Energy sustainability and renewable´s regulation
Barcelona, February 1st 2016
Jorge Casillas, EDPR

EDPR is a global leader in renewable energy…
1Source: Companies’ Reports
7,8
10,9
14,4
16,8
18,4 19,2 19,8
2008 2009 2010 2011 2012 2013 2014
Electricity Production Evolution
(TWh)
CAGR
+17% 33,9
32,0
23,1
19,8
13,7
Iberdrola Nextera Longyuan EDPR Acciona
Top Wind Players
(TWh, 2014)
Worldwide leader in wind energyAn outstanding growth since 2008
#4

EDPR top quality and diversified portfolio totals 9.2 GW as of 9M 2015
#4 Worldwide wind energy producer
2
Notes: 9M 2015 Figures; Includes Equity Consolidated MW: 174 MW in Spain and 179 MW in US
Poland
Romania
Italy
Portugal
France
Spain
Belgium
UK
#1 #3
#1
#3
2,368 MW
71 MWOffshore
under
development
392 MW
521 MW
100 MW
US
Brazil
Canada
#3
30 MW
84 MW
180 MW under
development
4,083 MW
1,243 MW
340 MW
+ Offshore under
development
Mexico

3
Energy sustainability is typically identified with three dimensions
Source: World Energy Council / Oliver Wyman 2013
Environmental
sustainability
Energy security
Energy Equity
World energy council identifies three main dimensions
• Decisions and actions in the interest of
protecting the natural world, in particular the
capability of environment to support human life
• Ability of the energy sector to meets current and
future demand
− Effective management of primary energy
supply from domestic and external sources
− Reliability of energy infrastructure
• Accessibility and affordability of energy supply
across population
1
2
3
“ The capacity to satisfy
current energy needs
without compromising the
ability of future generations
to meet their needs”
− It implies sources can be
used well into the
future without harming
future generations
Energy sustainability

4
In the run-up to the COP21, countries have embraced
renewables as a key instrument to fight climate change…
… however, the effective implementation of the Paris’
commitments are not enough to achieve the 2°C goal, thus,
more renewables will be nec(essary
Electricity capacity by technology in 2013 and 2040E in INDC
and 2ºC Scenarios
1.851 2.468
1.253
439
258
216
1.502
2.528
2.273
392
614
837
1.136
1.837
2.042304
1.376
1.908
137
1.066 1.519
2013 INDCs 2D scenario
Coal Oil Gas Nuclear Hydro Bionergy
Wind Geothermal Solar PV CSP Marine
INDCs analysis
• In the run-up to the Paris conference, 186 countries submitted
their INDCs (Intended Nationally Determined Contribution), i.e.
their commitment to reduce GHG emissions by 2025-2030
• All INDCs include coverage of energy sector emissions and most
of them have actions to address them
• Around 50% of INDCs include explicit energy targets
• 70 countries highlighted wind in their plans
‒ Some examples are: China (200 GW by 2020), India (60 GW
by 2022) or Turkey (16 GW by 2030)
However, according to experts, the implementation of all
INDCs will lead to a global warming of 2,7°-3°C, therefore,
above the 2°C threshold
To achieve the 2°C target agreed in Paris, more renewables will be
required
GW
Source: IEA (WEO 2015); EWEA; Climate Council
Despite decarbonization's commitments made by the countries before the COP21, more renewables will
be necessary in order to achieve the 2°C goal
1
41% RES
(4702 GW)
57% RES
(6217 GW)
29% RES
(1702 GW)

75%
71%
46%
71%
28%
74% 77%
43%
15%
62%
11%
94%
Energy dependence – measured as net energy imports, (% of energy use)
5
Source: WorldBank, 2013 values with the exception of Brazil (2012)
As of today energy independence is mainly linked to the availability of fossil fuels (i.e. gas, oil), therefore the only possible way to
reduce external energy dependence for those countries lacking them is through the electrification of their economy linked with
decarbonization of electric sector, namely with RES
Energy dependence is still an issue in most developed countries
Renewable technologies are a way to get closer to energy independence
2

There is an economic rationale for the increasing growth of wind
Wind is today competitive vis-à-vis new conventional plants on a full cost basis
6Source: EDPR Analysis
Levelized cost of energy (LCOE) by technology source
2014 €/MWh
• To assess the competitiveness of various
power sources the LCOE is the relevant
benchmark, showing renewables are quickly
approaching competitiveness vis-à-vis
conventional power generation
• Wind onshore and solar PV with LCOE levels
of 65-90 €/MWh are today fully competitive
vis-à-vis conventional generation
technologies
• Moreover, wind energy costs are unrelated
to oil and gas prices, allowing for greater
visibility and predictability in the long-term
• With gas prices expected to rise over the
long term, wind will even become
increasingly competitive
Onshore wind is expected to be even more competitive in the future
77-106
94-124
106-137
83-115
57-82
87-104
100-170
CCGT Coal Nuclear Hydro Wind
onshore
Solar PV Wind
offshore
Range corresponds to differences
in technology, water depth,
distance to shore and load factor
3

Wind competitiveness vs. CCGT seems robust even for low gas prices
7Source: EDP Analysis
Wind Energy competes with the
most efficient conventional technology…
…and is expected to show
ongoing improvement
Wind vs CCGT: LCOE(1)
20
30
40
50
60
70
80
90
100
110
120
130
30 40 50 60 70 80 90 100 110 120 130
Wind
load factor
Oil price
$/bbl
Possible
oil prices
LCoE
€/MWh
23%
29%
34%
25%
Wind LCoE1
(€/MWh)
Today 2020E 2030E
-15%
-24%
CCGT load factor @ 23% CCGT load factor @ 57%
Wind onshore is today the cheapest technology
and is fully competitive
LCOE reduction is possible through continued
evolution of turbine technology (advanced blades,
tall towers, robust drivetrains) ad development of
supply chain and best practices
Backup
(1) Levelized cost of energy
3

External sources also confirm that onshore wind is the most competitive
technology nowadays
8Source: Lazard (LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS—VERSION 9.0)
Levelized cost of energy (LCOE) according to Lazard (November 2015)(1)
USD/MWh
(1) Unsubsidized Levelized Cost of Energy Comparison
Backup
3

For the required investments to be done, an appropriate remuneration model has to
exist – Current market design is not adequate for massive decarbonization and does not
provide the needed investment signals
9Source: EDP Analysis
MWh
Wind CCGTNuclearHydro Coal
Variable cost
Fixed cost
€/MWh
Price
Marginal pricing model
MWh
Demand curve
Supply curve
Supply curve with
increased RES
Price0
Price1
Effect of additional RES on price setting
€/MWh
• Decarbonization leads to technologies based on fixed costs (e.g., renewables, nuclear, thermal backup, storage,
networks, etc.)
• In a capital intensive sector, the marginal pricing model is not an efficient instrument:
- Prices tend to zero in the absence of market power
- Price uncertainty and volatility increase the risk premium, hence the cost of capital…
- … which will be reflected in higher end user prices

Pool price depressing effect as %RES rises is already evidenced by empirical
data
10Source: Reuters, REN, OMEL, EDP analysis
R² = 0,64
0
10
20
30
40
50
60
70
80
90
20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120%
Portuguese pool prices vs. share of renewables in national electricity consumption
€/MWh vs. %, weekly data, Jan 2012 - Feb 2015
(1) Energy only market
Energy only markets are structurally insufficient to remunerate any technology

Long term contracts with price visibility seem a good tool to capture the
benefit of renewable´s economics
11
• For a given level risk in the business, a remuneration with higher risk will need
to be set at a higher expected value in order to reach the same level of value
creation for the investor
• Therefore, the way to minimise the cost for the electricity system is to create a
scheme that provides investor with the higher visibility over the remuneration
as possible
− A higher visibility entails a lower risk for the equity investor, lower
financing costs for the finance entities that will allow low cost of
capital, therefore lower required profitabilites
− Lower required profitabilites translate into lower required
remuneration
• Lower required remuneration will be passed to final consumers that will
benefit from lower electricity tariffs for the same level of renewable
penetration
The value of the long term price can be defined administratively or through ex-ante tenders
• Tenders allow to capture changes in market value of capex, if there is enough competition
Rationale
for long
term
contracts
with price
visibility

Experiences of competitive markets show that Long-term contracts based
on competitive auctions are an efficient tool
12
Description
Utility and bilateral sourcing via competitive
Power Purchase Agreements (PPA)
auctions. Federal fiscal incentives to support
low-carbon investments
UK first Contract for Difference (CfD)
auction took place last year, with 27
contracts worth £315 million/year awarded
to projects which will deliver over 2 GW of
renewable energy
Country System
Long-term PPA’s are awarded to power
plants in Brazil after competitive auctions.
RES may also be supported by having access
to loans with low interest rates
International experience
• Long-term contracts awarded through auctions
have several benefits:
— Competition is ensured
— Efficient price setting
— Investors’ risk premium is reduced and so
price to the consumers also decreases
• Spot markets are still needed for short-term
optimization and dispatch signal
— Further integration of European markets
important to optimize low-variable cost
generation and RES potential
• International experience shows support to low-
carbon investments not necessarily borne by
energy-consumer, but also by taxpayers
This trend is also happening in Europe, where several countries have changed their
scheme or are in the process to change it

Key take aways
13
• Renewables, and wind in particular is expected to continue growing based on its
economic competitiveness and their contribution to energy security and
environmental sustainability
• However, in order for the electricity system to capture the favorable economics of
wind, a properly designed regulatory system must be put in place aimed at
allowing stability to foster investments and, at the same time, a competitive
environment
‒ Long-term contracts based on competitive auctions would eliminate these
inefficiencies, as shown by experience of competitive markets
‒ Potential changes in remuneration should only affect new installations, no
retroactive changes should be allowed