); minimization of the dependency on rawminimization of the dependency on raw materials supply; JV Managed materials supply; Distribution Farmsrisk diversification through JV agreements. risk diversification through JV agreements. Different oil costs, /ton 700650D1 Oils raised 13 million on IPO to fund the 600D1 Oils raised 13 million on IPO to fund the continued planting of jatropha and to finance thecontinued planting of jatropha and to finance the465 500 construction of its modular refinery units.construction of its modular refinery units.365 400 334300200100 0Palm oilJatropha oil Soy oil costs Rapeseed oil costs costscosts 10 Source: Morgan Stanley
  11. 11. D1 Oils PLC: share price fluctuationsSource: Morgan Stanley October 2004, IPO (AIM) 13m to fund theKey value drivers:Key value drivers: continued planting of jatropha and to finance the fully integrated, global biodiesel business model;fully integrated, global biodiesel business model; construction of four additional refineries bylow-cost and highly efficient feedstock Jatropha Curcas low-cost and highly efficient feedstock Jatropha Curcas November 2006, five by the end of the year. which is sourced for ~365/ton (represent 85-90% of the totalwhich is sourced for ~365/ton (represent 85-90% of the total production costs); December 2006, The company has over 80m ofproduction costs); Strategic co-location of plant with oil refinig in Teesside. short-term debt on the balance sheet. The debt isStrategic co-location of plant with oil refinig in Teesside. risk diversification through JV agreements. the part of the on-demand facility of 95,2m thatrisk diversification through JV agreements. the company expects to renegotiate at the end ofRisksRisks December 2006Long-term horizon (not enough supply till 2010) 11 Long-term horizon (not enough supply till 2010)Highly leveraged Highly leveragedUncertainty on FAMY pricing Uncertainty on FAMY pricing
  12. 12. Com parison of different fuelsPellets Market 350% Diesel oil Cost of heat production relative to fuel oil, 300%CanadaBalticsRussia13% 11% 10% 250%ElectricUS Sw eden8%power19% 200% Shale % 150% Shale oil CoalDenm ark Fuel oil 100%7% PeatFinlandOthers (lessWood chips,Austria 6% Poland Germ anythan 5%) sawdust 5% 50% 5%5%11%FirewoodGasSource: Bioenergy International December 2005, Wood Pellet Association of Canada0%02040 6080100 Price development in Germany Coefficient of efficiency, % Source: Clean Cities Alternative Fuel Report, DOE Raw OilWood chips, sawdust, pellets have low Wood chips, sawdust, pellets have lowNatural gas costs of production and one of the costs of production and one of thehighest coefficient of efficiency. highest coefficient of efficiency. Pellet market 2005 growth rate: Pellet market 2005 growth rate:Germany 57% Germany 57%Sweden 20-25% Sweden 20-25%Austria 20% Austria 20%Russia 23% Russia 23%12 July 02July 03July 04July 05 Jan 02 April 02Oct 02 Jan 03April 03 Oct 03Jan 04 April 04 Oct 04 Jan 05April 05 Oct 05Jan 06 April 06 Source: DEPV
  13. 13. Case-study 2: Pellet Company VAPO Vapo Oy is one of the worlds leading peat industry companies and one of Finlands largest sawmill operators. The Vapo Group consists of the Parent Company Vapo Oy and four business areas: Local Fuels, Pellets, Heat and Power, and Environment. Pellet production is the largest in the Baltic Sea Region. Vapo has pellet plants in Finland, Sweden, Estonia, Denmark and Poland. The number of Vapos own plants is 13.Pellets deliveries (tonnes)600000500000In 2005, Vapos own and its partners pellet mills In 2005, Vapos own and its partners pellet mills119%produced aatotal of 503 000 tonnes of pellets (57,3 400000 produced total of 503 000 tonnes of pellets (57,3MEUR). This equals about 2,4 TWh. MEUR). This equals about 2,4 TWh.Vapos pellets destinations:300000 Vapos pellets destinations: municipal district heating system;municipal district heating system; 80,6% power for the national grid;power for the national grid;200000 fuel pellets for the Finnish and world markets.fuel pellets for the Finnish and world markets. 49,7%1000000 2002 2003 2004 2005Source: Company data 13
  14. 14. European Wood Pellet Production 2005Sweden:1 356 000 tonsRussia:758 000 tons More than 240 pelletMore than 240 pellet plants acrossDenmark:plants across 535 000 tons Europe.Europe. Germany: 388 000 tons Austria: 409 000 tons Italy: 14 169 000 tons
  15. 15. Solar Market Installed capacity - 30% CAGR The world solar photovoltaic (PV) market grew 55% in 2005, reaching $11.2bn. (2006e- $19bn) World solar PV industry raised more than $1,8 billion on capital markets over the past 1 year (27 transactions). Over 75% of global demand is now grid-connected, with Japan and Germany accounting for two-thirds of the global market. Profit Margin - 30%.European Solar Photovoltaic Installations European Solar PV Revenues2500 1800 16002000 1400 1200 Megawatts1500 1000mln $8001000600400500200 00 2001 2002 2003 200420052006e2006e 1999 20002001 20022003 20042005 Source: Frost&Sullivan 15
  16. 16. Germany:Solon 58 MWpSchott Solar 57MWpSolarWorld 44 MWpSolarwatt 36 MWpAleo Solar 35 MWpSunset Energietechnik 30 MWpEuropean Solar PVOthers 104,05 MWpModules Production 2005: 569 MWp Netherlands: Shell Solar (Europe) 24 MWp Belgium: Photovoltech 3 MWp Spain: Austria: Isofoton 40 MWp PVT-Austria 2,6 MWp BP Solar 19 MWp Others 3,7 MWp Others 13,4 MWpFrance:Tenesol (Total Energie) 30 MWpPhotowatt International 29 MWpOthers 0,43 MWp Italy:16 Helios Technology 8 MWp S.E. Project 8 MWp Others 5,5016 MWp Source: European Commission Joint Research Center, ENF
  17. 17. Case-study 3: Solar Company Solarworld AGSolarworld AG - Solar group with a fully integrated solar value chain process from solar silicon as theraw material to high quality solar power generating systems.It owns silicon production assets in order to limit dependency on external silicon supply and to securethe raw material for the new sites. BUSINESS MODEL SiliconWaferCell Module TradingProcurementProductionProductionProduction EBITDA (m)Consolidated net income/loss (m)Solarworld on 22 February Solarworld onFebruary 2005 announced the acquisition of2005 108.352 announced the acquisition ofthe crystalline solar activities of the crystalline solar activities of 2004 2004the Shell Shell Group. Group. The 49.418.1 theThetransaction includes production transaction includes production 2003 200311.7 -1.5sites in the US (California, sites in the US (California,2005 growth2005 growthWashingtonState) and WashingtonState) andrate 119,23% rate 187,29% 2002 200211.7 -1.5Germany, as well as distribution Germany, as well as distributionsubsidiariesinMunich, subsidiariesinMunich, 2001 2001 20.7 8.7Singapore and South Africa. Singapore and South Africa.020 40 6080100 120 -10 010 20 30 405060 Source: Company data 17
  18. 18. Think about New Energy!!! www.zindelfund.com18