PWH Houston Producers Forum

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SIMMONS & COMPANY INTERNATIONAL Perspectives on Alternative Energy Houston Producers’ Forum January 16, 2007 Important disclosures appear in Appendix D. Pearce Hammond, CFA phammond@simmonco-intl.com Houston: 1.713.546.7263 700 Louisiana Street 50th Floor Houston, TX 77002 125 Summer Street Suite 1660 Boston, MA 02110 Simmons & Company International Ltd. 33 Queens Road Aberdeen, Scotland AB15 4ZN 40 Piccadilly London W1J 0DR England

Is Alternative Energy the Panacea to our Energy Crisis?: 

Is Alternative Energy the Panacea to our Energy Crisis?

Major Themes Benefiting Alternative Energy: 

Major Themes Benefiting Alternative Energy Energy Security Crude Oil/Natural Gas Prices Climate Change/Environment Increase Efficiency Increasing Technological Change/Cost Declines

2006 U.S. Energy Production/Consumption: 

2006 U.S. Energy Production/Consumption Source: EIA 2006 U.S. Energy Consumption (quad BTUs)

2006 U.S. Electricity Generation: 

2006 U.S. Electricity Generation Source: EIA 2006 U.S. Electricity Generation (billion kilowatt hours)

Technology Comparison: 

Technology Comparison Source: SCI

Wind Energy: 

Wind Energy

Projected Global Wind Capacity: 

Projected Global Wind Capacity ’98-’05 CAGR: 28.66% ’06E-’10E CAGR: 19.67% Source: BTM Consult and SCI

What is Driving Global Wind Capacity Growth?: 

What is Driving Global Wind Capacity Growth? Favorable economics ($0.04-$0.07/kwh) Production Tax Credit – PTC ($0.019/kwh) Clean/Renewable Source of Energy Strong Utility Support – Portfolio Diversification

Can Wind Energy Help Carry the Energy Burden?: 

Can Wind Energy Help Carry the Energy Burden? Yes, but only in power generation Wind energy is not a solution for vehicle and transportation fuel Limiting Factors: Transmission Intermittency

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Solar Energy

Projected Global Solar Capacity: 

Projected Global Solar Capacity ’92-’05 CAGR: 31.03% ’06E-’10E CAGR: 38.04% Source: IEA and SCI

What is Driving Global Solar Capacity Growth?: 

What is Driving Global Solar Capacity Growth? Subsidies (Primarily State but some Federal) Clean/Renewable Tracks a Peak Load Located at the End-User Aggressive Cost Reduction

Can Solar Energy Help Carry the Energy Burden?: 

Can Solar Energy Help Carry the Energy Burden? Yes. Similar to wind energy, solar can go a long way in addressing power generation needs. Solar could be the largest alternative energy technology Solar competes with natural gas for peak electricity load.

Syn/Bio-Fuels: 

Syn/Bio-Fuels

U.S Biofuels Production: 

U.S Biofuels Production ’99-’05 CAGR: 238% ’99-’06E CAGR: 18.77% Biodiesel Ethanol Source: American Coalition for Ethanol and SCI Source: National Biodiesel Board

What is Driving Global Biofuels Growth?: 

What is Driving Global Biofuels Growth? Subsidies (Volumetric Ethanol Excise Tax Credit – VEETC) and Mandates (Renewable Fuels Standard – RFS and MTBE phase out) Domestically Sourced Energy Transportation Market Business Support (GM/Ford)

Can Biofuels Help Carry the Energy Burden?: 

Can Biofuels Help Carry the Energy Burden? Yes. Biofuels are an alternative in the all-important transportation fuels energy segment However, corn-derived ethanol probably peaks at 10% of the gasoline supply (due to corn supply issues) The energy balance for ethanol is not hugely positive (1.2-1.4 to 1) The energy balance for biodiesel is much more positive (3.2 to 1)

Synthetic Fuels: 

Synthetic Fuels Defined as Coal to Liquids (Coal to Diesel) Fisher-Tropsch technology is economic at $40-50/bbl In order to be environmentally viable, carbon capture and sequestration must be further developed The United States has the largest coal reserves in the world (followed by Russia and China) The timeframe for such technology is roughly >2010

Hydrogen/Fuel Cells: 

Hydrogen/Fuel Cells

Fuel Cells: 

Fuel Cells Fuel Cell: Static device that converts the chemical energy in hydrogen into electricity and hot water through an electrochemical process Similar to a battery Applications Consumer Electronics Cell Phones Laptop Computers Backup power Primary power Automobiles Powered industrial trucks (i.e. forklifts)

What will Drive Fuel Cell Growth?: 

What will Drive Fuel Cell Growth? Concerns regarding emissions Battery limitations Battery disposal Need for high efficiency, localized power

Can Fuel Cells/Hydrogen Help Carry the Energy Burden?: 

Can Fuel Cells/Hydrogen Help Carry the Energy Burden? The proposition of heavy dependence on Fuel Cells/Hydrogen is questionable There will be a demand for such technology, but the level of such demand has yet to be seen Limitations: Infrastructure Hydrogen

Misconceptions of Alternative Energy: 

Misconceptions of Alternative Energy A “silver bullet” for America’s energy needs Positive environmental benefits Need subsidies forever Cost will never come down

Alternative Energy “Game Changers”: 

Alternative Energy “Game Changers” Cellulosic Ethanol Grid Parity Solar Plug-In Hybrids

Questions/Answers: 

Questions/Answers

Appendix: 

Appendix

California’s Greenhouse Gas Plan: 

California’s Greenhouse Gas Plan Requires a 25% cut in carbon dioxide pollution produced within the state’s borders by 2020. This would bring the total down to 1990 levels. Bill is the broadest in the nation for restricting carbon dioxide emissions. Provides a statewide market system designed to allow heavy-emission industries to meet the new stricter limits through buying credits from low-emission companies.

Global Wind Market: 

Global Wind Market Forecasted Wind Power Development 2005-2010 (MW) Globally: 11,407 MW installed in 2005 (+40% y/y). Exceptionally compelling growth prospects. PTC through 2007 Kyoto Treaty impact GE & Siemens: Legitimacy High natural gas and oil prices US RPS led growth Leading Suppliers in Top 10 Markets 2005 Top-10 List of Global Suppliers 2005 Source: BTM Consult

Solar: 

Solar Advantages No Emissions Renewable Remote, Off Grid Apps Tremendous Potential Quiet Scalable Disadvantages High Capital Cost Intermittent Environmental Disposal Low Efficiency Inverters Source: PV News. Solar Power: Photovoltaics Solar Thermal Source: IEA. Top PV Producers Worldwide (2004) Cumulative Installed PV Power (MW)

Solar Cost: 

Solar Cost Cost of Residential PV: Source: Sharp Solar and SCI

Polysilicon Supply: 

Polysilicon Supply Supply Demand Supply Deficit Supply Surplus Polysilicon Supply Forecast (Metric Tons) Source: SCI and Various Company Sources

Bio Fuels: 

Bio Fuels Advantages Less offensive odor Higher cetane rating (better fuel ignition performance) Lower flash point (safer) Reduced emissions Disadvantages Expensive Limited availability Deteriorates natural rubber Increased NOx in some situations U.S. Ethanol Production Source: ACE and RFA. Ethanol-Gasoline (cents/gallon) Source: Bloomberg. Advantages Renewable Lower carbon monoxide emissions Higher oxygen and octane Protects from winter gas line freeze up Ethanol Rack Price (cents/gallon) Source: Bloomberg. Ethanol Ethanol is grain alcohol which can be derived from many sources such as sugar cane, milo, wheat, barley, beets and potatoes Bio-Diesel Bio-diesel is clean burning alternative fuel made primarily from soybeans or rapeseed Disadvantages More expensive than gasoline Limited availability Toxic emissions of aldehydes and PAN Higher volatility

Fuel Cells: 

Fuel Cells Types of Fuel Cells Technology Electrochemical energy conversion device Similar to batteries Automotive: Fuel cell stack, balance of plant and electric drive system Applications Backup power Automobiles Cell phones Computers Military Issues Cost Unfamiliar technology Source: U.S. DOE, Energy Efficiency and Renewable Energy.

Fuel Cells: 

Fuel Cells Conclusions Select fuel cell applications profitable Hybrid and infrastructure development hindering automotive fuel cell adoption Advantages Pollution Reduction Higher Efficiency than ICE Energy Independence Applications Automotive – Negative Backup Power – Optimistic Stationary Power – Optimistic Disadvantages Hydrogen storage and distribution Expensive new infrastructure Cheaper Alternatives Hydrogen Production Wells to Wheels Energy Efficiency Analysis Source: Scientific American, Argonne National Laboratory, NREL.

Appendix D: 

Appendix D Analyst Certification: I, Pearce Hammond, hereby certify that the views expressed in this research report to the best of my knowledge, accurately reflect my personal views about the subject compan(ies) and its (their) securities; and that, I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) or views in this research report. Important Disclosures: For detailed rating information, go to http://publicdisclosure.simmonsco-intl.com. Additional information is available upon request. Research analysts compensation is based upon (among other things) the firm's general investment banking revenues. Simmons & Company International may seek compensation for investment banking services from Ballard Power Systems, Fuel Cell Energy, Plug Power, Vestas Wind Systems and other companies for which research coverage is provided. The firm would expect to receive compensation for any such services. Simmons & Company International makes a market in Ballard Power Systems. Simmons & Company International makes a market in Fuel Cell Energy. Simmons & Company International makes a market in Plug Power. Other Disclosures: This report may be made available in the United Kingdom through distribution by Simmons & Company International Limited, a firm authorized and regulated by the Financial Services Authority to undertake designated investment business in the United Kingdom. Simmons & Company International Limited's policy on managing investment research conflicts is available by request. The research report is directed only at persons who have professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) Financial Services and Markets Act (Financial Promotion) Order 2001 (as amended) ("FPO"); persons who fall within Article 49(2)(a) to (d) FPO (high net worth companies, unincorporated associations etc.) or persons who are otherwise market counterparties or intermediate customers in accordance with the FSA Handbook of Rules and Guidance ("relevant persons"). The research report must not be acted on or relied upon by any persons who receive it within the EEA who are not relevant persons. Disclaimer: This e-mail is based on information obtained from sources which Simmons & Company International believes to be reliable, but Simmons & Company does not represent or warrant its accuracy. The opinions and estimates contained in the e-mail represent the views of Simmons & Company as of the date of the e-mail, and may be subject to change without prior notice. Simmons & Company International will not be responsible for the consequence of reliance upon any opinion or statement contained in this e-mail. This e-mail is confidential and may not be reproduced in whole or in part without the prior written permission of Simmons & Company International.