Report of the CEO

Generation projects in a challenging environment

The value adjustments that Repower undertook on its projects at the end of 2013 reflect the present challenging market conditions for both existing plants and new projects. Repower is using 2013 and 2014 to undertake a comprehensive situation analysis on its generation projects.

The Leverkusen project, which is aimed at establishing a highly efficient combined-cycle gas turbine power plant at the most important location for the chemical industry in Germany, achieved a decisive step in the approval process in 2013: the Cologne district authority, as the licensing authority, issued the preliminary decision under the German immission control act in March. The search for partners, preparatory work on the construction site and negotiations on the awarding of contracts were also continued. Despite the generally difficult market situation, the highly flexible combined power plant is well positioned thanks to contribution margins from the supply of steam to companies based in this centre of the chemical industry and subsidies to plants that combine the production of heat and power. More details about the project and the cooperation with the chemical park operator CURRENTA are presented on pages 16 and 17 of this Annual Report.

Further planning work of the Lagobianco project was concluded in 2013. In addition, a start was made on the planning project for the 1000 MW pumped storage plant planned for Poschiavo. The next step in the approval process is the Canton of Graubündens' concession approval decision.Repower is convinced that flexible pumped storage power plants will come to play a key role in offsetting the irregular electricity generation from new renewable energies. Of the possible projects, Lagobianco is very well positioned. However, a delay of several years is probable due to the difficult market environment resulting from incorrect subsidy models. Repower is therefore reducing its expenses for the further development of the project to the necessary minimum; once the concession has been granted by the cantonal government, the project approval is planned to be obtained in stages and, in particular, allow the required renovation of existing plants forming part of the overall Lagobianco concept.

The project to construct the Chlus hydropower plant in the lower Prättigau/Graubünden Rhine valley region is also confronted by a challenging environment. It is anticipated that the 12 municipalities affected will grant the concession to use the hydropower in the next few months; if the result is positive, a concession application will be submitted and the further planning undertaken. Intensive efforts were devoted to the first stage of the environmental impact statement and the associated expert opinions and on the technical report for the concession project last year. With a planned installed capacity of around 62 megawatts and an annual generation of approximately 214 gigawatt hours Chlus can make a significant contribution to the Canton of Graubünden's hydropower expansion targets and to the federal 2050 energy strategy. The power plant will complement the existing plants in Prättigau and has the support of environmental organisations.

In Italy, the approval process for the 570 MW Campolattaro pumped storage plant in the Campania region is under way. Negotiations with potential investors are currently ongoing. The plant will provide important storage capacities for electricity from wind and solar power generated in Southern Italy.

At the end of 2013, Repower decided to withdraw from the planned, state-of-the-art Saline Joniche coal-fired power plant project on a controlled basis due to the “coal initiative”. Further important arguments for this decision were the political uncertainties, the generally unclear legal situation and the rapidly changing market conditions. Repower is thus adhering to the overall strategic approach formulated by the Canton of Graubünden, the majority shareholder. Repower will have completed its controlled withdrawal from the project by the end of 2015 at the latest while fulfilling its contractual obligations.

Repower also launched a new project in 2013, with plans for the construction of a cross-border merchant line between Bergell and Valchiavenna. The fully subterranean 220 kV power line will connect the substations in Castasegna (Switzerland) and Mese (Italy), thus increasing the security of supply and transport capacities between the two countries.