Carnegie Clean Energy : Appendix 4C - Quarterly Report

Dear Shareholder,

This has been an exciting quarter for Carnegie in all areas of our business with significant steps taken to advance our microgrid business in particular with the acquisition of solar/battery project engineering company, Energy Made Clean (EMC), plus the establishment of our Joint Venture Agreement with LendLease to deploy solar and battery projects around Australia. Strong progress was also made on the development of the CETO 6 wave energy technology and wave energy projects both here in Australia and overseas. There is much to look forward to in 2017 as we integrate EMC and Carnegie to grow and convert the project pipeline into contract award and revenues. Whilst there will be a lag between the investment we make in EMC and the conversion into contracts, we would expect to announce the first of these project wins in the coming weeks.

Microgrid Activities

With the acquisition of microgrid developer Energy Made Clean (EMC) completing in December, Carnegie now owns 100% of a growing business that generated $16m of revenue last financial year. The acquisition of EMC delivers diversification to Carnegie and fast tracks our ability to deliver microgrids in any combination of wave, solar, wind and energy storage in Australia and internationally. It also makes Carnegie the only ASX-listed company with a dedicated renewable energy microgrid project delivery capability.

Wave Energy Activities

Our wave energy progress during the quarter continues to cement our position as the leading technology globally and included the award of £9.6m (AU$16m) from the European Regional Development Fund for the first 1MW stage of a planned 15MW WaveHub Project in the UK. Locally, we completed the design of CETO 6 and received the associated $1.1m milestone payment from ARENA.

Project Development

We continued to progress Carnegie and EMC microgrid projects throughout. EMC continues to deliver a range of innovative projects to customers around Australia and the recent joint venture agreement between EMC and Lendlease services opens the door to new project opportunities in 2017.

Financials

During the quarter, we closed a new $3.7m debt financing raise for the Garden Island Microgrid Project (GIMG) and closed the quarter with $7.4m cash at bank and $30m in undrawn Government funding. After the completion of the quarter, we raised a further $5m via the issue of convertible notes to ensure we are well capitalised to deliver on the solar/battery project pipeline.

Dr Michael Ottaviano CEO & MD

1. Microgrid Activities

During the quarter, Carnegie completed its 100% acquisition of leading Australian battery and solar microgrid engineering company, Energy Made Clean (EMC). This acquisition has made Carnegie the only ASX-listed company with a dedicated renewable energy microgrid project delivery capability.

The terms of the agreement included $2.6 million in cash across three stages and $10.4 million in Carnegie shares to take the remaining 65% stake in EMC, adding to the 35% stake Carnegie previously acquired. EMC, with its track record of innovative project delivery, is a proven specialist in the design, construction and operation of microgrids, commercial scale solar projects and energy storage systems.

Through this acquisition, Carnegie is now at the forefront of designing, developing, financing, constructing, operating and maintaining microgrids, utilising a world-first combination of wave, solar, wind, energy storage, desalination and diesel in both on and off-grid applications in Australia and internationally.

Carnegie Managing Director, Dr. Michael Ottaviano and EMC Managing Director, John Davidson after finalising the acquisition

Carnegie Managing Director, Dr Michael Ottaviano said, "We've been extremely impressed with EMC's capability to grow their revenue by delivering unique, pioneering microgrid systems to blue-chip clients such as Western Power, Synergy, Horizon Power, Water Corporation and the Australian Department of Defence."

"Microgrids are increasingly a major part of the renewable energy market as they can deliver cost competitive, clean power and energy security. With EMC rapidly growing and turning over

$16 million in revenues in the 2016 financial year, it is the right time to seize this opportunity."

The potential for the global microgrid market is independently estimated at US$40 billion by 2020. This acquisition unlocks Carnegie's ability to deliver a unique, in-house capability to capitalise on a rapidly growing segment of the renewable energy market globally.

Carnegie will now be able to fast track its delivery of a combination of renewable technologies such as solar, wave, wind and energy storage in the form of microgrids to islands, off-grid and grid-connected communities.

Following the acquisition of EMC, a Joint Venture Agreement (JVA) was signed with Lendlease Services Pty Ltd, part of the Lendlease Group.

This JVA will provide opportunities to increase EMC's capacity to bid for and deliver a broader range of solar, BESS and microgrid opportunities within Australia, including increased access to the National Energy Market (NEM), leveraging Lendlease's national footprint across Australia. Lendlease Services business has approximately 3,000 people and has a presence in every Australian state and territory.

The agreement will see EMC and Lendlease work together for an initial period of three years, and will bring together EMC's proven experience in the design, construction and operation of microgrids, commercial scale solar projects and energy storage systems, with Lendlease's skills and experience in the construction and maintenance of power distribution and generation assets.

The purpose of the 50/50 JVA will be to identify, pursue, bid for, secure and deliver EPC contracts for solar and/or battery energy storage systems (BESS) in Australia (excluding the Kimberley Region, where EMC already has a partnership with Aboriginal Corporation Eastern Guruma).

Carnegie Clean Energy Managing Director, Dr Michael Ottaviano said "We're excited to commence working closely with a company of the scale and expertise of Lendlease's Services business. Combined with EMC's significant experience in designing and delivering first of a kind microgrid projects, the JVA represents a compelling value proposition to solar and solar microgrid projects across the country. This partnership will bring each parties' respective strengths together to reach a broader range of blue-chip clients including network providers, utilities, large-scale residential developments and defence."

"The size of the target market within Australia, across off-grid; fringe-of-grid; commercial and industrial is estimated to be in excess of $1.6 billion over the next 5 years, and $5 billion over the next 10 years, as the costs of solar and BESS continue to fall and renewable energy penetration continues to grow."

"This partnership will enable us to seize this significant opportunity and cement our position as market leader in this space."

EMC's utility battery system for Synergy's Alkimos project (left) and solar array for CSIRO's Square Kilometre Array (right)

During the quarter, EMC also signed a Memorandum of Understanding with Sumitomo Electric Industries and TNG Limited to collaborate on the promotion, development and growth of Australia's Vanadium Redox Flow Battery (VRF) market. EMC's main role in this partnership will be to identify specific development commercial project site opportunities, in addition to designing and supplying a compatible balance of plant (likely to include a solar PV farm) to integrate with the VRF containerized system being supplied by Sumitomo, as part of a complete solar and battery demonstration project.

During the quarter, Carnegie signed a $3.69m Debt Financing Agreement to support the world's first solar, battery and wave integrated microgrid project, the Garden Island Microgrid Project. The Project has also been awarded $2.5m of funding from the Australian Renewable Energy Agency (ARENA).

The Project will involve the construction and installation of a 2MW solar PV array, a 2MW/0.5MWh battery energy storage system and control system both to be integrated with Carnegie's CETO technology and existing desalination plant. The Project will also include augmentation of the grid connection and is supported by Western Power, the network operator who builds, maintains and operates the main electricity network in WA.