© 2009 by Strategic Business Insights. All rights reserved.© 2009 by Strategic Business Insights. All rights reserved.

Renewable Energy TechnologiesMarkets and Uncertainties

Japan Day17 November 2009

Susan LeibySenior Consultantsleiby@sbi-i.com

www.strategicbusinessinsights.com

2

Overview

• Growth of Renewable Energy Technologies

• Market Environment— Solar PV— Wind Turbines— Biofuels— Geothermal— Ocean Wave and Tidal

• Commercial Opportunities

3

Current and Emerging Renewable Technologies

• PV and Solar Thermal• Wind• Biomass• Geothermal• Small Hydropower• Ocean Tidal and Wave

(emerging)

Wind

Geothermal

Solar

Biomass

Ocean

Small Hydro

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A Difficult Year for Energy Technologies in 2009

But a confluence of critical drivers is still in place to provide support for renewable energy technologies:

•Rising world energy demand, especially in China and India

•Environmental concerns, especially a strong consensus on need to address global warming (CO2 emissions)

•Geopolitical concerns regarding energy supply security

•High crude oil prices (~$80 today)

•Technology advances continue to improve performance and lower costs

•National desires to support local economies, improve living standards, and achieve clean technology leadership

Concern about global warming is a major driver for change

Source: EIA, International Energy Outlook 2009

World Energy Consumption, 1980-2030

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Modern Renewable Technologies Are Still Small Contributors to Energy Markets…

Renewable power capacity reached just 6% of world electricity production in 2008*

* Excluding large hydro

World Renewable Power Capacity (GW), 2008

Source: Renewable Energy Policy Network for the 21st Century (REN21), SBI.

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…But Are the Fastest Growing Energy Technologies Worldwide

Average CapacityGrowth

%/yr

Source: Renewable Energy Policy Network for the 21st Century (REN21), SBI.

Growth Rates of Renewable Energy Capacity, 2008

Solar PV, grid-connected

0

20

40

60

80

Traditionalrenewables

Large

hydro

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Renewable Energy Has Become Big Business

2008 Total Sales: $116 Billion

Projected 2018 Total Sales: $325 Billion

Source: Clean Edge.

Large industrial companies and investors continue to develop new market opportunities...

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But a Large-Scale Move to Renewables Is Not Certain

• Energy investments have plunged since mid-2008— Renewable energy growth is likely to grow but at a slower pace— Long-term and consistent government support is still necessary

for investor confidence

• Renewables are still not generally cost-competitive with conventional energy sources— Crude oil above ~$75/b improves competitiveness

• Environmental and social issues remain— Resource limitations — Life-cycle debates (greenhouse gases)— Land use impacts— Need for new energy infrastructure, such as new electricity

transmission capacity and more flexible grids

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Status of Some High-Growth Renewable Technologies

Technology Typical Cost* Current Issues

PV PowerGrid-ConnectedOff-Grid

Concentrating Solar Thermal Power

$0.20 - 0.50 / kWh $0.25 - 1.00 / kWh

$0.12 - 0.18 / kWh

• Intermittent, diffuse energy source• Efficiency improvement• Cost reduction• Commercialization of thin-film and 3rd

generation technologies

Wind PowerOn-Shore TurbinesOff-Shore TurbinesSmall Turbines

$0.05 - 0.08 / kWh $0.08 - 0.12 / kWh$0.15 - 0.25 / kWh

• Intermittent, diffuse energy source• Materials and system improvement• Efficiency and availability improvement• Noise and visual impacts, bat and bird

hazard

BiofuelsEthanol (sugarcane)Ethanol (corn)Biodiesel

$0.25 - 0.30 / liter $0.40 - 0.50 / liter$0.40 - 0.80 / liter

• Feedstock availability• Cost reduction• Sustainability and “food versus fuel”• New cellulosic and algae-based biofuels • Land use impacts

Typical fossil fuel power generation cost: $0.03 to 0.05/kWh (baseload; higher for peak power). Transmission and distribution adds further cost.

Source: SBI.

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Government Policies Are Still Critical for Market Success

Nearly 75 countries now have some type of renewable energy promotion policy

• Many countries have a mix of regulations to improve competitiveness and speed deployment: — Policy targets— Feed-in tariffs— Renewable Portfolio Standards (RPS)— Tax incentives and credits— Direct subsidies/grants and rebates— Loan guarantees— Net metering— Public investment— R&D funding— Streamlined permitting

• Economic stimulus packages will provide new investments in the near-term (U.S., Japan, China, etc.)

U.S. state renewable portfolio standard U.S. state renewable portfolio goal

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Renewable Energy TechnologiesKey Areas to Monitor

Source: SBI.

R&DFunding

R&DFunding

High

Low

Impact

HighLow

Uncertainty

Global Warming Policies

Global Warming Policies

Cost Competitiveness

Cost Competitiveness

ConventionalEnergy Prices

And Supply

ConventionalEnergy Prices

And Supply

Consumer Demand

Consumer Demand

MaterialsAvailabilityMaterials

Availability

WorldEnergy Demand

WorldEnergy Demand

Distribution & InfrastructureDistribution & Infrastructure

R&DFunding

R&DFunding

Large-ScaleSustainabilityLarge-Scale

Sustainability

Government Regulationsand Policies

Government Regulationsand Policies

Wild Card

UtilityDeregulation and

Restructuring

UtilityDeregulation and

RestructuringEnergy Storage,

Smart Grids Rural Area Financing and Adoption

Systems andTechnologyAdvances

Systems andTechnologyAdvances

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Global Warming Policies—Huge Potential Impact, Outcomes Uncertain

• Renewables could be most effective way to cut CO2 emissions quickly

— New plan by Stanford researchers:

Power planet with 100% renewables by 2030 – Existing technologies, no major resource limitations

– Higher efficiency would reduce world energy needs by 1/3

• Major talks in Copenhagen (December 2009) unlikely to meet goals— New international climate change treaty very unlikely— Political accord at best

• Regional cap-and-trade schemes to reduce CO2 emissions are growing

— World carbon market $126 billion in 2008 (double that of 2007)— U.S. seeing significant activity but continuing deep divisions

– Many U.S. states have regional carbon trading initiatives

— Japan began trial carbon trading scheme in October 2008; possible full scheme in 2011

— Australia delaying its carbon program until mid-2011

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PV Market Environment and Uncertainties

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PV—The Current Situation

• Market is subsidy/policy driven, not resource driven!

— Strong policy-driven demand in Germany and Spain (2008)— U.S. market is growing, especially in California— Japan’s demand down after solar subsidy program ended— China’s demand could rise rapidly with a new feed-in tariff

• Production capacity in China has increased quickly

— Surge in China and Taiwan (39% of global production in 2008 from 7% in 2004)

— Japan’s share dropped to 18%

• Downward pressure on prices in 2009 makes systems more affordable

• New 2nd and 3rd technologies in the marketplace

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Global Grid-Connected Solar PV Capacity in 2008

Grid-connected PV is the fastest-growing power technology worldwide

But most new capacity is installed in a few countries with generous incentives

5.4 GW of capacity added in 2008(70% increase from 2007)

Source: Renewable Energy Policy Network for the 21st Century (REN21), SBI.

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Top Ten PV Producers in 2008

0

100

200

300

400

500

600

Q Cells (Germany)

First Solar (U.S.)

Suntech (China)

Sharp (Japan)

Motech (Taiwan)

Kyocera (Japan)

Baoding Tianwei

Yingli (China)

JA Solar (China)

Sunpower (U.S.)

SolarWorld (Germany)

MW-dc

2007

2008

TOTAL WORLD PV PRODUCTION: 6940 MW (2008)

Source: PV News; SBI.

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Wind Turbines Market Environment and Uncertainties

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Wind Energy—The Current Situation

• Large-scale wind power is close to being competitive

— At or near grid parity in windy areas — Higher natural gas prices

• Government policies are still a major driver— U.S. state Renewable Portfolio Standards— Spain’s Electricity Act— China’s Renewable Energy law

• The financial/economic environment has hurt manufacturers all along the supply chain— Economic stimulus packages will help

• Offshore wind development—mainly in the EU so far— High potential but higher cost and more difficult permitting

• New transmission lines from remote areas needed

U.S. state renewable portfolio standard U.S. state renewable portfolio goal

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Top Ten Wind Power Countries in 2008

Source: Global Wind Energy Council, SBI

More than half of wind power additions were in the U.S. and China Total global wind energy capacity = 121 GW

(29% increase from 2007)

20

Biofuels Market Environment

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Feedstock

Conversion

Products

Biological Processes

• Ethanol• Butanol• Renewable Hydrocarbons• Chemicals, Bioplastics

Thermochemical Processes

Cellulosic Biomass

• Biodiesel (advanced)• Ethanol• Dimethyl ether• Other

Gasification/Syngas

Processing

Chemical Processes

Biodiesel

Trans-Esterification

Plant Oils &Waste

Oils/Fats

Current Commercial Pathways

• Rapidly growingcapacity

• Concerns aboutland requirements and ecological sustainability

• Food vs. fuel issues

EmergingPathways

• Higher yields (algae and cellulosic biomass)

• Lower CO2 emissions

• Non-food crops

Biomass to Biofuels— Current and Emerging PathwaysBiomass to Biofuels— Current and Emerging Pathways

Sugars, Starches, Cellulosic Biomass

(crops and agricultural wastes)

Fermentation of Sugars

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Biofuels Capacity in Top 12 Countries and EU in 2008

Ethanol is the largest volume biofuel, led by U.S. and Brazil.

Biodiesel is dominant in Europe.

Total fuel ethanol capacity = 67 billion liters

Total biodiesel capacity = 12 billion liters

Source: Renewable Energy Policy Network for the 21st Century (REN21), SBI.

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Strong Push to Commercialize Next-Generation Biofuels

• Government targets provide growth opportunities

— U.S. Renewable Fuels Standard (21 billion gallons by 2022)

— California Low Carbon Fuel Standard (10% lower carbon intensity in 2020)

— EU requires 10% renewable transport fuels by 2020

• Significant commercialization activity

— Major oil- and chemical-company involvement

— Commercial demonstration projects being built worldwide

— U.S. DOE targeting commercial biorefinery technology by 2012

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Geothermal Power Market Environment

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Top Ten Geothermal Power Countries in 2008

Source: SBI

Gig

awat

ts

Global capacity: 10 GW

The U.S. has ~120 projects (5.5 GW)in various stages of development

New development could add 3 GW outside the U.S.

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Enhanced Geothermal Energy Systems Are in Development

• Large potential for EGS

— Deep hot rock is everywhere—not just volcanic regions

— Requires engineering reservoirs using high-pressure water

• Still early stage – drilling and stability challenges

— EGS work ongoing in France, Australia, Germany, and theUnited States

— U.S. EGS potential of 100 GW of electricity by 2050 (DOE/MIT)

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Ocean Tidal and Wave Energy Market Environment

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Ocean Tidal and Wave Energy

• Many companies pursuing commercial development

— 35 companies received >$500 million investment since 2001

— 1 GW of projects proposed in UK, U.S., Canada, Australia, Ireland, Norway, Denmark, Portugal and elsewhere

— Initial commercialization in Europe in 2008

• Key challenges:

— Significant reliability and cost hurdles

— Environmental and permitting procedures

— Difficult financial and market conditions

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Commercial Opportunities

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Current 2010 2015

SolarRooftop and Building-Integrated PV Systems

Wind

Grid-Integrated Power

On-Shore Wind Parks

Large SolarParks

Cellulosic Ethanol and Renewable Hydrocarbons Scale-up

GasolineBlendstocks

Biodiesel

Transportation Biofuels

Inexpensive SolarPower Systems

Ethanol/GasolineBlends

E-85 RetailInfrastructure

BiodieselBlends

Off-ShoreWind Parks

Low WindSpeed Systems

Cost-CompetitiveBiodiesel

Small WindPower Systems

Biomass to Liquids(Gasification)

Solar, Wind, and Biofuel Applications Timeline

Source: SBI

Biofuels from Algae

Niche High-ValueProducts

Transportation FuelsScale-up

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Renewables Business Opportunities

• Renewable energy technologies will continue to become increasingly competitive in many markets and applications

— Proven technologies and profitable business models— Benefits from large government subsidies— Large and growing industries

• Investment in new technology production will continue

• New technologies will gain ground in coming years

Threats: Policy and feedstock risks

Rise in interest rates

Disruptive technologies could emerge in 10-15 years

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SRIC-BI’s Explorer Program—Opportunities in Technology Commercialization

Artificial Intelligence

Biocatalysis

Biomaterials

Biopolymers

Biosensors

Connected Cars

Connected Homes

Engineering Polymers

Flat-Panel Displays

Fuel Cells

Knowledge-Management Tools

Photovoltaics

Polymer-Matrix Composites

Portable Electronic Devices

Portable Power

Renewable Energy Technologies

RFID Technologies

Robotics

Smart Materials

Solid-State Microsensors

User Interfaces

Virtual Environments

Membrane Separation

MEMS/Micromachining

Mobile Communications

Nanobiotechnology

Nanoelectronics

Nanomaterials

Novel Ceramic/Metallic Materials

Optoelectronics/Photonics

Organic Electronics

Pervasive Computing

Titles in red are energy technologies