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Gamesa Energía Nobody knows more about wind September 24, 2010, Madrid.

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1 Gamesa Energía Nobody knows more about wind September 24, 2010, Madrid

2 2 Table of contents Business model and value generation alternatives Gamesa Energía pipeline breakdown and balance sheet value Accounting and financial modeling Gamesa Energía´s history 5 6 Strategy Valuation 7 Conclusions 8 Financing

3 3 Gamesa Energía´s history oGamesa Energía started its activity in 1995 in Galicia and Aragón to complement the WTG manufacturing business with the rest of activities in the wind business cycle oIn 1999 it started it international expansion opening offices in Portugal, Italy and Greece. oIt launched its US operations in 2003, followed by China in 2006, and India in oThe business started with 15 people located in 3 offices. Currently counts with 300 people in 16 countries, 25 offices, managing the development of 22,000 MW

4 4 Table of contents Business model and value generation alternatives Gamesa Energía pipeline breakdown and balance sheet value Accounting and financial modeling History of Gamesa Energía 5 6 Strategy Valuation 7 Conclusions 8 Financing

5 5 Business model and value generation alternatives Business model description Procurement of WTG – relationship with the manufacturing business Key considerations in the sale of a wind farm Alternatives and evolution of current business model Competitive advantages 6 Site selection: wind resource expertise

6 6 Business Model Description Highlights EPC Construction (using GEOL WTG) EPC Construction (using GEOL WTG) Wind Farm Sale Wind Farm Sale Greenfield /Medium Stage Development Greenfield /Medium Stage Development Focus in countries with a significant expected volume in terms of yearly installed capacity solid regulation Full regional organisational platforms in target countries (development, administration, legal, construction…) supervised by corporate level 25 offices in 16 countries EPC commitment in every project KEY FACTORS Exhaustive local know-how on political, social, bureaucratic and legal picture of each target market Quick knowledge acquisition of the development methodology for each new market Wind farm optimum design taking into account technical and development restrictions Deep understanding of wind farm business modeling and regulation CORE COMPETENCES

7 7 RESEARCH PHASEDEVELOPMENT PHASECONSTRUCTION PHASEOPERATION PHASE 1.Site selection 2.Tower installation 3.Initial measurement 4.Preliminary wind studies 1.Start of applications 2.Preliminary Project 3.Environmental Impact Study 4.Obtaining Permits and Licenses 5.Feasibility Study 6.Investment Approval 1.Detailed Engineering 2.Bids evaluation 3.Budget closing 4.Final contracts 5.Construction 1.Provisional acceptance 2.Operation and maintenance Yes No End of Project Business model description Value creation phases No Yes LOW capital intensity (3 to 4 years)HIGH capital intensity (1 year)

8 8 Business model and value generation alternatives Business model description Procurement of WTG – relationship with the manufacturing business Key considerations in the sale of a wind farm Alternatives and evolution of current business model Competitive advantages 6 Site selection: wind resource expertise

9 9 Key considerations in the sale of wind farms We sell… A fully operational wind farm, with all permits, licences, and authorizations to allow operation during 20 to 30 years

10 10 SPV Wind Farm Gamesa WF Division Development, Basic Engineering & Services contract WTG Supply WTG Transportation & erection Civil works & electrical infrastructure (including connection) Internal financing Shareholder facility agreement Gamesa to pay for all liabilities of the SPV Land lease contracts Sites, allowances, access roads cable lines etc. Lease contracts Permit Licenses procurement contracts Engineering etc. Ex-works WTG Supply WTG transportation & erection Construction works Authorities Licenses Permits etc authorizations Financing until closing Grid Connection Company Connection Agreement and Connection Conditions Evacuation Electrical & civil infr. Maint. terminated at closing Insurance company Construction all risk Insurance coverage until at closing Wind turbine / Wind Farm Maintenance (depending scope) O p e r a t i o n & M a i n t e n a n c e Gamesa WTG Division EPC Contract Development Permits Key considerations in the sale of wind farms … through the sale of a SPV …

11 11 Key considerations in the sale of wind farms … once we finished the development and start the construction. PLA (Permits, Licenses and Authorizations) 1st kWhTake-Over DevelopmentConstructionOperation SPA: Share Purchase Agreement Closing Sales Process 4/6 months Pre - DD Down PaymentTransfer of the SPVs shares

12 12 Key considerations in the sale of wind farms To whom do we sell? Utilities Main characteristicsAdvantages/disadvantages IPPs Financial Players Active in generation, distribution and retailing. Seek a presence in the renewable market Strategic motivation Companies with an alternative business that look for: Capitalization of their excess cash Renewable image Search for synergies with their core business Profitability is their only objective Usually, funds specialized in infrastructures and renewable energies Low technical knowledge (+) Familiar with operating risks. (+) Global players with a high capacity of buying WTGs and wind farms. (+) Finance their purchases with their own resources. The sale does not depend on external debt (-) Required higher profitability than IPPs and Financial Players. (+) Can accept some business risks (-) External financial resources are needed, and are not financing experts (+) High financial knowledge and access to financing (+) Competitive pricing (-) Limited business knowledge may involve some requirements difficult to comply with (-) Adverse to risk – demanding warranties required

13 13 oB&B oViridis oTaiga Mistral oIberdrola oEdison oEndesa oENEL oElectrabel oEon oEWE oDuke Energy oGestamp oGenera Avante oNaturener oAcciona / CESA oAldesa oIkea oACS oFortuny oMarubeni Key considerations in the sale of wind farms Some of our clients Utilities IPPs Financial Players Core Market Increasing weight market opportunity

14 14 oIn-house DD performed prior to initiating the Process oContacting potential buyers targeting educated buyers oGather feedback and fine-tune transaction structure oElaborate exhaustive Information memorandum oDistribute Information memorandum with interested buyers (post-NDA) oRequest Non Binding Offer oSelect preferred bidders (2/3) oOpen DD to preferred bidders oSPA final negotiations and execution oFollow up of Condition Precedent fulfillment oClosing Once the wind farm is close to start of construction, and the construction planning is known, the following steps are taken: Key considerations in the sale of wind farms Following a structured process 4-6 months >6 months

15 15 Business model and value generation alternatives Business model description Procurement of WTG – relationship with the manufacturing business Key considerations in the sale of a wind farm Alternatives and evolution of current business model Competitive advantages 6 Site selection: wind resource expertise

16 16 Alternatives and evolution of current business model GESA does not intend to become an IPP

17 17 Alternatives and evolution of current business model Alternatives to generate value Alternatives to GAMESA pipeline These alternatives allow: Maximizing asset value by adding historical operation data Reduction of capital employed Maximizing return on capital Structured Financing during construction (Project Finance and/or external equity) 1 Operation Management for a limited period of time 2 1)Acquisition of equity stake in medium/late stage projects 2)Provides access to new business opportunities 3)Privileged access due to unique dual expertise (developer – EPC contractor) 4)Facilitates long term external financing

18 18 Business model and value generation alternatives Business model description Procurement of WTG – relationship with the manufacturing business Key considerations in the sale of a wind farm Alternatives and evolution of current business model Competitive advantages 6 Site selection: wind resource expertise

19 19 16% 9% 18% Contribution of Gamesa Energía to Gamesa´s WTG sales 3,289 3,684 3,145 1,101 Procurement of WTG – Relationship with Gamesa´s WTG manufacturing business A strong and recurrent customer purchasing more than 450 MW yearly Gamesas historical WTG sales (MWe)

20 20 Business model and value generation alternatives Business model description Procurement of WTG – relationship with the manufacturing business Key considerations in the sale of a wind farm Alternatives and evolution of current business model Competitive advantages 6 Site selection: wind resource expertise

21 21 oOur unique global presence (Europe, US, Lat-Am, China) allows a natural hedge to slow downs of specific markets due to regulatory changes oPreferential access to WTGs during a sellers market cycle oAdvantages related with recurrent nature of selling wind farms vs one spot seller: Professional DD and negotiation process Can remain involved in all relationships with the local authorities in order to allow a smooth transition The reputational factor ensures fair terms and conditions oDeep in house expertise in all aspects of wind development (lands, permitting, wind resource evaluation, micrositing, EPC) Competitive advantages

22 22 Business model and value generation alternatives Business model description Procurement of WTG – relationship with the manufacturing business Key considerations in the sale of a wind farm Alternatives and evolution of current business model Competitive advantages 6 Site selection: wind resource expertise

23 23 Site selection: wind resource expertise Evolution of site identification and meteorological models Wind resource atlas oLack of information in some areas oNon digital formats oLow resolutions: 100 km 2 oAvailable at Scientific institutes or Foundations oScientific uses Meteorological models oNo lack of information by areas oDigital and formats for GIS oHigh resolutions: 1 Km 2 oGeneral commercialized oGAMESA uses its own model and other external models ?

24 24 Site selection: wind resource expertise GIS for prospecting uses oGIS: Geographic Information System It is an application that manages digital geographic information at different levels, permitting operations: 1. Additions, subtracts, multiplications… 2. Delete areas under constrains criteria oThe main geographic information used are the following: Wind resource Electricity lines, substations… Property & land value maps Environmental constrains Topography Nodal prices (USA) Other: archeological, noise emission maps… oWe can match with other criteria: Distances to electrical lines / substations Distances to restricted areas: airports, environmental… Delete areas with less than…5m/s, for example

25 25 Site Selection: wind resource expertise Business approach Case Study: Pennsylvania Prospecting by GIS oGeographic information used Wind resource Nodal prices Electricity lines, substations… Property & land value maps Environmental constrains Topography Other: archeological, noise emission maps, airports, military areas… oKey factors Searching sites under profitability criteria Using the most advanced tools: Met. Models + GIS

26 26 Wind resource assessment & optimization Process description oMeasurement campaigns 1 year minimum, 3 years recommended > 90% availability data Data cleaning and filtering Corrective and preventive maintenance Main principle: 1 month data lost wont be recoverable until next year oAssessment (wind to energy) Micrositing - Layout design 1.Constrains (environmental, landowners..) Wind turbine suitability studies Energy production calculations Long term wind resource (long term data) Density – Altitude – Temperature Losses: electrical, availability, farm, noise… oTools (Fluid dynamic, topography and design) WASP, Windpro, Windfarmer… CFD models: Windsim, Meteodyn… Wind atlas applications ACAD and similar GIS software

27 27 Wind resource assessment & optimization New technology available: remote sensors oLIDAR: LIght Detection And Ranging oSODAR: SOund Detection And Ranging oHow it works It emits laser beams/sounds in different upward directions under a fix frequency Waves are reflected against atmospheric particles (aerosols) Waves come down under a different emission frequency, depending on wind speed (Doppler Effect) Wind data is collected due to information among emitted and collected waves oInformation collected Wind speed, wind direction, turbulence and wind shear oFeasible use in combination with met masts Met mast (2/3 hub height) + remote sensors Measurements campaigns costs over 100m are reduced, keeping quality of measurements Turbulence must be measured by met masts

28 28 Wind resource assessment & optimization Optimization and business approach IRRG80G87G90OPTIMUM POSITIO N 67 m 78 m 67 m 78 m 100 m 67 m 78 m 100 m IRR average = 14,3 % 17.16, G m 14.3 % 27.26, G m 15.8 % G m 16.1 % 47.06, G m 15.7 % G m 8.5 % G m 18.9 % G m 9.7 % 87.06, G m 15.5% oGAMESA designs wind farms under profitability criteria, based in energy calculations oGAMESA has designed specific tools for that approach, aligned with business Best configuration is done WTG by WTG Compares platforms (G5X, G8X, G10X) & hub heights (67, 78, 100, 120m) oThe analysis is done from initial stage of projects and before each relevant decision (internal investment approvals) oTools has a high level of automation, due to huge amount of information regarding to the project (for WTG and country) Energy yield estimation Investment information (WTG prices and BoP) Economical information: Electricity sale mode, Operational costs Financial hypothesis Technical constrains (environmental, WTG suitability…)

29 29 The importance of wind resource expertise oGamesa introduces maximizing profitability criteria from initial stages of the projects oSite selection and wind resource assessment are difficult tasks which requires complex computer tools and internal know-how oGamesa has the needed internal knowledge and expertise to design internal tools, always improving profitability of projects oGamesa invests in knowledge to test new technologies for client support with a business approach

30 30 Table of contents Business model and value generation alternatives Gamesa Energía pipeline breakdown and balance sheet value Accounting and financial modeling History of Gamesa Energía 5 6 Strategy Valuation 7 Conclusions 8 Financing

31 31 Accounting and financial modeling Accounting example Example of a recent transaction Cash flow and P&L through the project life 4 Accounting process

32 32 Accounting rules Accounting through the project life Early promotion costs are expensed and never capitalized Accounting validation gives the go ahead to capitalization of development costs that are recognized as inventory Frame agreement gives the go ahead to margin recognition tied to milestone achievement ( % of completion accounting). Agreed sales progression accounted as trade debtors Cash in at sale completion. No impact on P&L (1) Accounting validation requires economic (wind resource study) and technical viability (no obvious risks to development and grid connection) of the wind farm Accountin g validation (1) Early promotion 3-4 Years Project Probable Likely Highly confident SPV constitut ion DevelopmentConstruction Frame agreem ent Sale completi on ~1 Year

33 33 POC milestones and margin recognition 40% of margin recognized in the first 5 years while less than 10% of costs incurred The margin of a project starts getting recognized through P&L once a sale agreement is in place following a country specific milestone logic

34 34 Percentage of completion (POC) impact on P&L and balance sheet P&L StructureBalance sheet structure (Asset view) +Revenues % of completion of contracted margin+ incurred cost Inventories Development costs capitalised over time -Project costs Incurred costs (CAPEX) of projects under POC CAPEX incurred in projects under construction - General development costs Cost incurred for the evolution of the pipeline Accumulated margin recognised due to POC + Project capitalization Capitalization of costs applicable to approved projects Accounts receivable Pending receivables from project buyers - Overhead costs Support functions and general expenses =EBITDA -D&A Not meaningful given the nature of the business =EBIT

35 35 Accounting and financial modeling Accounting example Example of a recent transaction Cash flow and P&L through the project life 4 Accounting process

36 36 Cash flow and P&L through the project life Cash flow P&L Accounting ValidationFrame Agreement Inflow Cumulative outflow Cumulative net P/L impact Cumulative expenses Down payment Cumulative net CF Accounting validation Early promotion Project Probable Likely Highly confident SPV constitut ion PromotionConstruction Frame agreem ent Sale completi on Cumulative net P/L impact including early development costs 3-4 Years~1 Year

37 37 Accounting and financial modeling Accounting example Example of a recent transaction Cash flow and P&L through the project life 4 Accounting process

38 38 Accounting example oAccounting methodology is POC once the sale agreement has been signed Early development costs are expensed Accounting validation gives the go ahead to cost capitalization and wind farm inventory Margin recognition starts after sales agreement is reached (percentage of completion accounting); recognition of trade debtors starts Sale completion: cash in, trade debtors out, no impact on P&L oThis accounting methodology (POC) is applied to both large framework agreements or single sale contracts but signature timings differ affecting when P&L impact occurs: For large framework agreements sale signature and beginning of margin recognition is close to validation date and far from sale completion Margin recognition starts earlier and is spread over more years (historic business model) For single sales, signature is very close to the construction stage and further away from validation date margin recognition starts later and is more concentrated in time Except for downpayments at signing, the cash flow line is identical, as costs incurred do not vary and cash inflow happens mainly at completion of the sale

39 39 X Accounting examples EBIT recognition oFramework Sale. Margin recognition starts earlier and is spread over more years for framework sales oSingle Sale. The sales agreement is reached at the latest stages of development or first stages of construction, thus margin recognition is concentrated in time Net cash flow oCash flow evolution is very similar for both types of sales with the difference being in the size and timing of the down payment X xx Down payment framework Down payment single sale

40 40 Accounting example of a framework agreement Framework agreement projectTotalPer MW Power (MW)30 General development costs MM Year 1-2Expensed (early development costs are expense and NOT capitalized) CAPEX (development & construction costs) MM391.3Year 3-6After accounting validation costs incurred are capitalized EBITDA MM30.1Year 5-6Margin recognition starts after signature of sale agreement Sale price (CAPEX+ EBITDA) MM42Year 5-6Revenues (cost incurred and margin) are accounted from sales agreement onwards Down payment10%4 Project milestones Development startYear 1 Accounting validation (1)Year 3 Sales framework agreementYear 3 Down paymentYear 5 ConstructionYear 5/6 Sale completionYear 6 oSales agreement takes place very close to the validation point. oMargin recognition is concentrated is spread in time

41 41 Accounting example frame agreements Profit & loss ( MM)123456Total Revenues Projects cost (development & construction) Project capitalization General development cost EBIT Margin70.6%54.5%2.7%3.6%6.4% % total costs1% 56%42% % margin recognition40%20% Working capital ( MM) Inventories Debtors Downpayment-4.2 Working capital Cash flow Outflow Inflow Cash flow Cumulative net cash flow Early development costs are expensed directly and paid After sales agreement is reached, percentage of completion accounting starts and margin is recognised Early margin recognition is aligned with project milestones

42 42 Accounting example of a single sale Single sale projectTotalPer MW Power (MW)30 General development costs MM Year 1-2Expensed (early development costs are expensed and NOT capitalized) CAPEX (development & construction costs) MM391.30Year 3-6After accounting validation, costs incurred are capitalized EBITDA MM30.10Year 5-6Margin recognition starts after signature of sale agreement. Percentage of completion accounting starts Sale price (CAPEX+ EBITDA) MM42Year 5-6Revenues (cost incurred + margin) are accounted from sales agreement onwards Down payment10%4 Project milestones Development startYear 1 Accounting validationYear 3 ConstructionYear 5/6 Sales agreementYear 5 Down paymentYear 5 Sale completionYear 6 oSales agreement takes place very close to the construction phase. oMargin recognition is concentrated in time

43 43 Accounting example of a single sale Profit & loss ( MM)123456Total Revenues Projects cost (development & construction) Project capitalization0.5 General development cost EBIT Margin9.4%3.6%6.4% % total costs60%40% % margin recognition80%20% Working capital ( MM) Inventories Debtors Less advance payment-4.2 Working capital Cash flow Outflow Inflow Cash flow Cumulative net cash flow Early development costs are expensed directly and paid After accounting validation, development and construction costs are capitalized and taken to inventory After sales agreement is reached, percentage of completion accounting starts and margin is recognised Early margin recognition is aligned with project milestones

44 44 Accounting and financial modeling Accounting example Example of a recent transaction Cash flow and P&L through the project life 4 Accounting process

45 45 Final cash in cleans balance sheet with no P&L impact Example of a recent transaction 30 MW wind farm Sales agreement in Spain WTG: G8x – 2MW Description Milestones Development start: 2002, March Construction start: 2007, April Start up: 2008, January First frame agreement: 2006, February Final frame agreement: 2009, May Sell of wind farm: 2009, June Terms Sales Price: 44,5M Total CAPEX : 35,0M Margin: 8,6M Margin/MW 0,3M EBIT: 2,3M Cash Flow MM P&L MM Balance Sheet MM

46 46 Table of contents Business model and value generation alternatives Gamesa Energía pipeline breakdown and balance sheet value Accounting and financial modeling History of Gamesa Energía 5 6 Strategy Valuation 7 Conclusions 8 Financing

47 47 Pipeline breakdown by geography Highly Confident ProbableLikelyMature Development Under Construction Start upTotal 20076,2855, , ,9065, , ,8593,5621, ,129 Jun-20109,0493, , ,3193, , ,5803, , , ,580 Jun , , , , , , ,199 Jun-20102, , ,4298, , ,8458, , ,3197,8961, ,908 Jun ,8887,8201, ,077 EUR CHINA USA TOTAL Over the last 4 years, the pipeline has grown to 22 GW and increased its maturity while 2,000 MW have been sold.

48 48 What is today in the Balance Sheet of Gamesa Energía? Jun- 10 Project cost Margin AR-AP Working capital Balance Sheet evolution (EUR MM) Pipeline Evolution ( MM) jun- 10 Probable Likely Highly Confident Dev Cons COD Total % of the total POC booked reflects costs for projects under construction or finalized ~260 MW under POC: - 22 MM margin already recognized - 13 MM to be filed

49 49 Table of contents Business model and value generation alternatives Gamesa Energía pipeline description and evolution Accounting and financial modeling History of Gamesa Energía 5 6 Strategy Valuation 7 Conclusions 8 Financing

50 50 Gamesa Energia strategy Integration vs. pure play Agreement with Iberdrola Renovables Value creation opportunities Strategy by geographic area

51 51 Integration vs. pure play The synergies of integration Synergies for the development businessSynergies for the OEM business Better project planning due to turbine knowledge (existing and future products). Stronger balance sheet. Better brand image towards clients, banks and administration. Leverage on supply chain related investments and job creation to secure tender awarding. Ability to provide EPC solutions to project buyers. More feedback for product design and improvement (efficiency, O&M, environmental issues, permitting issues, …). Improved visibility of order book. Good value added product for customers willing to enter the industry (start buying projects, then buying turbines for own developments). Project development as a low cost tool to enter new markets. Better know-how on grid connection and civil works implications on the turbine.

52 52 Gamesa Energia strategy Integration vs. pure play Agreement with Iberdrola Renovables Value creation opportunities Strategy by geographic area

53 53 Value creation opportunities Value maximization through increased development throughput and lower capital intensity Increase development throughputReducing Capital Intensity Early project validation. Purchase of semi-developed assets. Entry into new markets. Partnership with small local developers. Identify final buyer prior to construction start. Provide technical L/C to the project to enable project finance during construction. Automate selling process via L/T agreements with big players (i.e. Iberdrola Renovables, Long Yuan, Guandong Nuclear,…).

54 54 Value creation opportunities Reluctancy to fund development risk + appetite for solid project execution =our business opportunity No financing available. Only good corporate risk acceptable. Project Development Project Construction Bank Attitude Gamesa positioning Operation & Maintenance Leverage on Gamesas good technical and financial performance. Potential buyer of selective assets. Technical guarantee required. Strong OEM support desired. Financing only if feed in tariff/ PPA/ Specific takeout signed in. Project finance available for PPA/ feed in tariff. Name lending no longer an issue. Preferred L/T O&M visibility. Help customers in financing projects (EPC). Structure transactions before construction start. Take controlled risk if take out is visible (e.i. Huelva). Only construct projects with client or visible income (financeable). Leverage on Gamesas name as a developer and OEM, not as shareholder. Offer long term maintenance solutions bundled with EPC.

55 55 Gamesa Energia strategy Integration vs. pure play Agreement with Iberdrola Renovables Value creation opportunities Strategy by geographic area

56 56 Europe Good risk/return profile Current Market SituationBusiness Tactics Developers structure to finalize developments/start construction due to lack of bank support. Feed in tariff systems provide good visibility for projects once finalized. Carbon trading pick up has created a new set of investors. Some utilities want to catch up as late entrants to the market. Selecting purchase of projects to finalize and sell. Leverage on Gamesas track record and technical strength to provide EPC solutions. Offer projects to new IPPs (IKEA). Sign up for long term relationships with local utilities (Edisson) The European market offers a good risk/return profile for investors, but outsiders and banks do not want to take development risk

57 57 USA PPAs are the key challenge Current Market SituationBusiness Tactics Low cost of Natural Gas keeps power prices low to historical levels. A significant amount of developers are struggling due to lack of financing. Utilities still lacking green assets to achieve RPS required levels. Cash grant expires in December Accelerate development in areas of high energy consumptions (higher energy prices). Selecting project acquisition to speed up development. Approach utilities looking to purchase projects to own and operate (no need for PPA). Start construction of feasible projects during The key challenge is finding acceptable PPAs to make projects appealing for the financing banks

58 58 China Under-penetrated market with strong growth opportunities Current Market SituationBusiness Tactics Only 4 utilities investing in projects massively. New utilities starting to develop from scratch want to catch up. Turbine demand for foreign manufacturers limited to 20% of total local demand. Kyoto protocol (CDM) forces to have Chinese company controlling the project to access Green Certificates. Offer our projects as a tool to accelerate entrance to a sizeable installed base. Increase turbine demand by selling projects developed by Gamesa. Continue talks to foreign investors to measure the value of the project without CDM. The Chinese market is booking with very few players and new local utilities starting to grow

59 59 ROW Gamesa Energía geographic expansion as a tool to accelerate the industry ROW Current SituationBusiness Tactics New markets starting up, mostly in Latin America, Eastern Europe and East Asia. Local utilities not yet investing. Returns look appealing after COD. Local bank not mature to structure financing deals. Open up local offices and strengthen position via local developers (Joint Ventures/Acquisitions). Leverage on commercial relationship with global IPPs to offer bundled projects. Help local banks with support from European banks with project finance experience. Gamesa is growing the development business in most of the new markets globally as a tool to accelerate the industry

60 60 Gamesa Energia strategy Integration vs. pure play Agreement with Iberdrola Renovables Value creation opportunities Strategy by geographic area

61 61 Agreement with IBR The basic facts oPut and call options expire in June 2011 IBR chooses structure (cash payment or asset integration) If asset integration, IBR will contribute 3x the value of Gamesa´s pipeline and retain a 75% stake Valuation is done by external parties (independent banks) oAssets involved: Gamesa´s European pipeline pre-PLA stage at execution Gamesa Energía is free to develop, construct and sell assets (Edison, IKEA) IBR has right of first refusal on development pipeline sales (projects without PLA) oThere is no link to wind turbine purchases Unrelated to 4.5GW WTG framework agreement with Gamesa Eolica Pipeline development is not restricted to Gamesa´s wind turbines

62 62 Agreement with IBR The agreement time line June 11 October 09 June 14 Agreement signature Exercising the option PUT / CAL L Cash payment of the stake in the JVs market value (pipeline +operating wind farms) Payment in Assets Independent development of the pipeline Gamesa is free to sell assets until June 2011 Both parties join its promotion pipeline up to 25/75 Cash payment

63 63 Table of contents Business model and value generation alternatives Gamesa Energía pipeline description and evolution Accounting and financial modelling History of Gamesa Energía 5 6 Strategy Valuation 7 Conclusions 8 Financing

64 64 Probability Time to COD Probable (Early Stage) <30%>4yrs Likely (Mid stage) <60%>2yrs Highly confident (Development ready or under construction) >95%<1yr Valuation Gamesa Energía´s value depends on the result of pipeline execution and cash on cash margin of each project Valuating one projectProject pipeline segmentation A stream of MW over time can be deducted and/or a lump sum of MW to be developed Buyers Cost of Capital Buyers Target IRR for Develop, Own and Operate Cost of Capital Project value at different Discount Rates Given: Selling price CAPEX Value for buyer Value (MM) Load factor Asset life Feed in tariff/PPA Gamesa Margin

65 65 Valuation V aluing Gamesa Energía through precedent transactions multiples Example of B&B acquiring Enersys in Dec 2005 Firm Value announced: 1,000 MM ( 468 MM EV MM Debt) Pipeline acquired: In operation344 MW Under construction276 MW In advanced development360 MW In early development - MW Assumptions required Success ratio of each pipeline segment: 100% - 100% - 70% - 30% CAPEX per MW: 1.2 MM % of cost incurred of MW under construction: 75% Calculations Invested Capital at sale= 661 MM (MW in operation x CAPEX per MW + MW in construction x % of cost incurred x CAPEX per MW) Value added paid= 339 MM ( Firm Value – Invested Capital) Total MW throughput of pipeline: 872 MW (product of segments and success ratios) Value added paid by B&B per MW= 0.4 MM/MW (Value added paid / Total MW throughput) Implicit Firm Value of Gamesa Energía= Total MW throughput of Gamesa pipeline x Value added paid by B&B

66 66 Table of contents Business model and value generation alternatives Gamesa Energía pipeline description and evolution Accounting and financial modelling History of Gamesa Energía 5 6 Strategy Valuation 7 Conclusions 8 Financing

67 67 Financing of Gamesa Energía´s operations Projects are funded with corporate credit facilities until construction, then the client rules Gamesa Financing StructureWind Farm Financing Development Phase. Cost are funded with corporate lines. Construction Phase. With client signed. EPC contract Milestone payments from clients (corporate facilities between milestones). With client negotiating but not signed: Use of corporate credit facilities until signature. After signing EPC for the rest of construction. Operation Phase. Use of corporate Credit Facility unless client is identified and expresses specific structure. ~ 200 MM WC facilities to Holding Joint Debtors of funding 1.2 Bn Syndicated Loan (DEC-2012) ~ 600MM W/C facilities Project specific SPVs

68 68 Table of contents Business model and value generation alternatives Gamesa Energía pipeline description and evolution Accounting and financial modelling History of Gamesa Energía 5 6 Strategy Valuation 7 Conclusions 8 Financing

69 69 Conclusions oGamesa Energía is a leading WF developer with 3,500 MW constructed over 15 years and strong synergies with the OEM business oThe value of Gamesa Energía relies on a 22GW pipeline and a track record of more than 450 MW developed and constructed per year oThe company has a strong balance sheet with assets ( 476 MM) associated to mature projects under construction or in operation (680 MW) oThe strategy of the company is to sell projects recurrently, not being an IPP oThe geographical spread of the pipeline mitigates risks oThe company is seeking value enhancing strategies through geographical growth, selective development pipeline acquisition and new financing structures

70 70 Questions & Answers Muchas Gracias Thank you

71 71 This material has been prepared by Gamesa Corporación Tecnológica, S.A., and is disclosed solely as information. This material may contain declarations which constitute forward-looking statements, and includes references to our current intentions, beliefs or expectations regarding future events and trends that may affect our financial condition, earnings and share value. These forward-looking statements do not constitute a warranty as to future performance and imply risks and uncertainties. Therefore, actual results may differ materially from those expressed or implied by the forward-looking statements, due to different factors, risks an uncertainties, such as economical, competitive, regulatory or commercial changes. The potential investor should assume the fact that the value of any investment may rise or go down, and furthermore, it may not be recovered, partially or completely. Likewise, past performance is not indicative of future results. The facts, opinions, and forecasts included in this material are furnished as to the date of this document, and are based on the companys estimations and on sources believed to be reliable by Gamesa Corporación Tecnológica, S.A., but the company does not warrant its completeness, timeliness or accuracy, and therefore it should not be relied upon as if it were. Both the information and the conclusions contained in this document are subject to changes without notice. Gamesa Corporación Tecnológica, S.A. undertakes no obligation to update forward-looking statements to reflect events or circumstances that occur after the date the statements were made. The results and evolution of the company may differ materially from those expressed in this material. None of the information contained in this document constitutes a recommendation, solicitation or offer to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. This material does not provide any recommendation of investment, or legal, tax or any other type of advise, and it should not be relied upon to make any investment or decision. Any and all the decisions taken by any third party as a result of the information, materials or reports contained in this document, are the sole and exclusive risk and responsibility of that third party, and Gamesa Corporación Tecnológica, S.A. shall not be responsible for any damages derived from the use of this document or its content. This document has been furnished exclusively as information, and it must not be disclosed, published or distributed, partially or totally, without the prior written consent of Gamesa Corporación Tecnológica, S.A. The images captured by Gamesa in the work environment or at corporate events are solely used for professional purposes to inform third parties about corporate activities and to illustrate them. English version for information purposes only. In case of doubt the Spanish version will prevail. Disclaimer


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