Prime Energy P.E. Ltd.

Investor Presentation • Jun 18, 2023

INDEPENDENT EQUITY RESEARCH

PRIME ENERGY LTD UPDATE REPORT 18.06.2023

Signed binding agreement for joint venture with Lahav Energy to construct 8 PV facilities with up to 100 MW(DC); binding agreement for up to 50% of Telamim project sale, valued at NIS 72.5M; significant progress and increase in responses received for construction of 29 dual-use facilities for approx. 188 MW (AC), with which Prime Energy will build approx. 900 MWh of storage for the facility; price target remains unchanged.

Prime Energy (TASE: PRIM) is an Israeli company established in 2013 that specializes in initiating, developing, building, operating, and maintaining renewable energy projects in Israel and Europe. The company has extensive experience in all aspects of renewable energy projects and has successfully developed Israel's first solar system for Dual-Use. Currently, the company has projects totaling 1.1 GW, of which they have a 95% stake (with some expected to be realized through storage) at different stages of development in Israel and Europe. Prime Energy aims to scale up the production of dual-use facilities significantly both in Israel and globally within the next two years.

Key events since the last report:

• Announced the signing of a cooperative agreement (April 16) with Lahav Energy to establish 8 PV facilities, generating up to 100 MW (DC). Lahav Energy will fully finance the project (up to 20%) and provide a construction guarantee (around NIS 5M). After completion, Lahav will settle the payment at NIS 2,700 per KW (DC). This agreement requires no capital investment from Prime, and they will retain a 50% stake in the successful setup of up to 100 MW DC.

• P.V. Planet 2019 Ltd., a subsidiary of Prime Energy, has reached a binding agreement with Helios Renewable Energy 4. As per the agreement, Helios will buy 50% of the rights to the Telamim project, which is a ground-based PV facility with a capacity of 14 MW (AC) or approx. 22.5 MW (DC). The deal's total value is NIS 72.5 million, as agreed upon by both parties.

• Continued to establish and connect additional projects (some of which are ready to be connected) in various arrangements with a capacity of several tens of MW over the next 2 years.

Market and trends - investments in the field of renewable energy reached a peak of \$350B in 2020, of which approx. \$290B were invested in the fields of solar and wind energy. We anticipate a decade of many investments in the field alongside growing business viability even in an environment of rising interest rates. The company's strategy focuses on increasing the total installed capacity, developing new partnerships in Israel and global markets.

Bottom line – Prime currently operates approx. 25.4 MW grid-connected with over 1,200 MW more at various stages of construction, licensing, and initiation, plus a potential 1,000 MWh of storage. In our estimation, steady progress in project execution, projecting a revenue increase to approximately NIS 12M by year-end, and a substantial rise in grid-connected MW. While lower costs for equipment (panels, inverters, iron, etc.) and transportation have benefitted Prime Energy's 2022 activities, increased costs of debt and the NIS depreciation since the start of the year have adversely affected project profitability. We regularly update the economic model to reflect project progress and changes to the interest rates. The price target remains unchanged.

Yield in percent

Year	Revenues* (M NIS)	EBITDA* (M NIS)	MW connected**
2021A	6.9	4.9	18
2022A	6.3	4.8	25.4
2023E	11.9	9	34.8***
2024E	31.4	23.5	~305***
2025E	175.9	131.8	~805***

* Connected by the end of the year; Expected annual revenues/EBITDA rate from projects (representing 100% holdings in projects assuming a full year of operation), not including management fees and additional income at the corporation level; including projects abroad. ** Forward-looking information.

*** It should be noted that due to a delay in confirming responses from a department and delays on the part of the electric company in completing the infrastructure works on its part to receive the electricity produced from the company's facilities, some of the expected connection dates were postponed and accordingly the company's forecasts were updated.

Sector Technology Sub-sector Cleantech Stock price target NIS 19.3 Closing price NIS 1.4 Market cap NIS 42.7 Mn No. of shares 29.5 Mn Average Daily Trading Volume NIS 146 thousand Stock Performance (since Jan. 1 2023) -55.0%

Stock Exchange

TASE

Symbol PRIM

Prime Energy 18.06.2023

Key events in Q1 2023 and in recent months:

• Building upon a previous memorandum of understanding regarding the sale of a 50% stake in the Telamim project, the company confirmed the signing of a definitive agreement on May 15. This agreement was made with a subsidiary under Helios Renewable Energy 4, an Israeli investment fund. According to the agreement, P.V. Planet 2019 Ltd., a wholly-owned subsidiary, will sell a 50% stake of its rights in the Telamim project to the buyer. This project is a ground-based photovoltaic initiative with a capacity of 14 MW (AC), equivalent to approx. 22.5 MW DC.
  • o Phase A of the Telamim project was finalized, and it has a power output of 14 MW (AC). As of November 2022, 5 MW (AC) and 7.7 MW (DC) were connected to the electricity grid. This project has a 23-year contract with the Electric Company, with a guaranteed index-linked rate of 19.27 agurot per KW in 2023. The expansion of Phase I to a total capacity of 12.1 MW DC is projected to be finalized by June 30, 2023.
  • o Phase B of the Telamim project, which is poised to provide an additional capacity of 9 MW (AC) or 10.4 MW DC, is expected to be connected to the electricity grid by August 2024. However, the company is actively collaborating with the Electric Company to expedite the connection date to Q4 2023.
  • o The project's total value is estimated at approx. NIS 72.5 million as per the transaction. The purchaser will provide a total payment of NIS 36.25 million in two installments in exchange for half of the company's rights in the Telamim project.
  • o The joint project company will strive to obtain senior debt financing for the project. The company expects that the total net flow resulting from the sale and financing (minus project completion costs) will amount to approx. NIS 50-55 million.
• On April 17, a joint venture was launched with Lahav Energy to construct eight PV facilities, collectively yielding up to 65.3 MW (AC) and 100 MW (DC).
  • o Lahav Energy will fund the projects' full equity capital, up to 20% of construction costs (capped at NIS 54 million) and provide a construction bond of around NIS 5 million.
  • o Upon completion of the construction phase, payment to Prime Energy will conclude at NIS 2,700 per KW (DC), inclusive of initiation, construction, and financing, but excluding storage components, credit allocation fees, and senior debt fund payments.
  • o If all projects attain full commercial operation, expected annual NOI is NIS 22 million (or NIS 35 million with storage), with a projected annual transaction yield of 8.5% (13.5% with storage), and an approx. return on equity of 18.6% (53% with storage).
• On April 16, the company announced the appointment of Guy Conforti, CPA, as its new CFO. He replaced the former CFO, Yitzhak Cohen, who stepped down from his position on April 30, 2023, to accept a similar role at another public company.
• Revenues from the sale of electricity increased by approx. 56% compared to the same period in the previous year. They rose from approx. NIS 1.4 million to around NIS 2.1 million. This increase was due to additional revenues from the furrow project and improved production at existing facilities thanks to the company's proactive monitoring and maintenance efforts.
• Cash and cash equivalents decreased by approx. 59% compared to the same period last year, dropping from about NIS 52.3 million to nearly NIS 21.5 million. This substantial decrease was primarily due to investments in electricity generation systems.

For additional information about the company and the valuation please read our initiation report.

Investment Thesis

Climate change is one of the most significant concerns facing governments worldwide, and achieving decarbonization in the power sector is the key to tackling the issue. While hydropower has been a major source of energy generation for decades, solar and wind energy have been gaining momentum, with the Paris Agreement of 2015 propelling the growth further. Globally, investment in renewable energy hit a high of \$350 billion in 2020, with solar PV and wind power accounting for \$290 billion of the total. A decade of high investment is expected as the case for renewable energy becomes ever stronger.

The implementation of government decisions translates into policies, regulations, and licensing processes of companies that build renewable energy electricity generating facilities that are supposed to provide electricity over many years in a reliable, safe, and economical manner.

Prime Energy (TASE: PRIM) has experience across all steps and stages of renewable energy projects. The company has initiated and erected PV projects in Israel with approx. 800 MW capacity, which exemplifies Prime Energy's high capabilities in developing projects from early stages. Overall, it has a projects portfolio with an operational capacity of approx. 1.34 GW under various stages of development, construction, and operation (Prime Energy's total accumulated share is approx. 1.27 GW).

Prime Energy's strategy is increasing its property portfolio by acquiring new facilities (at various initiation and development stages) and making bids on tenders and competitive procedures. In addition, the company seeks to develop new partnerships in diverse global markets to promote new projects worldwide (focusing on the United States and Europe) while combining its core capabilities in planning and development with local capabilities required by the local developers. As the company is tech-agnostic, it also examines the viability of investing in other projects besides PV, such as storage, wind, and more.

Lastly, the company began to use advanced robotic solar panel cleaners to maximize energy production and operational efficiencies to improve its operating margins.

Prime Energy's value proposition to investors, partners, and suppliers include:

• Proven ability to develop complex and novel projects through all stages: initiation, financial closure, construction, and ongoing maintenance.

• Diversified projects pipeline, characterized by high holding rates.

• Experienced professional and management teams in the solar field.

• An experienced EPC and O&M arm ("Solar Town").
• A lean and efficient organizational structure.
• A pioneer and leader in the field of dual-use in Israel, with a quota of many megawatts of PV and over 1,000 MWh of storage.

We forecast that by the end of 2023, Prime Energy's revenue from projects (representing 100% of holdings in projects) will reach NIS 31.3 million, and NIS 125.3 million by the end of 2024.

Overview on the company, an introduction to the global renewable energy market and further details on the valuation are extensively detailed in our initiation of coverage report.

Market Overview

Global renewables market

Climate change is one of the greatest concerns for governments worldwide, and achieving decarbonization in the power sector is the key to tackling the issue. While hydropower has been a major source of energy generation for decades, solar and wind energy have been gaining momentum, and the Paris agreement has propelled the growth further. Investment in renewable energy globally hit a high of \$350 billion in 2020, with solar PV and wind power accounting for \$290 billion of the total. A decade of high investment is forecasted as the business case for renewables becomes ever stronger.

Renewable Energy Market – Market Drivers & Restraints

Drivers	1–2 Years	3–4 Years	5–9 Years
Growing concern for tackling global climate change
Declining solar and wind generation costs and project costs accelerate new deployments
Declining battery Energy Storage Systems (ESS )costs
Increased traction for hybrids in Variable Renewable Energy (VRE( offers horizontal integration and capacity building opportunities
Need to replace aging power plants
Increasing digitization across the renewable energy market

Restraints	1–2 Years	3–4 Years	5–9 Years
Need to tackle grid integration issues
Withdrawal of government subsidies and support could lower
growth rates
Increase in competitive intensity

Impact Ratings: =High, =Medium, =Low

AGRO-PHOTOVOLTAICS

A total of 2,200 APV plants are estimated to be under operation worldwide, with a total capacity of 2.8 GWp. Research shows southern Mediterranean region in Europe is the most suited in the region for APV installations.

France, Italy, Spain, and Germany are pioneers in APV installations in Europe. Japan, South Korea, China, France, and Massachusetts (USA), have introduced policies supporting APV implementation. In an attempt to boost agrivoltaics, the Israeli Ministry of Energy and Ministry of Agriculture have jointly invested over USD 1 million in six different studies researching efficiencies that can be attained by combining agriculture and Solar PV power generation.

France was the first country in the EU to introduce an APV financial support scheme in 2017. A total of 45 MWp has been tendered. Sun'Agri has been at the forefront in agrivoltaics in France – the 84 KW test project is located at Piolenc in South-Eastern France. Total Quadron and InVivo have announced a deal to deploy 500MW of agrivoltaic plants in France by 2025. Vines are the crops most affected by climate change, and Italy, France, and Spain have immense potential in agrivoltaics. Similarly, the implementation of APV systems in sweet pepper crops in the Negev desert in Israel resulted in increased yields and plant heights. Several research projects are ongoing in Southern Europe (Greece, Spain, and Italy) to assess the potential of APV in improving yields of various crops and animal farming.

Romania is the seventh largest agricultural producer in the EU. Its main crops are Maize, wheat, rye, barley, and vegetables. With over 9.9 million hectares of permanent crops and arable land, it is a particularly suitable candidate for APV installations. There is increased interest in implementing advanced IoT in APV in Romania with research studies underway by the University of Agriculture and Veterinary Medicine, in collaboration with Solarvibes Berlin (coordinator of consortium and partner), Institute Fraunhofer for Reliability and Micro-integration IZM of Munich (partner)

In the USA, a study by Oregon State University found that converting just 1% of the USA's farmland into agrivoltaics would significantly boost the country's ability to meet the National Renewable Energy targets. The National Renewable Energy Laboratory (NREL) is now conducting an in-depth study on dual-use PV, including studying pollinator habitats across 30 sites in the country, the largest being Jack's Solar Garden in Boulder, Colorado, at 1.2 MW.

STORAGE SOLUTIONS

Improved regulatory frameworks, incentive programs, declining project costs, and auxiliary grid services revenue opportunities have contributed to market growth. Most investment for grid-based storage solutions has been for battery storage systems, specifically those based on lithium-ion, which have declined by 40% since 2016. These storage systems are either pure-hybrid systems – where a renewable energy source and a storage system are combined in the same project – or standalone projects connected to the wider grid.

Figure: Projected Battery Energy Storage Systems Costs per kWh, 2016 – 2030

Going forward, regulatory mandates and incentives for storage are likely to increase, further driving new investment. As the penetration of renewables moves ever higher, storage will play a pivotal role in ensuring grid stability and maximizing revenue opportunities from renewables – either through increased selfconsumption to avoid high electricity costs and demand charges or through selling electricity back to the grid at times of peak consumption. System costs are also forecast to decline by a further 60% between 2020 and 2030. Higher market volumes will bring economies of scale, but there is still significant potential for further technological innovation.

Source: Frost & Sullivan analysis

ISRAEL RENEWABLES MARKET – OVERVIEW AND OUTLOOK

The reduction of carbon emissions and promoting renewable sources has been one of the primary goals of Israel's Ministry of Energy, in tandem with global goals, and the official target of renewable sources of energy by 2030 was increased to 30% from 17% in 2020. The target increment is combined with a commitment to phase out the use of coal for power generation by 2030. This measure is expected to decrease air pollution from the power sector by 93% and Green House Gas (GHG) emissions by 50%, according to Israel's Energy Minister. At an outlay of NIS 80 billion (USD 22 Billion), this plan aims to use solar installations to meet 80% of peak energy demand in Israel, with the forecast of 15GW of solar added in the next decade.

As of 2021, Israel is self-sufficient in terms of energy production. Nevertheless, the current 3 – 4% increase in the size of the installed power base is expected to be insufficient given the expected population growth from 9 million in 2019 to 13 million in 2030. The current installed capacity of 17.7GW (2019) will have to grow by 3.2x to 58.1 GW by 2030 to meet the growing demand and to meet renewable energy targets. Israel is committed to achieving its target of 30% of electricity production from renewable sources. Solar power is expected to contribute 90% and wind, biomass, and hydropower are expected to comprise the rest.

To support the transition to realize the 2030 vision, the government is putting major systems and regulations in place, including, among many, massive development of the electricity grid for the integration of solar energy, promoting significant investment in R&D to upgrade energy storage, and implementing tools for developing a stable electrical system capable of handling sharp changes in production scale. Israel's cumulative Installed capacity of solar PV is projected to grow at a steady pace from 4.7 in 2021 to 15.7 in 2030. Further, to enhance grid reliability, a total storage of 6.5 GW is estimated to be installed by 2030¹ .

Yield can be maximized by installing floating PV on pumped storage facilities. Israel's first floating solar PV with a capacity of 480 KW began operating in 2020. Contracts for solar PV and storage capacity of 609 MW were awarded to seven bidders across 33 projects which are expected to deliver power to the Israeli grid by July 2023.

European Solar PV Market

The EU adopted the Renewable Energy Directive (RED II) in December 2018 to achieve a collective, binding target of 32% renewable energy by 2030. There is now a proposal to increase to 38 – 40%. Solar PV capacity

¹ https://www.gov.il/BlobFolder/rfp/shim\_2030yaad/he/Files\_Shimuah\_yaad\_2030n\_work\_n.pdf

witnessed 11% growth Y-o-Y during the pandemic in the region, with 18.2 GW installed. An average annual addition of 18.5 GW in the EU is projected by Frost & Sullivan based on the National Energy and Climate Plans (NECPs) for the next decade to meet 2030 EU targets. The NEXT Generation EU's economic recovery plan has earmarked up to 37% (~ EUR 27-30 billion) of funding for investment related to climate change.

The EU's Regional Development and Cohesion Policy outlines five areas of investment priorities of which a cleaner and greener Europe are the top two objectives, accounting for 65 – 85% of the European Regional Development Fund (ERDF) and Cohesion Fund between 2021 and 2027. A further 6% is dedicated to sustainable urban development fueling the market for renewables.

Given that 90% of Europe's rooftop space is unused, solar PV's potential to contribute to the renewable targets is considerably higher than other technologies. Total solar PV installed capacity in Europe is projected to grow from 155.4 MW in 2021 to 318.7 MW in 2030. The countries with the highest amount of installed capacity in 2020 are Germany (54.6 MW), Italy (21.3 MW), Spain (13.3 MW), the U.K. (13.9 MW), and France (10.9 MW). In 2030, Frost & Sullivan estimates the following capacities: Germany with 93.1 MW, France with 40 MW, Italy with 48.5 MW, the U.K. with 36 MW, and Spain with 35.2 MW.

The UK's legally binding net zero target for 2050 will require significant policy support. According to the Solar Trade Association of the UK, while the UK has demonstrated abilities to deploy up to 4 GW per annum, there are significant difficulties to contend with both from a regulatory and operational perspective. Frost & Sullivan's conservative estimate is at 2.2 GW per annum – still a considerable increase. The EU proposes introducing the 'Fit for 55' package in June 2021, wherein GHG emission reduction targets are proposed to increase to 55.0% from 40.0%. It further aims to simplify administrative procedures for utility-scale PV by introducing universal guidelines for the region and scrapping construction permits for rooftop PV installations. Incentivizing C&I PV installations is also on the agenda. They have also established a EUR 59 billion annual grid modernization package, including a focus on digitalization and cybersecurity. The proposed 'renovation wave' scheme aims at renovating 35 million buildings to reduce emissions by 60% by 2030.

ITALY

Italy aims to harness 55.0% of its total electricity demand from solar energy by 2030. Solar power is gaining share as a percentage of total renewable installed capacity in a market that had been dominated by hydropower in the past. With its current solar PV installed capacity of 21.3 GW, an added capacity of 31 GW is expected over the next decade with an annual capacity addition of at least 2.7 GW. Italy is one of the two largest solar power markets in Europe. Its total solar PV installed capacity is projected to grow from 24 MW in 2021 to 48.5 MW in 2030. Key regions within Italy are Apulia, Sardinia, Lombardy, Veneto, and Emilia-Romagna. 35.0% of capacity additions were through projects of 1MW or higher.

ROMANIA

Romania aims for an installed capacity of 5.1 GW in solar PV by 2030, which is more than double the current installed capacity of 1.4 GW. It is believed that the target doesn't truly reflect its actual potential. To achieve its target of 3.7 GW in additional PV installed capacity, Romania is set to actively promote residential, industrial, and agricultural prosumers to adopt renewable energy sources. Romania also plans to establish solar parks in less productive lands.

With an irradiance level between 1200-1250 KWh/m² , the best places for solar power generation are the Dobrogea region, Black Sea Coast, and Danube Delta. Other regions that can be explored are Romanian Plains, West Plains, Banat Plains, Transylvanian Region, and Moldovian Regions.

Its Law No. 184/2018 allows prosumers with an installed capacity of not more than 27KW to sell electricity to the grid and not pay excise duties on the energy consumed or sold to encourage renewable energy production and consumption and promote the concept of prosumers.

USA

Falling prices and supportive policies like Tax credits have led to the rapid growth of the solar industry in the USA. About 19.2 GW of additional PV capacity was added in 2020, making it the largest contributor to total electricity capacity additions in the year. Solar PV will continue to be an attractive renewable option for the US in the coming decade. Frost & Sullivan expects that a combination of lower project costs, renewable mandates, and corporate PPAs will drive new investment. Annual installations are forecast to increase from 16.2GW in 2020 to 21.9GW in 2030. The cumulative solar PV installed capacity is expected to increase from 93 GW in 2020 to 287.1 GW in 2030.

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