E.

ON – Cleaner & better energy

Energy Trading
E.ON strategy

From To

Integrated across Focus on competitive

value chain businesses
Investment
Less capital,
more value Targeted expansion
Eurocentric
outside Europe
Performance
Efficiency &
Europe effective Outside
Selective efficiency Sustainable performance
Focused & organization Europe programs culture
synergistic Targeted
positioning expansion
Capital intensive Competence-based
Cleaner & better energy

Transform European utility into global, specialized energy solutions provider

2
E.ON Group strategic priorities
Performance
Æ Intensify cost & quality management

Challenging markets Æ Simplify structures

Political interventions Æ Execute portfolio measures

Æ Create balance sheet flexibility

Growth
Europe:
System transformation Æ Capture growth in renewables & decentralized energies

Outside Europe:
Æ Exploit opportunities in new markets
Growth & new technologies

Markets require intensified self-help measures

3
E.ON Group key financial targets
New Old
y 2011E1 Adjusted EBITDA (€bn): 9.1 – 9.3 9-1 - 9.8
Adjusted EPS (€/share): 1.2 – 1.3 1.1 - 1.4

y 2013E Adjusted EBITDA (€bn): 11.6 – 12.32 >134

Results Adjusted EPS (€/share): 1.7 – 2.02 ~2.44

y 2015E Adjusted EBITDA (€bn): 12.5 - 13.03

Adjusted EPS (€/share): 2.0 – 2.33

y Dividend payout policy (% adj. net income): 50 - 60 50 - 60

y 2011 (€/share): 1.0 ≥1.3
Dividends y 2012 (€/share): 1.1 ≥1.3
y 2013 (€/share): ≥1.1

y Medium-term debt factor <3x ≤3x

y Investments 2011-13 (€bn): ~19 19
Other y Total disposals until 2013 (€bn): ~15 ~15
y Rating target Solid single A Solid single A

Transparent financial targets for coming years

Assumed 2015 debt factor allows ~€6bn of additional growth CAPEX
1. 2011 post €0.5bn effect of achieved disposals (€9.1bn) 2. 2013 Post €0.9bn effect of achieved disposals (€9.1bn) 3. 2015 Post ~€1.7bn effect of total disposals effect (€~15bn) 4. Pre disposals 4
Trading within E.ON group structure

Group Management

Other EU Support
Generation1 Renewables2 Trading Gas Germany3 Russia4
countries3 functions5

Optimization

Proprietary Trading

Leaner and more market oriented organization

1. Incl. EBITDA of all conventional generation (previously in Market Units) 2. Incl. hydro 3. Distribution and sales; gas sales included in Germany 4. Special focus country 5. IT, Procurement, Insurance, 5
Consulting, Business Processes, these are not reported separately externally 6. “Outside Europe” to be reported separately after having reached the necessary size
Trading – Business strategy
Optimize commodities exposure and support business
Market environment Strategic priorities
y Increasing scope and scale of integration of y Cross-regional and cross-commodity synergies:
power markets across EU (e.g. market coupling monetize value of flexibility in power plants, supply
between Nordic and CWE in November 2010) contracts, gas storage
y Increasing gas-to-gas competition in Europe y Seek new opportunities in cross-border activities
y Key commodities as well as LNG and CO2 traded (e.g. intra-day)
on global markets y Global commodity trading (e.g. coal & freight)
backed by European portfolio
y Origination activities to earn higher margins on non-
standard, non-commodity specific, longer term
products

Leading energy trader

6
Trading – Sustainable value contribution
Leading energy trader Adjusted EBITDA (€ bn)

y One of the biggest and most diversified underlying 1.2

power & gas asset positions
- 0.5 – -0.7
y Market access throughout Europe to capture
synergies (e.g. reduction of credit risk)
y Global scope of trading to cover majority of E.ON’s
commodity risk position
2010 2011 2013
2011
y Strong support of European liberalization agenda
(e.g. engagement for market coupling) y Optimization result is negatively impacted by
swing in internal transfer spread
Year on year increase in Trading’s volumes (2010 vs. 2009)
y Extrinsic value suffering from reduced volatility
+34%
+30% +30%
y Prop trading expected to improve compared to
+19% weak 2010
2012-2013
Power Gas CO2 Coal y Less distorted optimization result

Distorting effect of transfer prices to normalize by 2013

7
 E.ON – Cleaner & better energy

Discussion Material
Trading - E.ON‘s optimization and prop. trading function

Conventional y Cross-regional optimization

Generation Single integrated view on all markets & physical assets
y Cross-commodity optimization
Renewables Ability to realize benefits of correlation between commodities
Generation
y Risk management
Integrated portfolio view and consistent risk/hedging strategy
Global Gas y Proprietary trading
Asset knowledge and understanding of market fundamentals

EET
Adj. EBITDA development, 2008-2010 (€ m)
1500

Germany
1100

Prop trading
700
Asset optimization
Other EU countries
300

-100
Russia 2008 2009 2010

Integration of trading expertise delivers additional value

9
Trading is E.ON’s centralized interface to the energy markets…

Upstream function1 Optimization function Downstream function

Generation Unit 2
Retail/sales
subsidiaries
Global Gas

Trading sells product; market margin (achieved price Trading procures volumes for the E.ON
minus transfer price) sits in EET supply businesses

European energy markets

Power, Gas, Coal, CO2, Oil

Power/gas volumes (own & procured) Transfer price, fuel price and volumes

… backed by a strong portfolio of assets

10
1. In case of Global Gas gas volumes = upstream + procured 2.. Conventional Generation and Renewables Generation
 Sources of value creation

Optimization

Risk management

Trading creates value for E.ON

Prop trading

Optimization
Value creation at E.ON Trading y Arbitrage
y Cross regional/border
y Cross commodity
y Timing decisions

Risk management
y Cash flow risk
y Commodity risk
y Counterparty risk
Hedging

Bulk of the value created at E.ON Trading comes from its risk management function
and its (mainly) asset backed optimization function
11
 Sources of value creation

Optimization

Risk management

Cross-regional optimization
Illustration via interconnectors
Involved assets Optimization: use of balancing markets
Prerequisite
y Access to transportation capacity, e.g. BritNed
EET bids for
transportation Maasvlatke
capacity on BritNed (Rotterdam) : Idea
coal-fired power
plant, 1.040 MW
y Use of interconnectors (e.g. BritNed) to assist
Kingsnorth: coal- optimization and balancing of portfolios both for
and oil-fired power E.ON UK and E.ON Benelux
plant 1.940 MW
y Balancing power can be used to cover under- or
over-supply situations in UK as well as in Benelux

Value points
y Cross-regional arbitrage
Vilvoorde : coal-
y Reduction of penalty costs for system imbalance
fired power
plant, 556 MW

Reaping the value of a broad asset base via cross-regional arbitrage

12
 Sources of value creation

Optimization

Risk management

Cross-commodity optimization
Arbitrage via gas-to-power optimization
Generation costs in Germany – gas vs. coal Gas-to-power optimization
Prerequisite
65 y Portfolio of gas- and coal-fired power plants
60 y Plan to generate with a gas-fired plant
gas
55 y Gas volumes from a supply contract or market
50
Gen. costs [EUR/MWh]

45
Idea
40
y Coal becomes cheaper fuel to generate power in
35

30
that period
25
coal y Decision: Sell the gas at a higher price and
20
produce power with a coal-fired plant instead
15
Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11
Value points
y Margin from selling the gas
y Margin producing power with cheaper fuel (coal)

Reaping the value of a broad asset base via cross-commodity arbitrage

13
 Sources of value creation

Optimization

Risk management

Cross-commodity and cross-regional optimization

Global coal arbitrage

Prerequisite
y Combines supply opportunities in Columbia/South
Africa with demand in Europe/ India
y Time charters offer shipment-flexibility to EET
Sales- (leading to reduced transportation cost)
API 2 Contract

Idea
E.ON‘s coal-
fired power y Increase of dark spread or sales margin because
plants
Sales-
of potential lower costs of coal supply, based on
Contract multi-sourcing strategy
C4
y Arbitrage between API4, C4, API2:
y e.g. buy API4 + C4, sell API2
y buy API2, sell API4 + C4

Value points
y Improve dark spread by sourcing cheaper coal
API 4 y Cost reduction through time-charter optimization

Leverage our large underlying demand to profit from global arbitrage opportunities
14
 Sources of value creation

Optimization

Risk management

Cross-commodity & cross-regional optimization

Enabling arbitrage via origination

Prerequisite
Additional big CCGT Tolling
coal-fired power Contract in
y Additional coal-fired power plant in region 1
plant in region 1 region 1 the company’s asset portfolio in that region
will be dominated by coal-fired units
Idea
y By entering a CCGT tolling agreement the fuel
Region 1 mix for region 1 can be enhanced
y Additionally the company’s long exposure to gas
in region 2 is reduced by delivering volumes to
Gas long in
region 2 the counterparty in region 1
y Generation portfolio improves without CAPEX
Region 2
Value points
Definition of origination y Spark spread of the tolling agreement
y Physical or financial commodity transactions of a “non standard
nature” - due to their scale, tenor or structure
y Portfolio-optimization value
y Transactions are of a longer term than traded curves, linked to physical
assets or provide new optimization opportunities to the portfolio

Enhance portfolio value with origination structures instead of outright asset ownership
15
 Sources of value creation

Optimization

Risk management

Hedging rationale

Ensure more
y Hedging outright power risk strongly reduces y-o-y volatility in cash flows
stable earnings

Increase planning
y Cash flow visibility needed to support capex planning
certainty

Reduce cost of
y For a given leverage hedging reduces the cost of capital
capital

Trading’s function as a risk manager is value enhancing

16
 Sources of value creation

Optimization

Risk management

Hedging at E.ON is a key tool for risk management…

y Characterized by high intrinsic value and high value at risk (unhedged)

Hedging nuclear y High intrinsic value is function of low variable cost of assets
& hydro plants
y Value captured and risk managed by hedging on forward markets
depending on price view and risk appetite

y Characterized by relatively high share of extrinsic value

Hedging flexible y Power plants represent real options. In case of flexible units (gas, coal)
plants optionality has a real value extrinsic value
y Dynamic hedging strategies to capture intrinsic as well as extrinsic value

… but also for value creation

17
 Sources of value creation

Optimization

Risk management

Dispatch optionality - key characteristic of flexible plants

A gas-fired unit A nuclear unit
Hourly power price vs. generation cost (€/MWh) Hourly power price vs. generation cost (€/MWh)

Variable costs
Variable costs (nuclear fuel + fuel tax)
(gas + CO2 costs)

Mon Tue Wed Thu Fri Sat Sun

Mon Tue Wed Thu Fri Sat Sun

Planned hourly output (MW) Planned hourly output (MW)

Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun

A power plant should run as long as the profit margin against variable costs is positive
18
 Sources of value creation

Optimization

Risk management

Power plants are real options

Merit order of German power plants Pay-off of a power plant for a single hour
(Order of power plants on the basis of variable costs)

Electricity price Profit margin

[€/MWh] (fix costs not considered)

Hard coal Oil

Lignite Nuclear Pay-off of nuclear Pay-off of
Natural gas Run-of-river plant gas-fired plant
& renewables
Power plant
not operating Power plant
operating

0
0 10 20 30 40 50 60 70 80 90 100 Electricity
Variable costs Variable costs price
Capacity [GW]
(nuclear fuel + fuel tax) (gas + CO2 costs)

y On the electricity market, the price is set hourly y A power plant runs and earns a positive profit
driven by the variable costs of the marginal power margin if the power price is above its variable
plant [i.e. the last plant required to meet demand] costs

Power plants can be considered as European call options

19
 Sources of value creation

Optimization

Risk management

Additional value is inherent in flexible power plants

Price distribution Profit margin distribution
25 Spread price 25 Profit margin
€/MWh €/MWh
20 20

15 Price path scenario 1 15 Profit margin path scenarios

10 10
Expected value
Expected value extrinsic
5 5
Path scenario 2 intrinsic
0 0
t t
-5 Path scenario 3 -5 Negative spread,
unit will not run thus no loss
Today (forward market) At maturity (delivery) Today (forward market) At maturity (delivery)
Spread forward price 5€ expected spread price 5€ Intrinsic value is 5€ expected profit > 5€
(without market view) (additional extrinsic value)

y Intrinsic value is equal to the actual value of selling y The expected profit at maturity is higher than the
the underlying as forwards observed intrinsic value in forward market. The
difference is the extrinsic value.

Extrinsic value is essentially the value of not needing to run the plant when it would make a loss
20
 Sources of value creation

Optimization

Risk management

Size of extrinsic value influenced by several factors 1/2

1 - moneyness of options
Value

Total option value intrinsic value

extrinsic value

Electricity price

Fuel + CO2 price

Out of the money At the money In the money

Hours of power plants that are nearly „at the money“ have higher extrinsic value
21
 Sources of value creation

Optimization

Risk management

Size of extrinsic value influenced by several factors 2/2

2 - volatility 3 - time to maturity

Short time left before delivery Long time left before delivery
Less volatile price more volatile price

t0 t1 t0 t1 t0 t1 t0 t1

y Higher volatility increases the extrinsic value y Longer time to delivery increases extrinsic value

Reasoning Reasoning
y The more volatile the price, the larger the y The more time left before maturity, the larger the
probability that an option change from “in the probability that an option change from “in the
money” to “out of the money” or vice versa. money” to “out of the money” or vice versa.

22
 Sources of value creation

Optimization

Risk management

Hedging focus of different types of generation assets

Different types of assets require different hedging focuses …
Hedging focus of
nuclear plant
Secure intrinsic value
Profit margin

Hedging focus of
gas-fired plant Pay-off of a power plant
Capture extrinsic value Total value of a power plant
electricity price range

… for which different hedging methods are utilized

Intrinsic value Extrinsic value

Influencing factors Power prices (nuclear, hydro) Moneyness, volatility, time
or spread prices (coal-, gas-fired) to maturity

Methods to capture value Straightforward: hedge at Complex: dynamic forward

forward markets hedging, delta-hedging, etc.

Criteria for decision making Price view, risk appetite Volatility view, risk appetite,
hedge costs
23
 Sources of value creation

Optimization

Risk management

How E.ON Trading captures intrinsic value

Forward hedging
100%
Playing field y Upper boundary given by
available market liquidity
75% Delivery
Liquidity constraint (intra-year
optimisation)
y Lower boundary given by Group
50% Hedging strategy risk bearing capacity and risk
Risk appetite constraint appetite
25%
y Optimized hedge path with the
0% aim to maximize risk-adjusted
2007 2008 2009 2010 return
80 Handover Forward price Cal-10

70 Achieved price: 68€

Average spot
60
price
50 in 2010: 44€

40

30
2007 2008 2009 2010

Capturing intrinsic value is hedging of the natural long position under risk/return principles
24
 Sources of value creation

Optimization

Risk management

How to capture extrinsic value in flexible power plants

Example 1: Dynamic forward hedging
Time Spread price Planned generations Hegdes Locked in profit y Through forward hedging and
t1 10 generate sell spread (sell power, buy coal & CO2) +10
rebalance of hedges according to
t2 -2 not generate unwind hedge (buy power, sell coal & CO2) +2
actual economic generation, a
t3 4 generate sell hedge (sell power, buy coal & CO2) +4
total +16 part of extrinsic value can be
captured in forward market.

On a long term average the extrinsic value can be captured.

However, it is not guaranteed that the theoretical value can be captured in each time.

Example 2: Delta hedging

y Delta-hedging is a dynamic hedging strategy aimed at conserving the full value of a power plant,
without taking a price view.
y By buying or selling the spread, the total position (power plant + spreads bought/sold) can be made
delta-neutral, i.e. the value of the position does not change for small changes of the value of the
underlying. If delta-neutrality is monitored and updated regularly, the full value of the power plant is
conserved.
The extrinsic value can be captured each time. However a trade-off has to be made between high
transaction costs and the certainty of capturing extrinsic value.

25
 E.ON – Cleaner & better energy

Backup Material
Glossary
Term Description

Economic generation Volume of power that is “in the money” for a given period in the future (based on forward
market prices).

Clean Spark Spread Theoretical gross margin of a gas-fired power plant from selling a unit of electricity, having
bought the gas and the carbon emission certificate required to produce this unit of electricity.

Clean Dark Spread Theoretical gross margin of a coal-fired power plant from selling a unit of electricity, having
bought the coal and the carbon emission certificate required to produce this unit of electricity.

Intrinsic Value Part of option value that is equal to actual mark-to-market price of underlying (actual value of
selling the underlying as forwards)

Extrinsic Value Time value of the option (total option value less Intrinsic Value)

Delta-hedging A hedging strategy aimed at conserving the full value of an option, i.e. not only the "intrinsic"
value, but also the "extrinsic" value.

27
Split of responsibilities and risk between Trading and
generation unit
Mid term planning horizon
EET responsibility
Traded market access Generation unit responsibility

Asset optimization Asset investments

Commodity price risk Commodity price risk

management management

Asset availability Asset availability

Today Trading main responsibility 2013 Generation unit responsibility 2020

Trading is responsible for commodity risk management and the optimization

three years prior to delivery
28
Transfer pricing mechanism for outright power
Understanding Trading‘s optimization result using a simplified scheme with an example of Cal 2010 delivery

Handover => transfer price

2010 baseload forward 2007-2010 y Generation unit transfers all 2010
100

80 volumes to EET in course of 2007

60
y Transfer price for the transferred
€/MWh

40 volumes is set up (based on 2010

20 forwards in 2007) Volume
0
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Æ Volume x transfer price = x
generation unit result in 2010 achieved price
=
Hedging => achieved price Group‘s
2010 baseload forward 2007-2010 y EET hedges volumes within risk limits
100
generation
80
y Achieved price by EET evolving with revenue
60
hedging (e.g. for Central Europe this
€/MWh

40
is € 68/MWh for Cal 2010)
20

0
Æ Volume x (achieved price – transfer
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 price) = Trading outright
optimization

Delta between external achieved price and internal transfer price for a given year of delivery
is reported in the Trading accounts in the optimization result in the year of delivery
29
Hedging of E.ON‘s outright generation
As of Sep 30, 2011
German, Benelux and French market
2011 ~ 59 €/MWh 1

2012 ~ 54 €/MWh 1

2013 ~ 56 €/MWh 1

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nordic market

2011 ~ 43 €/MWh 1

2012 ~ 43 €/MWh 1

2013 ~ 45 €/MWh 1

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

= percentage band of generation hedged

30
1. Average realized price only relevant for the pure outright power position (Nuclear/Hydro) sold in the respective year
Simplified example: Handover of 2010/2011 baseload
volume in 2007/2008
German baseload power price (€/MWh) Simplified examples - very different outcome
100
2010 hedging • The average price of 2010 volumes was ~€55 in
90
2007 (handover period) => transfer price
Average achieved
80
Average price in 2010 handover
Price for 2010
= € 68 per MWh • As of June 2010 the average achieved price for
70
period = 55 €/MWh outright power at EET’s CE book is ~€681
60 Transfer margin
• Currently a positive transfer effect at EET and a
50
2010 handover period negative one at MU Central Europe
40
Jan-07 Jul-07 Jan-08 Jul-08
105
2011 hedging • The average price of 2011 volumes was ~€70 in 2008
95
(handover period) => transfer price
85 Average achieved
Average price in 2011 handover Price for 2011 • As of June 2010 the average achieved price for
75 period = 70€/MWh = € 59 per MWh
outright power in EET’s CE book is ~€591
65 Transfer margin
• Currently a negative transfer effect at EET and a
55 2011 handover period positive one at MU Central Europe
45
Jan-08 Jul-08 Jan-09 Jul-09

Depending on the time of the handover transfer prices may turn out
to be higher than average achieved prices 31
1. For outright power hedging please refer to slide 8
E.ON transfer price - Setting a price for optionality
Visualization of intrinsic and extrinsic value Extrinsic and intrinsic value
Value

Time value
(Extrinsic value) • E.ON transfer price mainly consists of two elements
Spread • Intrinsic value: clean spread based on market
(Intrinsic value) forward prices (as on previous slide)
• Extrinsic value: time value of the real option based
on changes of market data (e.g. price volatility) and
plant characteristics
Marginal cost Power price Forward price
– Trading pays a price for the time value of the
Probability distribution of capacity
Variable
Price

future power prices (after

Price/costs
convolution for uncertainties)
– Value consists of the right (not the obligation) to
exchange fuel for electricity (make or buy)
Capacity Price
Operating hours – For a nuclear power plant the extrinsic value is
of the power plant
basically zero
Market price for fuel + CO2 – For the marginal plant of a system it is very high
(For gas plants: contract price)
Time

Capturing the value of a flexible generation fleet

32
Example: make or buy strategy
Two simplified examples… … for make or buy

Example 1 - buy (in €/MWh) t1 t2 • Example 1:

Locked in clean dark spread 10 10 If the real option is out of money at delivery,
New clean dark spread (spot) -6 additional value can be generated above the lock-in
Make (net result) 10 price in forward

Buy (net result) 16

Example 2 – make (in t1 t2 • Example 2:

€/MWh)
If the real option at a lower spread than hedged
Locked in clean dark spread 10 10
but in the money the decision would be to deliver
New clean dark spread (spot) 6
the physical product as hedged
Make (net result) 10
Buy (net result) 4

Extracting the maximal value from flexible power plants

33
Example: Time spread arbitrage in practice
Simplified example… …for time spread arbitrage

€/MWh • It enables E.ON to profit from the shape or trends

30 in the forward curve and exploit flexibilities in
Forward curve in Contango
storage & contracts:
25
– Nordic Hydro: the flexibility of the hydro-power is
20 based on the storage possibilities in the
Spot Quarter 1 Quarter 2
reservoirs
Selling 1TWh in Q1 has a value of € 25m – Gas storage: Trading manages several storages
around Europe with flexibility in selling gas
Selling 1TWh in Q2 has a value of € 30m
– Take or Pay contracts: Trading manages several
Hedging financially and postponing the physical production contracts with flexibility in take-volumes
from Q1 to Q2 will create a profit of €5m 1

Creating value from the flexibility in storages and supply contracts

1. Simplified – disregarding the time value of money 34
 Investor Relations

E.ON Investor Relations Contact

Sascha Bibert
Head of IR T +49 2 11-45 79-5 42
sascha.bibert@eon.com

Peter Blankenhorn
Manager T +49 2 11-45 79-4 81
peter.blankenhorn@eon.com
What can we do to
François Poullet
Manager T +49 2 11-45 79-3 32 help you?
francois.poullet@eon.com

Marc Koebernick
Manager T +49 2 11-45 79-2 39
marc.koebernick@eon.com

Dr. Stephan Schönefuß

Manager T +49 2 11-45 79-48 08
stephan.schoenefuss@eon.com

Aleksandr Aksenov
Manager T +49 2 11-45 79-5 54
aleksandr.aksenov@eon.com

Carmen Schneider
Manager T +49 2 11-45 79-3 45
carmen.schneider@eon.com

Sabine Burkhardt
Executive Assistant T +49 2 11-45 79-5 49
sabine.burkhardt@eon.com
35
 Investor Relations

E.ON IR and reporting calendar

Date Event Location

March 14, 2012 Annual Report 2011 Düsseldorf

May 3, 2012 AGM 2012 Essen

May 4, 2012 Dividend payment

May 9, 2012 Interim Report I: January – March 2012 Düsseldorf

August 13, 2012 Interim Report II: January – June 2012 Düsseldorf

November 13, 2012 Interim Report III: January – September 2013 Düsseldorf

36
This presentation may contain forward-looking statements based on current assumptions and forecasts made
by E.ON Group management and other information currently available to E.ON. Various known and unknown
risks, uncertainties and other factors could lead to material differences between the actual future results,
financial situation, development or performance of the company and the estimates given here. E.ON AG does
not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to
conform them to future events or developments.

37