1.Overview of the German Power &Energy MarketJonathan Robinson, Senior ConsultantFrost & Sullivan 10th February 2012

2. Germany Power Generation in 2010Installed Base: 153 GWElectricity Generation: 625 TWhLigniteOil LigniteOil14.7% 3.4% 23.2% Gas 1.3%15.1%Hard Coal Hard CoalGas 19.0% 18.8%13.4%NuclearOther 14.1% Other3.7% 8.7% Solar PV Nuclear Hydro6.5%22.5% 6.8%Solar PV Wind 1.9%WindHydro16.8% 5.8%4.3%Source: Frost & Sullivan Coal is the key baseload power technology (34% of capacity, 42% of generation) Limited historical role for natural gas Strong presence of renewable energy (34% of capacity, 21% of generation) Wind power expansion slowed but dramatic growth in solar PV in recent years Solid contribution from nuclear power 3. The Aftermath of Fukushima 7 Nuclear Power Plants were switched off post-Fukushima. They (plus the problematic Krmmel plant) will be permanently shut down One of the 8 plants could have been used as reserve capacity until 2013 (butGerman Energy Agency DENA decided against this on 31 August 2011) Leaves 9 plants still in operation currently Three further plants to be closed before 2020: Grafenrheinfeld (2015),Grundremmingen B (2017) and Philippsburg II Six remaining plants to be shut down in 2021 and 2022 Higher utilisation of coal plants and delayed decommissionings Greater expansion of renewable energy Accelerated expansion of gas plants Greater electricity imports Source: Der Spiegel 4. Germany Capacity Growth to 202020102020 Hard Coal 29.026.1 Lignite22.4 17.7 Oil5.22.7Gas23.126.7 Nuclear21.59.5Hydro 10.3 10.7 Wind 25.8 45.8Solar PV 9.933.0Other5.7 7.1 0510 152025 30 35 40 4550Installed Capacity GW Source: Frost & Sullivan Installed capacity to rise from 153 GW to 179 GW in 2020 Remaining nuclear capacity less than half the 2010 level Decline in coal and lignite capacities due to retirement of ageing and uneconomical plants Wind to grow by average of 2GW per year, solar PV capacity to treble 5. Germany The 2020 Fuel Mix Installed Base: 179 GW Electricity Generation: 590 TWh(23.2%)Oil GasLignite (14.7%)(14.1%)Oil 1.5%14.9% 19.7%LigniteNuclear0.7% 9.8% Gas5.3% HydroHard Coal14.7%Hard Coal6.0%18.2% 14.6% Nuclear 10.6%(22.5%) Hydro OtherOther4.8% 4.0%11.1% WindSolar PV25.5% Solar PV Wind 18.4%(16.8%)12.9% 7.4%(6.5%) (1.9%) (5.8%)green = increased share from 2010, red= decreased share from 2010Source: Frost & Sullivan Overall electricity generation to decline from 625 TWh in 2010 to 590 TWh in 2020, due to energy efficiency and greater imports Coal remains leading fuel (37% of generation) but decline in lignite-fired output as older power stations are decommissioned Increase in share of gas through accelerated development programme though greater shares anticipated post-2020 Massive change for solar in particular - renewable energy to account for 36% of electricity generation by 2020 (aim of EEG is toraise renewables share to at least 35% of gross power consumption by 2020) 6. Germany T&D Network Germany has 4 transmission system operators (TSOs) and about 850distribution system operators (DSOs) German Transmission Grid Operators The German transmission system is owned by four principaltransmission system operators: Transpower (formerly E.ON Netz),Amprion (formerly RWE Transportnetz Strom), EnBW Transportnetzeand 50hertz (formerly Vattenfall Europe Transmission). Transpower was acquired by Dutch TSO TenneT in late 2009 50hertz was acquired by Belgian TSO Elia and Australia-basedIndustry Funds Management (IFM) in 2010 Amprion (75%) was acquired by investors (insurance companies,Commerzbank) in 2011 EnBW also planning sale of minority stake to infrastructure fund Electricity distribution (DSO) is mainly in the hands of municipalutilities (Stadtwerke) There is a growing need to invest in DSO grids due to the connectionof renewable energy sources to the distribution grids Distribution utilities have strong links with local suppliersSource: Wikipedia 7. Grid InvestmentsInvestment in the German Electricity Expected Additional Investments in German Grid dueIndustryto Renewables Expansion, 2010-2020BMU Reference Scenario, 2020HVHV/MVMVMV/LV LVSource: BMU, E-Bridge Consulting GmbH, 2011Source: BDEW, 2011 Grid investment needs boosted by greater penetration of renewables Several initiatives were adopted in the aftermath of Fukushima Germany plans to adopt a Grid Expansion Acceleration Act (Netzausbau-beschleunigungsgesetz, NABEG) At least 3,600 km of new extra high-voltage transmission lines to be built by 2020 Planning times to be reduced from 10 years to 4 years e.g. connection of offshore wind farms to be made easier by allowing clusterconnections instead of costly individual connections Planning acceleration partly to be achieved by bringing state-level competencies to the federal level Federal Grid Agency(Bundesnetzagentur) to be responsible for planning and approval procedure for long-distance lines 8. Key Legislative & Regulatory Framework Mandates that new buildings or major renovations must haveEnergy Act (EnWG) electricity meters installedRenewable Energy Law that has created the feed-in tariff system for renewable energySources Act (EEG)and has been adopted in similar forms in over 50 countriesEnergy Efficiency ActSets target to reduce energy consumption by 9% in comparison to(EnEfG)2001-2005 consumptionRenewable Energies Renewable energy for heating target of 14% set for 2020, majorHeating Act (EEWrmeG) boost for combined heat and powerMetering Access 80% of households to be fitted with smart meters by 2020OrdinanceExtra High Voltage Grid 24 priority projects outlined; limited impact so farExtension Acceleration Act 9. Key EPC plant opportunities in Germany for the next decadeBioenergySolar & WindGas Plant Germany is a leading player in bioenergy Strong growth potential for solar and The gradual closure of nuclear(waste-to-energy, biomass and biogas) wind massive installed base power plants and the addition of Generous incentives have caused rapid required to meet electricityintermittent renewables will leadgrowth in the biogas market, close to 20% generation targets, due to lowto an increase in gas-fired plantyear-on-year in Germany in the past capacity availability constructiondecade. Frost & Sullivan base case Both will require substantial Replacement of aging gas-firedforecast of 8% a year for Europe, 23% investment in T&D infrastructure to plants will also increase during theoptimistic revenues reaching 1.0 support development, particularly decadebillion to 2.5 billion by 2016 75% with expansion of offshore wind in Different plant set ups will beGermany the North and Baltic Seas. Howeverrequired base load, fully flexibleGermanys grid is well connected by and peaking plants. In some cases,European standards and this can project work will be focused onimprove the balancing situation upgrades/conversion projects 10. Power Plant EPC Landscape in Germany Major utilities have project development entities that handle both internal and external projects Major equipment suppliers also have extensive project development capabilities Major engineering companies are also active in the power market mix of large civil players and power specialists Large number of small regional players that have projectREGIONAL/LOCAL PLAYERS development capabilities 11. Key T&D opportunities in Germany for the next decadeGrid UpgradesHVDCSmart Meter The movement towards smart grids and There are a number of HVDC The Metering Access Ordinance isthe increase in renewable generation projects ongoing in Germany, Germanys effort to comply with thewarrants the need for grid upgradesespecially with the expansion of requirement that all member states need According to the base case Germanoffshore wind in the North and Balticto have 80% smart meter penetration byEnergy Agency Grid Study (Netzstudie Seas 2020II), 3,600km of extra high voltage There is also a need for HVDC cabling No mandatory roll-out is currently plannedcables, costing 10 billion, will be the to transport the electricity from thebut pilot projects are ongoing.minimum that will need to be installed north of the country to the south, According to the German Energy Act, smartin the German electricity grid by 2020.Given that, at times, the North Seameters must be installed in new buildings Growing integration of distributed region has an excess of supply, theand buildings that are undergoing majorgeneration implies modernising the ability to transport long distances is refurbishment from the beginning of 2010distribution networks requiring an important for utility revenues High smart meter growth is forecasts post-investment of around 25 billion by 2013. Frost & Sullivan expects smart meter2030unit shipments to grow by 80% between2010 and 2017 12. T&D EPC Landscape in Germany Not only supply products such as cables, converter stations, etc but can provide a complete turnkey solution including engineering and design, completion of civil works and installation and commissioning Leading utilities have additional consultancy business that handle transmission and distribution projects Engineering and consultancy companies that undertake complete T&D projects 13. Grid Reliability The T&D ChallengeGrid Reliability The quality of Eastern European power grids generally falls far below those of Western European countries. Decades of under-investment often results in an inability to transmit power even moderate distances without substantial power losses. Grid investment has never been a priority, as countries focus investment capital on upgrading plants or building new ones. Transmission losses in Turkey are approximately 3 times higher than those of Germany. Reliability is also an issue, with power outages occurring much more frequently and lasting longer. Substantial investment is also required to link the various national grids, as part of an ultimate goal of a unified European grid.250 +15010050 0 SAIDI (min) SAIDI = System Average Interruption Duration Index 14. Openness of Major Utilities to OutsourcingEuropean Power Plant Services: In-House Capability Vs OutsourcingHighIn-house capabilityLowTendency to outsource services HighSource: Frost & Sullivan. 15. German Power Plant Maintenance Mix of Key PlayersOEMs ISPs In-house Mix of large ISPs that operate in Utilities retain differing Major equipment suppliers link multiple geographies and service aservice to supply contractspercentages of work in-house. wide range of products to localised Most have separate divisions thatwhere possible.small-scale service providers. Mix of one product supplieralso offer services to other Bilfinger Berger major player, owning utilities/IPPs.(Doosan Babcock boilers) and a range of companies, includingmultiple equipment suppliers Babcock Borsig Steinmuller(Alstom, Siemens)