M&A International Inc. Alternative Energy M&A: Seeds of Change

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1 1 Industry M&A Overview etailing M&A: High Level of Activity Despite Economic Downturn M&A International Inc. Alternative Energy M&A: Seeds of Change

2 Overview of Western Reserve Partners Western Reserve Partners LLC, based in Cleveland, Ohio, is a leading investment banking firm dedicated to providing customized solutions and unparalleled results to the premier companies in the middle market. Clients benefit from our focused approach to financial advisory services, including: Mergers & Acquisitions Sales and Divestitures Acquisitions Mergers, Joint Ventures and Strategic Partnerships Operating Partnership ( O.P. ) Unit Exchanges Capital Raising Refinancing and Recapitalization Growth Capital and Acquisition Financing Special Situation Financing Credit Tenant Lease ( CTL ) Transactions IPO Advisory Restructuring & Bankruptcy Financial Opinions & Valuation Services Identifying and Analyzing Strategic Alternatives Refinancing or Replacement of Existing Indebtedness Raising of Additional Capital Out-of-Court and Section 363 Sales Advisory Services in Chapter 11 Cases Global Reach Fairness Opinions Solvency Opinions ESOP Opinions Valuation Opinions Western Reserve s professionals have completed more than 35 corporate finance transactions involving non-u.s. companies, primarily from Europe and Asia. Two of our managing directors have worked as expatriate executives, providing them direct understanding of the nuances of international business practices. Furthermore, members of our staff speak French, German, Italian, Russian and Spanish. Western Reserve believes that access to international purchasers, sellers and investors is fundamental to maximizing value for our clients. This is why we are members of M&A International Inc., the world s premier international alliance of investment banking firms. This network provides us with direct access to corporate buyers and investors outside the U.S., where culture, language and time zone differences play significant roles in transaction processes and outcomes. M&A International is comprised of more than 5M&A professionals working in 41 countries, and in 21, M&A International s 47 members completed more than 264 transactions collectively worth $9.2 billion. M&A International Member Offices For more information, please contact: Joseph G. Carson Managing Director Phone: jcarson@wesrespartners.com Mark A. Filippell Managing Director Phone: mfilippell@wesrespartners.com Kevin J. Mayer Director Phone: kmayer@wesrespartners.com M&A International Inc. - the world's leading M&A alliance

3 1 Alternative Energy M&A Table of Contents Executive Summary 2 M&A activity at record high 2 M&A drivers 2 Future M&A prospects 2 Growth in Alternative Energy 3 Regulatory pressure: push policy 3 Incentives: pull policy 3 Evolving economics 3 Technological advancements 3 M&A Overview & Analysis 4 Alternative energy M&A volume share increasing 4 Operational assets attractively valued 4 Top M&A targets 5 Operational vs. technology companies 5 M&A Deal Makers 6 Pure plays seeking economies of scale 6 Utilities increasing alternative energy exposure 6 Private equity and institutional investors diversify their portfolios 6 Other buyers expect sustainability 7 Initial Public Offerings (IPOs) 7 M&A Trends & Opportunities by Region 7 European transactions leading M&A 8 Tailwinds for M&A in North America 9 M&A gaining traction in Asia/Pacific 9 Representative Transactions 11 Transactions involving acquisitions by pure players 11 Transactions involving acquisitions by utility companies 12 Transactions involving private equity and other financial buyers 13 Private placements 14 Transaction Case Studies 15 Conclusions 16 About M&A International Inc. 16 M&A International Inc. Energy Specialists 17 M&A International Inc. Representative Transactions 18

4 2 Alternative Energy M&A Executive Summary World energy markets are in the midst of a paradigm shift away from heavy dependence on hydrocarbons in favor of a diversified portfolio of energy sources where renewable energy, which accounted for 4.4% of global energy production in 28, will have a major role. This share will increase rapidly in the next few years, driven by a shift in market focus by both the private and public sectors. For instance, in 29 power generation investment in alternative energy exceeded investments in traditional fossil-fuel powered generation for the second consecutive year. Moreover, government-backed initiatives have also increased with $18bn mandated in renewable energy related programs in the period To benefit from the growing importance of renewable energy, industry players have actively increased their renewable portfolios using M&A to buy capacity and integrate horizontally and vertically. M&A activity at record high Rapid expansion and increasing investments have been the catalysts behind a high level of M&A activity in the sector. Since 27, M&A in the renewable energy space has grown significantly (at a CAGR of 19%) led mainly by utilities and pure-play companies trying to increase their presence in renewable power generation. Pure-play companies have emerged as the leading deal makers, accounting for 4% of the M&A deal volume between 27 and 29. Wind energy has been the most active sector, accounting for the majority of both deal volume (66%) and deal value (77%). Regionally, Europe has been the most active, accounting for 64% of target companies and 8% of total deal value. During the credit crisis, valuations fell as a result of the market sell-off. Despite this, deal volumes continued to grow throughout the crisis. While we believe that the growth in M&A since 28 has been highly strategic, attractive valuations have contributed to deal flow. In addition, M&A, joint ventures and strategic alliances between renewable power generators and their supply chain partners have increased due to rapid growth in new projects, which in turn has required a more integrated relationship between the two. M&A drivers Increased M&A activity has been driven by the actions of three key company types seeking to capitalize on the market s focus on renewables: (i) Pure-play alternative energy companies (27 29: 4% of deal volume) attempting to access parts suppliers to scale the value chain and augment their operational asset base. Increasingly, these market participants are also acquiring other operational companies to expand activities and benefit from economies of scale. (ii) Power utilities (27 29: 26% of deal volume, the largest share by deal value) increasing their alternative energy exposure to meet governmentmandated targets prescribing the source of power generation. Some larger utility companies are pursuing backward integration by acquiring globallyactive companies engaged in developing and manufacturing alternative energy assets. (iii) Acquisitions by institutional investors or private equity funds (27 29: 18% of deal volume) are increasing as firms seek to diversify their holdings and invest in more sustainable businesses. 18% Figure 1: M&A deal volume by deal type* 16% 4% Pure Play Utility Finance/PE Other 26% * Based on top 5 deals by deal value for each year (27 29) Future M&A prospects We expect future M&A activity within the sector to be largely policy driven. While large traditional power generators will need to expand their renewables footprint in order to meet their emission-reduction targets, pure-play generators see an opportunity to build sustainable businesses with government support via subsidies and incentives. Highlighting this trend, more countries have either mandated or expanded their renewable energy targets recently. For example, under the American Recovery and Reinvestment Act of 29, the US government has greatly expanded grants, R&D and rebates focused on renewable technologies, and has also sanctioned programs with a total value of $1bn. The geographical expansion of the European Union (EU) and its push for renewal energy will further increase demand for renewables, as countries take steps to comply with EU regulations and create a common market with standardized investment and power generation norms. This development should provide an opportunity for companies to establish a single market presence throughout Europe.

5 3 Alternative Energy M&A With Asian demand for energy growing rapidly, greater interest in these markets should increase overall deal volume. China and India are seeking to follow the example set by Brazil and reduce their reliance on imported energy by diversifying their asset bases to incorporate more renewables. We believe M&A activity will accelerate across the value chain, from manufacturing to service to maintenance, and will create sustainable alternative energy companies that thrive with much reduced government support. Growth in Alternative Energy The outlook for alternative energy is very positive, with the sector generally continuing to expand despite the global economic crisis. Investments in renewable energy generation projects rose 13% in 28 to $117bn while new private investment in companies developing new technologies has increased by 37% since 27 to $13.5bn. Furthermore, 28 marked the first time that power generation investment in renewables exceeded investment in fossil-fueled generation. Growth drivers Regulatory pressure has been the main driver for the alternative energy sector, although more recently incentives have become increasingly important. The four key growth drivers are as follows: (i) Regulatory pressure: push policy Several countries have introduced specific targets concerning the share of future energy supplies that must be derived from alternative energy sources. For example, the EU has set a corresponding target of 2% by 22, which will require major changes to current practice as the region currently meets only 7% of its energy requirements from renewable sources. Some industry observers believe that in order to achieve such a target on schedule, a further $2tn in investments will be required over the next decade. In practice, this implies the construction of over one million windmills or the installation of sufficient solar panels to cover an area twice the size of Belgium. This regulatory policy is being implemented through the use of Renewable Portfolio Standards (RPS or TCS, as part of the Tradable Certificate System operating within the EU), a mechanism requiring electricity chain stakeholders to purchase a percentage of electricity from renewable energy resources. This, in turn, encourages significant alternative energy capacity additions by both utility and non-utility companies. For example, in the US the current RPS is 15% of the total energy supply by 215, a target likely to be revised to 25% once the current objective is achieved. This implies that almost 7% of additional generating capacity in the US will come from alternative sources. This trend is global, with at least 44 countries having similar RPS policies. (ii) Incentives: pull policy While mandating the adoption of alternative energy by regulation, governments have also simultaneously introduced various incentives to encourage investment. For example, capital subsidies usually account for 3 5% of installed costs, significantly reducing initial investments required by an investor to establish an alternative energy plant. In one form or another, direct capital investment subsidies, grants and rebates are offered in at least 35 countries. Several states have also set aside special renewable energy funds to be used to directly finance investments and provide low-interest loans for projects. In addition, tax incentives and credits reduce expenses once a plant becomes operational. Another popular and highly successful incentive to boost investment in the sector is the use of feed-in tariffs which guarantee alternative energy producers a long-term off-take agreement at a pre-determined price. Such agreements significantly reduce investment risks involving the alternative energy sector. Approximately 45 countries worldwide operate feed-in tariffs to promote renewable power generation. (iii) Evolving economics Marginal cost inflation in the oil & gas industry will remain a major catalyst for the adoption of alternative energy resources. As marginal costs and, consequently, end-user prices rise, the use of renewable sources becomes more economically attractive. Given the steady decline in hydrocarbon reserves and increasing production, it is apparent that world energy demand is growing at a rate that requires alternatives, such as wind, solar, biomass, fuel cells, etc. to be extensively included in the fuel mix in the coming decade. (iv) Technological advancements Technological advances will play a key role in determining the renewable energy sector s development, particularly the extent of government development incentives and the degree to which

6 4 Alternative Energy M&A costs may fall due to technological innovation and economies of scale. Technological advancements continue to cause the marginal cost of renewables to decline, while non-renewables continue to see marginal cost inflation. M&A Overview & Analysis Rising M&A deal volumes highlight buyer interest in the sector with volumes growing at a CAGR of 19% over the past three years. At the same time, total deal value fell steadily at a CAGR of 25%, implying a gradual correction in valuations following the recent credit crisis. $bn Figure 2: Value and volume of M&A transactions Total Deal Value No. of Deals No. of Deals 29 witnessed a record number of M&A deals in the alternative energy sector as deal volume reached a three-year high. This increase is attributable to two key factors: (i) A favorable shift in the regulatory environment and the proposed increase in government spending in the alternative energy sector as a result of stimulus spending. (ii) Valuations corrected sharply in 29, making growth through acquisition a more feasible strategy. This prompted various buyers to acquire already operational assets at discounted prices. We expect these factors to continue to drive M&A activity in the near future. In addition, since the credit crisis, financial investors have been eager to invest in alternative energy based on its sustainability and stable cash flows. Alternative energy M&A volume share increasing In 29, alternative energy transactions accounted for a record 3% of total M&A deals in the utility sector, compared to 21% in 28 (Figure 3). In absolute terms, the total volume of overall power deals has declined, while for the alternative energy sector it has increased. The steady growth in the alternative energy sector s share of M&A deals illustrates its growing importance in the energy mix in the future. Figure 3: Alternative energy M&A deal volume: % of total power deals No. of Deals % 21% 3% Total Utility Deals Alt. Energy Deals Share Operational assets attractively valued Over the past three years, deal valuations involving solar companies have fluctuated slightly. However, in the case of wind companies, variations have been much greater (Figure 4). During the recent credit crisis, deal valuations fell as the impact of decreasing energy consumption and falling carbon prices (28 29: EU prices fell from around 3/ton to approximately 15/ton) weakened fundamentals and reduced the viability of various alternative energy projects Figure 4: Transaction value ($mn)/mw * Wind Solar 5.5 * Based on top 5 deals by deal value for each year (27 29) However, transaction volumes increased to 187 in 29 from 132 in 27, their highest level in three years. We believe that higher M&A volumes have been driven by industry players recognition of the commercial and strategic logic of acquiring alternative energy assets, which has been further

7 5 Alternative Energy M&A facilitated by a rapid correction in valuation multiples. For example, the mean implied value/mw multiple for transactions involving wind assets peaked at $2.1mn/MW in 28 before falling sharply to $1.mn/MW in the following year. With various largescale projects and smaller companies restricted by limited cash resources, this development created key opportunities for well-capitalized companies to acquire attractive projects and other participants at reasonable valuations. Top M&A targets Wind energy has now emerged as the most popular alternative energy asset, being the most cost effective and scalable alternative source of energy. Between 27 and 29, wind accounted for the largest share of alternative energy sources in terms of both deal volume (66%) and value (77%) (Figure 5). In particular, wind deals have found traction in several countries including Spain, Germany, France and the US, and more recently India and China. Wind power has benefited from the introduction and extension of subsidies and production tax credits as well as expansion in the construction of new largescale projects by both utilities and governments. Such growth has been exerting pressure on the supply chain which, in turn, is stimulating interest in M&A activity and the development of joint ventures and strategic alliances. $bn Figure 5: Total deal value and volume split by type of target (27 29) Wind Solar Biomass Diversified Total Deal Value No. of Deals The solar sector faces a similar supply chain constraint as shown by the sudden increase in deal activity in 29. During the same period, the number of deals almost tripled while deal value rose by around 4% compared with the previous year. Average deal value also increased from $49mn in 28 to $119mn in 29, supported by both regulatory and technological factors. For example, France (targeting 4.9 GW of solar PV by 22), Spain and Japan have introduced solar energy targets. Technological innovations such as thin-film solar cells will help improve the economics of solar energy. We therefore expect solar activity to increase its share of total M&A activity from its current 23%. Biomass represents an increasing share of M&A activity, accounting for 11% of deal volume and nearly 3% of total deal value. More recently, biomass deals have become increasingly concentrated in the developing markets of Asia/Pacific, particularly in India, China, the Philippines and Thailand due to their thriving agriculture industries and the availability of higher agricultural residues for biomass power plants. We see highly innovative businesses that are addressing the challenges facing the industry over the next decade. Venture capital companies are already incubating these companies and will set the stage for M&A activity later this decade. These companies are addressing next generation challenges, such as higher power efficiency, better industrial and consumer solutions, low carbon utility plants, cellulosic biofuels, utility-scale carbon capture and sequestration projects, smart grid and new battery technology, and better ergonomics. Operational vs. technology companies Technology acquisitions represent a significant component of alternative energy M&A (Figure 6), and highlight the extent to which companies are seeking to acquire manufacturing and technology assets higher up the alternative energy value chain. The solar sector remains the subject of acquisitions by larger, cash-rich technology companies as participants face falling product prices and constrained finances. This situation, in turn, creates key opportunities for major industrial groups to extend their operations into the renewables value chain. Separately, large utility companies including E.ON, EDP and Scottish and Southern Electricity are increasingly acquiring wind-energy developers and operators. In such cases, these purchases are undertaken by companies seeking to secure an endto-end supply chain footprint. This trend is also driven by increasing interest from industrial groups and investment funds seeking to increase their sector exposure.

8 6 Alternative Energy M&A 2% % Share by Deal Volume Operational Technology 8% 23% % Share by Deal Value Operational Technology 77% * Based on top 5 deals by deal value for each year (27 29) M&A Deal Makers While utilities have accounted for the largest share of deal value, deal volume is currently driven by pureplay companies. 18% Figure 6: Target analysis: operational vs. technology companies Figure 7: M&A deal volume by deal type (percentage deal value share)* 16% 4% Pure Play (12%) Utility (47%) Finance/PE (23%) Other (18%) 26% * Based on top 5 deals by deal value for each year (27 29) Pure plays seeking economies of scale Between 27 and 29, pure-play alternative energy companies accounted for 4% of total deal volume and 12% of total deal value. Most acquisitions by pure-play companies occurred in the US and Western Europe. Such transactions usually involved participants acquiring smaller companies to expand both their generation capacity and geographical footprint. In addition, the target scope for pure-play companies was substantially more diversified, unlike utilities, which are more heavily focused on acquiring wind energy companies. In 29 in particular, pure-play companies demonstrated a greater interest in acquiring companies to diversify their energy mix and help provide integrated energy services. As a result, pure-play companies with operational assets are acquiring technology companies or manufacturers to secure a pan-sector end-to-end renewable energy footprint, e.g. last year s acquisition by Pirelli Ambiente S.p.A., an alternative fuel producer, of Solar Utility S.p.A., a solar PV technology developer and operator, for $12mn. Utilities increasing alternative energy exposure Between 27 and 29, utility companies comprised 26% of total M&A volume and 47% of total deal value. These transactions were driven by utilities trying to increase their portfolio exposure to renewables as well as attempting to acquire new technology or manufacturers and developers of alternative energy assets. For example, last year s acquisition by International Power plc, a UK-based utility company of AIM PowerGen Corporation, a developer and manufacturer of wind power generation facilities in Canada, for $12mn, highlighted this trend. Wind assets have been the preferred acquisition target of utility companies due to their lower acquisition costs and the availability of production tax credits in many regions. Over the next 1 years, we believe that utility companies will continue to account for a significant share of total M&A activity due to requirements to satisfy Renewable Portfolio Standards. Furthermore, as solar plants increase their production scale and technological advances lower costs, solar targets are likely to represent a larger share of total M&A activity. Private equity and institutional investors diversify their portfolios Private equity, venture capital and other institutional investors have accounted for 18% of total deal volume and 23% of overall deal value in the alternative energy sector over the past three years. The percentage share of private equity and institutional investors in total deal value has fallen sharply since 27 although we expect a change as institutional investors seek to increase their sector exposure. Private equity and financial investors were also responsible for over 8% of private placements during the same period. Between 27 and 29, a total of 171 private placements were made by wind, solar and biomass companies (Figure 8) with an average deal value for private placements of around $33.3mn.

9 7 Alternative Energy M&A Figure 8: Private placement: deal value & volume $mn 2,5 2, 1,5 1, ,2 2,138 1, Total Deal Value No. of Deals No. of Deals In part, private equity has offset the shortfall in activity resulting from highly adverse public market conditions in which significantly lower share prices handicapped company efforts to raise additional capital. As a result, several cash-strapped companies have resorted to private placements to meet their financing requirements. In addition, financial investors are responsible for several renewable energy investments in the form of carbon funds due to an expected increase in the price of carbon credits by 212 on expiry of the first commitment period for the Kyoto Protocol. With the economic recovery taking hold, private equity and other financial investors should seek to diversify their portfolios and increasingly invest in nascent alternative energy companies and projects, e.g. in February 21, HgCapital, a London-based PE firm, acquired a new 12 MW PV project in Castilla La Mancha, Spain for $139.1mn. Other buyers expect sustainability More recently, M&A in the alternative energy sector has also been characterized by significant activity originating from companies in industries as diverse as infrastructure, real estate, chemicals and manufacturing. Such buyers have accounted for 16% of deal volume and around 18% of deal value over the past three years, although they comprised as much as 45% of deal value in 29. Growing interest in the sector from companies in unrelated industries suggests that renewable energy is increasingly regarded as an attractive business opportunity rather than simply a regulatory mandate. Initial Public Offerings (IPOs) Between 27 and 29, a total of 74 IPOs occurred with an average issue size of $269mn. The number of alternative energy IPOs has declined by more than 5% in each of the past two years, reflecting subdued IPO markets during the credit crisis and generally adverse market conditions for alternative energy companies raising money in the public market due to their limited track record and high technology-related risks. Nevertheless, one of the largest alternative energy deals in 28 was the $2.8bn placement with institutional investors of a 25% stake in EDP Renováveis. This transaction shows a common trend with large utility companies including EDF, Iberdrola and EDP listing their renewable energy subsidiaries as separate units. This process is intended to ensure adequate capital to expand each company s alternative energy portfolio while their parent focuses on replacing aging infrastructure and modernizing its operations. Pure-play companies active in the wind, solar and biomass sectors account for low IPO volumes compared to the total number of M&A deals and private placements over the last three years. Renewable energy companies will have a continual need for growth financing to build their companies. The vast majority will seek a liquidity event to monetize the substantial investment through merger, buyout or public equity offering. Whether by a desire to lead or adherence to government policy, strategic companies will continue to seek ways to offset their carbon emissions, providing a consistent demand for well-positioned companies. M&A Trends & Opportunities by Region Figure 9: Total deal value and volume by region $bn Europe North America Asia Pacific Total Deal Value No. of Deals Over the past three years, alternative energy deals have been increasingly concentrated in Europe, with the region accounting for the largest share of deal volume (29) and deal value (8%). North America

10 8 Alternative Energy M&A saw 95 transactions over the same period, equal to 21% of total deal volume. Unsurprisingly, M&A activity has flourished in these two regions as they represent the world s most mature energy markets and also provide major support for alternative energy through governmentbacked incentive schemes. European transactions leading M&A Europe has been the regional leader in alternative energy M&A activity. Average deal value remains the highest in the world. Although average deal value corrected slightly in 29, the recession had no affect on total M&A deal volume (Figure 1). Between 27 and 29, some 64% of target companies in all M&A deals were European, of which 65% were wind companies, 19% solar, 1% biomass and 6% diversified. $mn Figure 1: Europe average deal value and volume Average Deal Value No. of Deals No. of Deals Deal flow was concentrated mainly in Western Europe with Spain, Germany, France, Italy and the UK comprising 73% of all regional M&A deals (Figure 11). This is consistent with the fact that these countries also account for the largest share of alternative energy generation capacity in the EU. 27% 25% Spain 8% Figure 11: European deals by country 1% 1% 2% Germany France Italy UK Others The European utility market has been consolidating for several years, and the alternative energy sector will likely be no different. In 29, the largest M&A deal was Spain-based Acciona S.A. s $3.6bn acquisition of Endesa s renewable energy assets totaling 2,15 MW (1,248 MW of wind power). The deal was primarily motivated by ongoing consolidation within the EU. With Europe slowly moving towards greater interconnectivity and a liberalized common energy market, some larger utility and infrastructure companies prefer to maintain a diversified energy portfolio according to source and geography. This key trend will continue to drive M&A activity between EU member states. M&A activity within the region is also being motivated by regulatory provisions. The Kyoto Protocol, and subsequent market mechanisms governed by it, will probably serve as the strongest catalyst for regional M&A activity. The EU has implemented a Tradable Certificate System under which electricity chain stakeholders are obliged to purchase a percentage of their electricity from renewable energy resources. Certificates can be obtained either from each stakeholder s own renewable electricity generation or from another generator. Subsequently, this process has driven regional M&A activity. Acquirors have either followed an investment-focused strategy, making acquisitions that benefit from tax credits and selling certificates, or pursued generation-based strategies executed in order to diversify the generation portfolio, alleviate the necessity to buy certificates from outside and position themselves to benefit from the feed-in tariff mechanism. For example, one of the largest such deals in 28 was the $3.3bn investment-focused acquisition of Irish-based Airtricity, a developer, manufacturer and operator of wind farms in Europe and Asia, by Scottish and Southern Energy (SSE). The transaction was intended to support the SSE development of the 5 MW Greater Gabbard offshore wind farm, the world s largest, currently under construction. We therefore expect extensive consolidation activity, motivated by the EU objective of establishing a single energy market together with other investment and generation-focused strategies to continue to drive regional M&A activity. The Iberian Peninsula and the North Sea are a likely focus of this activity, with their considerable potential to generate wind and solar energy. We see continued government support for the alternative energy industry over the foreseeable

11 9 Alternative Energy M&A future, both to ensure a reliable alternative to declining, higher-risk fossil-based sources as well as diversifying away from politically unpopular sources. Tailwinds for M&A in North America M&A deal volume in North America (US and Canada) accounted for 21% of all M&A deals between 27 and 29. A combination of low interest rates, relaxed lending standards and regulatory changes drove average deal values to a three-year high in 27. One of the largest alternative energy deals in the US occurred in 27 when Horizon Wind Energy was acquired by EDP - Energias de Portugal for $2.3bn. This deal possessed similar characteristics to the Airtricity acquisition with Horizon Wind Energy, acting as a developer and operator of wind farms in North America being acquired by a utility company. $mn Figure 12: North America average deal value and volume Average Deal Value No. of Deals No. of Deals With the onset of the credit crisis in 27, deal valuations fell markedly. However, transaction volumes remained high. The sudden increase in deal volume from 16 in 28 to 49 in 29 (Figure 12) occurred against a background of accelerated growth in the US renewable energy sector as the industry benefited from government stimulus measures and tax incentives for investment. To encourage the adoption of alternative energy, the US has implemented RPS legislation Production Tax Credit (PTC) and Investment Tax Credit (ITC) (the equivalent of the EU s Tradable Certificate System) which enable wind and solar energy producers to claim tax credits for a period of 1 years from the start of production. The recent extension of tax credits to 212 and the possible introduction of RPS at federal level have increased M&A volumes with both utilities and nonutility companies keen to benefit from such regulatory changes. For example, last year MEMC Electronic Materials Inc., a designer and manufacturer of silicon wafers, acquired Sun Edison, an owner and operator of solar power plants, for $317.6mn. The current regulatory environment optimized conditions enabling MEMC to vertically integrate and benefit from Sun Edison s renewable portfolio standards and solar tariff services. However, to capitalize on available tax advantages, the developer and/or other investors in the renewable energy project must have sufficient future cash tax liabilities to efficiently realize the economic value of those incentives. US tax incentive programs make it more challenging for smaller or start-up companies to develop renewable energy projects. The current economic climate has also significantly reduced the number of traditional investors with sufficient tax motivation to take advantage of the benefits of these incentive programs. This situation has contributed to a rise in deal volumes while restricting the average deal value, with many smaller players now concluding deals and partnerships with larger companies. Furthermore, President Barack Obama has proposed clean energy investments and regulatory changes worth over $6bn, designed to encourage growth in the US renewable energy industry which, in turn, should also drive regional M&A activity. We will continue to see a favorable political environment to creating sustainable domestic sources of alternative energy. New economic incentives will be added over the next decade that favor large leaps in innovation, infrastructure build out, smart grid technology and development of sustainable resources. M&A gaining traction in Asia/Pacific M&A volume in the Asia/Pacific region accounted for 12% of all M&A deals between 27 and 29. While deal volume in Asia/Pacific has increased steadily, average deal value has remained relatively small, excluding 27 (Figure 13) when average deal value was higher due to the $511.8mn acquisition of Yunnan Shenyu New Energy Company, a Chinese-based biomass energy producer, by China Grand Forestry Green Resources, an investment holding company manufacturing forestry products. Australia and Japan have lagged behind the rest of the region, accounting for only 28% of deals (Figure 14), well behind other developed countries. Demand

12 1 Alternative Energy M&A $mn Figure 13: Asia/Pacific average deal value and volume Average Deal Value No. of Deals No. of Deals for alternative energy in Japan has been low while investment in the sector is limited, restricting M&A activity. However, former Prime Minister Yukio Hatoyama s government has significantly enhanced Japan s emission reduction targets for 22, which we expect will stimulate sector activity. In the meantime, significant investment interest is focused overseas. Figure 14: Asia/Pacific targets split by country photovoltaic (PV) cells, with established incentive policies to stimulate domestic demand and deployment including feed-in tariffs. In July 29, China imposed a feed-in tariff for new onshore wind power plants, providing wind energy generators with a significant premium over the average rate paid to coal-fired electricity generators. India recently added a new renewable portfolio standard for utilities, starting at 5% in 21 and increasing by 1% each year to 15% in 22. Positive regulatory changes in China and India have resulted in a steady increase in regional M&A activity. Deal value for most transactions in these countries has been less than $1mn. The largest transaction during the past three years was the 29 acquisition of India-based independent power producer Green Infra Ltd. by BP Energy India Pvt. Ltd. for $95.8mn. Population growth, urbanization (including a concomitant wealth effect) and high GDP growth will continue to increase energy requirements by Asian countries and stimulate investments in alternative energy. This region will account for an increasing proportion of both deal flow and deal value in the future. 15% China 11% 37% India Australia 17% 2% Japan Others However, M&A activity in Australia has stalled partly due to uncertainty concerning a carbon trading scheme being introduced by the government led by Prime Minister Kevin Rudd. The renewables sector in Australia has also been affected by an artificial increase in the supply of renewable energy certificates which dramatically reduced their price in 29, acting as a disincentive for utilities to conclude longer-term power purchase agreements for renewable generation. Despite these headwinds, there has been abundant M&A activity in the sector due to strong demand from both China and India which accounted for 57% of deals within the region between 27 and 29. China and India have taken principal roles in the development of alternative energy technologies. Both are world leaders in the manufacture of

13 11 Alternative Energy M&A Representative Transactions Transactions involving acquisitions by pure players Date Announced 16-Jul-9 16-Sep-9 21-Oct-8 8-Apr-8 5-Dec-7 14-Feb-7 Target Acquiror Deal Synopsis Value ($mn) Gamesa Corporación (six wind farms in Spain) BP Energy India Private Limited (India) New Green Molise (Italy) NEO Galia, S.A.S. (France) Gamesa Corporacion, (two wind power parks) (Spain) GE Energy Financial Services (165 MW wind farms in Germany) Gestamp Eólica S.L. (Spain) Green Infra Ltd. (India) Alerion Energie Rinnovabili s.r.l. (Italy) Novas Energías do Ocidente, S.A. (Spain) Iberdrola Renovables S.A. (Spain) Theolia S.A. (France) Six wind farms in Galicia and Catalonia, Spain, owned by Gamesa Corporación Tecnológica S.A., with a capacity of 132 MW were acquired by Gestamp Eólica S.L., a wind power energy company which promotes, constructs and operates wind farms in Spain and internationally, and also (through its subsidiary) makes towers used for wind power generator turbines. BP Energy India Private Limited owns and operates wind farms in India with a total power generating capacity of around 1 MW. The company was incorporated in 25 and is based in Bengaluru, India. As of 16 September 29, BP Energy India Private Limited operates as a subsidiary of Green Infra Ltd. New Green Molise owns rights for the construction and management of a 72.5 MW wind farm. The company is based in Pensilis, Italy. As a result of a deal announced on 21 October 28, New Green Molise operates as a subsidiary of Alerion Energie Rinnovabili s.r.l. NEO Galia, S.A.S. owns and operates three wind farms in Normandy with an installed capacity of 35 MW. The company is based in Paris, France. NEO Galia, S.A.S. now operates as a subsidiary of Novas Energías do Ocidente, S.A. Novas designs, builds and operates projects to produce electricity from renewable sources in the Iberian Peninsula and Europe. On 5 December 27, two wind farm parks in Southern Almeria, Spain, owned by Gamesa Corporacion Tecnologica, were acquired by Iberdrola Renovables. Both are electric power generation facilities producing electric power through wind energy with an installed capacity of 5 MW. On 2 July 27, 165 MW wind farms based in Germany and owned by GE Energy Financial Services, were acquired by Theolia. Theolia S.A. operates as an independent producer of mainly wind-generated renewable electricity. The company develops, builds and operates wind farms for its own account and for third parties. As of 31 December 28, the company managed a total installed capacity of 671 MW, comprising 36 MW on its own account and 311 MW for third parties. Theolia S.A. operates wind farms in France, Germany and Morocco, and also develops wind projects in France, Italy, India and Brazil. Value/MW Between 27 and 29, around 4% of the 15 largest M&A transactions that occurred involved acquisitions of pure players by other pure players. Over 75% of deal volume in the segment was generated by deals valued between $5mn and $1mn. The transaction value/mw ratio for disclosed transactions has varied significantly, with acquired companies ranging from start-up businesses to mature, asset-heavy companies. For example, the value/mw multiple for Novas Energías do Ocidente s acquisition of NEO Galia in 28 was $4.2mn/MW, well above the year average of $2.1mn/MW. The corresponding multiple for Theolia s acquisition of 165 MW wind farms from GE Energy in 27 was $.8mn/MW, below the year average of 1.mn/MW. Furthermore, the multiple was higher for transactions involving acquisitions by larger pure-play companies such as Iberdrola Renovables and Gestamp Eólica, willing to offer a slight premium to acquire assets with grid access. In addition, the type of target company involved in transactions concerning pureplay buyers is considerably more diversified compared with utilities which tend to prefer wind energy providers to solar or biomass companies. This implies that pure-play companies are seeking to diversify their alternative energy portfolio and are willing to pay a premium to acquire target assets.

14 12 Alternative Energy M&A Representative Transactions Transactions involving acquisitions by utility companies Date Announced 3-Sep-9 21-May-9 4-Aug-8 4-Jan-8 7-Aug-7 4-Aug-7 Target Acquiror Deal Synopsis Value ($mn) AIM PowerGen Corporation (Canada) North Allegheny Wind, LLC (USA) M & A Rinnovabili s.r.l. (Italy) Airtricity Holdings Limited (Ireland) ENERGI E2 Renovables Ibéricas S.L. (Spain) Trinergy Ltd. (wind farms in Italy and Germany) International Power plc (UK) Duke Energy Corporation (USA) Alpiq Holding AG (SWX:ALPH) (Switzerland) Scottish & Southern Energy plc (UK) E.ON AG (DB:EOAN) (Germany) International Power plc (UK) AIM PowerGen Corporation develops, constructs and operates wind power generation facilities in Canada. The company was founded in 21 and is headquartered in Markham, Canada. It was acquired by UK-based International Power plc. North Allegheny Wind, LLC owns a wind farm with 35 Gamesa wind turbines, each capable of producing two megawatts (MW) of electricity, i.e. total power production capacity around 7 MW. The company was acquired by Duke Energy Corporation in order to comply with the RPS. M & A Rinnovabili s.r.l. develops, installs and operates onand offshore wind farms, solar power and biomass plants. The company was founded in 28 and is based in Italy. M & A Rinnovabili s.r.l. operates as a subsidiary of Moncada Energy Group s.r.l. Airtricity Holdings Limited, a renewable energy company, develops, constructs and operates on- and offshore wind farms mainly in Europe and Asia. The company was founded in 1997 and is headquartered in Dublin. Its wind farm sites are located in England, Wales, the Republic of Ireland, Scotland, Germany and the Netherlands. Scottish and Southern Energy plc acquired Airtricity following the adoption by the EU of a legally binding target of 2% for the proportion of all energy to be derived from renewable sources and a decision by the Scottish government to adopt a new target to generate 5% of Scotland s electricity from renewable sources, also by 22. ENERGI E2 Renovables Ibéricas S.L. develops and operates renewable projects including wind farms in Spain and Portugal. The company is headquartered in Madrid, Spain. It was acquired by E.ON to further expand its alternative energy operations in Europe. On 31 August 27, key wind farm assets owned by Trinergy Ltd were acquired by International Power plc. They were located in Italy (495 MW in operation and 67 MW under construction) and Germany (86 MW in operation). Trinergy is headquartered in Dublin, Ireland. The acquisition allowed International Power plc to expand its alternative energy assets in Europe. Value/MW 12.9 N/A N/A 3,253.1 N/A N/A 1, Between 27 and 29, approximately 26% of the 15 largest M&A transactions involved utilities acquiring pure-plays. The transaction value for such deals varied widely, ranging between $5.5mn and $3.6mn. The value/mw multiple for such transactions has exceeded annual averages for all deal types, e.g. in the Duke Energy acquisition of Northern Allegheny in 29 the value/mw multiple was $1.77mn/MW, above the year average of $1.4mn/MW. In 27, the corresponding ratio for International Power s acquisition of Trinergy was $1.85mn/MW, significantly higher than the year average of $1.mn/MW, suggesting that utility companies are willing to pay a slight premium, especially for targets possessing large-scale operations and enjoying adequate grid connectivity. Utility companies have been eager to acquire alternative energy companies to meet legally binding renewable energy targets in their respective countries. As a result, we expect them to continue to account for a large share of M&A activity in the short to medium term. However, several larger utility companies, including E.ON and Scottish and Southern Energy, have shown a keen interest in acquiring companies engaged in the development, construction and operation of wind farms. Such acquisitions will allow larger utility companies to undertake alternative energy projects on a much larger scale and to develop and sell operating assets to other companies.

15 13 Alternative Energy M&A Representative Transactions Transactions involving private equity and other financial buyers Date Announced 3-Aug-9 21-Jul-9 29-Sep-8 29-Aug-8 31-Dec-7 1-Jun-7 Target Acquiror Deal Synopsis Value ($mn) Kallista Energies Renouvelables and Kallista (France) ENDESA INGENIERÍA S.L. (1 MW PV plant in Spain) Helium Energy S.L.U. (Spain) AGL Energy Limited (71 MW Hallett 2 wind farm) (Australia) Horizon Wind Energy, LLC, (four wind farms in USA) Zephyr Investments Ltd. (UK) AXA Private Equity (France) Macquarie Capital Funds Ltd. (Europe) Hudson Clean Energy Partners (USA) ANZ Specialist Asset Management Limited (New Zealand) GE Energy Financial Services; Wachovia Investment Holdings (USA) M&G Investment Management Limited; J.P. Morgan Investment Management Limited (UK) On 3 August 29, Kallista Energies Renouvelables and Kallista France of Babcock & Brown Limited were acquired by AXA Private Equity. The companies own and operate wind farms and generate wind energy. Kallista Energies Renouvelables and Kallista France are headquartered in Paris, France. On 9 July 29, a 1 MW photovoltaic plant owned by ENDESA INGENIERÍA S.L. was acquired by Macquarie Capital Funds (Europe) Ltd. The plant, located in Cadiz, Spain, produces electricity using solar energy. Helium Energy S.L.U. operates as a renewable energy development company. It develops, builds and owns wind and solar projects in Spain, Panama, Chile, Europe and South America. The company was founded in 26 and is based in Madrid, Spain. The acquisition will enable all Hudson Clean Energy Partners to access Spain s lucrative wind power generation market. AGL Energy Limited s Hallett 2 wind farm, based in Australia, produces 71 MW of electricity. This wind farm was acquired by the New Zealand-based ANZ Specialist Asset Management Limited. GE Energy and Wachovia Investment Holdings jointly acquired four wind farms in the US from Horizon Wind Energy, LLC, with a total installed capacity of 6 MW. M&G Investment Management Limited (UK) and J.P. Morgan Investment Management Limited (UK) jointly acquired Zephyr Investments Ltd, a wind farm owner and operator. The company was founded in 23 and is based in Swindon in the United Kingdom. Value/MW 317 N/A N/A N/A Between 27 and 29, a total of 17% of the 15 largest M&A transactions involved acquisitions of pure-play companies by private equity and institutional investors. Over 7% of the segment deal volume was generated in the low to medium-sized market, i.e. between $3mn and $3mn. The transaction value/mw ratio for disclosed transactions has varied widely. For example, the value/mw multiple for Macquarie Capital Funds acquisition of a 1 MW PV plant from ENDESA in 29 was one of the highest observed at $1.88mn/MW, almost twice the year average of $5.5mn/MW. The corresponding multiple for ANZ s acquisition of the 71 MW wind farm from AGL Energy in 28 was $.68mn/MW, well below the year average of $2.1mn/MW. In common with pure-play companies, targets acquired by private equity and institutional investors were also generally diversified. The average value for this type of transaction was highest in 27 at around $237mn but fell significantly in 28 to $8mn, the lowest of all transaction types. However, deal activity by such firms is recovering with improving liquidity and attractive valuations resulting in an increase in both volumes and transaction values in 29 for acquisitions involving private equity and financial buyers.

16 14 Alternative Energy M&A Representative Transactions Private placements Date Announced 24-Dec-9 24-Feb-9 24-Apr-8 22-Jan-8 2-Oct-7 12-Jun-7 Target Acquiror Deal Synopsis Value ($mn) Electrawinds N.V. / S.A. (Belgium) Enfinity Management BVBA (Belgium) Wind Capital Group, LLC. (USA) Capital Energy, S.A. (Spain) EverPower Wind Holdings, Inc. (USA) Bull Moose Energy, LLC. GIMV N.V. and Inframan N.V./S.A. (Belgium) Waterland Private Equity Investments B.V. (Netherlands) NTR plc (Ireland) Iberian Renewable Energies (Luxembourg) ; Pontegadea Participacione s, S.C.R., S.A. (Spain) Good Energies Inc. (UK) Morgan Stanley Private Equity (USA) Electrawinds N.V./ S.A. produces, sells and distributes green power. It constructs and operates windmill farms, solar farms, bio steam and biomass power plants, and also investigates and develops renewable energy opportunities and applications. It complements GIMV s strategy of investing in infrastructure and innovative companies. The company was founded in 1998 and is based in Oostende, Belgium. Enfinity Management BVBA develops, finances and executes renewable energy projects. It focuses on investments in photovoltaic energy and wind energy. The company was founded in 26 and is based in Ghent, Belgium. Waterland Private Equity Investments BV is a private equity and venture capital firm specializing in investments in medium-sized private companies. It targets investments in expansion capital, industry consolidation, acquisitions, buyouts, divestitures and add-on acquisitions. Wind Capital Group, LLC develops and constructs wind farms, and produces wind energy in the central US. The company was founded in 25 and is based in Saint Louis, Missouri with additional offices in Madison, Wisconsin; and Chicago, Illinois. As of 24 April 28, Wind Capital Group, LLC operated as a subsidiary of NTR plc. NTR plc acts as a developer and operator of renewable energy and sustainable waste management in Europe and North America. Capital Energy, S.A. is active in offshore wind farms, photovoltaic energy, onshore wind farms, self-consumption and distributed wind farms, desalination plants and biomass plants. Capital Energy, S.A was founded in 22 and is based in Madrid, Spain. Iberian Renewable Energies and Pontegadea Participaciones are both principally investment firms. EverPower Wind Holdings, Inc. develops wind power projects in the Northeastern and Mid-Atlantic regions of the United States. It also develops green-field sites and utility-scale wind systems. The company was founded in 22 and is based in New York with an additional office in Portland, Oregon. Good Energies Inc. is a venture capital arm of Cofra Holding AG, which invests in all types of alternative energy companies. Bull Moose Energy LLC. was founded in 25 to create and develop new concepts for power production from renewable energy sources. The company s first clean, modular, urban facility for the production of biomass energy will be built in San Diego and provide power to San Diego Gas & Electric Company Between 27 and 29, a total of 171 private placements by wind, solar and biomass companies occurred with an average value for disclosed deals of $33.3mn. Most private placement targets involve early developers requiring project development capital. For example, in 27 Bull Moose entered into its first contract to supply 2 MW of renewable energy to the San Diego Gas & Electric Co. from 28. It therefore required capital to construct a biomass plant in San Diego. However, smaller companies face considerable difficulties in raising capital through private placements with the risk appetite of traditional buyers now much lower than previously. So far, this situation has not yet resulted in a significant increase in the number of distress sales by smaller alternative energy companies. The key question will be whether such developers have sufficient resources to continue holding projects until additional funding is secured or whether they will be compelled to sell. Nevertheless, smaller alternative energy companies will continue to seek investments by private placement, which could offer significant opportunities for companies to acquire exposure to commercially attractive start-up or small scale alternative energy companies.