Vehicle-to-Grid: Perspective from a Battery Manufacturer

1. Vehicle-to-Grid:Perspective from a Battery Manufacturer Andy Chu, Ph.D. VP, Marketing & Communications A123 Systems

2. A123 Systems, Inc. A123 Systems is a leading U.S. developer and manufacturer of advanced high power, safe and long-life lithium-ion energy storage solutions for next-generation applications in the transportation, electric grid and commercial markets • Corporate headquarters: Watertown, Massachusetts • 1700+ employees worldwide • Mass producing millions of batteries per year • >1,000,000 square feet of manufacturing facilities in China, Korea and United States • Investing ~$1B in capacity (2009 to 2012)

3. A123’s Core Markets Enabling New Products through Advanced Energy Storage Transportation Electric Grid Commercial Commercial Hybrids, PHEVs and EVs Passenger Hybrids, PHEVs and EVs Smart Grid Stabilization Systems NetworkEnergy Storage Portable and Mobility Stationary • Fuel economy • Reduced emissions • Energy independence • Lighter-weight components • Fuel efficiency • Increase grid reliability • Enable Wind and Solar • Increase plant efficiency/utilization • Improve performance • Reduce emissions • Reduce toxic battery chemicals Drivers

4. Ancillary Services Area Control Frequency Regulation Spinning Reserve Energy Storage and the Electric Grid Ancillary Services: Regulation Two primary markets: Ancillary Services, Bulk Energy Supply (1) Demand (1) Value$/MWh Bulk Energy Renewable Energy Management Transmission & Distribution Peak Shaving 7:00 AM 8:00 AM 9:00 AM 10:00 AM Seconds Minutes Hours Days SGSS provides power (discharges) Ancillary services are a higher value service than bulk energy storage SGSSis charged by power plant/grid (1) Illustrative

5. Lithium Ion Batteries on the Grid • Lithium ion batteries are being used on the grid today

6. Ancillary Services: AES Chile Installation (16MW, rated at 12MW) A123 is the #1 maker of lithium ion batteries for grid ancillary services

7. Bulk Energy Management:Southern California Edison Tehachapi Project (32MWh) This will be the largest lithium ion battery in the world when complete.

8. Stationary vs. Vehicle Batteries (V2G) • If a vehicle battery is free to the V2G provider, the economics obviously work • If the battery must be paid by the V2G provider and doesn’t offer any other service/value, then it would be cheaper to deploy a purpose-built grid battery • Vehicle batteries have requirements that stationary batteries do not have and thus cost more to do the same function • A123 is already doing this, using a grid battery (V2G without the “V”) • The reality is somewhere in between • A vehicle battery offering V2G is more expensive, but • It also generates revenue

9. Value of V2G • No question there is value in V2G • Real questions: • How much value? Who benefits? • Cost to implement? Who pays for necessary hardware, infrastructure? • Impact to primary mission of vehicle battery? Life, warranty?

10. Different Perspectives • Automaker • Vehicle cost is the biggest barrier to adoption • EV range and “range anxiety” is the second biggest barrier • Anything that adds cost or decreases EV range will not be embraced unless there is a compelling reason or value to their customer • Utility or V2G provider • Free or low-cost asset that can help address their issues • Technical issues that need to be worked out • Battery manufacturers role is to meet customer need • V2G has not been a primary focus for battery manufacturers to-date because our customers aren’t clamoring for it • Cost, energy density, and life are the primary areas that our customers

11. Challenge for V2G: Business Model • Automaker • OEMs sell hardware (vehicles) with a primary mission to transport people or goods • Financial: OEMs are not in the business of selling power/energy; need to determine how the market would allow them to benefit • Technical: OEMs do not have enough data to understand the impact on battery life/performance due to this usage • V2G provider • V2G provider has little or no influence over what hardware is provided on-board vehicle • Any non-approved usage will likely void OEM warranty, thus deterring average consumers from offering service

12. Impact to Battery Life • Researchers at Carnegie Mellon University showed that A123’s lithium ion batteries showed relatively low capacity loss on simulated V2G cycling

13. Possible Solutions • Decouple responsibility/ownership of battery from vehicle • Whoever owns the battery can decide what to do with it • Use battery to offer other services, with full knowledge of the impact on life/performance for primary mission • Some are already pursuing this business model: e.g. Better Place • Battery leasing is another possibility • Customer and OEM agree on usage and impact to warranty • OEM is opposed to non-transportation usage because of impact on battery performance/life • If this concern is removed, then OEM would be more supportive

14. Fleet Operators are Likely Early Adopters • Fleet operators are more likely to embrace V2G because: • They look at total cost of ownership (TCO) and are more likely to view vehicles as a potential source of revenue • They understand that greater utilization of an asset helps shorten the payback period • Fleet vehicles usually have well-defined operating profiles • They generally have a few locations where vehicles are parked, making it easy to make infrastructure investments • OEMs more likely to incorporate customer desire for V2G hardware • Possible fleet vehicles: • School buses • Delivery vehicles

15. Conclusions • V2G has value, but the question is how much is it worth and how are the costs/benefits shared? • Challenge is the business model • Impact to battery performance/life are manageable • Fleet operators are likely early adopters