Summary

Reproduced from www.worldbank.org/icsid with permission of ICSID.

RWE AG and RWE Eemshaven Holding II B.V. v. Kingdom of the Netherlands ICSID Case No. ARB/21/4

Expert Report by Pablo T. Spiller and Alan G. Rozenberg (COMPASS LEXECON)

Table of Contents

I. INTRODUCTION

I.1. Instructions

I.2. Summary of Opinion

I.2.1. Developments in Efforts to Combat Climate Change and Impact on Coal-Fired Power Plants

I.2.2. Brattle's Assessment Indicates That Eemshaven Is to Suffer Losses as a Consequence of the Coal Ban Act

I.2.3. Brattle's Estimation of Losses Is Flawed, Overstating the Impact of the Coal Ban

I.2.4. Resolving Basic Flaws in Brattle's Analysis Leads to a Significantly Lower Valuation

I.3. Experts' Qualifications

I.3.1. Pablo T. Spiller

I.3.2. Alan G. Rozenberg

II. GENERAL OVERVIEW OF THE DEVELOPMENTS IN EUROPEAN EMISSIONS TO COMBAT CLIMATE CHANGE

II.1. The EU's Increasing International and European Commitments for the Long-Term Reduction of Greenhouse Gas Emissions

II.2. The Impact of Climate Change Policies on Coal-Fired Power Plants

II.3. The Expected Deterioration of Market Conditions for Coal-Fired Power Plants Was Evidenced in Their Financial Accounts

III. BRATTLE'S ASSESSMENT INDICATES THAT EEMSHAVEN IS TO SUFFER LOSSES AS A CONSEQUENCE OF THE COAL BAN

IV. BRATTLE'S ESTIMATION OF LOSSES IS FLAWED, OVERSTATING THE IMPACT OF THE COAL BAN

IV.1. Brattle's Chosen Inputs Are Outdated and Assume That the EU Would Not Attempt to Comply with the Paris Agreement

IV.1.1. Commodity Prices

IV.1.2. Electricity Demand and Installed Capacity

IV.1.3. Brattle's Loss Estimate Decreases When Using Inputs Contemporaneous to Brattle's Chosen Date of Valuation and Reflective of Efforts Closer to Compliance with the Paris Agreement

IV.2. Brattle Omit the Possibility of Operating Eemshaven beyond 2030 with Alternative Fuels

IV.3. Brattle Underestimate the Risks Faced by Coal Plants Given the Energy Transition

IV.3.1. Brattle's Backward-Looking Discount Rate Ignores Forward-Looking Risks Faced by Coal Plants Such as Eemshaven

IV.3.2. Brattle's WACC Is Underestimated Compared to Contemporaneous Benchmarks

IV.4. Other Errors in Brattle's Modeling

IV.4.1. Brattle Incorrectly Assume That a Willing Buyer Is Risk-Neutral

IV.4.2. Brattle Show No Evidence That Monte Carlo Simulations Are Used to Determine FMV of Companies

IV.4.3. Brattle's Damages Estimation Rests on Extreme Unreasonable Simulations

IV.4.4. Brattle's Assumption of CAO Revenues Overestimate Eemshaven's Value

IV.5. Brattle's Estimation of Value Fails Reasonability Checks

IV.5.1. Brattle's Damages Estimate Is Inconsistent with Contemporaneous Evidence as of Their Chosen Date of Valuation

IV.5.2. Comparison to RWE's Market Capitalization

IV.5.3. Comparison to Compensation for Early Closure in Germany

IV.5.4. Brattle's Computation of Avoided Carbon Costs Is Not a Reasonability Check of Their Calculations of Eemshaven's FMV

V. RESOLVING BRATTLE'S KEY FLAWS SIGNIFICANTLY LOWERS THEIR LOSSES ESTIMATE

V.1. Results Using Monte Carlo Simulation Approach

V.2. Results Using Scenario-Based Approach

VI. A MORE RECENT DATE OF VALUATION WOULD RESULT IN LOWER DAMAGES THAN AS OF OCTOBER 2017

VII. DECLARATION

APPENDIX A LIST OF DOCUMENTS CITED

APPENDIX B NERA'S ANALYSIS IS UNFOUNDED AND CONTRADICTED BY RWE

B.1 NERA's Conclusion That Biomass Is Economically Unviable is Unsubstantiated and at Odds with Brattle's Analysis

B.2 NERA's Conclusion That Biomass Bears Risks of an Unsustainable Fuel Is Inconsistent with Evidence

B.3 NERA's Concerns on Issues with Procurement of Wood Pellets and the Alleged Impact on Biomass Prices Are Misplaced

APPENDIX C ELECTRICITY MARKET MODELING AND EEMSHAVEN'S DISPATCH

C.1 Optimization Principles

C.2 Inputs and Assumptions of the Energy Model

C.3 Asset Model of the Eemshaven Plant

C.4 Asset Model of the Eemshaven Plant Following Conversion to Biomass Firing

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I. INTRODUCTION

I.1. INSTRUCTIONS

1. We have been instructed by De Brauw Blackstone Westbroek ("Counsel"), counsel to The Kingdom of the Netherlands (Ministry of Economic Affairs and Climate Policy) ("Respondent"), to review the expert report of Mr. Dan Harris and Ms. Serena Hesmondhalgh of The Brattle Group (hereinafter "Brattle") dated December 18, 2021 ("Brattle Report"). We have also been instructed to review the expert report of Mr. Tomas Nikolaus Haug and Mr. Bastian Gottschling of NERA Economic Consulting GmbH (hereinafter "NERA") dated December 18, 2021 ("NERA Report").

2. We understand that the Brattle Report and the NERA Report were submitted by RWE AG ("RWE") and RWE Eemshaven Holding II B.V. ("RWE Eemshaven") (hereinafter jointly "Claimants") in support of their claim for compensation for losses purportedly suffered by RWE Eemshaven as a result of the ban on the use of coal in the Netherlands for generating electricity by 2030 (the "Coal Ban"), regulated by the Electricity Production Prohibition Act, dated December 20, 2019 (the "Coal Ban Act").

3. In addition, we have been instructed to:

Quantitatively review Brattle's estimation of damages as of Brattle's chosen date of valuation, October 9, 2017, the day immediately before the newly elected government published their Coalition Agreement ("2017 Coalition Agreement"). For such purposes we have been instructed to adopt Brattle's implicit assumption that as of such date the market expected, with certainty, that there would be no financial compensation to Eemshaven for an alleged loss of value due to the Coal Ban.

Assess whether using a recent date of valuation, reflecting more recent market expectations than in Brattle's chosen date of valuation of October 9, 2017, would affect the estimate of alleged damages.

4. The lack of any comments on the approaches, assumptions or opinions put forward by Brattle and NERA should not be interpreted as our agreement therewith.

5. Our opinions in this report are based on our general knowledge of economics and finance as well as on our review of multiple documents related to the issues in this arbitration. Insofar as the facts or assumptions on which we rely are not within our own knowledge, we have identified the source of those facts or assumptions. This report must not be construed as expressing opinions on matters of law, which are outside of our expertise. We reserve the right to update the opinions rendered in this report in the light of additional information that may be made available to us in the future.

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