TRUSTED PARTNER DELIVERING TAILORED FINANCIAL SOLUTIONS

RENEWABLE ENERGY – WHERE IS THE MONEY COMING FROM?

09th November, 2011 Richard Simon-Lewis, Senior Director, Project Finance – Renewable Energy

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Executive Summary:

LBG Renewable Energy

UK RE Market Overview

Key Issues & Themes

Sector Snapshot

Looking Ahead

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UK RE

MARKETOVERVIEW

LBG Renewable Energy Overview

An integral part of the Lloyds Banking Group strategy is to deploy our balance sheet to support our core clients’ aspirations in the energy sector. The Renewable Energy Team (“Lloyds” or “the Team”) has an excellent track record over the last 7 years:

Team of 19 including 13 based in UK, 3 in New York, 2 in Europe and 2 in Australia;

Over £3bn of arranging / underwriting representing about 7 GW of Renewable Energy transactions to date;

Arranging / Underwriting positions in over 45 projects in the Renewable Energy sector – predominantly wind and solar;

We have a well structured portfolio with a balanced spread of tenors (52% of the portfolio having a term of over 10 years) underscoring our ability to provide the long term financing required for these assets;

We have financed Onshore Wind, Offshore Wind, Solar PV, Landfill Gas, Biomass and Bio-Fuels Projects.

Debt Focus:

Arranging & Structuring

Project Finance & Project Bonds (including Long-dated and Mini-Perm, Construction, Project, Bridge and Portfolio)

Interest Rate, Inflation and FX Hedging

Letters of Credit – PPAs, Grid connection, Energy Hedges

A dedicated industry team

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UK RE MARKET

OVERVIEW

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Historic Renewable Energy PF Activity

Significant downturn evident in the

UK since 2007

Impact across both deal value and

transaction numbers in the most

established RE sub-sector -

onshore wind

Liquidity has been available in

2011 for well structured

transactions with key relationships

Ongoing HMG support remains key

against the backcloth of economic

austerity and constrained budgets

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UK Low Carbon Energy Investment for 2020 Targets

Significant future investment required in various RE technologies over the next decade

HMG alive to the inherent challenges in attracting sufficient liquidity to fund this level of investment

Source: Green Investment Bank, July 2010

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KEY ISSUES &

THEMES

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Resilient Asset Class

Key Issues & Themes (1)

PF is more resilient as the risk profile is lower, requiring less capital

Renewables as an asset class is less correlated to the economic cycle

Significant non-discretionary investment required globally (e.g. £200bn in UK to 2020)

Selective Capital

Allocation

Each Bank will have preferences for Legislative Regimes / Sponsors / Sectors

Countries with the strongest legislative regimes such as the UK (subject to positive outcome post EMR consultation) and best margin pricing will attract the most capital

Banks

Focused on 10-15 Banks per geography, with those Bank groups differing in names across each market.

Participation of ECAs and EIB on larger ticket sizes is required, at least until proper underwriting returns

Relationships Important

PF banks are directing resource towards key clients in key sectors

PF banks are ‘creatures of precedent’ so will look for structural cues to aid understanding

The larger PF banks will gravitate towards larger deals with strong fundamentals

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Risk Profile

Commodities

Risk

Business

Revenue

Inflation

Risk

Credit Risk

FX Risk

Hedge

Portfolio

Debt

Liabilities

Interest Rate

Risk

Holistic review of risks required on a Project and Corporate Basis

Onshore

Wind

Project Co

Euro: £stg Exchange Rate

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1.1

1.2

1.3

1.4

1.5

1.6

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov

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Jan-

10

Mar

-10

May

-10

10-year LIBOR swap rate

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov

-06

Jan-

07

Mar

-07

May

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Jul-0

7

Sep-0

7

Nov

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Jan-

08

Mar

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May

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Jul-0

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Sep-0

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Nov

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Jan-

09

Mar

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May

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Jul-0

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Sep-0

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Nov

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Jan-

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Mar

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Implied 20-year UK annual implied inflation

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov

-06

Jan-

07

Mar

-07

May

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Jul-0

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Sep-0

7

Nov

-07

Jan-

08

Mar

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May

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Jul-0

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Sep-0

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Nov

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09

Mar

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May

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Jul-0

9

Sep-0

9

Nov

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Jan-

10

Mar

-10

May

-10

Key Issues & Themes (2)

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Wind Farm Finance - Indicative All- in LIBOR Cost of Debt (including Credit Interest Margin)

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov

-08

Jan-

09

Mar

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May

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Jul-0

9

Sep-0

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Nov

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Jan-

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Mar

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10yr LIBOR swap rate Credit margin All In Cost of Debt

Lehman

TREND ALMOST FLAT

Northern Rock

Key Issues & Themes (3)

NB: Indicative onshore wind example.

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SECTOR SNAPSHOT

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Onshore Wind

Onshore wind continues to be viewed as an attractive asset class by commercial banks and multi-laterals such as the EIB albeit with the flow of onshore wind projects in the UK continuing to be hamstrung by issues such as planning, grid etc

Those projects with consent and grid access are pressing ahead mindful of EMR related issues on the horizon with PPA

availability becoming a potential constraint likely arising from uncertainty inherent in the OFGEM liquidity review etc We are seeing ‘cause and effect’ coming through with developers pressing hard to secure funding for consented projects

to fall the right side of the new banding regime/economics from 01st April, 2013.

Offshore Wind:

2011 will be a pivotal year in developing meaningful precedent across both debt and equity providers in the UK offshore

wind market as a precursor to more formative development rounds such as round 3 where capex requirements will be more significant

The lead banks in this sector are gearing up to respond to the inherent demands of taking construction risk etc which

introduces a need to understand all elements of the supply chain, technology and other factors, with the utilities to the fore in galvanising available liquidity

EMR is an issue that remains to be fleshed out for round 3 projects with light touch ‘change of law’ provisions in current deals.

Sector Snapshot (1)

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Solar PV FiT

HMG moved quickly via the ‘fasttrack’ review to curtail certain aspects of this nascent market mid-year (e.g. ground

mounted and large commercial schemes) with consequential impacts into activity in these PV sub-sectors. Recent announcement re further FiT reduction and compressed timing/enactment, may have a more profound effect

given likely curtailment of roof-based initiatives across both LA/RSL community and residential sectors.

Expectation is that key stakeholders will lobby against the timing of the cuts as may have elements of HMG ‘own goal’ given ‘localism’ and ‘decentralised’ generation agendas.

Difficult to view 2012 as anything other than a period of consolidation/aggregation in the UK PV sector unless continuing supply-side cost reduction brings the economics back into kilter as bridge into Green Deal, RHI etc initiatives.

Small-scale Renewables 2012 will likely be the year that we see small-scale renewable energy coming into the mainstream. AD and small scale wind likely at the vanguard with community schemes and rural generation to the fore.

The standardisation of financing (recourse-based) structures and documentation will be key to get traction into 2012

Sector Snapshot (2)

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Biomass Direct financing precedent in the UK for biomass projects is not deep with smaller, regionally based

schemes to the fore in 2011 with locally sourced feedstock DECC views large-scale biomass as a ‘potential’ source of baseload capacity albeit with recent RO banding

prima facie being less than compelling for the larger dedicated schemes

Development activity currently evident both for dedicated schemes and co-firing/coal-fired unit conversion initiatives but with weighting gravitating towards the latter

The introduction of RHI is a non-event for large scale biomass but remains a potential ‘game changer’ for smaller RE schemes to encourage heat use

Likely to see developers efforts gravitate towards more lobbying to mid-January, 2012, in an effort to move levels to where they need to be to attract funding

Sustainability of feedstock and security/diversity of its supply will be to the fore in funding discussions.

Sector Snapshot (3)

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LOOKING AHEAD

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THANK YOU

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Biography

Richard Simon-Lewis – Senior Director, Renewable Energy, Lloyds Bank Corporate Markets Email: richard.simon-lewis@lloydsbanking.com T: +44 (0) 207 158 8361 M: +44 (0) 7764 975 646 Richard is a senior project financier with over 20 years experience in leading specialised units in sourcing and executing transactions at MLA level across the power, utilities and infrastructure sectors at ‘Global Top 5’ project finance institutions. Richard has been involved in financing low carbon/renewable projects since the mid-1990s across various European markets together with a concurrent mandate across EMEA that encompassed more conventional gas-fired, clean coal and nuclear projects/technologies. In his previous role as Director and Head of Energy & Utilities PF at Lloyds TSB, he was responsible for building a £1bn+ energy and utilities portfolio taking the lead on a number of high profile MLA transactions including the Bank’s 1st onshore wind deal (Scoutmoor), the Bank’s 1st offshore wind deal (Project Boreas including Facility Agent, Security Trustee, Account Bank roles) etc. He was the principal involved in securing Partner Bank status for LBG in the UK Renewable Financing Programme with the EIB in 2009 and was the Bank’s representative on the related DECC EIB Intermediated Lending Working Group. More recently, Richard has represented LBG in discussions with DECC on financing biomass as a precursor to the biomass grandfathering consultation process and is currently involved in discussions with DECC re EMR. Transaction highlights during 20010/11 include acting as lead director on MLA transactions including the Euros 65m solar PV portfolio financing in Spain for First Reserve, the £340m, 270MW Project Boreas offshore wind transaction (voted PFI Offshore Wind Deal of the Year for 2009), and £35m Bickerfen & Walkway onshore wind financing for EdF (including Facility Agent, Account Bank & Security Trustee roles), Glenkerie onshore wind financing for Infinis which includes the EIB intermediated scheme and the £300m solar PV FiT portfolio financing for Eaga and InfraRed. Additional experience included Head of EMEA Project Finance at Abbey and Head of Infrastructure at Credit Lyonnais. Richard is a regular conference speaker with recent engagements including the REGEN SW event at the House of Commons and the BWEA Annual Renewable Energy conference. Richard has a BSC (Hons) in Financial Services (First Class) from UMIST and is ACIB and SFA Corporate Finance (CF30) qualified.

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