Carnegie Wave Energy : CWE Quarterly Report- Quarter Ending March 31, 2016

20db9ec4-48d6-4073-ad6b-a1d896ab54a4.pdf ASX Announcement‌‌

April 29, 2016‌

Report to Shareholders for the Quarter Ended March 31, 2016‌

Dear Shareholder,

Its been another quarter of excellent progress with the commercialisation of both CETO 6 and our island microgrid business including the completion of our Investment and Alliance Agreement with microgrid developer Energy Made Clean (EMC).

The growing momentum for renewable energy investment globally is enormous and was exemplified in the days following our EMC announcement with the signing of the‌

Climate Change Agreement in New York by nations now totalling 49% of global greenhouse gas emissions. The Paris Climate Change Agreement from last December becomes legally binding once countries representing 55% of global emissions sign, so it now very close to reality. The background to all this, is of course measured data like that of NASA's showing that 2015 was even hotter than 2014's record breaking hottest ever year.

The completion of the Agreement between Carnegie and EMC means that work has now begun to deliver microgrid initiatives, the first of which is Carnegie's Mauritius Wave and Microgrid Design Project. This Project, which will be delivered on Mauritius and the neighbouring island of Rodrigues, will see Carnegie receive $800,000 through a partnership between the Australian and Mauritian Governments to deliver study and design activities focused on high penetration renewable energy microgrids. The first of the payments has now been received. Commencing work on Mauritius has marked the beginning of what will be a strong and enduring strategic alliance with EMC.‌

In parallel, Carnegie continues its focus on the development of CETO 6 with its team continuing with the design development for our Garden Island CETO 6 project and also carrying wave tank testing at the UK's University of Plymouth's unique Coastal, Ocean and Sediment (COAST) facility. Carnegie also received a $200,000 CETO 6 milestone payment from ARENA for completion of the CETO 6 concept design milestone.

Carnegie has continued to execute its strategy of collaborating with world class research organizations and industry partners on CETO and, where possible, leverage third party funding. During the quarter we extended our relationship with the University of Western Australia with a $1 million wave energy research project supported by the Australian Renewable Energy Agency (ARENA) and focusing on reducing the cost of wave energy.‌

Additionally, Carnegie furthered its national and international exposure through several presentations including at the annual International Conference on Ocean Energy (ICOE) in Edinburgh, Scotland and the 3rd Annual Remote Area Power Conference also in Melbourne. We also carried out our own Company Roadshow in Melbourne, Perth and Sydney and it was a pleasure to catch up with so many of you during these sessions.

This quarter also saw Carnegie formally complete the CETO 5 Perth Project and now, all grant milestone invoices have been submitted to the Government of Western Australia's Low Emissions Energy Development (LEED) Fund and the Australian Government's Australian Renewable Energy Agency (ARENA). Carnegie has now met all the requirements of its LEED funding agreement and received 100 per cent of the grant payments from the Western Australian Government.

With our CETO 6 project and our new partnership with EMC, we have had a promising start to 2016. I am extremely optimistic that this will continue through the rest of the year with exciting developments locally and internationally come to fruition. We continue the year in a strong financial position.

Highlights from the quarter include:

• Financial snapshot

  • AU $18m cash at bank

  • AU $14m undrawn Government grants

  • AU $21m undrawn debt facility

• Perth Project (CETO 5)

  • 12 months of operation completed

  • Received 100% of grant payments from the Western Australian Government

• CETO 6

  • Internal design development continues

  • Wave Tank Testing completed at University of Plymouth's COAST facility

  • Received $200k concept design milestone payment from ARENA

• Project Pipeline

  • Work commenced on Carnegie's Mauritius Wave and Microgrid Design Project.

  • Excellent progress made on local and international project opportunities

• Corporate

  • Carnegie invested $3 million in cash and $1.5 million in shares to take a 35 per cent stake in EMC.

  • Carnegie formed a partnership with the University of Western Australia on a $1 million wave energy research project.

  • Carnegie moved offices in early 2016 to a new location in Fremantle.

Best regards,

Dr Michael Ottaviano CEO & MD

1. CETO Development

Completion of CETO 5 Operations and Grant Funding Update

During the quarter, Carnegie completed the required 12 month operational phase of the Perth Project and and submitted all grant milestone invoices to the the Government of Western Australia's Low Emissions Energy Development (LEED) Fund and the Australian Government's Australian Renewable Energy Agency (ARENA).

Carnegie received payment for all LEED milestones for the Perth Project including for the required operational period. Carnegie also met all the requirements of its LEED funding agreement and received 100 per cent of the grant payments from the Western Australian Government.

In addition, Carnegie received payment from ARENA for the first six months of operational milestones ($66,537) and has submitted the final milestone invoices ($955,043) associated with completing the full 12 months of operations. Final detailed documentation regarding the Perth Project was submitted to ARENA. This completed Carnegie's obligations under its funding agreement with ARENA for the Perth Project.

Excellent pogress continues on the development of the design of CETO 6 through both internal development work and engagement with Carnegie's supply chain in Australia and Europe and included wave tank testing (see below). Carnegie also received a $200,000 CETO 6 milestone payment from ARENA for completion of the CETO 6 concept design milestone.

Carnegie Conducts Wave Tank Testing at the University of Plymouth's COAST Facility

Late in the quarter, Carnegie undertook a comprehensive wave tank testing programme of its CETO 6 technology design at the University of Plymouth's unique Coastal, Ocean and Sediment (COAST) facility.

CWE UK Chief Executive Officer Tim Sawyer and Carnegie's Senior Hydrodynamics Engineer Dr Ashkan Rafiee were both on hand as testing of the CETO 6 performance across a range of sea states took place.

Mr Sawyer said the wave tank testing would build on Carnegie's internal modelling as well as previous wave tank testing and the successful in-ocean operation of the CETO 5 system in the now completed Perth Wave Energy Project.

"Over 340 separate tests will be carried out throughout the programme," Mr Sawyer said. "These tests are aimed at evaluating and informing the design of our CETO 6 technology." Specific outcomes included:

• Comprehensive measurement of CETO 6 performance across a range of operational and extreme sea states.

• Optimisation of Carnegie's preferred Power Take Off (PTO) system operation and control.

• Validation of Carnegie's in-house modelling suite.

• Detailed and validated load case for CETO system design.

CETO 6 model undergoing testing at the University of Plymouth's COAST Lab

The commencement of this testing coincided with discussions with leading academic and industry experts aimed at exploring opportunities to support CETO wave development in the UK. Carnegie also used this opportunity to hold a seminar hosted by the University of Plymouth and attended by members of the Partnership for Research in Marine Renewable Energy (PRIMaRE).

Professor Deborah Greaves, Professor in Ocean Engineering and Director of the Coast Laboratory. School of Marine Science and Engineering (Faculty of Science and Engineering), Mr Tim Sawyer, CWE UK's CEO, Stuart Herbert, Commercial Director, Wave Hub, Dr Daniel Conley, Associate Professor (Reader) in Coastal Dynamics Modelling (Wave Hub), School of Marine Science and Engineering

Carnegie partners with the University of Western Australia on $1 million wave energy research project

Another significant partnership was established during the quarter when Carnegie alongside the University of Western Australia (UWA), started investigating the optimal number, size, arrangement and location of wave energy converters in order to minimise the cost of installation and infrastructure while maximising power output.