Overall assessment of the risk and opportunity situation by executive management

The political environment in the European energy industry will continue to be a challenge to us and harbours substantial earnings risks. The general economic climate worsened significantly in 2008. The crisis faced by the global financial system, which led to a collapse in world economic growth at the end of 2008, will also result in risks for a utility like RWE. For instance, economically-induced reductions in industrial production may result in lower demand for electricity. Low electricity prices over long periods would negatively affect our earnings. The earnings risk to our asset portfolio, our refinancing risks and our counterparty default risk have increased substantially due to the turbulence in financial markets. In 2008, we reacted to these risks by taking intensified risk management measures. One example of this is the closer tracking of our business partners’ creditworthiness. However, the current economic situation may provide opportunities for us as well. For instance, RWE continues to be considered a relatively safe bond issuer and is thus in a position to finance projects, the implementation of which has become much more difficult for other companies. As an energy utility, we are active in a sector in which demand has relatively low fluctuation. The markets in which we operate rank among the most politically and economically stable in the world.

In addition, we largely sell our generation forward, thus hedging short-term price movements. In Germany, we have sold forward almost all of our generation for 2009 and over 70 % of our generation for 2010. Further opportunities arise from the lower prices of power plant components–above all in the field of renewable energies. At present, there are no identifiable risks that could jeopardize the continued operation of RWE AG or the RWE Group.

Major risk and opportunity categories:

The following illustrates the risks and opportunities which may have a substantial impact on the RWE Group’s asset, financial, earnings and liquidity positions. They can be divided among the following categories:

In summary, due to its uniform, company-wide risk management practice, the RWE Group is capable of counteracting all aforementioned risks and taking advantage of opportunities as they arise.