Hjortur Thor Steindorsson Executive Director, Energy at Íslandsbanki Iceland Geothermal Conference 2013 March 5-8, 2013, Harpa, Reykjavík

1. Financing Geothermal Power Plants
A banker´s view
Hjortur Thor Steindorsson
Executive Director, Energy

2. 2
Forward Looking Statements
All information contained in this presentation should be
regarded as preliminary and based on company data available
at the time of the presentation. Due care and attention has
been used in the preparation of forecast information. However,
actual results may vary from their forecasts, and any variation
may be materially positive or negative. Forecasts, by their very
nature, are subject to uncertainty and contingencies, many of
which are outside the control of Íslandsbanki.
Íslandsbanki cannot guarantee that the information contained
herein is without fault or entirely accurate. The information in
this material is based on sources that ÍSB believes to be
reliable. Íslandsbanki can however not guarantee that all
information is correct. Furthermore, information and opinions
may change without notice. ÍSB is under no obligation to make
amendments or changes to this publication if errors are found
or opinions or information change. Íslandsbanki accepts no
responsibility for the accuracy of its sources.
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that constitute “forward-looking statements´. These statements
can be identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements often
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Important information

3. 3
Servicing households, industry and commerce since 1875
Íslandsbanki
Retail
21 BRANCHES PROVIDE
NATIONAL COVERAGE
▪ Highly ranked in
customer service
▪ Independent Asset
Based Financing unit –
ERGO
▪ Independent credit card
issuer - Kreditkort
▪ Market share of 30%+
Corporate
FULL-SERVICE
CORPORATE BANK
▪ Domestic corporate
banking for industries
▪ Specialist industry
teams in Iceland for
energy, municipalities
and seafood
▪ Market share of 30%+
Wealth Mgmt
LEADING FUND
MANAGER
▪ One of Iceland’s leading
wealth manager by AUM
▪ Managed through
independent unit, VÍB
providing regulated
investment advice
▪ Market share of 20-40%
Markets
CAPITAL MARKETS
▪ Equities, fixed income,
FX, corporate finance
and research
▪ Corporate advisory in
the US for geothermal
energy & seafood
industries
▪ Market share of 25-35%
▪ One of Iceland´s largest universal
banking and financial services
groups
▪ Total assets of ISK 823bn (USD
6.5bn, EUR 5.0bn)
▪ Strong capital base, high liquidity
and a quality loan book after
comprehensive restructuring in
2008 to 2012
▪ International reach through focus
on special niche industry sectors
▪ 1,100 employees

4. 4
International focus; built on home market expertise & experience
Niche Industry Sectors
▪ A team of experts focused on renewable energy
▪ Extensive network in Iceland and internationally
▪ Regular publications of research material
▪ Relationships with Iceland´s leading energy
producers; strong reputation in Iceland and abroad
▪ A team of experts focused on seafood
▪ An important part of Íslandsbanki´s operation since
the bank´s establishment, currently represents
around 12% of loan portfolio
▪ Many of the largest and leading fisheries
companies in Iceland and overseas have been
among Íslandbanki´s customers in recent decades
1RENEWABLE ENERGY
2SEAFOOD
RESEARCH MATERIAL
www.islandsbanki.is/energy
www.islandsbanki.is/seafood

5. 5
Geothermal energy plays a key role
Icelandic Energy Market
PRIMARY ENERGY USE 1940 - 2011
POWER GENERATION 1976 - 2011
Hydro
Geothermal
OilCoal
Peat
▪ One of the leading countries in
utilization of geothermal energy
▪ Over 90% of all households heated
with geothermal energy
- Estimated savings of 60-80bn ISK per
annum
▪ Electricity generation from
renewable sources only
- Hydro: 73% | Geothermal: 27%
▪ Aluminum industry by far the largest
consumer of electricity
▪ Strong knowledge based industry
operating internationally
Hydro
Geothermal
OilCoal
Peat
Source: Statistics Iceland and National Energy Authority

6. 6
Reykjavik in 1933
Heating with coal

7. 7
Reykjavik today
Heating with geothermal energy

8. 8
Master Plan for hydro and geothermal energy resources in Iceland
Market Outlook
Hydro
Geothermal
OilCoal
Peat
Hydro
Geothermal
OilCoal
Peat
▪ 16 project areas approved for
development
- 10 near-term projects*
▪ Near-term projects have potential to
increase electricity generation
capacity by 25%
▪ Historically, publicly owned energy
companies have relied on financial
support from national and local
governments
▪ Energy companies remain leveraged,
need for a different approach to
financing
▪ Project financing, involvement of
Icelandic pension funds and other
investors
Out of 10 near-term development projects
9 geothermal projects
Estimated capacity
655 MW or 4,730 GWh
Estimated investment need
+250bn ISK (USD 2bn)
ProjectsCapacityInvestment
* As estimated by Íslandsbanki

9. 9
2004 – 2012 in billion US$
New Global Investment in Clean Energy
Source: Bloomberg New Energy Finance
Asset finance
Small-scale project investment
Government research & development
Venture capital, private equity & public markets
Solar
Wind
Energy-Smart Technologies
Geothermal
Other

10. 10
Different approaches
Geothermal Project Financing
1 Example: Iceland
▪ Government involvement
▪ Government owned utilities as developer
▪ Equity provided by utility/ government
▪ Construction financing through development
banks
Government owned
2Example: U.S.
▪ Private developers
▪ Utilities as off-taker
▪ Equity provided by developer/ partners
▪ Construction financing through banks
Private Market
Geysir, Haukadalur

11. 11
Development stages
Project Life Cycle
▪ Legal work
▪ Concession
▪ Permits
▪ Geophysical
survey
▪ Geochemical &
geo- logical data
analyzed
▪ Temperature
gradient drilling
▪ Focused exploration
on favorable
resource areas
▪ Sufficient
exploration data
collected & analyzed
▪ Drilling of first full-sized
production well
▪ Confirmation wells,
reserve estimates &
preliminary design
▪ Power purchase
agreement
▪ Drilling & testing of
production and injection wells
▪ Civil work
▪ Final design and testing
Start-up Exploration Pre-Feasibility Feasibility Design & Construction Operation

12. 12
Knowledge of the reservoir/resource*
Project Life Cycle
▪ Legal work
▪ Concession
▪ Permits
▪ Geophysical
survey
▪ Geochemical &
geo- logical data
analyzed
▪ Temperature
gradient drilling
▪ Focused exploration
on favorable
resource areas
▪ Sufficient
exploration data
collected & analyzed
▪ Drilling of first full-sized
production well
▪ Confirmation wells,
reserve estimates &
preliminary design
▪ Power purchase
agreement
▪ Drilling & testing of
production and injection wells
▪ Civil work
▪ Final design and testing
Start-up Exploration Pre-Feasibility Feasibility Design & Construction Operation
0%
15%
30%
60%
75%
85%
Final decision
[Go or no Go]
* Helgi Leifsson, Reykjavik Energy

13. 13
Sources of funding
Project Life Cycle
▪ Legal work
▪ Concession
▪ Permits
▪ Geophysical
survey
▪ Geochemical &
geo- logical data
analyzed
▪ Temperature
gradient drilling
▪ Focused exploration
on favorable
resource areas
▪ Sufficient
exploration data
collected & analyzed
▪ Drilling of first full-sized
production well
▪ Confirmation wells,
reserve estimates &
preliminary design
▪ Power purchase
agreement
▪ Drilling & testing of
production and injection wells
▪ Civil work
▪ Final design and testing
Start-up Exploration Pre-Feasibility Feasibility Design & Construction Operation
Venture Capital Development Equity
▪ Developers
▪ IPPs (development pipeline)
▪ Resource Speculators
▪ Venture Capitalists
▪ Private Equity
▪ Public Markets
▪ Financial Partners
Drilling Equity
Mezzanine/Bridge
Debt Financing
▪ Private Equity
▪ Strategic Partners
▪ Banks & Funds
Project Equity
Construction & Project
Financing
▪ Financial Players
▪ IPPs with ability to monetize PTCs
Permanent
Financing &
Equity

14. 14
Probability of success
Project Life Cycle
▪ Legal work
▪ Concession
▪ Permits
▪ Geophysical
survey
▪ Geochemical &
geo- logical data
analyzed
▪ Temperature
gradient drilling
▪ Focused exploration
on favorable
resource areas
▪ Sufficient
exploration data
collected & analyzed
▪ Drilling of first full-sized
production well
▪ Confirmation wells,
reserve estimates &
preliminary design
▪ Power purchase
agreement
▪ Drilling & testing of
production and injection wells
▪ Civil work
▪ Final design and testing
Start-up Exploration Pre-Feasibility Feasibility Design & Construction Operation
Venture Capital Development Equity Drilling Equity
Mezzanine/Bridge
Debt Financing
Project Equity
Construction & Project
Financing
Permanent
Financing &
Equity
100%
0%
ACTUAL PROBABILITY
Source: Actual Probability: Deloitte Touche Tohmatsu, “Geothermal Risk Mitigation Strategies Report”, February 2008 Perceived Probability: Glacier Market Analysis
PERCEIVED PROBABILITY

15. 15
▪ Legal work
▪ Concession
▪ Permits
▪ Geophysical
survey
▪ Geochemical &
geo- logical data
analyzed
▪ Temperature
gradient drilling
▪ Focused exploration
on favorable
resource areas
▪ Sufficient
exploration data
collected & analyzed
▪ Drilling & testing of
production and injection wells
▪ Civil work
▪ Final design and testing
Start-up Exploration Pre-Feasibility Design & Construction Operation
Venture Capital Development Equity Project Equity
Construction & Project
Financing
Permanent
Financing &
Equity
100%
0%
ACTUAL PROBABILITY
PERCEIVED PROBABILITY
Start-up
Critical financing gap
Project Life Cycle
▪ Drilling of first full-sized
production well
▪ Confirmation wells,
reserve estimates &
preliminary design
▪ Power purchase
agreement
Feasibility
Drilling Equity
Mezzanine/Bridge
Debt Financing
▪ Market´s understanding of
development risk still lacking
▪ Unreliable nature of federal
subsidies, grants and loan
guarantees make investors nervous
▪ Incentives back-ended, need for
support at critical stages of
development
▪ The industry may be well served by
rethinking its business model

16. Thank you
www.islandsbanki.is/energy