Fuel Cell and Biomass Gasifier Market Review

October 30, 2007

Authors:
Ben Kozma
Susan Yee
Andry Haryanto
Lane Nussbaum
Aref Wardak
Basis of Selecting Waste to Energy Generation

We are building an integrated system that can generate 5-20 kW electricity, using
biomass fuel such as wood, peat, corn stover, and animal waste. We have considered
different markets and needs that we can serve, such as: (1) remote military bases, (2)
remote off-grid farmlands in developing countries (bottom-of-pyramid market), (3)
biomass and waste to energy generation (currently serving industrial and farmlands).

After considering all three alternatives, we decided to start with the waste-to-energy for
industrial and farm market because they have the greatest incentive to reduce the waste
disposal cost in addition to electricity generation. There is a significant development to
enable the application of this technology for the residential market in 5-10 years. We will
first focus on the North American market because of the product’s high base cost and (in
the $10-$20thd range) to because this market is most accessible, given limited marketing
resources. We anticipate complex marketing and distribution issues associated with
military and bottom of the pyramid market in the developing countries. Moreover, the
currently high level of capital cost of fuel-cell technology might be prohibitive for the
other two applications compared to alternative power generation technology such as wind
turbine and solar panel.

Market Size and Structure

In North America, the total revenues for biomass and waste to energy generation were
$550.5 million in 2006. Please refer to Exhibit A.

The waste-to-energy market has three sub-segments, grouped by the technology: (1)
combustion, (2) gasification, and (3) anaerobic digestion. Our product will serve waste-
to-energy market using gasification (2), which is currently generating $57 million
revenue and growing at 32.5% annually. We expect to increase the rate of growth by
enhancing the product with mobility, a user-friendly operator interface, remote
monitoring and tech support and by enhancing benefit to key stakeholders, such as
existing electricity providers.

Industry Trends and Drivers

Waste-to-energy revenues in 2013 are expected to reach $1604.4 million. The industry is
becoming more lucrative because of increasing cost of landfill, increasing public concern
and awareness of environmental issues, increasing price of some traditional energy
sources, and effort to negate waste disposal cost.

Cost of landfill averages $35/ton in the US, and is expected to increase because many of
current sites only have 3-5 year of capacity left. In the Midwest, where cost of land is
lower, landfill costs average $18/ton, making technology that reduces landfill waste less
competitive in this market.

Increasing price of energy encourages customer to continuously consider alternative

technology that can generate electricity at a lower rate than conventional method (grid or
petroleum).

Negating waste disposal cost serves the best interest of companies that produce solid
and/or hazardous waste. They can generate electricity while minimizing the cost of their
solid waste disposal, increasing the return on their capital investment.

Companies are constantly adopting green technology due to public expectation for them
to display a green image. In addition to regulation, public awareness is perhaps a major
driver in the early adoption of clean technology.

Compared to other clean technology, such as wind, solar, and hydro, waste-to-energy is
underdeveloped due to lack of government incentives. Lack of customer familiarity with
fuel-cell technology also creates an adverse bias in their purchasing decisions.

Venture capital is investing in alternative energy. Concerns about global warming and
its impact on the energy markets have led venture capital to heavily invest in alternative
energy technology. Venture capitalists’ focus that of consumers; interest in alternative
energy sources is enhanced by concern about the price and availability of traditional
fuels.

Gasification Market

Our product will serve waste-to-energy $57 million Pyrolisis and Gasification market for
Biomass, which is expected to grow with a CAGR of 18.6% from 2006 to 2013. Given
currently available technologies and government policies, the market has revenue
generating potential of $142 million in 2013. We believe that great potential exists to
expand the market by introducing new product features and aggressively marketing.
The current need of waste to energy is served by building large-scale energy generation
plant using biomass. Typically waste producers send their waste to the plant for a set
disposal fee. In industrial setting, the plant might be built on-site. No market for mobile
units currently exists.

In the US, there are 2-4 players that have installed 80% of the capacity over the last 30
years in the US. The current leaders in the gasification sub-segment are Dynamotive and
Advanced Alternative Energy. These companies also have expertise in other
technologies. They have established brand names, which are a major factor in customer
purchasing decision, considering the high investment in capital compared to other
technologies. Please refer to Exhibit B for revenue profile of these companies.

Business Model

There are two prevalent business models in the clean energy area: sell products to the
customer, or operate a generation plant.

Providers can sell products such as wind turbine, solar panel, and water turbine to the
customer. W2E technology providers can gain revenue from the sale or lease of their
products to industry and landfill operators.

Providers seeking to operate a generation plant (such as wind and solar farms) will
incur a significant capital investment, and sell electricity to recoup the cost of capital. In
case of W2E, providers could gain revenue by charging disposal fee and sell electricity.

Typical landfill operators charge up to $35 to dispose 1 ton of solid waste. Our
distributed system will enable manufacturers, farmers and homeowners to convert waste
to energy themselves thereby by saving $18-35/ton disposal cost and generate electricity
that can be sold back to the market.

We wish to offer an additional model wherein we would sell units to established

electricity provider for lease to commercial clients with W2E generation potential. We
believe that this would assist our distribution efforts by providing a revenue stream to
electrical companies as intermediaries. Futher, commercial and individual consumers
may be more willing to lease a unit than commit to the purchase of same.

Industry Trend, Buzz, and Dynamic

In the clean energy industry, a recent government policy of net-metering (selling excess
electricity produced at a higher rate than the purchase price) highly encourages the
adoption of the products. Instead of offering services and technologies, i.e. asking
customer for capital investment, some providers are introducing new business model to
install moderate-power facility at customer’s site for free, and selling them electricity and
charging a disposal rate that is lower than landfill.

Customer Base and Value Proposition

Currently 70% of the feedstock was generated by the pulp-and-paper industry. Using our
feedstock-flexible technology, we would increase the possible types of application, such
food processing. The first priority for these industrial customers is reducing cost of waste
disposal, requiring a product with no hazardous product and low emission. Efficiency in
power conversion is also important to recoup the initial investment as fast as possible.
Reliability of the product is very important: customers are willing to spend more money
for a more reliable technology developed by a better-reputation company.

Hot and Upcoming Market Niche

The new market that emerges in waste-to-energy or fuel cell technology is mobile units
for application in residential houses or as auxiliary power unit in trucks or RVs. There is
also a significant interest from government in developing countries to implement these
systems to use farm feedstock for power generation in off-grid remote areas.
Exhibit A. Gasification Market for Biomass

Exhibit B. Revenue of Players in Gasification Market

References

Frost & Sullivan, “North American Biomass and Waste to Energy Markets”, Market
Engineering Research, April 2007

Schonfeld, Erick and Morrison, Chris, “The Next Disruptors”, Business 2.0, August 2007

Frost & Sullivan, “Biomass Markets and Technologies an Opportunity for the 21st
Century”, Technical Insights, August 2000