Global Utility White Paper CONFIDENTIAL US vs. UK Margin Analysis for Coal Power Plants 60 f | H ri i i stv " P vs i ° f fils 1 wef i Puy my oat \ HI i 40 i eel ' ih 1 rt, ar —_ i Pree || : PRE Anat ae if \ & i maa te! ‘ Hy - ee | bah RE RE if ST HA td aa ag In 3 4 iF = ree bie ia ao | Malls ny Ag 7 Pe Piet ee ae L 1 u ah iy ve Ry . : nie so 4 of a i tuft H 10 = === UK Coal Power Gross Margin (Spot) —— US Coal Power Gross Margin (Spot) a -- Linear (UK Coal Power Gross Margin (Spot)) — Linear (US Coal Power Gross Margin (Spot)) BERBRBR RSS RSRSRRBRBRBRBERERAREHSHERARERBERRRRAR EG SSS SSESERESEEESSSESSESESESESSERSSESSSSESS SSSrP SSF SSK SSFSSESAIRS "SST SSPESSESSEASS 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 opt