Energy & Environmental Technology Presented by Jane Lindner Investing in China 2005 Symposium www.janecapital.com

Energy & Environmental Opportunities Tremendous global opportunity in energy & environmental technology For the next 10 years China will be: A key market and A key market driver 2

Macro Factors Favoring Energy & Environmental Technology The world is demanding cleaner power, water & living space Existing energy infrastructure is aging under a growing population Traditional energy sources are getting more expensive Globalization has exacerbated each of these issues

China’s Unique Problem High Growth Dense Population Opportunity Major Environmental Concerns Huge Energy Demand Weak Infrastructure 4

The Environmental Issue World bank: China has 16 of the world's 20 most-polluted cities Electricity production accounts for 34.2% of China’s air pollution (legacy of coal economy) China is on pace to discharge 1.4 to 1.9 billion tons of carbon dioxide by 2020 – ranking it as the world’s top polluter Industrial waste amounts to 650 million tons/year The daily sewage rate of 3.7 tonnes requires 10,000 wastewater treatment plants = $48 billion to achieve a 50% treatment rate

The Water Issue Water shortage in 2/3rds of Chinese cities 300 million rural residents in China lack clean drinking water Only a small percentage of surface water meets domestic standards Severe urban/rural divide exists 70% of water in 5 of China’s 7 major rivers systems not suitable for human contact The not talked about problem: water infrastructure soaks up power like a sponge

Power Issue Today per capita generation is small 1/13th of the US; 1/8th of Japan China needs 1.5 billion kW of generation capacity by 2010 (385 MM kW today) 100 mm people lack access to power China is the largest coal producer in the world 58% for industrial use Not a sustainable source for long-run growth 2nd largest consumer of energy but lacks oil and gas resources No growth without cheap efficient power To fulfill the goal of quadrupling year 2000 GDP by 2010, China faces serious challenges in terms of energy supply and environmental protection

China Macro Factors Rapid economic growth World Bank estimate: between 2004 and 2015 half of the world’s construction will be in China Large population and abundant renewable energy resources Big environmental problems today and getting worse with rapid development World attention focused on China “Green” 2008 Olympics and 2010 Expo Shanghai Pledge to the United Nations – every rural family will have clean drinking water by 2020

China’s Response 10th 5 Year Period (2001-2005) Construction of coal mines and coal processing plants - Promote development of clean coal tech Accelerate local production of wind power equipment; find a solution for remote power supply Implement pilot projects on energy conservation in large energy consuming industries $85 billion to be invested in environmental production

Where Might Opportunities Lie? Water Power Generation Renewables Fuel Cells Clean coal Efficiency Green building construction

Water Water treatment alone is $500 billion industry globally Veolia Water Acquired 45% of Shenzhen Water Group for $400 million in December 2003 Signed contract with Beijing municipal government to build wastewater treatment plant for Olympics Has won a total of 13 water contracts and invested a total $1.2 billion Source: China Daily Recent Case Study Water treatment alone is $500 billion industry globally China will be a big piece of this market as it grows over the next 10 years 5 Year Plan: $12 billion allocated to water and wastewater treatment Drinking Water Over the past 5 years, 800,000 new water treatment facilities went into operation More than 14 million rural families have gained access to drinking water Wastewater Beijing will spend $1.45 billion on wastewater equipment 9 sewage plants 8 recycling treatment plants

Infrastructure – Power Choices 190 Gigawatts 75% Coal 25% Hydro & Nuclear Very minimal other Source: EIA China’s Power Today Oil/Natural gas clean, rising prices, limited supply Hydro large domestic resources; huge environmental impact; big ticket item Nuclear moderate priced & clean, long-term environmental tradeoffs Renewables Great to talk about; but only a small dent in supply needs Coal Dirty, cheap, plentiful (for now)

How about Fuel Cells? 60 domestic institutes & companies active in fuel cells Electric bicycles one noted application (2.5 mm/year production) Est. $300-$400 mm in investment in fuel cell and advanced hybrid technology in 2001-2005 China is not as big a player as the US, Japan, and Europe But China is very active and huge potential market Fuel cells are another area where China’s low cost manufacturing may make a difference

Where Do Renewables Fit? Guangting Power Plant World’s largest wind project Beijing, China Launched in October 2004 Xinfengda Technology Group is the project builder Using large scale advanced wind power generation units from Germany 400,000 KW with 2 billion KWh generation capacity 2 Phases to be completed in 2006 and 2008 Source: Interfax-China Recent Case Study China’s Renewable Energy Development Project Launched in December 2001 Total Budget of $139 million Solar Photovoltaic (PV) Solar energy will be principal energy source for 2008 Olympics. Power 80-90% of streetlights Heat up to 90% of hot water Government grants to PV companies to accelerate installation of 300,000 – 400,000 PV systems (10 MW) Wind Power Largest exploitable wind power capacity in the world – 25.3 billion KW Only 560,000 kW installed to date Currently relying on imports – domestic products could reduce cost about 50%

Efficiency “Green” construction accelerating Century Prosper Center 155,000 m2 twin office tower Beijing Central Business District Main green strategies: high performance chiller with energy recovery system, low emissivity window glazing, automatic dimming lighting, reduced lighting density Annual energy Savings – 12 million kWh Annual cost Savings – $ 1 million Simple payback period – 1.1 years Source: The China Business Review Recent Case Study “Green” construction accelerating A kilowatt saved is a kilowatt produced Target 50% less energy use/sq foot from 1980s All the major Western players are already there: Trane, Carrier, York, Delta, GE, Honeywell, Siemens, Caterpillar, Cummins Possible areas of investment opportunity Advanced roofing/building materials BIPV (building integrated photovoltaics) Insulation and prefab products Heat recovery systems/variable speed drives Power conserving lamps Energy efficiency can mean rapid payback

Clean Coal Coal gasification-based technologies Gasification technologies can supply electricity and liquid fuels as well as hydrogen and other chemicals and greatly reduce pollution China is ideal candidate Rich coal resources Existing power and chemical industries R&D ability Positioned to acquire IP and become manufacturer of core equipment Could become world leader High Risk / High Reward

What makes a Chinese Cleantech Company Attractive? Innovation Quality Realistic pricing (valuation) Sound business strategy Compelling economics

Summary China is in a unique position to become a world leader in energy and environmental technology Large population Abundant natural resources Rapid economic growth Current limited infrastructure is a two-edged sword Limits pace of growth Clear path to use next generation technologies Big opportunities for clean technology

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