1. Booz & Company This document is confidential and is intended solely for the use and information of the client to whom it is addressed. Energy Efficiency: A Look to the Future Dr Greg Lavery London, 28 June 2011

2. 1 There are 5 main barriers to the uptake of energy efficiency Materiality Risk Returns Capital availability Split incentives Main Barriers to EE Source:Booz & Company Energy Efficiency study in collaboration with a panel of Australia's leading companies and energy efficiency experts Can I be bothered for such a small % of my costs? Does it work and will it disrupt existing operations? Are the economics attractive? Willingness to spend on energy efficiency investments Investor ≠ beneficiary (i.e. the landlord/tenant problem)

3. 2 All of these barriers are breaking down over time due to 3 factors Materiality Risk Returns Capital availability Split incentives Main Barriers to EE Energy price increases Technology improvements New funding mechanisms Factors Eroding Barriers 1 2 3

4. 3 Oil prices are expected to rise … Source: Bloomberg; Bloomberg Commodity Price Forecast June 2011; EIA December 2010; IEA World Energy Outlook November 2010 (Real terms) Booz & Company research 1 Energy price increases West Texas Intermediate Crude Price Outlook US$/bbl Short-Term Outlook Long-Term Outlook Historical Prices Bloomberg Commodity Price Forecast EIA Annual Energy Outlook 2010 High Oil Price EIA Annual Energy Outlook 2010 Low Oil Price EIA Annual Energy Outlook 2010 Reference IEA Crude Oil Imports - Current Policies Scenario IEA Crude Oil Imports - New Policies Scenario

5. 4 … as are gas prices. US$/mmbtu Historical Barclays Capital Forecast Analyst Consensus Forecast (Bloomberg) NYMEX Henry Hub Gas Price Outlook 1 Energy price increases Source: Bloomberg; Analyst Consensus Forecast June 2011; Barclays Capital, Global Exploration and Production Capital Spending Update, 13 June 2011

6. 5 On top of this, electricity prices are seeing the cost of climate damage included  Renewable portfolio requirements  EU Emissions Trading Scheme participation  Electricity market reform: –Carbon price support to underwrite low carbon investments –Feed-in tariffs to encourage renewable generation –Capacity payments for backup generation to support intermittent sources –Emissions performance standards on power stations 1 Energy price increases Climate-Related Electricity Price Elements The cost of complying with these appears on our energy bills

7. 6 Better quality technology encourages EE uptake, which drives down cost 2 Technology improvements E.g.’s of equivalent products: Compact fluorescent light bulbs Voltage optimisation Insulation Variable speed drives E.g.’s of technologies not yet/only just proven to be equivalent: LED lights New air conditioning systems Adoption Curve EmbryonicGrowthMatureAgeing Market Penetration Maturity Scale Curve Cost per unit Number of units produced Every doubling of cumulative production leads to a price drop of 10% to 30% depending on the product Quality / Equivalence of Service AdoptionEconomies of Scale

8. 7 Many energy efficiency technologies are maturing Decentralised Energy Technology Development Energy Production - Conventional Energy Production - Other Demand-side Buildings Enabling Technologies Low energy lighting EmbryonicGrowthMatureAgeing District cooling District heating Smart Grid Biomass local power & heat generation Hydro – run off river Solar PV (crystalline) Market Penetration Solar PV (thin film) Solar thermal (tower) Solar thermal (dish) Wind onshore Smart metering Micro CHP Maturity Passive House NaS fuel cells Electricity storage Domestic wind Biogas Domestic & industrial Fuel cells Hydro pumped storage Solar thermal heat Geothermal energy Solar PV organic Ventilation Heat pumps Energy management in buildings Building fabric 2 Technology improvements ILLUSTRATIVE

9. 8 New funding mechanisms are emerging which lift the capital burden from the company - and can reduce the cost of capital 3 New funding mechanisms Energy Efficiency Funding Mechanisms ESCOs Leases PACE Funding Green Bank Specialist EE Financiers Energy Service Companies who build, own, operate and maintain equipment, charging for the output (i.e. electricity, steam, heat, etc) Leases can be offered by equipment manufacturers and specialist leasing firms Property Assessed Clean Energy (PACE) funding - attaching the EE makeover bill to the building, paid off through the savings E.g. The Green Deal - due to begin Oct 2012 for SMEs and residential The Green Investment Bank Commission recommended that EE be funded by the Bank Investors focused on financing energy efficiency projects

10. 9 Conclusions Greg Lavery uk.linkedin.com/in/drgreglavery drgreglavery.wordpress.com Greg Lavery uk.linkedin.com/in/drgreglavery drgreglavery.wordpress.com  Energy efficiency is coming –It is a cost-effective response to rising energy bills and emissions - more cost effective than renewable energy –Barriers are breaking down  It will happen one technology at a time –This will feel piecemeal –New technologies are often foreign to the way managers and engineers think (they like long-established solutions)  EE proponents will therefore need to: –Continually review EE opportunities to see which are ready for adoption –Have an open mind to emerging EE technologies –Understand how comfortable their company is with risk –Act as the catalyst and build solid business cases that allay the fears of traditionalists