Daniel White, Berkeley Research Group September 16, 2014

2. Moving Forward with Cogeneration Challenges, Solutions Daniel White, Berkeley Research GroupSeptember 16, 2014

3. Been Here Before, Sort Of • Before there was “climate”, there was “energy shortage”, “utility cost overruns”, “fireside chat” … and 1978’s PURPA • PURPA opened the regulatory door for a market for non-utility power producers and particularly cogeneration • New companies pursued cogen driven by the potential to sell power to utilities • Local 1981 startup AES in 1986 was the largest IPP with 328MW from 3 plants, now 35GW and $16B annual revenues • Cogeneration boomed through the 1990s • With natural gas deregulation and pipeline open access in the 1990s gas began gaining ground as a power fuel

4. Selkirk Cogen - Example • Development began in 1980’s; 80MW Unit 1 COD 1992; 265MW Unit 2 COD 1994 • Natural gas with oil backup. • Steam to SABIC plastics (formerly GE) • Two PPAs with different requirements for dispatch, fuel, availability, etc. • Non-recourse financing • High reliability • Very profitable Selkirk Schematic

5. Selkirk Cogen – Still Delivering • Selkirk today continues to operate at high availability and efficiency, and profitably. • Sells both merchant and contract power with ConEd PPA expiring this year. • Weathered regulatory & market changes, ownership changes (incl. bankruptcy), industrial host change. • High value to owners, host, community, market, and economy has been continuous. • “There’s always something” 05/03/2014 A US cogeneration plant is threatened with shutdown due to leasing issues. The 345-MW gas-fired Selkirk Cogen plant in Bethlehem, New York could be mothballed in early September if its owners, Selkirk Cogen Partners, fail to negotiate a new land lease. The partnership has filed a notice with the New York Public Service Commission regarding the potential shutdown. Selkirk Cogen Partners told local paper the Albany Times-Union that the filing is required by the state to warn regulators that the plant may have to be shut if a new lease cannot be negotiated.

6. Natural Gas Now • Shale gas are the dominant drivers in energy markets • US era of abundant and low-price natural gas • Lowers status quo fuel and power costs • But also lowers project fuel cost and fuel risk • Technology advance offsetting drilling shift to oil shale • Tremendous volume projections • $$Billions of investment ongoing based on shale gas • Overall price volatility is down. • Major downturn in gas trading as a result • Periodic pipeline related regional volatility being addressed by expansions U.S. Dry Production (Tcf) Reduced Gas Price & Volatility Reference Case

7. Key Development Elements • Power • Heat • Regulations & Mandates • Climate Emissions • Contracts can be complex, multiple parties, multiple markets • Parties have different investment time frames. What’s yours? • What’s your view of future prices, GHG value, & technology change pace? Development Value Elements: • EPA has an excellent intro process • Development looks straightforward Volume, price, flexibility, reliability Volume, price, flexibility, reliability What’s the value, tangible & social? Any risk acceptable? BUT THAT OFTEN PROVES NOT Heightened public service Value since Hurricane Sandy