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Global Utility White Paper CONFIDENTIAL US vs. UK Margin Analysis for Coal Power Plants RABSS ales $/MWh gross margin — a 20 = === UK Coal Power Gross Margin (Spot) US Coal Power Gross Margin (Spot) Linear (UK Coal Power Gross Margin (Spot)) Linear (US Coal Power Gross Margin (Spot)) Sasa 5a9 ¢4 4 te cg ct aA ne ate aaa a 2/3/2012 2/24/2012 4/6/2012 4/27/2012 6/8/2012 6/29/2012 12/31/2010 1/21/201 2/11/2012 3/25/201 4/15/201 5/27/201 6/17/201 7/29/201 8/19/201 9/30/201 10/21/201 12/2/201 12/23/201 1/13/2012 3/16/2012 5/18/2012 7/20/2012 8/10/2012 8/31/2012 9/21/2012 10/12/2012 11/2/2012 11/23/2012 12/14/2012 Source: Bloomberg, Electron Capital Partners We believe a floor price exists for natural gas despite shale production. We fully acknowledge that the US has large reserves of shale gas awaiting development. However, the current spot price (S3.42/mmbtu) sits below the breakeven full-cycle cost of most US basins ($3.50-$4.00/mmbtu), which has led producers to focus on liquids-rich plays and de-emphasize dry-gas production. Accordingly, the gas rig count is at a decade low and the Energy Information Administration expects gas production to be flat through 2014. With the wide spread between oil and U.S. natural gas prices likely to continue, we expect the growth in liquids shale production to remain much higher than gas. On the demand side, the power sector is the largest consumer (37%) of natural gas in the US. At prices below $5/mmbtu, coal switching begins, and at prices below $3/mmbtu, gas-fired power generating units become competitive against even the most efficient coal units. Importantly, the breakeven point for coal- to-gas switching will rise materially due to EPA mandates. By 2015, these standards move the breakeven point for the most efficient coal units from $3/mmbtu to approximately $4/mmbtu, close to where current forward prices sit. Large potential structural changes in demand create upside optionality. There has been much media focus on the growth of shale gas production, so much so that we believe potential demand drivers are underappreciated. For example, currently-planned US coal plant retirements, if repowered with gas, would support an additional 6 billion cubic feet per day (bcf/d) of gas demand, adding nearly 10% to total US demand. In addition, we see the potential for LNG exports to exceed another 6 bcf/d (27 bcf/d of project capacity awaits US Department of Energy approval). Cheap gas is also spurring an industrial resurgence, with new petrochemical plants being proposed in the Gulf and traditional coal users such as steel mills contemplating refiring their facilities with gas instead of metallurgical coal. Longer term, LNG as a vehicle fuel substitute for long haul trucks and CNG for lighter vehicles could also add materially to gas demand. Given the number of possible structural demand changes and the enormous potential from each, we believe the optionality for natural gas prices is clearly to the upside. We believe the recent trend of softer US natural gas prices leading to a deflationary impact on global utility sector earnings is, then, largely played out. Longer-term, we see many positive demand 13 Electron Capital Partners, LLC HOUSE_OVERSIGHT_024214