July 07

Ted BrandtTed BrandtChief Executive OfficerChief Executive OfficerMarathon Capital, LLCMarathon Capital, LLC

www.marathon-cap.com www.marathon-cap.com

Consolidation in North American Wind Consolidation in North American Wind SectorSector

July 07

Leading Advisor and Investment Banker to investors and developers in the Renewable Energy Industry

Headquartered in Bannockburn, IL

Experienced professional staff; 12 employees (1 PhD, 9 MBAs including 1 Power Plant Design Engineer)

Currently working on transactions involving renewable energy and oil & gas

Extensive relationships with strategic and financial players in these sectors

Marathon has closed more than 30 transactions over the last 5 years, exceeding $2.5 Billion in aggregate value including recent transactions such as:

Represented Greenlight Energy on its sale to BP Alternative Energy. This transaction was closed in August 2006

Represented CPV Wind on its sale to Iberdrola. This transaction was closed in May 2007

Represented SkyPower on its large-stake equity sale to Lehman Brothers. Financial close in June 2007

Currently representing one large wind power developer as sell-side investment banker

Represented AMP Resources (a geothermal development company) on its sale to Enel. Transaction was closed in March 2007

Sale of equity on a 50MM gallon per year ethanol project

Background on Marathon Capital, LLCBackground on Marathon Capital, LLC

July 07

Consolidation FactsConsolidation Facts

It is believed approximately 20 wind It is believed approximately 20 wind development and operating companies have development and operating companies have been acquired or consolidated in the last several been acquired or consolidated in the last several years years

July 07

Value onValue onDevelopmentDevelopment

PipelinesPipelines

EconomiesEconomiesofof

ScaleScale

PositivePositiveMarketMarket

SentimentSentiment

Given our recent experiences, buyers/investors put a significant Given our recent experiences, buyers/investors put a significant value in a development pipeline and see it as a value-appropriate value in a development pipeline and see it as a value-appropriate entry point to the sectorentry point to the sector

Consolidation brings scale and bargaining power and consequently Consolidation brings scale and bargaining power and consequently lowers transaction costs and return expectationslowers transaction costs and return expectations

Concerns about global warming and future emission regulations Concerns about global warming and future emission regulations causes pressure among related companies for direct investments causes pressure among related companies for direct investments in renewable power production with a proven technologyin renewable power production with a proven technology

CriticalCriticalMassMass

Developers have accumulated enough projects in their Developers have accumulated enough projects in their development pipelines to attract well-capitalized strategic, financial development pipelines to attract well-capitalized strategic, financial and private equity buyers/investorsand private equity buyers/investors

CapitalCapitalRequirementRequirement

Developers are facing more stringent capital and credit quality Developers are facing more stringent capital and credit quality requirements in some parts of their development efforts (e.g. requirements in some parts of their development efforts (e.g. turbine down payments, PPA RFP commitment requirements)turbine down payments, PPA RFP commitment requirements)

SectorSectorMaturityMaturity

Wind turbine technology has been maturing, resulting in a wider Wind turbine technology has been maturing, resulting in a wider market acceptance and consequently, a natural progression market acceptance and consequently, a natural progression toward consolidationstoward consolidations

Causes & Drivers for Consolidation in the Causes & Drivers for Consolidation in the Wind Sector in North AmericaWind Sector in North America

July 07

Developers Regional or Nationwide

Lightly-capitalized

Fund development efforts (land control, wind data collection, permits and environmental & interconnect studies) through angel investors or small private financing

Require significant capital/credit quality for turbine down payments, PPA/RFP commitment and constructions. At this point, developers can:

Bring in single project financing and receive developer fee

Sell the development project to a 3rd party

Sell corporate-level equity to a well-capitalized buyer/investor who will fund the whole company, including the projects

Buyers/Investors Three types: Strategic, Financial, Private

Equity Strategic Buyer

Typically an IPP, Oil & Gas or Utility Company

Seeks long-term strategic investment in the wind sector because of corporate mandates

Able to fully use tax benefits, unless for non-American companies

Financial Buyer Typically an investment bank or

insurance company Seeks mid or long-term investment

for return potentials Able to fully use tax benefits

Private Equity Buyer Seeks short-term returns by funding

development and construction needs and sell the company to a strategic buyer after some projects are spinning

Unable to use tax benefits All types of buyers typically fund SG&A,

development and construction expenses through corporate-level capital or project financing

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Characteristics of Consolidation in the Characteristics of Consolidation in the North American Wind SectorNorth American Wind Sector

July 07

Development Assets Projects in development come in different

stages of completion

Stages are defined by completion of:

Land Acquisition or Control

Wind Data Collection

Environmental Studies

Transmission & Interconnect Studies and Agreements

Local Permits

PPA Award or Hedging Implementation

Development assets represent an entry value to potential buyers

Development team is highly valuable for Financial & Private Equity Buyers since they don’t have one of their own; less valuable for strategic buyers because they typically have one already

Depending on project maturity, valuation ranges from $30 to $90K per megawatt in development

Operating Assets Projects are fully-permitted and

constructed Projects are in operation and producing

electricity Depending on the locations, projects have

either long-term off-take agreement or merchant off-take arrangement

Operation team is highly valuable for Financial & Private Equity Buyers since they don’t typically have one of their own; less valuable for strategic buyers because they typically have one already

Depending on project’s PPA rates and wind capacity factors, valuation ranges from $1.2MM to $1.7mm per installed megawatt

Values in Wind Companies are Derived Values in Wind Companies are Derived from Two Types of Assetsfrom Two Types of Assets

July 07

Before Consolidation Projects are financed on a singular basis

Non-recourse project debt & project equity are used and arranged on a project-by-project basis

Two types of equity

Tax Equity

Cash Equity

Lack of economies of scale leads to high transaction costs

One-off project financing leads to less favorable terms and conditions

Lack of financing could lead to a sale of project in development

After Consolidation Projects are more likely to be financed on

a portfolio basis (i.e. bond financing, pooled tax equity)

Non-recourse project debt, back-leverage debt and equity maybe used

Depending on the tax-profile of the buyer, 3rd party tax equity might or might not be used

Economies of scale leads to lower transaction costs

Since financing needs would be based on the project portfolio, there is a higher bargaining position, which leads to more favorable terms and conditions.

Back-leverage at the buyer/investor’s level can be used to enhance buyer/investor’s returns

Impact of Consolidation in Wind Impact of Consolidation in Wind FinancingFinancing

July 07

Financing activities will become more efficient

Key players will focus on building the newly acquired development assets

Strategic buyers will build and hold assets while continuing to develop new projects Financial & Private Equity buyers will build most of their

assets to COD and sell them

Future consolidation will increasingly involve companies with operating assets

SummarySummary