Management s review 2009 Statement and report Financial statements 2009

Transcription

1 Annual Report 2009

2 Table of contents Company details 2a Management s review Greentech at a glance 3 Financial highlights of the Group 4 Management s review 5 Greentech s activities 11 Organisation and remuneration 21 Risk management 22 Corporate Governance 26 Corporate Social Responsibility (CSR) 28 Board of Directors and Management 29 Shareholder information 30 Statement and report Statement by the Board of Directors and the Management 32 Independent Auditor s report 33 Financial statements Financial statements Notes 41

3 The Company Greentech Energy Systems A/S Marielundvej 48, 1. tv. DK-2730 Herlev Denmark Telephone: Fax: Website: CVR no Financial year: 1 January 31. December Registered office: Municipality of Herlev, Denmark Board of Directors Kaj Andreassen, Chairman Borris Tangaa Nielsen, Deputy Chairman Torkil Bentzen Francesco Novelli Michael West Hybholt Management Kaj Larsen, CEO Mark Nikolaj Fromholt, CFO Auditors PricewaterhouseCoopers, Statsaut. Revisionsaktieselskab Strandvejen 44 DK-2900 Hellerup Annual General Meeting The Annual General Meeting will be held on 20 April 2010 at 5.00 pm. at Glostrup Park Hotel, Hovedvejen 41, Glostrup, Denmark. International offices Greentech Energy Systems Italia S.r.l. c/o Regus Via Salandra, 18 IT Rome, Italy Telephone: Fax: greentechitalia@greentech.dk Wiatropol International Sp. z o.o. Jaskowa Dolina 81 PL Gdansk, Poland Telephone: +48 (58) Fax: +48 (58) biuro@wiatropol.pl Website:

4 Greentech s activities Wind farms in operation Wind farms under construction Projects under development

5 Greentech at a glance Greentech at a glance Greentech Energy Systems A/S ( Greentech or the Company ) is a company which develops, installs and operates wind turbine projects. Greentech focuses on carefully selected EU countries with favourable wind conditions, a large need for wind power expansion and a de facto political commitment to promoting wind power through factors such as attractive tariffs and subsidy schemes. The Company currently focuses on Italy and Poland; Italy because tariffs on electricity generated by wind power are the most attractive in Europe, whilst the country is also keen on becoming self-sufficient in terms of energy. This involves a wish to substantially expand renewable energy capacity. Poland because the country has a very modest renewable energy sector and because Poland has committed itself to pursuing the overall objectives of the EU. Thus, there is a need for substantial investments in renewable energy. Over the past few years, tariffs on power generated by wind turbines have shown a constantly rising trend and are presently at a level making it possible to expand wind power. The profitability of the Polish projects to some extent relies on the exchange rate of the PLN. Nevertheless, Greentech is confident that, in future, the Polish market will be an attractive market in terms of wind turbine investments. Greentech also has wind farms in operation in the mature wind turbines markets in Denmark and Germany and minor development activities in Norway, where wind power is still being developed. Strategy The strategy in the key markets is to establish a significant portfolio of development projects and gradually convert them into power-generating wind farms. Greentech regularly assesses whether divesting projects in operation will create value and contribute to optimising the total portfolio. Greentech intends to continue to build capacity by developing projects from the greenfield stage; acquiring projects under development and completing them in-house; Greentech focuses on projects representing a capacity of MW and offering satisfactory wind potential and strong returns. Greentech typically enters the projects as early as possible to gain the largest possible share of the value creation. Over the past 18 months, the international financial crisis has been an obstacle to the Company s strategy and made it difficult to start up new projects. Obtaining project financing has been and continues to be problematic. However, there are budding signs of improvement in the market for project financing. Moreover, lessened possibilities of raising fresh equity at acceptable price levels also severely affected the crisis in the financial markets. Currently, the key to commencing new development projects could be to divest existing wind farms, and the Company will explore the opportunities for such divestment on reasonable terms in Objectives to maintain a substantial development pipeline of at least MW; to maintain construction activity to increase installed capacity; to achieve an IRR (internal rate of return) of >15% on new investments; to achieve a reasonable return to the shareholders through share price gains. 3

6 Financial highlights of the group Financial highlights of the group DKK Income Statement Revenue 75,461 83,630 51,261 14,662 15,875 Gross profit before impairment 25,590 34,115 23,037 5,719 7,209 Operating profit/loss -295,854-6,228 3,445-5,780-7,292 Net financials -15,041-12,537-9,357-7,128-5,015 Profit/loss for the year -301,789-18, ,886-16,040 Comprehensive income for the year -302,307-18, ,932-16,043 Balance sheet Non-current assets 2,081,081 2,612,266 1,450, , ,484 Current assets 469, , ,520 47,233 35,541 Total assets 2,550,185 2,803,715 2,215, , ,025 Share capital 240, , ,331 99,871 75,739 Equity 1,719,277 2,008,873 1,918, ,487 70,316 Non-current liabilities 598, , , , ,763 Current liabilities 232, , ,485 41,592 23,946 Cash flows Cash flows from operating activities 70,945-7, ,962-18,780 2,026 Net cash flows from/used in investing activities 104, , ,253-88,685-2,305 Of which investment in property, plant and equipment -307, , ,779-88,685-6,305 Cash flows from financing activities 40, ,601 1,389, ,908 25,062 Total cash flows 216, , ,652 7,443 24,783 Key figures Gross margin before impairment 33.9% 40.8% 44.9% 39.0% 45.4% Profit margin % - - Equity ratio 67.4% 71.7% 86.5% 58.5% 35.0% Return on equity -16.2% -1.0% 0.0% -8.2% -20.7% Per share figures Earnings per share (EPS basic), DKK Net asset value per share Price/net asset value Market price, year end Average number of employees Key figures related to operations Production in kwh (mio.) Net capacity (MW)

7 Management s review Management s review Highlights of the year 2009 was a year in which the consequences of the international financial crisis truly tested Greentech s Management and financial resources. At the beginning of the year, it became clear that the completion of the financing of the Company s 98.8 MW Monte Grighine project would be delayed due to lack of syndication of the agreed loan facility. Furthermore, the lenders temporarily suspended the drawing rights under the established financing for the Minerva Messina project due to extra expenditures and delay in completing the project. These issues created a general cash problem for the Company, which made it necessary to seek alternative solutions as Management intended to keep the two sites in operation even if this had to be exclusively based on own funds. Greentech managed to identify a number of solution models, all based on medium-term loans. However, due to the conditions for these loans, which involved either very high costs or a potential large dilution of the existing shareholders, Greentech s Management at the time was not prepared to accept the conditions. Concurrently with these loan-based solution models, Greentech was looking for a strong international collaboration partner who could contribute to securing future growth for Greentech and improve the possibilities of establishing the project financing which is a key precondition for installing wind turbine facilities. Greentech successfully identified such a partner, and in May 2009 the Company signed an agreement with one of the strongest players in the renewable energy sector, the EDF EN Group of France. Under the agreement, EDF EN acquired 50% of the Monte Grighine project, thus contributing to securing the completion of the project. EDF EN also obtained an option to buy into the projects that Greentech will be develop going forward. Greentech considers the partnership a strong alliance in the future development of the Company. Later in the year, Greentech managed in close collaboration with EDF EN to complete the financing for the Monte Grighine project, and the first drawing on this credit facility was made in December Most of the Company s resources in 2009 were dedicated to resolving the financial challenges and maintaining a satisfactory activity level at the construction sites. Unfortunately, the Company s power-generating facilities fell short of expectations due to wind conditions, which for a large part of the year were unsatisfactory. The Energia Verde project was once again influenced by problems relating to rotor blades in A huge effort has been made to resolve these problems. The preliminary measurement results indicate that the difficulties have been resolved, and this is presently being tested by an independent expert. During the winter and spring months of 2009, Greentech s construction sites at the Monte Grighine and Minerva Messina projects experienced the wettest period for many years. This caused delays and extra work due to landslides and damage to the internal roads. At both sites, the Company managed to complete the grid connection, enabling the projects to contribute incomegenerating activities in There have been no major construction activities in the Cagliari II project, as further construction activities of this project is awaiting financing. Greentech s development portfolio has been given lower priority in relation to the focus on the completion of the Company's large construction projects, inclusing raising cash for this purpose. The resources necessary to support the local development organisations have not been in place. Furthermore, a number of regions in Italy implemented new guidelines for renewable energy plants in 2009, materially delaying the handling of the applications already submitted by Greentech to the authorities. As a result, no development projects were completed in In 2010, Greentech will dedicate the necessary resources to this area to bring the development activities back to a level that will help the Company to achieve its objects. Project financing As mentioned on a number of occasions in this annual report, the procurement of necessary project financing is a restricting factor for the vast majority of the industry players. A large number of projects were postponed or abandoned altogether in 2009 due to the conditions in the financial markets. 5

8 Management s review It is still possible to establish such financing, as witnessed by the Company s loan facility for the Monte Grighine project. However, it must be acknowledged that the lending market is currently marked by the following trends: less lending capacity due to fewer potential lenders higher lending margins stricter requirements on the equity share of financing, which in many cases is as high as 50% longer processing times stricter requirements on project quality At the date of the presentation of the annual report, the status of Greentech s Italian project financing negotiations is as follows: Monte Grighine: Project financing has been established with a senior facility for EUR 82.1 million and a VAT facility of EUR 13.9 million. As previously mentioned, the first drawing has been made on this financing, which provided the Company with approximately EUR 80.0 million for the two joint venture partners Greentech and EDF EN, of which Greentech received EUR 39.9 million. Minerva Messina: Project financing for this project has been suspended since February The Company has agreed with the funding banks that this facility will be re-opened. Efforts are underway to obtain the final documents. In connection with these financing negotiations, Greentech has acquired an option to buy the remaining 15% of the Minerva Messina project. Furthermore, Greentech expects to test the market for financing of Polish projects in 2010, as the Company expects a number of Polish projects to be fully developed at the end of the year. Organisation In 2009, Greentech s Management implemented a change of the structure of the Company s organisation. The intention is to strengthen the Company s local entities in Italy and Poland, so that a large number of assignments can be executed directly by the local organisations. Financial review Revenue amounted to TDKK 75,461 against TDKK 83,630 in The lower revenue was due to poor wind conditions in the first and fourth quarters of 2009 at all production sites. Production from the Energia Verde project in Sardinia in 2009 was also influenced by problems relating to the rotor blades. These matters are currently being reviewed by an independent expert. The outcome of this review will form the basis of discussions concerning the compensation for production shortfall which the Company expects to receive from the wind turbine supplier pursuant to the guranties. No compensation has been recognised in the annual report for Cagliari II: Greentech has defined a clear goal for 2010 of establishing the necessary financing for this project in order to complete this 24 MW wind farm. Revenue breaks down on the individual countries as follows: Q1 Q2 Q3 Q4 Full year Denmark 31% 21% 13% 11% 12% 14% 17% 17% 19% 16% Italy 42% 37% 53% 66% 57% 60% 36% 56% 47% 53% Poland 3% 3% 3% 4% 2% 3% 4% 2% 3% 3% Germany 25% 39% 25% 19% 20% 23% 35% 25% 26% 28% Other income 0% 0% 7% 0% 8% 0% 8% 0% 6% 0% 6

9 Management s review Revenue in Denmark was positively affected by the Company successfully obtaining a tariff for its production of DKK 0.56/kWh compared with the guaranteed tariff for these turbines of DKK 0.43/kWh. Under the partnership agreement signed in May 2009 with EDF Energies Nouvelles (EDF EN), EDF EN has an option to acquire ownership interests in Greentech s project portfolio, when the projects are fully developed, and construction can commence. The price of the option was fixed at EUR 3.0 million. This income will be recognised periodically over the expected useful life of the partnership agreement under the item Other income. Production costs, which also include depreciation of wind farms in operation, were unchanged as compared with the 2008 and total TDKK 49,871. The costs break down as follows: DKK Operating expenses: 20,172 21,268 Depreciation: 29,699 28,247 The preliminary accounting loss on the sale of 50% of the Monte Grighine project to EDF EN has been recognised in the annual report in the amount of TDKK 169,213, which amount includes TDKK 149,098 related to a loss on the sale of the shares and TDKK 20,115 relating to expected advisor fees in connection with the transaction. Since Greentech carries all costs and risks associated with the completion of the Monte Grighine project, a finite loss cannot be booked until takeover of the project. When calculating the preliminary accounting loss, Management has assessed the expected costs of completion. In connection with the presentation of the audited interim financial statements for the first half of 2009, Management performed an impairment test of the carrying amount of wind turbines and wind turbines under construction. In this connection, Management made an impairment loss of TDKK 82,666. The impairment writedowns were made due to a number of external matters, which in the opinion of Management combined to lessen the likelihood of completing the development of the Candela, Kollsnes and Pomorze offshore projects with the production capacity assumed so far. At the presentation of the annual report, the impairment losses made in the interim financial statements are retained, as there have been no changes in the external factors that led to the above-mentioned impairment. In accordance with the Company s accounting policies, Management has performed a similar impairment test at the presentation of the annual report. Due to higher costs of completing the Minerva Messina project, an impairment loss is recognised on this project. Since it has not been possible to obtain higher prices in the Danish market in 2010 than the guaranteed minimum price of DKK 0.43/ kwh, and as it is assumed that this guaranteed minimum tariff will fall to DKK 0.33/kWh from 2011, an impairment loss has been recognised on the Danish wind turbines. The additional impairment losses recognised amount to TDKK 29,280. The combined impairment of the carrying amount of wind turbines and wind turbines under construction subsequently amounts to TDKK 111,946 for A description of the assumptions applied is set out in note 15 to the financial statements. Administrative expenses amounted to TDKK 33,561 in 2009, up from TDKK 27,134 in The increase was partly attributable to an expansion of the organisation both in Denmark and in Italy, partly to higher costs associated with travel activity and advisor fees associated with the Company s negotiations to source financing. The operating profit was impacted by non-recurring expenses associated with the financing solutions Greentech was working on at the beginning of 2009 to fulfil the Company s cash requirements. In connection with signing the final agreement with EDF EN, Greentech discontinued negotiations concerning other solutions, which resulted in expenses of TDKK 7,451. Financial expenses amounted to TDKK 15,041 in 2009, compared with TDKK 12,537 in Greentech recorded a pre-tax loss of TDKK 310,895, which is consistent with the guidance provided at the publication of financial statements for the third quarter of Greentech recorded a loss after tax of TDKK 301,789. Balance sheet, including equity and capital structure Under the agreement signed with EDF EN for the sale of 50% of the shares in Greentech Monte Grighine Srl. (GMG), it was determined that EDF EN has the controlling influence in the project company, which means that Greentech cannot consolidate its ownership interest in GMG but must recognise the share of profit/loss and equity under associates. For 2009, the results in GMG were moderate because the first turbines were not commissioned until towards the end of the year. 7

10 Management s review As a result of the above, the sale resulted in a material reduction of the Company s property, plant and equipment. This reduction was partially offset by a significant increase in investments and receivables from associates. At 31 December 2009, cash stood at TDKK 304,368 against TDKK 87,724 at 31 December The increase in cash was attributable to the agreement concluded with EDF EN and the obtaining of financing for the Monte Grighine project. At 31 December 2009, equity stood at TDKK 1,719,277 against TDKK 2,008,873 at 31 December The decrease in equity was attributable to the loss for the year. Greentech had a solvency ratio of 67.4% at 31 December At the end of the year, non-current liabilities were specified as follows: capacity of 28 MW together with an option to acquire the remaining 20%. Furthermore, Greentech receives an option to acquire the project Calitri (52 MW). In connection with the signing of the agreement, ARE waives the right to substitute 90 MW, which was an option under the original agreement with Baltic Renewable Plc. The agreement referred to above is subject to due diligence, which will be completed in April In the event of a positive outcome of the due diligence process, the agreement will lead to the issuance of 664,912 shares in Greentech for ARE. No other significant events have occurred from the balance sheet date until the publication of this annual report that materially affect the Company s results of operations or financial position. DKK Financing of Polish turbines 4,410 5,191 Financing of German turbines 108, ,533 Financing of Danish turbines 6,075 15,175 Financing of Italian turbines 460, ,094 Other loans 0 0 Total 579, ,933 Total non-current liabilities: TDKK 579,738. Cash flows Greentech s cash flows were affected by the continuing comprehensive investment programme and the build-up of capacity in Italy. Moreover, cash flows for the year were affected by the sale of 50% of the Monte Grighine project and the obtaining of financing for this project. Total cash flows from these two major transactions amounted to TDKK 412,534. Cash flows for investing activities amounted to TDKK 307,741, against TDKK 979,766 the year before and primarily involved investments in property, plant and equipment. Cash flows from financing amounted to TDK 40,906, whilst cash from operating activities were TDKK 70,945. Overall, the Company recorded a cash inflow of TDKK 216,644. Events after the balance sheet date In connection with the presentation of the annual report, the Board of Directors has signed an agreement with Advanced Renewable Energy ApS (ARE), which replaces the agreement previously signed with Baltic Renewable Plc. Under the new agreement, Greentech will acquire 80% of the projects Due Serri and Campo d Oro of a total Outlook for 2010 Changes in wind and weather conditions make it difficult to provide accurate forecasts of power production and, hence, revenue. Operational disruptions may also affect production. The Company s forecast for 2010 is based on normal operations and an average wind year. However, the forecast takes into consideration that wind conditions in Northern Europe during the first two months of the financial year were about 50% of a normal wind year. The forecast for 2010 does not include any effects from the divestment of wind farm projects. Power production Greentech expects power production (the pro rata share) to increase by 91% to 185 million kwh in 2010, of which 60% will derive from production in Italy. This is based on expectations that the Energia Verde project will generate production as in a normal year and the commencement of the Monte Grighine and Minerva Messina projects. The Company expects production from both the Monte Grighine project and the Minerva Messina project to correspond to approximately six months of normal production in Timing differences in project start-ups could have both an adverse and a positive effect on power production. 8

11 Electricity prices In the respective markets, Greentech expects to obtain the following tariffs for power and green certificates: Denmark: Italy: Germany: Poland: DKK 0.43 per kwh EUR 0.18 per kwh EUR per kwh EUR 0.09 per kwh Revenue Greentech owns 50% of the Monte Grighine project. Revenue and profit from this project are recognised in the income statement under Income from investments in associates and thus does not affect the Company s revenue, but is included in its EBITDA. According to the above assumptions, Greentech expects revenue for 2010 to grow by 90% to MDKK 142 (2009: MDKK 75). EBITDA Greentech expects a 2010 EBITDA of MDKK (2009: MDKK 16). The Company s cost level will increase due to the higher level of activity. Administrative expenses will also be higher than in The expectations for 2010 includes severance pay of MDKK Depreciation and amortisation Primarily as a result of the start-up of the Minerva Messina project, Greentech expects depreciation and amortisation to increase to MDKK 57 (2009: adjusted for impairment and project sales, MDKK 31). EBIT Greentech expects EBIT for 2010 to come to MDKK 4-14 (2009: adjusted for impairment and project sales, negative at MDKK 15). Profit/loss before tax Interest expenses will grow in step with the completion and financing of the Italian projects. In 2010, Greentech will continue to be affected by the difficult conditions in the international capital markets. With the current financing solutions, Greentech expects its net financials to be negative at MDKK 36 in 2010 (2009: negative at MDKK 15). Greentech expects a loss before tax for 2010 of MDKK (2009: adjusted for impairment and project sales, a loss before tax of MDKK 30). Other matters The Company does not expect to generate income from the Cagliari II wind farm in Sardinia in 2010, but expects to incur costs of MDKK 1 from the project. Since the Company s significant new production capacity will be commissioned successively over the first 6-8 months of 2010, the Company expects to report a loss for the first half of 2010 and a profit for the second half. The Company s expectations for 2010 compared with the actual results for may be broken down as follows: Actual Actual Estimated Production (GWh) Revenue (MDKK) EBITDA (MDKK)* EBIT (MDKK)* 2.6 (14.7) 4-14 Profit/loss before tax (MDKK)* (9.9) (29.7) (20-30) * Adjusted for impairment and losses on sales 9

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13 Greentech s activities Greentech s activities In 2009, Greentech s operations centred on the two principal markets; Italy and Poland. Operations in these two countries are supplemented by power-generating turbines in Denmark and Germany and development activities in Norway which is an emerging wind turbine market. Having activities in five countries helps to create a balanced risk profile. Wind farms in operation Denmark Location Type of turbine No. of turbines Gross capacity Commissioned Ownership Output 2009 (net) Milbak NEG.Micon MW % 5,822,537 kwh Oppelstrup NEG.Micon MW % 12,775,504 kwh Hannesborg Nordex MW % 1,905,887 kwh Frørup Nordex MW % 3,604,423 kwh Denmark MW 24,108,351 kwh Erected at four sites in Jutland and on Funen, the turbines generated 24,108,351 kwh in 2009, against 26,268,195 kwh in The operation of the turbines were affected by the retrofitting of gear boxes in 3 wind turbines, which caused a production stop for these turbines for a certain period of time. Another effect of the production stop was that the Company incurred higher production costs than in previous years. Wind conditions were in line with expectations in the second and third quarters, whilst conditions in the first and fourth quarters were significantly worse than the average level for Denmark. The chart below shows the relationship between a normal year in Denmark as calculated in official statistics based on 30-year average data and the official wind data for 2008 and As shown in the chart, especially the first quarter and December 2009 deviated from a normal year. As these are the periods which traditionally generate the highest output of the year, the deviations have a dramatic impact on the overall result for the year. In 2009, Greentech settled the electricity it generated at a price of DKK 0.56/kWh, which is above the guaranteed price in the transition scheme from In 1999, the Company sold the electricity in the free market under a contract that reflects the fact that the market price was relatively high in Denmark and higher than the guaranteed price. The 1999 transition scheme allows the business to leave the scheme when the market price is higher, but it also secures the guaranteed price of DKK 0.43/kWh if the market price drops below that level. So far, it has not been possible to establish similar arrangements in However, the Company will consistently pay attention to developments in market prices in the Danish market and will be prepared to capitalise on any opportunity to enter into alternative agreements for the sale of electricity. Greentech still believes that Denmark is not a focus market for the Company s future operations Wind conditions Denmark Index Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Avr Wind farm in operation Expected

14 Greentech s activities Germany Location Type of turbine No. of turbines Gross capacity Commissioned Ownership Output 2009 (net) Gehlenberg Enercon MW % 28,262,493 kwh Wormlage Vestas MW % 8,263,221 kwh Tiefental Vestas MW % 6,080,112 kwh Germany MW 42,605,826 kwh Greentech s operational facilities in Germany consist of the Gehlenberg, Wormlage and Tiefental wind farms. In 2009, these wind farms produced 42,605,826 kwh against 49,807,761 kwh in The turbines operated without any operational problems in 2009, although one turbine in Wormlage was stopped for two months due to retrofitting of major components. The chart below shows the relationship between a normal year in Germany calculated on the basis of 20-year average data and official wind data for 2008 and The results of this comparison are similar to those for Denmark as wind conditions in 2009 in Germany were also significantly worse than in a normal wind year in the first quarter and December Electricity from Gehlenberg is settled at EUR 0.091/kWh (DKK 0.68/kWh), while the Tiefental and Wormlage farms sell electricity at EUR 0.085/kWh (DKK 0.63/kWh). Greentech still believes that Germany is not a focus market for the Company s future operations. Wind conditions Germany Index Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Avr Expected Wind farm in operation Poland Location Type of turbine No. of turbines Gross capacity Commissioned Ownership Output 2009 (net) Polczyno Enercon MW % 2,771,931 kwh The small Polczyno farm, consisting of two Enercon turbines, produced 2,771,931 kwh in 2009, against 3,243,692 kwh in There were no operating issues with these problems. General wind data for Poland are limited. The chart below therefore shows the relationship between average wind data for a seven-year period in an area in northern Poland and a wind index calculated on the basis of measurements at Greentech s own site. However, the trends witnessed in Denmark and Germany continue in Poland, where wind conditions in 2009 were also worse than in a normal wind year in the first quarter and December. In Poland, Eolica Polczyno sells electricity and green certificates to the utility company Energa in Gdansk. The electricity is sold at an average market price, which is fixed for one year at a time. The green certificates are sold under a 12

15 Greentech s activities five-year agreement, according to which Eolica Polczyno is guaranteed a price corresponding to 90% of the price fixed by the authorities as compensation on green certificates. In 2009, the average price of electricity and green certificates was PLN (DKK 0.67/kWh), against PLN /kWh (DKK 0.61/kWh) in Wind conditions Poland Index Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Avr Expected Wind farm in operation Italy Location Type of turbine No. of turbines Gross capacity Commissioned Ownership Output 2009 (net) Energia Verde Nordex MW % 27,472,223 kwh Production from Energia Verde S.r.l. was influenced by problems relating to the rotor blades again in In February 2009, the supplier of the turbines completed the replacement of the last set of blades for the 14 wind turbines in the project. Following release of the turbines for normal production, Energia Verde has closely monitored turbine performance, including regular calculations of turbine output in relation to the turbine manufacturer s guaranteed power curve. Based on these calculations, Energia Verde informed its turbine supplier that the turbines, in Energia Verde s opinion, still did not perform at the level set out in the agreement with the supplier. The turbine supplier has recognised this discrepancy and has subsequently made a number of fine-tuning of the rotor blades. Energia Verde has now initiated a so-called power curve verification, in which an independent expert conducts measurements of the turbines and an assessment of the output compared with the guaranteed power curve. These examinations will be summarised in a report from the independent expert, which is expected to be available this year. When the report has been published, negotiations will be initiated with the turbine supplier in respect of the compensation for the production shortfall. In this context, it should be mentioned that, in the supply contract, the turbine supplier has guaranteed the performance of the turbines. As the actual production loss remains to be calculated and the negotiations have still not been initiated, no compensation from the wind turbine supplier has been recognised in the annual report. Production in 2009 was also affected by maintenance work on the transmission grid, which resulted in a 10-day production stop for the project. Pursuant to Italian rules, it is not possible to obtain compensation for this production stop. As a result of the above, the Energia Verde project s production in 2009 was limited to 27,472,200 kwh (2008: 24,016,016 kwh), against the expected 37,750,000 kwh. It should be mentioned, however, that the total production was also affected by wind conditions that were dramatically below expectations for the project site. The chart below shows a comparison of the wind speeds originally projected by Risø in their production calculations and the actual conditions in As shown in the chart, there were several periods during the year with significantly less wind than projected. 13

16 Greentech s activities In 2009, Energia Verde S.r.l. sold green certificates earned from its production in 2007 and The green certificates were sold at a price of EUR 0.098/kWh. Green certificates earned from production in 2009 will be sold in the first half of 2010, when the Italian government, through its company GSE, guarantees a price of EUR /kWh (DKK 0.66/kWh). Energia Verde S.r.l. will subsequently achieve a total tariff in 2009 of EUR /kWh (DKK 1.27/kWh), which is lower than in 2008 but in line with expectations. Wind conditions Italy m/s Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Avr Expected 2009 Wind farm in operation Wind farms under construction Italy Location Type of No. of Gross Expected annual Ownership turbine turbines capacity gross output Monte Grighine Nordex MW 135,000,000 kwh 50 % Minerva Messina Nordex MW 76,500,000 kwh 85 % Cagliari II* Nordex MW 40,000,000 kwh 60 % Italy MW 251,500,000 kwh * Greentech has a right/obligation to acquire the remaining ownership interest when the Cagliari III project has been fully developed. In 2010, Greentech will complete the construction of the two large projects Monte Grighine and Minerva Messina. In spite of difficult financing conditions and an unusually wet winter and spring season for both projects in 2009, the Company succeeded in maintaining progress at the two sites. At the presentation of this annual report, the status of these projects was as follows: MONTE GRIGHINE All engineering and electrical works have been completed the transformer station has been completed and commissioned All the turbines have been installed mechanically, but one set of blades still needs to be mounted At 22 March 2010, 29 of the 43 turbines in the project were connected to the grid. The following assignments remain outstanding: connecting the remaining 14 turbines to the grid; and completing the re-establishment work necessary on the access roads to the site and on the internal transport roads at the site. Greentech expects that the output from this facility in 2010 will correspond to six months of a normal production year. The appeal case instituted in the region of Sardinia is still pending. The Company still believes that the court will find in favour of Greentech. MINERVA MESSINA All 21 turbines have been installed mechanically the temporary rigid grid connection has been established Minerva Messina s part of the transformer station has been completed and commissioned At 22 March 2010, 5 of the 21 turbines in the project were connected to the grid. 14

17 Greentech s activities The following assignments remain outstanding: connecting the remaining 16 turbines to the grid 50% of the engineering works in Terna s part of the transformer station; installation of electro-mechanical equipment in Terna s part of the transformer station; testing of Terna s part of the transformer station; the remaining 15% of the cabling; and construction of an access road to Terna s part of the transformer station. The following work remains outstanding: installation and commissioning of the 16 turbines; all cable work; and electro-mechanical installations in the transformer station. The project can use the same grid connection as the Energia Verde project and therefore no major work needs to be carried out in this connection. Greentech expects that the output from this facility in 2010 will correspond to six months of a normal production year. CAGLIARI II Greentech is presently investigating the possibilities of establishing financing for completing this project. An agreement has been made with the turbine supplier, under which Greentech must establish financing before the end of Wind farms under construction All foundations and internal roads at the site have been established. The investment currently made in the project represents 50% of the total expected investment. Projects under development Greentech has been an active project developer in Italy since 2002 and in Poland since 2003, which has given the Company the experience to handle complex issues. Generally, the development of a wind turbine project takes 2-3 years. During this period, the project will be exposed to a number of influencing factors, as national and regional legislation is often subject to amendments entailing changes to project assumptions. Project development is therefore a dynamic process in which the size and capacity of a project is subject to revised assumptions. The project may be suspended for a brief or extended period due to local legislation, for instance if a region introduces new priorities or moratoriums or changes its application procedure. Greentech has been an active project developer in Italy since 2002 and in Poland since 2003, which has given the Company the experience to handle the above issues. In order to provide a detailed description of Greentech s development activities, the following contains a brief review of the requirements for the development process that apply in our two principal markets. Moreover, we provide a description of the collaboration models used by Greentech during the development stage. Italy In Italy, wind turbine projects truly gained momentum about 15 years ago, when the legislative basis was very different than that of the current market and when settlement took place at fixed tariffs as opposed to the present market-based settlement system. During this period, Italy has undergone a typical development process in which the need for specific legislation, a general framework and objectives has grown in line with the surge in market activity. The Italian system is characterised by project development being subject to regional guidelines. Accordingly, national legislation usually only has an indirect impact on the process and on the speed at which national legislation is implemented in the individual regions. Generally, development trends in Italy have moved towards tighter management of the necessary licences com- 15

18 Greentech s activities bined with the establishment of well-defined guidelines for the individual regions with clear objectives for capacity and the location of such capacity. This process has not yet been finalised, because some regions have yet to fully implement these principles. However, most regions have now introduced an Autorizzazione Unica (AU) system, according to which a large number of the necessary permits are combined into a single permit which is obtained through centralised processing of an overall application. The project development consists of securing the agreements concurrently with the permits required for the final development and, hence, authorisation to commence construction. The key agreements and permits are listed in the table below. Projects under development Agreements Development agreement Land lease agreements Royalty agreements, municipality/region Erection of wind measurement masts Permits Environmental approval Permission to build the project Grid connection Approval as supplier of renewable energy The development agreement ensures collaboration with the local developer, who contributes local knowledge to the process and usually ensures that the project is developed in compliance with Italian norms and standards. The next step necessary is to secure land lease agreements covering acess to and right of use of the land necessary to erect turbines, a transformer station, internal access roads for the project, cable trenches and crane pads. The financial scope of such agreements should be limited to the greatest extent possible, to the effect that land lease is not paid until the wind farm has been constructed and commissioned. As a single project may involve land lease agreements, this process is very difficult and often very time consuming. The Italian municipalities typically charge a duty on the wind farms installed in their municipality. For this reason, it is very important to obtain all information about the financial requirements imposed by the relevant municipality early in the process, as they may have a significant influence on the profitability of the individual project. The municipal charges will be in the form of fixed annual payments relative to the number of wind turbines erected, or a The table below provides an overview of the Company s Italian development portfolio: Project Capacity Ownership Agreements Permits Deve- Land lease Wind Wind Sub- Granted (MW) lopment measure- measure- measure- Sub- Sub- mission, grid Land agree- ment ments, ments, mission mission Granted Granted grid con- conlease Royalty ment mast start end AU VIA AU VIA nection nection Cagliari III 1) % Brindisi % Campo d'oro 2) % Candela % Montemilone % Guardia dei Lombardi % Due Serri 2) % Monte Grighine II % Carbonia % Crotone % Francavilla Fontana % Calitri 2) % achived/fulfilled Partly achived/fulfilled Not achived/fulfilled 1) Greentech has a right/obligation to acquire the remaining ownership interest when the project has been fully developed. 2) Greentech has an option to acquire the remaining ownership interest. 16

19 Greentech s activities percentage of the revenue generated from the wind farm. One of the first active steps of the development process is to erect a wind measurement mast. This is subject to the signing of a land lease agreement and a permit from the relevant municipality. The process to obtain the necessary permits commences concurrently with the signing of the above agreements. With the introduction of the AU procedure, the permits are in principle divided into four categories: the environmental permit, involving a review of the wind farm s impact on the local environment; the grid connection, involving a large number of underlying agreements and permits from the owner of the grid to which the wind farm is to be connected; the building permit, involving the views of a large number of authorities on the project. Such views will typically lead to a number of restrictions and instructions, stipulated as conditions for obtaining the building permit; approval as a green supplier, which is a precondition for receiving green certificates. In order to obtain the above-mentioned permits, comprehensive documentation material must be presented, including: environmental surveys; assessment of the impact on flora and fauna; assessment of noise, shadow and visual impacts; impact on aviation (commercial and military); micrositing of the project, including the choice of - wind turbine type - location of turbines - location of transformer station - cable laying - connection to the transmission grid - access roads etc. transport studies; wind studies (requirement for at least 12 months of wind measurements from the site); soil analyses; archaeological analyses; telecommunications. The development of projects is a local matter in which the relevant municipality and region play a decisive role in the granting of the final permits. Consequently, since Greentech commenced operations in Italy, we have collaborated with local developers with the necessary professional skills and contacts with the local authorities. Greentech pursues two models for this type of collaboration with local developers: Model I Using this model, Greentech initially establishes a project company, in whose name all applications are submitted. The project company signs a development agreement with the developer, who is then fully responsible for drawing up the required documentation material, which will be approved by Greentech before it is submitted to the relevant authorities. The developer is paid when specific key milestones are met. Efforts are made to schedule payment in such a manner that the bulk of the amount falls due when there is assurance that the project will be finally approved. Model II In this model, the developer establishes the project company and owns the shares of this company during the development stage. From commencement of development activities, Greentech signs an agreement to the effect that the Company is under an obligation to buy the shares in the project company at a pre-arranged price once the project is fully developed. As a general rule, Greentech does not make any payments during the development stage, as in this model the developer is able to finance the development. The full payment is therefore made on the takeover of the shares. As is the case in Model I, the Company may control the material submitted to the authorities. Both models allow for an exemption from this obligation if, during the development stage, it turns out that the project fails to meet certain criteria. Such criteria typically relate to expected annual output or other financial and technical matters. Both models may include an agreement to the effect that the developer retains a small part of the shares as a longterm owner of the project. In both models, payments to the developer are agreed as a price per MW calculated on the basis of the MW capacity getting final approval. This price has fluctuated heavily during the period in which Greentech has operated in Italy. When Greentech commenced operations in Italy in 2002, the general market price was EUR ,000/MW. Prices peaked in at EUR ,000/MW. The financial crisis has reduced the number of market players, which has naturally pushed down the development fees. Accordingly, market prices are estimated to be at the level of EUR ,000/MW. 17

20 Greentech s activities Poland The development of wind turbine projects in Poland truly gained momentum around 2000 when the initial targets for Poland s share of renewable energy were set. Poland s accession to the EU and the Polish energy act of 2005, which introduced green certificates, further accelerated the development of projects. By the end of 2009, a total capacity of some 725 MW had been installed in Poland, which is significantly below the targets set. Greentech has been an active player in the Polish market since 2003, when the Company acquired 100% of the shares of an existing development company, Wiatropol International. All of Greentech s development activities in Poland are now conducted through Wiatropol. However, there is no procedure in place to ensure an overall application process, so developers must obtain all permits from the individual relevant authorities. With respect to the initial development stage, Poland differs from Italy in two respects: Developers are required to prepare the documents necessary for the relevant municipality to change the use of the land from agricultural to wind farm purposes, and developers are required to prepare a detailed report on the impact of the wind farm on the existing grid. Subsequently, a vast number of permits must be obtained, the most important permits being the environmental permit and the final building permit. The development of wind farm projects is concentrated in the northern part of Poland, stretching from the German/ Polish border to the area around Gdansk/Gdynia. This is a traditional agricultural area with only limited industrial activities. Consequently, the grid in the area has not yet been dimensioned to receive large quantities of electricity from wind farms. The Polish energy sector is aware of the problem, and plans have been adopted to secure expansion of the grid in this part of the country. Until these plans have been implemented, access to the grid represents a bottleneck issue in the Polish system. Generally speaking, the rules in Poland concerning necessary agreements and permissions are the same as in Italy. Projects under development The table below provides an overview of the Company s Polish development portfolio: Project Capacity Ownership Agreements Permits (MW) Wind Wind Submission, Granted Grid Erection of measure- measure- Submission, environ- Granted environ- connection Granted Land measure- ments, ments, building- mental building mental requirements grid lease ment mast start end permit approval permit approval received connection Ustka % Parnowo % Puck % Wojciechowo % Porzecze % Osieki % Smolecin % Offshore % achived/fulfilled Partly achived/fulfilled Not achived/fulfilled 18

21 Greentech s activities General information Key figures for the Company s development portfolio in Italy and Poland: Italy Poland Development costs EUR ,000/MW EUR 25 50,000/MW Construction costs MEUR /MW MEUR /MW Output 1,700 2,600 full load hours 2,000 2,700 full load hours Tariffs EUR 0.17/kWh EUR 0.10/kWh Production costs % of revenue % of revenue Depreciation 20 years 20 years Financing degree 50-70% 50-70% Interest rate 6% 6.50% Tax rate 31% 19% IRR 20-38% 15-20% Management makes an exact assessment/monitoring of the above key figures. In case of material changes, the Company s investment decisions are re-assessed.. Norway Location Number of turbines Gross capacity Ownership Kollsnes* MW 11.5 % * Greentech has an option to acquire the remaining ownership interest as and when the project is completed. Greentech also has a development project in Norway, although this is not the Company s focus area. The Kollsnes project is situated near Bergen and has a capacity of 30 MW. In connection with the public hearing to obtain project permission, objections were received from local stakeholder groups, and they are currently being reviewed by NVE. As a result, it is uncertain whether the relevant permits will be obtained, and Greentech has therefore elected to write down the project. Projects under development 19

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