October 2011

Hiiumaa offshore wind farm&

Hydro pump storage PP in EstoniaEnergiasalv O

Innovative combination of offshore farm

and hydro pump storage will reduce the

regions dependence on

fossil fuels

Offshore wind farm combined with hydro pump storage

2

Strong winds

average speed 8.5 m/s

Shallow waters

10-20 m depth

Close to the land

Around 10 km

Smooth sandy

seabed

No rocks

Combination of offshore wind farm and hydro pump storage is the only feasible opportunity to produce RE in the region at scale, due to limitations in the power system

Up to 700 MW

Significant capacity

Estonia

Late consenting

stage

Hiiumaa offshore wind farm

Energiasalv hydro pump storage

Cheap

Cost 0,54 EUR m per MW installed

Constructed in granite mine,

additional revenue from

graniteIdeal solution to

integrate wind

into the system

Allows reducing CO2 emissions

by 1,7 MT

Allows the Baltics function as

independent energy system

Hydro pump storage plant

3

Upper reservoirBaltic Sea

Lower reservoir

Maintenance tunnelHigh pressure pipe

Low pressure pipe

Turbines

Electrical grid tunnelLift

Management centre

Sub-station Entrance to maintenance tunnel

Hydro pump storage power plant in Estonia

Hydro pump storage power station of 500 MW installed capacity

Estimated construction cost of 0,54 EUR m per MW

Will allow integration of offshore wind farm into the system

Upper reservoir is the Baltic sea, while the lower reservoir is a granite mine

Synergy with granite mining, sales of granite - additional revenue

The power plant is projected to be commissioned by 2018

Strong project with positive impact on the environment

Project snapshot Positive impact on the environment

Realisation of the hydro pump storage project would allow reducing production of energy from oilshale, meaning reduction of 1,5 MT of CO2 emissions

Hydro pump storage with contemplated capacity of 500 MW would allow 1,5 TWh production of wind energy per annum

No reliance on imported resources, no fossil fuels

Preliminary design

Key figures

Plannedcapacity

500 MW

Reservoir size 5,4 mln m3

Water intake flow

270 th m3

Depth 500 m

Max non-stop working hours

12 h

Investment ~ EUR 270 m

Hydro pump storage power plant

In times of peak demand and high electricity prices, water is temporarily diverted through hydroelectricity turbines

5

In times of excess power on the grid and low electricity prices,water is pumped (returned) to the sea using wind power

Working cycle: buy cheap & sell expensive

Daily distribution of electricity prices (average for 2010)

Plant pumps water up, consuming

abundant cheap electricity

Plant produces

electricity, when it is

in high demand

Pump at night & produce in a day

Pump storage would earn from:

Capitalising on daily spread in electricity spot prices: night vs peak time

Capitilizing on spread between times of strong winds (low prices) and no-wind hours (expensive prices)

Providing balance power service to TSO

Some part of the capacity could be sold to TSO as emergency reserve

Pump storage will help facilitate Estonian goal to develop 650 MW onshore plus 500 MW offshore of wind power by stabilizing the variability and intermittent nature of wind generation, essentially acting as a battery for wind power.

This partnership of wind and pump storage makes wind generated energy more predictable and therefore more reliable and secure

Off-

peak

Peak load

Source: Riverbank Power

MW

Hydro pump storage power plant

6

Need to agree the subsidy scheme with the government

F carried out pre-feasibility study

LOI signed with the Port of Tallinn regarding the land plot

Efficient logistic site for granite sales

Upper reservoir would be Gulf of Finland

Port territory is industrial land according to the detail plan

Seawater intake scheme design completed

Detail planning and EIA process ongoing

Ideal solution for covering peak loads and provision of balancing power to wind energy

Activities so far

Next steps

Energy benefits

Reduce dependence on fossil fuel

Increase energy independence

Diversify energy portfolio

Reduce environmental impacts of energy generation

Wind Energy Battery stores the intermittent wind energy during low demand periods and shifts it to the peak periods

Security, Reliability and Assurance:

Black Start Capability

Spinning and non-spinning reserves

Voltage regulation, frequency control and load following

Energy Storage

Storing and converting low cost power into peak demand capacity meeting Blatic peak load requirements

Enhancing Wind

Converting intermittent wind power into a scheduled renewable electricity source in peak demand period

Pump storage will help Estonia meet its objective to develop 1,150 MW of wind by 2020

By adding pump storage to the Baltic energy supply network, Estonia would diversify its resources in a responsible and sustainable manner while enhancing its ability to integrate large quantities of wind generation

Benefits

Hydro pump storage power plant

7

Planned location of the station is Muuga Port

Good grid connections in the planned location

Preliminary land agreement with Port of Tallinn signed

Contemplated location

Location on the Baltic sea coast with good grid infrastructure

National Development Strategy envisages building 1 800 MW of reserve and wind parks balancing capacities by 2018

Wind balancing: 900 MW

Peak-load reserve: 300 MW

Emergency reserve: 600 MW

Significant share of wind energy in the countrys electricity balance will lead to the need for wind farms balancing capacities

Several offshore wind farms are planed next to Estonian western sea coast

Excellent conditions for offshore development: strong winds (40-45% capacity factors), shallow waters and smooth sandy seabed

Possibilities to balance wind energy with other countries electricity systems are limited due to insufficient grid connections

Need for internal solution

Hydro pump storage is an ideal solution for balancing of wind farms and as a reserve capacity station due to short start-up times

0

400

800

1 200

1 600

2 000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Emergency reserve capacities

Peak-load reserve capacities

Balancing capacities to wind parks

Balancing capacities needed in Estonia

81 800 MW of reserve and balancing capacities to be built

MW

Comments Balancing and reserve capacities needed

Project developer: Energiasalv

9

Inv

est

ors

Vardar is a Norwegian utility company with annual energy generation is around 3,2 GWh, mostly coming from hydro

4Energia is focused on developing renewable energy projects and operating wind parks in the Baltics

Organizational structure

Energiasalv

Hydro pump storage project developer

Voolu Energia

Competence in development and management of renewable energy projects

4E Technoinvest

Ma

na

ge

me

nt

co

mp

an

y

Competence in granite mining

Vool is an investment company active in energy and mining sectors. Appart from Energiasalv development project, the

major business line is Maardu Graniidikaevandus, mining of granite from Neeme granite deposit.

Investment companies of prominent Estonian business angels: Hannes Tamjrv and

Peeter Mnd

Experienced project development team

10

Martin Kruus(CEO of 4 Energia)

Education:

Tallinn Technical University - Thermal EngineeringPrevious employment:

Eesti Energia, Director of Business Unit of Renewable Energy. Main responsibility was to establish and run power plants using renewable energy sources wind, hydro, biomassMinistry of Economic Affairs, Department of Management of State CompaniesEstonian Privatization Agency, Project Manager for IPOs

Main accomplishments:

Renovation of Estonian biggest hydro power plant Linname HPP Building of Estonian first wind park Virtsu wind parkSeveral feasibility studies and project management about CHPs

Lembit ValiEnergiasalv CEO

Kalle Kiigske(CFO of 4 Energia)

Education:

Estonian Business School Banking and Financial ManagementPrevious employment:

United Partners Group, Pan-Baltic investment bank, Partner, responsible for merchant banking and investmentsAS Hansa Capital leading asset-based finance company in the Baltics, Russia and Ukraine with total assets over EUR 1,7 billion, Hansa Capital is the industrys largest company in Eastern Europe and among top 50 in Europe, Member of Board and Head of Factoring and Trade Finance Several positions in Factor Chain International (Amsterdam, the Netherlands) - Member of the Communication Committee, Member of the Internal Audit

Education:

Tallinn Technical University Electrical EngineeringPrevious employment:

Elering, Estonian national grid company CEOEstonian Energy Technical Director, a member of the management boardNarva Elektrijaamad (Narva Power Plants) - CEO

Main accomplishments:

Extenstive experience in power industry since 1973Worked on top management positions in energy sector for 18 years

foto

foto

foto

Hands-on experience in renewable energy and granite mining

Peep SiitamVoolu Energia CEO

Education:

Tallinn Technical University- M.Sc. in civil engineering Estonian Business School - MBA

Previous employment:

Vool - Co-founder of of the company having majority shareholding in Maardu Granite MineMerko Mines - Chairman of the management boardEstonian Energy Technology Program - Program Manager

Main accomplishments:

Chartered Engineer since 1998Substantial experience as a member of top management in the Baltic leading construction companies

foto

Project schedule

Expected date

EIA study 2011- 2012

Geological reseach 2012

Construction permit December 2012

Construction of water intake system 2013

Construction of water reservoirs, I stage 2013-2015

Construction of water reservoirs, II stage 2016-2018

Installation of equipment of the pump storage 2016-2018

Commissioning 2018

11

Hiiumaa offshore wind farm

12

Hiiumaa wind farm is in advanced stages of development compared to other potential projects in the region

Environmental Impact Assessment (EIA) carried out

Wind measurements on the sea carried out (100 m measuring mast was installed on the sea)

Seabed studies carried out

Wind park impact studies on birds, fish and seaplants carried out

Socio-economic assessments carried out

Technical conditions agreed on with the Main Grid, including grid access (connection to two 330 kV substations)

Scouting for structural design has been done by Ramboll

Shareholders:

Vardar Eurus 45% (JV between Vardar, Norwegian municipality energy company and Nothern Environmental Finance Corporation)

Freenergy 45% (Fund investing in renewable energy projects, EBRD has 33% shareholding)

4energia 10% (Management company for renewable energy company; JV between Vardar Eurus, Freenergy and the companys management)

13

Total Installed Capacity 500-700 MW

Yearly Net Production 1.7-2.4 TWh/y

Located on three shoalsApollo, Vinkov, Kuivaluka shoals next to Hiiumaa island, Estonia

Distance from shoreline 5 km to 20 km

Depth 6 m to 20 m, sandy seabed

Grid connectionConnection to substation in Estonia, possibly Sweden and Finland

Planned erection 2014-2025

Project snapshot Project status

Hiiumaa offshore wind farm: project snapshot

14

Layout of the wind farm

ContentComments Layout of the wind farm

Source: 4Energia, EMD

EMD completed a wind study (production assessment phase) based on the collected onshore-offshore site measurements

EMD prepared wind park visualization and currently finalizing the wind park turbulence study

A geophysical study was undertaken and provided maps of water depth

Maps are used to limit the assigned wind farm area to within 35 m water depth

Layout optimization in regards to coast guard radars was made

With current layout optimization, max installed wind park capacity could be 730 MW (with Repower 5MW turbines), where arrary loss is 10,2 %.

Layouts have been also optimized for production

15

Wind conditions in the Baltics

Content Comments Distribution of full load hours in Europe (120 m hub height offshore)

Source: The UNDP/GEF Baltic Wind Atlas, EBRD Renewable Development Initiative

The cyclonic activity of the Baltic Sea region results in high mean wind speeds throughout the area

In general, wind potential in the coastal zone of Estonia is higher than that in the other Baltic countries, however, the Baltic Sea impact dictates the difference in wind regimes on the coastal line and in the inland regions

In Estonia, there are several areas with annual average wind speed of 7-8 m/s at 10 m height (corresponding to wind speed over 10 m/s at 50m height)

Estonian wind climate is very volatile with respect to location and seasonality, whereas 2/3 of total energy potential is converted from October to February

As water has less surface roughness than land (especially deeper waters), offshore wind speeds are considerably higher than onshore

Thus, offshore wind resources are characterized by higher load hours

Considerably higher wind speeds due to less land/vegetation interference allows for generation of considerably more power than onshore locations

3 000-4 500 h/year offshore vs. 2 000-3 000 h/year onshore

Average 40%-45% offshore capacity vs. 25%-30% onshore

No onshore areas have resource potentials exceeding 4 000 full load hours

According to EEA, Estonian unrestricted technical potential of offshore development with less than 10 km to the shore exceeds 200 TWh in annual generation

Estonia has significant potential for offshore wind energy due to abundant availability of large areas of shallow waters with close distance to the land

Windy and shallow waters

16

Wind measurements

Content Comments Wind speed comparison Pakri and Hiiumaa

Source: 4Energia

Offshore wind measurement (on Vinkov shoal) executed with SODAR system

Measurements showed the average wind speed of 8.5 m/s during the period

Offshore (Vinkovi) 80 m and Pakri 80 m (onshore) comparison shows 2.0 m/s higher average wind speed in Vinkovi during Jul-Dec 2009

Average wind speed of 8.5 m/s

SODAR system installed on Vinkov shoal

Onshore wind measurement mast in Ristna, Hiiumaa

2

4

6

8

10

12

Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09

m/s

Pakri 80 m Vinkovi 80 m Ristna 80 m

Wind speed comparison

17

Enviroment Impact Assessment

ContentRoute of expedition plane of the bird study (Four times in year) Inventory of biota and habitat

ss

Comrehensive EIA studies completed

Fish study

18

Grid connection

Comments Main option for 330 kV AC grid connection

Source: 4Energia

Grid connection application made to Elering (TSO) where two possible connection points (new Kanapeeksi 330 kV substation in Hiiumaa or expanded Leisi substation in Saaremaa) are pointed out

Elering submitted technical coordination for the Hiiumaa offshore wind farm application of building permit

The total amount of connection payment is up to EUR 0.5 million and additionally there has to be 100% of coverage by the regulating power units what will ascend the total grid investments

Search for optimal solution for regulating power units started

A grid connection proposal must be issued for the regulating power units connection

The connection agreement for regulating power units must be signed simultaneously with the offshore connection contract

Legal procedure to receive approval for construction of offshore wind farm

Estonian offshore: legal procedure and permits

Source: xxx

Necessary legislation to regulate offshore developments was passed in February 2010 by the Estonian Parlament

Hiiumaa offshore wind farm project application has been filled to the Ministry of Economy that currently is processing it

4Energia requested the Ministry of Environment to approve Hiiumaa EIA program

Application to Ministry of Economy

First step for developer is to submit proper application to Ministry of Economy who is responsible for the treatment process and will finally issue the permit for the construction (land use) of offshore wind park

The annual tolerance fee will be calculated form specific land value (4% during wind park construction and 7% during operation)

The building of offshore wind park is primarily regulated with superficies

Application to Ministry of Environment

The application and further steps will be coordinated with Ministry of Environment, Ministry of Defence, Ministry of the Interior, Maritime Administration and with Civil Aviation Authority

If application is accepted for further proceedings then all the actions will be determined by the Ministry of Economy (EIA, other requested studies etc.)

The issued license will be valid for 50 years

Application for grid connection

The key components for successful application: overall wind park information (incl. turbine type and foundations), detail lactation maps with exact coordinates, what also includes all the other marine applications (substations and submarine cables routes) plus grid connection conformity from the TSO (Elering)

20

Hiiumaa offshore wind farm: investment highlights

Project snapshot

Offshore wind energy farm in the shoal sea close to Hiiumaa island coast with planned installed capacity of 500-700 MW in the planning stage with wind measurements done and environment impact assessment study in the completion stage

Harnessing one of the largest, easily scalable domestic energy resource offshore wind would provide a solid answer to the issues of energy security and independence, issues of increasing importance in the region

Excellent wind to grasp

Shallow water (primarily appr. 10-20 m) and close distance to the land (10 km) are optimal combination for the offshore development

Favorable wind conditions at the region with average wind speed of 8.5 m/s

Limited availability of coastal area land suitable for onshore wind parks should drive offshore wind energy sector

Favourable market

environment

Expected capacity shortage in the Baltic energy market fuels further the need for replacement of existing power generation capacity

Full liberation of Estonian electricity market since 2013 will lead to electricity prices converging with European average

Restructuing and uprading of fossil fuel based generation capacities is expensive and drive electricity prices up; as investment costs will be fully reflected in electricity price of newly built blocks of Narva PP

Undersea grid connections (current Estlink 1 and Estlink 2 to be built by 2013) with combined trandmission capacity exceeding 1,000 MW enable exporting electricity to the Nordic market

Renewable energy to

substitute fossils

Supplies of main fossil fuels used in power generation are becoming more difficult to extract and expensive due to carbon penalty

High carbon content per GDP in Baltics means increasing costs of electricity generated from fossil fuel

Increasing importance of CO2-free energy sources, as power sector is geared towards more sustainable use of energy

Rising profile of environmental issues along with improvements in the technology encourages wider political support

Regulation to support

offshore wind sector

Estonia has a binding target set by EU directive of 25% share of renewable energy in final energy consumptiion by 2020

Estonian National Energy Strategy envisages 500 MW of offshore wind capacity by 2018

.

Appendix

Baltic electricity market

Estonia is described by political and economic stability, accessibility, ease and low cost of doing business and investor equality

Estonia is ranked among the top 25 out of all countries in the Ease of Doing Business index by The World Bank Group

Estonian taxes are low and simple

There is no corporate income on profit, unless it is paid out as dividends, which is taxed at 21%

Estonia does not impose any gift, inheritance or estate taxes

Debt capital is abundant and readily available, as the nearly all banks operating in Estonia are subsidiaries of large Scandinavian players

In the period of 2007-2013 Estonia is allocated more than EUR 3.4 billion from the EU Structural funds, which stimulates economic development

Estonian economy is successfully recovering from the crisis

GDP growth in 2010 was 3,1%; forecast for 2011 6,3%

Public finances are under control: Estonia is the only EU country with a 2010 budget surplus (0,1% of GDP) and it has the EUs lowest debt (6,6% of GDP)

Estonia adopted Euro since January 2011

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Key figures (2010)

Estonia: country snapshot

Map of Estonia

Source: Statistics Estonia

Population, mln 1,34

Area, 000' km2 45,2

GDP per capita, % of EUR average 65%

GDP growth, % 3,10%

Inflation, % 3%

Corporate tax, % 21%

Unemployment, % 14,4%

Average gross monthly salary, EUR 792

Attractive place for foreign investments

2

Electricity market in the Baltics

Content ContentComments Electricity sources in Baltics, 2010

The Baltics, especially Latvia and Lithuania, are dependent on imported energy resources

Estonian oil-shale based electricity production, albeit with relatively low energy efficiency, is a dominating energy source

Due to its environmental risks, lower competitiveness, the key issue is to reduce oilshale consumption at the expense of renewable energy alternatives

35% of Estonian energy market was opened since 1 April 2010 and full opening is scheduled for 1 January 2013

Cost-based electricity pricing will be converted into market-based pricing

In Latvia electricity is generated mostly by three Daugava hydro power plants

Lithuanian energy production was substantially dependent on decommissioned Ignalina nuclear power plant (INPP)

After the decommissioning of INPP Lithuania relies heavily on gas PP and electricity import, this is further exacerbated by lack of viable interconnections with Poland, Sweden and Finland

Source: Eesti Energia, National Statistical Offices

Dependent on imported energy

Hydro 47%

Gas 20%

Imports 30%

Other 3%

Other4%

Hydro 11%

Gas34%

Imports51%

Wind 3%

Wood7% Gas

4%

Oilshale86%

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Installed capacity Peak demand

2

Comments Energy production capacities and future imbalance, 2007-2017

Electricity market in the Baltics

Source: Estonian Ministry of Economic Affairs and Communications 1) All old pulverised combustion boilers have to be closed by the end of 2016 according to EU Directive on the limitation

of emissions into the air from large combustion plants

Production capacity shortage in the wake of worn-out infrastructure

Shutdown of Elektrenai Lithuanian Power Plant

Shutdown of Ignalina NPP (Lithuania)

Gap to be filled

Shutdown of old energy blocks in Narva power plants (Estonia)

Total annual power consumption amounts to around 25 TWh/year:

Estonia 7,5 TWh/year

Latvia 7 TWh/year

Lithuania 10 TWh/year

Due to environmental reasons and physical amortization there will be shutdowns of several major power plants in Baltics

Lithuania closed down Ignalina nuclear plant at the end of 2009

Estonia is forced to shut down 45% of capacity of oil shale power plants by 2018 due to environmental regulation (1,240 MW will be replaced by only 600 MW)

Although the new plants are planned to be developed, these will require large-scale investments and will not be probably completed before 2016

It is estimated that there will be a substantial gap between production and consumption capacities in Baltic states amounting to as high as 1,200 MW by 2017

In addition, 1,500 MW of capacities will be based on natural gas imported from Russia, being therefore with limited reliability and having upwards price pressure

Importance of the issues of energy security and energy independence is increasing

2

Electricity market in the Baltics

Content Content

Estonia

Latvia

Lithuania

Russia

Finland

Sweden

Belarus

Poland

Russia

Comments Grid connection in the Baltic states and actual power flow in 2009

650 MW

350 MW

800 MW

2,000

MW

1,000

MW

1,000

MW

2,000

MW

2,000

MW

1,000

MW

700 MW

1,000

MW

Estonian energy system is interconnected with the Russian and Latvian energy systems and starting from 2006 a connection has been established with Finland through an undersea cable Estlink(Baltics and Nord Pool)

Estlink connects Estonia to the Nordic power market, offering Baltic participants a liquid market and a trustworthy reference price

Export to Finland has been very active: most of the time Estilinkgrid connection is used at the maximum available capacity

Estonian electricity prices should converge with the Finnish level, especially after construction of a new undersea grid connection EstLink 2 (650 MW) by 2014, which will increase Estonian export capacity to 1,000 MW

New transmission capacities between the Baltics and other European countries are to be constructed in next five years, thus electricity price levels should converge

Planned new interconnections:

2013-2016 Lithuania-Poland, 1000 MW

2015-2016 Lithuania-Sweden, 1000 MW

Possibly additional Latvia-Sweden and/or Estonia-Sweden links will be built Existing grid connection

Planned grid connection

Exported: 2,642 GWImported: 205 GWNet import: 2,437 GW

Exported: 1,875 GWImported: 82 GW

Net export: 1,793 GW

Exported: 1,138 GWImported: 497 GW

Net export: 641 GW

Source: Baltso

Increasing connectivity with Scandinavia: converging energy prices

94,5

0

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Irel

and

Nor

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epub

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Bel

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Electricity price in Estonia is among the lowest in the EU on the back of fully amortized production facilities of power plants

Since April 2010 Estonia is a Nord Pool price zone, as 35% of electricity market have been liberalized

Estonian electricity prices should converge with the Finnish levelin the mid-term

Convergence will be completed after full market liberalization in 2013 and construction of undersea grid connection EstLink2 by 2014

Electricity prices on Nord Pools1 spot market will remain mainly influenced in the long run by the level of water in the reservoirs of the Norwegian and Swedish hydropower plants2

Electricity price reflects production cost of the last unit sold, as such its pricing differs from other commodities

Electricity cant be stored and has to be available on demand, thus it is the most volatile commodity

The demand for electric power is inelastic, i.e. consumers do not respond to price changes very quickly

26

European electricity prices for domestic users (with taxes) in 2009

Electricity prices

EU average EUR 173.5/MWh

Comments Spot electricity prices in the region (EUR/ MWh)

Source: Bloomberg, Eurostat, Nord Pool1) Nord Pool is the trade name of the Nordic power exchange where electricity is traded on a day-ahead basis2) It is estimated that around 76% of observed variation in Nord Pool spot price is explained by Nordic hydrological balance

EU

R/M

Wh

0

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100

120

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-10

Apr

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Oct

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-10

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Feb

-11

Mar

-11

Mar

-11

Apr

-11

Baltpool (LT)Nordpool EstoniaNordpool Finland

Electricity prices to converge with Scandinavian level

EU

R/M

Wh