Project Name:

Start up of Manufacturing of Pico- and Generators and Small Wind Turbines Using a Patented Direct Driven Radial Flux, Permanent Magnet Generator, Republic of Panama.

a) Organization leader data:

Organization: Autoridad Nacional Address: Albrook, Edificio 804, del Ambiente (ANAM) Panama City, Republic of Panama Contact Person: Ing. Eduardo Reyes position: Sub-Administrador General de la Anam Phone 500-0800 E-mail: [email protected] Fax 500-0820 [email protected] b) Others Group member data:

Organization: Luz Buena, SA Address: Antigua Estación del Contact Person: Ing. Heine Aven Ferrocarril, local no. 3 position: Gerente General Ancon, Panama City Phone: 232-7690 E-mail: [email protected] Fax: 232-7437

Organization: Phaesun, SA Address: Antigua Estación del Contact Person: Ing. Heine Aven Ferrocarril, local no. 2 position: Gerente General Ancon, Panama City Phone: 232-7927 E-mail: [email protected] Fax: 232-7437

Organization: Ing. Antonio Clement Address: Villa Las Cumbres, A-4 Alcalde Díaz, Ciudad Bolívar Contact Person: Ing. Antonio Clement position: Gerente General Telefax: 268-4819 E-mail: [email protected]

Page 1 of 24

Table Of Contents

1.0 Executive Summary 3 1.1 Objectives 3 1.2 Activities 3 1.3 Results 4 2.0 Company Summary 5 2.2 Start-up Summary 6 3.0 Products 7 4.0 Market Analysis Summary 9 4.1 Market Segmentation 12 4.2 Target Market Segment Strategy 13 4.3 Industry Analysis 14 4.3.1 Competition and Buying Patterns 14 5.0 Strategy and Implementation Summary 15 5.1 Competitive Edge 15 5.2 Sales Strategy 16 5.2.1 Sales Forecast 16 5.3 Milestones 18 6.0 Management Summary 19 6.1 Personnel Plan 20 7.0 Financial Plan 20 7.1 Important Assumptions 21 7.2 Break-even Analysis 22 7.3 Projected Profit and Loss 22 7.4 Projected Cash Flow 23 7.5 Projected Balance Sheet 24

Page 2 of 24 1.0 Executive Summary This project document describes a new start up based on a patented (pending) manufacturing process for direct driven, radial flux, permanent magnet generators that can be used to generate electricity from rivers with low hydraulic heads, wind, sea waves, river currents, and human or animal motions. The generators are especially suitable for rural electrification.

The manufacturing process is developed by Mr. Antonio Clement who has received several distinguished awards for his inventions. Mr. Clement was the first Panamanian to receive the gold medal from the World Intellectual Properties Organization in Geneva, Switzerland. In 2006, Mr. Clement received the third prize in the category FIRE in the prestigious Energy Globe contest.

The new start up will be organized as a separate department in Luz Buena, SA, a photovoltaic retail and installation company serving the Panamanian market where the existing administration and technical staff will be involved. Additionally, the proposed products will be marketed internationally through Phaesun, SA, a Panamanian wholesale company that serves the Latin American photovoltaic market. The new venture will complement the company mission of Luz Buena and product specter of Phaesun.

1.1 Objectives The specific objective is to ensure the start up of a manufacturing company in Panama dedicated to the industrialization of a unique product based on patented production process of low RPM radial flux permanent magnet generators (patent no. US60/711,944) where the Alianza contributes with “seed money” to initiate operations. The company will serve the Latin American markets. Our primarily objectives are:

1. Sales of $500,000.- by 2010.

2. Gross Margin above 30% during the first three years of operation.

3. Establish presence with generation systems based on the patented production process operating in 50% or more of the countries in the regions served (south of the United States boarder) during the first three years in. More specifically, the seed money will be used to fine tune prototypes in operations or in production. Furthermore, the seed money will be used to buy the initial inventory of raw material and tools required for manufacturing, and hire initial staff.

1.2 Activities

The activities as described in “5.3 Milestones” are divided into a preparation phase and a scale up phase which are dependent ona signed contract with the Alianza and the reception of the payment as given in the preliminary approval of the Alianza based on the project line out.

Preparation Phase:

 The preparation phase consists of activities that will be started upon signing of the contract with the Alianza:

 During February, some pico plants available in the market will be purchased and subsequently tested and compared to existing prototypes in operation. Based on results

Page 3 of 24 that compare prototypes with existing products available in the market, an evaluation will be made on technical characteristics and a cost-benefit analysis to better position the product in the market place.

 In the same time period, the standard size (0.5kW, 1kW, and 3kW) portable hydropower plants will be measured to get the curve of Watt vs. .

 Mr. Clement will fine tune prototypes and production using existing inventory from Clement Energy. Technical staff from Luz Buena will receive training in production and participate in the production during the start-up phase. External workshops will be used to do the metal work required to produce the turbines and structure.

 For the local market, Luz Buena will advertise in a magazine directed to the agricultural industry. Some of the initial production will be based on non-standard models using existing inventory from Clement Energy.

Scale-Up Phase:

 When the funding is approved and received in the Luz Buena account, the purchase of initial inventory and tools required for the manufacturing will be started.

 The hiring of production workers and rent of manufacturing space will start early in the second half of 2008.  When the technical data of the standard products are well established at the end of the first half of 2008, Phaesun will e-mail existing and potential clients with information. Already, Phaesun has promoted the Clement Energy concept in ExpoEnergia 2007 where it received contact information from several companies and institutions interested in the product.

1.3 Results

Based on the attached business plan, Luz Buena will produce approximately 500-1000 units (depending on product mix) of power generating units in a 3 year period benefitting approximately 2500 – 5000 people with basic electricity needs.

A pico hydropower plant will reduce the cost of energy by approximately 20 times (4 times more cost effective per kW installed x 5 times more daily operating time) compared to that of a PV system based on the following assumptions:

 The cost per installed kW is approximately $3,000,- for a pico hydropower plant and $12,000.00 for a PV system which reduces the cost of installed power by 4.

 The daily operating time for a pico hydro electric plant is 24 hours while a PV system operates on an average between 3 and 6 hours depending on the region and time of year. For simplicity, the estimate is based on a 5 time longer daily operation time using pico hydropower plants compared to the daily operation time of a PV system.

The new department will additionally generate 15-20 new employments in Panama during the same time period.

Please refer to the attached business plan for a more detailed explanation how the results are expected to be achieved.

Page 4 of 24

2.0 Company Summary

Luz Buena, founded in 2002, distributes and installs affordable, easy to use, high tech, quality products to improve comfort and living conditions in rural areas. The range of products covers components and systems related to solar energy and water production. Luz Buena is based in Panama and serves the local market. Through its sister company Phaesun, SA which was founded in 2001, Luz Buena can offer a marketing channel for markets covering Latin America. Phaesun, SA is part of the Phaesun Group www.phaesun.com with headquarters in Memmingen, Germany, a wholesale group specializing in stand-alone renewable energy systems covering markets in Africa, Asia, Europe, and Latin America.

Both Luz Buena, SA and Phaesun, SA are 100% owned by Heine Aven but management in Phaesun GmbH are expected to invest in Phaesun, SA during 2008. Luz Buena’s missions are:

1. To improve living conditions and comfort to people living or traveling in areas without access to the electric grid or safe utility water.

2. To obtain healthy profits to its partners and owners in order to secure the solidity and expansion of Luz Buena so that more people will be able to improve their lives through its products and services.

3. To motivate its employees, partners, suppliers, and clients in a manner that raises the fulfillment of this mission statement.

By extending into manufacturing and marketing of pico and micro hydro generators using the patented manufacturing process for direct driven radial flux, permanent magnet generator , Luz Buena aims at further contribute to better quality of life for people living off grid along riversides with low hydraulic heads not currently being explored due to lack of cost efficient technologies. The direct driven radial flux, permanent magnet generators need hydraulic head of only 1 meter to generate energy for lightning, infotainment, telecommunication, refrigeration, or small industries and hence will upon up a large number of new potential sites for electricity generation.

Page 5 of 24 2.2 Start-up Summary

Appendix B: Initial cash outlays The initial outlays are primarily to fine tune and test prototypes, and purchase tools and initial inventory. The seed money from Alianze will enter the company as initial working capital and used togehter with other capital from other sources. The capital comming from Alianza is justified in the following manner: Total capital available for the project: EUR 30,000.- External coordination and control of the project: EUR 3,000.- Working capital available from the Alianza: EUR 27,000.- or US$37,800.- (using an exchange rate of 1.40) Purchase of initial inventory: $30,600.- Product fine tuning and planning: $7,200.- The remaining items required for the start-up during 2008 will be financed by Luz Buena, SA. Start-up Plan Start-up Expenses Product fine-tuning and planning $7,200 Independent laboratory testing $7,000 Purchase of pico hydropower plants from competitors $7,000 Tools for the workshop (Start-up) $2,000 Advertisement in Panama Agro Magazine $1,600 Total Start-up Expense $24,800

Start-up Assets Needed Cash Requirements $0 Start-up Inventory $30,600 Other Short-term Assets $0 Total Short-term Assets $30,600

Long-term Assets $0 Total Assets $30,600

Total Start-up Requirements: $55,400 Left to finance: $0

Start-up Funding Plan

Investment Alianza (EUR 30.000 x 90% x 1.4 USD/EUR) $37,800 Investor 2 $0 Other $0 Total investment $37,800

Short-term Liabilities Unpaid Expenses $0 Short-term Loans $17,600 Interest-free Short-term Loans $0 Subtotal Short-term Liabilities $17,600 Long-term Liabilities $0 Total Liabilities $17,600

Loss at Start-up ($24,800) Total Capital $13,000 Total Capital and Liabilities $30,600

Page 6 of 24 Start-up

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0 Expenses Assets Investment Loans

3.0 Products

The products are based on an invention by Ing. Antonio Clement who is the owner of a pending patent (US60/711,944) describing a simple and economical process of converting an induction motor into a powerful low rpm permanent magnet generator for wind and hydraulic applications. The essence of the pending patent consists of converting an induction 3PH motor into a powerful, low RPM radial flux permanent magnet generator for wind and hydraulics applications. This patent offers all the high tech advantages of the rare earth permanent magnet properties, at a price that is highly competitive against conventional generators units both in cost and application. Moreover, the generators can also be used to generate energy from sea waves and human and animal motions like from by bicycles and "treadmills" used in rural sugar cane processing.

The generators will be assembled using radial flux, permanent, high energy type magnets (NdFeB, rare earth magnets) which are needed to provide an acceptable flux density in the air gap. The magnets are mounted onto the surface of a rotor core with a band surrounding the rotor. The design ensures a durable and cost effective generator with excellent properties for many small scale energy generation applications. The first production will be based on generators of 1kW and 3kW portable hydropower plants that can be installed in minutes.

Cheaper ferrite magnet material can be used in a buried-magnet machine. The cost of the magnet material is relatively low but the assembly is complicated and costly. More magnet material is needed in a machine with ferrite magnets than in a machine with NdFeB magnets and, hence, the weight of the rotor becomes rather high and hence costly. The cost advantage of using permanent, high energy type magnets is demonstrated by research at the University at Helsinki. The results are shown below.

Page 7 of 24 Name source:

In 2005, the patented invention won recognition as the first Panamanian GOLD MEDAL from the World Intellectual Properties Organization in Geneva, Switzerland (www.wipo.int/innovation/en/wipo_awards/pdf/pa.pdf). Additionally, Ing. Clement won the third award in the 2006 Energy Globe contest in the category FIRE. (www.energyglobe.info/geg/frontend_en/view.php)

Theory behind the invention:

The electromagnetic optimization of the different alternatives of generator designs using radial flux, permanent, high energy type magnets was done using a genetic algorithm combined with the finite element method. The genetic algorithm belongs to the group of probabilistic searching methods, which have high probability of locating the global optimum in the multidimensional searching space discarding all existing local optima. The calculation of the operating characteristics of the generators is based on a finite element analysis of the magnetic field. To be able to evaluate the losses caused by higher harmonics, the rotation of the rotor is taken into account and, therefore, a time-stepping method is used in the analysis. In order to save optimization time, the FEM analysis was made using first-order finite elements. The initial values are obtained from a magnetostatic solution. The period of line frequency is divided into at least 200 time steps and a total number of 250 time steps are used in the calculation of the operating characteristics at rated load. The calculation of the pull-out torque is based on the assumption of sinusoidal time variation of the stator voltages and currents. The open-circuit voltage and the 46 cogging torque are calculated dividing the period of line frequency into 300 time steps and using a total number of 600 time steps in order to obtain more accurate results of the local field variations.

A typical first-order finite element mesh constructed for two pole pitches of the PM machine contains 700–900 nodes.

The other FEM analysis of this work was made using second-order finite elements. The period of line frequency is in most of the cases divided into 300 time steps and a total number of 600 time steps are used in the calculation. A typical finite element mesh constructed for the two pole pitches of the PM machine contains 2700–3500 nodes.

The optimization results of the pull-out torque have been checked by using second-order finite elements and time-stepping FEM. The period of line frequency is divided into 300 time steps. The comparison of the pull-out torque per the cost of active material of the machines optimized using first-order and second-order finite elements are shown in Figs._19 and 20. The pull-out torque of the conventional machines is on average 7% lower using second-order finite elements than using first order finite elements. The results of the conventional 10kW generators differ by 4.5–7% and the results of the 5.5_kW generators by 7–9%, except for the solid pole-shoe designs. The difference of the results of the solid pole-shoe generators with constant air-gap, PS-1, is 9–10% and the generators with curved pole-shoes, PS-2, 3–7%. The pull-out torque of the single-coil winding generators differs on average by 20%, but on the other hand, the torque is also lowest in the optimization. The pull-out torque of all the generators optimized is lower using second-order finite elements

Page 8 of 24 and time stepping FEM than in the comparisons. The field quantities of the real generator do not vary sinusoidally with time because of the saturation of the iron and the rotation of the rotor.

Furthermore, the first-order mesh is rougher than the second-order mesh. However, the order of the generators in the comparisons is the same, except for the generators with solid pole shoes. The difference of the results of the generators from each other is more important than the absolutely right values in the comparisons. Therefore, the results are available for comparisons of the generators with each other.

SM Curved surface-mounted magnets

RM-1 Rectangular surface-mounted magnets, one magnet per pole

RM-3 Rectangular surface-mounted magnets, three parallel magnets per pole

PS-1 Rectangular magnets equipped with pole shoes, constant air-gap length

4.0 Market Analysis Summary

According to United Nation, there are about 1.6 billion people without access to electricity. In Latin America, the figures are 70 million people without electricity. Looking at the regions covered geographically by Luz Buena, SA/Phaesun, SA, the figures are 10 million households without electricity.

For the majority of households, ie more than 5 million families, distributed power generation systems are estimated to be the best technological and economical alternative (EuroSolar, www.eurosolar.org). Many rural communities are located around rivers of

Page 9 of 24 which many can be served with electricity generated by pico hydro power plants as an alternative or complement to PV systems. Based on estimates from a well-respected PV industry specialist, Paul Maycock, the annual demand for PV power in the geographical market stretching from Peru to Guatemala, excluding Brazil is 5MW with an annual growth of 20%. Because pico hydropower is less expensive than PV power per kWh generated, it is expect that the combined market share of pico and solar power will increase as pico hydropower becomes more available and the technology to generate power using small hydraulic heads are improved.

As a consequence of the high demand for decentralized energy production solutions, the governments in Latina America are promoting several small scale RE initiatives where the photovoltaic energy is one of the preferred solutions because of its low environmental impact, low maintenance, and high reliability of energy generation compared to other RE sources. However, the cost per kWh generated using PV systems is relative high compared to for example a micro hydro plant which has been limited to rivers with relative high hydraulic head. As a consequence of its relative high cost per kWh, the PV projects are designed to resolve basic electricity needs for illumination and infotainment.

Several governments in the region have developed different schemes to promote renewable energy in isolated areas to reduce poverty. Illumination only does, however, have a limited impact on income generating activities. Alternatives like fossil fuel generation and traditional designs using civil work with access roads, , etc. are not implemented by communities because of the costs and bureaucratic process of obtaining environmental impact studies. By implementing pico,- and micro hydro projects based on a portable concept, generating energy with low hydraulic head, the costs of generation will be reduced significantly compared to the above mentioned alternatives. Using generators that produce energy with low hydraulic head additionally opens up lots of new potential sites for energy production along the riverbank, enabling villages to start small industrial enterprises dedicated to activities like food preservation through refrigeration, crafts using electrical machines, rural internet cafes, etc..

Another important factor of markets related to distributed electrification is the income pyramid of the markets discussed above. The smallest top part of the pyramid can pay up front for energy generation systems. The bigger middle part can pay for the energy generation systems with some type of financing, and the large bottom part of the pyramid needs subsidies to acquire the services. As a conclusion, the market in theory should be more inclined to smaller energy generation systems where pico hydro power is a viable alternative.

Page 10 of 24

The generators are expected to make an impact on lowering cost of pico,- and micro hydro electricity generation and on increasing abundantly the number of sites that can be served by small scale hydropower plants. Because the portable pico,- and micro hydropower plants use a direct driven, radial flux, permanent magnet generator to generate a sufficient amount of electricity for income generation activities like small scale industrial enterprises at a competitive price, it is expected that the portable hydropower plants will receive attention in the government donated or subsidized market, governmental and non governmental founded micro finance schemes, and private credit and cash markets.

A pico hydropower plant will reduce the cost of energy by approximately 20 compared to that of a PV system based on the following assumptions:

 The cost per installed kW is approximately $3,000,- for a pico hydropower plant and $12,000.00 for a PV system which reduces the cost of installed power by 4.

 The daily operating time for a pico hydro electric plant is 24 hours while a PV system operates on an average between 3 and 6 hours depending on the region and time of year. For simplicity, the estimate is based on a 5 time longer daily operation time using pico hydropower plants compared to the daily operation time of a PV system.

As the public awareness of distributed power generation systems and pico hydro power specifically increases through more investments in governmental electrification development programs, increased product availability, and better trained professionals, the markets for portable pico,- micro hydropower plants are expected to increase accordingly.

Page 11 of 24 4.1 Market Segmentation

The market is divided in four different segments:

1. Wholesale companies:

Wholesale companies and in particular wholesale companies serving the PV markets has the advantage of being able to ship portable pico hydropower plants together with other PV components and hence reduce shipping costs per unit significantly when the order volumes are small. Wholesale companies of other product categories serving the needs in rural areas may also be interesting distribution channels.

2. Solar photovoltaic companies serving public and private projects :

The solar PV companies have a great advantage of being in the off-grid market serving private clients, NGO´s, and public projects with small scale electrification solutions. Additionally, most PV companies have in-house technical expertise in photovoltaic systems which can easily be applied to pico portable hydropower plants. Several components required in photovoltaic systems are also required in pico hydropower plants. Because many solar PV companies are working close with the consultants developing the parameters for rural electrification projects, PV companies often have the ability to lobbing for specifications that facilitate the application of portable pico hydropower plants in rural electrification programs .

3. Rural retail stores :

Agro stores and cooperatives in rural settings are also in close contact with potential clients and do have the capability to market portable pico power plants. Their customer base is mainly farmers and people who live in areas not connected to the electrical grid . Many retailers may, however, have insufficient technical expertise to give well advises in system design and after sale services. This type of services can however be compensated by an independent knowledgeable person.

4. Local partners, representatives, and agents :

Some regions can be better served by using local partners who can better understand and explore the market potential. Use of agents is specifically interesting in the bigger markets like Mexico and Brazil. In some countries, local assembly to reduce custom tariffs may be another reason to enter partnership with local companies. The portable pico hydro power plants may also be an interesting resale product for companies already in the market with complementary products .

Page 12 of 24 4.2 Target Market Segment Strategy

1. Wholesale companies:

Since Phaesun, SA (sister company of Luz Buena) already is part of an international wholesale network serving markets in Africa, Asia, Europe, and Latin America, Luz Buena will have a pre-establish distribution channel ready to start marketing of the portable pico hydropower plants when they are commercially available. Other wholesale companies marketing products to the rural segments located in for example the Colon Free Zone in Panama will also be contacted and visited personally by representatives for Luz Buena, SA given an interest to know more about the product. As the demand in the Latin American market is being met, wholesaler in the North American market will be contacted in addition to that the pico hydropower plants will be presented at exhibitions related to distributed energy production.

2. Solar Photovoltaic companies serving public and private projects:

Through Phaesun, SA, the portable pico hydropower plants will be presented to existing clients to ensure reference projects in the respective countries ranging from Guatemala to Peru. After the pico hydropower plant receives approval by Phaesun GmbH, the product will be launched at the Phaesun GmbH home page www.phaesun.com and stocked at the respective warehouses of the Phaesun group. New products at Phaesun GmbH are presented by an e-mail news letter to its entire customer base.

Phaesun, SA introduced the invention at ExpoEnergia 2007 in San Pedro Sula, Honduras where many companies showed a great interest in the product. In general, well organized exhibitions with focus on small scale rural electrifications are excellent marketing opportunities when searching for new clients among solar photovoltaic companies and other organizations interested in micro power generation. More general exhibitions like ExpoComer which are held annually in Panama, brings visitors from all over Central America, the Caribbean, and part of South America. 3. Retail stores : To test the market potential using agro stores, water pumping retailers, and rural cooperatives, companies and cooperatives in Panama will be contacted and visited if interested in marketing the pico hydropower plant. Based on the results from the Panamanian market, a more general strategy will be developed for these markets, most probably through local agents in the respective markets. 4. Local partners, representatives, and agents : In Brazil, Phaesun has a local representative that will promote the product in the Brazilian market. Phaesun does also have several contacts in the Mexican market that may be interested in carrying the product in Mexico. The other countries in Latin America will initially be served directly by Phaesun, SA from Panama. Because of its close relationship with Sundaya, Indonesia, www.sundaya.com, an expert on plug and play Solar Home Systems and with an expressed interest in entering the pico hydropower segment will also be contacted to explore the possibility of distribution in the Asian market.

Page 13 of 24

4.3 Industry Analysis

The small hydropower industry is a mature industry with about 100 industrial manufacturers where the majority is located in China and Europe. Globally, there are about 4GW installed power of small hydropower plants compared to only 2GW installed power in 1995. Pico hydro power plants are located all over the world with an increasing manufacturing done in Asia. However, many pico hydro power plants are made locally by local shops and handymen with variable quality. Few products are aimed at low head situations which will be the focus of the portable hydropower plant produced by Luz Buena, SA.

Even though the small scale hydro industry is considered mature, there is considerable scope for improvement. Electronic controls, remote controls, new plastics and anti corrosive materials, and improved generators for use in low hydraulic heads. www.uneptie.org/energy/act/re/fact_sheet/docs/hydro.PDF

There are only scattered market data from different regions and countries and hence the total Latin America market for pico hydropower plants is not available. It is also difficult to find qualified estimates of future growth for the pico hydropower plant segment.

4.3.1 Competition and Buying Patterns

Browsing the Internet, one find that there are relative few manufacturer of pico hydro power plants and that the majority of the suppliers require a higher head than what is required by the hydropower plant presented in this business plan.

However, the public awareness of hydropower has increased due to new records of fossil fuel prices and the public debate on climate change. Since many people approach companies that specialize in small scale renewable energy systems, the local solar PV company is one of the places many organizations and private people approach to get more information about renewable energy alternatives.

Since pico hydropower plants are new to many potential buyers, word of mouth, articles, and media coverage is important to draw attention to pico hydropower products as an alternative solution to local electricity generation. Wee designed pilot projects with local partners may therefore draw important attention to potential institutional and private buyers.

Page 14 of 24

5.0 Strategy and Implementation Summary

As shown in the start-up plan, the implementation plan can be summeraized in the following two strategies:

1. Emphasize quality production and training of staff to ensure successful reference projects among the PV companies and other organizations that will be "first" buyers of the product. Since the renewable energy communities in the region are relative small, products of questionable quality have a tendency to be remembered and the cost of correcting a bad impression is relatively high. Hence, attention to quality and detail in final design, production, and testing should be prioritized.

2. Focus on standardized serial production to facilitate efficient marketing, logistics, and low production costs are important to obtain price competitive products that are easy to market and sell. Our aim is to secure future expansions through sales growth and product improvements.

5.1 Competitive Edge

Luz Buena's competitive edge is a partnership with the inventor and owner of the pending patent to convert an induction 3PH motor into a powerful, low RPM radial flux permanent magnet generator for wind and hydraulics applications. Moreover though it sister company Phaesun, SA, Luz Buena SA has a pre-established market channel to promote its products among existing clients dedicated to small scale rural electrification projects in Latin America.

Luz Buena does also have technical personnel that can start the initial production together with the expertise of the Inventor, Ing. Antonio Clement, who will be in charge of the department for pico hydropower plant production.

Page 15 of 24 5.2 Sales Strategy

Luz Buena will sell the concept of offering a unique alternative in direct driven low RPM applications with focus on rural electrification in Latin America taken into consideration its climates and local traits. Luz Buena will demonstrate its commitment thorough competitive pricing measured DDP, customer location, product availability and reliability, and short lead times using Phaesun, SA with shipments from the Colon Free Zone.

When producing marketing material and training, Luz Buena will focus its arguments on final customer benefits and to a lesser extent products specific information, except where product specific information is essential to understand how Luz Buena can through its products stand apart from its competitors. However, the technical specification will be available both on the home page and in hard copy for people that needs or wants this information.

Heine Aven, the General Manager will visit and personally get to know customers in the various countries, and not like the competition, only expedite electronic and phone orders. By personal visits, Luz Buena wants to be the first to see shifts in market trends and discover new needs to fill.

5.2.1 Sales Forecast

The sales forecast is based on estimates partly based on experiences with sales of PV systems and feedback from clients and potential clients of pico hydropower plants.

The generator of 05.kW is a product that can be mounted on bicycles as well as sent to clients where the client constructs the turbine locally. Club Rotary of Panama operates a small school project where the students charge the battery every day pedaling on a bicycle which is placed in the classroom. The system has been working excellently during a 3 month trail period and it is expected that Rotary will implement a hybrid system using PV and human motion in several other schools, possibly providing computers and Internet connections. The generator can easily be implemented into any bicycle on the market and Luz Buena and Phaesun will promote the idea to local PV dealers , NGO´s, and civic organizations in the region.

The 0.5 kW, 1kW and 3kW will be our standard portable pico hydropower plants that can be easily implemented to any river with a hydraulic head of 1 meter or more. We believe the sales will first pick up in year 3 when several dealers and users have gained experience with the product and potential clients have had some time to evaluate offers from local dealers. However, if bigger rural electrification projects get interested in the products, this estimate may be very conservative.

Page 16 of 24 The wind market is a mature market with several manufacturers well established in the market. Southwest Windpower is one example. Luz Buena will evaluate carefully its strength-weaknesses, threats-opportunities of entering the wind turbine market. However, Luz Buena is very positive to products that can generate electricity in small scale using sea waves, river currents, and human or animal motions and expects to se an increase in these market segments as products are developed.

The cost forecasts are based on cost estimates received by Ing. Antonio Clement and we expect a 10-20 improvement in labor and material cost as production picks up at the end of 2008. When we reach quantities as indicated in 2010, the cost may decrease as much as 30- 40% in labor and material. However, we expect the decrease in cost to be offset by lower prices to make the products more competitive and accessible to more people.

Based on product cost and sales price estimates, Luz Buena estimates production 500-1000 units (depending on product mix) of power generating units in a 3 year period benefitting approximately 2500 – 5000 people with basic electricity needs providing approximately 20 times less expensive electricity compared to what is achieved with small PV systems. Given a river with an all year steady flow of water, the pico hydro power plants also provide the possibilities of developing small mechanized industrial production and food preservation.

Sales Forecast Sales 2008 2009 2010 0.5 kW Generator $11,000 $36,000 $51,120 0.5 kW Portable Hydropower plants $18,750 $27,000 $38,340 1 kW Portable Hydropower plants $44,000 $96,000 $136,320 3 kw Portable Hydropower plants $54,000 $144,000 $204,480 Otros productos for wind, sea wave, $0 $50,000 $71,000 special orders Total Sales $127,750 $353,000 $501,260

Direct Cost of Sales 2008 2009 2010 0.5 kW Generator $7,810 $24,480 $35,273 0.5 kW Portable Hydropower plants $13,313 $18,360 $26,455 1 kW Portable Hydropower plants $31,240 $65,280 $94,061 3 kw Portable Hydropower plants $38,340 $97,920 $141,091 Otros productos for wind, sea wave, $0 $34,000 $48,990 special orders Subtotal Cost of Sales $90,703 $240,040 $345,869

Page 17 of 24 Sales Monthly

$25,000

$20,000 0.5 kW Generator $15,000 0.5 kW Portable Hy dropower plants $10,000 1 kW Portable Hy dropower plants

$5,000 3 kw Portable Hy dropower plants Otros productos f or wind, sea wav e, special orders $0

5.3 Milestones

The activities are divided into a preparation phase and a scale up phase which are dependent one a signed contract with the Alianza and the reception of the payment as given in the preliminary approval of the Alianza based on the project lineout.

Preparation Phase:

 The preparation phase consists of activities that will be started upon signing of the contract with the Alianza:

 During February, some pico hydropower plants available in the market will be purchased and subsequently tested and compared to existing prototypes in operation. Based on results that compare prototypes with existing products available in the market, an evaluation will be made on technical characteristics and a cost- benefit analysis to better position the product in the market place.

 In the same time period, the standard size (0.5kW, 1kW, and 3kW) portable hydropower plants will be measured to get the curve of Watt vs. hydraulic head.

 Mr. Clement will fine tune prototypes and production using existing inventory from Clement Energy. Technical staff from Luz Buena will receive training in production and participate in the production during the start-up phase. External workshops will be used to do the metal work required to produce the turbines and structure.

 For the local market, Luz Buena will advertise in a magazine directed to the agricultural industry. Some of the initial production will be based on non-standard models using existing inventory from Clement Energy.

Page 18 of 24 Scale-Up Phase:

 When the funding is approved and received in the Luz Buena account, the purchase of initial inventory and tools required for the manufacturing will be started.

 The hiring of production workers and rent of manufacturing space will start early in the second half of 2008.

 When the technical data of the standard products are well established at the end of the first half of 2008, Phaesun will e-mail existing and potential clients with information. Already, Phaesun has promoted the Clement Energy concept in ExpoEnergia 2007 where it received contact information from several companies and institutions interested in the product.

Milestones Milestone Start Date End Date Budget Manager Department Start up Phase 1/2/2008 1/4/2008 $0 Confirmation of acceptance from 1/2/2008 1/2/2008 $0 Alianza Alianza Purchase of pico hydropower plants 1/2/2008 15/3/2008 $7,000 Ing. Aven LB Manufacturing for testing Fine tuning of prototypes and training 1/2/2008 1/5/2008 $7,200 Ing. Clement LB Manufacturing of staff Local advertisments in Panama 1/2/2008 1/5/2008 $1,600 Lic. Calderon LB Retail Testing of prototypes Watt vs. 1/3/2008 1/5/2008 $7,000 Ing. Aven LB Manufacturing Hydraulic Head Scale-up Phase 1/4/2008 1/8/2008 $0 Payment of seed money - Alianza 1/4/2008 1/4/2008 $0 Alianza Purchase of tools to start up 1/4/2008 1/6/2008 $2,000 Ing. Aven LB Manufacturing operations Purchase of raw material - import 1/4/2008 1/6/2008 $30,600 Ing. Aven LB Manufacturing Hiring of personnel for assembly 1/7/2008 1/8/2008 $0 Ing. Clement LB Manufacturing Renting of manufacturing space 1/7/2008 1/8/2008 $2,000 Ing. Aven LB Manufacturing E-mail newsletter internationally 1/5/2008 1/8/2008 $0 Ing. Aven Phaesun throuhg Phaesun Totals $57,400

6.0 Management Summary

Ing. Heine Aven is the general manager of Luz Buena and Phaesun, SA where he divides his time about 50% Luz Buena and 50% Phaesun. Mr. Aven has an engineering degree in Industrial Engineering and an MBA in Finance. He has 10 years of experience from the packaging industry in Norway where he has held positions as logistic manager, plant manager and general manager and is well experienced in managing industrial production. Additionally, Mr. Aven, a Norwegian, has easy access to the hydro energy experience from Norway which is one of the world leaders in small as well large hydropower plants with a 99% coverage from hydropower.

Luz Buena has two offices, one located in Panama City and another office located in

Page 19 of 24 Santiago which are led by two store managers.

The store in Panama is lead by Lic. Jorge Calderon who has his background in Delta Airlines and Dell computers. His educational background is a business degree and a two years study in PV and Solar Thermal system Design and 2 years of experience of PV system design.

The store in Santiago is lead by Ing. Rodrigo Quiros who has a degree in Electric Engineering. Ing. Quiros has 3 years of experience working with PV system design.

The offices are decentralized in decision making with defined responsibilities and procedures similar to what is established in ISO 9003. The business plan is revised annually during the budget sessions where all managers are involved. The operations are coordinated by weekly meetings and operation plans.

In the start up phase, the manufacturing will be organized inside the company Luz Buena, SA in a separate department with its own accounting. The new department for production of generators using the patented process of Ing. Antonio Clement will be led by Ing. Clement the first year. Ing. Clement has a degree in electro mechanic engendering and a master in environment and renewable energy. He has been working with small wind and hydro projects the last 10 years. Ing. Clement, as mentioned earlier is also gained world wide recognition for his patent as the first Panamanian to wind the GOLD MEDAL from the World Intellectual Properties Organization in Geneva, Switzerland (http://www.wipo.int/innovation/en/wipo_awards/pdf/pa.pdf ). Additionally, Ing. Clement won the third award in the 2006 Energy Globe contest in the category FIRE. (www.energyglobe.info/geg/frontend_en/view.php). His theoretical expertise and practical experience in design, assembly, and procurement will be of great advantage for the start-up of the new department. It is expected that Ing. Antonio Clement will have an important role in product development also after 2008.

Given a successful start up of the manufacturing and market acceptance of the pico hydropower plants, the manufacturing unit may in the future be organized in a separate company.

6.1 Personnel Plan

Luz Buena has an experienced electronic technician that will get the responsibility to produce the generators during the start-up months. Metalwork will in the beginning be outsourced to local shops that have experience with production of turbines. As soon as volumes are secured, Luz Buena plans to open up its own manufacturing shop for both generators and metal works. It is expected that the production of pico hydropower plants will employ about 15-20 people in year 2010 including administration, sales, and

Page 20 of 24 production personnel. Below us the personnel plan for the first three years with the first full time hiring estimated to start in August 2008.

Personnel Plan Personnel 2008 2009 2010 Gerente de departamento, Ing. $9,600 $14,400 $14,400 Antonio Clement Secretary $1,400 $4,200 $4,200 Assembly $6,587 $35,100 $54,600 Total Payroll $17,587 $53,700 $73,200

Total Headcount 4 9 14 Payroll Burden $2,638 $8,055 $10,980 Total Payroll Expenditures $20,225 $61,755 $84,180

7.0 Financial Plan The seed money is expected to come from Alianza through its pre-approval of EUR 30.000,- to back purchase of initial inventory and start-up costs. The remaining credit lines will come from commercial banks and the owner of Luz Buena, SA. To secure additional capital will be one important task for the management during 2009, however, securing additional capital will not be critical to continue operations since capital is available from Luz Buena or its owners. Please take a look at the cash flow analysis.

7.1 Important Assumptions

The general assumptions are considered to be conservative when it comes to interest rates. The tax burden may also be lowered if the manufacturing is located to a tax free zone.

General Assumptions 2008 2009 2010 Short-term Interest Rate % 10.00% 10.00% 10.00% Long-term Interest Rate % 10.00% 10.00% 10.00% Payment Days Estimator 30 30 30 Inventory Turnover Estimator 3.25 3.00 4.00 Tax Rate % 25.00% 25.00% 25.00% Expenses in Cash % 10.00% 10.00% 10.00% Personnel Burden % 15.00% 15.00% 15.00%

7.2 Break-even Analysis

The break even analysis is based on an estimate of $6000,- of fixed costs where part of the assembly personnel and administration are considered fixed costs.

Break-even Analysis: Monthly Units Break-even 20,000 Monthly Sales Break-even $20,000

Assumptions: Average Per-Unit Revenue $1.00 Average Per-Unit Variable Cost $0.70 Estimated Monthly Fixed Cost $6,000

Page 21 of 24 Break-even Analysis

$4,000

$2,000

$0

($2,000)

($4,000)

($6,000) $0 $6,000 $12,000 $18,000 $24,000 $30,000 Monthly break-even point

Break-even point = where line intersects with 0

7.3 Projected Profit and Loss

Luz Buena projects a profit in all three years in the planning period. Ing. Clement has already gained valuable experience in production and in marketing. Additionally, the product development is almost completed, which makes it possible to enter the operational phase relatively shortly after the initial financing is secured. By starting with an existing organization, training of several administrative functions will not be necessary. Market access is also secured through marketing channels nationally and internationally through Luz Buena and Phaesun respectively.

Profit and Loss (Income Statement) 2008 2009 2010 Sales $127,750 $353,000 $501,260 Direct Cost of Sales $90,703 $240,040 $345,869 Other $0 $0 $0 ------Total Cost of Sales $90,703 $240,040 $345,869 Gross Margin $37,048 $112,960 $155,391 Gross Margin % 29.00% 32.00% 31.00% Operating Expenses: Advertising/Promotion $1,600 $4,000 $5,000 Travel $2,100 $4,000 $5,000 Miscellaneous $0 $0 $0 Payroll Expense $17,587 $53,700 $73,200 Payroll Burden $2,638 $8,055 $10,980 Depreciation $0 $0 $0 Leased Equipment $0 $0 $0 Utilities, utencils, and office rent LB $4,800 $7,200 $7,500 Insurance-inventory $250 $900 $1,200 Rent manufacturing location $2,000 $9,600 $12,000 Contract/Consultants $0 $0 $0 ------Total Operating Expenses $30,975 $87,455 $114,880 Profit Before Interest and Taxes $6,072 $25,505 $40,511 Interest Expense Short-term $2,677 $7,260 $10,260 Interest Expense Long-term $0 $0 $0

Page 22 of 24 Taxes Incurred $849 $4,561 $7,563 Cost of use of patent 20% of net $637 $3,421 $5,672 profit Net Profit $3,184 $17,105 $28,360 Net Profit/Sales 2.49% 4.85% 5.66%

7.4 Projected Cash Flow

The biggest change in the cash flow is related to reordering of raw material and credit sales. The projected cash flow uses import from Asia to secure competitiveness in purchase prices on key raw material such as generators and magnets. However, metal and other accessories will be sourced locally. Phaesun will be the largest client for international sales and almost all sales are done on a pre-payment basis. Hence, credit sales for international customers will be done to a sister company and the cash flow between the companies can be administrated to secure capital for the proposed start up.

Pro-Forma Cash Flow 2008 2009 2010 Net Profit $3,184 $17,105 $28,360 Plus: Depreciation $0 $0 $0 Change in Accounts Payable $3,164 $27,697 $48 Current Borrowing (repayment) $25,000 $60,000 $0 Increase (decrease) Other Liabilities $0 $0 $0 Long-term Borrowing (repayment) $0 $0 $0 Capital Input $0 $0 $0 Subtotal $31,348 $104,801 $28,408 Less: 2008 2009 2010 Change in Inventory $23,538 $101,074 $12,520 Change in Other Short-term Assets $0 $0 $0 Capital Expenditure $4,000 $0 $0 Dividends $0 $0 $0 Subtotal $27,538 $101,074 $12,520 Net Cash Flow $3,810 $3,727 $15,888 Cash Balance $3,810 $7,537 $23,425

Page 23 of 24 Cash

$25,000

$20,000

$15,000

$10,000

$5,000 Cash Flow $0 Cash Balance ($5,000)

($10,000)

($15,000)

($20,000) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

7.5 Projected Balance Sheet

Below is the projected balance sheet. Given that the income forecasts are met, securing capital for continue expansions will be important.

Pro-forma Balance Sheet

Assets Short-term Assets 2008 2009 2010 Cash $3,810 $7,537 $23,425 Inventory $54,138 $155,212 $167,731 Other Short-term Assets $0 $0 $0 Total Short-term Assets $57,948 $162,749 $191,156 Long-term Assets Capital Assets $4,000 $4,000 $4,000 Accumulated Depreciation $0 $0 $0 Total Long-term Assets $4,000 $4,000 $4,000 Total Assets $61,948 $166,749 $195,156

Liabilities and Capital 2008 2009 2010 Accounts Payable $3,164 $30,861 $30,908 Short-term Notes $42,600 $102,600 $102,600 Other Short-term Liabilities $0 $0 $0 Subtotal Short-term Liabilities $45,764 $133,461 $133,508

Long-term Liabilities $0 $0 $0 Total Liabilities $45,764 $133,461 $133,508

Paid in Capital $37,800 $37,800 $37,800 Retained Earnings ($24,800) ($21,616) ($4,512) Earnings $3,184 $17,105 $28,360 Total Capital $16,184 $33,288 $61,648 Total Liabilities and Capital $61,948 $166,749 $195,156 Net Worth $16,184 $33,288 $61,648

Page 24 of 24