ANALYSIS ON THE POSSIBLE OPTIONS FOR INTERCONNECTION OF WPP “MILKOVITSA” TO THE POWER TRANSMISSION NETWORK OF NATIONAL ELECTRIC COMPANY (“NEC”EAD)

I. GENERAL PROVISIONS:

1. History of the project: 1.1. Description:

„W. POWER” LTD and „W. POWER 2” EOOD are owners of land properties within the grounds of Milkovitsa, Shiyakovo and Lenkovo villages, Gulyantsi Municipality, region and have united their efforts in the implementation of joint investment project on constructing of wind power park with production capacity of about 120 MW – Wind Power Plant “Milkovitsa” (“The Project” ).

1.2. Submitted documents and launched actions:

In pursuance of the agreements, “W. POWER” Ltd. has submitted an application on researching the conditions for interconnection of the Project to the power transmission network of “NEC” EAD with incoming № 26.00-2268 dated 16.10.2009.

Meanwhile, there has been made an organization on obtaining of EIA for the Project and the necessary monitoring - ornithological, wind and other analyses.

There are prepared Detailed Site Development Plans, which have been approved by the Municipal Council of Gulyantsi with Resolution № 677 dated 29.01.2010 and Resolution № 743 dated 29.04.2010, which to date has entered into force.

1.3 Statement of the Bulgarian Transmission System Operator (“ESO” EAD):

On the grounds of the above, “ESO” EAD issued statement on the conditions for interconnection of the Project under outgoing № 1049/19.03.2010, which is entered in “NEC” EAD under incoming № 53-00- 156 (1) on 22.03.2010.

Parameters of the Statement of “ESO” EAD: 1.3.1 Territorially WPP “Milkovitsa” is situated near:

• “Gulyantsi” 110/20 kV substation – appr. 6-7 km; • “Nikopol” 110/20/6 kV substation – appr. 13 km; • “Pleven 1” 220/110/20 kV substation – appr. 30-35 km (could be shortened depending on the place of the new increasing substation of the WPP) “Gulyantsi” substation 110/20 kV – OSG 110 кV is constructed under “single bus-bar system” scheme, with two 110 kV bays – OHL 110 kV “Milkovitsa”(“Gulyantsi” substation – “Nikopol” substation) and OHL “Podem” (“Gulyantsi” substation – “Pleven 1” substation – and OHL branch to “Bozhuritsa” substation). There is one available bay in the switchgear for 110 kV feeder, for which “ESO” EAD has issued statement for interconnection of new OHL 110 kV for 120 MW WPP of “ELBA ENERGY” AD (outgoing No. 2562/12.05.2009). “Nikopol” substation 110/20/6 kV – OSG110 кV is constructed under “double bus-bar system” scheme with two 110 kV bays – OHL 110 kV “Milkovitsa” (“Gulyantsi” substation) and OHL 110 kV “Lozitsa” (110/20 kV “” substation). There are two available bays in the switchgear for 110 kV

Page 1 of 8 feeders. For one of them ESO EAD has statement for interconnection of new cable line (CL) 110 kV for TPVPP “Nikopol” (16.75 MW) of “TPVPP NIKOPOL” EAD. “Pleven 1” substation 220/110/20 кV –OSG110 кV is constructed under “double bus-bar system” scheme . There are five available bays in the switchgear. For two of them “ESO” EAD has proposal for interconnection of two new OHL 110 kV for WPP (16-200MW) of “VEI ENERGY”EOOD.

1.3.2. Information for submitted applications for interconnection of RES in the region up to 19.03.2010:

• WPP with a capacity of 120 MW of „ELBA ENERGY” AD: application № 26.00- 136/14.01.2009 and statement of ESO out. № 2562/12.05.2009, resp. statement of NEC out. № 26.00-136/09.06.2009 for interconnection to OSG 110 kV of “Gulyantsi” substation; • WPP with a capacity of 200 MW of „VEI ENERGY” EOOD: application № 26.00- 2530/23.11.2009 and statement of ESO № 6638/22.12.2009 (№ in NEC: 53-00- 1602/22.12.2009). The proposal of ESO is on interconnection to OSG 110 kV of “Pleven 1” substation with two new OHL 110 kV. • WPP with capacity 120 MW of „W. POWER” OOD: application № 26.00-2268/16.10.2009 and statement of ESO № 1049/19.03.2010 (in NEC 53-00-156(1)/23.03.2010), with two interconnection options: 1st option: to OSG 110 kV of “Pleven 1” substation, in case of interconnection of WPP of “ELBA ENERGY” AD to “Gulyantsi” substation and 2 nd option: to OSG 110 kV of “Gulyantsi” substation, where there is no interconnection of WPP of “ELBA ENERGY”AD to “Gulyantsi” substation; • TPVPP with a capacity of 16,75 MW of „TPVPP NIKOPOL” EAD: statement of “ESO” EAD on interconnection to available field 110 kV in OSG 110 kV of “Nikopol” substation; • TPP Sviloza: additional capacity of 58 MW; • TPP “TeTSeCo”, nearby TPP Sviloza – with a requested nominal capacity of 25,5 MW; • WPP with capacity of 5 MW of „ELBA ENERGY” AD ; • WPP with capacity of 5,3 MW for interconnection to OHL 20 kV “Pobeda”, terminal to “Gulyantsi” substation, client: “CEZ Distribution ” AD • PVPP with capacity of 5 MW for interconnection to OHL 20 kV “Roza”, terminal to “Gulyantsi” substation, client: “CEZ Distribution Bulgaria” AD • PVPP with capacity of 5 MW for interconnection to OHL 20 kV “Somovit”, terminal to “Gulyantsi” substation, client: “CEZ Distribution Bulgaria” AD

1.3.3. Conclusion of the statement of ESO EAD: To date, including WPP “Milkovitsa” the total installed capacity in the region shall exceed 670 MW (including the installed capacities of TPP “Sviloza”). Transmission of such capacities through 110 kV ring, part of which are “Gulyantsi” and “Nikopol” substations, is technically impossible. Without any development of the transmission power network in the region there is no possibility the generation capacities, applied for interconnection to “Gulyantsi” substation or to OHL 110 kV “Milkovitsa” and “Podem” to operate without limitation by ESO EAD. The maximum capacity, which can be transmitted through OHL 110 kV “Podem” is 150 MW, and excluding WPP “Milkovitsa” and the electrical loads in the ring, the capacity which shall be transmitted through the big node “Pleven 1” substation is about 450 – 500 MW. This definitely shall cause limiting by “ESO” EAD on the generated capacities, if there is no upgrading of the transmission power network, which currently has no information to be planned by “NEC” EAD.

1.4. Chronology up to June 2010: To June 2010 , according to "NEC” EAD, excluding the small projects listed above, the only project with documentary merit and readiness for concluding of preliminary interconnection agreement is the project for WPP "Milkovitsa" of "W. POWER" OOD. The project of "ELBA ENERGY" AD (WPP "Somovit"), does

Page 2 of 8 not have the necessary documents and technical solution for concluding of preliminary agreement with “NEC” EAD on interconnection to "Gulyantsi" substation.

According to this the interconnection of WPP “Milkovitsa” appears to be financial and technical justified to be performed to "Gulyantsi" substation as the nearest interconnection point with capacity of 120 MW and simultaneously - project, which has no operating or potential competitive projects in the region.

1.5. The current situation:

On 16.07.2010 to "W.POWER" OOD was proposed Preliminary agreement for interconnection of the WPP to the transmission network of NEC EAD. According to the draft of the preliminary agreement the interconnection shall be performed to “Pleven 1” substation through new OHL 110 kV from new Project’s substation to „Pleven 1" 220/110/20 kV substation. The agreement is proposed on the grounds of new statement of “ESO” EAD dated 16.07.2010.

II. ANALYSIS ON THE POSSIBLE WAYS ON INTERCONNECTION OF WPP MILKOVITSA In this respect was necessary to be prepared this analysis on the possible options for interconnection, as the following changes in the existing situation were taken into account:

1) It is assumed that the "ELBA ENERGY" AD has provided the documents necessary for the conclusion of preliminary interconnection agreement with “NEC” EAD with way of interconnection – new OHL 110 kV to OSG 110 kV of “Gulyantsi” substation and using of the available capacity of 120 MW; 2) The land and sites around “Gulyantsi” substation are bought by "VEI ENERGY" Ltd. 3) OSG 110 kV of “Gulyantsi” substation is constructed under "single bus-bar system" scheme with two bays 110 kV – OHL 110 kV "Milkovitsa" ("Gulyantsi substation - "Nikopol" substation) and OHL 110 kV "Podem" (“Gulyantsi” substation - "Pleven 1” substation - and OHL branch to "Bozhuritsa" substation) The presence of two competing investment projects, involves the introduction of restrictive regime by ESO at the power generation (PG). As the probability for interconnection of two investors to “Gulyantsi” substation – “VEI ENERGY" Ltd. and "ELBA ENERGY" AD with capacity of 320 MW is certain prerequisite for generation limitations of about 60-70 % per year for park and therefore necessity of construction or reconstruction of power line to “Pleven 1” substation. Such situation is known in transmission system (TS) of Bulgaria with parks in the area of --, so called “Dobrichki ring”, where several big investors - KWP and AES Geo Energy are in continual restrictive regime by “ESO” EAD and their generation is limited to about 70%. Technical solutions and measures envisaged for the provision of the parks’ generation are suspended and “NEC” EAD has banned interconnections till year 2013, respectively - the return of the investment is reduced to zero. Even if one of the two competitive projects is not fulfilled and if the Project is interconnected to “Gulyantsi” substation, following problems shall occur:

• Difficulty in providing the easements for power line steps from new WPP’s substation to “Gulyantsi” substation, because the plots around the substation are bought by the competitor "VEI ENERGY” EOOD; • Park’s generation limitation by ESO EAD and probable generation of about 30-40% of the Project’s nominal capacity; • Further investment by "W.POWER" Ltd. for the reconstruction of existing OHL 110 kV "Podem", which shall delay the time-limit for commissioning of the project with about 4-5 years; • Reconstruction of “Gulyantsi” substation from "single bus-bar system" scheme to „double bus-bar system" scheme.

An assessment of the necessary investment costs for interconnection of WPP "Milkovitsa" to "Gulyantsi" substation or to "Pleven 1" substation are calculated in several options at the assumptions, described to

Page 3 of 8 each option. For all options is assumed that MV/110кV park substation is of one and the same technical and financial indicators.

Option 1: Interconnection to "Gulyantsi" substation through new OHL 110 kV:

1. Interconnection overhead line 110kV with lightening protection wire type OPGW from WPP’s substation to OHL 110 kV of "Gulyantsi" substation. The tentative length of the layout is about 6-7 km.; 2. Construction and equipment of spare bay in OSG 110 kV of “Gulyantsi” substation.

Option 2: Interconnection to "Gulyantsi" substation through new CL 110 kV:

1. Interconnection cable line 110kV with lightening protection wire type OPUG from WPP’s substation to OHL 110 kV of "Gulyantsi" substation. The tentative length of the layout is about 6-7 km.; 2. Construction and equipment of spare bay in OSG 110 kV of “Gulyantsi” substation.

Option 3: Interconnection to 220/110/20 кV substation – “Pleven 1” through reconstruction of existing OHL 110 kV "Podem": 1. Interconnection power line 110kV (OHL/CL) with lightening protection wire (OPGW/OPUG) from WPP’s substation to OHL 110 kV "Podem"; 2. Interconnection double overhead line 110kV with lightening protection wire type OPGW from WPP’s substation to OSG 110kV of "Pleven 1" substation. The tentative length of the layout is about 30 km.; 3. Construction and equipment of field in OSG110kV of "Pleven 1” substation.

Option 4: Interconnection to 220/110/20 кV substation – “Pleven 1” through new OHL 110 kV: 1. Interconnection overhead line 110kV with lightening protection wire type OPGW from WPP’s substation to OSG 110kV of "Pleven 1" substation. The tentative length of the layout is about 30 km. NEC EAD proposed the new OHL 110 kV to be constructed on poles for two OHL, as only one OHL shall be installed; 2. Construction and equipment of a bay in OSG110kV of "Pleven 1” substation.

Option 5: Interconnection to 220/110/20 кV substation – “Pleven 1” through new CL 110 kV: 1. Interconnection cable line 110kV and OPGW from WPP’s substation to OSG110kV of "Pleven 1" substation. The tentative length of the layout is about 30 km. 2. Construction and equipment of a bay in OSG110kV of "Pleven 1” substation.

3. Table 1:

Option 1 : Option 2 : Option 3: “Pleven Option 4 : Option 5: “Pleven “Gulyantsi” s/s “Gulyantsi” s/s 1” s/s through “Pleven 1” s/s 1” s/s through new through new OHL through new CL reconstruction of through new CL 110 kV 110 kV 110 kV OHL 110 kV OHL 110 kV „Podem” BGN 10 100 000 / BGN 2 100 000 / BGN 3 300 000 / BGN 11 300 000 / BGN 8 000 000 / BGN 13 000 000 / Euro1 070 000 Euro 1 540 000 Euro 5 180 000 / Euro 4 100 000 Euro 6 660 000 Euro 5 790 000

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Note 1: The prices are tentative and are based on official producers’(distributors’) price-lists. Lower prices can be agreed upon negotiations. Note 2: The table does not include the expenses for equipment of the bays in OSG 110 kV (in "Pleven-1" substation or "Gulyantsi” substation), which are to the amount of about BGN 250 - 300 thousand. Note 3: The above calculations are made taking into account the following basic conditions: - Construction of 1 km OHL 110 kV – designing, supply, construction and mounting works (CMW) and commissioning with conductor ASO 400 and lightening protection wire type OPGW – BGN 250 - 350 thousand; - Construction of 1 km CL 110 kV - designing, supply, CMW and commissioning with suitable cable and OPUG – BGN 433 thousand (60 Euro/m cable, 3 connector/km, two terminals).

At options 1 and 2 shall be taken into account the losses from non-generated power, which shall be sustained due to generation restriction regime in case of interconnecting to “Gulyantsi” substation.

The possible generation limitation by ESO EAD is with: - 60% of the nominal installed capacity of WPP ”Milkovitsa” - 120 МW, at 2000 hours annual operation, which is 144 000 MWh or BGN 27 216 000 leva at 2010 prices . - 40% of the nominal at 2000 hours annual operation - 96 000 MWh or BGN 18 144 000.

Regardless of the high investment costs for interconnection of WPP "Milkovitsa" to "Pleven 1" substation, through cable line 110 kV (the most expensive option №5) "Electriccity" Ltd. considers that this option shall be adopted, because following the generation limitation of the WPP (which shall be inevitably), the end losses at this option are the lowest and the Project’s extra costs shall be covered within first two years. Construction of cable 110 кV is also the most realistic in line with drawing of the layout land plan, Detailed Site Development Plan, project for the CMW, construction time-limit etc. The annually sold energy shall be BGN 45 million upon interconnecting to "Pleven 1" substation and BGN 18 million – BGN 27 million upon interconnecting to "Gulyantsi" substation. The annual margin is BGN 18 - 27 million, which for the usage life of the WPP (15 years) is about BGN 675 million . Since “NEC” EAD does not plan a development of the network, and taking into account the procedures on alienation of steps and land in the region of mostly 3-4 category agricultural land, as well as the EIA procedures, taking into account the situation in Dobrich – Kavarna - Shabla and other factors of significant importance for the project, we consider that the option for Interconnection through Cable line 110 kV in „Pleven 1" substation is the most profitable for WPP "Milkovitsa".

Following the above stated, hereto we are presenting the following SWOT analysis of the five options for interconnection of WPP "Milkovitsa":

Option №1: interconnection of the WPP to “Guliantsi”substation through new OHL 110 kV:

Advantages : Disadvantages : • 7 km OHL 110 kV amounting to BGN 2,1 • There is not proposed Preliminary agreement with million. NEC EAD; • Generation limitation with 30-70% (occurrence of the situation "Dobrichki ring’”) • Presence of 2 competitive projects; • Problem with settlement of easements and title rights, as the plots around the substation are owned by a competitor; • Period for commissioning - about 4 years; Page 5 of 8

• Substantial difficulties at investment return and loans repayment, caused by generation restrictions; Opportunities : Threats: • Leaving-off investment projects by the • Suspension of the project by “Green systems” competitors and dropping-off the necessity organization; for upgrading of the transmission capability • Payment of additional investment in power line 110 of OHL 110 kV "Podem". kV to “Pleven-1“ substation; • Reconstruction of “Gulyantsi” substation from "single bus-bar system" scheme to "double bus-bar system" scheme; • Impossibility for loans repayment.

Option №2: Interconnection of the WPP to "Gulyantzi" substation through new CL 110 kV:

Advantages : Disadvantages : • 7 km CL 110 kV amounting to BGN 3,3 million. • There is not proposed Preliminary agreement with NEC EAD; • Generation limitation with 30-70% (occurrence of the situation "Dobrichki ring’”) • Presence of 2 competitive projects; • Problem with settlement of easements and title rights, as the plots around the substation are owned by a competitor; • Period for commissioning - about 3 years; • Substantial difficulties at investment return and loans repayment, caused by generation restrictions; Opportunities : Threats: • Leaving-off investment projects by the • Payment of additional investment in power line competitors and dropping-off the necessity for 110 kV to “Pleven-1“ substation; upgrading of the transmission capability of OHL • Reconstruction of “Gulyantsi” substation from 110 kV "Podem". "single bus-bar system" scheme to "double bus- bar system" scheme; • Impossibility for loans repayment.

Option №3: Interconnection of the WPP to “Pleven 1”substation through reconstruction of existing OHL110 kV „Podem”:

Advantages : Disadvantages : • The substation is 220/110/20 кV (strong node of • OHL 110 kV of 30 km length - about BGN the transmission system); 10,1 – BGN 11,3 million; • There is no possibility for generation restriction • Problem with settlement of easements and regime as the substation is 220/110/20 kV; title rights for OHL; • Constructed in "double bus-bar system" scheme; • Period for commissioning – not less than 5 • The switchgear has five available fields for years; terminals; • Complex organization of OHL 110 kV „Podem” switch-off during the reconstruction; • No competitive projects in the region; • Operation at 100 % nominal capacity; Page 6 of 8

• Return of investment in OHL 110 kV: 1-2 years. Opportunities : Threats: • BGN 45 million annual income from sale of • Suspension of the project by “Green electricity or for the useful life of the park: BGN 675 systems” organization; million.

Option №4: Interconnection of the WPP to “Pleven 1”substation through new OHL 110 kV:

Advantages : Disadvantages : • The substation is 220/110/20 кV (strong node of • OHL 110 kV of 30 km length - about BGN 8 the transmission network); million; • There is no possibility for generation restriction • Problem with settlement of easements and regime as the substation is 220/110/20 kV; title rights for OHL; • Constructed in "double bus-bar system" scheme; • Period for commissioning – about 5 years; • The switchgear has five available fields for terminals; • No competitive projects in the region; • Operation at 100 % nominal capacity; • Return of investment in OHL 110 kV: 1-2 years. Opportunities : Threats: • BGN 45 million annual income from sale of • Suspension of the project by “Green electricity or for the useful life of the park: BGN 675 systems” organization; million.

Option №5: Interconnection of the WPP to “Pleven 1”substation through CL 110 kV:

Advantages : Disadvantages : • The substation is 220/110/20 кV (strong node of • 30 km CL 110 kV – BGN 13 million; the transmission network); • There is no possibility for generation restriction regime as the substation is 220/110/20 kV; • Constructed in "double bus-bar system" scheme; • The switchgear has five available fields for terminals; • No competitive projects in the region; • Operation at 100 % nominal capacity; • Return of investment in CL 110 kV: 1-2 years; • Period for commissioning - about 2 years; • Minimizing of the problem on settlement of easements and title rights. Opportunities : Threats: • BGN 45 million annual income from sale of No. electricity or for the useful life of the park: BGN 675 million.

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III. SUMMARY AND FUTURE STEPS PROPOSAL:

3.1. Summary:

• On 16.07.2010 "NEC” EAD (letter out.No 26-296-9 dated 16.07.2010) proposed for signature by "W. POWER" Ltd. a Preliminary agreement for interconnection to the transmission network of WPP “Milkovitsa" with way of interconnection to “Pleven 1” substation through new OHL 110 kV;

• Following the analyses, the difference in the price on interconnection of WPP "Milkovitsa" to "Pleven 1" substation and especially at option No. 5 (by CL 110 kV), is at the expense of reducing the risk of generation limiting in the region.

3.2 Future steps:

• Signing of the proposed version of Preliminary agreement with "NEC” EAD and submitting of letter with proposal on annexing of the Preliminary agreement as the new OHL 110 kV is replaced with new CL 110 kV;

• Receiving of signed Preliminary agreement with "NEC” EAD and submitting of letter with appended annex on amendment of the Preliminary agreement.

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