©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August Vehicle-to-Grid: Perspective from a Battery Manufacturer Andy Chu, Ph.D. VP, Marketing & Communications A123 Systems

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 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) 2

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August Drivers 3 Enabling New Products through Advanced Energy Storage A123’s Core Markets  Improve performance  Reduce emissions  Reduce toxic battery chemicals  Fuel economy  Reduced emissions  Energy independence  Lighter-weight components  Fuel efficiency  Increase grid reliability  Enable Wind and Solar  Increase plant efficiency/utilization Commercial Electric Grid Transportation Portable and Mobility Stationary Passenger Hybrids, PHEVs and EVs Smart Grid Stabilization Systems Network Energy Storage Commercial Hybrids, PHEVs and EVs

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August Energy Storage and the Electric Grid 4 Two primary markets: Ancillary Services, Bulk Energy Seconds Minutes Hours Days Value $/MWh Bulk Energy Area Control Frequency Regulation Spinning Reserve Ancillary Services Renewable Energy Management Transmission & Distribution Peak Shaving Ancillary Services: Regulation 7:00 AM 8:00 AM 9:00 AM 10:00 AM Supply (1) Demand (1) SGSS provides power (discharges) SGSS is charged by power plant/grid (1) Illustrative Ancillary services are a higher value service than bulk energy storage

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August Lithium Ion Batteries on the Grid Lithium ion batteries are being used on the grid today 5

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August Ancillary Services: AES Chile Installation (16MW, rated at 12MW) 6 A123 is the #1 maker of lithium ion batteries for grid ancillary services

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August Bulk Energy Management: Southern California Edison Tehachapi Project (32MWh) 7 This will be the largest lithium ion battery in the world when complete.

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 8

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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?

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 10

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 11

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 12

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 13

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 14

©2010 A123 Systems, Inc. All rights reserved. CSG-ERC 17 August 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 15