Energy and the Election:

Obama vs. McCain Energy Policy

October 2008

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This Presentation

� Energy Today

� Overview of the Candidates’ Plans

� Comparison of Plans:

� Oil & Gas

� Carbon and clean coal

� Renewable Energy

� Q&A

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Energy Today

• Oil use in the US has consistently risen since for decades: we now use over double per day what we did in the early 1960s

• Oil imports have also risen – 60% is now imported, compared to just over 35% in 1975

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Energy Today

• Oil prices have continued to rise as well overall

• Despite recent decrease, Frost & Sullivan estimates oil prices will remain high and will increase in the long-term

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Energy Today

Source: DOE

• Electric Power Usage continues to rise as well

• While capacity has risen to outpace demand overall, some regions, such as SPP and ERCOT have capacity margins below 10%, and are estimated to grow tighter in the next few years

• “Congestion costs” in 2005 for the top 5 RTOs in the country topped $3.6 Billion

• This could be alleviated by more investment in T&D, distributed generation

MW D emand vs C apacity

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Energy Today

• Improving the grid is necessary, though new Transmission lines cost up to $260k per mile to install, depending on voltage rating

• One issue with Wind is the cost of long-distance transmission

• Though the DOE estimates that by 2030, 20% of energy could come from wind – that could reduce GHGby 25%

• It would also reduce natural gas usage in electricity by 50%

• However DOE also estimates that 90% of new plants in the next 10 years will be powered by natural gas

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Overview of The Plans

Both candidates support:

• Off shore drilling

• Clean coal; Carbon reduction, including Cap & Trade

• Increasing renewable energy

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Overview of The Plans

• McCain:

• States his plan is more market-driven

• Uses incentives to help fuel renewable power, better battery technology for vehicles

• Wants leverage domestic supplies of fossil fuels, such as expanded oil drilling and (clean) carbon, expand nuclear

• Obama:

• Says his plan has a more long-term view that includes moving away from oil and carbon dependency

• RPS of 10% by 2012, and more mandates to improve environmental profile of US energy in the long term

• But recognizes coal, oil, and nuclear energy will remain part of the US energy profile for many years to come

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Comparison of Plans: Oil & Gas

McCain:

• Offshore drilling has been underutilized

• Should be up to the states to determine drilling

• However has stated he is opposed to drilling in ANWR

• Believes in suspending purchases of foreign oil for the SPR during critical times, though not necessarily tapping into SPR

Obama

• Stated he will accept limited off-shore drilling

• Believes oil companies are underutilizing current lands, “use it or lose it” lease plans

• Has outlined a plan to continue building oil pipeline from Alaska

• Would take some light oil out of the SPR, replace w/ heavy oil

Frost & Sullivan Analysis: Heavy oil will probably be easier and less expensive to refine in the future, due to better economies of scale. Nonetheless taking out of the SPR with this assumption may be a gamble.

Off-shore drilling is also risky – some estimates show off-shore resources in the US have limited supplies

Investing in and encouraging heavy oil upgrading could help lower costs of oil sands/shale oil and open up more domestic or international but friendly (i.e. Canada) sources

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Comparison of Plans: Carbon and Clean Coal

18,864

23,486

15,173

34,547

13,763

15,340

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World Gasification Capacity and Planned Growth by Region:

Both support clean coal though McCain to a greater extent

• McCain would commit $2 billion annually for 15 years to advance clean coal technology.

• Obama would create five state-of-the-art coal plants that would have near-total carbon capture

Both support carbon restrictions, Obama’s plans would be more stringent

• McCain has said he would work to reduce carbon emissions 60 percent below 1990 levels by 2050. Supports a market-based approach with caps but has not as specific as Obama

• Obama would push for 80% below 1990 levels by 2050; cap and trade would be a 100% auction

Frost & Sullivan analysis: To achieve cleaner coal tough mandates are needed, but gov’t funding would help R&D. First try of cap & trade in EU did not work but revised version seems to be more effective. Coal is a plentiful natural resource in the US and can be used to lower energy costs.

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Comparison of Plans: Green Issues

Both candidates seem to embrace wind, solar, other renewable technologies as ways to:

• Reduce emissions

• Stabilize power grid

• Create jobs

• McCain:

• Wants to encourage hydro, solar, wind

• Would like to make PTC permanent

• Obama

• Wants to dedicate $150 Bil to create 5 mil green jobs

• 10% RPS by 2012; extend PTC 5 years;

Frost & Sullivan assessment:

PTC has been a huge driver of wind power – Historically no PTC, no Wind

RPS has been a big driver of both wind and other solutions –would not be difficult to implement as about 30 states already have RPS

For true growth of all renewable technologies both should be enacted

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Does Green Matter?Response to Green The Frost & Sullivan CEO Survey

Drivers of Going Green

(N=400)

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Potential competitive advantage

Growth opportunity for company

Corporate social responsibility

Meeting customer expectations/requirements

New technology opportunities

Ability to enter new markets

Greener Image

Product development

Potential cost savings

Leverage existing markets

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Does Green Matter?Response to Green The Frost & Sullivan CEO Survey

Rate of Green Investment

(N=593)

67%

33%

0%

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Major Companies Benefiting from Green

• GE: 15% growth 2007 over 2006 to $14 Billionthrough Ecomagination. Goal in 2005 was $20 billion revenue by 2010; on track to surpass that in 2009

• BP Solar saw 23% increase in sales 2007 over 2006, one of the world’s largest solar users

• Major service companies and equipment manufacturers seeing opportunities with upgrading power plants, industrial facilities due to upcoming global emission legislation

• Steel, semicon manufacturers finding growing market to sell materials

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Comparison of Plans: Green Issues

Frost & Sullivan Assessment overall:

McCain’s plans in fully leveraging domestic capabilities and resources would likely decrease energy costs and increase security concerns, at least in the short to medium term

It is unclear how much of McCain’s proposed environmental regulations would be government vs. market driven. Also, is a 60% reduction in carbon enough to mitigate further environmental damage?

Obama’s plans for more aggressive carbon legislation and greater emphasis on renewable power is likely to create a more long-term solution for both electricity concerns and environmental issues

However in the short term this may be a more expensive proposition, which may delay or even reduce the ability to enact this longer-term vision. And, is an 80% reduction in carbon more than is needed (and more costly) to stabilize the environment?

Overall Frost & Sullivan research points to government incentives and restrictions as being among the biggest drivers for renewable energy growth and development. Conventional sources of electricity generation will not fade away from the US energy mix and therefore should be made cleaner if the US wants to reduce carbon emissions, though that is not an inexpensive proposition.

What the American people will have to decide is how much of this investment they will they want to spend –now and in the future - to reduce some of the country’s electricity, security, and environmental uncertainties.

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For Additional Information

• To leave a comment, ask the analyst a question, or receive the free audio segment that accompanies this presentation, please contact Stephanie Ochoa, Social Media Manager at (210) 247-2421, via email, analystbriefings@frost.com, or on Twitter at http://twitter.com/stephanieochoa.