2011 in Brief

2011 in brief

Renewable energy for the future VARDAR IN 2011 Five-year financial overview p 2 Key figures p 3 Corporate structure 1% Class A shares 99% Class B shares Key figures Vision and business concept p 4 Highlights of 2011 p 5 Municipalities Buskerud County Council Introduction by the Managing Director p 6 in Buskerud Profit for the year - Vardar Equity ratio – Vardar (before and after tax)

(MNOK) Result before tax Result after tax ARTICLES VARDAR AS (%) 450 50 Green light for renewable energy in Norway p 8 396.1 44.1 42.7 400 41.2 40.9 41.8 Midtfjellet construction work has started p 10 HYDROPOWER ENERGISELSKAPET BIOENERGY WIND POWER WIND POWER REAL ESTATE AND 350 338.4 40 BUSKERUD NORWAY ABROAD PROPERTY MANAGEMENT New projects in the Baltic countries p 12 Uste Nes AS Hønefoss Fjernvarme AS (EB) Vardar Boreas AS Vardar Eurus AS Vardar Eiendom AS 300 Development of Vardar’s real estate Øvre Eiker Fjernvarme AS 244.3 30 250 portfolio p 14 201.6 200 182.0 Mechanical badger in Follumåsen p 16 159.6 156.3 20 150 117.3 Merger strengthens Vardar Eurus’s 100 Five-year financial overview 10 position in the Baltics p 18 Amounts in NOK 1000 50 12.40.4 0 0 MARKET, STRATEGY IFRS 2011 2010 2009 2008 2007 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 AND OUTLOOK p 20 Income Statement – Group Return on equity – Vardar Production by business area Operating revenue 344 664 322 731 385 345 309 651 238 531 VARDAR’S BUSINESS AREAS (%) Hydropower EB Bioenergy RENEWABLE ENERGY EBITDA 156 651 181 795 211 402 20 437 109 646 25 GWh Wind power Norway Wind power abroad 2 21.9 4000 Hydropower p 22 3 Operating result 127 275 156 391 181 567 -1 736 88 929 20 Energiselskapet Buskerud p 23 3200 Profit before tax 201 679 244 367 396 142 12 432 159 646 Wind power Norway p 24 15 Wind power abroad p 25 Result for the year 156 337 182 048 338 450 359 117 323 2400 11.1 Bioenergy p 26 Balance sheet - Group 10 9.0 8.2 1600 Total assets 4 269 072 3 910 409 3 740 949 3 510 217 3 666 165 OTHER ACTIVITIES 5 Equity 1 821 095 1 634 329 1 650 358 1 436 231 1 509 520 800 Real estate and property management p 27 0.0 Innovation p 28 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Society and the environment p 30 Equity ratio 42.7% 41.8% 44.1% 40.9% 41.2%

Equity ratio incl. subordinated loan capital 54.5% 54.8% 56.5% 54.2% 53.9% Profit after tax by business area ACCOUNTS

Return on equity 9.0% 11.1% 21.9% 0.0% 8.2% Hydropower EB Bioenergy Income statement p 32 (MNOK) Wind power Norway Wind power abroad Balance sheet p 33 Profit for the year – subsidiaries (NGAAP) 2011 2010 2009 2008 2007 600 Statement of cash flows p 35 Hydropower 57 093 46 307 39 736 108 156 45 533 500

Bioenergy -8 575 -7 033 -8 583 -11 499 -8 051 400 ANNUAL REPORT AND ACCOUNTS Wind power abroad 40 916 11 251 13 612 23 480 11 612 300 WITH NOTES – see Vardar’s Annual Accounts 2011 for Wind power Norway* -1 608 249 1 129 14 -360 200 the Board of Directors’ Report and complete Real estate 345 379 577 -215 7 307 100 accounts with notes. EB (IFRS, associated companies) 254 818 275 624 358 270 402 628 138 716 0 -100 Photo copyright, see back page of the brochure. * Changes from 2010-2011 due to acquisition of companies developing renewable energy projects. 2007 2008 2009 2010 2011

2011 – in brief 2011 – in brief Highlights of 2011

JUNE JUNE Vardar Eurus opened its second Investment decision and wind farm in Lithuania, Mockiai, start-up of the development Vardar is a group in which the operational part of the business is carried out through its located on the east coast of the of the Paldiski Wind Farm in country. The wind farm has an Estonia. The wind farm has an subsidiaries and associated companies. installed power capacity of 12 installed power capacity of 28 MW, which will give an annual MW, which will give an annual production of 38 GWh of clean production of 67 GWh of clean Vision renewable energy. renewable energy. Seeking value through active ownership. SEPTEMBER SEPTEMBER The Group’s business activities consist primarily of investments in the production of power Vardar, Follum Industripark, The pedestrian bridge over the based on renewable energy sources. In addition, Vardar participates in development projects Viken Skog, Norske Skog river Begna in the centre of and Lindum established the Hønefoss opened and the river related to renewable energy production and related activities. The Group’s activities are company Pan Innovasjon. Pan can now be crossed on a bridge reflected in the business concept: is designed to be an arena for that is physically separated forest-based industries that will from motorised traffic. The 4 create an industrial environment bridge came about as a joint 5 for innovation based on forest project by Ringerike Municipality, Business concept resources and wood. Ringeriks-Kraft, Hadeland and Ringerike Bredbånd and Hønefoss Vardar shall contribute to increasing the supply of clean, Fjernvarme. renewable energy. SEPTEMBER SEPTEMBER Vardar Boreas acquired a stake The Vanaküla Wind Farm in Midtfjellet Vindkraft, and the on the east coast of Estonia Vardar shall be an environmentally focused Group. In addition to the climate-related benefits construction of a 52 MW wind received approval from the farm with investment aid from Estonian authorities. The that are realised through the company’s investments, the Group’s activities shall be marked by Enova started. The company wind farm has an installed high environmental and ethical standards. has a licence for an additional power capacity of 9 MW, which 52 MW, and the combined will give 24 GWh of clean development will give an annual renewable energy production production of 350 GWh of clean pr. year. The company has a long horizon for its ownership, based, for example, on the expectation that renewable energy. the value and importance of renewable energy will increase as a result of international climate targets. The company’s vision of creating value through active ownership makes satisfactory DECEMBER DECEMBER profitability a prerequisite for carrying out investments. Hønefoss Fjernvarme connects A joint Swedish-Norwegian green the new heating plant that was electricity certificate market is built at Follum to its district established. heating grid. The investment totalling MNOK 25 provides a continuous district heating grid from Follum to Hvervenkastet.

2011 – in brief 2011 – in brief In Vardar we have worked actively to position the company for investment opportunities in onshore wind power in Norway over a number of years. The goal of the green electricity certificate legislation is ambitious, and if we are to achieve this goal, wind power will have to represent a significant portion of the new energy production.

In order to gain access to certificates, the projects must be completed and operational before 2020. Through its investment in Zephyr, Vardar shares ownership in a substantial portfolio of projects under development, and most of these projects could be completed by this deadline if they are granted a licence. In addition to this, Vardar has an ownership interest in Haram Kraft, which already has a final licence.

The business area “Wind Power Norway” received a substantial boost when we acquired the shares in Midtfjellet Vindkraft from Dong Energy in 2011. Midtfjellet Vindkraft is a project that is carried out in part with investment aid from Enova (phase I) and in part through the green electricity certificate system (phase II). Vardar’s combined position in wind power in Norway is unique, and, if the authorities are to achieve their goals, it is likely that a number of the projects 6 7 in which we are involved will emerge as attractive investment opportunities.

The greatest challenge facing the wind power players may prove to be the financing for very large investments in total. Procuring the necessary capital to satisfy the authorities’ goals could therefore prove to be challenging even if the green electricity certificate system proves to make the projects profitable.

Vardar will prioritise the use of available investment funds in the most profitable projects, and preferably those that can be realised early in the period.

Appreciation in value for the wind power portfolio

The joint Norwegian/Swedish market for green electricity certificates was up and running from 1 January 2012. This market should contribute to significant development of new renewable Managing Director energy in Norway, and wind power will have to represent a significant share of this energy if Johannes Rauboti the target of over 26 TWh combined in Norway and Sweden is to be achieved.

2011 – in brief 2011 – in brief - Det vil bli flere vindmøller langs kysten når det grønne sertifikatmarkedet skaper bedre rammevilkår for ny, fornybar energi, smiler Kristin Ankile direktør for vindkraft Norge hos Vardar. Green light for renewable energy in Norway

At the end of 2011 the last pieces finally fell into place and the joint green electricity certificate market with Sweden could start up from the new year. The framework for Norway’s focus on renewable energy is now in place. The goal is for the green electricity certificate market to produce 26.4 TWh of renewable energy in Norway and Sweden by 2020.

The Act relating to green electricity certifi- ensures that the most profitable projects cates was adopted by the Norwegian Parlia- are realised first, regardless of whether 8 9 ment the Storting in June. Agreement was the production plant is located in Norway reached this year with the EU concerning or Sweden. While Sweden has significant Norway’s renewable energy targets under opportunities to increase its electricity the Renewable Directive. This gives Norway production based on bioenergy, Norway has a renewable energy share target of 67.5% a significant number of hydropower plants by 2020. With this prerequisite in place, the that can be developed, especially small-scale Swedish Parliament the Riksdag could adopt power plants. Nevertheless, both countries the necessary legislative amendment in will have to develop and produce wind power Sweden in order to include Norway in a joint in order to achieve the stipulated goals in green electricity certificate market. the green electricity certificate market. Wind power totalling 1.2 TWh was produced Green electricity certificates is a market- in Norway in 2011. If half of the total target based scheme whereby the approved of 26.4 TWh of renewable energy is to be production plants will receive certificates in developed in Norway, then production from accordance with their actual production. The wind power will have to be increased by certificates will be sold to power suppliers several hundred per cent. and consumers who are required to purchase green electricity certificates according to Vardar is well-positioned with respect to how much power they sell or consume. wind power in Norway since it has a stake The green electricity certificate market is in several projects that could be developed a technology-neutral support scheme that with green electricity certificates by 2020.

2011 – in brief 2011 – in brief Bilde Midtfjellet Midtfjellet Construction work has started

The start of construction work at Midtfjellet was marked officially on 28 September. By then work had already been carried out for some weeks and 1,400 m of new road had been laid in the mountains. Chairman of the board Tommy Fredriksen from Østfold Energy had the honour of detonating the first blast.

Representatives from Fitjar Municipality, Phase I will be developed with aid from landowners and contractors participated Enova. Sunnhordland Kraftlag will build a 10 in the ceremony marking the start of new 300 kV transmission line from Børtveit 11 construction. Fitjar Kraftlag has been in Stord to Midtfjellet at the same time as working on the Midtfjellet project since the the construction of the wind farm. mid-1990s, and it was granted a final licence to develop up to 150 MW at Midtfjellet The German company Nordex will deliver the in 2008. The Managing Director of Fitjar windmills for the Midtfjellet Wind Farm. An Kraftlag, Ole Vidar Lunde, was therefore agreement has been signed for the delivery very pleased to finally be underway with the of 21 wind turbines for Phase I of the development of the project. product. An option was also agreed on for the delivery of wind turbines for Phase II. Phase I of the development at Midtfjellet entails building around 20 km of roads, Phase II of the project at Midtfjellet will be parking areas for cranes and foundations entitled to green electricity certificates in the for 21 windmills. A significant portion of the joint Norwegian/Swedish market for green construction work must be completed by electricity certificates. Work is ongoing so August 2012 when the installation of the that Phase II at Midtfjellet can be approved windmills is scheduled to start. According in the spring 2012, with the installation to plan, Phase I should be in full production of turbines and full production from the in April 2013 with an annual production of installation in 2013. around 180 GWh.

2011 – in brief 2011 – in brief New projects in the Baltic countries

The business area Wind Power Abroad has continued to grow, and there have been construction start-ups, commissionings and official wind farm openings in 2011. Investments have also been made in Estonia and Lithuania this year. There are still no opportunities for getting started in Latvia due to the lack of a support system for renewable energy.

Vardar has ownership interests in nine The official opening of the Mockiai Wind Farm 12 wind farms in Estonia that produce clean on the west coast of Lithuania took place in 13 renewable energy. In 2011 the Vanaküla 2011. The farm started normal operations Wind Farm on the west coast of the country from January and is located in an area with was approved. This means that the farm is good wind resources. In addition, the Silale entitled to receive production support from Wind Farm was connected to the grid and the authorities. The approval was effective started test operations. Like all the projects from September 2010, and it was Vardar’s we are involved in in Lithuania, this farm seventh wind farm to be approved. is also located in the western part of the country, but a bit further from the coast The Aseri Wind Farm was connected to the than the other farms. It appears that there grid and started test operations during the is particularly good production from eastern year. The farm is located on the coast north- winds in this area. east of the capital Tallinn, and approval is expected in 2012. In addition, construction The business area Wind Power Abroad is in started on the Paldiski Wind Farm on the west the process of realising the project portfolio coast of the country and Ojaküla near Aseri, currently possessed by the companies. Upon both farms are expected to be connected to completion of the ongoing construction the grid in 2012. Ojaküla is a wind farm that activity, Vardar has, since construction start is being built with investment aid from the in 2005, acquired ownership interests in the EU. This farm will therefore not receive any production of 500 GWh of clean renewable production support. energy annually in this business area.

2011 – in brief 2011 – in brief Development of Vardar’s real estate portfolio

Vardar has properties with exciting development opportunities. While the focus has been on filling the office buildings with tenants in recent years, the time has come now to look at the opportunities for a further development of this business area.

Vardar is proud to have achieved an Gulskogen is suitable for both commercial occupancy rate of almost 100% in recent and residential use. The area in Hurum years despite a difficult market. This is where the property is located is under attributed to the central location of the development with good infrastructure and 14 15 properties in Drammen and good stable a central location in relation to both Oslo tenants. and Drammen. The property at Gulskogen has a unique location near the Drammen To learn more about the real estate River, with short distances to shops, trains market in the Drammen area and analyse and busses. It is easily accessible by car, the opportunities, a working group with and there are always free parking spaces representatives from various business available. The property’s neighbours areas at Vardar was established in 2011. are residential housing on one side and The group has held meetings with brokers Gulskogen Manor, a summer residence and and other players in the commercial and a magnificent property owned by Drammen residential real estate sector in order to gain Museum on the other side. some experience that we can build on. The goal is that this work should ultimately “We envision the greatest development result in a revised strategy for the develop- opportunities at Gulskogen in Drammen and ment of property at Vardar by the end of in connection with the site in Hurum,” says 2012. It is early days yet, but we can alrea- Sølvi Bestvold, Managing Director of Vardar dy see the contours of exciting projects and Real Estate. “The site in Hurum is zoned opportunities under our own direction or in for commercial use, while the property at cooperation with others.”

2011 – in brief 2011 – in brief Mechanical badger in Follumåsen

In 2011 Hønefoss Fjernvarme built a new heating plant in connection with Follum Fabrikker. Five kilometres of district heating pipes were also laid, which gave a continuous main line from Hvervenmoen to Follum. One of the greatest challenges was to bore a 180 metre long tunnel through Follumåsen to lay DN 300 pipe to the heating plant.

Trial boring started in March, and there was The entire operation went as planned and 16 a great deal of anticipation with regard to took about a week. The project was very 17 what challenges would be found inside the successful in terms of costs and time. The ridge. There did not appear to be rock or any alternative would have been a much longer hard matter in the area that would prevent pipe route over or around the ridge in order the completion of the boring process. Boring to get to Follum. The project gave Hønefoss of the actual pipe tunnel was successful, and Fjernvarme valuable expertise with a view to the large outer pipes to protect the district further development. heating pipes were pulled through. Photo 1 shows one of the boring heads used In order to shorten the construction period when boring the district heating pipe tunnel. as much as possible, we worked from seven There was probably one or two badgers who in the morning to seven at night. In the choked on their morning coffee when they Morgenbøen area there was a semi-trailer met this boring head... with 16 metre long district heating pipes that were hoisted in place and welded together one by one (photo 2). On the Follum side there was a rig that pulled/held back the pipes as they were welded together (photo 3).

2011 – in brief 2011 – in brief Merger – strengthens Vardar’s position in the Baltics

Vardar Eurus’s assets in the Baltic companies will be coordinated with the other owners and combined into one company. Vardar Eurus will be the majority owner of the new company with an ownership interest of over 60%. The ownership structure of Vardar Eurus will not be affected by the restructuring.

Vardar Eurus has invested in renewable as important for maintaining and developing energy in the Baltics together with local an already large investment. 18 investors and the European Bank for 19 Reconstruction and Development (EBRD) It is expected that the merger will provide since 2005. This cooperation has resulted new opportunities for obtaining capital for in a total investment of around MEUR the new investments. 350, which will provide 500 GWh of clean renewable energy annually. Through the “This coordination strengthens Vardar experience they had acquired, the parties Eurus’s investment in renewable energy found that it would help strengthen further in the Baltics and gives the company a development to coordinate the ownership of controlling position. To a certain extent, the the various project companies and operating transaction will also reduce risk, since Vardar company, and the merger became a reality Eurus’s assets will be divided between more on 21 March 2012. projects. It will be exciting to continue the development of Nelja Energia,” says the The merged company will be called Nelja Chairman of the board in Nelja Energia, Energia, which is a name that is already Johannes Rauboti. firmly established in the Baltics. In addition to its 13 own employees, the company has 28 persons employed in subsidiaries or associated companies. A closer relationship between employees and assets is regarded

2011 – in brief 2011 – in brief Strategy Outlook Vardar shall contribute to increasing the supply Vardar is well-positioned for further expansion Vardar of clean, renewable energy. and creation of value in its core operations. This is accomplished through direct investments The Act relating to a joint Norwegian/Swedish Market, strategy and future outlook in projects that produce clean renewable energy market for green electricity certificates and through participation in innovation projects. stipulates a goal for the development of clean Market By participating in research and development renewable energy. Some of this will come from projects for renewable energy production and wind power. Vardar has a major investment in The Vardar Group operates in the energy market Norwegian wind power projects profitable, and related activities, Vardar hopes to make a Wind Power Norway and a portfolio of projects in Norway and the Baltic countries. Norway any new investment decisions with regard to contribution to meeting climate challenges. in various stages of development. Most are in and Estonia are linked to the Nordic Power the development of wind power in Norway will development, but Vardar also has ownership Exchange and are required thus to use the euro. be made on the basis of this market. This strategy is firmly anchored with the interests in projects that are ready for an The market in Estonia is partly deregulated, owners. Vardar would like to carry out its investment decision and under construction. while there is still a regulated power market in The business area Wind Power Abroad has strategy together with good partners, and we Projects in various stages make us well- Lithuania. to deal with the euro and litas as currencies. see the benefit of working and accumulating positioned for participation in the new green Power produced in Estonia is traded at the expertise together, especially with local actors electricity certificate market. The business areas Hydropower and Wind Power market price or through bilateral agreements, in areas where Vardar operates. Norway sell generated power on Nord Pool Spot. and aid is received from the authorities. There 20 The recently completed merger that took 21 As part of the Group’s risk management, the are ongoing political discussions concerning the The Group is exposed to a variety of financial place in Wind Power Abroad in 2012 provides price of power generated from the hydropower level of aid, which has been just over 50% of risks through its activities. The Group has new opportunities for further growth and segment is hedged, primarily through the the sales price obtained up until now. Investors divided its risk factors into four main groups: development in this area. It is anticipated that Nasdaq OMX exchange. The Group has a are working actively to ensure that any market risk, financial risk, operational risk and further development of this business area will strategy for cash flow hedging with a three-year changes in the framework conditions will not other risk areas, where financial risk is related primarily take place without further financial horizon. Since Vardar’s hydropower consists be made with retroactive effect and thus affect to foreign exchange, interest rates, liquidity contributions from Vardar, and that it is more of reservoir power plants, hedge accounting is investments already adopted. In Lithuania the and credit, as well as capital management. The likely that these activities may contribute to challenging. All changes in the market value wind farm receives a guaranteed feed-in tariff Group’s policy is to reduce the risk factors to a financing new investments in Norway. of future hedging instruments are therefore for the first 12 years of operation, and the minimum, while taking the hedging expenses recognised through profit and loss. market price is expected after that. Lithuania into account. Vardar has clear limits for risk Vardar sees opportunities for further is also looking to change the current level, but management, and strategies, systems and development and investments in the area of Production from the business area Wind Power in this discussion there has not been any talk reporting routines have been established for bioenergy, and it has built up special expertise Norway has so far been from the wind farms at of changes that would affect decisions already the Group’s overall risk management. Vardar’s in this field. This will enable Vardar to play an Mehuken. Both of these wind farms have been adopted. risk management should support the Group’s active role in this business area as well in the built with investment aid, the same applies creation of value and ensure that a solid future. to the development of Midtfjellet Phase I, The business areas Bioenergy and Real financial platform is maintained. The purpose of which started in the autumn of 2011. Energy Estate trade their products through bilateral risk management is to create a greater degree production from these wind farms therefore agreements, which are based on commercial of predictability for our cash flows. do not qualify for green electricity certificates. terms. For the business area Energiselskapet Vardar anticipates that the green electricity Buskerud (EB), reference is made to their certificate market will contribute to making Annual Report for 2011.

2011 – in brief 2011 – in brief Hydropower Energiselskapet Buskerud

Vardar’s wholly owned subsidiary Uste Nes AS owns two-sevenths of Vardar owns 50% of the shares in the regional energy group Energiselskapet the production from the Usta and Nes hydropower stations in Hallingdal. Buskerud (EB). The aim of Energiselskapet Buskerud is to contribute to more efficient and The plants have produced clean energy since the 1960s. sustainable industrial development in the Buskerud region and surrounding areas.

The stations are organised as a co- tunnel. The four generators at the Nes power The strategy to fulfil this aim is to realise development and ownership of the energy ownership venture with E-CO Energi AS and station are equipped with Francis turbines economic and financial benefits from regional grid and communications network in Øvre Hallingdal Kraftproduksjon AS, with and utilise a gross hydraulic gradient of operational collaboration and collaboration Buskerud. In addition to the power grid E-CO Energi managing the operation of the 285 m. Total mean annual production: through ownership. EB’s business areas operations, EB has also established district plants in accordance with an agreement 1330 GWh. include Production, Infrastructure, heating operations. EB owns the regional between the joint owners. The Usta Contracting and Services. grid in Buskerud and the distribution grid in power station is located near Kleivi in Hol In addition to ownership in these two power the municipalities of Drammen, Nedre Eiker The business area Production includes the Municipality. It exploits the falls below Lake stations, Uste Nes has acquired Buskerud and Kongsberg through its subsidiary EB production of clean renewable energy from Uste. The two generators are equipped with County Council rights to the extraction of Nett. 22 the water in the river systems in lower 23 Francis turbines and utilise a gross hydraulic concession power with a time horizon of 40 Buskerud, and it seeks to exploit these The business area Contracting provides gradient of 540 m. Total mean annual years. The transaction was carried out on resources in the best possible manner. electrical installation and maintenance production: 780 GWh. commercial terms in 2002. In order to reach its goal, EB focuses services for energy companies and large on optimising technical and hydrological industrial enterprises. Nes is the largest power station in In 2011 Uste Nes AS achieved a production operations, modernisation and upgrading of Hallingdal. The power station exploits the fall of just under 700 GWh, about 90 GWh EB provides broadband services over its the power plants, comprehensive resource between Strandefjorden and the Hallingdal more than the normal production. A lot own fibre infrastructure and has ambitions management and collaboration with the River near Nes. The inflow tunnel to Nes of precipitation and high reservoir levels of becoming the leading supplier of content other power producers. The wholly-owned has a length of over 30 kilometres and a contributed to this. The Group’s risk services in the Buskerud region for the subsidiary EB Kraftproduksjon AS has a mean cross section of around 8 x 8 metres. This management contributed to relatively low energy grid and communications network annual production of about 2,500 GWh. is one of the largest power station tunnels power prices not having any major negative through the business area Services. in the world. Tributaries on both sides of impact on earnings. The business area Infrastructure works for For more information on EB see www.eb.no. the Hallingdal River also feed into the inflow broad regional collaboration for the operation,

Production Financial development Production Finincial development Organisation chart �� Organisation chart �� VARDAR AS �� 50% �� VARDAR AS �� 100% �� Energiselskapet Buskerud AS �� Uste Nes AS PRODUCTION INFRASTRUCTURE CONTRACTING SERVICES � ��

2011 – in brief 2011 – in brief Wind Power Norway Wind Power Abroad

Vardar’s investments in wind power in Norway are organised through Vardar invests in clean renewable energy abroad through its subsidiary Vardar its subsidiary Vardar Boreas AS. Vardar continued its offensive focus on wind power Eurus. All the investments have been in the Baltics up until now. The Nordic in Norway in 2011 through the acquisition of a stake in Midtfjellet Vindkraft AS. Environment Finance Corporation (NEFCO) owns 10% of Vardar Eurus.

Vardar acquired DONG Energy’s stake in Vardar Boreas has ownership interests in Vardar’s business concept and the owner legislation in the individual countries, Midtfjellet Vindkraft AS in September 2011, Haram Kraft AS, a company with a final Buskerud County Council’s investment in in addition to challenges related to the together with Østfold Energi. A decision licence for the construction of up to 66 MW Estonia formed the basis for the current technical solutions. was made at the same time concerning the in Haram Municipality. activities in the Baltics. Vardar Eurus development of Phase I at Midtfjellet for a has invested a substantial amount in the As an investor, it is important that there total of 52.5 MW. Phase I will be developed In 2011 Vardar and Østfold Energi Baltics since 2005. This has resulted in are predictable framework conditions when with aid from Enova. coordinated their wind power investments, joint ownership in 12 operative wind farms investment decisions are made. There is and they have equal interests in the with an annual production of 414 GWh an ongoing political process in Estonia to companies Haram Kraft AS and Sula Kraft AS 24 At the end of November, Vardar sold 50% of clean renewable energy, three wind change the level of aid for renewable energy. 25 of its stake in Midtfjellet Vindkraft to EB now. Sula Kraft has applied for a licence for farms under construction, several projects The year 2011 has been marked by further Kraftproduksjon. Phase II at Midtfjellet is a 140 MW project in Solund Municipality. under development and the creation of construction and completion of wind farms ready for development under the new green an organisation that is responsible for the in both Lithuania and Estonia. Overall, 2011 electricity certificate market. The company Zephyr, which Vardar owns development, project management and was a year with normal wind resources, together with Østfold Energi, DONG Energy operation of projects related to renewable and Vardar Eurus reported earnings in Vardar Boreas has an ownership interest and EB Kraftproduksjon, has developed a energy, energy consulting and energy sales. accordance with expectations. in operative wind farms through Kvalheim significant portfolio of wind power projects Kraft. Since Mehuken II was commissioned at since its formation in 2006 and had applied In addition to investments in wind power on the end of 2010, about 65 GWh is produced for licences for over 1,000 MW at the end of land, we have renewable energy production annually from the wind farms in Vågsøy 2011. projects from biomass and offshore wind Municipality. power. Our investments in offshore wind power face challenges related to the

Organisation chart Production Finincial development Organisation chart Production Finincial development

�� (MNOK) �� VARDAR AS �� VARDAR AS �� 2 �� 100% 1.1 �� 1 90% �� Vardar Boreas AS 0.0 0.2 �� Vardar Eurus AS 0 �� 33.3% 16.7% 17.5% 16.7% 25% �� -0.4 WIND POWER SERVICES �� -1 �� Kvalheim Midtfjellet Haram Sula �� Zephyr AS �� Kraft DA Vindkraft AS Kraft AS Kraft AS � -2 -1.6 Estonia Latvia Lithuania Nelja Energia OÜ � � �� 2007 2008 2009 2010 2011 ��

2011 – in brief 2011 – iin brief

Bioenergy Real estate and property management

Vardar invests primarily in bioenergy through the wholly owned The aim of Vardar’s subsidiary Vardar Eiendom AS is to develop the subsidiary Hønefoss Fjernvarme AS. In addition, Vardar owns 50% of Øvre Eiker property portfolio with a view to profitable operations and positive value Fjernvarme AS. creation. The real estate business is marked by the fact that substantial assets are not realised until a possible sale.

The district heating systems heat water by In 2011 the main pipe grid in Hønefoss was burning environmentally friendly biomass. completed and 5 km of the new pipe was In 2011 the primary focus has been on more In the past year a new exterior fire The hot water is then distributed to commissioned. The challenges associated cost-effective operations and the start- escape has been erected on the property customers via insulated district heating pipes with crossing the river in town were solved up of a project to focus on development in Dronninggaten, and the roof on the and used to heat buildings and for hot tap by the new pedestrian bridge, which resulted opportunities in the portfolio. The real estate commercial property in Hurum has been water. in all the main pipe routes being joined portfolio consists of two office buildings refurbished. together to form a single district heating grid. in Drammen and a combined office and The heating plant at Hvervenmoen in manufacturing building on an undeveloped At Øvre Eikervei, 2011 has been the first 26 Hønefoss uses raw wood chips obtained The primary target group for district heating plot in Hurum. full year of operation after remodelling the 27 from the Ringerike region. The plant has is large buildings with waterborne heating. heating and ventilation system, and it was an installed power capacity of 7.7 MW. In In Phase II of the development, housing The properties have had a high occupancy closely monitored. Remodelling has resulted 2011 a new heating plant with a capacity of cooperatives will be the largest target group, rate in 2011 as well. Vardar Eiendom’s aim is in a reduction in energy consumption by 22 MW was built in connection with Follum and housing cooperatives with around 630 to have satisfied customers, and we over 20% compared with previous years. Fabrikker. A continuous district heating grid apartments will be connected to the district work actively to maintain good relationships The comparison basis has been adjusted for from Follum to Hvervenkastet and heat heating grid in the autumn of 2011 or spring through good communication with our temperature fluctuations. production at both ends results in high of 2012. The year 2011 was significantly tenants. The management of the delivery reliability, flexible energy milder than 2010, and customers therefore properties includes close follow-up This business area will continue to work production and an opportunity to increase used around 30% less district heating on through routine self-inspection and the actively to reduce operating expenses and the customer base significantly in the average. A total of 29.1 GWh of heating and use of service agreements for technical continue to work with exciting opportunities future. cooling was sold in 2011. installations. in the Property Development project.

Organisation chart Production Finincial development Organiation chart Occupancy rate Financial development

�� VARDAR AS �� VARDAR AS �� 100% 50% �� 99.2% �� Hønefoss Fjernvarme AS Øvre Eiker Fjernvarme AS �� Vardar Eiendom AS �� Øvre Eikervei 14 Dronningt. 15 Åsveien 6A Åsveien 6B ��

2011 – in brief 2011 – in brief Innovation

Vardar is socially and environmentally responsible. Together with our owner, Buskerud County Council, we have ambitions and visions with regard to the development of new renewable energy. Innovation is therefore a natural focus area for Vardar.

Innovation is necessary the production of different types of fuels or If the EU’s and the world’s goal of renewable propellants is a possibility. More traditional energy sources taking over the dominant bioenergy, such as district heating and role of fossil energy carriers in the next two combined heating/power production could to three decades is to be achieved, then also be relevant. Pan’s ambitions have a high rate of innovation will be required. generated a great deal of interest in the Innovation is always easier when several industry and among the authorities, and 28 professional fields and areas of expertise Vardar has great expectations for their 29 are combined and work together. Vardar future activities. has therefore chosen to engage in much of its innovative activities as an active Innovation in the Baltics participating owner in various innovation One disadvantage of wind power is that wind companies. Vardar is currently a co-owner cannot be stored. When there is no wind, in Kongsberg Innovasjon, Papirbredden then no electricity is produced. Innovation Innovasjon and Pan Innovasjon in Norway, work at Tehnoinvest involves finding ways to and Tehnoinvest in Estonia. balance wind power.

Pan Innovasjon Research and development Vardar’s participation in the company Pan Vardar would like to maintain close Innovasjon is our latest initiative in the area contact with research and development of innovation. The company was established environments for new renewable energy, on 14 September 2011 in cooperation with and from time to time therefore enter other key players. Pan is designed to be an as an industrial partner in research and arena for the development of forest-based development projects when they lie within industries that will create an industrial our core operations. In this way we also environment for innovation based on forest participate in the general development of resources and wood. A natural part of this renewable energy. is the development of bioenergy, where

2011 – in brief 2011 – in brief Society and the environment

Vardar is responsible for the social consequences of its operations with respect to climate, the environment and social affairs.

In Report no. 10 (2008-2009) to the Stor- • Consideration of economic, environmental ting, Corporate Social Responsibility in a and social affairs when decisions are made Global Economy, social responsibility is defi- • Recognised ethical guidelines ned in the following manner: Corporate social responsibility is seen as “The Government employs a definition of part of long-term value creation, and it is corporate social responsibility that entails an integral part of the Group’s operative that companies incorporate social and envi- activities. ronmental concerns in their daily operations 30 and vis-à-vis their stakeholders. Corporate Environment 31 social responsibility entails what the compa- Vardar has through its ownership of nies do voluntarily, beyond complying with companies producing clean renewable existing laws and regulations in the country energy, protected the environment from CO in which they operate.” 2 emissions corresponding to the emissions from around 1.5 million cars in 2011, based Vardar’s aim is to act as a responsible on an annual travel distance of 20 000 km contributor to society, build confidence and and emissions of around 115 g/km. For trust for the Group’s activities and emerge comparison, there were in 2010 according to as an attractive business partner. Statistics Norway 2.9 million cars in Norway.

This will be achieved through: Savings in CO emissions broken down • Production of clean renewable energy 2 that contributes to sustainable by Vardar’s business areas: development 1000 tonnes • Clear and good corporate governance for 8 Hydropower promoting the highest possible creation of 298 value over time Calculation Wind power basis graph: 3110 • Business operations with the lowest Total production by possible impact on the external Vardar’s production environment Bioenergy companies.

2011 – in brief 2011 – in brief Income Statement – Vardar Group Balance Sheet – Vardar Group Amounts in NOK 1000. Amounts in NOK 1000.

IFRS IFRS

Notes 2011 2010 Notes 2011 2010 Operating income 3 344 664 322 731 Goodwill 4 25 973 25 311 Total operating income 344 664 322 731 Waterfall rights 4 3 142 3 142 Total intangible assets 29 115 28 453 Purchase of energy/cost of goods sold 96 143 98 820 Payroll expenses 18 12 576 13 434 Investment property 6 85 000 82 020 Depreciation 5 29 376 25 404 Machinery, equipment etc. 5 6 032 6 101 Other profits (losses) - net 17 19 122 -31 962 Power stations 5 1 183 864 1 023 648 Other operating expenses 19 60 172 60 644 Work in progress 5 - 96 772 Total operating expenses 217 389 166 340 Total property, plant and equipment 1 274 896 1 208 541 Operating result 127 275 156 391

Investment in joint venture and associates 7 1 632 689 1 436 733 Financial items 20 -54 499 -47 021 Subordinated loan 10 468 237 467 167 Income from investment in joint venture and associates 7 128 903 134 997 32 Available-for-sale financial assets 8 9 680 7 569 33 Net finance items 74 404 87 976 Concession power right 8 163 249 252 273

Result before tax expense 201 679 244 367 Other non-current receivables 10 242 726 134 726 Total financial fixed assets 2 516 581 2 298 468 Tax expense 21 45 342 62 319 Total non-current assets 3 820 592 3 535 462

Result 156 337 182 048 Inventories 11 1 595 2 045

Total result attributable to: Trade receivables 9 20 944 63 587 Owners of the parent 154 564 180 985 Other receivables 9 101 747 105 649 Non-controlling interest 1 773 1 062 Derivatives 17 62 195 36 789 Cash and bank deposit 12 261 999 166 877 Other comprehensive income Total current assets 448 480 374 947 Share of other comprehensive income in joint venture 102 658 -92 451 Currency translation differences -14 228 -23 186 Total assets 4 269 072 3 910 409

Total result for the year 244 767 66 411

Total result attributable to:

Owners of the parent 244 079 66 348 Non-controlling interest 688 62

2011 – in brief 2011 – in brief Balance Sheet – Vardar Group Consolidated statement of cash flows Amounts in NOK 1000. – Vardar Group Amounts in NOK 1000. Notes 2011 2010 IFRS Paid-in equity 13 617 061 617 061 Notes 2011 2010 Retained earnings 24 1 192 631 1 006 553 Cash flows from operating activities Non-controlling interest 11 403 10 715 Cash generated from operations 22 251 054 156 222 Total equity 1 821 095 1 634 329 Income tax paid -42 505 -39 276 Interest paid -103 610 -81 145 Pension obligations 16 6 040 5 971 Net cash generated from operating activities 104 939 35 801 Deferred tax 15,21 178 807 177 108 Non-controlling interest with option 26 124 057 124 085 Cash flows from investing activities Debt to credit institutions 14 1 491 542 1 121 421 Purchases of property, plant and equipment -94 914 0 Subordinated loan capital 14 507 500 507 500 Proceeds from sale of property, plant and equipment 0 12 471 Total non-current liabilities 2 307 946 1 936 085 Payment non-current loan receivables -165 488 -8 320 Proceeds non-current loan recivables 35 872 0 34 Certificate loan 14 - 40 000 35 Payment of dividends from associates/joint ventures 77 861 126 391 Debt to credit institutions 14 - 104 000 Purchases of shares and investments in other companies -31 269 -91 548 Trade payables 12 29 288 24 573 Net cash used in investing activities -177 938 38 994 Current tax 42 562 42 505

Public duties owing 21 8 101 19 310 Cash flows from financing activities Derivatives 33 100 74 617 Proceeds from loan raising 370 000 670 000 Other current liabilities 17 26 980 34 990 Repayment loan -143 879 -506 649 Total current liabilities 140 031 339 995 Redemption of non-controlling interest with option 0 -75 580

Dividends -58 000 -40 000 Total equity and liabilities 4 269 072 3 910 409 Net cash used in financing activities 168 121 47 771

Drammen, 27.04.2012 Net cash flows for the period 95 122 122 566 Cash and cash equivalents at the beginning of the period 166 877 44 311 Cash and cash equivalents at the end of the period 12 261 999 166 877 Svein Marfi Mette Lund Stake Nils Peter Undebakke Chairman of the board Deputy Chairman Member of the board

Linda Verde Lise Løff Johannes Rauboti Member of the board Member of the board Managing Director

2011 – in brief 2011 – in brief P.O. Box 4091, Gulskogen 3005 Drammen, Norway Tel.: +47 32 20 15 50 www.vardar.no Organisation no: 977 028 442 orbjørn Tandberg. Photo p 18 © Kristiina Männik. Photo p 5 (Pan Inovasjon and Inovasjon Photo p 18 © Kristiina Männik. 5 (Pan orbjørn Tandberg.

Renewable energy for the future Advertising agency: Puk Jegsen Reklame - Tel. +47 32 26 85 81 www.puk.no Photo p 27 and back page © Puk Jegsen. 6, 8, 12, 14 28 T Frode Johansen. Photo p 1, 22, 23, 24, 25, 26, 27, 29 and 31 © Shutterstock Images. Blad, photographer © Ringerikes heating plant at Follum) Photo p 31 © Crestock.