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Booz & Company

Understanding Lignite Generation Costs in Europe

Summary We assessed sizable lignite operations in eight European countries

Overview of Lignite Generation in Europe (2012)

. . – 21.5 GW – 4.0 GW – 185.4 Mt – 37.5 Mt

. . – 9.6 GW – 4.5 GW – 64.3 Mt – 32.1 Mt Poland Germany . . – 9.6 GW Czech – 3.5 GW – 43.5 Mt – 30.4 Mt

. Romania . – 5.2 GW – 8.3 GW – 62.2 Mt Serbia – 70.0 Mt Bulgaria

Turkey

Greece . Country – Installed capacity – Lignite production1) Assessed Countries - Sizable Lignite Operation Countries out of scope (< 2 GW) 1) Including processed products Source: UDI, Euracoal, Booz & Company Analysis

Booz & Company Prepared for PPC 1 The assessment is based on publicly available data sources using reports of associations and annual reports of relevant companies

Sources of Analysis Data Source Implications

. Reports on lignite mining of relevant associations for the year 2012 . All analysis can be reproduced based on – Euracoal – Market report publically available information – Debriv – Lignite in Germany . Where possible the assessment is based on – Eurostat, Statistical Office of Serbia, Turkish Statistical Institute data of one key player in the relevant market – IEA Statistics – information . Reports of lignite associations and annual – Stoll, Niemann-Delius, et al – Der Braunkohletagebau reports allow to validate assumptions and orders . Annual Reports of magnitude – PPC (Greece) . Some cost drivers such as ash content, water – (Germany) levels, etc. have not been assessed and directly – MIBRAG (Germany) used to estimate costs, however, larger cost – PGE (Poland) differences are included given use of annual – Severoceske doly (Czech Republic) reports where possible – EPS (Serbia) . Assessment of Greek lignite generation costs is – Maritsa Iztok (Bulgaria) based on publically available PPC data – TPP Maritsa East 2 (Bulgaria) – Complexul Energetic Oltenia (Romania) – EÜAS (Turkey) – TKI (Turkey) . Relevant market data – EEX

Source: Booz & Company Analysis

Booz & Company Prepared for PPC 2 Labour as well as material and service costs with similar levels per excavated m³ across all countries

Assessment of Lignite Generation Costs (2012) Mining Labour Costs Material and Service Costs1) Excavation Costs (EUR/m³) (EUR/m³) (EUR / m³)

Germany 0.95 1.17 2.12

Czech 1.71 2.09 3.80 Republic

Poland 1.10 1.35 2.45

Romania 1.10 1.35 2.45 & Bulgaria 1.13 1.04 2.17

Serbia 1.00 1.23 2.23

Turkey 1.10 1.35 2.45

Greece 0.89 1.23 2.12 (PPC)

1) Based on annual report data where available Source: Euracoal, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Booz & Company Prepared for PPC 3 PPC with average cost per ton of lignite given average stripping ratio and excavation costs

Lignite Excavation and Energy Costs

3.80

4 2.12 2.45 2.45 2.17 2.23 2.45 2.12 2 Costs

(EUR (EUR / m³) 0 Excavation & 20 17.85

8.70 8.00 5.60 5.18 3.98 4.30 4.53 PPC (m³/ t) Ratio 1.19 2.10 4.17 0 2.90 2.60 2.50 2.31 2.36 2.20 Stripping Stripping Ø 4.70 2.93 3.98 5.40 3.26 3.84 6.46 4.17

50 43.75

19.71 21.32 19.60 20 11.88 9.60 9.58 10 8.64 PPC 8.82 (EUR (EUR / t) 6.15 6.37 6.12 5.78 0 4.53 4.56 5.16 4.65 Controllable Controllable Lignite Costs Germany Czech Republic Poland Romania Bulgaria Serbia Turkey Greece (PPC) Ø 9.97 11.15 9.75 13.23 7.07 8.58 15.83 8.82 Note: Lignite sources with stripping ratio above 15 m³/t will likely be a theoretical resource, but not be mined in reality Source: Euracoal, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Booz & Company Prepared for PPC 4 Adding non-controllable costs keeps PPC in the same relative position compared to the other European systems

Full Lignite Costs on a per Ton Basis (2012) Controllable Lignite Costs Non-Controllable Lignite Costs Full Lignite Costs (EUR / t) (EUR / t) (EUR / t)

Germany 6.15 11.88 7.48 13.63 19.36

Czech 4.53 19.71 8.36 12.89 28.07 Republic

Poland 6.37 21.32 7.31 13.68 28.63

Romania 6.12 19.60 9.92 16.05 29.52

Bulgaria 4.56 8.64 + 2.65 7.21 11.29

Serbia 5.16 9.60 6.43 11.59 16.03

Turkey 5.78 43.75 11.88 17.66 55.63

Greece 4.65 9.58 6.00 10.65 15.58 (PPC)

0 10 20 30 40 50 60 0 10 20 30 40 50 60 0 10 20 30 40 50 60

PPC 8.82 PPC 14.82 1) FTE in lignite mining according to Euracoal deducted by FTE in Achlada mine and M.E.T.E mine Source: Euracoal, IEA, Eurostat, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Booz & Company Prepared for PPC 5 Combining lignite per ton costs with calorific value leads to highly different full lignite costs per GJ

Full Lignite Costs (1) (2012) Full Lignite Costs Calorific Value Full Lignite Costs (EUR / t) (kcal / kg) (EUR / GJ)

Germany 13.63 19.36 1,863 2,747 1.36 2.35

Czech 12.89 28.07 2,771 4,911 0.91 2.38 Republic

Poland 13.68 28.63 1,767 2,460 1.49 3.76

Romania 16.05 29.52 1,720 1,959 2.10 4.07 &

Bulgaria 7.21 11.29 1,350 1,850 0.98 1.92

Serbia 11.59 16.03 1,791 1,959 1.47 2.12

Turkey 17.66 55.63 1,150 3,000 1.87 6.16

Greece 10.65 15.58 900 1,500 1.94 3.74 (PPC)

0 25 50 0 1,000 2,000 3,000 4,000 5,000 0 1 2 3 4 5 6 7 PPC 14.82 PPC 1,200 PPC 2.95 1) Including depreciation and cost of capital Source: Euracoal, IEA, Eurostat, Annual reports, Debriv, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Booz & Company Prepared for PPC 6 Lignite generation costs differ substantially across Europe with Greece exhibiting the highest cost of around 60 EUR/MWh, mainly due to structural differences (calorific value of lignite)

EUR / MWh Full Lignite Generation Costs (2012) 100 92.62 90 80 77.82 67.85 69.38 70 65.30 PPC 60 52.05 59.93 50 45.68 41.63 40 30 20 44.22 40.67 45.05 33.14 35.98 27.93 28.82 10 23.33 0 Germany Czech Poland Romania Bulgaria Serbia Turkey Greece Republic (PPC)

System Average 53.60 38.97 38.60 54.19 31.57 40.32 52.73 59.93 (EUR / MWh)

Source: Euracoal, IEA, EEX, Eurostat, Annual reports, Debriv, UDI, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Booz & Company Prepared for PPC 7 Eliminating structural differences (calorific value) show what Greek lignite generation cost could be

Hypothetical Cost of Lignite Generation in Greece Changing Calorific Value of Greek lignite to match the Calorific Value of lignite in other countries EUR / MWh 59.9 60 PPC with other 54.5 countries’ average 55 53.0 52.4 lignite quality: 49.8 51.0 50.8 50 45.6 51.1 45 40 35 30 25 20 15 10 5 0 PPC with PPC with PPC with PPC with PPC with PPC PPC with PPC with German Czech Polish Romanian Bulgarian withSerbian Turkish Greek lignite lignite lignite lignite lignite lignite lignite lignite

Source: Euracoal, IEA, EEX, Eurostat, Annual reports, Debriv, UDI, Statistical Office of Serbia, Turkish Statistical Institute, Niemann-Delius et al, Achlada, M.E.T.E, PPC, Booz & Company Analysis

Booz & Company Prepared for PPC 8