Utility-Scale (Grid) Energy Storage Development –Increased Demand Results in Industry Innovation

Sara Bradford, Principal Consultant

Energy & Power Systems Group

June 18, 2009

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Poll Question

Which grid energy storage technology offers the strongest value proposition?

• Compressed air energy storage (CAES)

• Thermal energy storage (TES – molten salt, sand, sandstone, etc.)

• Pumped hydropower

• Flow and electrochemical batteries

• Flywheels

• Fuel cells

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question

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Focus Points

� Impact of current economic situation

� State of the industry for large format utility-scale energy storage

� Growth trends

� Major market shifts

� Market challenges and drivers

� Revenue projections

� Key industry stakeholders

� Summary of conclusions

Agenda

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Impact of Current Economic Situation

�The new U.S. administration’s push towards alternative energy development has supported industry growth in grid energy storage solutions

�However, constricted credit/finance and available funding is expected to lower capital investments and R&D spending in this industry for the next two to three years

�Long-term potential and environment-friendly initiatives are key push factors that enable this market continue commercialization activities

�Today’s strict CO2 and other air contaminant regulations have encouraged utilities to identify alternative power generating technologies such as wind and solar

�With no commercially available energy storage technology available, utilities are forced to rely on gas and diesel-powered generators to supply peak power demand

�With increased wind/solar power generation in addition to smart grid modernization movement, utility-scale energy storage technologies market will continue to grow even in this harsh economic environment

Minimal Impact

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Current State of the Industry

�To reach the U.S. renewable energy target of 20% of power generated from renewable sources by 2020, grid energy storage is essential

�U.S. government is laser focused on this area and understand the need to support technology development in this area

�Without utility-scale energy storage, the U.S. cannot achieve the renewable energy targets

�Billions of stimulus dollars and other programs through the national laboratories are directed towards utility-scale energy storage development

�Bottom-line – utility-scale energy storage is the next highest growth potential battery market

�Utilities currently conducting test projects

�Venture capitalist investments active in this area

�Wind and solar projects require energy storage to expand

�Smart grid, energy storage and grid infrastructure are intertwined – all three needed to modernize the U.S. grid

Action is Required!

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Grid Energy Storage Definitions

�Known as utility-scale or grid energy storage technologies

�Used to manage the flow of electricity in an electric power grid

�For peak shaving, energy storage solutions are used to reduce the cost of peak electricity demand without the need for excess power generation capacity

Purpose

�Energy storage technologies are in various stages of development – from pre-commercial to commercial designs

�Grid stabilization alternatives to conventional lead acid batteries �Flywheels

�Fuel Cells

�Ultracapacitors

�Electrochemical batteries

�Peak shaving energy storage solutions�Compressed air energy storages (CAES)

�Superconducting magnetic energy storage (SMES)

�Thermal energy storage (TES) including storage mediums such as water, ice, molten salt, sand, sandstone, or chalk layers

�Flow batteries

�Electrochemical batteries

�Flywheels

Technologies

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Growth Trends

8

Market Shifts

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Technology Segmentation – Advantages and Disadvantages

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Hot Progress Areas – Funding Opportunity to be Released Soon!

� U.S. Governmental Support – “President Obama has made a ‘smart power grid’a key element of his plan to lower energy costs for consumers, achieve energy independence and reduce greenhouse gas emissions”� The Obama Administration and Department of Energy have identified grid energy

storage and smart grid technologies as areas that require immediate funding support

� This progress is a result of key benefits this technology implementation will bring to the nation’s power grid

� Funding Opportunity Announcement (FOA) – Smart Grid Investment Grant� Proposes funding for one or two energy storage demonstration projects for grid frequency

regulation

� Proposed total funding to be made available for the project(s) is a maximum of $200 million, on a 50% applicant cost-share basis

� The demo projects will help to establish costs and benefits, verify technical performance, and validate system reliability and durability. Goal is to establish a technology that can be readily adapted and replicated across the U.S.

� Energy storage solutions eligible for this funding include advanced battery systems (including flow batteries), ultracapacitors, flywheels, and compressed air energy systems

� Application areas include wind and photovoltaic (PV) integration with the grid, upgrade deferral of transmission and distribution assets, congestion relief, and system regulation

� The formal FOA was expected to be released on or about June 17, 2009….

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Poll Question

What other form of support (financial, developmental) is required to advance grid energy storage?

• Increased subsidies

• Tax incentives

• Mandates

• Increased financial support

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Major Challenges

TECHNOLOGY: This market has been slow to develop as a result of technology limitations and high capital costs

CONSERVATIVE: Utilities are risk adverse, often require at least a 15 year track record for new technologies

RISK: Rapid deployment of grid energy storage is challenged by concerns over technology risk and financial complexity

REGULATION: Utility industry highly regulated although minimal regulations exist for grid energy storage

COMPLEX: Battery alternatives for this application require a complex arrayof battery modules, electronics, software, and thermal management systems

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Major Drivers

� INTEGRATION: Utility-scale energy storage solutions have reached technology development success level and are now being integrated for grid-stabilization applications

� DEMAND: Growing demand for electricity coupled with the lack of available non-fossil fuel options drive energy storage development

� GREEN: Increasing resistance to new fossil fuel and nuclear power plants results in more focus on bulk energy storage

� RENEWABLE: Push for alternative power generation plants such as wind and solar create higher demand for bulk energy storage solutions

� INTEGRATED STORAGE: Innovation accelerating bulk energy storage focus such as next generation concentrating solar power plants with integrated storage (molten salt system)

Drivers

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Revenue Projection – Grid Energy Storage Market (North America), 2005-2020

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

2005 2008 2011 2014 2017 2020

Revenues ($ Million)

Note: All figures are rounded. Base Year 2008. Source: Frost & Sullivan

25.8% Compound

Annual Growth Rate

(2008-2020)

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Market Growth by Technology

7%

27%

5%

6%

36%

7%

12%

21%

8%

3%37%

9%

13%9% CAES

Pumped Hydro

TES

SMES

Battery(Electrochemical/Flow)Flywheel

Fuel Cell

20102020

Source: Frost & Sullivan

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Key Industry Stakeholders

CAES

Flywheel

Flow Batteries

Fuel Cells

Electrochemical

Batteries

TES

SMES

Pumped

Hydro

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Summary of Conclusions

Each energy storage technology plays a different role when it comes to managing the power grid. Key functions include:

� Load leveling – improving power quality by minimizing voltage fluctuations

� Spinning/non-spinning reserve applications – limited backup

� Regulation service/ peak shaving – peak demand reductions

For example:

CAES better suited for load leveling

Flywheels better suited for regulation/peak shaving

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Bottom Line

Bulk Energy Storage Power Generation Grid Modernization+ =

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Next Steps

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The CEO's Growth Team™: Research & Development Driving Growth and

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For Additional Information

Johanna Haynes

Corporate Communications

Energy & Power Systems

(210) 247-3870

jhaynes@frost.com

Diana Bragg

Sales Manager

Energy & Power Systems

(210) 247-3879

dbragg@frost.com

Sara Bradford

Principal Consultant

Energy & Power Systems

(650) 475-4550

sbradford@frost.com