Renewables Auctions in Germany Current trends and outlook

Renewables Auctions in Germany Current trends and outlook Dario Traum OFATE / DFBEW E-World 2018 side event February 7, 2018

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2018 BNEF focus areas Investment Markets Customers Technology Strategy Energy investment policy Renewable energy auctions and evolving support mechanisms, trade wars and pacts, levelized costs of electricity generation, merchant risk Power market design and price formation Capacity / reliability mechanisms, market integration, integration of distributed resources, retail tariffs, power market forecasts, merit order shifts, realized power prices, impacts of renewable energy Decentralized energy Consumer PV and storage, EV charging, dynamic demand, community solar, peer-to-peer trading, virtual power plants, behind-themeter business models, valuing distributed resources, regulatory reform for distributed energy Transformative technologies Industrial IoT, solar/ wind technology breakthroughs, software and hardware for distributed assets, blockchain, machine learning, advanced materials and metals, hydrogen for flexibility, carbon capture & storage Evolving utility and oil & gas strategies Investments and M&A, international expansion, innovation, centralized vs distributed approaches, new retail opportunities, competition, business models, and impact of regulatory reform Emerging market opportunities Increasing power demand, grid infrastructure needs, one belt one road, solardiesel hybrids, micro-grids and energy autonomy, energy access to the 1 billion, LNG imports, publicprivate financing Grid flexibility and resilience Changing load profiles, balancing across different time horizons, network constraints, flexible resources including batteries, demand response, electric vehicles and natural gas, climate implications Corporate energy and sustainability Corporate energy procurement (C&I), ESG, green finance, green bonds, green investors, demand from corporate buyers, corporate energy security and resilience Electrified and autonomous mobility Electric vehicles, policy support, charging infrastructure and grid integration, commercial fleet electrification, access over ownership, business models, autonomous systems Questioning demand orthodoxies Changing power demand, oil and gas demand displacement from EVs, rising lithium demand from batteries, LNG competitive economics, shipping fuel substitution 3

Renewables Auctions in Germany Current trends 4

Current trends Global announced and auctioned renewables capacity 5 GW Gigawatts Gigawatts 0.2 0.9 0.2 1.3 0.9 2.4 1.3 3.9 2.4 7.7 3.9 10.0 7.7 13.9 10.0 19.0 13.9 21.8 19.0 31.6 21.8 40.1 31.6 53.0 40.1 86.6 53.0 137.3 86.6 137.3 0.2 0.9 1.3 2.4 3.9 7.7 10.0 13.9 19.0 21.8 31.6 40.1 53.0 86.6 137.3 Announced: Other Europe Asia 4.0 4.0 9.4 Awarded Europe (cumulative) 9.4 4.0 10.7 Awarded (cumulative) 8.9 10.7 9.4 8.9 10.7 16.3 25.28.9 5.3 5.5 4.5 4.0 16.310.1 25.2 5.3 5.5 4.5 4.0 10.1 5.0 16.3 6.1 10.0 5.0 25.2 6.1 10.0 5.3 2003 2004 2003 2005 2004 2006 2005 2007 2006 2008 2007 2009 2008 2010 2009 2011 2010 2012 2011 2013 2012 2014 5.5 2013 2015 4.5 4.0 10.1 2014 2016 2015 2017 2016 5.02018 2017 2019 2018 6.12020 2019 tba 2020 10.0 tba SSA Other MENA SSA Latin MENAAmerica Asia Latin America Europe Asia Awarded: Other Europe SSA Other MENA SSA Latin MENAAmerica Asia Latin America Source: Bloomberg New Energy Finance. Note: Excludes 60.8TWh of renewable electricity already auctioned in Chile between 2006 and 2017 and 12 billion euros of subsidy 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 tba budget to be awarded in the Netherlands in October 2017.

Current trends Top countries for announced and auctioned renewables capacity GW India 21.8 3.1 1.3 27.0 China 19.0 8.0 27.0 India Brazil 21.8 25.5 3.1 1.3 27.0 25.5 China India Germany 5.6 19.0 21.8 1.7 8.7 16.0 8.0 3.1 1.3 27.0 China Brazil France 5.219.0 25.5 3.4 2.6 12.5 8.0 25.5 27.0 Germany Brazil 5.6 Spain 1.7 8.7 8.7 25.5 9.116.0 25.5 Germany France 5.2 5.6 Mexico 1.7 3.4 7.92.6 8.7 12.5 7.9 16.0 France Spain United 5.2 Kingdom 8.7 3.4 5.5 9.1 2.6 5.512.5 Awarded Mexico Spain South 7.9 8.7 Africa 7.9 5.0 9.1 5.0 Kingdom 5.5 Netherlands 5.5 5.0 5.0 To 2016 Awarded be awarded (by auction year): Mexico 7.9 7.9 uth Africa 5.0 Turkey5.0 2017 2.7 2.1 4.8 2016 Kingdom 5.5 5.5 therlands 5.0 Argentina 5.0 4.5 4.5 2018 uth Africa 5.0 5.0 2017 Turkey Russian 2.7 Federation 2.1 4.8 4.3 4.3 2019 therlands 5.0 5.0 2018 Argentina Turkey 2.74.5 2.1 Algeria 4.5 4.8 3.9 3.9 2020 2019 Argentina ederation United 4.3 4.5 Arab Emirates 4.3 4.5 2.9 2.9 TBA 2020 ederation Algeria Emirates Algeria 3.9 4.3 2.93.9 3.9 Italy 4.3 2.9 3.9 Chile 2.2 2.2 2.2 2.2 TBA Chile Italy Denmark Chile Emirates Italy 2.2 1.8 2.2 2.2 2.9 2.2 2.2Australia 2.0 2.2Morocco 2.22.9 Denmark 0.8 1.1 1.0 1.8 1.8 1.6 2.0 Denmark Australia 0.81.8 1.1 1.8 2.0 Australia Morocco Source: 0.8 1.0 Bloomberg 1.1 1.6 New Energy Finance. Note: Excludes 60.8TWh of renewable electricity already auctioned in Chile between 2006 and 2017 and 12 billion euros of subsidy 1.8 budget to be awarded in the Netherlands in October 2017. Morocco 1.0 1.6 6

Current trends Auction capacity corridors and extra volumes proposed in coalition agreement GW tbc tbc 2 2 2.5 2.5 0.5 0.5 0.7 0.7 0.7 0.84 0.84 0.84 0.84 0.84 2.5 2.5 2 2 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.8 2.8 2.8 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 Offshore wind - 'GroKo' bonus PV - 'GroKo' bonus Offshore wind - EEG PV - EEG Onshore wind - 'GroKo' bonus Onshore wind - EEG 2017 2019 2021 2023 2025 2027 2029 Source: EEG 2014, GroKo coalition talk start agreement 7

Current trends German auction prices and participation Euro / Mwh 100 COVERAGE RATIO 4.6 3.5 2.8 4.2 2.6 2.6 2.4 3.2 3.4 Euro / Mwh Euro / Mwh 100 COVERAGE RATIO 2.6 2.9 2.6 SOLAR Average Min Max ONSHORE 80 100 80 2.6 2.9 2.6 60 80 56.8 60 49.1 40 60 42.9 40 38.2 20 40 20 38.2 22 20 22 0 0 2015 2016 0 2017 May 2017 Aug Nov May Aug Nov Source: Bundesnetzagentur 8

Current trends Offshore wind levelized auction prices Levelized bids (2016 $/MWh) 200 150 100 50 Northwind Thornton Bank (I-III) Nobelwind Gemini Rentel Anholt Belgium Netherlands Denmark Early CfD -- Dudgeon, Burbo, Walney Early CfD -- Beatrice, Hornsea 1 CfD R1 -- East Anglia 1 Norther Mermaid Seastar Horns Rev III Near-shore Krieger's Flak U.K. Northwester II Borssele I & II CfD R1 -- Neart Na Gaoithe CfD R2 -- Triton Knoll CfD R2 -- Hornsea 2, Moray Firth Ongoing auction Borssele III & IV Germany Gode Wind 3 He Dreiht OWP West BRW II 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 Source: Bloomberg New Energy Finance. Notes: Figures refer to an estimated project LCOE, taking into account tariff, inflation, merchant tail assumption and a 23-year project lifetime. Horizontal axis refers to commissioning year. 9

Renewables Auctions in Germany Outlook 10

Financing: Price suppressing factor Equity returns are at record lows Institutional investor unlevered equity return expectations for onshore wind Unlevered equity returns for institutional investors U.K. (RO) 8.2% 9% Poland 7% 8% Norway 7% 8% Ireland 7% 7.5% Spain 6.5% 7.5% U.K. (CfD) 6.5% 7% Italy 5% 6% Sweden 5% 6% France 4% 5% Germany 3% 4% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1H 2017 2H 2015 Bloomberg New Energy Finance. Note: RO = Renewables Obligation. CfD = contract-for-difference. 11

Financing: Price lifting factor Central bank interest rates may well be on the rise 6% 5% 4% 3% 2% France Germany U.S. Japan 1% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017-1% 12

SOLAR: Price suppressing factor Solar technology is getting cheaper, faster 2016 ($/W) 100 1976 10 1 0.1 1985 1 10 100 1,000 10,000 100,000 1,000,000 Cumulative capacity historic prices (Maycock) 2003 2008 NEO 2017 28% learning rate NEO 2016 26.5% learning rate Chinese c-si module prices (BNEF) 2015 2017 (est) Source: Maycock, Bloomberg New Energy Finance 13

SOLAR: Price lifting factor Geographic distribution of PV PV INSTALLED CAPACITY, 2016 PV AUCTIONED CAPACITY, cumulative 0.125GW 11.637GW 0MW 391MW Source: AEE, Bloomberg New Energy Finance 14

SOLAR: Price lifting factor Geographic distribution of PV PV INSTALLED CAPACITY, 2016 PV AUCTIONED CAPACITY, cumulative 0.125GW 11.637GW 0MW 391MW Source: AEE, Bloomberg New Energy Finance 15

Onshore: Price suppressing factor Turbine price by delivery date million Euro/MW 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 Global (ex. China) Germany (ExTool) Denmark (Extool) US (LBL) China (BNEF) Vestas global Source: Bloomberg New Energy Finance Note: Data by contract signing date 16

Onshore: Price suppressing factor Onshore wind is getting cheaper as capacity factors rise Onshore wind capacity factor Capacity factor forecast for the U.S 60% 50% 40% 30% 20% 10% 299MW 70% 60% 50% 40% 30% 20% 0% 1980 198419881992 19962000 200420082012 20162020 Germany Denmark UK Spain US Canada 10% 0% 2017 2020 2025 2030 2035 2040 Source: Bloomberg New Energy Finance Note: Note: Averages are capacityweighted. We calculate the capacity factor with our proprietary Wind Farm Capacity Factor Tool using real project data and wind resource data provided by 3TIER by Vaisala. We assume P90 value in the capacity factor tool. Source: Bloomberg New Energy Finance Notes: Line shows central case, error bars reflect the range between low speed and high speed sites 17

Onshore: Price lifting factor Onshore auctions rule changes Citizen driven projects took it all FIRST THREE AUCTIONS 96% 71% 95% 84% 99% 89% BEG - win BEG - application Pay-as-clear rather than Pay-as-bid 54 months delivery deadline rather than 30 months No permit required, hence no turbine size lock NEXT TWO AUCTIONS (at least) All projects to be delivered in 30 months All projects must be permitted Ceiling price increased to 63euros/MWh May 17 Aug 17 Nov 17 Source: Bundesnetzagentur 18

00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 2017 2020 2025 2030 2035 2040 Offshore: Price suppressing factor Offshore wind has surprised us Turbine size Generation profiles: Germany LCOE - Germany MW normalized $/MWh (real 2016) 15 15MW turbines estimated 12 9 Projec 6 496MW 12-month weighted 3 400MW 0 120MW 1990 2000 2010 2020 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Onshore Offshore 200 180 160 140 120 100 80 60 40 20 0 Offshore wind CCGT Coal Onshore wind Utility-scale PV Source: Bloomberg New Energy Finance Source: Bloomberg New Energy Finance Source: Bloomberg New Energy Finance 19

Offshore: Price suppressing factor The cost of offshore versus. onshore and solar Levelized bids (2016 $/MWh) 200 Levelized offshore prices 150 100 50 Solar LCOE forecasts Onshore LCOE forecasts January 2017 offshore forecast German projects 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 Source: Bloomberg New Energy Finance. Notes: Figures refer to an estimated project LCOE, taking into account tariff, inflation, merchant tail assumption and a 23-year project lifetime. Horizontal axis refers to commissioning year. Forecasts are from a selection of European countries and taken from BNEF s New Energy Outlook 2017: Global Overview (web terminal). 20

Offshore: Price suppressing factor Sellers and buyers of equity in precommissioned European offshore wind $bn 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.0-0.5-1.0-1.5-2.0-2.5-3.0-3.5-4.0-4.5-5.0 Buyers 0.7 2010 2011 2012 2013 2014 2015 2016 2017 Manufacturers and supply chain -0.7 1.2-1.2 Sellers 1.4-1.4 0.6-0.6 2.2-2.2 2.6-2.6 1.9-1.9 3.9-3.9 Other financial institutions Oil & gas Project developer Institutional Investor Utility Source: Bloomberg New Energy Finance. Note: Other financial institutions includes private equity, governments, and sovereign wealth funds. 21

Offshore 0-subsidy bids Should the business case... not prove attractive in four years from now, we will abandon the projects and write off the value of the bid bond. Henrik Poulsen Ørsted CEO Financial Times, 2017 Source: https://www.ft.com/content/b4a4f0ae-e597-11e7-97e2-916d4fbac0da 22

Offshore 0-subsidy bids I don't get the impression that there are lots of people out there gearing themselves up to invest a lot of money in those sorts of assets. Mark Muldowney, BNP Paribas MD Energy & Infra Financial Times, 2017 Source: https://www.ft.com/content/b4a4f0ae-e597-11e7-97e2-916d4fbac0da 23

Clean energy subsidies Risk of PV/onshore auctions with variable premium contracts Euros/MWh 80 70 60 50 Lower realised power prices for PV as a result of price cannibalisation lead to much higher subsidies bills despite its low cost PV - realised 2035 Onshore - realised 2035 40 30 Onshore - tariff 2022 PV - tariff 2022 20 10 PV Capacity: 35GW Generation:33TWh SUBSIDY Per MWh: 6.6 euros Onshore Capacity: 63GW Generation:108TWh SUBSIDY Total: 0.6bn euro Per MWh: 5.1 euros 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 2035 Source: Bloomberg New Energy Finance 24

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