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President’s comments

President's comments Interim report January-September 2011

In summarizing the third quarter of 2011, I can confirm that work on the project portfolio is progressing rapidly. During the first three quarters, our four wind farms produced a total of 97,698 MWh, which is an increase of 138 percent on the year-earlier period. Sales rose by nearly the same margin to KSEK 62,761.

At September 30, we had a total of 15 farms with a combined output of 632 MW under application. We are gradually advancing the farms in the project portfolio from the planning phase to the application phase. We expect to break ground on a significant number of wind farms in the coming years. This autumn, we have received several positive signals from the county administrative boards to which we have submitted applications. Among other developments, the Sögårdsfjället wind farm in the Municipality of Tanum was recently granted an environmental permit. The partnerships with the municipalities in which we are planning farms are working well, but the fact remains that the duration from the initial analyses, through wind measurements and procurement to commercial operation remains is four years at best. It may take as long as seven years or more. These are terms facing the energy sector in the Swedish wind-power market.

I can now confirm that our focus on implementing industrial and quality-assurance processes throughout the organization is a fruitful effort, particularly in the creation of an operation and maintenance organization with the availability factor in focus. The availability factor is defined as the time during which the power turbines produce electricity, provided that it is windy. Since the marginal cost is very low in wind-power production, an increase of one or a few percent in the availability factor has a clear impact on earnings. The focus on maintenance may ultimately generate a considerably higher impact on earnings since it reduces the risk of extended operational shutdowns.

The third quarter is generally the weakest for electricity producers since the demand for energy declines during the summer months. Wind conditions are also generally at their weakest during this quarter. In 2011, the period from July to September was also affected by a number of other factors. The price of electricity was pressed down by persistent rain that filled Swedish and Norwegian hydroelectric power dams, unusually warm weather during September ebbing the demand for electricity and growing concerns about the global economy.

The electricity-price trend in the coming year or two primarily depends on the state of the economy. We believe that the price of electricity will ultimately increase, which we will address on page six, although we are preparing for a period of relatively lower electricity prices combined with considerable volatility. This coincides with a period of pricing pressure on electricity certificates. Rabbalshede Kraft has signed an agreement with EGL Sverige concerning a partnership on the sale of electricity and electricity certificates. The Swiss-owned company EGL is represented in 23 European countries and is one of the leading Nordic electricity trading players offering structured products and portfolio-management services. Through such measures as price hedging, fluctuations in electricity and certificate prices are evened out, while also facilitating budgeting and planning efforts.

The continued build-out of wind farms requires financing. On several occasions, I have announced that Rabbalshede Kraft’s Board and management are preparing an application for a listing on the NASDAQ OMX Stockholm, since this generates natural access to capital through new share issues. Due to the prevailing financial uncertainty, we have decided to wait with an application for a listing, although we continue to monitor developments and are preparing an application for a listing when the markets turn upward. Until such time, we are searching for alternative methods for financing new wind farms, discussions on which are under way.

Allow me to reaffirm that for Rabbalshede Kraft, financial return will always be in focus when we plan, construct and operate wind farms. The Company is contributing to increasing the share of renewable electricity in the Nordic region, while also delivering strong, long-term earnings to our owners.

Thomas Linnard, President, Rabbalshede, October 2011

Thomas Linnard, President