1. Phone: 215-230-9871 Fax: 215-340-3972 Email: tkd@epscc.com E NERGY P ERFORMANCE S ERVICES EPS Fundamentals of Financing Performance Contracting Projects Thomas Dreessen Chief Executive Officer,EPS Capital Corp. October 31, 2001 1

2. 2 E NERGY P ERFORMANCE S ERVICES EPS Energy Services Company (“ESCO”) A Performance Contracting Company that: –develops and implements energy efficiency projects “EEPs” on a turn-key basis –risks its payments on the performance of equipment and services implemented

3. 3 E NERGY P ERFORMANCE S ERVICES EPS “ESCO” GUARANTEE Customer’s current operating costs will be reduced by an amount at least equal to the debt service required to repay the turnkey Construction Price for ESCO to implement and finance EEPs.

4. 4 E NERGY P ERFORMANCE S ERVICES EPS ESCO Must Manage Risks Development Construction Technology Cost Overruns Operations & Maintenance Performance (Savings)

5. 5 E NERGY P ERFORMANCE S ERVICES EPS Development Risk ESCO provides the working capital to develop a “paid from savings” project. If no such project exists, no cost to customer. ESCO must provide/arrange appropriate long term project financing.

6. 6 E NERGY P ERFORMANCE S ERVICES EPS Development Barriers Identify “Qualified” Customers - GOVERNMENT: Stable Financials; Significant Procurement Barriers and No Incentive - INDUSTRY: Limited Procurement Barriers and Good Incentive; Less Stable Financials Obtain “VIABLE” Project Financing

7. 7 E NERGY P ERFORMANCE S ERVICES EPS Project Financing Risk Identify Project Finance Strategy Create Viable Project Finance Strategy Obtain Commitment from Financing Sources Finance from Savings of EEPs Close Contracts with Financing Sources

8. 8 E NERGY P ERFORMANCE S ERVICES EPS Implementation Risk Achieve Turnkey Price Adhere to Design Specifications Meet Completion Deadlines Meet Commissioning Requirements Comply With Regulatory and Legal Issues

9. 9 E NERGY P ERFORMANCE S ERVICES EPS Operating Risk Savings Guarantee to Customer that the “turnkey” costs of implementing and financing the EEPs will be paid-from- savings.

10. 10 E NERGY P ERFORMANCE S ERVICES EPS Two Primary Structures Guaranteed Savings - 90% Shared Savings - 10%

11. 11 CUSTOMER ESCO Lender/Investor Savings Guarantee Fixed Repayment Schedule “Performance Risk” “Credit Risk” “Market Risk” E NERGY P ERFORMANCE S ERVICES EPS Guaranteed Savings

12. 12 E NERGY P ERFORMANCE S ERVICES EPS Loss Covered by ESCO End of Contract with ESCO Capital & Interest Revenues ESCO Revenues Customer Guaranteed Savings Illustration

13. 13 EPS Customer “ESCO” Performance & Credit Risk Project Services Savings Guarantee Lender/Investor 100% Funding E NERGY P ERFORMANCE S ERVICES Shared Savings

14. 14 E NERGY P ERFORMANCE S ERVICES EPS Industrial Customer Case Study Paper Manufacturer in Asia Locally owned and operated Sells “Specialty Paper” products No significant exports

15. 15 E NERGY P ERFORMANCE S ERVICES EPS Project Summary Seven (7) Energy Efficiency Projects (EEPs) Construction PriceUS$ 5,000,000 Annual Benefits: Annual Savings US$ 1,765,000 Annual Debt Service US$ 1,145,000 Net Annual Cash Flow US$ 620,000

16. 16 E NERGY P ERFORMANCE S ERVICES EPS Summary of EEPs DESCRIPTION Construction Savings Simple Payback Price Years #1 Pocket Ventilation Pre-Heat US$ 100,000 US$ 45,0002.2 #2 Vacuum Pumps Power Reduction 696,000 253,0002.8 #3 Refining Power Reduction 882,000 267,0003.3 #4 Wastewater Aeration Power Reduction 110,000 33,0003.3 #5 Pumping Power Reduction 196,000 65,0003.0 #6 PM Steam/Condensate Optimization 696,000 312,0002.2 #7 On-site Power Generation Upgrade 2,320,000 790,0002.9 Total $ 5,000,000 $ 1,765,0002.8 Yrs.

17. 17 INDUSTRIAL CASE STUDY ENERGY PROJECT 7 YEAR CASH FLOW 31-Oct-01 (IN US$) PROJECT FINANCING:INFLATION ASSUMPTIONS Enter "1" if no Depreciation/Taxes1Energy3.0% Total Construction Price5,000,000$ Operations & Maintenance5.0% Construction Interest14.0%350,000 Finance Fees1.0%54,040 Total Funding Required5,404,040$ Construction Period - Months12 Long Term Debt Terms: Interest Rate:12.0% Years:7.0 CASH FLOW:YEAR >01234567Total PROJECT SAVINGS: Energy-$ 1,500,000$ 1,545,000$ 1,591,350$ 1,639,091$ 1,688,263$ 1,738,911$ 1,791,078$ 11,493,693$ Operations & Maintenance- 265,000 278,250 292,163 306,771 322,109 338,215 355,125 2,157,632 TOTAL GROSS SAVINGS- 1,765,000 1,823,250 1,883,513 1,945,861 2,010,372 2,077,126 2,146,204 13,651,326 DEBT SERVICE (Principal+Interest)- (1,144,753) (8,013,271) - ESCO Share of Savings at:50%(310,124) (339,249) (369,380) (400,554) (432,810) (466,186) (500,725) (2,819,027) OWNER CASH - ANNUAL- 310,124 339,249 369,380 400,554 432,810 466,186 500,725 2,819,027 - OWNER CASH - CUMULATIVE- 310,124 649,372 1,018,752 1,419,306 1,852,116 2,318,302 2,819,027 E NERGY P ERFORMANCE S ERVICES EPS Project 7 Year Cash Flow

18. 18 E NERGY P ERFORMANCE S ERVICES EPS Financing is Key ESCO Ingredient ESCO is a Service Company not a Bank ESCO cannot invest its Working Capital to Develop & Implement EEPs unless “Reliable” and “Commercially Viable” Long-term Project Financing is Available

19. 19 E NERGY P ERFORMANCE S ERVICES EPS Project Financing Barriers Traditional Local Bank Lending not applicable: –Corporate Lending –Rates too high –Repayment Term too Short

20. 20 E NERGY P ERFORMANCE S ERVICES EPS Project Financing Barriers International “MDB” Lending not applicable: –Size of EEPs is Too Small –Due Diligence too Cumbersome –Require Hard Currency Repayment

21. 21 E NERGY P ERFORMANCE S ERVICES EPS Major Causes of Financing Barriers Not Due to Lack of Available Funding Inability of EEPs to Access Funding “Disconnect” with Traditional Methods: –Traditional is Asset-Based Lending –EEP is Project Cashflow-Based Lending

22. 22 E NERGY P ERFORMANCE S ERVICES EPS Major Causes of Financing Barriers No Lending Infrastructure for Complex EEPs No immediate Solution because Energy Efficiency Market is Not Developed Enough to Motivate Local Banks to Invest in Setting up EEP Lending Infrastructure.

23. 23 E NERGY P ERFORMANCE S ERVICES EPS International Energy Efficiency “Project” Financing Protocol “IEEPFP” is a Protocol that Becomes the Guideline used by Local Banks in International Markets to Finance Energy Efficiency Projects “EEPs”.

24. 24 E NERGY P ERFORMANCE S ERVICES EPS “IEEPFP” Content Customer Lending Criteria & Analysis Customer Credit Information Needed Credit Review and Loan Approval Procedures Standard Loan and Security Agreements Standard ESCO & Construction Agreements

25. 25 E NERGY P ERFORMANCE S ERVICES EPS “IEEPFP” Content Training Manuals for Loan Officers Training Workshops with EEP Case Studies Procedures for Evaluating EEPs Risk Assessment Guidelines for EEPs Investment Criteria for EEPs

26. 26 E NERGY P ERFORMANCE S ERVICES EPS Investment Criteria for EEPs Creditworthy Customer Enforceable & “Balanced” Contracts Proper Licenses & Permits Experienced ESCO/Contractor Proven Commercial Technologies

27. 27 E NERGY P ERFORMANCE S ERVICES EPS Investment Criteria for EEPs Acceptable Project Economics (Risk Profile) Adequate Return to Lender & ESCO Compliance with Environmental Regulations Must follow International Measurement and Verification Protocol “IEMVP”.

28. 28 E NERGY P ERFORMANCE S ERVICES EPS Create an EEP Fund Funding from Ratepayer Fees: –U.S. “System Benefit Charge” –Brazil through 1% ANEEL Fund –Thailand through the ECF ($ 250 Million) –India through Energy Conservation Act

29. 29 E NERGY P ERFORMANCE S ERVICES EPS EEP Fund Profile Utilize ESCO “Guaranteed Savings” Structure versus old “Shared Savings” –Creates a Growth Model for the ESCO and Energy Efficiency Industry –Simplifies Requirements of Local Banks

30. 30 E NERGY P ERFORMANCE S ERVICES EPS EEP Fund Profile Utilize Funds to “Buy-Down” Interest Rate to Below Market Rates Utilize Funds to Guarantee a Portion of the Loan Losses to the Local Banks Have 10-Year Repayment Terms from Local Banks Including One-Year Moratorium

31. 31 E NERGY P ERFORMANCE S ERVICES EPS EEP Fund Profile Repay in Local Currency Managed by individuals who have previous private sector project financing experience Provide Fast Loan Approval - “IEEPFP” No Government intervention and procedures Require use of IEMVP

32. 32 E NERGY P ERFORMANCE S ERVICES EPS Benefits of IEEPFP & Fund Establish Commercial Mechanism for the Financing of EEPs in International Markets Create Local In-Country Banking Staff Trained in Project Financing of EEPs Eliminate Currency Devaluation Risks

33. 33 E NERGY P ERFORMANCE S ERVICES EPS Benefits of IEEPFP & Fund Provide Incentive to Implement EEPs Deliver Long Term Savings thru IEMVP Create Commercial Lending Sector for EEPs Provide a Conducive ESCO Environment

34. 34 E NERGY P ERFORMANCE S ERVICES EPS Benefits of IEEPFP & Fund Provides a Method to Aggregate EEPs Provide a Reliable CO2 Reduction Progam Create a Fund that Will Sustain over Time