Capex campaign for profitable organic growth

Investments in infrastructure are key to enabling our future growth. We are implementing the biggest capex programme in RWE’s history, which averages €6.5 billion per year until 2012. About half of it has been earmarked for projects promoting organic growth and efficiency Glossary enhancements. First, we want to cement and maximize the market positions we command in our two largest markets, i.e., Germany and the UK. Centre stage will be taken by investments in renewable energies and new large-scale power plants with which we want to replace old facilities or gain market share. The Netherlands are another point of focus, with our power plant project in Eemshaven. In the field of nuclear power, we are pursuing a longer-term growth strategy on the European power plant market. We successfully participated in the bidding processes for new build projects in two Eastern European markets, Bulgaria and Romania. We expect to reach definitive decisions on our involvement next year. In parallel, we are cooperating with E.ON to examine a possible entry into future new build projects in the UK. We will spend significant amounts of capital on our electricity and gas grids as well as on customer service. The new German grid regulation will provide us with a largely stable regulatory framework for the next five years.

At the same time, we are making preparations to tap new markets. This will involve projects through which we will establish footholds in the growth regions of South Eastern Europe, including Turkey and Greece. These markets are attractive for us, because they possess more long-term growth potential than our more mature markets, due to relatively old infrastructure and rising demand for electricity and gas. Furthermore, they offer us the possibility of broadening the geographic spread of operations in our Group.

Double-digit growth in earnings from renewable energy and gas and oil production planned.

We intend to grow through investments, especially in the field of renewables-based energy. RWE Innogy’s rapid establishment and expansion created the structural basis necessary for this. Our focus on gradual organic growth has proven advantageous in light of the current financial market crisis and recession. We largely develop in-house projects. We will benefit from the prices of wind turbine components, which are falling at present. The fact that numerous project engineering firms are looking for partners with know-how and robust balance sheets also presents us with opportunities. We expect that RWE Innogy will deliver double-digit annual earnings growth starting in 2010. The company wants its operating result to pass the €500 million mark within the next five years. This represents a roughly ten-fold increase over 2008.

We are also in a phase of strong investment activity as regards our gas and oil production. RWE Dea aims to double hydrocarbon output by 2012/2013. We want to triple gas production. This will further reduce our dependency on gas purchases and reflects the increasing significance of gas in electricity generation. Expenses associated with this growth strategy had an impact on the financial statements for fiscal 2008 and will again, in 2009, and subsequent years. However, the new production projects will result in considerable earnings improvements over the long term. RWE Dea aims to achieve an operating result of about €900 million by 2013. The prerequisite for this is that oil forwards for delivery in 2013 do not fall below the US$67 per barrel Glossary witnessed at the end of January.

Expanded gas procurement.

We will capitalize on new opportunities by entering into the global market for liquefied natural gas (LNG) Glossary and the international large-scale pipeline business. Examples of this are the expansion of Excelerate Energy‘s activities and the construction of the Asian-European Nabucco gas pipeline, in which we are involved. We intend to gradually increase our position as a buyer and supplier of gas on the midstream market by 2012, from its current level of 40 to 60 billion cubic metres per year.

Preparing for 2013–through increased earning power and sustainable CO2 avoidance.

EU emissions trading causes the cost of power production to rise considerably. As the framework conditions for CO₂ emissions trading will be even more demanding from 2013 onwards , it is especially important to us to achieve the financial targets mentioned earlier. Concurrently, we will reduce the CO₂ intensity of our power production significantly. All our large-scale capex projects in the field of electricity generation will make a contribution. We have identified the potential to reduce our 2008 emissions by 20 % during the period ending in 2012. We believe that a total reduction of over 30 % is conceivable by 2015. The key tools for achieving this are the replacement of existing emission-intensive power stations, the increase of renewable energy generation capacity, the continued operation of German nuclear power plants, and use of CO₂ avoidance projects outside our core markets within the scope of the Kyoto “Clean Development Mechanism” (CDM) and “Joint Implementation” Glossary (JI).

Selective acquisition strategy.

The planned takeover of Essent will be our biggest step in terms of growth via acquisition for the next few years. We are not ruling out further acquisitions, but if we make any, they will be of a smaller order. We are exploring how we can establish footholds by acquiring stakes in local energy companies, especially in the south east of Europe. However, we consider acquisitions only if our financial criteria are met. The major yardstick is the internal rate of return (IRR). It must at least correspond to the cost of capital, plus an added return.