Dr. Ivan Marten, Global Leader of the Energy Practice, The Boston Consulting Group. was one of the keynote speakers of the 9th Annual Global Energy Summit. Marten delivered a very interesting presentation on how energy efficiency, innovation, technology and policies can solve the global energy challenge.

1. Energy efficiency, innovation and technology
Solving the global energy challenge
Dr Ivan Marten
Global Leader Energy Practice
November 30, 2012

2. Solving the global energy challenge
1
Global
• The global energy system faces a range of fundamental challenges
Challenges
2
Supply:
• Innovation and technology are extending the frontiers of supply
innovation
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3
Demand:
• Improvements in efficiency can have a major impact on demand
efficiency
4
Policy &
• Effective public-private partnership needed to ensure progress
Partnership
1

3. 1
Energy challenges: Demand growth
Global energy demand will continue rising fast
Global demand will rise 47% to 2035, with Non-OECD demand will rise 76% to 2035,
non-OECD countries driving about 90% of this driven by China and India
Primary energy Primary energy
demand (Btoe1) +47% demand (Btoe)
20 15 +76%
18.2
17.0
12.2
14.9 11.2
15
12.4 10 9.3 4.4
67% 4.1
66%
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10 62% 7.0 3.5
8.6 1.7
56% 1.4
2.4
47% 5 1.0
4.1
0.7
5 0.9
0.3
0 0
1990 2010 2020 2030 2035 1990 2010 2020 2030 2035
NON OECD OECD China Other Asia Mid. East & Africa
India Latin America E. Europe/Eurasia
91% of new growth is forecasted to come from non-OECD countries
1. Btoe: billion tonne of oil equivalent
Source: IEA WEO 2011 – Current Policies Scenario, UK Department of Energy and Climate Change
2

4. 1
Energy challenges: Supply constraints
Today's energy sources will struggle to meet rising demand
Forecast oil production reliant on ...but volumes discovered have declined
production from "yet-to-find" fields... significantly in recent decades
Total resources discovered on
World oil production (M bbl/d1) conventional oil fields (B bbls2)
394
100 400
Field size:
Yet-to-find
10-100 M bbls
(crude)
80 100-1000 M bbls
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Unconv. oil 300
1-10 B bbls
>10 B bbls
60 NGLs
200
40
115
Discovered
100
20 (crude)
0 0
1990 1995 2000 2005 2010 2015 2020 2025 2030 1900s 10s 20s 30s 40s 50s 60s 70s 80s 90s 2000s
1. bbl/d: billion barrels per day
2. Data is for Estimated Ultimate Recovery (EUR) of conventional oil fields only
Source: IEA, Rystad UCube, BCG Analysis
3

5. 1
Energy challenges: Environmental
Meeting climate challenge requires action on many fronts
Worldwide annual
CO2 emissions "New Supply Demand
(billion MT3) Policies" initiatives initiatives
50 +50%
-50%
14 43 7
40
36 3
+38%
4
29 1
30 7
21 22
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20
Emission reduction levers
10
0
1990 2009 Increase 2035 Savings 2035 CCS Renewables 2 Nuclear Energy 2035
without "New "Current with "New "New efficiency "450
Policies" Policies Policies 1 " Policies Scenario"
Scenario" Scenario"
Meeting the climate challenge necessitates action on both
the supply and demand side
1. New Policies Scenario assumes policies announced to date are implemented 2. Renew ables including Biofuels 3. MT: million ton
Sources: IEA World Energy Outlook 2011
4

6. 2
1
Supply innovation
Our energy supplies aim to balance three objectives
1
• The relative economics of our alternative energy sources
Cost - Finding, development, production and transport costs
2
• The availability of these sources
Availability - Both on an absolute level – do we have enough?
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- ...and on a national level, to support energy independence
3
Sustainability • Their relative environmental, health and social impacts
All sources have advantages and drawbacks; our energy
mix results from the trade-offs we choose
5

7. 2
Supply innovation: Oil & gas (I)
Innovation has created a shale gas boom in the US
US Shale gas production US Natural gas price
(Bcf/d2) Henry Hub ($/MMBtu1)
25 24.4 10
8.9
US natural gas
8.7 total: 69bcf/d
20 8
15 6
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10 4
2.5
5 2
1.4
0 0
2005 2006 2007 2008 2009 2010 2011 2012E
US shale gas production
US natural gas price
1.MMBtu: million British Thermal Unit, 1BTU = 1.055 kjoules. 2012 Henry Hub gas price is YTD average
2.bcf/d: billion cubic feet per day
Source: EIA; Rystad, LCI Energy Insight
6

8. 2
Supply innovation: Oil & gas (II)
The boom was enabled by innovative well technologies
Horizontal drilling...
Forecast
Footage drilled (mil)
Surface to TD 1 Financial crisis &
400 drop in oil price 396
Other
340 334
Vertical
300
219
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200
149 ...and hydraulic fracturing
70% Horizontal
100 57%
22% 35%
0 5%
2003
2004
2008
2012
2013
2017
2000
2001
2002
2005
2006
2007
2009
2010
2011
2014
2015
2016
2018
1. TD: total depth
Source: Spears and Associates
7

9. 2
Supply innovation: Renewables (I)
The challenge: becoming cost effective without subsidies
Levelised cost of electricity €ct/kWh1
20
16-18
16,0
15
13,5
10
9,0 9,0
8,0
7,0 7,0
(?) 2 6,5
13,0 wholesale
11-12
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5 electr. price
7-9 7-8
5,5 5,5 6,0 5-6
5,0
0
Nuclear Lignite Hard coal CCGT R-o-r hydro Wind Biomass Biogas Wind PV utility
(< 5MW) onshore offshore scale4
Conventional Renewables
2010 20203
(Increasing up)
Fuel Poverty a highly important issue in the UK. How to
balance energy costs and the demand for renewables? (Decreasing down)
1. Including financing at 5% WACC, CapEx, O&M and CO2 cost 2. Effects of increasing safety requirements in the future not yet foreseeable
3. Assumed annual cost increase for coal and gas: 2% for O&M and 5% for fuel and CO2 cost 4. Average European insolation level
Note: Calculations do not include additional transmission or storage capacity for stabilizing intermittent renew ables
Sources: IEA (2010); Fraunhofer ISE (2010); EPIA (2010); IRE Univ. Stuttgart (2008); BMWi; BCG analysis
8

10. 2
Supply innovation: Renewables (II)
Wind and Solar costs are falling continuously
Wind turbine price index, The Solar PV module experience curve,
1984–2011 1976–2012
Log (M€/MW) Log (M€/MW)
10 100.0
1976
s = 0.79
1985
10.0
s = 0.95
2003 - 93%
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1984
1990 s = 0.89
-48% 2006
2004 1.0 2012
2000 - 56%
2012
2011
1 0.1
100 1,000 10,000 100,000 1,000,000 1 10 100 1,000 10,000 100,000 1,000,000
Log (MW) Log (MW)
Historic prices Experience curve Historic prices
s= price index as cumulative volume doubles 1 Chinese c-Si module prices Experience curve
First solar thin-film module cost Thin-film experience curve
1. S: price index as cumulative volume doubles; S= 0.95 means as cumulative volume doubles, price drops to 95% of before
Note: WTPI is w ind turbine price index, WTPI excl comm is adjusted for commodity prices 2002–10, Inflation adjustment using US PPI, R2 of c-Si regression = 0.94, R2 of FSLR regression = 0.98
Source: Bloomberg new energy finance; Extool; Law rence Berkeley laboratory; FSLR filings
9

11. 2
Supply innovation: Generation efficiency
Efficiency of fossil fuel power generation has increased
Increased efficiency of fossil fired ...and increased efficiency of
generation in major economies Increase in gas role in fuel mix... gas-fired power generation
Efficiency, fossil-fired generation (%) Gas share of all fossil-fired generation (%) Efficiency, gas-fired generation (%)
50 60 55
UK & Ireland UK & Ireland
50 50 Germany
45 UK & Ireland
US
40 45
Germany
40
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US
30 40
US
35
China
20 Germany 35
30
10 30
China
25 0 25
1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010
Continued switching to natural-gas fired power
generation will drive efficiency increases
Source: Ecofys, Mitsubishi Research Institute
10

12. 2
Supply innovation: Nuclear power
Despite technological evolution, nuclear faces challenges
Generation I Generation II Generation III Generation III+ Generation IV
Early prototype Commercial power Advanced
Evolutionary Designs Nuclear Alternatives
reactors reactors LWRs
?
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• Shippingport • LWR-PWR, • ABWR • EPR • Liquid metal-
• Dresden, Fermi I • BWR • System 80+ • ESBWR cooled reactors
• Calder Hall/ • CANDU • CANDU-6 • AP-1000 • Traveling-wave
Magnox • VVER/RBMK • AP600 reactors
Gen I Gen II Gen III Gen III+ Gen IV
1950 1960 1970 1980 1990 2000 2010 2020 2030
Technology offers improved safety, security and efficiency,
but Fukushima disaster a clear setback for nuclear
Source: American Academy of Arts and Sciences "Nuclear Rectors, Generation to Generation", Argonne National Laboratory, US Department of Energy
11

13. 2
Supply innovation: Emerging technologies
Emerging technologies are progressing very slowly
Technology Functioning Proven application Current impediment
• Pre-combustion • Pre-combustion (in • Costs: powergen costs
capture gas processing) increase by up to 75%
CCS • Post-combustion – Sleipner & • Delays to commercial-
(scrubbing) Snøhvit, scale power plant
• Oxy-fuel combustion Norway demonstration projects
• Barrier / Fence: • Utility scale only for • Other technologies
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block current tidal barrier: only small scale /
• Turbines: absorb – France 240MW, prototype phase
Tidal current Rance River • Barriers / fence require
• Oscillating: absorb (1966) special geo. conditions
current with aerofoil
• "Pelamis" snake • Large (non-utility) • Proof of concept for
module: waves scale: utility scale still
Wave induce hydraulic – 2.25MW missing
movement driving a Aguçadoura,
generator Portugal
Source: Global CCS Institute, "The Global Status of CCS: 2012", BCG Research
12

14. 3
Energy efficiency: Savings potential
Efficiency Potential in EU Energy Demand
EU energy demand
savings potential (Mtoe)
-42%
1,250 1,188
187
1,000 26%
156
88
750 71 686
32%
500
Domestic
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29%
Transport
250
Industrial
13% Services
0
Baseline Domestic Transport Industrial Services Reduced
2030 demand 2030 demand
Efficiency savings potential by sector
Domestic and Transport sectors offer greatest
potential for EU energy efficiency savings
Source: Federal Ministry for the Environment, Germany; Fraunhofer ISI
13

15. 3
Energy efficiency: Domestic sector
Major scope for improvement in domestic sector
The biggest efficiency savings lie with ...and the elements and materials needed to
refurbishing & updating existing buildings upgrade existing buildings already exist
1
10 6 7
5
Efficient lighting 5%
Electric appliances 6% 8
Sanitary hot water 7% 2
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New buildings 20%
9 4 3
Exist. buildings - heating 23%
1 Fenestration1 6 Ducts (HVAC)
Exist. buildings - refurb. 41%
2 Doors 7 Ceiling
Total potential savings 187 3 Fencing 8 Siding
4 Pipes 9 Metallic Frames
0 50 100 150 200
5 Blind and shade 10 Roofing
Energy demand, savings potential (Mtoe)
Efficiency improvements on buildings could also have
wider implications on fuel poverty issue
1. Fenestration include w indows and curtain walls
Source: Federal Ministry for the Environment, Germany; Fraunhofer ISI; Electro Magazine; EAA; BCG analysis
14

16. 3
Efficiency: Transport (I)
Carmakers have achieved major efficiency advances
1972 BMW 520i 2012 BMW 520i
More powerful... ...heavier... ...and more economical
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Power (HP) Weight (kg) Fuel Efficiency (mpg)
200 +31% 2,000 +31% 60
+45%
150 1,500
40
100 1,000
170 1,635
130 1,250 20 41.5
50 500 28.5
0 0 0
1972 2010 1972 2010 1972 2010
Source: BMW
15

17. 3
Efficiency: Transport (II)
Many competing vehicle technologies are emerging
Conventional Diesel, hybrid, electric
Aerodynamics ICE technology ICE technology Electric
Transmission Hybrid
and mass (Gasoline) (Diesel) vehicle
Levers • Design • Vaporization • Better automation • Vaporization and • Power train • Battery and
optimization and combustion of transmission combustion technology power
(resistance optimization • Continuous optimization • Battery and management
coefficient and • Reduction of variable • Reduction of power technology
• Recharging
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front area) energy loss transmission energy loss management
• Tire optimization (pump, friction, • Double clutch (pump, friction, technology infrastructure
heat) heat)
• Lower weight
CO2
emission
~10-11% ~40% ~5-10% -40% -65% -100%
reduction
potential
Cost per
~$ 600 ~$ 2,000-2,500 ~$ 100-200 ~ $ 4,000 ~ $ 5,000 $ 10, 000
vehicle
Note: ICE: Internal combustion engine
16

18. 3
Efficiency: Transport (II)
Higher oil prices drive more efficient vehicle choices
49 mpg Larger personal vehicles1
Fuel efficiency (mpg) share of light vehicle production (%)
24
45
Fuel efficiency (mpg)
22
40
20 mpg 20
35
18 30
16 Large personal vehicle production share (%) 25
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14 20
12 15
11 mpg
1975 1980 1985 1990 1995 2000 2005 2010
• Oil crisis • Prolonged period of lower fuel prices • Oil price rises
• Dramatic rise • Rising share of inefficient trucks in US light vehicle • Buying shifts to
in fleet fuel fleet greater efficiency
efficiency
Not just about technology: efficiency impact affected
by energy prices and regulatory framework
1. Larger personal vehicles includes: Pick ups, passenger vans and large SUVs. Small 2 w heel drive SUVs are categorized as cars
Source: EPA
17

19. 4
Policy & Partnership: Kyoto
Kyoto process has failed to curtail global CO2 emissions
Variation CO2 emissions 1 (1990-2009)
Decrease Increase
China 5,437
Middle East 958
LatAm 496
USA 384
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Kyoto bound
Japan 51
Europe -238
Russia2 -464
-2,000 0 2,000 4,000 6,000
Mt CO2
Top-down global policy alone will not
solve the world's energy challenge
1. IEA estimates only include emissions from fossil fuel combustion. 2. Decrease due to the partial closure of Soviet Union's industry.
Source: IEA emissions database, World Resources Institute
18

20. 4
Policy & Partnership: Investment
Need for financing new energy is larger and more complex
Global new investment in renewables
(US$bn)
300
Government R&D
258
Corporate R&D
10 VC/PE
220
Public markets
200 CAGR:
+31% 76 Small distributed capacity
167 161
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133
97
100
158 Asset finance1
61
39
0
2004 2005 2006 2007 2008 2009 2010 2011
Challenge for industry and governments is to ensure
capital directed towards most effective solutions
1. Adjusted for re-invested equity
Source: Bloomberg New Energy Finance, UNEP
19

21. 4
Policy & Partnership: Investment
Financing new energy is increasingly challenging
Utilities and commercial banks only capable to Can financial investors be attracted in
finance ~58% of required investments sufficient scale to close the gap?
GW
40
6
18
Balance sheet
8 financing
4 Project
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3 financing
3
?
17 ?
?
?
40 GW Already Additional trad. Gap Direct equity Project bonds Public equity Remaining gap
EU target financed funding sources 2020 investors
PF equity Investment decision will depend on
PF comm. banks
risk-return-profile of wind offshore parks
PF public banks
Source: BCG analysis
20

22. Conclusions
1 • The global energy system faces a range of fundamental challenges
Global – Rising demand, constrained supply and environmental issues
Challenges • These challenges can only be met by sustained action on multiple fronts
– Including both new sources of supply, and more efficient consumption
2 • Innovation is extending the frontiers of energy supply
Supply: – Major advances are transforming prospects for natural gas and renewables
innovation • Other technologies remain promising, but lack investment momentum
– Nuclear faces challenges post-Fukushima; CCS awaits commercial testing
Copy right © 2012 by The Boston Consulting Group, Inc. All rights reserv ed.
3 • Energy efficiency has great potential to reduce demand and emissions
Demand: – Particular scope to achieve savings in domestic and transport sectors
efficiency • However, implementation of efficiency measures remains challenging
– Perverse incentives have undermined policy aims in the past
4 • Global-level policy alone is not solving the world's energy challenges
Policy & – World-wide attempts to curtail carbon emissions have so far failed
Partnership • The outlook is challenging, but significant scope for progress
– Public-private partnership to align incentives through efficient regulation
21

23. Energy efficiency, innovation and technology
Solving the global energy challenge
Dr Ivan Marten
Global Leader Energy Practice
November 30, 2012