COPENHAGEN – KEY TO CLIMATE INVESTING Corporates: Challenges and Opportunities Ramón de Miguel Advisor for International Affairs Chairman Iberdrola Engineering & Construction 04 December 2009

Index The challenge: Sustainability and Energy Confronting the challenge: Iberdrola’s Strategy Conclusions

Diagnosis: Today’s Energy Model We all probably agree that the current energy model is unsustainable Energy demand outperforming global GDP growth Economic development Energy sector, a main contributor Climate change Limited fossil fuel reserves Traditional energy resources High and rising dependence on politically unstable regions Security of supply 3

Trends Even before the recent financial and economic turmoil, the growing tensions suffered by this model … World population expected to rise from 6.6 to 8.2 billion inhabitants by 2030, mainly concentrated in the poorest regions Developing country growth, improving life styles and convergence with the developed world's consumption levels Infrastructure congestion Exponential demand growth Competition for resources Carbon emissions 4

Consequences … were leading to a collapse of the energy system Global Energy Demand CO2 Emissions Billion tons Million toe Can supply catch up with demand … at the right price? Will climate change reach a turning point? Source: World Energy Outlook 2009 Source: World Energy Outlook 2009 5

New Energy Model: Challenges Three key drivers of change for the energy model “Do the same using less energy” Energy efficiency 1 “Reach a CO2-free energy mix” Decarbonization 2 “Satisfy energy demand driven by economies Security of supply 3 6

… 13.8 Gt of total abatement, to reach the 450ppm CO2 scenario.... New Energy Model: Challenges Need for coordinated action to restrict the global temperature rise to 2°C (450 ppm of CO₂ concentration) … 13.8 Gt 3.8 Gt Source: World Energy Outlook 2009 … 13.8 Gt of total abatement, to reach the 450ppm CO2 scenario....

…Power sector accounts for about 70% of world CO2 savings. New Energy Model: Challenges … with a critical role for the electricity sector in shaping that new model... 9.3 Gt Source: World Energy Outlook 2009 …Power sector accounts for about 70% of world CO2 savings.

Role of electricity in driving the model change A higher penetration of electricity in the energy mix will strongly support these drivers of model change … Electricity generation is already the most efficient means to transform primary energy 1 A wide range of reliable and proven technologies are available to generate CO2-free electricity (wind, solar, hydro, nuclear) 2 Electricity generation presents significant advantages in terms of primary energy diversification 3 9

… with a key contribution to decarbonising the energy supply… Role of electricity in driving the model change … with a key contribution to decarbonising the energy supply… Investments needed to achieve 450 ppm CO₂ scenario in the power sector at 2010-2030 No podría ser de otra forma, por la decisiva contribución de las energías renovables a la reducción de las emisiones de CO2 y a la seguridad de suministro. Según las proyecciones de la Agencia Internacional de la Energía, se prevé que las renovables contribuyan con casi un tercio del ahorro esperado en las emisiones de CO2 en el sector de la energía, aunque debemos señalar que para alcanzar una efectiva contención de las emisiones de CO2 se precisará utilizar todas las tecnologías de bajas emisiones disponibles y no solamente las renovables. Source: World Energy Outlook 2009 … 60% will be from renewables, 16% from nuclear and 7% from carbon capture and storage (CCS).

Natural and Technical Conditions Investment drivers Need for favourable environment to commit to investments in renewables … Context Social Consensus Political support Legal/regulatory framework Macro-Economic Situation INVESTMENT Para poder acometer las fuertes inversiones necesarias en energías renovables es preciso crear un entorno favorable a las mismas: El contexto parece favorable, pues hay un consenso social sobre la conveniencia de su desarrollo, que ha derivado en apoyo político para la creación de las estructuras legales y regulatorias adecuadas, aunque la situación macroeconómica no sea hoy las más idónea. Pero se tienen que dar las condiciones naturales y técnicas, en particular la suficiencia del recurso y las medidas para solucionar problemas derivados de fiabilidad de las predicciones e intermitencia, sin olvidar la planificación e implementación de los accesos a la red de la nueva generación. Y en cuanto a la regulación no podemos olvidar que debe proporcionar una rentabilidad suficiente, de forma estable, -sin posibilidad de cambios con carácter retroactivo-, y predecible durante toda la vida de los activos. Natural and Technical Conditions Regulatory framework Profitability: defining a sufficiency scenario. Stability: The legal framework must be based on criteria of non retroactivity. Predictability: remuneration defined for the entire live of the assets. Resources: sufficient, intermittent, predictability, . Grid Access : adequate planning and implementation for the new generation access.

Index The challenge: Sustainability and Energy Confronting the challenge: Iberdrola’s Strategy Conclusions

Iberdrola Today* A world energy leader… Market capitalisation ~ €33billion** Among the top-five world energy utilities 44.2 GW of generation capacity owned World’s largest wind-power company >10 GW operational and >57 GW pipeline of projects 27 MM electricity and gas customers 33,000 employees in 30 countries >50% emission-free generation portfolio with a CCS technology plant installed in Longannet, UK *Data as of Q3 09 closing

Iberdrola’s regional footprint … with a distinctive positioning in key Atlantic Basin economies North America: No. 2 wind power operator Relevant electricity and gas distributor in the Northeast United Kingdom: No. 1 wind power operator Top-3 electricity distributor Top- 5 retailer Latin America: No. 1 private generator in Mexico No. 1 distributor in Brazil Iberia Leading integrated electricity operator

CO2 emissions reduction 2020 Today, Iberdrola is one of the cleanest companies in Europe, with emissions clearly lower than Electricity sector´s average… gr CO2/kWh 436 309 European Power Iberdrola … and has an objective to maintain emissions intensity at least 20% below the European electricity sector level in 2020

Index The challenge: Sustainability and Energy Confronting the challenge: Iberdrola’s Strategy Conclusions

Conclusions The energy sector must evolve toward one sustainable model… … in which renewable energy will play a fundamental role A stable regulatory framework is needed to consolidate this change, with important benefits to the economy El sector energético debe evolucionar hacia un modelo más sostenible en el que las energías renovables jugarán un papel cada vez más relevante. La política energética de la Unión Europea apuesta claramente por la sostenibilidad y España se ha convertido en un referente mundial en energías renovables, particularmente eólica. La consolidación del liderazgo de España en renovables exige una estabilidad del marco regulatorio, la cual redundará en importantes beneficios para la economía en el entorno actual de crisis. Iberdrola, que ha apostado decididamente por las energías renovables, es hoy el líder mundial tanto en promoción como en operación de energía eólica. Iberdrola’s investment strategy is in line with recommendations of most independent international agencies, offering a strong commitment to emission-free technologies