1. Welcome to First Hydro Company 4 June 2009

2. First Hydro Slide 2  Approximately 200 employees across four sites  Dinorwig –the largest pumped storage plant in Western Europe –commissioned in 1983 –total plant capacity 1,728MW, 6 reversible pump/turbines –reservoir capacity ~10GWh  Ffestiniog –the UK’s first major pumped storage station –commissioned in 1963 –total plant capacity 360MW, 4 separate turbines & pumps –reservoir capacity ~1.3GWh –remotely operated from Dinorwig  Electric Mountain visitor centre  Bala House trading office  Owned by International Power (75%)/ Mitsui & Co, Ltd (25%) since December 2004 First Hydro Company overview

3. First Hydro Slide 3 The pumped storage principle  Buy electricity overnight - pump water to top reservoir  Release water to generate at times of peak price  Overall cycle efficiency ~75%  Additional costs include transmission losses and Balancing System charges PumpGenerate Import 1MWh Export 0.75MWh Marchlyn Peris

4. First Hydro Slide 4 Asset features  Speed of response –Dinorwig full output in ~16 seconds –Ffestiniog full output ~60 seconds  ~40,000 mode changes per year  Extremely high reliability and availability  Uniquely flexible assets  Originally designed and built to support grid system management  Asset capabilities provide for a diverse range of trading and marketing opportunities under NETA/BETTA  Business is geared around maximising short term opportunity –highly flexible outage management –proprietary systems to support trading and despatch

5. First Hydro Slide 5 Dinorwig

6. First Hydro Slide 6 Ffestiniog

7. First Hydro Slide 7 Plant dynamics Shut Down Generate Pump Spin Gen Spin Pump <30s 6m 7m 6m 3m <12s 6m <90s 8m 6m <30s Fast Start Dinorwig mode change times 1.5 2.5 60 85 0 10 20 30 40 50 60 70 80 90 DinorwigFfestiniogCCGT (hot)Coal (hot) Typical start-up times (minutes) 3,000 300 10 0 500 1,000 1,500 2,000 2,500 3,000 DinorwigFfestiniogCCGT (hot)Coal (hot) Typical load rates (MW/minute)

8. First Hydro Slide 8 Plant investment strategy  Preserve competitive advantage –maintain current levels of performance –focus on quality of core maintenance –replace or refurbish aging/obsolescent equipment –retain expertise within business  Enhance competitive advantage –improve reliability/availability –increase quality or range of products  Case study: Dinorwig Additional Stored Energy –increased storage by 700MWh (~8%) –commenced January 2007 and completed October 2007 –major civil engineering project within Snowdonia National Park

9. First Hydro Slide 9 Dinorwig additional stored energy

10. Commercial Focus

11. First Hydro Slide 11 The role of pumped storage in the GB market 1.Energy arbitrage - peak/off-peak –valuable peaking capacity –enables efficient running of steam plant overnight 2.Reserve provision –range of timescales (focus on fast) –but, limited storage 3.Frequency control –fast response to plant trips, TV pickups etc.  Roles underpinned by plant reliability and dynamic capabilities  Buying fuel and selling product via the same market

12. First Hydro Slide 12 Market challenges for pumped storage  Products sold through the three BETTA markets: –Trading, Balancing Mechanism, Ancillary Services  Energy-only market, no Renewable Obligation Certificates, no capacity payments  Reliance on volatile, short term markets –poor forward liquidity in shaped products  Complex business –maximising option value of assets –managing water constraint Ancillary Services Trading Balancing Mechanism 2,088MW Energy limited

13. First Hydro Slide 13 Balancing mechanism  Generators sell energy, and then schedule generation to meet half-hourly contract position  ‘Gate closure’ 1 hour ahead of each half-hour period  System operator then matches generation to actual demand by adjusting generation via offers or bids, minute-by-minute.  First Hydro offers premium dynamics –managing TV pickups –cover for generator trips –meeting demand fluctuations -3 -2 -1 0 1 2 3 4 5 20 25 30 35 40 45 50 55 60 161116212631364146 Half - hourly Settlement Period Balancing Mechanism – Example Day Bids Offers Demand Scheduled energy Bid and Offer volume (GW) GB Demand and Scheduled Energy (GW)

14. First Hydro Slide 14 Ancillary services  Physical services to facilitate system security and power quality –procured by National Grid –enable system balancing in real time –mostly undertaken via competitive tender or real time call-off Reserve:  Short Term Operating reserve (20 minutes)  Fast Reserve (2 minutes)  Longer notice contingency reserve (BM Startup) Frequency Response:  Dynamic Response  Static Response Other:  Black Start  Reactive Power  Intertrips

15. First Hydro Slide 15 Trading in the wholesale market Trading considerations  Value of capacity/energy in traded markets (net of pumping)  Capacity ‘sterilised’ for ancillary services  Probability of being used in balancing mechanism  Water balancing requirements Key skills  Physical ability to deliver any half-hourly shape  Experienced traders in APX/short term markets  Proprietary live market information and decision support tools  Systems able to notify contracts right up to gate closure

16. First Hydro Slide 16 Wholesale price trends  Highlights volatility in prices and spreads  Impact of Phase 2 of EU ETS can be seen from Jan 08  Tight system conditions in Winter 05/06 and through 2008 £0 £20 £40 £60 £80 £100 £120 £140 £160 2004200520062007 2008 2009 - Day ahead traded prices (£/MWh) BaseloadOvernightPeak

17. First Hydro Slide 17 Market outlook  GB plant mix to change radically in next 10 years –driven by tightening environmental regulation and the EU’s 2020 targets  System to face more challenging system security and balancing issues –wind intermittency, opted out coal plant, nuclear inflexibility  First Hydro is well positioned and planning for the future –investing in its assets to ensure engineering integrity and extend plant life –addressing recruitment needs, expanding apprentice schemes –developing its understanding of the impact of change in its target markets –seeking to enhance its assets to meet the demands of the market