BESS Wehr

• The project owner's plans assume that the project owner stores and sells electricity and provides ancillary services profitably with the battery energy storage plant in Wehr (Baden-Württemberg), Germany, so that the investment of the holders of the bonds (hereinafter "bondholders”) can be fully repaid. The most important risks for the BESS project are the construction risk and the revenue forecast risk. The BESS is not constructed yet, which always poses a risk to the feasibility of the project, and this can have significant effect on the timeline and the actual realisation of it. The project owner’s plans assume that the risks associated with the construction (e.g. delay in equipment delivery, insufficient quality control, unfavourable weather conditions) can be mitigated by contractual agreements with experienced parties (be.storaged GmbH [Oldenburg Local Court, HRB 204257] as engineering, procurement and construction party [EPC] and Operations and Maintenance party [O&M], Baloise Sachversicherung AG Deutschland [Bad Homburg Local Court, HRB HRB 9357] as insurer regarding the construction and Allianz Versicherungs-AG [Munich Local Court, HRB 75727] as insurer regarding the operation of the BESS). Whereas the contractual agreement with be.storaged GmbH as the EPC and O&M party is already signed, all other contractual agreements are currently not finally negotiated but are in the final stage. In addition, the project owner’s plans assume that the present operational risks (construction costs overrun, site/geotechnical risks, regulatory/permitting delays with view of water protection, legal action by environmental groups, commissioning risk especially regarding battery degradation and market volatility) will be mitigated by contractual agreements with experienced parties (be.storaged GmbH as O&M) and professional route to market providers (optimizers) that will ensure and partially guarantee a certain availability of the BESS. The optimizer that will select the best market for maximising the revenue on each day and will take over the commercialisation will be enspired GmbH, Austria (registration number: 528204X). The optimizer considered currently is established in the BESS market. Draft offer from this optimizer with enough flexibility to switch to another optimizer (cancellation period of 6 months after expiry of the minimum contract period) if necessary is already in place. The assumptions made by the project owner could prove to be inaccurate. This can mean for the bondholders that interest payments and or the repayment are cancelled in whole or in part.
• The increased penetration of large-scale BESS with view of provision of primary control energy (balancing energy that's activated rapidly, within 30 seconds, to quickly adjust for frequency deviations in the grid and maintain the grid's frequency within a narrow range (49.99 Hz to 50.01 Hz)) can have large negative impacts on revenues. Furthermore, potential regulatory adjustments in the Frequency Containment Reserve (FCR) market that include the re-introduction of 30 minutes as minimum activation period, can marginally impact the revenues of the project owner negatively. In addition, in the event of changes in the legal and/or regulatory requirements the project owner might not be able to comply with the new requirements on time, which can lead to measures by authorities (fines, closure of businesses, etc.). This would lead to lower income for the project owner from its business activities and have a negative impact on the project owner's net assets, financial position and results of operations. For the bondholders this may mean that interest and redemption payments are not made in whole or in part.
• Incorrect forecasts by the grid operator as part of redispatch measures can have a number of negative consequences for operators of BESS and thus for 8EW. If the BESS is called up or shut down at an unfavorable moment due to an incorrect forecast of the grid operator, this can result in 8EW having to buy or sell electricity at suboptimal prices (revenue loss). Also, as BESS is often used for arbitrage, i.e. charging when prices are low and discharging when prices are high, if the BESS is prevented from doing so due to incorrect redispatch instructions, economic losses would be incurred. In addition, suboptimal charging and discharging cycles or low discharge level or overcharging due to incorrect instructions, can affect the service life of the battery cells or result in long-term technical damage. Furthermore, forecast errors by the grid operator, which lead to restrictions on participation in the electricity market (e.g. intraday market) by 8EW, may lead to 8EW not being able to meet its obligations due to redispatch interventions and as a result losing market opportunities. Also, as incorrect redispatch forecasts make operational planning more difficult and lead to additional effort in managing the use of the BESS and additional administrative effort (e.g. for billing, monitoring and communication with the grid operator) due to frequent or incorrect redispatch integration. Last but not least, the redispatch compensation for BESS operators in accordance with Section 13a EnWG and the Redispatch 2.0 mechanism is based on standard values or forecast values that do not always reflect the actual economic losses. If forecasting errors lead to frequent and costly interventions, there is a risk of disputes over the amount or appropriateness of compensation. If one or more of the aforementioned scenarios occur, this would lead to lower income for 8EW from its business activities and thus for the project owner and have a negative impact on the project owner's net assets, financial position and results of operations. For the bondholders this may mean that interest and redemption payments are not made in whole or in part.
• The project owner may be unable to compete effectively with existing and potential new competitors or to respond to changes in the competitive environment, which may adversely affect its business performance. In particular, risks to the project owner's business could arise in the case of a potential introduction of new subsidization regimes for BESS, which would lead to higher competition and lower revenues. If these competitors expand their business more successfully than the project owner,this could worsen the project owner's business situation.
• In view of the technical due diligence (DD) carried out by Clean Horizon Consulting, Paris, France with no major issues identified, the fact that established suppliers will provide the components for the projects, the draft of the asset management agreement with 8E in alignment with industry standards and the current signed EPC agreement and the signed O&M agreement with be.storaged GmbH, in which a performance guarantee (availability guarantee of 97 %) and a warranty for the components (guarantee on main components of 15 years), an energy capacity guarantee and performance guarantees are provided, the technical risk is considered to be manageable. The identified risks in the technical DD are the following: As the geotechnical study is slightly outdated the recommendation in the technical due diligence is to do a new study that can factor in the equipment layout for the planned drillings and investigations to confirm soil adequacy. In addition, there are minor deviations in noise levels making an additional noise study, especially for the night necessary.
  Furthermore, the BESS project is slightly undersized in terms of installed DC capacity, which is already addressed in the EPC contract (included liquidated damages clause to recover any lost revenue up to a certain maximum amount). Missing warranties and specifications could still pose a certain risk. This can mean for the bondholders that interest payments and or the repayment are cancelled in whole or in part.
• The main legal risks include the status of contracts with the Asset management party, the optimizer and the insurance (mostly draft versions with partially missing specifications). As the building permit is not unappealable by environmental agencies, any appeals from environmental organizations can delay or even stop the project. Changes in the regulatory environment (e.g. change in grid fees, taxes on BESS) and an increase of the grid connection price (increase by up to 15% possible) could have a negative impact on the project owner’s business. For the bondholders this may mean that interest and redemption payments are not made in whole or in part.
• The managing partners, who have a track record in fundraising, scaling and partially in renewable energy and BESS development, and the company structure give confidence that the management risks are limited. Nevertheless, the founding team of 8E that leads the BESS project cannot demonstrate a track record for installed BESS projects in Germany.

In accordance with Article 2(1)(a) of Regulation (EC) No 1893/2006 of the European Parliament and of the Council 5(Regulation), the project owner's business is best described by the classification of Section D in Annex 1 of the Regulation. The BESS market is nascent and very dynamic, so reliable revenue-side empirical values or marketing patterns are hardly established. Possible regulatory measures and interventions, technical developments, falling investment costs, financial uncertainty, but also growing competition in this space can significantly restrict the market. Moreover, climate changes in the region could significantly restrict the aforementioned market and make the business activities of the project owner effectively impossible.

The bondholders bear the full risk of the project owner’s insolvency, i.e., the risk that the project owner is temporarily or permanently unable to meet its payment obligations to the bondholders and or third parties on time. Especially in the context of insolvency proceedings, the bondholders could suffer a total loss. The following specific occurrences could lead to this:

• (a) (serious) change in the macroeconomic situation,
• (b) mismanagement,
• (c) lack of experience,
• (d) fraud,
• (e) financing that is not in line with the business purpose,
• (f) unsuccessful introduction of the project owner’s service,
• (g) lack of cash flow.

There is a risk that, as a result of all of the risks mentioned in Part C, return may be lower than expected, delayed or no principal or interest payments may flow from the project. Furthermore, the value of the return could be reduced by inflation. If the inflation rate is higher than the interest rate on bonds, the return on bonds will be negative. The bonds will be issued in Euro and the interest payable on the bonds will also be calculated and paid in Euro. For this reason, investors who have earned income or assets in a currency other than Euro or who do not require the income from the investment in the bonds to be denominated in Euro are exposed to a currency risk because they are exposed to exchange rate fluctuations which may reduce the yield of the bonds. Furthermore, in the event of a necessary sale of the bonds for the bondholder, additional costs (transaction costs such as consultancy fees) may arise which reduce the return.
The individual return of the respective investor may vary in individual cases and depends on the individual tax situation in each case, which may lead to a reduction in the return.

A temporary or permanent failure of the crowdfunding platform or the payment service provider specified in Part D, letter d) may lead to the temporary cancellation of interest and repayments. Since the crowdfunding service provider at no time acquires possession or ownership of the subscription amounts of the investors or of the interest and repayment amounts and since the payment service provider merely acts as trustee for the project owner as trustor, a loss of the invested capital based solely on a failure of the platform or the payment service provider is unlikely.

The bonds have a fixed contractual term. The transfer of the bonds is also technically restricted in that a transfer is only possible to digital safe deposit boxes registered with the project owner or the registrar. The "Registrar" that maintains the e-securities register is Smart Registry GmbH, registered in the commercial register of the Charlottenburg District Court in Berlin under registration number HRB 234468 B. "Digital safe deposit box" is an IT application used to store public keys and private keys and to interact with technology, the functionalities of which make it possible to hold and transfer e-securities. The securities are currently not tradable on a stock exchange, nor is there a liquid secondary market. Even if the securities are included in trading on one or more trading platforms for securities, it is uncertain whether trading of the bonds will actually develop. The risk that the bondholder is unable to find a buyer for the bonds or can only sell them for a price that he considers to be too low is borne solely by the bondholder. The bonds may also turn out to be completely illiquid. A sale of the bonds by the bondholder may therefore only be possible to a limited extent. There is a risk that the bonds cannot be sold or can only be sold at a financial loss. For bondholders with short-term capital requirements, this means that they may not be able to dispose of the capital invested at the desired time, especially as bondholders do not have an ordinary right of termination during the term.

The following securities-related risks also exist:

• i) No rights of influence and participation
  The bonds themselves only establish claims under the law of obligations against the project owner and do not grant any participation, involvement and/or voting rights in or at the shareholders' meeting of the project owner. Shareholder resolutions may be passed at the shareholders' meeting of the project owner which may have a detrimental effect on the individual bondholders. The bondholders have no opportunity to influence the business activities of the project owner. This also applies to the utilisation of the capital raised through the issue of the bonds. In particular, bondholders do not have the opportunity to terminate loss-making business activities of the project owner before the contributed capital has been utilised. For bondholders, this can lead to the total loss of the capital invested.
• ii) Deterioration of the conditions by majority resolution
  According to the Terms of Issue, these can also be adjusted during the term of the bonds if the necessary votes of the bondholders have been obtained by majority resolution in accordance with the Terms of Issue. In this respect, the individual bondholder bears the risk that changes to the Terms of Issue may be made against his will on the basis of the majority resolution of the bondholders, which may be to his disadvantage (e.g. lower interest rate, extended term or waivers).
• iii) Structural risk and risk of qualified subordination with an indefinite pre-insolvency enforcement bar with regard to claims of the senior creditor
  The obligations of the project owner to the investors or bondholders, including interest and principal payments, are qualified subordinated to any current or future debt financing from the senior creditor. As stated under Part A (f) of the KIIS in any case there will be a senior loan that is to be granted to the project owner for a loan amount of € 5.5 million by the senior creditor the latest before the day of the disbursement of the funds collected within the scope of this crowdfunding offer. The bond issue planned as part of the crowdfunding is qualified subordinated to this loan to be granted by the senior creditor. The project owner's obligations under the bonds are not secured by any form of security or collateral, in whatever form. But the senior creditor will as industry standard have full collateral and securities on the BESS project and its assets. This means that the project owner may have to suspend its interest and principal payments to the bondholders if it cannot make payments in connection with the above-mentioned debt financing from a bank, e.g. because revenues are insufficient. This can mean for the bondholders that interest payments and or the repayment are cancelled in whole or in part. In the case of foreclosure on securities held by the senior creditor and of sale of the assets of the BESS project, the project owner would not be able to meet its payment obligations on time or at all, which might lead to a loss or partial loss of the capital invested and/or the return for the bondholders. In addition, all claims of the bondholders arising from the bonds, including repayment and interest claims (hereinafter also referred to as “subordinated claims”), are subject to a qualified subordination (including pre-insolvency enforcement bar). The subordinated claims of the bondholders can only be settled from future annual surpluses, any liquidation surplus or from other free assets that remain after the claims of the senior creditor of the project owner have been fulfilled. The enforcement of a bondholder's claim to payments is therefore dependent on the economic situation of the project owner and, in particular, on its liquidity situation. For the bondholders, there is a risk that, in the event of such a reservation of payment, they will not be able to demand payment from the project owner on the actual payment date due to the lack of an enforceable claim. This also applies in the event that the satisfaction of the individual qualified subordinated claims on maturity would not in itself give rise to insolvency, but the payment to all qualified subordinated bondholders would give rise to insolvency. The agreed pre-insolvency enforcement bar can therefore lead to a permanent non-fulfilment of the bondholders' claims arising from the bonds and thus to the total loss of the capital invested. As a result, bondholders bear an entrepreneurial risk of loss without at the same time being granted information and participation rights that would enable them to influence loss-making business activities. Bondholders bear an entrepreneurial business risk that goes beyond the general insolvency risk that exists anyway. In the event of insolvency or bankruptcy under German law of the project owner, any obligations of the project owner to any senior creditor would take priority over payment of the payment obligations under the bonds. This means that there is a risk that, in the event of insolvency, lower or no quotas will remain to pay all or even parts of the outstanding claims under the bonds. Until the disbursement of the proceeds of the bond issuance (payout), the interest rate of the senior bank financing and the amount of the Debt Service Reserve Account (DSRA) may change as part of the final loan agreement negotiations with the senior creditor, over which the bondholders have no influence. Changes to these parameters may adversely affect the liquidity of the project owner and, consequently, its ability to make interest and principal payments to the bondholders.
• iv) Risk of insolvency of key contract parties
  In the event of insolvency of key suppliers for batteries, inverter & MV systems, there would be a risk that the project owner would have limited options to quickly procure batteries, inverter & MV systems from alternative suppliers. In the event of insolvency of key contract parties (e.g. O&M, optimizer), there would be a risk that the project owner would not be able to quickly find contractual partners with comparable terms and conditions. This could lead to temporary reductions in the project owner’s income and make it more difficult for the project owner to properly service the claims of investors or bondholders.
• v) Technology and database risks
  The technology and all related technological components and regulated services (e.g. digital custody, e-securities register management) are still at an early stage of technical development. There is a risk for bondholders that this technology may be subject to technical difficulties or that its functionality may be impaired by external influences. A partial or complete collapse of the electronic decentralised database (hereinafter ‘e-database’) relevant to the e-securities could make it temporarily and permanently impossible for bondholders to access their e-securities. There is a risk of attacks against the network or the e-database used. Various types of attacks are conceivable. These attacks could render the network or e-database unusable, making it impossible for bondholders to transfer the e-securities. If the network or e-database becomes completely unusable, there is a risk that bondholders will no longer have access to their digital safe deposit boxes. In the worst case scenario, this could lead to the irretrievable loss of the e-securities. The project owner offers the bondholders a technical solution via an authorised e-securities custodian that serves to hold, store and dispose of e-securities. There is a risk that this solution is flawed and/or particularly vulnerable to possible hacker attacks. As a result, bondholders may be temporarily or permanently unable to access their e-securities, which in the worst case could lead to the irretrievable loss of the e-securities. Neither the e-securities custodian nor the project owner will take over the administration in the sense of the ongoing exercise of the rights and obligations arising from the e-securities.
  The risks listed above are not the only risk factors affecting the operations of the project owner. Also, other risks and uncertainty factors that the project owner currently does not identify or considers presently irrelevant may have an integral effect on the business operations, business results and financial standing of the project owner.