Published 4Q Dave Hurst Senior Analyst. Clint Wheelock President

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1 EXECUTIVE SUMMARY: Hybrid Locomotives Technology Innovations and Demand Drivers for Diesel and All-Electric Locomotives, Genset Locomotives, and Hybrid Locomotives: Market Analysis and Forecasts Published 4Q 2010 NOTE: This document is a free excerpt of a larger research report. If you are interested in purchasing the full report, please contact Pike Research at sales@pikeresearch.com Dave Hurst Senior Analyst Clint Wheelock President

2 Section 1 EXECUTIVE SUMMARY 1.1 Guidelines The locomotive market consists of a variety of different locomotives that serve different purposes. Essentially, four main types of locomotives are in use today: long-line road, regional or local freight, switching (or shunter, in Europe), and passenger locomotives. The regional or local freight locomotives are typically older, rebuilt, and have lower power than the road locomotives. The market for locomotives is split into new locomotives, remanufactured with existing and new equipment, and rebuilt using existing equipment. This report focuses on the market for new and remanufactured vehicles. Almost all locomotives used today are powered by electricity. This electricity is either generated onboard the vehicle through a diesel engine or it is provided through a connection to the electric grid (third rails or overhead lines). All-electric trains require this electrical connection, and these trains can serve both passenger and freight transport purposes. Western Europe and Japan have a high mix of electrified tracks (52% and 61%, respectively). In other parts of the world, diesel is the dominant source of electricity generation on trains. Growth in hybrid locomotives faces several key challenges. In Europe, track electrification will eliminate the need for battery storage in many areas. In North America, a high-profile hybrid locomotive concept faced a setback in the mid-2000s that still haunts the manufacturers and railroad companies today. The market for hybrid locomotives faces stiff competition from newer fuel-efficient locomotives, and in many regions, the locomotive engine does not have to meet strict emissions rules. In 2001, a company called Railpower launched the first hybrid electric switching locomotive in North America, using battery energy storage, called the Green Goat. The Green Goat had quality issues as it was designed for only one shift, but was being used for longer service. As a result of that and a bad battery management system that failed to prevent battery shorts, several Green Goats caught fire and were destroyed. Railpower sold about 55 Green Goats before the company filed for bankruptcy. Several Green Goats are still being used for light duty service, but the vehicles have not been available since Toshiba is the only manufacturer to currently have a hybrid locomotive available (a passenger locomotive for the Japanese market). The market for hybrid locomotives also faces the challenge of competition from traditional locomotives. A new generation of locomotives has emerged in the last decade called generator set (or genset) locomotives. These switching locomotives have two or three generator diesel engines that can be switched on or off depending on the power needs. By pairing two 700 hp engines together, the locomotive can have 1,400 hp, but does not need to burn the fuel for that full size when not required. 1

3 Chart 1.1 Diesel Genset Switcher Locomotives Sales by Region, Baseline Scenario, World Markets: Locomotives Africa/Middle East Asia Pacific Eastern Europe Western Europe Latin America North America (Source: Pike Research) Hybrid locomotives are expected to have a strong return on investment (ROI), as a result of the ability to use low-cost batteries. Weight on locomotives is often helpful (particularly for switching locomotives) because the vehicles need weight to help increase the friction between the wheel and the track (adhesion) during acceleration. Lead acid batteries cost less, weigh more, and will be used in many of the first hybrid locomotive applications. The passenger locomotives that have less space available than a traditional switcher or road locomotive are more likely to take advantage of lithium ion (Li-ion) batteries size and storage capacity. Advanced lead acid batteries will make inroads as well. General Electric (GE) has built a plant to manufacture sodium metal halide batteries, and is showing a prototype road locomotive using those batteries that it intends to bring to market. Nickel metal hydride (NiMH), a favorite for current hybrid automobiles, is unlikely to move into the locomotive space due to cost and competitiveness from other chemistries. The market for hybrid locomotives is likely to get a boost from two important forces. First, in the middle of the decade, new rules regarding diesel locomotive emissions will come into effect in North America and the European Union. By 2014 in the European Union and 2015 in North America, the current diesel locomotive will require substantial changes or exhaust treatments to meet emission rules. This will help drive interest in having hybrids meet these strict new regulations. Additionally, railroad infrastructure is growing rapidly in India and China. Brazil and Russia (the other two BRIC countries) are not seeing as rapid development of infrastructure, largely due to the cost, but they do have strong governmental support for improving their rail capacity. These countries are expected to help drive the demand for locomotives in general, and China is expected to have strong hybrid locomotives growth by the end of the decade. 2

4 Overall, hybrid locomotives will be seen over the next 3 to 5 years, mostly as demonstration and prototype projects. The sales of these vehicles will likely begin middecade in Western Europe and North America, coinciding with the tighter diesel regulations (conservatively, their respective compound annual growth rate (CAGR) is 17.2% and 13.5% between 2015 and 2020). China is expected to be a source for strong sales growth (a CAGR of 22.2% between 2015 and 2020) as their locomotive demand grows and urban areas look to reduce emissions. Worldwide, Pike Research anticipates that the hybrid locomotive market will reach between 109 and 174 vehicles by 2020, for a CAGR of 19.4% to 25.4% between 2015 and This will translate into a need for storage of MWh of energy in Chart 1.2 Hybrid Electric Locomotive Sales by Region, Baseline Scenario, World Markets: Locomotives Africa/Middle East Asia Pacific Eastern Europe Western Europe Latin America North America (Source: Pike Research) 3

5 Section 9 TABLE OF CONTENTS Section Executive Summary Guidelines... 1 Section Market Issues Locomotives in Use Definitions Diesel-Electric without Batteries Hybrid Electric with Batteries The Legacy of Railpower s Green Goat Competition with Traditional Locomotives Track Electrification Borderless Transportation... 8 Section Technology Issues Direct Current vs. Alternating Current Energy Storage Technology Lead Acid Batteries Advanced Lead Acid Batteries Sodium Metal Halide Batteries Sodium Sulfur Batteries Lithium Ion batteries Ultracapacitors Battery Size and Cost Analysis Braking Systems Dynamic Braking Regenerative Braking Section Demand Drivers Emissions Issues for Railroad Companies New Diesel Engine Regulations Government Influence on Locomotive Purchases Government Support for Passenger Rail Economic Growth in BRIC Countries Hybrid Locomotive Strength and Weaknesses Section Key Industry Players AHL-Tech Alstom Group Axion Power International BAE Batterien GmbH Bombardier BNSF Brookville Equipment Corporation Crown Battery China CNR Corporation CSR Qishuyan Locomotive Company

6 5.11 Electro Motive Diesel EnerSys Exide Battery Corporation General Electric Hitachi Hyundai Rotem Corp Mitsubishi Heavy Industries National Railway Equipment Company Norfolk Southern Progress Rail Services Relco Locomotives Remy International Railpower Technologies Siemens Toshiba Transmashholding Union Pacific Vossloh Section Market Forecasts Locomotive Sales Diesel Locomotive Sales, World Markets Diesel Road Locomotive Sales, World Markets Diesel Switching/Shunting Locomotive Sales, World Markets Diesel Passenger Locomotive Sales, World Markets Genset Locomotive Sales Genset Locomotive Average Prices Hybrid Electric Locomotive Sales, World Markets Battery Capacity Required for Hybrid Locomotives Summary and Conclusions Section Company Directory Section Acronym and Abbreviation List Section Table of Contents Section Table of Charts and Figures Section Scope of Study Sources and Methodology Notes

7 Section 10 TABLE OF CHARTS AND FIGURES Chart 1.1 Diesel Genset Switcher Locomotives Sales by Region, Baseline Scenario, World Markets: Chart 1.2 Hybrid Electric Locomotive Sales by Region, Baseline Scenario, World Markets: Chart 2.1 Percentage of Railroad Track Electrification, European Union: Chart 3.1 Locomotives by Electric Motor Current, North America: Chart 6.1 Diesel Locomotive Sales by Region, World Markets: Chart 6.2 Electric (Non-Diesel) Locomotive Sales by Region, World Markets: Chart 6.3 Diesel Road Locomotive Sales by Region, World Markets: Chart 6.4 Diesel Switch/Shunter Locomotive Sales by Region, World Markets: Chart 6.5 Diesel Passenger Locomotive Sales by Region, World Markets: Chart 6.6 Diesel Genset Switcher Locomotive Sales, Baseline and Aggressive Scenarios, World Markets: Chart 6.7 Diesel Genset Locomotives Average Price by Region, World Markets: Chart 6.8 Diesel Hybrid Electric Locomotive Sales, Baseline and Aggressive Scenarios, Chart 6.9 World Markets: Hybrid Electric Locomotive Sales, Baseline and Aggressive Scenarios, North America and Western Europe: Chart 6.10 Hybrid Locomotive Battery Storage Capacity by Region, World Markets: Chart 6.11 Mix of Hybrid Locomotive Battery Storage by Chemistry, World Markets: Figure 2.1 European Rail Electrification Map... 9 Figure 3.1 Duty Cycle of a Typical Switcher Locomotive Figure 4.1 Progression of Locomotive PM Regulation, United States and European Union Figure 4.2 Amtrak Ridership Trends, United States (Millions of Passengers) Figure 4.3 Freight Rail Rates Index, Average for Table 2.1 Locomotive Types... 4 Table 2.2 Railroad Track Electrification by Region, World Markets: Table 3.1 Battery Technology Strengths and Weaknesses for Locomotive Applications Table 4.1 EPA Road Locomotive (Line Haul) Diesel Emission Rules, United States Table 4.2 EPA Switcher Locomotive Diesel Emission Rules, United States Table 4.3 EU Locomotive Diesel Emission Rules, United States Table 4.4 Hybrid and Genset Locomotive Strengths and Weaknesses

8 Section 11 SCOPE OF STUDY Pike Research has prepared this report to provide participants at all levels of the locomotive market including engine and vehicle manufacturers, locomotive remanufacturers, suppliers, battery manufacturers, and railroad operators, with a study of the market of hybrid locomotive technologies. This study s major objective is to determine the state of the industry and the potential future growth of hybrid locomotives in the freight and passenger rail market. The report also provides a review of major demand drivers as well as key industry players within the competitive landscape. The focus is on the locomotive market and, therefore, an examination of light rail, automated people movers, or rapid transit vehicles is not included. SOURCES AND METHODOLOGY Pike Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Pike Research s analysts and the firm s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combined with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. NOTES CAGR refers to compound average annual growth rate, using the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2010 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 52

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