Industrial Technology Market Insights Opportunities in Non-Automotive Fuel Cells October 2015 Samrat P. Karnik Managing Director

Executive Summary

Our Key Takeaways for the Industry

Market Opportunity • Mega opportunities in P2G and Hydrogen Battery are finally becoming a reality • New fuel cell companies get spun-off, formed and funded regularly • Customers are showing greater comfort with technology through repeat purchases (Verizon and BMW) • Industry still requires considerable support from regulators in the form of grants, project funding, etc. • Partnerships and alliances seem to be key for smaller companies to gain global commercial traction • Starting to see more “marriages” of “project management” companies with “fuel cell” OEMs • Business models shifting to a service oriented “per unit” sale of hydrogen/power on a turnkey basis • Requires deeper pockets and cheapest cost of financing

Technology • PEM cost curve/efficiency gains have been in excess of 60 to 70% over the years • Universities and private enterprises continue to invest into new research to improve performance and

lower costs

Transactions • Stronger companies are clearly filling in product and technology gaps (i.e., NEL ASA and H2 Logic) • Industry outsiders are entering the industry as a complement/growth area (Hyster/Nuverra)

Financial Performance • Revenue growth, although negative in 2015, seems to be consistent since 2012 (9.2% CAGR) • Revenue growth is slower to materialize than forecasted • Management teams and equity research analysts alike seem to struggle to appropriately

forecast, part of which may be driven by the need to put forth aggressive growth forecasts to raise capital

• Gross margins are improving; however, profitability breakeven points continue to be extended out • The larger public companies have large cash piles to withstand losses

Key Market Opportunities (Non-Powertrain)

• The biggest opportunities for fuel cell – P2G and “hydrogen battery” – are crystalizing

• Its driven by sustained technical innovations, efficiency / cost / performance gains and regulatory support

– Mega opportunities are in part displacing traditional markets such fossil fuels, which is a almost a trillion dollar market

Emerging Growth Stage Mature

Illu

stra

tive

Mar

ket S

ize

($bn

or M

W)

Market: P2G Key OEM Players:

Market: Stationary Power Key OEM Players:

Market: Back-up /Remote; Key Players:

Market: Material

Handling; Market:

Non-Auto

Motive On Site

Mega Market Opportunity 1: Power Stage

Storage Market Forecast • Energy storage is emerging as one of the

largest energy opportunities • Demand made more acute by increase in

intermittent renewable resources (wind and solar) that cause grid power supply imbalances

• Like transport/powertrains, energy storage is expected to have multiple solutions

• However, per E*On and others, only Hydrogen has the capacity to manage energy storage on a large scale

• FCH-JU study supported by McKinsey examined the role and commercial viability of energy storage in enabling increasing levels of intermittent renewable power generation

• Key Conclusions: • Demand for Power-to-Power (P2P)

storage technologies (batteries, pumped hydro, compressed air) will grow by up to 10x

• Conversion of electricity to hydrogen through water electrolysis can productively utilize nearly all excess renewable energy in the high-renewable scenario

0

20

40

60

80

100

120

140

160

180

200

0

20

40

60

80

100

120

2012 2013 2014 2015 2016 2017

Billion USD GWh

Mega Market Opportunity 2: Power to Gas (P2G) for HRS

Major auto OEMs are planning on FCEV . . . . . . with forecast for 1.2mm vehicles by 2015. . .

. . . implies a lot of demand for hydrogen refueling.

Geographical split expected to

be equal between North

America, Europe, and Asia

Source: Navigant Research, NEL and industry research

270 310 460 842

1,223 1,605

1,987

2,600

-

500

1,000

1,500

2,000

2,500

3,000

2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Strategic Partnership Key for Commercial Success

• Industry players have chosen strategic partnerships to either (a) access markets, (b) source stack technology/license technology; or (c ) finance installations in a turnkey offering

• These arrangements have been one of the biggest sources of financings and market development

Partner 1 Partner 2 Partner 3 Partner 4

Name Type Name Type Name Type Name Type

Hydrogenics(6) CommScope E, C Enbridge C Kolon Water PD, C E*On PD

Plug Power Ballard V Air Liquide E, V, T FedEx TJV M&T Bank L

ITM Power GHR 4 HRS(1) TJV Mp2g5) PD NSp2g(5) PD

FuelCell NRG Energy E, PD POSCO Energy E, TJV FraunhoferIKTS TJV Tangshan TJV

Ballard Plug Power C Anglo Am. V(2) Azure Hydro(3) C, E Volkswagen TJV

NEL ASA Kion C Akerhaus PD Hyme AS(7) TJV

Bloom E*ON E, C Softbank (SB) JV(4) Exelon Energy PD, E BofA L

Heliocentris Cummins C INABATA E, C(8) Acta C, E

Legend: E = Equity C = Commercial / customer V = Vendor / Supplier PD = Project Development Venture TJV = Technical JV T = Terminated / dormant L= Lender / bank finance

Notes: (1) GHR has a mobile hydrogen dispenser for both 700 bar and 350 bar refueling in use in Germany; 700 bar is key requirement (2) Invested through PGM Development fund (3) Investment in Ballard’s telecom pack-up power subsidiary Dantherm Power (4) 50/50 JV with SB Energy to provide base-load power for Japanese large commercial customer with high reliability needs (5) Two European Power-to-Gas joint ventures (6) Hydrogenics also has an agreement with Alstom for regional commuter trains (7) Increased ownership to 57% to get access to Hyme AS’ expertise in HRS (8) INABATA Co is a $4.0bn company; provides exclusive distribution rights in Japan, USA and Korea for non-core applications

R&D Investment Remains Robust

• As one would expect, R&D spending as a percentage of revenue has declined while absolute dollars continue to grow albeit at a much slower pace

• However, as illustrated by patents filed below, the bigger dollars are being spent inside larger companies such as Toyota, Siemens and GM

• GM claims to have spent $2.5B to date • R&D spending supplement by robust grants by DOE, EU, Japanese Government, etc.

• DOE provided $42 million in R&D grants in 2014

Source: DOE Fuel Cell Market, 2013; Heslin Rothenberg

Auto OEMs and Conglomerates Most Active

Companies included in R&D Spend: Ballard Power Systems, Capstone Turbine, FuelCell Energy, Hydrogenics Corporation, Intelligent Energy Holdings, ITM Power

R&D Spend as % of Revenue (Public Peers)

Total R&D Spend (Public Peers)

$63.5 $68.4 $76.1 $73.5 $86.5 $85.6

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

CY 2010CY 2011CY 2012CY 2013CY 2014 LTM

$ m

m

27.4% 22.4% 23.9%

17.3% 20.1% 20.4%

0.0%

10.0%

20.0%

30.0%

CY 2010 CY 2011 CY 2012 CY 2013 CY 2014 LTM

$ m

m

Regulatory Support is Still Essential

• Hydrogen identified as a key element of energy mix going forward could lead the way • Target of 50-70% of the new car fleet by 2030 to be non ICE • HRS: $80mm+ commitment for 100 stations by 2015 • R&D: For 2013, Japan increased its R&D budget for fuel cells by 2.0x to $363mm • Traditional strength in residential CHP is being leveraged in to HRS and back-up

• The EU renewed FCH JU from 2014 to 2024 with a 45% increase to $1.8 billion or €650 over seven years • Fuel cells and H2 identified as a key component of energy strategic mix • Germany, France and UK have HRS and mobility incentives in place • Leveraging PPP models as well as national demonstration projects

• R&D: at Fed level, DOE leads with $35mm and $42mm in 2013 and 2014, respectively • HRS: CA sees FCEV as a major component of its 250k ZEV by 2025

• $20mm/year funding for 100 HRS • Adds to CEC grants • CA ARFVTP looking to add 100 HRS • SGIP also provides incentives for fuel cell based on-site generation • First Element Fuel won a $27.6mm contract from CEC to install 19 HRS

• CT, NJ, NY, MA, MD, OR, RI and VT have joined CA to set a $3.3mm ZEV target by 2025

• Changes in regulation allow HRS to be located in non-industrial areas • Substantial regulatory incentive which companies like POSCO Energy, KION and LG are hoping to take

advantage of • Traditional strength in large-scale stationary installations (hence AFC’s joint venture)

Emergence of Service Model = “Power by the Hour/Unit” • The fuel cell industry seems to be gradually evolving from a capex model to an opex model for its customers • Industry is seeing an increased number of installations, particularly on the larger stationary power, back-up power

and P2G or P2F installations where customers are paying on an “as consumed” basis • The shift to a service model requires: (i) EPC / Project Development Capability; (ii) deeper pockets to fund equity in

installations; and (iii) Bank / debt financing capability • Fuel cell OEM companies like AFC have stated explicit interest in owning their projects

OEM Legacy Emerging

Selling FuelSells – Stacks or Systems • JV with Kolon in South Korea • BOO project with 100MW opportunity

Stationary PowerSystems • Expressed interest in owning generating assets as a business model

• JD for 50MW project with Samyoung and Chang Shin in South Korea; Ownership: AFC (40%); Samyoung (45%); and Chang Shin (15%)

GenDrive “Fuel Cell” Batteries • GenKey => fully integrated solution for material handling (90% customers)

• 3rd parties providing financing (helps that customers are investment grade)

• Several fold increase in service revenue; now 20% of the sales

Selling Fuel Cell Systems for Back-up Power Applications

• Now markets fully financed back-up for Telecom market

Stationary Power Systems • Today, service backlog exceeds product backlog

Company Status Fuel Cell Type Partners Commercial Strategy

Commercial PEM Elec None Has both 1MW and 2MW units Focused on the European market (1st mover market) @ 2MW level, have 13x increase in production, 50% less capital

costs on per MW basis, and lower O&M costs than alk. Intended for P2G and traditional onsite markets

Commercial PEM KION Hyme A/S

Developing a pressurized electrolyzer with 60 Nm3/h

Demonstration PEM Hyundai Company has 2 HRS plants in California

Demonstration PEM INGRID and HYPER Con

Implementing a 6MW P2G project for Audi Taking initial orders for other projects

Demonstration PEM Unknown 3 systems w/ a output of up to 6MW entering service Targeting €900/kW by 2018 from ~ €2,000 today 3rd generation line expected to accommodate 100MW

Demonstration Alk – PEM? Abengoa Undiscussed

Demo / Reference Sites

PEM E*On Partnership with E*On; doing 2nd reference site $80M pipeline for energy storage Also won the Ontario IESO award; 1st NA reference site Total pipeline of 1 – 5MW projects for energy storage

The 1MW+ Unit Landscape – The Key Players

• Multiple players are working on 1MW+ units for the mega P2G and P2F applications • The race seems to be getting started with no clear winner yet • Deep pocketed players such as Siemens are entering the fray • While landscape is quickly evolving, Proton OnSite continues to have a “window of opportunity”

(1) Headwaters MB Analysis

NEW

Company Core Energy Business Fuel Cell Focus Size ($bn)

Commodity chemicals Batteries (consumer)

• Acquired 51% of RR Fuel Cell Sys. • SOFC technology for on-site gen

EV: 100.0+ Rev: 100.0+

Diversified industrials Wind, Power Turbines

• Leveraging PEM naval technology • Targeting 2.0MW unit for P2G

EV: 100.0 Rev: 85.0

Diversified industrials Wind, Power Turbines

• Announced in 2014; SOFC for on-site • Targeting 95% eff; 1 to 10MW output

EV: 200.0 PF Rev 120.0 PF

Heavy Engineering & Equipment

• Acquired ClearEdge (PAFC technology from UTC) and Fuel Cell Power

• Focus on on-site generation in Korea

EV: 18.9 Rev: 17.0

Gas and hydrogen distribution • JV with Toyota Tsusho for HRS in Japan • HRS projects in Europe and California

EV: 50.0 Rev: 17.0

Steel Mills • POSCO Energy; distributed generation • 26 fuel cell plants in Korea and Intl • 100MW Pohang facility in with FCE

EV: 37.0 Rev: 57.0

Forklifts • Acquired Nuvera and committed $50m • Direct competitor or Plug Power in MH

EV: 1.0 Rev: 2.0

Mega Market Opportunity: New Entrants in Fuel Cell Business

• As large opportunities in the fuel cell industry become clear, both large and small companies are entering the market

• The most potent are deep pocketed, well resourced companies such as LG, Doosan, Siemens, and GE

Market Update and Peer Analysis

Peer Financial Performance

• Fuel Cell Index includes: AFC Energy, Ballard Power Systems, Capstone Turbine, FuelCell Energy, Hydrogenics Corporation, Intelligent Energy Holdings, ITM Power, McPhy Energy, NEL ASA

Cumulative Revenue vs Market Cap. Indexed March 2014 to LTM Change

Group Total Market Cap Group Total Revenue

100 105 139 142 138 128

$0$100$200$300$400

Revenue Market Cap

(9%)

(3%)

(53%)

(56%)

Cumulative

Median

Market Cap. Revenue

$838 $658 $673

$1,140 $1,195 $1,007

$0$200$400$600$800

$1,000$1,200$1,400

$ m

m

$232

$305 $319

$425 $419 $391

$0

$100

$200

$300

$400

$500

$ m

m

Peer Performance - Valuation

• Revenue multiples have contracted from this time last year

• We believe the inability of the industry to again meet its revenue targets/expectations (or investors getting ahead of the management teams) could in part explain the sell-off in the market

Comments Median EV/12-Month Trailing Revenue

3-Year Index 1-Year Index

• Fuel Cell Index includes: AFC Energy, Ballard Power Systems, Capstone Turbine, FuelCell Energy, Hydrogenics Corporation, Intelligent Energy Holdings, ITM Power, McPhy Energy, NEL ASA

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

S&P 500 53%

Fuel Cell Index -27%

-70.00%-60.00%-50.00%-40.00%-30.00%-20.00%-10.00%

0.00%10.00%20.00%

S&P 500 6%

Fuel Cell Index -58%

2.39x 1.86x 1.58x

2.45x

3.81x

2.51x

1.71x 1.31x

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

Peer Group: Equity Research Performance

12-Months Revenue Target vs Actual 12-Months Price Target vs Actual

• Public companies have unfortunately missed consensus estimates after an exciting start in early 2014 • Part of the issue could have been very aggressive growth estimates by management teams or equity research

analysts, or analysts unwillingness to independently assess management forecasts • For example, Plug Power’s board has asked management to take a more conservative approach on guidance

Change

Company Target Price 12 Months Ago

Current Price Absolute Percentage

Ballard Power $3.92 $1.37 ($2.55) (65%)

Capstone Turbine $2.20 $0.36 ($1.84) (84%)

FuelCell Energy $2.70 $0.91 ($1.79) (66%)

Hydrogenics $29.20 $9.41 ($19.79) (68%)

Intelligent Energy $6.59 $1.41 ($5.18) (79%)

McPhy Energy $13.86 $6.62 ($7.24) (52%)

Average (69%)

2014 2015

Company Forecast Actual Δ$ Δ% Forecast Current Δ$ Δ%

Ballard Power $82 $69 ($13) (16%) $103 $64 ($39) (38%)

Capstone Turbine $158 $133 ($25) (16%) $207 $115 ($92) (44%)

FuelCell Energy $203 $180 ($23) (11%) $239 $168 ($71) (30%)

Hydrogenics $55 $46 ($9) (17%) $72 $45 ($27) (37%)

Average (15%) (37%)

Peer Performance – Secondary Issues and Ownership

Total Secondary Issues Secondary Issues by Company 2012 - YTD

Company Ownership Profile

Company Exchange % Held by Strategic

% Held by Financial % Held by Insiders % Held by Retail Free Float

Ballard Power Systems TSX 0.00% 8.62% 0.39% 90.99% 99.61%

Capstone Turbine NasdaqCM 0.00% 30.27% 0.69% 69.04% 99.31%

FuelCell Energy NasdaqGM 14.31% 22.64% 1.46% 61.59% 84.23%

Hydrogenics NasdaqGM 22.40% 21.23% 38.75% 17.63% 38.85%

Intelligent Energy Holdings LSE 10.04% 71.55% 0.93% 17.47% 66.08%

Plug Power NasdaqCM 0.00% 20.59% 0.77% 78.65% 99.0%

$23.7 $13.0

$32.0 $57.5

$28.5 $28.5

$0 $20 $40 $60 $80

AFC EnergyBallard Power Systems

Capstone TurbineFuelCell Energy

HydrogenicsITM Power

$ mm

$52.9

$20.0

$131.3

$27.3

$0

$20

$40

$60

$80

$100

$120

$140

2012 2013 2014 2015 YTD

$ m

m

Appendix

Samrat Karnik – Managing Director

Samrat Karnik, Managing Director, has 15 years of middle-market corporate finance advisory experience across the full spectrum of advisory assignments. He works with industrial technology companies, with a particular focus on those in the instrumentation & sensors, industrial software & informatics, automation & control, energy efficiency and water & environmental technology sectors. Prior to joining Headwaters MB, Samrat was a senior banker in the M&A and Industrial Groups of both Duff & Phelps and Houlihan Lokey where he was responsible for covering and providing investment banking advisory services to companies in the Industrial and Environmental Technologies sectors. Prior to Houlihan Lokey, he was an Associate at The Nassau Group, and began his investment banking career at Berenson Minella, a boutique M&A and restructuring advisory firm. Samrat is also a Co-founder and Head of Strategy for Dreambox Emergence, which is a social enterprise focused on bringing the benefits of and access to 3D printing / additive manufacturing technologies to remote, underdeveloped communities globally. He received his B.S. from the Leonard N. Stern School of Business at New York University.

Email: skarnik@headwatersmb.com Telephone (direct): 203.813.3880 x 208 Telephone (alternate): 303.531.4601

CJ Hummel – Managing Director

Email: cjhummel@headwatersmb.com Telephone (direct): 303.217.5743

C.J. Hummel is a Managing Director in Headwaters’ Energy & CleanTech Group. He brings 15 years of experience in project finance, mezzanine finance and private equity investing in the development and acquisition of energy infrastructure assets. C.J. has particular expertise in tax equity and project financing for various sectors in the energy industry including infrastructure, power generation (both conventional and renewable), alternative fuels and downstream assets. His most recent transactions include the sale of Marubeni Sustainable Energy’s 70 megawatts of biomass and co-generation assets to Korea East-West Power Company, the convertible tax equity raise for the conversion of Mt. Poso Cogeneration Company’s 49.5 megawatt coal-fired power generation plant to burn 100% biomass, the equity and debt formation for the acquisition and refurbishment of Global Ampersand’s two 12.5 megawatt biomass power generation facilities and the bond financing for the construction of a 4.7 megawatt run-of-river hydroelectric facility for Bowersock Mills & Power Company. Prior to joining Headwaters MB in 2007, C.J. was a founding member of Galena Capital playing a key role investing over $100 million in the acquisition and restructuring of four companies. Prior to Galena, he served a Senior Vice President for Alliant Energy Generation and Vice President for El Paso Corporation’s EP Power Finance private equity arm. C.J. holds a B.S. from the University of Denver.