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Market Data

At a Glance

Political Framework Conditions

Market Data 99 Electricity 154 Gas

RWE

Accounting

Investor Relations

Facts| & Figures | Update October 2008 RWE FactsRWE & Figures Update October 2008 10/20/2008

98

Market Data Electricity Generation

Shares of Primary Energy Sources in Total Electricity Generation in Europe (2007)


in % Austria
Belgium Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Luxembourg Netherlands Poland Portugal Slovak Republic Spain Sweden UK

in TWh 61.89
89.91 88.18 42.59 81.13 566.72 636.50 61.52 39.91 29.02 314.35 3.99 103.12 158.95 45.17 28.01 312.56 147.81 396.73

Nuclear Hydro Wind Gas Oil Coal/Lignite Other Total power generation

Source: Cambridge Energy Research Associates.

0 0%

2020%

40% 40

60% 60

80% 80

100% 100

100

200

300

400

500

600

700
99

RWE Facts & Figures | Update October 2008 10/20/2008

Market Data Electricity Generation

Development of the European Power Plant Portfolio from 2005 to 2030


in GW*) 900 800 700 Wind 600 500 400 300 200 100 Hydro power 0 2005
*) EU. Source: VGB PowerTech, Electricity Generation 2007.

Additional demand 300 000 MW until 2020 Replacement need

?
2004 Wind Coal, oil, gas Nuclear Hydro power 4.8% 58.0% 18.9% 18.2%

Coal, oil, gas

Nuclear

2010

2015

2020

2025

2030

RWE Facts & Figures | Update October 2008 10/20/2008

100

Market Data Electricity Generation

Europe has an Age Problem


Last boom for the construction of conventional and nuclear power plants was in the 80s Since then mainly gas-fired power plants have been built Ca. 40% of thermal and nuclear power plants older than 25 years Hard coal plants Ca. 60% older than 25 years Replacement of all these (old) plants needed by 2030

RWE Facts & Figures | Update October 2008 10/20/2008

101

Market Data Electricity Generation

Age Structure of Power Plants in Europe in 2007


Hard coal (131 GW)
Age (years) >50
45 40 35 30 25 20 15 10 5 1 0 4 8 12 16

Lignite (60 GW)


Age (years) >50

Gas/Oil (201 GW)


Age (years) >50

Nuclear (136 GW)


Age (years) >50

45 40 35 30 25 20 15 10 5 1 0 4 8 12 16

45 40 35 30 25 20 15 10 5 1 0 4 8 12 16 20

45 40 35 30 25 20 15 10 5 1 0 4 8 12 16 20

half ~70% in of their lifecycle Half lifetime (typically)

2nd

~60% in half of their lifecycle


Sources: BCG, RWE.

2nd

~50% in half of their lifecycle

2nd

~70% in half of their lifecycle

2nd

RWE Facts & Figures | Update October 2008 10/20/2008

102

Market Data Electricity Generation

German Energy and Power Mix (2007)


Primary energy consumption: 472 million tons of coal equivalent Other Natural gas 34% 23% Lignite Hard coal 14% Hard coal Lignite 12% 23% 25% Gross power generation: 637 TWh*)

Nuclear

22%

Nuclear Renewables

11% 6%

Natural gas Renewables Other

12% 10% 8%

*) Estimated figures. Source: Arbeitsgemeinschaft Energiebilanzen (Energy Balance Working Group), VDEW, February 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

103

Market Data Electricity Generation

Generation Capacity in Europe will Stay Tight


Different sources, e.g. Union for the Coordination of Transmission of Electricity (UCTE), Cambridge Energy Research Associates (CERA), IEA expect capacity bottlenecks already by 2009. Major drivers for capacity bottlenecks: Ageing power plants Volatile gas prices (driven by oil prices) Supply constraints for power plant components, scarcity of consented sites Lengthy approval procedures for interconnector extensions Political risks threatening investment plans for power plants and networks Special drivers: Nuclear phase out in Germany Large Combustion Plant Directive (LCPD) in UK Increased peak-load demand in France Volatile hydro reservoir levels in Spain, Scandinavia, Austria, Switzerland Decommissioning of old nuclear reactors in new EU member states

RWE Facts & Figures | Update October 2008 10/20/2008

104

Market Data Electricity Generation

UCTE Systematic for Evaluating the Remaining Generation Capacity in Europe


Installed national generating capacity + + + + + = = = Hydro power stations Nuclear power stations Fossil fuel power stations Renewable energy sources (other than hydro) Not clearly identifiable energy sources National generating capacity Unusable capacity Of which mothballed capacity Outages and overhauls (fossil fuel power stations) 5% - 10% Reliable available capacity Load Remaining capacity

Minimum criteria: For an individual country, remaining capacity should be at least 5% or 10% of the national generating capacity

Source: UCTE.

RWE Facts & Figures | Update October 2008 10/20/2008

105

Market Data Electricity Generation

UCTE Expects Severe Capacity Shortage in Europe by 2020


Reserve capacity*) in GW
100 90 80 70 60 50 40 30 20 10 0
30 33 78 79 78 79 87 88 76 75

5% = Minimum reserve capacity

Jan. July 2008

Jan. July 2010

Jan. July 2013

Jan. July 2015

Jan. July 2020

*) Basis: third Wednesday 11 a.m.; 25 European countries. Domestic generating plant capacity Europe: 643.5 GW (January 2008); estimated net generating plant capacity for 2008 2020 (UCTE), underlying consumption growth 1.8% p.a. Source: UCTE, January 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

106

Market Data Electricity Generation

UCTE Expects Capacity Bottleneck in Germany from 2015 onwards


Reserve capacity*) in GW
24 22 20 18 16 14 12 10 8 6 4 2 0
10.5 10.8 11.1 9.2 9.1 13.8 20.9 21.6 18.5

17.7

5% = Minimum reserve capacity

Jan. July 2008

Jan. July 2010

Jan. July 2013

Jan. July 2015

Jan. July 2020

*) Basis: third Wednesday 11 a.m. Domestic generating plant capacity Germany: 127.0 GW (January 2008); estimated net generating plant capacity for 2008 2020 (UCTE). Source: UCTE, January 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

107

Market Data Electricity Generation

Need for Action: More than 30 GW of Additional Capacity Needed in Germany by 2020
Generation capacity1) in GW capacity need2) Peak load 25 %

100

Others Gas

> 30 GW capacity gap in 2020

Hard coal 50 Lignite Base load 75 %

Nuclear 0 Hydro 2008 2012 2016 2020

1) Sources: RWE, Boston Consulting Group, trend:research 2008, terms of German nuclear phaseout 2002 new builds currently under construction included; without announced new builds; without offshore wind farms. 2) Required capacity to assure todays level of security of supply with respect to EU-20/20/20-goals.

RWE Facts & Figures | Update October 2008 10/20/2008

108

Market Data Electricity Generation

Scarce European Generation Capacity Increases the Value of our Existing and Future Asset Base
Significant reliable new build needed1) but current projects are insufficient to fill gap

100 90
Secure capacity (in GW) Required secure capacity1)
15.81) 11.71)

80 70 60 50 40 30 20 10 0

New build (Cat. B)2) New build (Cat. A)2) Renewable Energy/ CHP expansion

Cancelled/stopped Unlikely Postponed Questionable Built3) Most likely Under construction

Existing Generation Capacity 2020

DENA 2020 projections1) (April 2008)

RWE market survey of fossil fuelled power plant projects in Germany (August 2008)

1) Source: DENA, April 2008. Basis: nuclear phaseout, full achievement of government targets in renewable energy and CHP, flat consumption (15.8 GW) or reduction in consumption by 0.5% p.a. (11.7 GW). 2) Category A: projects under construction or operating after 2005, Category B: projects with high probability of execution. 3) Power plant projects already operating since 2005 included in DENA new build category A (2.7 GW secured capacity).

RWE Facts & Figures | Update October 2008 10/20/2008

109

Market Data Electricity Generation

Attractiveness of Coal and Gas Differs in Germany and the UK


Germany Power price
Min Hourly Demand New Lignite New Hard coal New CCGT New Hard coal Max

UK Power price
Min Hourly Demand New CCGT Summer gas prices Peaking2)
90 100

Max

Power price

Power price Peaking2)

OCGT + CCGT

Hard coal Must Run1)


0 10

Nuclear
20 30

Lignite

Interconnector + Nuclear Must Run1)


0 10 20 30 40

Hard coal
50 60 70

CCGT

40

50

60

70

80

90

100

80

Proportion of installed capacity (in %) Large proportion of low marginal cost plant from nuclear, lignite, CHP and wind. Load factor for new coal plant somewhat higher in Germany than in UK.

Proportion of installed capacity (in %) Higher share of high marginal cost plant. New gas plant in UK has significantly higher load factor than in Germany.

1) Including renewables and CHP. 2) Oil, OCGT, hydro, etc.

RWE Facts & Figures | Update October 2008 10/20/2008

110

Market Data Electricity Generation

Power Generation in Germany: CO2 Emissions per Plant Type1)


in kg/kWh

1.2 CO2 emissions from new plant technology (BoA)2): 0.95 kg CO2/kWh 0.9

0.5

Lignite

Hard coal

Natural gas

1) Unweighted factor per fuel specific installed capacity. 2) Lignite-optimised plant.

RWE Facts & Figures | Update October 2008 10/20/2008

111

Market Data Electricity Generation

CO2 Reduction through Higher Efficiency Essential for Hard Coal Plants
CO2 emission per kWh Average, worldwide
30% 1,116 g CO2/kWh 480 g coal/kWh % g CO2/kWh Efficiency1) CO2 emission
Use of fuel

Average EU 25
38% 881 g CO2/kWh 379 g coal/kWh

g coal/kWh

State of the art technology


45% 743 g CO2/kWh 320 g coal/kWh

700 C power plant


>50% 669 g CO2/kWh 288 g coal/kWh

CCS technology2)

But: Efficiency losses of 5 14%-points

2010
1) Average data for hard coal plants. 2) CCS: Carbon Capture and Storage.

2020
Source: VGB Tech, electricity study Facts & Figures, 2007.

RWE Facts & Figures | Update October 2008 10/20/2008

112

Market Data Electricity Generation

Phase-Out of Nuclear Power Plants in Germany is another Tightening Factor


TWh remaining by 2000 according to Nuclear Energy Act Stade Obrigheim Biblis A Neckarwestheim-1 Biblis B Brunsbttel Isar-1 Unterweser Philippsburg-1 Grafenrheinfeld Krmmel Gundremmingen B Gundremmingen C Philippsburg-2 Grohnde Brokdorf Isar-2 Emsland Neckarwestheim-2 23 14 62 57 81 48 78 118 87 150 158 161 168 199 201 218 231 230 236 1970 1980 1990 2000 2010 Aug 2008 Replacement of more than 20,000 MW in nuclear power capacity required 2020 2030
Remark: RWE has an additional allotment of 107.25 TWh from Mlheim-Krlich

Plant lifetime based on residual electricity generation RWE asked for transfer of 30 TWh from MlheimKrlich to Biblis A (lifetime extension until mid 2013) Transfer of 21.45 TWh from Mlheim-Krlich to Biblis B (without governmental permission, lifetime extension until end of 2012)

RWE Facts & Figures | Update October 2008 10/20/2008

113

Market Data Electricity Generation

Nuclear Power Plants in Germany: Remaining Capacities after Shut-Down


Power Plant Owner Chronological order of phase-out Capacity per power plant MW Stade Obrigheim Neckarwestheim 1 Biblis A Biblis B Brunsbttel Isar 1 Unterweser Philippsburg 1 Grafenrheinfeld Gundremmingen B Grundremmingen C Krmmel Philippsburg 2 Grohnde Brokdorf Isar 2 Emsland Neckarwestheim 2 EON: 66.7% / Vattenfall 33.3% EnBW: 99.8% / Deutsche Bahn: 0.2% EnBW: 99.8% / Deutsche Bahn: 0.2% RWE RWE Vattenfall: 66.7% / EON: 33.3% EON EON EnBW: 99.8% / Deutsche Bahn: 0.2% EON RWE: 75% / EON: 25% RWE: 75% / EON: 25% Vattenfall: 50% / EON: 50% EnBW: 99.8% / Deutsche Bahn: 0.2% EON: 83.3% / SW Bielefeld: 16.7% EON: 80% / Vattenfall: 20% EON: 75% / SW Mnchen: 25% RWE: 87.5% / EON: 12.5% EnBW: 99.8% / Deutsche Bahn: 0.2% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 640 340 785 1,167 1,227 771 878 1,345 890 1,275 1,284 1,288 1,346 1,392 1,360 1,410 1,400 1,329 1,310 11/14/2003 05/11/2005 11/29/2009 02/10/20101) 07/13/20101) 01/08/2010 08/07/2011 04/24/2012 06/02/2012 05/15/2015 05/21/2016 03/02/2017 07/01/2017 12/15/2018 03/31/2019 03/08/2020 04/19/2021 04/14/2022 07/06/2023 Date of shut-down (load factor: 85%) Remaining German capacity after shut-down2) 21,397 20,757 20,457 19,672 18,505 17,278 16,507 15,629 14,284 13,394 12,119 10,835 9,547 8,201 6,809 5,449 4,039 2,639 1,310 0

1) Separate estimation for Biblis A and B, including extended inspection outages in 2009. 2) Inconsistencies are caused by increased power outputs of the remaining plants due to retrofits. As of August 2008.
RWE Facts & Figures | Update October 2008 10/20/2008

114

Market Data Electricity Generation

Substantial Investment in Capacity Needed in the UK to Replace Shut-Downs and Meet Rising Demand (I)
Generation capacity development with no new build in GW 90 80 70 60 50 40 10 30 20 10 0 2006 2010 2015 2020 0 5 15 Other Renewables Gas Coal Nuclear Capacity margin Peak demand 20 Capacity margin in % 25

Approximately 20 40 GW of new capacity (= 25 50% of total capacity) will be required by 2020 to maintain margins. Market fundamentals support a sustained return of value to the generation sector.

RWE Facts & Figures | Update October 2008 10/20/2008

115

Market Data Electricity Generation

Substantial Investment in Capacity Needed in the UK to Replace Shut-Downs and Meet Rising Demand (II)
New build required to maintain 20% capacity margin in GW

45 45.000 40 40.000 35 35.000 30 30.000 25 25.000 20 20.000 15 15.000 10 10.000 5 5.000 0 0 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

RWE Facts & Figures | Update October 2008 10/20/2008

116

Market Data Electricity Generation

The Marginal Power Plant Principle Key to Price Formation on the Wholesale Market in Germany
in /MWh Capacity in demand Total cost Variable cost + cost of capital Market price Offer price

Short-term variable costs by power plant type (fuel + operating assets) + CO2 Supplied capacity in MW (staggered by offer price) Daily demand on the European Energy Exchange (EEX) is met by a large number of electricity products based on a variety of energy sources. Every type of power plant (nuclear, gas, coal, etc.) has marginal costs in terms of usage. Marginal costs are primarily determined by the variable cost of fuel (incl. CO2) and operating assets - costs that are incurred when the power station is up and running and must at least be earned back. On the EEX, power plant capacity is drawn upon, starting from the lowest-cost option, until the demand is met. The offer price of the last power station needed to satisfy this demand (marginal power plant) determines the market price for all the other power stations. Power prices are thus the result of the point at which supply and demand intersect. Therefore, to cover high demand, a gas-fired power plant with relatively high marginal costs would tend to determine prices, whereas to cover low demand, a more affordable coal-fired power station would be preferable.
RWE Facts & Figures | Update October 2008 10/20/2008

117

Market Data Electricity Generation

German Merit Order: Theoretical Power Pricing with and without Emissions Trading
Assumed range of power demand

Marginal plant Market price incl. CO2 Power price Impact of emissions trading on power price Market price excl. CO2 CO2 costs of fossil fuel-fired power plants Hard coal old CCGT2) new

OCGT1) old

Nuclear Must run3)

Lignite new

Hard coal new

Lignite old

Variable costs of power plants (excl. CO2) Power installed

1) OCGT: Open-Cycle Gas Turbine. 2) CCGT: Combined-Cycle Gas Turbine. 3) Must run: run-of-river, wind, CHP. Source: RWE.

RWE Facts & Figures | Update October 2008 10/20/2008

118

Market Data Electricity Generation

UK Merit Order: Theoretical Power Pricing with and without Emissions Trading (at Wintertime with High Gas Prices)

Assumed range of power demand Marginal plant Power price OCGT1)

Market price incl. CO2 Market price excl. CO2 CO2 costs of fossil fuel-fired power plants Coal Must run CCGT2) Variable costs of power plants Power installed (excl. CO2) Oil

Nuclear

Normal thermal efficiencies assumed. 1) OCGT: Open-Cycle Gas Turbine. 2) CCGT: Combined-Cycle Gas Turbine. Source: RWE.

RWE Facts & Figures | Update October 2008 10/20/2008

119

Market Data Electricity Generation

Gas Purchasing Requirement in the Event of an Immediate Switch from Lignite to Gas
TWhel
700 600 500 400 300 200 100 0 Real Fictitious

TWhth 637
75

637

700 600

156 TWh
156 54 40 27 140

231

500 400 300 200 100 0 Real Fictitious

0 54 40 27 140

h TW ) 5 % 28 0 + + 19 (
437

145

145

152

Electricity generation (gross) by energy source in Germany in 2007

Gas demand for electricity generation in Germany in 2007 Gas (electric) Lignite Other Wind
RWE Facts & Figures | Update October 2008 10/20/2008

Additional gas demand of ~27 bn m3 (~285 TWh) > 30% of total existing German gas consumption

Hydro Nuclear energy Hard coal

Source: RWE estimates.

120

Market Data Electricity Generation

Remaining Power Generation Capacity in Europe


Status: December 2005 in GW 611.3
110.0

Status: December 2006 Total European power plant capacity - Unusable capacity - Reserve capacity - Outages and overhauls*) Reliable available capacity in GW 625.1
107.8

27.0 34.0

29.3 32.9

= 440.3

= 455.1

369.5

- Load

368.1

70.8 8.2

Remaining capacity Import balance

87.0 2.4

*) Outages and overhauls of thermal power plants. Source: Union for the Coordination of Transmission of Electricity (UCTE).

RWE Facts & Figures | Update October 2008 10/20/2008

121

Market Data Electricity Generation

Remaining Power Generation Capacity in Germany


Status: December 2005 in GW 119.3
22.8

Status: December 2006 Total German power plant capacity - Unusable capacity - Reserve capacity - Outages and overhauls*) Reliable available capacity in GW 124.1
22.9

7.1 5.5

7.3 6.7

= 83.9

= 87.2

69.5

- Peak load

70.0

14.4 1.2

Remaining capacity Import balance

17.2 2.2

*) Outages and overhauls of thermal power plants. Source: Union for the Coordination of Transmission of Electricity (UCTE).

RWE Facts & Figures | Update October 2008 10/20/2008

122

Market Data Electricity Generation

Balancing Power: How Does it Work?


f

Starting point e.g. Power station breakdown

Frequency

5s

30 s

15 min

1h

Primary

Secondary

...
Minute reserve 5s 30 s 15 min TSO1) Primary Automatic Control at the generator/ turbine e.g. Thermal power plants Secondary reserve Automatic Control by the TSO, Load Frequency Control e.g. Pumped storage 1h BRP2) Minute reserve Manual activation by TSO Manual e.g. Thermal power plants
1) TSO: Transmission System Operator 2) BRP: Balance Responsible Party
RWE Facts & Figures | Update October 2008 10/20/2008

Hour reserve

123

Market Data Electricity Generation

Factors Exerting a Major Influence on Electricity Wholesale Prices

Oil prices Gas prices Coal prices

CO2 prices
Thermal power plants

Uranium prices

Wind
Wind power plants Hydro storage and run-ofriver power plants Air conditioners/ electric heaters Lighting Lighting/ end consumer behavior

Maintenance

Electricity prices

Power plants/grids

Precipitation

Technical faults

Temperature

Vacations

Long-term factors Economic cycle Political decisions Capacity expansion/closures


Cloudiness Time of day Public holidays

Factors of supply Factors of demand Factors of supply and demand

RWE Facts & Figures | Update October 2008 10/20/2008

124

Market Data Electricity Generation

Comparison of Wholesale Prices in European Power Markets


Absolute development of 2009 base load forward prices in /MWh
110 100 90 80 70 60 50 40 30
30.6.06 30.7.06 30.8.06 30.9.06 30.1.07 28.2.07 30.3.07 30.4.07 30.5.07 30.6.07 30.7.07 30.8.07 30.9.07 30.1.08 29.2.08 30.3.08 30.4.08 30.5.08 30.6.08 30.10.06 30.11.06 30.12.06 30.10.07 30.11.07 30.12.07 30.7.08
29.8.08 125

Netherlands Netherlands Germany Germany France France Scandinavia Scandinavia UK UK

Source: RWE Supply & Trading.

RWE Facts & Figures | Update October 2008 10/20/2008

Market Data Electricity Generation

Electricity Prices in Central Eastern European Countries


in /MWh Forwards base load for 2007 Forwards base load for 2008 Forwards base load for 2009

100 90 80 70 60 50 40 30 20 10 Aug 06 Aug 07 July 07 July 08 May 07 May 08 Aug 08


126

Jun 07

Nov 06

Nov 07

Feb 07

Sep 06

Sep 07

Feb 08

Jan 07

Mar 07

Jan 08

Poland

Czech Republic

Hungary
Source: Traditional Financial Services.

Markets are illiquid due to regulation of wholesale prices by the regulatory authorities

RWE Facts & Figures | Update October 2008 10/20/2008

Mar 08

Dec 06

Dec 07

Jun 08

Apr 07

Apr 08

Oct 06

Oct 07

Market Data Electricity Fuels

Coal Price Development


in /t coal equivalent (ce) 170
160 150 140 130 120 110 100 90 80 70 60 50 40 30 Jan 04 May 04 Mar 04

150.36

117.19

CIF-ARA 2004 67.44 /t ce

BAFA2) 2005 65.02 /t ce

BAFA2) 2006 61.76 /t ce CIF-ARA 2006 59.23 /t ce

CIF-ARA 2007 73.17 /t ce

BAFA2) 2004 55.36 /t ce


Jul 04 Nov 04 Sep 04 Jan 05

CIF-ARA 2005 57.27 /t ce


Jul 05 Nov 05

BAFA2) 2007 68.24 /t ce

CIF NW Europe Forward TFS (Traditional Financial Services Ltd.)1)


1) As of August 2008.

BAFA2) Monthly BAFA2) Monthly expected

2) Bundesamt fr Wirtschaft und Ausfuhrkontrolle (Federal Office of Economics and Export Control).

RWE Facts & Figures | Update October 2008 10/20/2008

Q4/2008 Q4/2008 Q1/2009 Q2/2009 Q2/2009 Q3/2009 Q4/2009 Q4/2009 2010


127

July 06

July 07

May 07

May 05

May 06

July 08

Nov 06

Sep 06

Sep 07

Nov 07

Sep 05

Jan 08

May 08

Jan 06

Jan 07

Mar 05

Mar 06

Mar 07

Mar 08

Market Data Electricity Fuels

Development of Sea Freight Rates for Hard Coal to ARA


in $/t
90 80 70 60 50 40 30 20 10 0 Jul 05 Jul 06 Jul 07 Nov 05 Mrz 06 Nov 06 Sep 05 Sep 06 Sep 07 Nov 07 Jan 05 Mai 06 Mai 07 Mar 05 May 05 Mar 07 Mar 08 Mai 08 Jan 06 Jan 07 Jan 08 Jul 08
128

South Africa USA - East Coast Australia Colombia


Source: Frachtcontor Junge & Co.

RWE Facts & Figures | Update October 2008 10/20/2008

Market Data Electricity Fuels

Main Sea Freight Trading Routes for Hard Coal (I)


Hard Coal Seaborne Trade 2007: 820 million t in million t

29 78 To the Far East 37 CANADA API#2 4 POLAND

USA 74

COMMONWEALTH OF INDEPENDENT STATES

53

Canada/USA

CHINA

189 COLOMBIA/ VENEZUELA 68 API#4 SOUTH AFRICA API#3 AUSTRALIA INDONESIA 250

API = All Publications Index Source: Verein der Kohlenimporteure e.V. (Coal Importers Association), Annual Report 2008, published in June 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

129

Market Data Electricity Fuels

Main Sea Freight Trading Routes for Hard Coal (II)


Major products traded on worldwide coal markets API#2 The TFS API#2 is a monthly basket index for the ARA (harbours of Amsterdam, Rotterdam, Antwerp) coal price with a basis of 6,000 Kcal/kg, CIF, ARA, NAR (net as received) calculated on the last business day of the month. Calculation: (MCIS NWE Steam Coal Marker Price + International Index) divided by 2. API#3 The TFS API#3 is a weekly (every Friday) basket index price with a basis of 6,700 Kcal/kg, GAD (gross air dryed) FOB Newcastle (Australia) and published on a weekly and a monthly average basis. Calculation: (FOB Newcastle Price + Barlow Jonker Index (BJI)) divided by 2. API#4 The TFS API#4 is a weekly (every Friday) basket index price with a basis of 6,000 Kcal/kg, NAR FOB Richards Bay (South Africa) and published on a weekly and a monthly average basis. Calculation: (FOB Richards Bay Price ascertained by McCloskey + SACR Spot Coal Price Index + FOB Richards Bay Price ascertained by Argus Media) divided by 3.
API = All Publications Index CIF = Cost, Insurance, Freight CIS = Commonwealth of Independant States FOB = Free On Board The TFS API was a registered trade mark of the Tradition Financial Services Company (TFS). The TFS ascertains different API prices by a price survey from Argus Media and McCloskey. API-Index was renamed from July 2005 on in AM API#... (A for Argus Media and M for McCloskey). Source: Verein der Kohlenimporteure e.V. (Coal Importers Association), Annual Report 2008, published in June 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

130

Market Data Electricity Fuels

Reach of Uranium Reserves (I)


Based on a constant annual consumption of about 70,000 mt (capacity currently installed in nuclear power plants)

Result of exploration activity from 1950 to 1970. Significant new uranium exploration only since 2005

Uranium from phosphates & sea water

Proven reserves

Definitively probable reserves

Probable reserves

210

600

Conventional uranium production

Non-conventional uranium production

Improved uranium use through breeders

50

100

150

> 200

> 1,000 years

Reach
Source: OECD/Nuclear Energy Agency (NEA) and International Atomic Energy Agency (IAEA).

RWE Facts & Figures | Update October 2008 10/20/2008

131

Market Data Electricity Fuels

Reach of Uranium Reserves (II)


The amount of uranium that can be produced and the reach of the reserves depend on the effort required, especially in terms of production techniques and production costs. Most of the deposits are in regions that are politically stable such as Australia, Canada and America. Major reserves have also been developed and are being mined in South Africa, Kazakhstan and Uzbekistan. Todays known and probable reserves are the result of exploration activity conducted from 1950 to 1970. Given the sufficient levels of supply and low uranium prices, major uranium exploration was not carried out again until 2005. Similar to other raw materials such as oil, gas and coal, the level of known uranium reserves depends on the phases the exploration cycles are going through. Uranium exploration is currently going through the beginning of the second exploration cycle. Other raw materials already have more than five cycles behind them. Since uranium only accounts for a small portion of total electricity generation costs, rises in the price of uranium only have a small effect on them.

RWE Facts & Figures | Update October 2008 10/20/2008

132

Market Data Electricity Trading

Major European Electricity Trading Exchanges

FINLAND

NordPool Oslo

NORWAY

SWEDEN

European Energy Exchange (EEX) Leipzig Amsterdam Power Exchange (APX) APX Power UK London Powernext Paris
FRANCE UK

DENMARK NETHERLANDS GERMANY BELGIUM

AUSTRIA

Belpex Brussels Omel Madrid


SPAIN

Energy Exchange Austria (EXAA) Graz


133

RWE Facts & Figures | Update October 2008 10/20/2008

Market Data Electricity Grid

German Extra High-Voltage Grid Fees are in the Middle of the European Range despite Price Increases Caused by the Political Environment1)

Extra high-voltage grid fees in Europe2)

/MWh

> 10

Hungary, Slovakia, Poland, Denmark East, Lithuania, Portugal, Denmark West, Italy, Ireland

6 10

Great Britain, Romania, Greece, Spain, Austria Slovenia, Germany, Czech Republic, Estonia

<6

France, Belgium, Norway, Latvia Netherlands, Finland, Sweden

1) Incentives for renewables, approval procedures, system services included in grid fees. 2) Extra high-voltage (380 kV, 220 kV / very energy-intensive industries), T = 5,000 h/a. Source: ETSO, overview of transmission tariffs in Europe synthesis 2007 (published in June 2008).

RWE Facts & Figures | Update October 2008 10/20/2008

134

Market Data Electricity Grid

Control Areas of Germany's Transmission System Operators (2007)

Vattenfall Europe Transmission GmbH

E.ON Netz GmbH

RWE Transportnetz Strom GmbH

EnBW Transportnetze AG

RWE Facts & Figures | Update October 2008 10/20/2008

135

Market Data Electricity Grid

Germany: Import and Export of Electricity (2007)


in TWh DENMARK 5.64 SWEDEN 1.84

0.73

0.97 POLAND

NETHERLANDS 0.02

Import 32.97 Export 45.35 0.03 13.68

1.59

BELGIUM LUXEM BOURG

GERMANY 0.03 11.40 11.14 CZECH REPUBLIC 12.56 2.37 AUSTRIA

5.16 3.23 FRANCE

Source: RWE.

SWITZERLAND

5.23
RWE Facts & Figures | Update October 2008 10/20/2008

136

Market Data Electricity Grid

Transfer Capacities1) in Europe from and to Germany (Summer 2008)


in MW Transmission capacities between Germany and its neighbouring countries are small compared to capacities installed in Germany. Wholesale markets in Germany, Austria and Switzerland are gradually converging; due to its size, Germany is the dominant sub-market. NETHERLANDS 800 3,900 4,000 GERMANY 2,400 FRANCE 1,700 1,500
1) Transfer capacities should be considered separately and are not cumulative. (As of July, 2008). 2) Depending on wind situation in Germany.

DENMARK WEST2) 1,500

EAST 550

SWEDEN 600

950

550

600

POLAND2) 1,200

800 2,250 CZECH REPUBLIC2) 1,400

2,500

AUSTRIA
Source: www.etso-net.org NTC-Matrix Summer 2008

4,400 SWITZERLAND
RWE Facts & Figures | Update October 2008 10/20/2008

137

Market Data Electricity Grid

The German Energy Industry Act: Regulating Grid Access and Grid Fees in the Electricity and Gas Markets
Unbundling of grids from generation, wholesale and retail

(number of operators)

Exploration/ Generation Competition

Exchange Trading OTC Competition

Transport Bundesnetzagentur (electricity: 4, gas: 10)

Distribution Bundesnetzagentur (ca. 300) Retail Distribution Federal States (ca. 1,200) Customers

Competition

Regulation of grid access and grid fees*)

*) Exemption of gas Transport System Operators from regulation if effective competition between Transport System Operators exists.

RWE Facts & Figures | Update October 2008 10/20/2008

138

Market Data Electricity Grid

The German Energy Industry Act: Unbundling in the German Energy Market

Legal unbundling

Functional unbundling

Accounting unbundling

TSO1)

Obligatory

Obligatory Detailed rules to unbundle staff, equal treatment programme

Obligatory Auditors certificate plus separate balance sheets and profit and loss accounts must be disclosed and sent immediately to the regulator

DSO2) >100,000 customers

Obligatory

DSO2) <100,000 customers

1) TSO = Transport System Operator. 2) DSO = Distribution System Operator.

RWE Facts & Figures | Update October 2008 10/20/2008

139

Market Data Electricity Grid

The German Energy Industry Act: Unbundling in the RWE Group Structure
(RWE Rhein-Ruhr AG as an example) Integrated regional supplier (REC) RWE Rhein-Ruhr AG (subsidiary of RWE Energy AG) Supply/sales Administrative functions

Customer service

Call centre/billing centre for supply and distribution. DSO (Distribution System Operator) as defined by the EU Directive. Responsible for operation, distribution etc., for electricity and gas. Responsible for operation, maintenance and grid development.

Distribution grid operators

Grid service

Legally independent company

RWE Facts & Figures | Update October 2008 10/20/2008

140

Market Data Electricity Supply

The Largest Electricity Companies in Europe (2007)


Consolidated electricity sales volume in bn kWh*)

EdF (FRA) E.ON (GER) RWE (GER) Vattenfall (SWE) Suez (Electrabel) (FRA) ENEL (ITA) Endesa (ESP) EnBW (GER) Iberdrola (ESP) British Energy (GBR) 0 58 100 200 300 400 500 600 194 168 166 153 140 130 306 435

656

700

*) Last completed fiscal year in each case. Net figures, excluding proprietary trading. Source: RWE, August 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

141

Market Data Electricity Supply

Development of Energy Consumption in Germany


Development by segment Electricity in TWh
600

Gas in TWh 534.2


141.7

531.9
500 140.4 400 300 200 249.3 100 0 118.5 16.2

539.6
142.0

541.0
140.5

1200 1,200 1000 1,000 800

962

980

973

925

119.0 16.2

119.6 16.3

120.1 16.3

479 600 400

468

459

419

250.5

253.3

255.6

400 200

408

410

400

8.3
2004

8.3
2005

8.3
2006

8.5
2007

83 2004

104 2005

104 2006

106 2007

Residential customers Services

Transport Industry Agriculture

Residential and commercial customers Industry Power plants and district heating Gas consumption depends to a large extent on temperatures.

Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Assosciation), January 2008. 2004-2006 figures were restated.

Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Assosciation), 2006; forecast derived from EU Commission, 2008.
RWE Facts & Figures | Update October 2008 10/20/2008

142

Market Data Electricity Supply

Electricity Prices in Europe


Electricity prices for industrial customers*) in July 2007 in selected European countries in ct/kWh
Italy Ireland Slovakia Great Britan Germany Belgium Netherlands Portugal Romania Czech Republic Slovenia Spain Poland Greece Croatia Lithuania Sweden Hungary Finland Austria France Bulgaria Latvia Estonia 8.00 7.90 7.78 7.47 7.10 6.93 6.70 6.29 5.95 5.82 5.80 5.61 5.60 5.30 5.06 4.99 4.47 12.76 10.86 9.52 9.44 9.02 9.00 9.00

0
Source: Eurostat, March 2008.

10

12

14

*) Basis: industrial customers with a consumption of 2,500 kW/4,000 h/a, prices excluding value-added tax converted in purchasing power indices.

RWE Facts & Figures | Update October 2008 10/20/2008

143

Market Data Electricity Supply

Pan-European Comparison of the Annual Electricity Bill of an Average Home Taking Country-Specific Consumption into Account
Averaged over a year, German homes spend slightly less than European homes, second half of 2007
1600 1400 1200 528 1000 800 600 400 200 0 Finland Netherlands Denmark Luxembourg Ireland Sweden 831 404 540 901 634 661 497 562 457 543 490 527

1359

944

1023
122

851
217

662
166

740 79

793
231

752
295

761
218

696
206

690
163

692 33 544
138 659 406 479 438

-EU-15

582 103

460 22

486 42

445

EU-15

Austria

Germany *)

Italy

UK

Spain

Portugal

Belgium

France

-Bill total in /year Tax and levy share Electricity price without taxes and levies

*) Tax and levy share including CHP, REA and concession fees. Source: Eurostat, September 2008, rounding differences may occur. Eurostat adopted new survey methodology, which explains the decline in prices in certain cases.

Greece
144

RWE Facts & Figures | Update October 2008 10/20/2008

Market Data Electricity Supply

Structure of the German Electricity Market (2007)


Number of companies

Major

60

Regional

> 800

Local

Local Electricity supply to end customers


25 TWh 120 TWh = 23% = 5%

Net electricity consumption of 522 TWh*) 237 TWh = 45% Industry 140 TWh = 27% Private households

Trade, commerce, public institutions

Others

*) preliminary figures Source: BDEW, Bundesverband der Energie- und Wasserwirtschaft e.V.

RWE Facts & Figures | Update October 2008 10/20/2008

145

Market Data Electricity Supply

Structure of the UK Electricity Market (2007)

Over 30 electricity generators

1 transmission system operator

7 distribution network operators, operating 14 distribution zones

7 major suppliers

Net electricity consumption 342 TWh 116 TWh

226 TWh Industrial & commercial customers (incl. transport and agriculture)

Residential customers

Source: RWE, Department for Business Enterprise & Regulatory Reform, UK, 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

146

Market Data Electricity Supply

Since 1999, Competition is Real: Freedom of Choice for German Electricity Customers (I)
Industry and Business Commerce*) Customers who signed a new contract with their existing supplier 50%

Customers who signed a new contract with their existing supplier 48%

Customers who switched vendors

Customers who did not change their agreements 43% 52%

Customers who switched vendors

7% (= 210,000)

*) Companies with up to 50 employees. Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), November 2007.

RWE Facts & Figures | Update October 2008 10/20/2008

147

Market Data Electricity Supply

Since 1999, Competition is Real: Freedom of Choice for German Electricity Customers (II)
Households Customers who did not change their agreements

53%

Customers who signed a new contract with their existing supplier

37%

Customers who switched vendors after moving house Customers who switched vendors

3% 7% (= 2.7 million)

Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), November 2007.

RWE Facts & Figures | Update October 2008 10/20/2008

148

Market Data Electricity Supply

Fees for Electricity Consumption in Germany


State-caused charges for all electricity customers in billion
16 14 12 10 8 6 4 2 0 1999 2000 2001 2002
2)

11.35 8.50 6.92 4.08 9.48

11.84

12.06 0.79
2.70 2.07

12.43 0.81
2.93 2.09

13.59 0.70
4.15 2.14

13.92 0.55
4.60

2.17

6.50

6.60

6.60

6.60

2003

2004

2005

2006

2007

2008

Kraft-Wrme-Kopplungsgesetz (German Combined Heat and Power Act)2) Erneuerbare-Energien-Gesetz (German Renewable Energy Act)1) Licensing fees Electricity tax

1) Previously Stromeinspeisegesetz (Electricity Feed-In Act), since April 2000: German Renewable Energy Act. 2) Old Combined Heat and Power Act of May 2000 replaced by new Combined Heat and Power Act in April 2002. Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), January 2008; 2008 figures estimated by Arbeitskreis Steuerschtzung.

RWE Facts & Figures | Update October 2008 10/20/2008

149

Market Data Electricity Supply

Industrial Customers Paying Higher Governmental Charges and Net Electricity Prices are Slightly above the Level of 1998
Development of industrial*) electricity prices (including electricity tax) 1998 = 100% 122 100
2%

Change (1998 = 100%) 131 121


27% 25% 26%

+ 31.0%

107 96
4%

96 85 67 7% 70
10%

+ 1,350%

23%

73
10%

21%

20% 104%

98%

92% 60% 60% 63% 65% 75%

84%

97%

95%

+ 6%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Taxes, levies & fees Renewable Energy Act, Combined Heat and Power Act, electricity tax. Net electricity prices Generation, transmission and sales.
*) Medium voltage, purchase of 500 kW/3,150 h. Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), January 2008.

In 2000, industry benefitted from liberalisation by some 5.6 billion. In 2008, industrial net electricity prices are slightly above the level of 1998.

RWE Facts & Figures | Update October 2008 10/20/2008

150

Market Data Electricity Supply

Government Inflates German Electricity Bills


Average monthly electricity bill of a three-person household (3,500 kWh/a) in /month 52.38
39.7%

Change (1998 = 100%) 60.20


40.7%

62.50

+ 25.1%

49.95
24.7%

54.43
39.9%

56.76
39.2%

48.20
29.9%

46.99 40.66
38.1%

50.14
39.7%

39.8%

41.76
39.8% 40.0%

+ 101.6%

75.3%

70.1% 61.9% 60.0%

60.2%

59.5%

60.3%

60.1%

60.8%

59.3%

60.2%

+/- 0%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Taxes, levies & fees


Renewable Energy Act, Combined Heat and Power Act, concession fees, electricity tax and value-added tax.

Net electricity prices


Generation, transmission, distribution, metering, sales and marketing.

Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), January 2008.

Gains resulting from deregulation are being eroded by additional burdens imposed by policymarkers.
RWE Facts & Figures | Update October 2008 10/20/2008

151

Market Data Electricity Supply

Government Charges Account for 40% of German Household Electricity Bills1)


21.43 ct/kWh break down as follows (as of January 2008): State: 8.54 ct/kWh Wholesale Price/Grids/Sales: 12.89 ct/kWh Value-added tax2) 3.42 16% 6.10 Electricity tax 2.05 10% 40% Concession fee Renewable Energy Act Combined Heat and Power Act 1.79 1.08 8% 5% 6.49 30% Wholesale Price3) Sales and marketing Grid Fee/Metering/ Energy Data 29% Management

0.20

1%

0.30

1%

1) 3,500 kWh/a. 2) VAT at 19%. 3) Wholesale prices for prorated purchases for 2008. Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), March 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

152

Market Data Electricity Supply

The Largest Electricity Companies in Germany by Sales to End Customers (2006)


in billion kWh*)
E.ON AG, Dsseldorf RWE AG, Essen EnBW AG, Karlsruhe Vattenfall Europe AG, Berlin EWE AG, Oldenburg RheinEnergie AG, Cologne MVV Energie AG, Mannheim Stadtwerke Mnchen GmbH, Munich N-ERGIE AG, Nuremberg Stadtwerke Hannover AG, Hanover 0
*) Including consolidated participations. Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), November 2007.

84.8 81.7 65.7 19.8 11.5 10.9 10.1 9.4 7.1 4.4 10 20 30 40 50 60 70 80 90 100

RWE Facts & Figures | Update October 2008 10/20/2008

153

Market Data Gas LNG

LNG is Becoming an Increasingly Important Component of Global Gas Supply


Global natural gas demand and LNG's share in bcm

4,000

3,000

2,000 Asia Pacific Africa Middle East 1,000 7% 13% 15% 17% Europe and Eurasia South and Central America North America Global LNG 2003
Source: CERA.

2010

2015

2020

RWE Facts & Figures | Update October 2008 10/20/2008

154

Market Data Gas LNG

How the Value Chain of Liquefied Natural Gas (LNG) Works

Gasfield
Pipeline Liquefaction

Liquefaction Plant
Gas: 600 m3 at 15 C

LNG: 1 m3 at -162 C Storage Shipping Storage LNG: 1 m3 at -162 C Vessel transport volume (standard range): 135 155 thousand m3 LNG 81 93 million m3 regasified volume 495 565 thousand boe

Gas: 600 m3 at 15 C Regasification Pipeline

Regasification Terminal

Transport System

Power Generation

RWE Facts & Figures | Update October 2008 10/20/2008

155

Market Data Gas LNG

Shipments of Liquefied Natural Gas (LNG) to Europe in 2007


in billion cubic metres/year Turkey Algeria Egypt Libya Nigeria Norway Oman Qatar Trinidad & Tobago Total 0.06 6.01 1.42 4.45 0.08 Spain 4.32 4.04 0.76 8.33 0.07 0.12 4.45 2.09 24.18 2.75 0.07 3.17 0.06 12.97 0.81 2.43 2.31 0.27 0.39 1.46 3.78 0.07 2.31 Belgium 0.35 France 7.85 1.21 Greece 0.50 0.31 Italy 2.43 Portugal UK 0.64 0.16

Europe's import of LNG is showing a growing tendancy because indigenous gas production is dropping a more diversified portfolio of gas supply is desired new regasification infrastructure is being built

Source: BP Statistical review, June 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

156

Market Data Gas LNG

Present Capacity of Liquefied Natural Gas (LNG) (2007) (I)


in million tons/year Existing capacity Australia North West Shelf Darwin LNG Brunei Brunei LNG Indonesia Arun LNG Bontang Tangguh Malaysia MLNG USA Kenai Peru PLNG Russia Sakhalin Nigeria NLNG Algeria Skikda Arzew 2.80 17.50 17.50 20.3
Source: Gas Strategies, 2007.

Capacity under construction 4.40

Total 20.2

12.20 3.60 7.20

7.2 29.1 3.00 18.50 7.60 24.0 24.00 1.5 1.50 4.2 4.20 9.6 9.60 17.5

RWE Facts & Figures | Update October 2008 10/20/2008

157

Market Data Gas LNG

Present Capacity of Liquefied Natural Gas (LNG) (2007) (II)


in million tons/year Existing capacity Egypt ELNG SEGAS Libya Marsa el-Brega Trinidad and Tobago Atlantic LNG Equatorial Guinea EGLNG Norway Snhvit Yemen Yemen LNG Oman Oman LNG Qalhat Qatar QatarGas RasGas Abu Dhabi Adgas 5.70 13.40 19.00 27.80 17.30 5.7
Source: Gas Strategies, 2007.

Capacity under construction

Total 12.7

7.20 5.50 0.7 0.70 14.5 14.50 3.4 3.40 4.3 4.30 6.7 6.70 11.0 7.30 3.70 77.5

RWE Facts & Figures | Update October 2008 10/20/2008

158

Market Data Gas LNG

Forecasted World Wide Growth in LNG Capacity and Regasification (I)


in bcm/a
800 700 600 500 400 300 200 100 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Possible new Asia Pacific LNG capacity plus debottlenecking Possible new Middle East LNG supply plus debottlenecking Possible new Atlantic Basin LNG capacity plus debottlenecking Existing/Under Construction Asia Pacific capacity Existing/Under Construction Middle East capacity Existing/Under Construction Atlantic Basin capacity As above but with more bullish view and allowance for future projects High Case As above plus a conservative view on known projects Mid Case Existing and Under Construction Existing
Source: Gas Strategies and other industry sources, 2007.

Liquefaction capacity

Regasification capacity

RWE Facts & Figures | Update October 2008 10/20/2008

159

Market Data Gas LNG

Forecasted World Wide Growth in LNG Capacity and Regasification (II)


Notes to the data The graph flattens as we get to around 2014/2015. This is because there is not as reliable information about what projects (liquefaction and regasification) will be built futher out in time. Existing liquefaction capacity is that already built, and under construction which is defined as those projects for which a Final Investment Decision has been taken. Possible new liquefaction capacity is based on announced plans and includes debottlenecking of existing facilities. Existing regasification capacity takes into account only those regasification projects that exist or are firmly committed. The Mid Case considers known regasification projects and takes a conservative view of how many will actually be built.

Comments A more than doubling of the global LNG business within 10 years is a virtual certainty, and the growth could be higher. Regasification capacity outstrips liquefaction capacity. Surplus is as a result i.a. of opportunism of investors and extra capacity in order to exploit regional arbitrage.

Source: Gas Strategies and other industry sources, 2007.

RWE Facts & Figures | Update October 2008 10/20/2008

160

Market Data Gas Downstream

Europe's Largest Gas Companies1) (2007)


Gas sales volume2) in billion m3
ENI (ITA) E.ON (GER) Gasterra (NED) GdF (FRA) Wintershall (GER) 3) RWE (GER) Gas Natural (ESP) Distrigaz (BEL) VNG (GER) 0 15 15 20 40 60 80 100 120 27 34 31 68 78 94 99

1) No information on Centrica available. 2) Standard factor: 1 TWh = 0.093 billion m3. 3) Estimated. Source: RWE market analysis made from annual reports.

RWE Facts & Figures | Update October 2008 10/20/2008

161

Market Data Gas Downstream

Gas Price Setting in Germany (I)


Generally speaking, natural gas prices in Germany track to a large extent heating oil prices with a certain delay while smoothing out peaks and troughs along the entire supply chain (importer, regional/local distributors and end customers). For short- to medium-term transactions, gas-linked pricing replaces oil-linked pricing more and more. Gas-to-gas competition will increase in future by increasing liquidity in the traded markets. Nevertheless a logical natural linkage between oil and gas prices will persist: An oil and gas producer can always decide whether to drill for oil or gas and will choose the commodity with the best expected earnings, related to the associated risks. According to the law of supply and demand, the prices and thus earnings will inevitably adapt. A contractually fixed best substitute linkage is an elementary constituent in the European gas market for the time being. This is stipulated by the relevant producers that have sold for the most part their gas only on an oil-linked basis in the long-term contracts. The price link for importers, distributors and deliveries to large consumers is established automatically via contractually binding formulas (sliding price formulas with escalator clauses). Gas prices are linked to the relevant substitute energy source (best substitute principle), including the following major ones: For local distributors (to supply private customers): gasoil For large consumers: fuel oil For power generation: coal Examples of common escalator clauses stipulate: The 6/1/3 rule for local distributors: 6-months average with a lag of 1 month, valid for 3 months (example: if the gas price was adjusted effective October 1, 2006, average oil prices from March 1, 2006 to August 31, 2006 would be considered in the sliding price formula; the resulting gas price would then be valid until January 1, 2007). The 3/1/3 rule for large consumers: 3-months average with a lag of 1 month, valid for 3 months (example: if the gas price was adjusted effective October 1, 2006, average oil prices from June 1, 2006 to August 31, 2006 would be considered in the sliding price formula; the resulting gas price would then be valid until January 1, 2007).

RWE Facts & Figures | Update October 2008 10/20/2008

162

Market Data Gas Downstream

Gas Price Setting in Germany (II)


Gas prices for residential and commercial customers are not determined using sliding price formulas. Instead, they are determined independently by the local gas utility (e.g. RWE Westfalen-Weser-Ems), taking supplier price trends into account. Using formulas to help determine gas prices is not unique to Germany. This practice is common in other gas-importing Western European countries as well. Even on markets where prices are not linked to oil (e.g. the UK and USA), gas prices track oil prices, albeit with higher peaks. Advantages of linking prices to best substitutes: Consumer protection: Linking prices to best substitutes keeps gas producers from having too much market power (supply oligopoly), keeping gas prices high. In addition, short-term fluctuations in gas prices, which are often a cause of consumer uncertainty, can be avoided. Security of investment: Linking prices to best substitutes ensures that gas remains competitive compared with other major sources of energy such as heating oil, in turn ensuring that the substantial sums of money invested by gas producers to produce gas and by gas utilities to construct, expand and maintain grids are secured. RWE promotes the gas markets deregulation and liquidity and is working on new approaches to forming prices, among other things. Moreover, RWE creates innovative products such as the recent fixed-price product which is being offered to residential and commercial customers in Germany. Starting on September 1, these customers will be able to purchase gas at a fixed price for a period of three years.

RWE Facts & Figures | Update October 2008 10/20/2008

163

Market Data Gas Downstream

Increased Government Charges for German Household Gas Bills*)


Rate in /month
120

Change 114.29 105.80 104.52


28.91 26.37

+ 83.2% + 73.9%

100

88.40
80 60 40 58.04 20 0 2000 2001 2002 2003 2004 2005 41.88 54.71 59.75 58.87 65.54

25.26

75.79 57.04
15.16 17.75

71.92
17.21

77.77
18.02

80.67
22.86 21.79

80.54

85.37

78.15

+ 86.6%

2006

2007

2008

Levies: gas tax, value added tax, concession fees Generation, transport and sales
*) Average gas bill of RWE Westfalen-Weser-Ems for a three-person household consuming 20,000 kWh/a, as of January 1.

RWE Facts & Figures | Update October 2008 10/20/2008

164

Market Data Gas Downstream

German Household Gas Prices Compared with Other European Countries


All-gas household: annual consumption: 5,560 55,560 kWh*) in ct/kWh (incl. taxes)
14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 DEN SWE NED ITA GER AUT ESP FRA BEL POL UK CZE
6.9 6.2 6.1 6.1 5.8 5.2 5.0 4.0 3.6 3.6 6.24 9.2 13.3

Average gas price *) Cooking, hot water and heating. Source: Eurostat 2008; prices for second half of 2007, based on purchasing power standards.

RWE Facts & Figures | Update October 2008 10/20/2008

165

Market Data Gas Downstream

German Household Gas Prices from 1999 to 2007 Compared with Other European Countries
All-gas household: annual consumption: 23,500 kWh*) in ct/kWh (incl. taxes)
10 9 8 7 6 5 4 3 2 1 0 1999
Belgium Austria Germany Italy

2000

2001
Spain France Netherlands United Kingdom

2002

2003

2004

2005

2006

2007

*) Cooking, hot water and heating.


Source: Eurostat, 2008.
RWE Facts & Figures | Update October 2008 10/20/2008

166

Market Data Gas Downstream

Government Charges Included in the German Gas Price


Import/production, transportation, storage and distribution

71%

Value added tax

16%

Gas tax License fee Prorated production levy

9% 2% 2%

Some 29% of the gas price*) payable by an all-gas household is allocable to taxes and levies (gas tax, license fee, production levy and value added tax). *) Example based on the average price per kWh for an all-gas household (as of January 2008) with a consumption of 20,000 kWh
Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

167

Market Data Gas Downstream

The Structure of the UK Gas Market (2007)

Production / Import / Export

Producers and shippers

1 gas transporter

4 gas distribution operators

9 major suppliers Total supply 1,058 TWh 461 TWh 247 TWh 350 TWh

Conversion to power & other energy industry use


Source: BERR Dukes Data, 2008.

Industrial & commercial customers

Residential customers

RWE Facts & Figures | Update October 2008 10/20/2008

168

Market Data Gas Downstream

The German Gas Market (2007)


German Producers Foreign Producers

Supra-regional long distance gas companies Level 1 (with direct access to import/production) Ruhrgas, VNG, Wingas, RWE Gas Midstream

Regional long distance gas companies Level 2 (without direct access to import/production) Erdgas Mnster, GVS, Bayerngas, SFG, Avacon, GU, FGN, EVG, EWE, RWE WWE

Over 700 regional and local distributors

End Customers (Private households and commercial customers, industry, power plants) Total supply 925*) TWh 106*) TWh Power generation (public supply)
*) Preliminary figures.

400*) TWh Industrial customers

419*) TWh Residential and small commercial customers

Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

169

Market Data Gas Downstream

Grid Access in the German Gas Market


Source of gas/ Point of import VTP Long-distance grid operator Grid connection point Regional grid operator Grid connection point Local grid operator Exit contract MARKET SECTOR End consumer VTP VTP = Virtual trading point, where trading activities can be transacted System implemented on October 1, 2007. Cooperation agreement signed by RWE to actively promote competition. Currently there are 13 market areas with virtual trading point (VTP) in each throughout Germany. This enables unlimited access within each market area.

MARKET SECTOR Entry contract

Source: RWE.

Two-contract model

RWE Facts & Figures | Update October 2008 10/20/2008

170

Market Data Gas Downstream

Natural Gas Supplies in Germany (2007)


Total volume: 1,095 TWh*) Russia Norway 405 TWh 285 TWh 37% 26%

Netherlands

197 TWh

18%

National Denmark/ United Kingdom, others

164 TWh

15%

44 TWh

4%

*) Preliminary figure. Source: Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), 2008.

RWE Facts & Figures | Update October 2008 10/20/2008

171

Market Data Gas Downstream

European Gas Trading Points


ed

Ves

terl

Gas trading point Transport routes *) National gas trading systems.


gele d

Norp

La n

Zeepip e

Europipe 1+2

DENMARK

Source: RWE Supply & Trading.

ipe

pipe

Fran

Ellund
DE UD AN

UNITED KINGDOM (NBP)*


Bactor Dunkirk
IUK

Balgzand
B BL

Emden Oude

NET

Zeebrugge Zelsate
RT

NETHERLANDS (TTF)*
)

RA

BELGIUM
R

Bocholt

GERMANY (EGT/BEB*/WG/ RWE/ONTRAS)

Frankfurt an der Oder

Blaregnies

AL SGravenvoeren WED

LUXEMBOURG FRANCE (PEG)


Obergailbach

Aachen

St. Katherina
NP TE
AL MEG

Waldhaus

CZECH REPUBLIC
WAG

Oberkappel Wallbach
G TA

Baumgarten (CEGH)

SWITZERLAND
Griesspass

Tarvisio

AUSTRIA

RWE Facts & Figures | Update October 2008 10/20/2008

172

Market Data Gas Downstream

Relevant Institutions and their Role in Regulating the Czech Gas Market
Market regulation is monitored by 3 institutions: Energy Regulatory Office (ERO) State Energy Inspection Board Ministry of Industry and Trade ERO is an autonomous authority, which is responsible for the regulation of the Czech energy market. Mostly important, ERO handles the granting of licenses and the regulation of TPA tariffs to networks. The State Energy Inspection Board is authorised to assess buyer and seller behaviour and recommend sanctions to the ERO. The Ministry of Industry and Trade is basically responsible for approving new investment projects; it also refines energy policies, issues basic legislation (Energy Act and related explanatory decrees).

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Market Data Gas Downstream

Status of Czech Gas Market Liberalisation and Regulation


The opening of the Czech market began in 2005. Since January 1st, 2006, all end customers have become eligible customers with the exception of residential customers. Since January 1st, 2008, all customers including residential customers became eligible customers and the process of market opening was completed. The transmission company RWE Transgas Net, s.r.o. was set legally apart from RWE Transgas, a.s. which holds the gas trade license. The ownership however still stays at RWE. Starting from January 1st, 2007, regional gas companies (RGCs) were separated from the regional gas distribution companies (DSOs). Full market liberalisation with 100% market opening was achieved and first competitors entered the market. At the same time a new market model was introduced. It consists of a virtual trading point, an entry-exit system and the possibility of gas sales beyond the distribution companies (DSOs) own balancing zones. In order to control the constitution of the market, legal restrictions are set as a framework in which for example the principal of discrimination-free supply conditions to non consolidated regional gas companies (RGCs) is monitored. Due to the dominant position in the Czech gas market, RWE Transgas is subject to the following regulations: The commodity price (i.e. gas price): This price is being monitored by ERO. RWE Transgas has to offer non discriminatory prices to the same customer segment. Transportation and distribution price: This price is regulated and has to be approved by the ERO. The calculation is made on a cost plusbasis and the costs have to be justified in detail. Storage prices: This price was regulated and is now closely monitored by the ERO.

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Market Data Gas Downstream

Czech Gas Market: Gas Price Setting Mechanism


Gross Trade margin

The value chain

Commodity1)

Storage

Distribution

Transmission

Price composition

supervised by ERO

Typical price construction linked to other fuels (oil, coal)

nTPA2), tariffs limited by ERO

regulated

regulated

Portion of end price

4 8%

70 80%

4 8%

15 20%

3 5%

Entity

RWE Transgas Regional Gas company

Foreign producers (Russia, Norway)

RWE Gas Storage

Distribution System Operators

RWE Transgas Net

External factors influence approx. 70 80% of the end price of natural gas

1) Including transit to Czech Republic. 2) Negotiated third party access.

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Market Data Gas Downstream

Czech Gas Market: Basics of the Regulatory Framework

Escalation of Costs, Depreciation and Regulated Asset Base

Costs: Inflation - X escalation (Inflation is composed of Producer Price Index (PPI) and wage growth in industries index); for DSOs also growth in number of connected off-take points. Incentives stem from outperfomance potential over the X-factor set by ERO. Depreciation: PPI escalation (DSOs) or actual book values with 2 years time lag accounted every year (TSO). Regulated Asset Base: ERO defines the value, which forms the basis. Annual planned net investments are added on top of the basis. Ex-post corrections reflect actual net investments (DSO) or book values (non-regulated) with 2 years time lag (TSO). Unbundling: ERO acknowledges the adjusted value of extraordinary costs which are related to the unbundling of system operators from vertically integrated companies. Revaluation: For regulatory purposes, ERO currently only partially acknowledges revaluated depreciation of revaluated assets (according to Czech accounting standards). For further details please see page 173.

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