Energy Storage Value Propositions

Energy Storage Value Propositions Applications & Use Cases Giovanni Damato Manager, StrateGen Consulting, LLC Thursday, February 10, 2011 (11:10 AM - 12:00 PM) The Next Intersection: Energy Storage, Four Seasons Silicon Valley

Goals: Overview of Energy Storage Value Propositions Explain Grid Storage Market Developments Especially in California Demonstrate the Strength of the Value Propositions for Several Storage Use Cases Propose How the Industry Can Take Advantage of the Storage Market The Market Opportunity for Storage is Here Now 1

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 2

Strategen Overview We combine strategic thinking with deep industry expertise to create sustainable value Clean Tech Manufacturers / Service Providers Strategen Core Team» Deep industry knowledge in clean energy; core focus on solar & storage» Analytical and financial capabilities» Strategic management expertise» Product development & project construction experience» Project leadership and management» Industry-leading regulatory strategies» What is the value proposition of our product / service?» How can we develop a new product to differentiate our company and generate additional profits?» Where are our profitable opportunities for growth?» How can we alter regulations/policies in our favor? Corporations Exploring Clean Energy Opportunities» How can we use our competitive strengths to take advantage of opportunities in clean energy?» How can we minimize risk to our firm and customers?» How should we plan for future market evolution?» With whom should we partner, and under what terms? Private Equity / VC Firms Investing in Clean Tech» What are the most valuable sectors of clean tech?» What are the likely impacts of future regulatory changes?» What value does a company s products and services generate for its customers and for itself?» Is this company well positioned for long-term success? 3

Sampling of Strategen Clients U.S. Department of Energy 4

Storage leaders founded CESA in January 2009 Steering Committee General Members 5

About CESA Our Mission: Expand the role of storage technology to promote the growth of renewable energy and create a cleaner, more affordable and reliable electric power system» Core principles Technology neutral Ownership/business model neutral» No advocacy for advocacy sake. We are seeking tangible market results» Explicit support of renewable energy in our mission» Philosophy of coalition building with all stakeholders strength in diversity» We have limited resources, and so must be very focused in our efforts California Legislature CPUC CAISO CEC CARB FERC 6

The Grid Connected Energy Storage Market is Large Estimated Global Installed Capacity of Energy Storage Source: Strategen Consulting, LLC research; thermal storage installed and announced capacity estimated by Ice Energy and Calmac. Note: Estimates include thermal energy storage for cooling only. Figures current as of April, 2010. 7

Why California? Energy storage is fundamental to many key California policy initiatives that are shaping the storage market today» Its BIG: 13% of US GDP, 8 th largest economy in the world (if it were a country), ahead of Canada and Spain» Foundational Legislation Energy Storage Procurement Targets: (AB 2514) RPS Legislation (SB 722, introduced) Self-Generation Incentive Program: SGIP (SB 412) Smart Grid Systems (SB 17) Global Warming Solutions Act of 2006 (AB 32) Solar Energy System Incentives: CSI (SB 1)» Pro-storage policy makers in Legislature and at key agencies: California Public Utility Commission, Energy Commission & California Air Resources Board» Incentives available for customer sited applications via SGIP and possibly PLS too» Non-Generator Participation in Ancillary Services Stakeholder Process California Independent System Operator (CAISO)» Many CA storage projects currently underway CESA is driving results-oriented change in all of these areas 8

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 9

Energy Storage Enables Multiple Value Streams Energy storage is a cost effective approach providing numerous benefits to many stakeholders Customer + Utility + System Operator + Society Reduced energy and demand costs Emergency back up Demand response Improved reliability Load leveling T&D relief / deferral Improved power quality Reduce peak gen. and spinning reserve needs Ancillary services Grid integration Improved grid reliability & security More renewables Fewer emissions Healthier climate More jobs We developed the following framework to organize the multitude of benefits storage provides 10

Application Matrix: Value Streams Storage can address a wide range of utility value streams» Electric Supply» Electric Energy Time Shift» Electric Supply Capacity» Ancillary Services» Load Following» Frequency Regulation» Electric Supply Reserve Capacity» Voltage Support» Grid Operations» Transmission Support» Transmission Congestion Relief» Reliability (15 min. - 1 hour)» Power Quality (10 Seconds)» T&D Upgrade Deferral» Stationary» Transportable» Renewable Integration (Solar and Wind)» Ramping» Firming» Overgeneration» Generation shifting» Frequency Regulation» Distribution upgrade deferral due to renewables or EVs 11

Application Matrix: Value Streams...as well as Commercial, Industrial, and Residential value streams» Time-of-use energy cost management» Demand charge management» Demand response» Permanent load shifting» Onsite renewable integration» Onsite renewable generation shifting» Retail participation in ancillary services» UPS replacement» Power Quality (10 Seconds)» Emergency backup (islanding) 12

Application Matrix: Use Cases A use case might be composed of one value stream» Time-of-use energy cost management» Demand charge management» Demand response» Permanent load shifting» Onsite renewable integration» Onsite renewable generation shifting» Retail participation in ancillary services» UPS replacement» Power Quality (10 Seconds)» Emergency backup (islanding) 13

Application Matrix: Use Cases or many, using the same storage system» Time-of-use energy cost management» Demand charge management» Demand response» Permanent load shifting» Onsite renewable integration» Onsite renewable generation shifting» Retail participation in ancillary services» UPS replacement» Power Quality (10 Seconds)» Emergency backup (islanding) 14

Application Matrix: Use Cases In some cases, certain value streams may only be partially captured Grid Operations Benefit Type Benefit Capture (% of Gross) T&D Upgrade Deferral, 50 th 90 th Percentile 100% Transmission Congestion Relief 75% Power Quality (10 Seconds) 50% Electric Supply Electric Energy Time Shift 50% Electric Supply Capacity 100% Ancillary Services Electric Supply Reserve Capacity 75% Voltage Support 50% Total Source: Jim Eyer and Garth Corey, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide, Sandia Report SAND2010-0815, February 2010 15

Application Matrix: Ownership Models There are multiple models for ownership, siting, and compensation, each of which dictates a different storage project approach Case Ownership Siting Compensation Mechanism 1 Utility 2 Utility Customer Rate Based 3 Utility Rate Based/Service Contract 4 Merchant Customer 5 Site Host Service Contract 6 Customer Customer Customer side-of-meter value streams 16

Application Matrix: Technical Specifications Use cases typically correspond to a set of technical specifications and are eligible for certain rebates» Technical Specifications» Capacity (kw)» Duration» Cycle Life» Incentives» Federal: ITC, Utility» Federal: ITC, Customer» Self Generation Incentive Program (SGIP): CA» Permanent Load Shifting (PLS): Proposed, CA» Thermal/PLS» Flexible RPS: MA, HI, PA, CT, OH, NC, NV, MD 17

Application Matrix: Overview We have combined all of these factors onto a single grid» Value Streams» Use Cases» Ownership models» Technical Specifications» Storage Types» Incentive Eligibility 18

Application Matrix: Exclusions There are clearly a wide range of applications which are not covered» Off Grid (residential or commercial)» Military» Automotive» Delivery» Aviation» Medical 19

Residential Applications Commercial Applications Utility Applications Application Matrix: Work-in-Progress The Application Matrix maps out and prioritizes potential use cases Use Cases Utility Commercial Residential Stationary Transporta Peaker Stationary T&D Transporta ble T&D Centralized Distributed Plant T&D Deferral ble T&D Deferral Renewable Renewable Substitutio Frequency Deferral "Plus" Deferral "Plus" Integration Integration n Regulation CES Value Streams (Benefit Capture % of Gross) Electric Supply Electric Energy Time Shift 50% 50% 50% Electric Supply Capacity 100% 100% 100% 100% Ancillary Services Load Following Frequency Regulation 50% 100% Electric Supply Reserve 75% Capacity 75% 75% 75% Voltage Support 50% 50% 50% Grid Operations Transmission Support Transmission Congestion Relief 75% 75% 75% Reliability (15 min. - 1 hour) Commercial PLS "Plus" Off Commercial w/ Grid/Microg UPS Commercial Commercial Renewable rid /Backup PLS PLS "Plus" s Residential Off Residential PLS "Plus" Grid/Microg UPS Residential Residential Renewable rid /Backup PLS PLS "Plus" s Power Quality (10 Seconds) 50% 50% 50% T&D Upgrade Deferral 50th Percentile (Stationary) 100% 100% 70th Percentile (Stationary) 100% 100% 90th Percentile (Stationary) 100% 100% 50th Percentile (Transportable) 100% 100% 70th Percentile (Transportable) 100% 100% 90th Percentile (Transportable) 100% 100% Renewable Integration (Solar and Wind) Ramping 100% 100% 100% Firming 100% 100% 100% Overgeneration 100% 100% 100% Generation shifting 50% 50% 100% Frequency Regulation 50% 50% 50% Distribution upgrade deferral due to renewables or EVs 100% 100% Time-of-use energy cost management 100% 100% 100% Demand charge management 100% 100% 100% Demand response 100% 100% 100% Permanent load shifting 100% 100% 100% Onsite renewable integration 100% Onsite renewable generation shifting 100% Retail participation in ancillary services 50% 50% UPS replacement 100% 100% 100% Power Quality (10 Seconds) 100% 100% 100% Emergency backup (islanding) 100% 100% 100% Time-of-use energy cost management 100% 100% 100% Demand charge management 100% 100% 100% Demand response 100% 100% 100% Permanent load shifting 100% 100% 100% Onsite renewable integration 100% Onsite renewable generation shifting 100% Retail participation in ancillary services 50% 50% 50% UPS replacement 100% 100% 100% 100% Power Quality (10 Seconds) 100% 100% 100% 100% Emergency backup (islanding) 100% 100% 100% 100% Technical Specifications Storage Size Range Low range capacity (kw) 250 250 250 250 1,000 25 1,000 250 5 5 5 5 5 5 1 1 1 1 1 High range capacity (kw) 10,000 10,000 10,000 10,000 100,000 5,000 50,000 5,000 100 5,000 5,000 5,000 5,000 5,000 20 20 20 20 20 Low range duration (h) 2 2 2 2 1 1 4 0.25 1 0.25 0.25 1 1 1 0.25 0.25 1 1 1 High range duration (h) 5 5 5 5 4 4 8 2 4 8 8 10 10 10 8 8 10 10 10 Storage Tecnologies Ultra/Super Capacitors Mid Mid Mid Mid High High Mid High High Low Low High High High Low Low High High High Flywheels Mid Mid Mid Mid High High Mid High High Low Low High High High Low Low High High High Batteries Flow Batteries Low Mid Low Low Mid Low Low Low Mid Mid Low Low Low Low Low Low Low Low Low Lead Acid Mid Mid Mid Mid High High Mid Mid Mid High High High High High High High High High High Advanced Lead Acid Mid Mid Mid Mid High High Mid Mid Mid High High High High High High High High High High Lithium Ion Mid Mid Mid Mid High High Mid High High Low Low High High High Low Low High High High Sodium Sulfur Mid Low Mid Low Mid Mid Mid Low Low Low Low Low Low Low Low Low Low Low Low Zinc Air Low Low Low Low Low Low Mid Low Mid Mid Mid Mid Mid Mid Mid Mid Mid Mid Mid Thermal Storage Chilled water Low Low Low Low Low Low Low Low Low Mid Low Mid Mid Mid Mid Low Mid Mid Mid Hot water Low Low Low Low Low Low Low Low Low Low Low Mid Mid Mid Low Low Mid Mid Mid Ice Low Low Low Low Low Low Low Low Low Low Low Mid Mid Mid Low Low Mid Mid Mid Molten Salt Low Low Low Low High Mid Low Low Low Mid Low Low Low Low Low Low Low Low Low Thermal Mass Low Low Low Low Low Low Low Low Low Low Low Mid Mid Mid Low Low Mid Mid Mid Compressed Air Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Modular compressed air Low Low Low Low Low Mid Mid Mid Low Mid Low Mid Mid Mid Low Low Low Low Low Centralized Low Low Low Low High Mid Mid Mid Low Low Low Low Low Low Low Low Low Low Low Pumped Hydro On-stream Low Low Low Low Mid Mid Low Low Low Low Low Low Low Low Low Low Low Low Low Off-stream/closed loop Low Low Low Low Mid Mid Low Low Low Low Low Low Low Low Low Low Low Low Low Ownership & Financing Compensation/Ownership Models Utility owned, utility sited, rate based Yes Yes Yes Yes Yes No Yes Yes Yes No No No No No No No No No No Utility owned, customer sited, rate based Maybe Maybe Maybe Maybe Maybe Maybe Maybe Maybe Maybe No No Yes Yes Yes No No Yes Yes Yes Merchant owned, utility sited, rate based/service contract Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes No No No Yes Yes No No No Merchant owned, customer sited, rate based/service contract Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes Yes Yes No No Yes Yes Yes Merchant owned, customer sited, site host service contract No No No No No No No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Customer owned, customer sited, customer side of meter value streams No No No No No Maybe No No No No No Yes Yes Yes No No Yes Yes Yes Incentives Federal: ITC, Utility No No No No Maybe Maybe Maybe Maybe No No No No No No No No No No No Federal: ITC, Customer No No No No No Maybe No No No Maybe Maybe Maybe Maybe Maybe Maybe Maybe Maybe Maybe Maybe Self Generation Incentive Program (SGIP): CA No No No No No No No No No Maybe Maybe Yes Yes Yes Maybe Maybe Yes Yes Yes Permanent Load Shifting (PLS): Proposed, CA No No No No No No No No No No No Maybe Maybe Maybe No No Maybe Maybe Maybe Thermal/PLS No No No Maybe Maybe Maybe No No Maybe Maybe Maybe RPS: MA, HI, PA, CT, OH, NC, NV, MD No Yes Yes No No No No Maybe No No No No Maybe Exergonix-Specific Factors Prioritization Factors Short-term market potential (1-2 years) Low Mid Mid High High High Mid High High High High Low Mid Mid High High Low Mid Mid Medium/Long-term market potential (3+ years) Low Mid Mid High High High Mid High High High High Low Mid Mid High High Low Mid Mid Fit with Exergonix company strengths & weaknesses High High High High Mid Mid Low Mid High Low Low Mid Mid Mid Low Low Low Mid Mid Fit with Exergonix product strengths & weaknesses Mid Mid High High Mid Mid Low Mid High Low Mid Mid Mid Mid Low Low Low Mid Mid 20

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 21

Modeling Overview CESA and Strategen have done extensive project-level financial modeling for several use cases» Commercial customer sited and owned energy storage Standalone systems Renewables + storage systems» Peaker plant substitution» Frequency regulation comparisons» Permanent Load Shifting» T&D deferral T&D-only application T&D plus additional value streams 22

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 23

Potential Sources of Value for Distributed Storage Many value streams and ownership models are possible within the distributed storage market Storage Market Segment Distributed Storage Ownership Model Utility Customer Third Party Application Peak Shaving/Energy Cost Management T&D Deferral/Flexibility Ancillary Services/Regulation Power Quality & Reliability S T A C K A B L E Customer-owned storage for peak shaving & energy cost management applications are here today 24

Value Proposition for Behind-the-Meter Storage Shifting load from peak to off peak is a primary source of value for commercial customer-sited distributed storage Load Before Storage» High Energy Costs ($/kwh)» High Demand Charges ($/kw) Load After Storage» Load shifted from high cost peak to low cost off peak Off Peak Off Peak Off Peak Off Peak 1 3 5 7 9 11 13 15 17 19 21 23 25 Baseline Load 1 3 5 7 9 11 13 15 17 19 21 23 Baseline Load Post-Storage Load

Avoided Energy Cost Calculations An optimized storage system balances two competing components: customer load & electric utility tariff Commercial Load Profile Commercial Electric Utility Tariff 26 Off Peak 1 3 5 7 9 11 13 15 17 19 21 23 Baseline Load Off Peak Post-Storage Load» Demand charges ($/kw) Season deviations (summer/winter) Peak demand Mid-peak demand All-hours demand» Energy charges ($/kwh) Season deviations (summer/winter) Peak energy use Mid-peak energy use Off-peak energy use» Other charges outside case study scope Power factor charges ($/kvar) Critical peak pricing ($/kwh) To optimize the dispatch of storage system within this constraints, we must consider the storage technology s capabilities

Strategen s Approach to Distributed Storage Modeling Our approach is to model a specific application/project at the system level for commercial-grade results 1. Select specific application and site details 2. Define system specifications for the energy storage technology 3. Optimize storage system size and operation to maximize avoided energy cost and overall project IRR 4. Model the project s value proposition to the commercial customer behind-the-meter 5. Run sensitivities of key system specifications Now, let s take a look at the specific details of our case study 27

Case Study Value Proposition: General Overview Storage Base Case: A 100kW, 4h battery system has an 8.2% IRR from peak load shifting and avoided energy costs Key Assumptions (1)» Use: customer-sited 100kW, 4h duration storage system» Ownership: All-equity turnkey purchase» Battery round trip AC efficiency: 65%» CAPEX: $700/kWh ($2,800/kW)» O&M: $0.075/kWh discharged (2)» Incentives: NONE Load Shape Impacts August Peak Day Load Before & After Storage 1 3 5 7 9 11 13 15 17 19 21 23 Results» After Tax IRR (3) : 8.2%» Annual Electric Bill Savings: $25,036 (1) SCE TOU8 tariff, CA high school load profile (2) Accounts for replacement costs of battery cells, parasitic loads, and consumables (3) IRR = Internal Rate of Return Baseline Load Post-Storage Load Storage Charge/(Discharge) Storage Optimal Sizing» Analyze net peak load» SCE TOU8 Peak Period 12PM 6PM» Use storage to shave afternoon peak» 100kW, 4h battery 28

Energy Savings ($/kwh) Demand Savings ($/kw) Case Study Optimized Avoided Energy Costs First year avoided energy costs = $25,036 in savings Optimized Storage Specifications Year 1 Avoided Energy Costs with Storage» Technology: Generic battery Reasonable assumptions» Optimal Battery Size: Optimized for IRR 100kW capacity 4h duration» Efficiency: Round Trip AC to AC 65%» Tariff: SCE TOU8 Option B 5% p.a. escalation rate Tariff Component kw or kwh Avoided Total Savings All Hours 100 $14,673 On-Peak 100 $ 8,682 Mid-Peak 100 $1,757 On-Peak 22,168 $3,351 Mid-Peak 56,356 $5,270 Off-Peak (126,210) ($8,696) Total N/A $25,036 29

Expenses Incurred from Storage Systems Installing and operating an energy storage system generates capital and operating expenses Capital Expenses (CAPEX) Margin Installation Design, PM, Permitting, etc. Case Study CAPEX» $700/kWh ($2,800/kW)» All-in system installed price» No Salvage/Disposal Value BOS (electrical, HVAC, Building) Inverter Controls Cell Stack Operating Expenses (OPEX)» Planned vs. unplanned maintenance» Annual variable O&M $/kwh discharged Cell stack replacement» Annual fixed O&M Routine maintenance» Periodic fixed O&M Inverter replacement» Insurance costs Case Study OPEX» $0.075/kWh discharged (1)» 0.37%/yr Insurance cost (CAPEX basis)» 2% p.a. escalation rate (1) This cost accounts for replacement costs of battery cells, parasitic loads, and consumables 30

IRR Value Proposition Drivers: CAPEX CAPEX & Incentives have a significant impacts on customers returns 25% 20% 15% Assumes 65% AC Roundtrip Efficiency IRR vs. CAPEX for Various Incentive Regimes No Incentives SGIP 30% FITC SGIP + ITC 10% 5% 0% CAPEX ($/kwh) 31

Demand ($/kw) IRR Energy ($/kwh) Value Proposition Drivers: Efficiency Roundtrip efficiency for energy based electrical tariffs is a more important driver than for demand + energy based tariffs IRR vs. Roundtrip Efficiency Tariff Comparison (Summer) 10% Assumes $700/kWh CAPEX Tariff Type Demand & Energy Energy Only 8% Tariff SCE TOU8 Option B SCE TOU8 Option A 6% On-Peak 0.1306 0.3110 4% IRR Is Less Sensitive to Efficiencies >50% Mid-Peak 0.0881 0.1276 Off-Peak 0.0613 0.0613 2% 0% Demand & Energy Charge Tariff Energy Only Tariff 30% 50% 70% 90% Ac to AC Roundtrip Efficiency All Hours 11.06 11.06 On-Peak 18.75 N/A Mid-Peak 5.28 N/A 32

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 33

Conceptual Overview of Storage + PV Distributed Solar + Storage Base load Load & Solar Generation Potential Value Streams» Charge during off-peak and discharge during peak to reduce demand charges (similar to the standalone storage base case)» Potential to capture new incentives in California: SGIP ($2/W)» Potential to leverage 30% FITC for both technologies Net Load is Still Coincident with Peak Demand Charges Storage to Shift Net Peak Load to Off Peak Periods» Firm up additional demand savings from renewables» Can share inverter / power conditioning equipment with solar or other renewables» Potential to provide emergency back up capabilities 34

Value Proposition: PV + Storage Case Storage + 350 kw PV system has an 18% IRR compared to the Storage Only Base Case IRR of 8.2% Key Assumptions (1)» Use: customer-sited 100kW, 4h duration storage system coupled with 350kW of PV» PV & storage share inverter» Ownership: all-equity turnkey purchase» Battery round trip AC efficiency: 65%» CAPEX: $700/kWh ($2,800/kW)» O&M: $0.075/kWh discharged (2)» Incentives: $2/W SGIP Results (3) Load Shape Impacts August Peak Day Load Before & After Storage 1 3 5 7 9 11 13 15 17 19 21 23 Baseline Load Net Load w/pv Post-Storage Load Storage Charge/(Discharge) Storage Optimal Sizing» After Tax IRR: 18% (10% without SGIP)» Annual Electric Bill Savings: $26,365 (1) SCE TOU8 tariff, CA high school load profile, PV assumptions the same as PV Only Case (2) This cost accounts for replacement costs of battery cells, parasitic loads, and consumables (3) Incremental value of storage only; PV savings netted out» Analyze net peak load with PV system» SCE TOU8 Peak Period 12PM 6PM» Use storage to shave afternoon peak» 100kW, 4h battery 35

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 36

Energy storage is a cleaner alternative to natural gas peakers lbs/mwh (lbs/gwh for CO2) GHG & Air Quality Comparison Peaker Plant Storage System Percent Reduction 1.25 1.00 0.75 55% 85% 96% 77% 84% 0.50 0.25 0.00 CO2 NOx CO SOx PM10 1) Assumptions from CEC Cost of Generation Model for simple cycle peaker and standard combined cycle for off-peak base load; generation mix based on annual report of actual electricity purchases for Pacific Gas and Electric in 2008 37

Storage is Cheaper & Cleaner than CT Peaker Plants Gas-Fired Turbine Peaker Plant Energy Storage Peaker Substitution Costs Assumptions LCOG LCOG ($/MWh) ($/kw-yr) Installed Cost $1,394/kW $265 $109 Grand Total $492 $203 Costs Assumptions LCOG LCOG ($/MWh) ($/kw-yr) Installed Cost $1,351/kW $256 $105 ($338/kWh) Grand Total $377 $155 Levelized Cost of Generation for Energy Storage is Less Than a Simple Cycle Gas-Fired Peaker 38

Peaker Plant Substitution: Analysis Assumptions General Assumptions Gas-Fired Peaker Plant 1 Energy Storage Peaker Substitution 2 Technology: Simple Cycle Combustion Turbine Plant Size 49.9MW Efficiency 37% (9,266 Btu/kWh Heat Rate) Ownership POU Owned/Financed Project Life 20 years Capacity Factor 5% Plant, T&D Losses 6% (Centralized Plant) Costs Assumptions LCOG LCOG ($/MWh) ($/kw-yr) Fixed O&M $24/kW/yr $69 $29 Corp. Taxes 0% $0 $0 Insurance 0.6% of CAPEX $23 $10 Property Tax 1.1% of CAPEX $29 $12 Natural Gas $61/MWh $100 $41 Fuel Variable O&M $0.04/kWh $5 $2 Subtotal $227 $93 General Assumptions Technology: Lead-Acid Battery Plant Size 49.9MW (4h duration) Efficiency 84% (AC to AC Roundtrip) Ownership POU Owned/Financed Project Life 20 years Capacity Factor 5% Plant, T&D Losses 6% (Centralized Plant) Costs Assumptions LCOG LCOG ($/MWh) ($/kw-yr) Fixed O&M $6/kW/yr $17 $7 Corp. Taxes 0% $0 $0 Insurance 0.6% of CAPEX $22 $9 Property Tax 1.1% of CAPEX $28 $12 Off-Peak Grid $24/MWh 3 $48 $20 Charging Variable O&M $0.04/kWh $5 $2 Subtotal $121 $50 39 Costs Assumptions LCOG LCOG ($/MWh) ($/kw-yr) Installed Cost $1,394/kW $265 $109 Grand Total $492 $203 Costs Assumptions LCOG LCOG ($/MWh) ($/kw-yr) Installed Cost $1,351/kW 4 $256 $105 ($338/kWh) Grand Total $377 $155 Levelized Cost of Generation for Energy Storage is Less Than a Simple Cycle Gas-Fired Peaker 1) Source: CEC 2009 Comparative Cost of California Central Station Electricity Generation Technologies (CEC_COG_Model_Version_2.02-4-5-10) 2) Source: Strategen Consulting, Levelized Cost of Generation Model 3) Assumes most recent sample of average summer off-peak wholesale price from CAISO OASIS database 4) EPRI Chino Study TR-101787, Chino Battery Energy Storage Power Plant: Engineer-of-Record Report (December 1992)

Levelized $/MWh Benefit Additional System Benefits of Energy Storage Energy storage provides multiple value streams above and beyond peaker substitution, making the economic case for energy storage even stronger 1600 Frequency Regulation 1200 Transmission Congestion Relief 800 Electric Supply Reserve Capacity Voltage Support 400 Electric Energy Time-Shift 0 Peaker Substitution Source: SANDIA Report SAND2010-0815, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide, Jim Eyer & Garth Corey (February 2010) 40

Installed Cost ($/kwh) Additional System Benefits of Energy Storage Fossil Fuel Societal, Grid, and Peaking Costs vs. Energy Storage Costs 1,2 Avoided Costs Realized 2500 2000 Societal Costs Societal Level: - GHG & Air Quality - Renewables Integration - Smart Grid Implementation - Streamlined Permitting 1500 1000 500 0 Grid System Level Costs Peaker Substitution Costs Grid System Level: - Electric Energy Time-Shift - Voltage Support - Electric Supply Reserve Capacity - Transmission Congestion Relief - Frequency Regulation Peaker Level: - Peaker Plant Substitution High Estimated Total Installed Cost by Technology Average Estimated Total Installed Cost by Technology 1) Assumptions: All energy storage technology costs shown are normalized for a four-hour duration; Technology comparison is for modern energy storage systems only, but does not include pumped hydro or highspeed flywheels which are not designed for long-duration peaking applications 2) Source: Average estimated total installed cost estimate from: Sandia Report SAND2008-0978, Susan M. Schoenung and Jim Eyer, Benefit/Cost Framework for Evaluating (February 2008) 41

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 42

Storage is more capable of following a faster, 1. Q1: Flywheels are more capable of following a faster, frequently changing Regulation frequently changing regulation signal Slow Ramping of Conventional Generator Flywheel Energy Storage Example Fast-response energy storage provides near instantaneous response to a control signal Sources Kirby, B. Ancillary Services: Technical and Commercial Insights. Wartsilla, July, 2007. pg. 13

Frequency Regulation: Energy Storage is Cheaper, Faster, & Cleaner than a Conventional CCGT CESA compared a flywheel to a CCGT for the frequency regulation use case with the flywheel outperforming a CCGT in all aspects Base Case Results Flywheel 1 CCGT Baseload IRR 25.7% 7.0% Payback Period (yr) 3.9 13.6 Lifetime Carbon Emissions (tons) 69,975 986,595 Flywheels have a >3.0x performance factor when compared to traditional generators engaged in frequency regulation 1) Assumes 2.5x performance factor 2) Mileage is defined as the regulation provided in an hour and is calculated as the sum of the absolute value of positive and negative movements requested by the ISO while providing regulation (net of any generator working against the ACE) 3) Source for Graphics: Beacon Power Corporation 44

Frequency Regulation: Analysis Assumptions Project Specifications Flywheel CCGT Baseload Plant Ownership Model Merchant Merchant Project Tenor (yr) 20 20 System Capacity Dedicated to Regulation (MW) 20 20 Plant Heat Rate (Btu/kWh) N/A 7,050.0 HeatRate Degradation N/A 0.0 Capacity Degradation 0.00% 0.24% Plant Parasitic Losses 2.00% 2.90% Efficiency 87.00% N/A Efficiency Degradation 0.00% N/A Installed Cost ($/MW) 1,900,000 1,021,000 Operation and Maintenance Costs Fuel Cost - Conventional ($/MMBtu) N/A 4.31 Fuel Cost - Storage ($/MWh) 50.00 N/A Fuel Cost Escalation Rate 1.53% 1.53% Carbon Price ($/ton) 0.00 0.00 Carbon Price Escalation Rate 0.00% 0.00% Revenue Assumptions Flywheel CCGT Baseload Average Regulation Clearing Price ($/MW/h) 33.41 33.41 Regulation Clearing Price Escalation Rate 3.5% 3.5% Comparative Performance Factor 2.5 1.0 45

IRR IRR Lifetime Carbon Emissions (Tons of C02) Sensitivities: Carbon Price and Performance Factor Carbon pricing will significantly affect conventional frequency regulation, while the higher performing storage systems will surpass conventional methods Carbon Pricing Performance Factor Effects IRR vs. Carbon Price ($/ton) 40.0% 200,000 30.0% 25.0% 30.0% 150,000 20.0% 20.0% 100,000 15.0% 10.0% 10.0% 50,000 5.0% 0.0% $0.00 $17.00 CCGT 7.0% 3.1% Flywheel 25.7% 25.6% 0.0% 1.0x 1.5x 2.0x 2.5x 3.0x Performance Factor IRR Carbon Emissions 0 46

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 47

Permanent Load Shifting Incentives are coming Via D.09-08-027, the CPUC ordered California utilities to study use of a standard offer program for permanent load shifting (PLS) What is PLS?» Shifting energy usage by one or more customers from one time period to another on a recurring basis» Storing energy generated off peak and using it to support electric load on peak» Value is captured for ratepayers through energy arbitrage and demand charge capture and, potentially, incentives How is PLS different from DR?» PLS is not dispatched on a day-ahead or day-of basis» PLS doesn t respond to short term price fluctuations» Eligible Storage Examples:» Battery storage» Thermal energy storage Utility study of PLS was completed 12/1/10: http://www.ethree.com/public_projects/sce1.html 48

Avoided Cost Benefits $/kw Peak Capacity Reduction Permanent Load Shifting Incentives are coming Avoided cost benefits range from $500 to over $2,500/kW peak capacity depending on the shift s duration and timing 1,2 $3,000 $2,500 $2,000 1 Hour 2 Hours 4 Hours 6 Hours 8 Hours 10 Hours $1,500 $1,000 $500 $0 7 8 9 10 11 12 13 14 15 16 17 Shift Start Hour Source: Statewide Joint IOU Study of Permanent Load Shifting, E3 & Strategen (December, 2010) 1) The avoided cost benefits provided by PLS include electrical energy, losses, ancillary services, system (generation) capacity, transmission and distribution capacity, environmental costs, avoided renewable energy purchases. and integration benefits of load following and over-generation. These figures are calculated based on the kw value of the load shift and are technology neutral, and do not include benefits from other value streams. They assume the best case operational profile in that they assume the maximum load shift every day of the year, and off-peak usage at the least cost period during the night. 2) The avoided cost benefits assume a 15 year equipment life. Many PLS technologies have longer life spans. At a 30 year life, the avoided cost benefits increase by approximately 30% 49

PLS Business Model Overview: Customer Owned 3rd Party Markets/Sells» End user owns and operates a PLS system Utility Provide Rebates or other incentives Set TOU Rates Standard Billing to reflect any savings EPC Contractor Installs system» End user benefits from any utility incentives, capital buy-downs, and potential electric bill savings» Program marketed and administered by PLS Project Owned by Customer any 3rd party Benefits Key Issues Risks Mitigants» Utility does not need to» What technologies are» Return on investment» Program incentives get involved available and viable?» Utility tariff(s) may change» Warranties» Customer can choose» Customer must manage» O&M Costs and any equipment and any capital investment Performance risk control it for their» Utility can t monitor or individual needs control the units

PLS Business Model Overview: Utility Owned Municipal Utility Set TOU Rates Standard billing to reflect any savings Dispatch Control SCPPA Site selection Host contractual agreements Conducts M&V EPC Contractor Installs system Ongoing O&M contract» Utility owns and operates PLS system (similar to having a transformer on a customer site under easement)» End user is able to participate as a host, advertize their actions as green initiatives and obtain electric bill savings» Program is controlled and directed by the PLS Project Customer is Host local Utility (a reliable entity) Benefits Key Issues Risks Mitigants» Rapid rollout» Explaining to the host sites» Host contract/easement» Strategic site locations &» High volume pricing that they may get requires interaction with targeted feeders don t benefits marginal rate savings the property owner/lessee require 100% saturation» Utility can finance the benefits from the utility» Unit Performance» O&M Contract/ systems equipment which operates» Liability of Utility Warranties» Utility can monitor, invisibly equipment on the» Standard Terms and dispatch and control units customer premise Easements

Permanent Load Shifting Incentives are coming Many dimensions must be considered when designing PLS incentive programs 52

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 53

Utility Market: T&D Deferral + Other Value Streams T&D deferral couple with multiple other viable benefits introduces relatively lucrative use cases Grid Operations Benefit Type Gross Benefit ($/kw-year) Benefit Capture (% of Gross) Net Benefit ($/kw-year) T&D Upgrade Deferral, 50 th 90 th Percentile 584-919 100% 584-919 Transmission Congestion Relief 12 75% 9 Power Quality (10 Seconds) 93 50% 47 Electric Supply Electric Energy Time Shift 77 50% 39 Electric Supply Capacity 75 100% 75 Ancillary Services Electric Supply Reserve Capacity 20 75% 15 Voltage Support 56 50% 28 Total 917-1,252 797-1,252 Source: Jim Eyer and Garth Corey, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide, Sandia Report SAND2010-0815, February 2010 54

Utility Market Size Estimate 10 Year market projections range from 1GW to over 30GW depending on the benefit targeted Benefit $/kw-year Potential MW 2008 Projection Potential MW 2016 Projection Benefit Type Low Mid High 10 years 10 years Electric Supply Electric Energy Time Shift 56 77 98 18,417 19,540 Electric Supply Capacity 50 75 99 18,417 19,540 Ancillary Services Load Following 84 112 139 36,000 38,196 Area Regulation 109 195 280 1,012 1,074 Electric Supply Reserve Capacity 8 20 31 5,986 6,351 Voltage Support 56 56 56 9,209 9,771 Grid Operations Transmission Support 27 27 27 13,813 14,656 Transmission Congestion Relief 4.3 12 20 36,834 39,081 T&D Upgrade Deferral, 50th Percentile 481 584 687 4,986 5,290 T&D Upgrade Deferral, 90th Percentile 759 919 1079 997 1,058 Reliability (15 min. - 1 hour) 50 93 136 9,209 9,771 Power Quality (10 Seconds) 50 93 136 9,209 9,771 Source: Jim Eyer and Garth Corey, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide, Sandia Report SAND2010-0815, February 2010 55

Outline of Today s Discussion Energy Storage Value Propositions» Introduction to Strategen, CESA, & the California Context» Framework for Understanding Storage Use Cases» Examples of Storage Value Propositions Customer Sited Standalone Storage Customer Sited PV + Storage Peaker Plant Substitution Frequency Regulation Permanent Load Shifting T&D Deferral» Questions & Answers 56

Questions? Giovanni Damato Manager 2150 Allston Way, Suite 210 Berkeley, CA 94704 www.strategen.com O 510 665 7811 M 805 415 7354 F 888 453 0018 gdamato@strategen.com 57

Appendix» Strategen Team» Customer-Sited Value Proposition Details 58

Strategen Team Janice Lin, Managing Partner» Founded Strategen in 2005. Also co-founded the California Energy Storage Alliance» Has more than a decade of clean energy strategy and market development experience» Prior to Strategen, served as VP of Product Strategy and VP of Business Development at PowerLight. Former strategy consultant with Booz Allen and Hamilton» MBA from Stanford GSB, BS from Wharton at the University of Pennsylvania Chris Edgette, Director» Extensive solar product development, engineering and field installation experience» Prior to Strategen, founded and managed the Commercial Projects Division for SolarCity. Prior to that, served as SolarCity s Director of Field Engineering» Led Construction Management for PowerLight, directed worldwide installations of over 25MW and brought to market a successful non-penetrating rooftop solar system 59 Giovanni Damato, Manager» Focused on developing the value proposition and strategic implications of Solar PV, Solar Thermal, and Advanced Energy Storage for a wide range of key stakeholders» Prior to Strategen, was Field Engineer for Granite Construction on Las Vegas Monorail project. Also founded home construction business and certified CA Class B General Contractor» MBA from Stanford GSB, BS in Civil Engineering from Cal Poly, San Luis Obispo

Cash Flow Pro Forma: Base Case Year 2011 2012 2013 2014 2015 2016 2026 2036 Period 0 1 2 3 4 5 15 25 REVENUE Demand Savings All-Hours 14,673 15,406 16,177 16,985 17,835 29,051 47,320 On-Peak 8,682 9,116 9,572 10,051 10,553 17,190 28,001 Mid-Peak 1,757 1,845 1,937 2,034 2,136 3,479 5,667 Energy Savings On-Peak 3,351 3,518 3,694 3,879 4,073 6,634 10,806 Mid-Peak 5,270 5,534 5,810 6,101 6,406 10,435 16,997 Off-Peak (8,696) (9,131) (9,588) (10,067) (10,571) (17,218) (28,047) Capacity Based Incentives (SGIP) - EXPENSES Annual Variable O&M (5,889) (6,007) (6,127) (6,250) (6,375) (7,771) (9,473) Insurance (1,036) (1,057) (1,078) (1,099) (1,121) (1,367) (1,666) DEPRECIATION (40,012) (68,572) (48,972) (34,972) (25,004) - - Earnings Before Taxes (21,901) (49,348) (28,575) (13,339) (2,068) 40,432 69,606 TAXES State Tax (liability) / benefit at 8.84% 2,524 1,738 1,062 475 (38) (3,574) (6,153) Federal Tax (liability) / benefit at 35.00% 6,782 16,663 9,630 4,502 737 (12,900) (22,208) Total State & Federal Taxes 9,306 18,402 10,691 4,977 699 (16,475) (28,362) Net Income (12,595) (30,946) (17,883) (8,361) (1,369) 23,958 41,244 FREE CASH FLOW TO EQUITY Storage CAPEX (280,000) Inverter Cost Reduction - Net Storage CAPEX (280,000) Federal Investment Tax Credit - Adjustments to Net Income PLUS: Depreciation 40,012 68,572 48,972 34,972 25,004 - - Total Adjustments to Net Income 40,012 68,572 48,972 34,972 25,004 - - Total Free Cash Flow to Equity (280,000) 27,417 37,626 31,089 26,611 23,635 23,958 41,244 Equity Holder IRR 8.2% Net Present Value (at 7.0%) $30,778 60

Detailed Avoided Energy Costs Commercial electric tariff structures are complex! Finding the optimal dispatch strategy for the storage system requires attention to detail: Annual Month Avoided Energy Cost ($) Total 1 2 3 4 5 6 7 8 9 10 11 12 Storage Only Demand Savings All Hours 14,673 1,088 1,152 1,280 1,280 1,280 1,280 973 1,280 1,280 1,280 1,280 1,216 On-Peak 8,682 - - - - - 2,171 2,171 2,171 2,171 - - - Mid-Peak 1,757 - - - - - 611 306 489 351 - - - Energy Savings On-Peak 3,351 - - - - - 754 862 922 813 - - - Mid-Peak 5,270 679 666 418 233 584 255 211 216 228 433 643 702 Off-Peak (8,696) (792) (775) (571) (290) (670) (876) (856) (902) (843) (558) (750) (815) Annual Month Avoided Energy & Demand Total/Max 1 2 3 4 5 6 7 8 9 10 11 12 Storage Only Demand Savings (Max kw) All Hours 100 85 90 100 100 100 100 76 100 100 100 100 95 On-Peak 100 - - - - - 100 100 100 100 - - - Mid-Peak 100 85 90 100 100 100 100 50 80 58 100 100 95 Energy Savings (Total kwh) On-Peak 22,168 - - - - - 4,989 5,701 6,103 5,376 - - - Mid-Peak 56,356 7,384 7,248 4,551 2,540 6,349 2,502 2,069 2,121 2,235 4,715 6,998 7,642 Off-Peak (126,210) (11,716) (11,469) (8,456) (4,286) (9,914) (12,340) (12,056) (12,701) (11,870) (8,250) (11,091) (12,059) 61

Modeling Storage Value Propositions is a Challenge Collect Site/Project Specs Optimize Avoided Energy Cost with or without Storage Model Value Proposition Baseline Load Profile Avoided Energy Costs Storage and DG CAPEX & OPEX Ownership Model (Turnkey Purchase or Third Party PPA) Financial Assumptions (Discount Rate, Taxes, etc.) Distributed Generation Fuel Cell Storage Sizing/Specs Pro Forma Output (Cash Flows, NPV, IRR) Federal Investment Tax Credit Generation (Electric & Heat) State Incentives & Utility Rebates Utility Tariff Avoided Energy Costs from DG and Storage Peak Demand Shifting Generate Results & Iterate Energy Cost Management Standard Financial Results Customized Results for Sales 62