Letter to Shareholders

Solid results in an unsettled environment

In a challenging environment marked by the financial and economic crisis, Alpiq generated consolidated revenue of CHF 7.1 billion for the first half of 2009, down by around 7 % from the year-ago figure. In contrast, EBITDA (CHF 722 million) and EBIT (CHF 505 million) were on a par with the excellent figures recorded in the same period last year despite substantial additional charges. The EBIT margin even improved year on year to 7.1 %. All comparisons with the first half of 2008 have been based on the pro forma consolidation of the Atel Group with the activities of EOS and Emosson.

Electricity generation in Switzerland and Central Europe put in a satisfactory performance, as did electricity trading and sales across Europe. However, adverse factors were the state-imposed taxes for ancillary services levied on larger Swiss power stations and a large uncollectible receivable. The Group's net profit was further constrained by the costs of merging Atel, EOS and Emosson.

A reduced sales volume, lower price level and the loss of more trading partners had an adverse impact on the Energy segment, especially in the second quarter, with revenue and operating earnings slightly down on 2008. The results were positively impacted by increased revenue generated by Asset Trading due to the excellent production conditions in Switzerland, coupled with higher contributions from the sales business in Western Europe. The Energy Services segment also recorded a slight drop in revenue and a sharper fall in operating profit. As expected, due to the cyclical decline in margins, the segment's contribution to overall performance was therefore lower than in the record year of 2008, in which the first-half results were boosted by exceptional items.

Finance income in the Alpiq Group showed a 10 % year-on-year improvement. Exchange rate movements had a positive effect, while rising income tax expense had a negative impact. At CHF 327 million (- 4 %), consolidated net profit was only slightly below the year-ago figure of CHF 341 million.

The Alpiq Group does not anticipate any significant improvements in energy business in the second half of the year. Pressure on prices and margins will continue to grow in the Energy Services segment. Overall, the Group still believes that operating earnings (EBIT) and net profit will not match the outstanding results posted in the pro forma accounts for 2008. However, it expects to exceed the operating results of the former Atel Group.

In the medium term, the merger of the assets, competencies and market positions of Atel, EOS and Emosson will bring a marked increase in shareholder value. In particular, the merger will give rise to important synergies and potential for development over the medium term. Measures are already in place to exploit and further develop this potential, and are being intensively pursued. In the short term, however, the merger has increased the company's debt and, coupled with the integration costs, will impact the income statement and balance sheet over the next few years. In order to reduce the level of debt as quickly as possible, the Executive Board has launched a programme to review and prioritise capital spending while taking other measures.

Despite the sustained turbulence in financial markets, Alpiq Holding Ltd. successfully placed bonds in the market in January and May 2009, as a result of which around two thirds of the short-term financing facilities of more than CHF 1 billion, obtained from four Swiss banks to fund the merger, has already been raised and refinanced on favourable terms over the long term.

Successful start for Alpiq

After Atel, EOS and EDF signed the transaction agreements on 18 December 2008, the Extraordinary General Meeting of Atel Holding Ltd held on 27 January 2009 cleared the way for Alpiq Holding Ltd., the new joint company formed through the merger of the Atel Group with the operating assets and activities of EOS Holding Ltd. and energy purchase rights related to EDF's 50 % stake in the Emosson storage power station with effect from 1 February 2009.

At the Extraordinary General Meeting in Olten, shareholders of Atel Holding Ltd. voted to change the company name to Alpiq Holding Ltd., transfer the registered office to Neuchâtel and expand the Board of Directors. On the same day, the new Board of Directors appointed Hans E. Schweickardt as the new Chairman of the Board and Giovanni Leonardi as CEO of the Alpiq Group. The Executive Board was appointed at a later date.

Politicians are increasingly training their sights on restricting individual responsibility and the markets. Energy companies are hard pushedto maintain their investment capability and secure margins.

The first Annual General Meeting of Alpiq Holding Ltd. was held in Olten on 23  April 2009. Shareholders approved the 2008 Annual Report and consolidated financial statements of the Atel Group as well as the 2008 company financial statements of Atel Holding Ltd., and voted in favour of a dividend of CHF 10 per share.

Following an authorised capital increase as part of the transaction at the end of January and a capital reduction in May 2009 in order to cancel treasury shares, the Consortium of Swiss Minority Shareholders and EOS Holding each now hold 31.4 % of the share capital, while EDFAI holds 25.0 % and A2A 5.2 %. The free float is around 7 %.

A broad-based integration project was launched in mid-February 2009 with the aim of developing an appropriate business model and defining standardised processes, structures and systems for Alpiq. The first step in mid-February was to draw up the overall programme, i.e. define the project organisation and map out the work schedule. In the summer, following successful completion of the analysis and design phase, the work groups embarked on the actual task of integration. The project is on target and on schedule, so the main activities can be expected to be completed by 31 December 2009. Various activities will continue into 2010, however.

The challenges facing energy policy

Energy security, sustainability and competitiveness are the major drivers of global, European and Swiss energy policy. Yet policymakers do not always find it easy to bring these often conflicting forces together under one harmonised package. Economic concerns, especially in the current cyclical environment, play a very prominent role in influencing energy policy decisions.

The financial crisis has also resulted in increased state regulation. Politicians are increasingly training their sights on restricting freedom, individual responsibility and the markets. Against this backdrop, energy companies are hard pushed to maintain their investment capability and secure margins.

Nant de Drance is one of Switzerland's most important infrastructure projectsfor hydroelectric generation.

The European Union (EU) has set two important markers by approving the climate package and the third European integrated energy market package. For the electricity industry, the ambitious targets set for 2020 not only present opportunities but also entail risks, related among other things to the regime for emission costs and regulations governing certificates of origin. At present, it is difficult to accurately estimate the impact of the third integrated energy market package on the current negotiations between Switzerland and the EU relating to the electricity sector. In addition to harmonising electricity markets, the task for Switzerland is to ensure the inclusion of hydroelectric power among renewable energies and to safeguard long-term delivery contracts with France.

In terms of energy security and climate protection, and as a milestone in Switzerland's large power plant concept, Alpiq's project to build a new nuclear power station in Niederamt, Solothurn, remains a high priority and continues to enjoy major public attention. The general licence application submitted last year - along with two applications subsequently submitted by other electricity companies - is currently at the official review stage. It is generally assumed that two new nuclear power stations will be needed. Alpiq is in favour of these facilities being built as joint venture plants at the locations selected by democratic vote.

Energy policy also focused on the trend in electricity prices. The Federal Council, Parliament and the Electricity Commission opted to scale down the price increase planned for 2009 by around 40 % and issued a directive and ordinance to this effect. Alpiq and other electricity companies appealed against this decision, and the legal deliberations are still in progress.

New projects throughout Europe

On 30 June 2009, Alpiq celebrated the start of construction of the Nant de Drance pumped storage power station in the Valais municipality of Finhaut. This power station, with a turbine and pump capacity of 600 MW, is one of Switzerland's most important infrastructure projects for hydroelectric generation. It will make a significant contribution to energy security in Switzerland and is scheduled to be phased into operation from 2015. The plant, in which the participating companies are investing around CHF 1 billion, will be constructed completely underground. Alpiq has a 54 % share in the project, the Swiss Federal Railways (SBB) 36 % and FMV, the Valais energy services provider, 10 %.

Work to repair the highly flexible Cleuson-Dixence storage power station in the canton of Valais is progressing well. As things stand at present, Cleuson-Dixence is likely to be fully up and running again from the beginning of 2010. Implementation of the gas-fired combined-cycle power stations in San Severo (Italy) and Bayet (France) is also proceeding according to plan, as is the wind farm being built on Sicily under the partnership with Moncada Energy Group. The plants are scheduled to come online at the end of 2010 (San Severo) and beginning of 2011 (Bayet).

7 May 2009 saw the start of construction of the 50 MW Vetrocom wind farm in the Bulgarian city of Kazanlak. Vetrocom, an Alpiq subsidiary, will be investing around EUR 80 million in the wind farm over the next two years. The twenty wind turbines are scheduled to start delivering electricity to the grid at the end of 2010. In February 2009, the Bulgarian Ministry of Economy and Energy awarded Vetrocom a First Class Investor Certificate for the investment.

5,680 MW With an installed capacity of around 5,680 megawatts (MW) throughout Europe, Alpiq makes an important contribution to a secure supply of electricity. Another 920 MW will beadded at the end of 2009 when Cleuson-Dixence comes online.

Following more than two years of development and construction, Germany's first experimental solar thermal tower power plant has been up and running in Jülich since the beginning of 2009. The plant was built by Alpiq subsidiary Kraftanlagen München. Starting in 2010, both the individual components and the complete system will undergo improvements. In future, the new technology will be marketed for 10-50 MW facilities in sun-rich countries.

Alpiq Holding Ltd. has also expanded its position in the new renewable energy market in Norway, where it acquired a 13.04 % share in Conceptor Renewable Energy and Technology AS (CRET) on 16 June 2009. CRET develops, builds and operates renewable energy facilities in Scandinavia.

On 27 March 2009, Alpiq InTec AG - formerly Atel Installationstechnik AG - took over Rossetto Impianti SpA of Verona (Italy), a company which has specialised in mechanical plant engineering for the industrial, services and healthcare sectors for more than 30 years.

In tandem with the launch of the new Alpiq brand, an important sponsorship project is also under way. Since 1 May 2009, Alpiq Holding Ltd. has been sponsoring the Swiss national ski association, Swiss-Ski. The two partners have agreed to collaborate for at least three years. Alpiq's support of the Swiss national ski association represents its first major sponsorship decision.

Olten, 31 July 2009

For the Board of Directors and Executive Board

Hans E. Schweickardt
Chairman of the Board

Giovanni Leonardi
CEO