Great Battery Race

EQUITY RESEARCH October 18, 2015
The Great Battery Race

Framing the next frontier in clean technology – Electrical Energy Storage
Grid-scale power storage -- long a “holy grail” for renewable energy -- is gaining
momentum as an investable theme. From Tesla’s ‘Gigafactory’ to investments by
utilities and mandates from regulators, a confluence of drivers is accelerating
efforts to cost effectively store power for the electric grid. Battery technology is
at the center of this potentially seismic shift in how the grid operates, and in this
report we attempt to pinpoint the applications, technologies and companies across
our global coverage where we see the most opportunity.
Brian Lee, CFA Patrick Archambault, CFA Robert Koort, CFA

(917) 343-3110 (212) 902-2817 (713) 654-8480
brian.k.lee@gs.com patrick.archambault@gs.com robert.koort@gs.com
Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co.
Michael Lapides Ikuo Matsuhashi, CMA Masaru Sugiyama

(212) 357-6307 +81(3)6437-9860 +81(3)6437-4691
michael.lapides@gs.com ikuo.matsuhashi@gs.com masaru.sugiyama@gs.com
Goldman, Sachs & Co. Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a
single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix,
or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with
FINRA in the U.S. The Goldman Sachs Group, Inc.
October 18, 2015 Global: Clean Energy
Table of Contents
PM Summary: The Great Battery Race 3

Energy storage: Tapping into the next frontier for the electric grid 8
Industry evolution at-a-glance: From gadget to grid 9
Key applications: We estimate a long-term TAM of ~$100-$150bn 13
Backup Power: $1-$1.5bn 15
Peak shaving: $45-$71bn 15
Renewables integration: $20-$32bn 21
Ancillary services: $11-$17bn 22
T&D deferral: $16-$26bn 24
Bulk storage: $5-$7bn 25
Technology overview: No one size fits all – we expect multiple winners 27
Levelized cost of storage – a look at the economics 28
Lithium ion – the early horse in the race 30
Flow – the elephant in the room for Li-ion evangelicals 36
NaS (Sodium Sulfur) – Promising power but islanded due to supplier concentration 38
Stocks with exposure across the value chain 40
Albemarle Corp. (ALB, CL-Buy) 40
FMC (FMC, Neutral) 40
NEC (6701.T, CL-Buy) 41
NGK Insulators (5333.T, Neutral) 41
Panasonic (6752.T, Neutral) 42
Samsung SDI (006400.KS, Neutral) 42
Sungrow (300274.SZ, Neutral) 43
SolarEdge (SEDG, Buy) 43
Sumitomo Electric (5802.T, Neutral) 44
Tesla (TSLA, Neutral) 44
SolarCity (SCTY, CL-Buy) 45
Private companies to watch 46
Appendix 47
What is a battery: Tech mechanics 101 47
Glossary of terms 51
Disclosure Appendix 52
Goldman Sachs Global Investment Research 2

PM Summary: The Great Battery Race

The US electric grid is evolving. Renewables growth, coal-to-gas substitution, T&D-skewed capex budgets and the emergence of
distributed generation are all key factors to consider in the electric grid of the future. At the same time, power is the one commodity,
to date, that has not been stored at scale. We expect battery technology to begin changing that equation – and the way the grid
operates – in a significant way in coming years, representing a potentially immense next frontier in clean technology: energy
storage for the electrical grid (not for consumer electronics or autos). Like other clean technologies before it, we see energy storage
implications as far-reaching across multiple sectors, including power/utilities, as well as technology, chemicals industries, and even
oil/gas/commodities over time. With this report, we provide our analysis of the opportunity set in the US and attempt to pinpoint for
investors the applications, technologies, and companies across our global coverage where we see most potential.
Key findings
1. The opportunity is massive… and virtually untapped. Demand for batteries is dominated by consumer electronics today.
That said, larger-scale formats are increasingly taking share and nowhere is this more evident than in the automotive space,
where our global Autos research team forecasts electrification of the fleet to hit 25% of auto sales by 2025 vs. 5% in 2015. In
battery terms, we estimate this would equate to a robust 42% volume CAGR over the next decade, with battery demand
from autos reaching ~175GWh and far eclipsing the 40GWh of batteries consumed by consumer electronics today. For
batteries on the grid, the opportunity may be even larger longer-term, though timing is likely more uncertain. We estimate a
secular shift to an IoT-driven power grid could require as much as 750GWh of batteries, bigger than all markets combined
and equal to a TAM of $100-$150bn. Within the power landscape, energy storage has seen nascent deployment of 600MW,
to date – again, a tiny fraction of the over 1,000GWs of total US generation capacity on the grid today.
2. Several applications are “in the money” today. We identify six applications that we believe investors should focus on:
Backup power, Peak shaving, Renewables integration, Ancillary services, T&D deferral, and Bulk storage. In the near-to-
medium term, we see peak shaving and renewables integration as particularly noteworthy given scale of the opportunities
(~2/3 of overall TAM combined), compelling economics, and potential timing of adoption. Longer-term, we note the ability
for battery technologies to lower costs and extend storage duration will increasingly expand the opportunity set as more
applications across the grid become monetizable.
3. No one size fits all winners for battery technologies. While we focus on Li-ion in this report given its maturity and early
lead, we also highlight several other technologies which we believe hold medium-to-long term promise and/or have
reached some level of commerciality in grid applications: Flow batteries, sodium-sulfur (NaS), among others. Targeted
performance varies widely by application, creating a backdrop where we expect multiple technologies will likely penetrate
the various parts of the market (e.g. Li-ion for short duration, flow for long-duration as an example).
4. The “game-changer” may still be undiscovered. We note hundreds of companies are pursuing grid-scale batteries across
a number of different chemistries – in many cases, following years of R&D for consumer applications that are now
increasingly finding cross-application usage. While Li-ion backed by a handful of larger-scale players from the traditional
technology arena appears to be first in scaling up, we believe steady growth in private and VC funding also suggests a large
breadth of potentially new technologies will impact the competitive landscape over time. We include a list of private
companies in the space on page 46.

Exhibit 1: We estimate the TAM for EES could exceed that of all other end Exhibit 2: Our analysis suggests a $100-$150bn TAM for EES across a number
markets combined over the longer-term, though timing is less certain of key applications in the US
Market size by battery end market, in GWh TAM analysis by application
900
789
800 741
700 Low High
600 Total EES TAM Total EES TAM

($bn) ($bn)
500
Backup power $1 $1
400 Peak shaving $45 $71
Renewables integration $20 $32
300
Ancillary services $11 $17
176
200 T&D deferral $16 $26
100 Bulk storage $5 $7
40
0.6 5 8
TOTAL $97 $155
0
EES EVs in the Total EES Consumer EVs EVs Total EES
batteries US(current) installed electronics (forecast by (at 100% TAM
installed base 2025) penetration) (potential)
base
Source: DOE, EPRI, Avicenne, Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.
Why now?
Grid scale storage is not necessarily new and has been considered a “holy grail” of sorts for the renewables and power markets for
years. While investable opportunities still remain limited, we are encouraged by a landscape that we see as increasingly ripe for
broader traction in this nascent, but potentially massive end market; (1) supply is emerging – Tesla is building purpose-built energy
storage capacity at Gigafactory, (2) renewables, including distributed resources, continue to gain momentum – solar plus storage at
SolarCity, renewables integration on the grid, and (3) even policy measures are brewing – California is mandating 1.3GW of storage
by 2020 and utilities/IPPS such as SCE, EIX, NEE and AES are moving forward with initial forays into energy storage deployment.
Specifically, SCE awarded the largest single energy storage procurement, to date, in late 2014 for 250MW, while NEE recently
announced plans to spend $100mn on energy storage systems in the next year. All told, we believe 2015 will be a record year for US
deployment of energy storage on the grid – though absolute volumes remain low.
A number of developments are positioned to further support this movement for grid-scale storage. These include the following.
 Costs are set to come down meaningfully. Driven by increasing scale and manufacturing efficiencies, we believe battery
prices are set to halve over the next decade.
 Technology performance has improved. Industry startups suggest commercial batteries in Li-ion are now being
configured for up to 50k cycles, well above current norms. We see 2017-18 as a turning point for the Li-ion battery industry –
Nissan and LG Chem plan to substantially raise energy density.

 Applications are "in the money" today. Our discussions with various industry participants and cost analyses suggest
several grid-scale opportunities are addressable even on today’s costs: voltage regulation in PJM markets (due to high
pricing), T&D deferral, demand charge reduction / peak shaving in certain locales, among others.
 Renewables are getting big on the grid. We forecast renewables – mostly wind and solar – to double as a percentage of
the US electricity generation mix over the next decade, from 7% in 2014 to 14% by 2025. This higher proportion of
intermittent resources on the grid will require smoothing, integration and dispatch-ability provided by storage.
 Funding remains steady. Similar to other emerging clean technologies over the past decade-plus, energy storage is seeing
steady growth of private and VC funding, albeit still at lower absolute dollar levels than solar.
 Policy support is emerging. While still relatively selective, the US has been a leader following California’s energy storage
mandate introduced in October 2013.
 The ecosystem is getting built. In addition to the battery OEMs, system integrators and developers, as well as software
providers, are increasingly emerging to focus on building comprehensive battery management solutions for various
applications across the grid.
Exhibit 3: GS author list
Clean Energy Autos & Auto Parts Chemicals Utilities

Brian Lee, CFA Patrick Archambault, CFA Robert Koort, CFA Michael Lapides
(917) 343‐3110 (212) 902‐2817 (713) 654‐8480 (212) 357‐6307
brian.k.lee@gs.com patrick.archambault@gs.com robert.koort@gs.com michael.lapides@gs.com
Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co.
Americas
Hank Elder David Tamberrino, CFA Brian Maguire, CFA David Fishman

(801) 884‐4681 (212) 357‐7617 (713) 654‐8483 (917) 343‐9030
hank.elder@gs.com david.tamberrino@gs.com brian.maguire@gs.com david.fishman@gs.com
Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co.
Ryan Berney
(713) 654‐8482
ryan.berney@gs.com
Goldman, Sachs & Co.
Asia Pacific Energy Autos & Auto Parts Electronic Components Japan Consumer Electronics Japan Integrated Electricals

Frank He Kota Yuzawa Daiki Takayama Masaru Sugiyama Ikuo Matsuhashi, CMA
+86(21)2401‐8925 +81(3)6437‐9863 +81(3)6437‐9870 +81(3)6437‐4691 +81(3)6437‐9860
frank.he@ghsl.cn kota.yuzawa@gs.com daiki.takayama@gs.com masaru.sugiyama@gs.com ikuo.matsuhashi@gs.com
Beijing Gao Hua Securities Company Limited Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd.
Yang Liu Yipeng Yang Takafumi Hara Yukiko Nonami Takehiro Akamatsu

+86(21)2401‐8935 +86(10)6627‐3189 +81(3)6437‐9926 +81(3)6437‐9933 +81(3)6437‐9940
yang.liu@ghsl.cn yipeng.yang@ghsl.cn takafumi.hara@gs.com yukiko.nonami@gs.com takehiro.akamatsu@gs.com G
Asia
Beijing Gao Hua Securities Company Limited Beijing Gao Hua Securities Company Limited Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd.
Toshihide Kinoshita Hideaki Mitani
+81(3)6437‐9934 +81(3)6437‐9836
toshihide.kinoshita@gs.com hideaki.mitani@gs.com
Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd.
Wataru Matsuzaki Marcus Shin
+81(3)6437‐9877 +82(2)3788‐1154
wataru.matsuzaki@gs.com marcus.shin@gs.com
Goldman Sachs Japan Co., Ltd. Goldman Sachs (Asia) L.L.C.

11 global stocks with leverage to the theme

We highlight 11 companies – material producers, manufacturers, and downstream customers – covered by GS which have exposure
to the emerging electrical energy storage opportunity.
Exhibit 4: Across our global coverage, we highlight several stocks with exposure to the emerging energy storage opportunity
GS covered companies exposed to the grid-scale battery market
Position in value Market Cap Price Target Technology Energy storage Business
Company Ticker Price Analyst Rating
chain (in $mn) (12-mo) Exposure sales exposure description
Albemarle Lithium
ALB $5,796 $51.47 $63.00 Bob Koort Buy Lithium ion
Corp. producer
Materials
Brian Lithium
FMC Corp. FMC $5,114 $38.05 $37.00 Neutral Lithium ion
Maguire producer
Ikuo ICT, charging, Battery
NEC 6701.T $8,705 ¥397 ¥530 Buy
Matsuhashi energy manufacturer
NGK Daiki Sodium Battery
5333.T $6,674 ¥2,422 ¥2,490 Neutral
Insulators, Inc Takayama Sulfur manufacturer
Masaru Battery
Panasonic 6752.T $25,430 ¥1,304 ¥1,300 Neutral Lithium ion
Sugiyama manufacturer
Battery
Samsung SDI 006400.KS $6,632 ₩106,500 ₩120,000 Marcus Shin Neutral Lithium ion
OEMs/ manufacturer
manufacturers Primarily Inverter
SolarEdge SEDG $1,054 $23.69 $37.00 Brian Lee Buy
lithium ion manufacturer
Sumitomo Ikuo Battery
5802.T $11,304 ¥1,689 ¥1,800 Neutral Flow
Electric Matsuhashi manufacturer
Inverter
Sungrow 300274.SZ $2,904 Rmb 28.00 Rmb 23.70 Frank He Neutral Lithium ion
manufacturer
Pat EV, EES
Tesla* TSLA $31,591 $221.31 $234.00 Neutral Lithium ion
Archambault manufacturer
Primarily
Downstream SolarCity SCTY $4,926 $46.65 $79.00 Brian Lee Buy Solar installer
lithium ion
*6-month price target 5% or less 5% to 20% 20% to 50% 50% or greater
Note: ALB, NEC and SCTY are on the respective regional Conviction Lists.
Source: FactSet, Goldman Sachs Global Investment Research.


Energy storage: Tapping into the next frontier for the electric grid
Generation (supply) equals load (demand). In the electricity markets, this has always been a fundamental principle. This owes to the
electric grid being developed over time to provide just-in-time delivery of power. However, with demand for power varying throughout
the day and also seasonally, the supply of power across the grid must be built to a sufficient level of capacity to not only satisfy
baseline demand, but also peak demand incurred on what is likely only a few days of the year (e.g. hottest days of summer).
Herein lies the opportunity for energy storage on the grid. In the case of electrical energy storage (EES), electricity generated by coal,
We refer to energy gas, renewables or other power-gen resources is stored and consumed at a later time, either when the sun is down, the grid is facing high
storage for power grid
demand, or fuel is not readily available. Without storage, meeting peak electricity demand requires enough generation capacity to be built
applications as EES
throughout this report out to produce exactly what is being consumed at any given time. Additionally, given the rapid start-up time of certain batteries, the ability
to provide grid reliability and regulate frequency/voltage on a short-term basis also adds to the value of storage.
We expect batteries to play a big role in EES. Electric vehicles have begun to prove the scale, reliability, and cost potential of battery
See the note from our
global autos research technology. By 2025, our Autos research team estimates ~25% of the global fleet will be electrified vs. 5% in 2015, consuming
team, Cars 2025: Vol. 2: ~175GWh of batteries. This would equate to a 42% volume demand CAGR from just this segment alone over the next decade, far
Solving CO2 – Engines, surpassing demand from consumer electronics. Longer-term, we estimate the total available market for EES could be just as big, if not
Batteries and Fuel Cells; bigger, at a $100-$150bn TAM. While market development remains early stage, and will likely require regulatory reform over time, we
published on August 5, see energy storage’s vast potential as promising given growing policy, funding and R&D support – and see it poised as a major
2015
disruptive clean technology in the coming decade. Note, throughout this report, our focus is on the US market opportunity.
Exhibit 5: While commercialization and installed bases remain in their infancy, we see promise in (1) Li-ion, (2) NaS, and (3) Flow
technologies for the emerging EES opportunity
Energy storage technologies, size denotes installed base (not to scale)
Source: BNEF, Goldman Sachs Global Investment Research.

Industry evolution at-a-glance: From gadget to grid

A $25bn market…dominated by gadgets. While batteries have been prevalent for decades across a number of end markets, we
note the dominant application, to date, has been consumer electronics since Sony first commercialized lithium-ion (Li-ion)
technology in the 1990s. Demand in this segment accounts for over 40GWh. More recently, commercialization of electric vehicles
has contributed to the 5% CAGR of the Li-ion battery market over the past decade and a half, expanding the total Li-ion battery
market to $25bn collectively. In volume terms, increasing proliferation of electric vehicles (EVs) accounts for ~5-6GWh of demand
with this figure estimated to grow to roughly ~175GWh by 2025 based on EV penetration forecasts from our Autos research team.
Batteries coming to a grid near you, though the grid-scale story is not totally new... Historically, energy storage in the
electricity industry has typically taken the form of pumped hydro or compressed air energy storage (CAES), both of which are
geographically constrained and where new funding appears limited. In recent years, the industry has seen a meaningful uptick in
R&D into the use of batteries, particularly Li-ion, in larger-format applications including grid-scale. Compared to other verticals,
batteries for the electric grid are in their extreme infancy, however. Roughly 600MW are installed on the global grid today.
…and are just reaching commercialization in many cases. That said, years of R&D for consumer applications are now
increasingly finding cross-application usage, and in identifying the opportunity, we note hundreds of companies are pursuing grid-
scale batteries across a number of different chemistries. We believe three in particular, show near-to-medium term promise of
commercialization: (1) Li-ion, (2) sodium-sulfur (NaS), and (3) Flow. Our detailed analysis of these technologies begins on page 27 of
this report, and we include a list of private companies in the space on page 46.
Exhibit 6: Batteries are gaining share in the still-nascent installed base of EES Exhibit 7: While NaS was an early mover, adoption of Li-ion has accelerated
Global installed capacity of EES (excl. pumped hydro), 2000-2014 Global installed capacity of EES batteries, 2000-2014
(MW)
(MW) 900
1,400
800 Li ion
Batteries Flywheels CAES
Flow
1,200
700 NaS
Other
1,000 600
Lead-based
800 500
400
600
300
400
200
200
100
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: BNEF. Source: BNEF.

Why now? Energy storage goes large-scale

Framing the next frontier in clean technology. In April 2015, Elon Musk thrust grid-scale storage into the limelight with the
unveiling of Tesla Energy – a portfolio of battery products targeting the residential, commercial and utility segments. While the price
points for the products, which are as low as $3,000-$3,500 for the smallest, residential configurations at the battery level, attracted
significant attention, our industry discussions suggest these price points were largely being achieved by a number of manufacturers.
Nevertheless, the Tesla release followed a rapidly emerging build-up in the battery industry that has been playing out somewhat under
wraps over the past several years, as researchers and entrepreneurs have attempted to adapt Li-ion to larger scale applications. A
number of developments are positioned to further support this movement for grid-scale storage. These include the following.
 Costs are set to come down meaningfully. Driven by increasing scale and manufacturing efficiencies, we
believe battery prices are set to halve over the next decade. Not unlike technology roadmaps in other sectors
(Moore’s Law in semis, Haitz’s Law in LEDs), a key driver of cost reductions is through improved performance – in
the case of batteries, increasing energy density or energy produced per unit volume. Higher energy density raises
the performance of Li-ion batteries, resulting in an increase in the duration of storage available in one discharge
cycle and a reduction in battery costs. The energy density of Li-ion batteries in the early 2010s was 100-150 Wh/kg,
but recently some manufacturers have been able to achieve 200-300 Wh/kg. Considerable effort is also being
made to improve the performance of anode materials, electrolytes, separators, and other core battery
components to make energy density of 300-350 Wh/kg possible by mid 2020s.
Exhibit 8: We expect battery price per watt-hour to halve over the next Exhibit 9: Private and VC funding for energy storage continues to see
decade momentum; solar funding appears to have peaked several years ago
Estimated price of automotive Li-ion batteries PE/VC funding for energy storage vs. solar, 2005-2014
$1.60 400 $800 Energy storage (LHS) Solar (RHS) $6,000

Price per Wh ($/g, LHS)
$1.40 350 $700
Energy density (Wh/kg, RHS) $5,000
$1.20 300 $600
$4,000
$1.00 250 $500
$0.80 200 $400 $3,000
$0.60 150 $300

$2,000
$0.40 100 $200
$1,000
$0.20 50 $100
$0.00 0 $0 $0
2009 2011 2013 2015E 2017E 2019E 2021E 2023E 2025E 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Goldman Sachs Global Investment Research. Source: BNEF.

 Technology performance has improved. Industry startups suggest commercial batteries in Li-ion are now being
configured for up to 50k cycles, well above current norms. We believe 2017-18 as a turning point for the Li-ion battery
industry – Nissan and LG Chem plan to substantially raise energy density.
 Applications are "in the money" today. Our discussions with various industry participants and cost analyses suggest
several grid-scale opportunities are addressable even on today’s costs: voltage regulation in PJM markets (due to high
pricing), T&D deferral, demand charge reduction / peak shaving in certain locales, among others.
 Renewables are getting big on the grid. We forecast renewables – mostly wind and solar – to double as a percentage of
the US electricity generation mix over the next decade, from 7% in 2014 to 14% by 2025. This higher proportion of
intermittent resources on the grid will require smoothing, integration and dispatch-abilty provided by storage.
 Funding remains steady. Similar to other emerging clean technologies over the past decade-plus, energy storage is seeing
steady growth of private and VC funding, albeit still at lower absolute dollar levels than solar.
 Policy support is emerging. While still relatively selective, the US has been a leader following California’s energy storage
mandate introduced in October 2013.
 The ecosystem is getting built. In addition to the battery OEMs, system integrators and developers, as well as software
providers, are increasingly emerging to focus on building comprehensive battery management solutions for a various set of
applications across the grid.

Policy could open up the flood gates

Encouragement by state utility regulators could drive an uptick in the deployment of electrical energy storage. In many states,
utilities – the local, regulated companies – either have not received permission to invest or deploy energy storage technologies or
have not petitioned their regulators to do so. State policies that encourage a gradual roll out of storage by utilities (similar to
Renewable Portfolio Standards) could increase the pace of deployment. In this case, regulated utilities would invest in storage and
add this to their regulated “rate base” – a driver of their earnings power.
Mandates for utilities to contract energy storage are cropping up across the US. Most notably, California issued a mandate to the
state’s three largest IOU’s to procure 1.3GW of storage by 2020, which would more than double the global installed base. California
became a leader in the energy storage industry in 2010 by issuing Assembly Bill 2514, calling for a mandate to be put in place that
would spur market transformation. Regulations around how to implement this transformation are unfolding. Current legislation
stipulates that utilities may own no more than half of the total storage used to meet the 1.3GW mandate, presenting a significant
opportunity for merchant ownership. As commercialization continues, we believe this and other specifications could have a direct
and profound effect on the market’s evolution. Additionally, in some states, especially those with competitive power markets (Texas,
PJM, etc.), clarity does not exist on whether the traditional T&D utilities could invest in storage or not – as there is concern that this
would encroach on the regulatory model there, as many deem storage just another form of generation and in these markets, T&D
utilities do not provide generation – IPPs own and control power plant production of MWhs. This debate emerged in Texas in 2014
and clarity still does not exist there regarding whether distribution utilities could invest in energy storage.
Exhibit 10: CA has mandated 1.3GW of energy storage by 2020, representing Exhibit 11: The installed base for energy storage is nearly non-existent
the single biggest policy mechanism focused on energy storage, to date compared to the over 1,000GW generation capacity on the US grid
CA energy storage targets, in MW Energy storage installs, 1Q/2Q/cumulative vs. total US generation capacity, in MW
Energy Storage Procurement Targets (in MW) 45 1,200,000

41 1,071,000
2014 2016 2018 2020 Total
40
SCE 90 120 160 210 580 1,000,000
35
Transmission 50 65 85 110 310
Distribution 30 40 50 65 185 30 800,000
Installed energy
Customer 10 15 25 35 85 25
storage (ex- 600,000
20 hydro) is 0.0001%
PG&E 90 120 160 210 580 of US installed
15 400,000
Transmission 50 65 85 110 310 capacity base
10 6
Distribution 30 40 50 65 185 200,000
Customer 10 15 25 35 85 5
152
0 0
SDG&E 20 30 45 70 165 1Q15 2Q15 Cumulative Total US
Transmission 10 15 22 33 80 installs installs US energy generation
Distribution 7 10 15 23 55 storage capacity
Customer 3 5 8 14 30 capacity
Total 200 270 365 490 1325

Source: DOE. Source: Company data, Goldman Sachs Global Investment Research.

Key applications: We estimate a long-term TAM of ~$100-$150bn

The US grid provides a multitude of opportunities for batteries. Batteries can address various functionalities across different
applications in the electricity market, given the ability to design the technical parameters of the battery to fit particular needs. We
note that not all of these solutions can be built to be cost-competitive with incumbent solutions, however, particularly given the
relatively high cost of batteries today in these large-scale configurations. Thus, the ability to successfully monetize an investment in
EES remains limited in many cases, and the longer-term opportunity is likely to only expand as costs come down.
We identify six applications with near-to-medium term potential. We believe investors should focus on six primary applications
– for which we highlight our analysis for the potential TAM in this section. For the purpose of this analysis, we use GS forecasts for
battery costs and load growth, while also utilizing assumptions from DOE data. These are outlined on page 49.
(1) Backup power: source of power in the event of the grid being down
(2) Peak shaving: reduction of (i) energy purchased from the grid at more expensive, peak hours, and (ii) peak demand charges
(3) Renewables integration: incorporating intermittent solar and wind generation while maintaining grid reliability/stability
(4) Ancillary services: providing continuous flow of electricity, maintaining grid stability and security
T&D: transmission and (5) T&D deferral: increase service life of existing T&D; defer upgrades; provide congestion relief at times of peak demand
distribution
(6) Bulk storage: wholesale storage to levelize load, add dispatch-ability to generation sources, and provide reserve margins.
Exhibit 12: We identify six key applications across which we expect batteries to achieve increasing penetration once costs and
viability are proven
EES adoption timeline
Adoption
Driven by
subsidy &
liquidity market reform enables
monetization
Near-term Medium-term Long-term
Driven by cost
declines
T&D deferral
Bulk storage
manufacturing
breakthroughs cut cost Ancillary services
Backup (UPS) in developing
markets, microgrids
Renewables integration
Resi backup power
C&I peak shaving
2015 2016 2017 2018 2019 2020 2021 2022+
Source: Goldman Sachs Global Investment Research.

Exhibit 13: Our analysis suggests a ~$100-$150bn TAM for EES across a number of key applications in the US
TAM analysis by application
Low High
Total EES TAM Total EES TAM

($bn) ($bn)
Backup power $1 $1
Peak shaving $45 $71
Renewables integration $20 $32
Ancillary services $11 $17
T&D deferral $16 $26
Bulk storage $5 $7
TOTAL $97 $155
Exhibit 14: We summarize six key applications that we expect batteries to address in the electricity market in the near-to-medium term
EES applications overview
Large / Centralized Small / Distributed

Scale of installation
Renewables
Bulk storage T&D deferral Ancillary services Peak shaving Backup power
integration
Utilities, Commercial & Residential and

Customer Utilities, IPPs Utilities, IPPs Utilities, IPPs Commercial & Industrial
Industrial, IPPs Commercial
Monetization Grid optimization - Deferred grid upgrade Incremental revenue

Asset optimization Savings Intrinsic value
scheme avoided investment investment stream
Catalyst for Industry maturity, Industry maturity, Continued solar+wind Market revisions and Demand charges, TOU
Resiliency concerns
adoption regulatory changes regulatory changes development maturity pricing rate structure
Technologies
NaS, Flow, Batteries NaS, Flow, Batteries NaS, Flow, Batteries NaS, Flow, Batteries Batteries Batteries
deployed
Notable Bosch Braderup ES Enel Chiaravalle Invenergy Grand Ridge AES Angamos Storage Giheung Samsung SDI
Drewag Reick
deployments Facility Substation Wind Farm Array Project
Source: DOE, BatteryUniversity.com, Goldman Sachs Global Investment Research.

Backup Power: $1-$1.5bn

The EES TAM: While likely one of the most near-term from a timing perspective given Tesla’s Powerwall product introduction and
related competition that it is likely to spurn, we see backup power as the least impactful application from a revenue standpoint,
given limited economic rationale for investment. For market sizing purposes, we assume the market to mirror the US residential
backup generator market.
The EES opportunity: We see no economic case for installing backup power. Batteries can replace diesel generators, but based on
cost alone, we find that diesel generators remain the low cost option. However, we note there may be a stronger business case for
batteries replacing generators in remote applications where either fuel is unreliable or, in the case of the telecom industry in
developing markets, where diesel generators are at high risk of being stolen. In the US specifically, we note backup generators have
grown at a steady 15% growth rate historically in the US, and we forecast a long-term CAGR of 8% for market sizing purposes.
Exhibit 15: We estimate the backup generator market will Exhibit 16: But, we see limited economic rationale for backup
grow at an 8% CAGR over the next several years, implying a power, while costs of battery solutions vs. traditional diesel
battery market opportunity of roughly $1-$2bn generators also favor the incumbent, in our view
Battery TAM for backup power Tesla vs. Generac diesel generator
MWh
7,000 $bn
$1.6
$1.4
6,000 $1.4 Total
8% CAGR system cost
$1.2 Capacity per Cost per for 48 hrs of
5,000
Size Duration unit (peak) unit backup
$0.9 $1.0
4,000 Tesla
$0.8 Powerwall 10 kWh 2 to 8 hrs 3.3 kW $3,500 $30,000
3,000 battery
$0.6
Generac
2,000 Guardian
$0.4 22 kW Unlimited 22 kW $4,799 $8,000
HSB
1,000 $0.2 generator
0 $0.0
2016 2017 2018 2019 2020 Low High
Source: Generac company data Source: Company data.
Peak shaving: $45-$71bn

The EES TAM: Based on electricity usage of the US commercial sector, we estimate that the total addressable market will range
from $45bn-$71bn by 2020, the most significant of any one application.
The EES opportunity: We expect commercial and industrial buildings to be early adopters of large-scale storage, given the
structure of a commercial customer’s electricity bill in the US, which is primarily comprised of three parts: a fixed charge (customer
charge), a charge based on the maximum intensity of demand (demand charge), and variable consumption (energy charge). By
being able to store, and then shift, energy from one time of the day to another, we expect the typical commercial customer to
extract value from storage solutions in two main ways:

 Energy arbitrage: Take advantage of the intra-day variation in electricity prices (e.g. time of use, or TOU) by purchasing
and storing power when grid prices are cheap (e.g. late at night or over the weekends) and drawing down on the batteries
when costs are higher.
 Demand charge reduction: Smooth out the demand from the grid (e.g. load profile) in order to decrease the maximum
demand intensity in a given month, thus decreasing the demand charge portion of the electricity bill. The demand charge
represents compensation to the utility for maintaining a sufficient level of capacity for transmission and distribution and is
generally calculated based on the highest average kW measured in a 15-minute interval during the billing period.
Below we illustrate the all-in value proposition of storage for a commercial customer and provide an example of a commercial or
industrial site’s electricity bill. Depending on the regularity of a site’s electricity usage, we estimate demand charges can make up
30%-70% of a commercial customer’s bills, and peak shaving can dramatically reduce this charge.
Exhibit 17: Lower demand charges, energy arbitrage, and Exhibit 18: We estimate reducing demand charges can
resiliency capability add value for commercial customers eliminate 30%, with upside to even 70% in some cases, of a
Buildup of value proposition for commercial EES commercial site’s electricity costs
Illustrative composition of a typical commercial or industrial
electricity bill
Cost of electricity from
the grid
Reduced demand charge
Intraday energy
Cost of solar+storage
arbitrage backup
capability
Demand charge
Energy charge
Customer
charge
All‐in value proposition of solar+storage
for commercial customers
Source: Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.

Exhibit 19: Early morning hours currently present optimal Exhibit 20: Demand distribution shifts from peak demand
charging time hours to early AM
Hourly electricity cost per kWh throughout the day Normal electricity demand distribution vs. altered battery demand
distribution
$0.14 0 316091
121
152 182
213
244
274
305
335
366
397425
456
486
Normal kWh demand distribution 517
547
5kWh demand distribution with battery
78
609
639
670
700
731
762
790821
851882
912
943974
90 180
$0.12 80 160
$0.10 70 140
Draining
60 120
Charging
$0.08 50 100
40 80
$0.06
30 60
$0.04 20 40
optimal charging hours 10 20
$0.02 0 0
12am‐1am
9am‐10am
10am‐11am
11am‐12am
1pm‐2pm
2pm‐3pm
3pm‐4pm
4pm‐5pm
5pm‐6pm
6pm‐7pm
7pm‐8pm
8pm‐9pm
10pm‐11pm
11pm‐12am
1am‐2am
2am‐3am
3am‐4am
4am‐5am
5am‐6am
6am‐7am
7am‐8am
8am‐9am
12pm‐1pm
9pm‐10pm
$0.00
12am‐1am
9am‐10am
10pm‐11pm
11pm‐12am
1am‐2am
2am‐3am
3am‐4am
4am‐5am
5am‐6am
6am‐7am
7am‐8am
8am‐9am
10am‐11am
11am‐12am
12pm‐1pm
1pm‐2pm
2pm‐3pm
3pm‐4pm
4pm‐5pm
5pm‐6pm
6pm‐7pm
7pm‐8pm
8pm‐9pm
9pm‐10pm
Source: ConEdison, Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.
A case study for commercial customers: In Exhibit 21, we show a hypothetical illustration of how energy arbitrage would work
C&I: commercial and using a battery system (all-in, including installation) costing $250 per kWh – which we believe is a reasonable all-in cost to assume
industrial
for Li-ion technology based on Tesla’s Gigafactory cost targets through 2020. Assuming California daily electricity rate patterns, we
estimate that the customer would charge the battery during the hours of midnight to 6am, and draw down on the battery from 11am
to 6pm when both its needs and the utility costs are highest. In this case, energy arbitrage alone would lead to savings of $3,000 per
month, or roughly $22,000 per year assuming demand charges drop off in the winter. With the cost of the system at $100k, this
would result in a payback period of roughly 5 years. We highlight that the savings a commercial/ industrial customer is able to
achieve from demand charge reduction and TOU shifting is highly variable depending on the specific load characteristics and peak
demand of the customer. Customers with more variability in their load profile – perhaps from large bursts of demand when firing up
equipment or during elevator rush hour – stand to gain the most from demand charge reduction. However, if a customer is subject
to real time pricing, then they can benefit from energy arbitrage to a degree, no matter how steady or flat their load profile.

Exhibit 21: We estimate a 5-year payback period and $22,000 annual savings from demand charge reductions and time-of-use
energy arbitrage; our estimates assume Li-ion technology and that Tesla’s Gigafactory cost reductions approach $100/kWh by 2020
Stationary storage example for a commercial customer in CA
Total Normal kWh Hourly kWh demand

Hourly Battery Hourly
bundled demand kWh distribution with Daily kWh
energy cost usage energy cost
kWh cost distribution demand battery
12am-1am $ 0.070 1.0% 10 $ 0.70 7.5% 75 65 $ 5.25
1am-2am $ 0.070 1.0% 10 $ 0.70 7.5% 75 65 $ 5.25
2am-3am $ 0.070 1.0% 10 $ 0.70 7.5% 75 65 $ 5.25
3am-4am $ 0.070 1.0% 10 $ 0.70 7.5% 75 65 $ 5.25
4am-5am $ 0.070 1.0% 10 $ 0.70 7.5% 75 65 $ 5.25
5am-6am $ 0.070 2.0% 20 $ 1.40 7.5% 75 55 $ 5.25
6am-7am $ 0.070 3.0% 30 $ 2.10 3.0% 30 0 $ 2.10
7am-8am $ 0.070 5.0% 50 $ 3.50 5.0% 50 0 $ 3.50
8am-9am $ 0.095 8.0% 80 $ 7.60 8.0% 80 0 $ 7.60
9am-10am $ 0.095 8.0% 80 $ 7.60 8.0% 80 0 $ 7.60
10am-11am $ 0.095 8.0% 80 $ 7.60 8.0% 80 0 $ 7.60
11am-12am $ 0.095 8.0% 80 $ 7.60 6.0% 60 -20 $ 5.70
12pm-1pm $ 0.130 8.0% 80 $ 10.40 1.5% 15 -65 $ 1.95
1pm-2pm $ 0.130 8.0% 80 $ 10.40 1.5% 15 -65 $ 1.95
2pm-3pm $ 0.130 8.0% 80 $ 10.40 1.5% 15 -65 $ 1.95
3pm-4pm $ 0.130 8.0% 80 $ 10.40 1.5% 15 -65 $ 1.95
4pm-5pm $ 0.130 8.0% 80 $ 10.40 1.5% 15 -65 $ 1.95
5pm-6pm $ 0.130 5.0% 50 $ 6.50 1.5% 15 -35 $ 1.95
6pm-7pm $ 0.095 3.0% 30 $ 2.85 3.0% 30 0 $ 2.85
7pm-8pm $ 0.095 1.0% 10 $ 0.95 1.0% 10 0 $ 0.95
8pm-9pm $ 0.095 1.0% 10 $ 0.95 1.0% 10 0 $ 0.95
9pm-10pm $ 0.095 1.0% 10 $ 0.95 1.0% 10 0 $ 0.95
10pm-11pm $ 0.070 1.0% 10 $ 0.70 1.0% 10 0 $ 0.70
11pm-12am $ 0.070 1.0% 10 $ 0.70 1.0% 10 0 $ 0.70
Total 1,000 $ 106.50 1,000 0 $ 84.40
Daily savings $ 22.10
Standard Monthly Bill 20.8%
Charge/kw Storage Monthly Bill
Peak Demand kW 200 $15 2918 Battery capacity kW 200
Partial Peak kW 175 $3 597 Peak reduction potential 160 Charge/kw
Max Peak kW 200 $12 2370 Peak Demand kW 40 $15 584
Monthly demand charge $5,885 Partial Peak kW 175 $3 597
Energy cost $3,195 Max Peak kW 200 $12 2370
Total Monthly Bill $9,080 Monthly demand charge $3,550
Energy cost $2,532
Battery capacity Kwh 400 Total Monthly Bill $6,082
Cost/kwh $ 250
Total cost $ 100,000 Total Savings $2,997
Annual savings $ 22,073 Savings from shifting $663
Payback period in years 5 Savings from demand charge $2,334
Source: PG&E, Goldman Sachs Global Investment Research.

Exhibit 22: We see energy storage offering compelling economics for peak Exhibit 23: …which opens large C&I electricity usage opportunities up to
shaving in a broad array of states… battery markets
Estimated IRRs based on TOU and demand rates; analysis assumes one major C&I electricity usage by state
utility rate structure in each state and is not necessarily representative of all
utilities in the state
25% MWhs
IRR at 2020 costs CA, 22%
140,000
20% IRR at today's costs
120,000
PA, 16% NY, 18% AZ, 18%
15% GA, 17% 100,000
WI, 12% AL, 15%
MS, 13% 80,000
CA, 9%
10%
60,000
FL, 7%
NV, 7% AZ, 7%
5% WI, 3% GA, 6% NY, 7% 40,000
AL, 5%
PA, 6%
MS, 4% 20,000
0% FL, 0%
NV, ‐1%
0
‐5% NV MS AL WI AZ PA GA NY FL CA
Source: Goldman Sachs Global Investment Research. Source: EIA.
Exhibit 24: C&I customers in the US receive time-of-use pricing; we believe residential could follow suit over time, albeit gradually
Time of use differentials
kW peak
Peak load Average Opt-in/ Enabling Total
Study Off-peak ($) On-peak ($) Price ratio reduction/
reduction usage Default technology customers
participant
APS 2 21 10.5 0.2 5% 3.8 Opt-in no 1,200,000
EDF 4.6 5.8 1.3 1 45% 2.2 Opt-in no 5,700,000
OGE 4.2 23 5.5 1.5 11% 5 Opt-in yes 750,000
SRP 7.2 21.2 2.9 1.4 11%-13% 9.9 Opt-in no 970,000
ENEL 2.99 12.42 4.2 0 1% 0.6 Default no 25,000,000
Hydro One 5.3 10.2 1.9 0 3% 1.2 Default yes 4,500,000
Source: CPUC.

The case is weaker for residential customers: Unlike C&I, the majority of residential utility bills are calculated at a flat rate, not
real-time pricing, and do not include a significant demand charge component. Under these circumstances, we see no incremental
value stream from storage. This owes to the fact that the levelized cost of storage is far above the cost of electricity today and also
applies in the case of solar plus storage as the cost of storage is simply additive and detracts from the cost savings enabled by solar.
We expect solar plus storage could become broadly cost-competitive across the US utility grid approaching 2025, with certain
higher-cost states like Hawaii (already “in the money”), New York and California reaching parity several years earlier (Exhibit 25).
Additionally, for residential solar customers subject to net metering policy, the grid serves as a low-cost virtual battery, enabling
customers to sell back excess energy to the grid and repurchase it at a later time, at the same price. However, we expect more and
more utilities to introduce real-time pricing for residential customers, which would enable homeowners to take advantage of energy
arbitrage similar to commercial customers. In the recent California residential rate redesign, the state regulator included a provision
requiring investor owned utilities to introduce pilots for residential time-of-use pricing. New York currently offers opt-in TOU pricing
and Massachusetts is in the process of finalizing a default time varying rate structure, while Tennessee Valley Authority is
considering adding time variable rate options for their 9 million+ customers.
Exhibit 25: Solar plus storage in the residential market will reach breakeven Exhibit 26: Our analysis suggests it could be 10+ years before solar plus
in certain states earlier, but we see broad cost-competitiveness in 2025 storage becomes economically viable across the US grid in residential
Resi solar plus storage vs. projected grid cost per kWh Summary of resi solar plus storage economics
$0.70 Total US Solar + storage economics 2015E 2020E 2025E 2030E

Implied cost per kWh HI
CA Battery system (incl. BoS)
$0.60 HI
AZ Size of system - KWh 10 10 10 10
NY
$0.50 NJ Price of system - $/Kwh $700 $311 $138 $61
$0.40 Total battery system price $7,000 $3,106 $1,378 $611

NY
Solar system
$0.30 CA
NJ Total purchase price (ex-ITC) $24,973 $25,158 $19,712 $15,445
$0.20 AZ
Total system cost $31,973 $28,264 $21,090 $16,056
$0.10
Implied cost per kWh $0.23 $0.21 $0.15 $0.12
$0.00
Average US electricity cost - $/kwh $0.13 $0.15 $0.17 $0.20
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Annual grid cost increase 2.8% 2.8% 2.8% 2.8%
Source: Company data, Goldman Sachs Global Investment Research, EIA. Source: Company data, Goldman Sachs Global Investment Research.

Renewables integration: $20-$32bn

See our note, Headed to The EES TAM: Based on a more than doubling of renewable energy capacity in the US over the next decade – largely to meet state
100 GW: How state Renewable Portfolio Standards (RPS) – we estimate the total addressable market for renewables integration to be $20bn-$32bn.
policy will drive US
renewables growth The EES opportunity: Renewables are intermittent – the wind blows hardest during certain times of the day and the sun only
through 2025; published shines during a finite window. For the grid, this adds uncertainty in scheduling which power plants to run and which to curtail at any
on March 26, 2015 given time and this can result in frequent curtailment as well as grid instability, if not managed. Similarly, overgeneration can occur
in particularly sunny or windy hours, not necessarily when there is demand for the electricity. Wind and solar plant owners subject
to curtailment during periods of overgeneration are able to use storage to smooth out when they deliver energy to the grid, and
thus the business case for storage can be considered via the probable loss from curtailment that would occur in a business-as-usual
scenario. Moreover, renewables can participate in price arbitrage if able to store energy to simply monetize at peak demand times.
Exhibit 27: Renewables (ex-hydro) are 7% of generation… Exhibit 28: …going to at least 14% by 2025 to hit RPS
US total generation mix in 2014 US total generation mix in 2025
0% 0%
7%
19%
3%
3%
2014 19%
14%
2025
3%
3%
Renwables ex-Hydro Renwables ex-Hydro
Qualifying Hydro Qualifying Hydro
Nonqualifying Hydro Nonqualifying Hydro
Coal Coal
Natural Gas Natural Gas
39% Nuclear Nuclear

27% 30%
Petroleum Liquids 30% Petroleum Liquids
Source: Goldman Sachs Global Investment Research, EIA. Source: Goldman Sachs Global Investment Research.

Exhibit 29: As renewable penetration grows, storage has the opportunity to Exhibit 30: We forecast 65GW of renewables to be added in order to meet
better align total load and renewables’ intermittent and varied generation state RPS by 2020, implying $20bn-$32bn total TAM if storage were to be
profile deployed at all new installations
5/17/2015 CA load and renewable production, 12:00am – 12:00am Incremental annual renewable GWh vs. implied battery capacity MWh vs. TAM ($ mn)
6,000
MW Solar PV (LHS) Wind (LHS) Total load (RHS) 30,000 250,000 Solar production $20bn-$32bn $35,000
Wind production
$30,000
5,000 25,000 200,000
147,000 MWh $25,000
4,000 20,000 150,000 $20,000
3,000 15,000 100,000 $15,000
$10,000
2,000 10,000 50,000
$5,000
1,000 5,000
0 $0
Incremental Battery capacity Market
0 0 renewables (MWh) opportunity
1 3 5 7 9 11 13 15 17 19 21 23 (GWh)
Source: CAISO. Source: Company data, Goldman Sachs Global Investment Research.
Ancillary services: $11-$17bn

The EES TAM: We expect storage to perform multiple ancillary services, such as load following, reserve capacity, and voltage
regulation, among others. We estimate that the total addressable market for ancillary services will range from $11bn-$17bn.
The EES opportunity: In order for the grid to continue to operate without interruption, generation must equal load at all times and all
disruptions must be corrected within seconds to avoid outages. Even then, line losses – wasted energy owing to T&D deficiencies –
have approached nearly 10% annually based on EIA data. To ensure system stability, grid operators send signals to step up or step
down generation on very short notice. Given that batteries are able to start up quickly and respond to these signals more promptly and
accurately than generators, the opportunity for providing ancillary services is likely enhanced. Moreover, we note batteries can provide
added value to the grid given their flexibility to cover a broad range of these services – not simply one – on an as-needed basis.
FERC classifies ancillary as “services that help support the reliable and safe transmission of power from producer to consumer.”
FERC: Federal Energy
Regulatory Commission  Frequency regulation: Balancing of electricity on the grid to maintain frequency with operational bounds, to enable
delivery in a narrow frequency range (60 Hertz).
 Voltage control: Similar to frequency regulation but relies on reactive power rather than real power to maintain proper
voltage on the transmission grid.

 Spinning reserve: Capacity that is not currently producing but is connected to the grid and therefore able to respond to
signals within 10 minutes.
 Non-spinning reserve: Capacity that can respond to signals only after a slight delay.
 Black start: Ability to restore power after a grid outage occurs.
FERC Order 755: Before FERC Order 755 was implemented, most independent system operators (ISO) used capacity payments to
compensate providers of frequency regulation services. Slow responders were compensated the same as fast responders which the
FERC decided was unjust and inefficient. In 2011, Order 755 was issued, requiring compensation for regulation resources to be
based on the actual amount of service provided – “pay-for-performance.” Each ISO is in the process of implementing this change.
Exhibit 31: Instability on the electric power grid can occur in a matter of Exhibit 32: Energy storage is called upon more often to perform frequency
seconds and frequency regulation needs can be immediate regulation, because of its quick response time. Now, it is compensated
Illustration of frequency response services (in seconds) accordingly for this “mileage” in addition to standard capacity payments.
Simplified PJM two-part payment mechanism for frequency regulation
Desired electrical frequency PJM Two-part payment scheme

Energy storage following frequency HISTORICAL MILEAGE
Generation output
Actual MWh of service 4
CAPACITY BID
Generation (MW)
Maximum capability offered $12.00
MAXIMUM PERFORMANCE OFFER

(Capacity payments + adders)/Mileage $1.21
Performance* Mileage + Capability $16.82

**Mileage refers to the amount an asset was called upon to
1 2 3 4 5 6 7 perform grid services.
Source: PJM, Goldman Sachs Global Investment Research. Source: PJM.

Exhibit 33: Line losses have averaged close to 10% historically, though this Exhibit 34: In revenue terms, we estimate roughly $14-$18bn in lost revenue
figure has trended lower in recent years due to line losses annually for the power sector; for illustrative purposes, a
Line losses as % of total US generation 5% reduction in these line losses could save $700-$900mn annually or $7-
$9bn over 10 years (typical energy storage lifetime)
Revenue lost due to line losses and 5% reduction sensitivity analysis
450,000 14.0% $20 $19

$18 $18 $18
$18 $17 $17
400,000 $18 $17 $17
12.0% $16 $16 $16 $16
350,000 $16
10.4% 10.7%
10.0% 9.7% 10.0% $14
300,000 9.5% 9.4% 9.4%
8.9% 9.0% 9.0%
8.6% 8.7% 8.5% $12
250,000 8.0%
GWhs
$bn
$10
200,000 6.0%
$8
150,000
4.0% $6
100,000 $4
2.0%
50,000 $2 $0.9 $0.9 $1.0 $0.9 $0.9 $0.9 $0.9 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8
0 0.0% $0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Line losses (GWhs) % of total generation Total line losses ($bn) Savings at 5%
Source: EIA, Goldman Sachs Global Investment Research. Source: EIA, Goldman Sachs Global Investment Research.
T&D deferral: $16-$26bn

The EES TAM: We consider T&D deferral to be an attractive opportunity, but believe commercial acceptance of EES technology and
maturity of policy developments are required before the market truly opens up. We estimate that the total addressable market for
T&D, including assets built for general congestion relief, will range from $16bn-$26bn.
The EES opportunity: Electric utilities plan to invest an estimated $50-$80bn on traditional grid infrastructure – generation,
transmission, and distribution – annually for the next 15 years, largely in an attempt to correct years of underinvestment. Energy
storage stands to disrupt traditional planning (spending) models. By co-locating a battery with aging transmission infrastructure,
utilities will be able to delay making substantial investments, and by postponing investments, utilities can then gain better visibility
into forecasted load growth. Moreover, as EES technologies become more commercially proven, utilities will likely be forced to
increasingly consider storage as a potentially more cost-effective alternative to provide incremental capacity – particularly given the
large investment that is typical of T&D. Another avenue for batteries to enable T&D deferral is by providing transmission congestion
relief – which entails locating the storage resource downstream of a bottleneck to deliver electricity in times of congestion. The
economic benefits of this are potentially twofold, as (1) a smaller capital investment in storage can provide congestion without
upgrading a broad swath of T&D infrastructure owing to just one or two congested nodes on the grid, while also providing (2)
avoidance of congestion charges which are assessed by certain ISOs.

Policy-wise, a number of regulatory developments have positioned energy storage to have a greater role in T&D deferral.
 FERC Order 888: Established open, non-discriminatory access to utility-owned transmission infrastructure
 FERC Order 890: Established “an open, transparent, and coordinated transmission planning process”
 FERC Order 1000: Requires planners to give non-transmission alternatives (example: batteries) comparable consideration
Together, these have changed how utilities go about T&D planning and investments. Public utility transmission providers are now
required to publicly post their evaluation criteria and rationale for opting for an investment in light of alternative options. Although this
is not an inherent incentive to invest in new technologies, this might open up the opportunity for grid-scale batteries over time.
Exhibit 35: Grid-related capital expenditures have continued to increase Exhibit 36: …and are forecasted to remain relatively high in coming years
steadily… owing to a combination of expansion and upgrades
Transmission spending vs. TLRs, 1997-2012 Projected T&D spending by application, 2014E-2017E
TLRs
3,500 High mix of renewables $bn
$14.0 $25.0 Other Security Adv Tech
integration T&D Improvements Replacement Expansion
3,000 Transmission capex $12.0
(RHS) $20.0
2,500 Transmission loading $10.0
relief incidents (LHS)
2,000 $8.0 $15.0
1,500 $6.0
$10.0
1,000 $4.0
500 $2.0 $5.0
0 $0.0
$0.0
2014E 2015E 2016E 2017E
Source: NERC, EEI, Goldman Sachs Global Investment Research. Source: EEI.
Bulk storage: $5-$7bn

The EES TAM: Bulk storage, which many stakeholders believe will represent the bulk of the EES opportunity in the long term, is the
application with the least visibility today, in our view. Investment scale is likely to be greatest and thus visibility into how utilities will
be compensated will require greater clarity (e.g. can energy storage be put into the rate base?). We estimate that the total
addressable market for bulk storage will range from $5bn-$7bn by 2020.
The EES opportunity: While bulk storage applications could encompass a number of different options over time, we consider two
categories in our analysis given visibility into economics and based on our discussions with industry participants: alternatives for
natural gas peak capacity and large-scale transmission support.

 Peaker replacement: As it stands, natural gas peaker plants are built with the expectation that they will only run less than
100 hours per year, when demand reaches its peak. As an alternative, batteries can discharge electricity during those peak
times, making the additional gas capacity unnecessary. Recently, the CEO of NEE – one of the world’s largest utilities –
offered this endorsement for storage vs. peakers at an analyst conference: “Post-2020, there may never be another peaker
built in the United States – very likely you'll be just building energy storage instead."
 Congestion relief: By co-locating a battery with aging transmission infrastructure, utilities are able to take stress off of
existing equipment, extend its useful life, and delay making substantial investments. By postponing investments, utilities
can then gain better visibility into forecasted load growth and how to best accommodate future demographic shifts and
usage patterns. This application requires subsecond response time to compensate for anomalies and disturbances (voltage
sag, unstable voltage, sub-synchronous resonance).
Exhibit 37: While not cost competitive at today’s prices, we expect energy Exhibit 38: We estimate that on average 1.9GW of gas peaker plants have
storage to become the lowest cost option to address peak load by 2020 come online annually for the past decade
Levelized cost comparison Estimated gas peaker plant capacity additions, annually
GW
3.5
Li ion (today's cost)
$250 $212/MWh 3
$200 2.5
Natural gas peaker* Li ion (2020 2

$150
$115/MWh cost)
$105/MWh 1.5
$100
1
$50 0.5
$0 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
* Assumes 10% capacity
Source: California Energy Commission, Goldman Sachs Global Investment Research. Source: SNL, Goldman Sachs Global Investment Research.

Technology overview: No one size fits all – we expect multiple winners

Got energy? Or power? We believe there is no one size that fits all in terms of the optimal qualities for grid-scale storage. This means
We define battery basics depending on the specific application in question, a short-duration battery that can start up quickly could be favored over a longer-
in the appendix of this
duration technology or, in other cases, the need for higher energy density would trump the need for power density. Simply put,
report, starting on page
47 because optimal characteristics differ by application, we expect more than one battery technology to prove successful in the long term.
Li-ion is not the only horse in the race, but it does appear furthest in the lead. While we focus on Li-ion given its maturity, in
this section we also highlight several other technologies which we believe hold medium-to-long term promise and/or have reached
some level of commerciality in grid applications: Flow batteries, sodium-sulfur (NaS), among others.
Exhibit 39: We focus on Li-ion, Flow and NaS batteries as key technologies positioned to address grid-scale storage
Overview of key battery technologies
Mature R&D
Level of commercialization
Lithium ion (Li ion) Flow Sodium Sulfur (NaS) Emerging
Installed base 150 MW+ 50 MW+ 450 MW+ N/A
Li Nickel Cobalt Aluminum Oxide; Li

Iron Phosphate; Li Nickel Maganese Vanadium redox; Iron-Chromium;
Chemistries NaS Liquid metal; metal air
Cobalt Oxide; Li Manganese Oxide Zinc-bromine
Storage
Short (1-4 hours) Medium (4-10 hours) Medium (4-10 hours) Short - Long
duration
Lifespan 5 - 15 years 10 - 20 years 10 - 15 years 2 - 10 years
Cycles 2,000 - 10,000 10,000 - 15,000 2,500 - 4,500 Varies
Efficiency 85%-98% 60%-85% 70%-90% Varies
Energy density High High High High-Low
Capital cost $350/kWh - $1000/kWh $600/kWh - $200/kWh ~$500/kWh $200/kWh-$1000/kWh
Levelized Cost
$0.15-$0.75 per kWh $0.11-$0.28 per kWh $0.23-$0.57 per kWh $2-$0.05 per kWh
of Storage
Safety, discharge rate, heat
Key limitations Safety - risk of igniting Size, cost Safety, low efficiency
requirement; monitoring needed
Source: Company data, Battery University, Goldman Sachs Global Investment Research.

Levelized cost of storage – a look at the economics

Similar to how the levelized cost of solar and wind electricity (LCOE) is used as a gauge of cost competiveness against incumbent
generating technology, we look at the levelized cost of storage (LCOS) for storage applications. In simple terms, the LCOS is the
total lifetime cost of a battery system divided by the kWhs discharged from the battery. We look at the cost for a utility-scale owner
and a commercial owner, with an overview of the assumptions used by technology and owner below. Our assumptions are largely
derived from publicly available specs from battery manufacturers, as well as our own separate industry discussions.
Exhibit 40: The wide host of operating assumptions and capital costs produces wide LCOS ranges for the three technologies
LCOE by technology and ownership
$/kWh LCOS
$1.00
$0.90
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
Li-Ion - Utility Li-Ion - Flow - Utility Flow- NaS - Utility NaS-
Commercial Commercial Commercial
Source: Company data, Goldman Sachs Global Investment Research, DOE.
 Li-ion: Performance and cost of Li-ion batteries vary widely, reflected in a wide range for the LCOS where we use a battery
with 2,000 cycles and $750/kWh capital cost and a 10,000 cycle, $250/kWh cost to bookend the range.
 Flow: The long cycle life of flow batteries provide an LCOS advantage at the mid-point of assumptions, however longer life
creates extra O&M costs in years 8-10 for components that need to be replaced, partially offsetting cycle number benefits.
On the low end of the LCOS range we use a flow battery with 15,000 cycles and capital costs of $200/kWh and on the high
end we use a 10,000 cycle, $600/kWh battery.
 NaS: With only one producer of the technology (NGK), capital costs and cycle times vary less for NaS, providing a tighter
LCOS range. For the low end we use a 2,500 cycle battery with capital costs of $600/kWh and on the high end we use a
4,500 cycle, $400/kWh cost battery.
 Utility vs. Commercial: In order to illustrate the difference in ownership economics between a utility and a commercial
customer we present the LCOS for each vertical, changing certain assumptions. These changes include a higher cost of
capital for the commercial customer (12% vs. 8% for the utility), a higher cost of purchased energy to charge the battery

($0.09/kWh vs. $0.045/kWh utility), and less annual cycles for the commercial battery as we assume no weekend use for a
large office building.
LCOS progression depends on capital cost and cycle improvements. As manufacturing scales up and costs come down, a
downward trajectory on the LCOS of storage is apparent. However, even with 10% annual cost declines built into the assumptions,
storage options struggle to approach the incumbent price of power. We note the LCOS would be best compared to that of a
competing technology such as a backup generator, a natural gas-peaker on the utility side and other applications that are not
necessarily representative of the cost of baseload power.
Exhibit 41: Utility scale LCOS will still be above an average generation cost Exhibit 42: Commercial LCOS will also still be higher than the grid, but the
from baseload power such as coal or CCGT addition of solar is a unique combination
LCOS utility scale by technology, 2015E-2025E LCOS commercial scale by technology, 2015E-2025E
$/kWh LCOS
$0.30 $/kWh LCOS
$0.50 Incumbent price of power
Incumbent price of power
Li-Ion
$0.45 Flow
$0.25 Li-Ion
$0.40 NaS
Flow Li-Ion + Solar
$0.35
$0.20
NaS $0.30
$0.15 $0.25
$0.20
$0.10
$0.15
$0.10
$0.05
$0.05
$0.00 $0.00
2015 2017 2019 2021 2023 2025 2015 2017 2019 2021 2023 2025
Source: Company data, Goldman Sachs Global Investment Research. Source: Company data, Goldman Sachs Global Investment Research.

Lithium ion – the early horse in the race

A new growth driver for Li-ion. The market for Li-ion batteries has been dominated by consumer electronics, which have driven a
5% CAGR over the past decade and a half. EVs appear to be the key near-to-medium term incremental driver at 42% CAGR through
the next decade based on EV penetration forecasts from our Autos research team. At the same time, we see volumes in EES adding
up to a potentially larger opportunity over the long run, though timing remains much less certain given the nascence of the market
today – though R&D from scaling up the technology to address larger applications like EVs appear to be accelerating the push
toward the grid. We expect further cost reductions, improved performance and growing policy support to all be key drivers.
Exhibit 43: Li-ion has primarily been used for short-duration Exhibit 44: We expect the US to continue to lead in terms of
applications like frequency regulation to date Li-ion deployment, but expect the opportunity to be global
Li-ion deployments by application Li-ion deployments by geography
Electric Bill
Management United States
5% Renewables China
capacity
firming/time- Japan
shift Italy
22%
Germany
Korea, South
Canada
Frequency Canada
Regulation
Australia
73%
Netherlands
Source: DOE. Source: DOE.
Exhibit 45: Li-ion batteries have continued to see increasing deployment across a number of grid-scale applications
Select Li-ion based EES projects
Rated power in Duration at rated

Project name MW power (hrs) Service/use case
Frequency Regulation,
AES Laurel Mountain 32 0.2
Ramping
Grand Ridge Energy Storage 31.5 MW 32 0.3 Frequency Regulation
Auwahi Wind Farm 11 0.4 Ramping

Southern California Edison Tehachapi Voltage Support, Electric
8 4.0
Wind Energy Storage Project Supply Capacity
Frequency Regulation,
WEMAG Younicos Battery Park 5 1.0
Voltage Support, Black Start
Zhangbei National Wind and Solar Electric Energy Time Shift,
4 4.0
Energy Storage and Transmission Capacity Firming, Ramping
Source: DOE.

Li-ion is not all created equal. Several variations of Li-ion batteries exist, each of which have a different performance profile based
on the specific chemistry composition of the battery. Thus, while the aforementioned focus, to date, has been to deploy Li-ion
batteries in shorter-duration grid applications, we see the opportunity for increasing commercialization on newer chemistries, as
well as advancements on established recipes, to position Li-ion to increasingly target larger-scale and longer-duration applications.
Exhibit 46: Lithium ion is high on the energy density curve… Exhibit 47: …though different chemistries mean performance
Relative energy density of some common cell chemistries characteristics can vary from one variant to the next
Comparison of Li-ion variants vs. other batteries
250 Best
Lithium Polymer 300 specific
Prismatic energy
Best
200 250 specific
Energy density Wh/kg

Lithium Phosphate power
Watt-hours/Kilogram
200
150 Lithium Ion
Cylindrical 150
Best
Aluminium cans safety
100 Nickel Cadmium 100
Prismatic
Cylindrical
Prismatic 50
50 Lead Acid Nickel Metal Hybrid
Cylindrical 0
Prismatic
0
0 50 100 150 200 250 300 350 400 450
Watt-hours/Litre
Source: MpowerUK; www.electropaedia.com. Source: ESA.
Exhibit 48: Li-ion has many variants, with Tesla and others already making large scale commitments to certain chemistries
Comparison of common lithium ion technologies
Lithium Nickel Cobalt Lithium Nickel Maganese

Lithium Titanate Aluminum Oxide Lithium Iron Phosphate Cobalt Oxide Lithium Manganese Oxide
Specific energy
70-80Wh/kg 200-260Wh/kg 90-120Wh/kg 150-220Wh/kg 100-150Wh/kg
(capacity)
Cycle life 3,000 - 7,000 500 1000-2000 1000-2000 300-700
Am ong the safest Li-ion 150C (302F) typical, high charge 270C (518F) Typically safe 210C (410F) typical. High charge 250C (482F) typical. High charge
Thermal runaway
technologies prom otes therm al runaw ay regardless of charge level prom otes therm al runaw ay prom otes therm al runaw ay
Applications Distributed storage, EVs M edical devices, industrial Portable and stationary EVs, industrial M edical, EV, industrial
High pow er but less capacity;

Long life, fast charge, w ide
High self discharge relative to safer than Li-cobalt; com m only
Note tem perature range but low Sim ilar to Ci cobalt M arket share is increasing
others m ixed w ith NM C to im prove
specific energy and expensive
perform ance
Alees, Changs Ascending
Um icore, BASF, Targray, Tesla Um icore, BASF TODA Battery
Industry participants Tesla Enterprise Co, Phostech
Energy M aterials
Lithium , Johnson M atthey
Source: Company data, Goldman Sachs Global Investment Research.

Costs are coming down rapidly. With continued scale and tweaking of chemistries, the Li-ion cost roadmap appears to be
accelerating. Cost targets vary widely by manufacturer, with players like Tesla and BYD (which is now claiming $150/kWh) on pace
to approach 15% annual cost declines through the end of the decade based on published forecasts. Given this wide disparity, we
delineate in our projections between a low cost and high cost estimate, based on projections from our global Autos research team.
This is illustrated in Exhibit 49, which shows a $125-$200/kWh range of cost estimates by 2020.
Today, most cost projections in Li-ion are derived from the automotive sector, but we believe it is reasonable to assume that
batteries for the grid will directionally follow the cost declines of Li-ion batteries for EVs. This is especially true given R&D efforts in
Li-ion roadmaps appear to cross into grid-scale storage even for many battery makers currently more levered to the autos vertical.
Not unlike technology roadmaps in other sectors (Moore’s Law in semis, Haitz’s Law in LEDs), a key driver of cost reductions is
through improved performance – in the case of batteries, increasing energy density or energy produced per unit volume.
Higher energy density raises the performance of Li-ion batteries, resulting in an increase in the duration of storage available in one
discharge cycle and a reduction in battery costs. The energy density of Li-ion batteries in the early 2010s was 100-150 Wh/kg, but
recently some manufacturers have been able to achieve 200-300 Wh/kg. Panasonic, in conjunction with Tesla, has achieved 267
Wh/kg in its NCR18650 series for PCs, and Korean company LG Chem is eyeing development of a battery with an energy density of
252 Wh/kg for automobiles (according to the June 2015 Nikkei Automotive). Automotive Energy Supply Corp., a joint venture
between Nissan Motor and NEC, is aiming to increase energy density to 200-240 Wh/kg, from 157 Wh/kg at present, with a view to
offering a commercial product in 2017-2018 for use in autos (June 2015 Nikkan Jidosha Shimbun).
Switching to cobalt, manganese, and nickel for positive electrodes is a method frequently used to increase energy density, with
lithium nickel manganese cobalt oxide (NMC) and lithium nickel cobalt aluminum oxide (NCA) seeing increasing adoption.
Considerable effort is also being made to improve the performance of anode materials, electrolytes, separators, and other core
battery components to make possible energy density of 300-350 Wh/kg by mid 2020s.
Exhibit 49: We estimate Li-ion battery pack costs to approach $125-$200 per kWh by 2020
GS low-high estimates for Li-ion costs, $/kWh
$450
Low estimate (Tesla) High estimate
$400
$350
$300
$250
$200
$150
$100
$50
$0
2015E 2016E 2017E 2018E 2019E 2020E

Is there enough Li-ion manufacturing capacity? There is an estimated 90-100GWh of Li-ion production capacity globally, the
majority of which resides in Asia – primarily in Japan, Korea and China. This compares to global demand across all applications
(consumer electronics, EVs, etc.) that approaches 50GWh, implying a significantly underutilized capacity. We note these figures do
not include Tesla’s Gigafactory which is expected to add another 50GWh of total capacity, 15GWh of which are slated for EES.
Exhibit 50: We do not expect supply chain issues to be a bottleneck for market growth in the near-to-medium term
Snapshot of Li-ion supply chain
Li-ion supply chain GS Covered

Lithium mining/
FMC Corp Sociedad Quimica y Minera de Chile SA
production
Anode Hitachi Chemical Mitsubishi
Chemical
Cathode Stella Chemifa 3M Co Kanto Denka Nippon Denko Nippon Chemical Umicore
Corp
Electrolyte Cheil Industrials
Mitsubishi Sumitomo
Seperator/membrane Evonik Industries Asahi Kasei Toray Tonen Specialty Seperator Gk
Chemical Chemical
AG
Cell LG Chem Hitachi Ltd Samsung SDI Toshiba Corp Saft NEC Corp
Source: BNEF, Goldman Sachs Global Investment Research.
Exhibit 51: Li-ion battery capacity adds for EVs have continued Exhibit 52: …but nearly 50% of capacity is unutilized owing to
to come online – including Tesla’s expected Gigafactory… overbuild for slower than expected demand for EVs, leaving
Major Li-ion battery plants for EVs plenty of capacity for new applications
2014 Li-ion production vs. total capacity (GWh)
120
Capital
intensity
Capacity Capex (Capex to 100 BYD
Manufacturer Date (MWh) ($mn) MWh) ATL
SAFT Jan 2008 60 $150 $2.50 80
LG Chem Jul 2010 1,200 $300 $0.25 Lishen
A123 Sept 2010 1,400 $700 $0.50 60 Sony
Liotech Dec 2011 1,500 $450 $0.30
Nissan Dec 2012 5,000 $1,000 $0.20 Panasonic
Tesla 2017 (initial) 50,000 (2020) $5,000 $0.10 40 LG Chem
Samsung
20
Others
0
2014 Production Excess Capacity
Source: Company data, Avicenne. Source: Avicenne.

And is there enough raw material? Despite frequently being grouped with rare earth metals, lithium is not particularly unusual in
nature, with more than 30 million tonnes of developing or producing reserves compared against 2014 production of roughly 160
thousand tonnes (kt). Lithium deposits are found in brine and hardrock (also called spodumene) sources on nearly every continent.
However, due to its high reactivity and solubility lithium is never found in a pure form naturally and must be extracted chemically.
As a result, profitable lithium production is heavily based on geology, with concentration being one of the most important factors
that also rely on concentration and homogeneity of impurities that must be removed to refine it into battery grade material.
Lithium can be produced and converted in a number of ways, and we therefore use lithium carbonate equivalent (LCE) as a proxy
for all lithium production. Lithium carbonate is the most widely used lithium product, and is one of two compounds along with
lithium hydroxide used in lithium ion battery production. We estimate that ALB is currently the largest producer of LCE in the world,
with more than 35% of produced LCE in 2014 through its Chilean brine source and its Talison hardrock source, in which it owns a
49% stake. While brine production is cheaper today, the properties of mined hardrock lithium sources may ultimately make it more
suitable for battery grade production should the lithium hydroxide material preferred by some battery makers gain wider adoption.
ALB is the only lithium producer to have access to both brine and hardrock sources.
Exhibit 53: Global LCE cost curve

SQM and ALB have the best operational costs for producing properties owing to their position in the Chilean Atacama Salar
$7,000
China mineral
China mineral
China mineral
Galaxy
Gangfeng
Tianqi
$6,000
Zabuye China brine
mineral
Other China brines
Other
China
Canada Lithium
Canada mineral
Argentinabrine
$5,000
FMC
Operating costs ($/tonne)
$4,000
Atacama brine
Argentina brine
Atacama brine
Orocobre
ALB
SQM
$3,000
$2,000
$1,000
$0
0 25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000
Cumulative Capacity
Note: Orocobre is not yet producing commercially. Canada Lithium and Galaxy are no longer in production. Talison is not included.
Source: Roskill, Orocobre, Goldman Sachs Global Investment Research.

Once produced, lithium is converted to its end use material through a number of chemical processes. Presently both lithium
carbonate and lithium hydroxide are used in lithium ion battery anodes, with different battery producers preferring different sources
based on their battery production processes. Notably, TSLA and Panasonic prefer hydroxide material, but ALB believes that lithium
carbonate is presently preferred for companies looking at grid storage applications.
Exhibit 54: Battery grade material can be lithium hydroxide or lithium Exhibit 55: ALB has the broadest upstream portfolio
carbonate Lithium competitive landscape
Lithium production chain
Source: Goldman Sachs Global Investment Research. Source: ALB presentation.
Importantly, not all lithium production is suitable for battery grade material, and is dependent on the resource mined. Material not
fit for upgrading is sold as technical grade (TG) into glass and ceramics production, among others. For high purity battery grade
material required in electric vehicles, lithium products must be purified to concentrations well above 99%. Purification of lithium
hydroxide and lithium carbonate is a complicated chemical process and has proven a significant barrier to potential entrants in the
battery grade space.
A look at supply-demand. Lithium supply can be difficult to gauge due to the opacity of producers around their own production,
particularly Chinese sources. Name plate capacity today likely exceeds 300kt per year, but production in 2014 was just 160kt. We
view Orocobre’s estimates that imply an 80% operating rate to nameplate global sources and a 60% operating rate to Chinese
sources as closer to true capacity. ALB’s own La Negra expansion and Talison production growth account for more than half of
planned incremental LCE supply through 2020 on these estimates.
We estimate overall lithium demand growth will approach double digits, led by energy applications (Exhibit 56). Higher lithium
content applications including power tools and electric vehicles are growing even faster. The supply/demand model implies a 10%
CAGR from 2013-2020.

Exhibit 56: We believe lithium supply/demand could tighten in coming years Exhibit 57: Migration to BEVs is critical for lithium demand to accelerate
GS lithium supply & demand forecast Per unit lithium demand by application, 2014 demand and projected growth (ALB)
2014 Sales Li Content 2014 Total Projected

(M Units) per Unit Li Content CAGR
(LCE Basis) (2014‐2024)
Smartphone 1,200 5 – 7 grams 8,400 MT
Tablet 260 20 – 30 grams 7,800 MT 8‐10%
Notebook 170 35 – 45 grams 7,650 MT
Powertools 65 40 – 60 grams 3,900 MT >15%
HEV 1.8 5 kilograms 9,000 MT

20‐30%
PHEV & BEV 0.3 40 – 80 18,000 MT
kilograms
Stationary [650 MWh 1.5 MT 1,000 MT >30%
Installed]
Source: Orocobre, Goldman Sachs Global Investment Research. Source: SignumBox, Albemarle, Goldman Sachs Global Investment Research.
Flow – the elephant in the room for Li-ion evangelicals

Vanadium – a chemical What is the technology? Flow batteries consist of two large tanks of different solutions separated by a membrane. In one tank, the
element that is known solution releases electrons, and in the other tank, the electrons are received. The electrons generate an electrical current by passing
for its properties as a
in a circuit. Unlike conventional batteries, energy is stored in the electrolyte in flow batteries, rather than the electrode. Vanadium
versatile transition metal
and as an effective redox batteries are known for their stability – they can be charged and discharged up to 20k times with negligible degradation – and
additive to enhance the are also differentiated by the ability to recharge almost instantly by replacing the electrolyte liquid.
strength of steel. In
Unproven at scale but potential appears high. Only 79MWs have been installed to date, but Flow batteries, particularly those
nature, it is only found in
compounds. It can exist based on Vanadium, are seeing increased funding and R&D focus at a number of startups. While capital costs at present are high
in four different and deployments limited, the technology possesses a key advantage in its longevity that could drive a much lower cost, based on
oxidation states – a LCOS, over the entire lifetime. Iron-chromium and Zinc-bromine are additional types of Flow batteries.
unique property that
makes it ideal for flow Long duration and much more cycles. Flow technologies share characteristics with both fuel cells and traditional batteries – like
batteries. fuel cells, liquid energy sources are employed to create energy, but are also rechargeable like batteries. The main advantage of Flow
batteries relative to Li-ion, for example, is that their lifetime is governed by years, not by cycles. This allows for unique flexibility
when planning for load variability. While other technologies may need to be operated within a narrow range of parameters, certain
Flow batteries can be cycled several times a day and at temperatures slightly above other technologies. The energy capacity of a
Flow battery is governed by how large the tanks of electrolyte are. Theoretically, it can be scaled quite large if space is not a
constraint. One potential fundamental limitation is that Vanadium Flow technology was developed by Pacific Northwest National
Labs, which has limited the number of licenses they have issued to date.

Exhibit 58: Flow batteries are similar to cars in that the power and energy Exhibit 59: Flow batteries are best suited for large, grid-scale applications
capacity are separate. The cell stack (engine) powers the battery and the due to their space requirements but can serve a range of functions
tanks of electrolyte determine the energy capacity, similar to a gas tank. Notable Flow battery deployments
Illustrative diagram of a flow battery

Zhangbei National Wind and Solar Energy
2.00 4.0 Renewables Energy Time Shift
Storage and Transmission
Onsite Renewable Generation
Yokohama Works 1.00 5.0
Shifting
Avista UET Flow Battery 1.00 3.2 Black Start
Prudent Energy VRB-ESS® - Gills Onions, Grid-Connected Commercial
0.60 6.0
California (Reliability & Quality)
Prudent/CEPRI Battery Energy Storage
0.50 2.0 Renewables Capacity Firming
System
Bosch Braderup ES Facility: Flow Battery 0.33 3.0 Transmission Congestion Relief
DMG Gildemeister CellCube Industrial Smart Onsite Renewable Generation
0.26 2.5
Grid Shifting
EnerVault Redox Flow Battery Demo Project 0.25 4.0 Electric Energy Time Shift
SmartRegion Pellworm 0.20 8.0 Electric Energy Time Shift
Source: Goldman Sachs Global Investment Research. Source: DOE.
Exhibit 60: A primary advantage of flow batteries is a high number of cycle Exhibit 61: Flow companies have raised $600mn in VC/PE funding since 2005,
lives, implying greater utilization and longer lifetimes second behind Li-ion
Cycles by technology $mn of VC/PE funding by tech, others include flywheel, CAES, solid state, metal
air, etc.
Cycles
16,000 $2,500
$mn
14,000 $2bn
$2,000
12,000
10,000 $1,500
8,000
$1,000 $900mn
6,000
$600mn
4,000
$500
2,000 $200mn
0 $0
Flow Li-Ion NaS Lead-acid Ni-Cd Metal air Li-Ion Flow Integrator Other
Source: DOE. Source: BNEF.

NaS (Sodium Sulfur) – Promising power but islanded due to supplier concentration
What is the technology? NaS technology involves a sulfur cathode and a sodium anode in a sodium alumina electrolyte to
function much like a traditional Lead-Acid battery, but with advanced materials. The technology’s strengths include large installation
size, rapid response and long duration discharge, making it effective for renewables integration and general grid services. However,
safety concerns in 2011 and the existence of only one manufacturer of the technology, worldwide, has hampered adoption.
Technology with a decent track record, long duration potential… NaS batteries have gained popularity recently as a technology
for wind integration services. The technology is valued mostly because of its long discharge time (approximately 7 hours), quick
response time, and capacity to provide precise and prompt response to grid balancing needs. Today, there are 450MW of NaS
deployed globally, representing over 3,000MWhs at close to 200 sites, largely concentrated in Japan. In the US, American Electric
Power, (11 MW across at least five locations), PG&E, and Xcel Energy have all deployed this technology in the past decade.
…but also with a key supplier issue. Originally developed by Ford and later sold to NGK, NaS technology has been successfully
demonstrated at over 190 installations in Japan. Today, NGK Insulators is the only manufacturer of the technology and sole manufacturing
responsibility remains the largest barrier to larger adoption as broader industry investment has not occurred. This is largely a result of
safety concerns that surfaced in 2011 when an installation in Japan caught on fire and the company subsequently recommended
customers halve the use of their batteries until a solution could be found. The high operating temperature of the technology (300 to 350
degrees Celsius) continues to be a concern. However, the technology is slowly making a comeback due to high round trip efficiency, over
90%, and proven reliability – given that it has been chosen for renewables integration and ancillary services more recently.
Exhibit 62: NaS technology and NGK were seeing success, but safety Exhibit 63: The large average size and long discharge times of NaS batteries
concerns at installations halted growth as the company is only now lend themselves to renewables integration, grid services and bulk storage
recovering opportunities, in our view
Annual sales in JPY NaS vs. other, F2004-F2015E, FY ends in March NaS battery characteristics based on database of installs
NGK Annual sales, ¥ bn

¥550 $700 Ideal for bulk storage 8
NaS Ceramics + insulators $400-
$600/kwh 7 hrs 7
$600
¥450 ¥15
Fires raise safety ¥16 6
¥13 concerns $500
¥350 ¥10 ¥5 5
¥6 4.4 MW
¥6 ¥17 ¥0 $400
-¥5 ¥1
¥250 ¥20 4
$300
3
¥150 $200
2
¥50 $100 1
$0 0
-¥50
Capital cost ($/kWh) Average size (MW) Discharge duration
(Hrs)
Source: Company data, Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research. DOE.

Exhibit 64: Government entities (MTA, Bureau of Sewage, Tokyo) are the most common owners of NaS, followed by utilities and
independents (AES)
NaS installation characteristics

Rokkasho Village Wind Farm 34 7 Renewables Capacity Firming, Energy time shift
PG&E Yerba Buena Battery Energy Storage Pilot Project 4 7 Grid-Connected Commercial (Reliability & Quality)
Milton NaS Battery Energy Storage System 2 6 Transportable Transmission/Distribution Upgrade Deferral
AEP Charleston NaS Energy Storage Project 1.2 6 Electric Energy Time Shift
XCEL MinnWind Wind-to-Battery Project 1 7.2 Renewables Energy Time Shift
Japan-US Collaborative Smart Grid Project 1 6 Distribution upgrade due to solar
BC Hydro Field Battery Energy Storage 1 6.3 Electric Supply Capacity
Reunion Island Pegase Project 1 7.2 Electric Energy Time Shift
Younicos and Vattenfall Project: Sodium Sulfur 1 6 Frequency Regulation
SCE Catalina Island Energy Storage 1 7.2 Load Following (Tertiary Balancing)
Wind Energy Institute of Canada Durathon Battery 1 2 Renewables Energy Time Shift
NGK NaS: Kita-Tama Ichigo Water Reclamation Center 1 6 Electric Bill Management
Source: Company data.
Emerging technologies
Numerous energy storage technologies are in earlier R&D stages; while our report does not focus on them, we detail a few below.
 Solid-state batteries are still based on lithium-ion technology, but they replace the liquid electrolyte with a thin layer of
material that's not flammable. Main advantages are safety and higher energy density. The disadvantage is commerciality
due to unproven manufacturing/cost.
 “Metal-Air” batteries, including zinc-air, aluminum-air, and lithium-air, have some of the highest energy densities
available. But, for aluminum-air in particular, there has been rapid degradation of the anode and, in early models of Al-Air,
the release of hydrogen gas.
 Flywheels store energy in the form of the angular momentum of a spinning mass, or a rotor. The kinetic energy is
transferred into AC energy. Flywheels have excellent cycle life relative to other energy storage systems – developers
estimate cycle life of 100,000 full charge-discharge cycles.

Stocks with exposure across the value chain
Raw materials
Albemarle Corp. (ALB, CL-Buy)

Company profile
Covered by Robert ALB is the largest upstream producer of lithium products in the world, accounting for more than 35% of LCE production in 2014. ALB
Koort, US Chemicals is a producer from both commercial processes for lithium production, with brine based production at the Atacama Salar in Chile and
analyst
spodumene (hardrock) based production from its Talison JV in Australia. We estimate that ALB’s Chilean brine is the present lowest
cost resource in the world, along with SQM. Talison is the world’s lowest cost hardrock producing resource, and accounts for nearly
80% of global hardrock production. ALB purchased its lithium asset base from ROC in a deal announced in July 2014, which
included a 49% stake in Talison.
We reiterate our Buy rating (on CL) and $63, 12-month price target based on our SOTP. We see ALB as the best positioned lithium
producer to capture new demand growth, with flexibility to grow with the market depending on the ultimate preferred
chemistry/battery composition in lithium batteries.
Exposure to EES
Likely lithium provider of choice. We see ALB as the most obvious supplier for incremental lithium material for use in lithium ion
batteries over the next decade. ALB has a stated goal to capture 50% of incremental lithium demand for battery uses over the next
decade, a goal we view as aggressive but possible given the industry’s high barriers to entry based on steep upfront capital costs
and geology dependency, ALB’s lowest cost position on the cost curve and a depth of product and experience in lithium operations
stretching back more than 100 years that is unmatched by any competitor. Upon completion of its announced lithium hydroxide and
lithium carbonate expansions in 2020, ALB expects to be the lowest cost producer of both materials.
FMC (FMC, Neutral)

Company profile
Covered by Brian FMC is the third largest upstream producer of lithium products in the world after ALB and SQM, accounting for about 15% of LCE
Maguire, US Chemicals production in 2014. FMC’s lithium assets are brine based and are located in Argentina. In addition inflation problems FMC’s lithium
analyst
business is more frequently disrupted by wet weather than ALB. Like ALB, FMC has downstream lithium production to turn LCE into
battery grade lithium carbonate or lithium hydroxide. However, FMC appears to be moving away from this business, saying they no
longer intend to put any more capital to work in this business in the near term. Lithium accounts for just 3% of our 2015 EBIT
estimate.

We reiterate our Neutral rating and $37, 12-month price target based on a weighted average of our SOTP and M&A values. Our
SOTP value (weighted 85%) of $54 implies 10.3x our 2016 EBITDA estimate. Our theoretical M&A value (weighted 15%) of $62 is
based on 11.5x our 2016 EBITDA estimate.
Exposure to EES
One of the few non-Chinese providers for higher grade lithium today but likely a secondary option given smaller position and
stated lack of interest in capital spending in this business. However, they may benefit from price increases periodically, and we
would point to their recently announced 15% price increase for lithium products as evidence.
OEMs / manufacturers
NEC (6701.T, CL-Buy)
Covered by Ikuo Company profile

Matsuhashi, Japan NEC is a one of the “Big 5” of Japan integrated electricals. It operates various kinds of business from hardware to software, but its
Integrated main business is to provide IT services to the public sector and enterprises. Though NEC looks more like a service vendor, it is a
Electricals/Semiconduct supplier of batteries at the same time. Their product line varies from small Lithium ion batteries to large scale energy storage
ors/Telecom Services/IT
Services analyst systems. They supply their products mainly to power suppliers, but they cover consumers as well. We are CL-Buy with a 12-month
price target of JPY530, implying ~40% upside vs. the current share price, based on a P/B of 1.5X, derived from P/B-ROE correlation,
and the FY3/16-3/17E BPS midpoint. Despite the bullish stance on NEC, we do not consider its EES business as one of the major
drivers of its shares, as it constitutes a small portion of its whole business.
Exposure to EES
NEC’s total battery related business accounted for 2.5% of its total sales in FY14. The recent development regarding EEC is that
ENEL Distribuzione, the largest power supplier in Italy, has installed an energy storage system that uses lithium-ion batteries to
store two megawatt hours (2MWh) of electricity. This NEC energy storage solution is connected to substations and is expected to
enable more stable transmission and distribution. Over FY2016/2017, we expect NEC’s EES business sales to be ~JPY63/70 bn.
NGK Insulators (5333.T, Neutral)

Company profile
Covered by Daiki NGK Insulators’ core business is based on insulators, electronics, and ceramics, but it is also the sole commercial supplier of NaS
Takayama, Japan (Sodium Sulphur) batteries in the world. Since commercialization in 2002, NaS batteries have been introduced in over 190 locations
Electronic Components
with a total of 450MW (3000MWh) of installed global capacity. Products are shipped as individual modules, and more recently in
analyst
ready-to-go container format. A fire incident at a Japanese NaS facility in 2011 severely hit market confidence on the technology and
generated extraordinary losses of -¥61bn, but confidence and demand has been gradually recovering since.

Development of NaS has been closely linked with the Japanese government since the start of an R&D partnership with TEPCO
(1984). More recently in 2013, METI (Ministry of Economy, Trade and Industry) selected NGK as 1 of 2 companies eligible for an R&D
subsidy package as part of the government’s active promotion of renewable energy storage. The 2020 target is to cut NaS
installation cost to levels on par with hydropower (¥23,000/KWh).
Exposure to EES
NaS batteries form 5% of total revenue and is loss making (¥1.0bn in FY2015). We believe the recent orders from Kyushu
Electric Power (9508.T) will alleviate losses (utilization up to around 50%), but with 2 large-scale foreign projects (Abu Dhabi and
Italy) ending in FY2015 and no further orders on the horizon, the outlook remains unclear. As such, we do not see any catalysts in
the short-run and forecast losses from the business to continue into FY2017. In the long-run, NGK hopes to leverage the
characteristics of NaS to dominate demand in long discharge markets.
Panasonic (6752.T, Neutral)

Company profile
Covered by Masaru Panasonic is a leading supplier of lithium-ion and automotive batteries, and has around 20% market share in automotive lithium-ion
Sugiyama, Japan batteries globally. We believe greater uptake of EV/ PHEVs will be tailwind to their businesses. Panasonic is the sole supplier of
Consumer Tech &
lithium-ion batteries to Tesla, and is contracted to supply two billion battery cells between 2014 and 2017. Panasonic is also
Internet analyst
planning to invest in Tesla’s Gigafactory – the large battery factory that Tesla is building in Nevada (US), and will contribute around
30%-40% of the investment in the factory to build an LIB cell production line. The goal is to produce 50 GWh of battery packs each
year, beginning in 2H2016, of which 35 GWh will be for automotive use. Much of the plant’s output will be used in Tesla’s next-
generation vehicle, known for now as the Model 3, due to be launched in 2017. We believe Gigafactory startup should deliver cost
reductions of around 40% for manufacturing batteries for Panasonic, which will permeate to Tesla’s lower accrual cost.
Exposure to EES
Storage batteries for household use are still small as a business, potential in industrial use. Panasonic’s exposure to energy
storage is still quite small, with around ¥10bn in revenue for industrial and for household in total, bundling 18650-type batteries for
industrial. Panasonic is planning to expand its business especially in the industrial space, targeting ¥100bn in revenue by FY2018.
For household use, Panasonic bundles its batteries with solar systems.
Samsung SDI (006400.KS, Neutral)

Company profile
Covered by Marcus Shin, Samsung SDI (SDI) is a provider of lithium-ion batteries for various applications, including mobile batteries, xEV batteries, and
Asia-Pacific Technology batteries for energy storage systems. The company’s main focus has been small batteries for mobile products given its largest
analyst
shareholder and affiliate company Samsung Electronics is one of the leading smartphone companies in the world. However, SDI is
trying to diversify its battery business into large-size batteries for xEVs and energy storage systems, and has received an increasing
numbers of orders in these segments.

We reiterate our Neutral rating and W120,000, 12-month target price based on SOTP. Key risks include faster/slower ramp-up for
xEV battery and electronic material businesses.
Exposure to EES
Still small, but increasing exposure to energy storage. On the back of increasing demand for energy storage, SDI has been
diligently expanding its energy storage battery business by entering markets such as Japan, United States, and Europe. Some of the
major orders that the company has received include an agreement in 2011 with Nichicon Corp. to supply battery modules and
battery management systems for energy storage system, as well as an agreement with an Indian energy management firm Acme to
provide up to 110MWh of energy storage systems. With increasing shipments, we expect SDI’s 2015E/2016E energy storage system
sales to reach W121bn/W218bn, which will be around 2-3% of total company sales. While the sales portion does not seem too
significant, we believe that the increasing demand for energy storage has the potential to boost SDI’s exposure to that segment in
the mid to long term.
Sungrow (300274.SZ, Neutral)

Company profile
Covered by Frank He, Sungrow is a leading inverter maker with 35% market share in China in 2014. An inverter converts direct current (DC) electricity to
China Solar analyst alternating current (AC), an essential component to connect renewable power sources and external applications. Leveraging its
leading technical knowhow in inverters, the company is expanding its business portfolio and is evolving into an integrated
renewable energy solution provider, covering inverters, solar EPC and project operation, energy storage, EV (electric vehicle)
electronic control & drive system, etc.
Exposure to EES
In November 2014, Sungrow officially signed agreements with Samsung SDI to set up two joint ventures in Hefei, Anhui, mainly to
develop energy storage system (ESS), one for lithium ion battery pack assembly and the other for battery storage system
integration with inverters. The two JVs will invest Rmb380mn to build 1GW capacity, with having Sungrow’s 35% ownership. We
see strategic merit for both from this cooperation: (1) Sungrow can leverage Samsung’s fast-growing ESS business to cross sell its
inverters and expand its customer portfolio overseas; (2) Samsung can also take advantage of China’s low production cost and
policy support (tax benefits, etc.) to improve profitability, and gain access to China’s utility scale solar market for ESS in the long-
run. We believe energy storage is in the early phase of the growth cycle, driven by renewable energy integration and declining
battery cost. Sungrow expects Rmb200-300mn revenue in 2016, with 30% gross margin. We estimate ESS will contribute 12% of its
2017 revenue.
SolarEdge (SEDG, Buy)

Company profile
Covered by Brian Lee, SolarEdge is a provider of DC power optimizer technology that converts direct current (DC) electricity generated by solar panels to
US Clean Energy analyst alternating current (AC) electricity by combining a standard inverter and module level electronics to enable a more efficient
conversion. Notably, battery products require inverters to operate as well. Packaged with intelligent monitoring systems, proprietary
software and a host of networking features, SolarEdge is the market leader in the niche category of DC power optimizers.

We reiterate our Buy rating and $37, 12-month price target on SEDG based on our DCF analysis assuming a 15% cost of equity.
Exposure to EES
A derivative equipment play on batteries. In late April 2015, SolarEdge was highlighted as a partner to Tesla as part of its launch
of Tesla Energy and the Powerwall/Powerpack product lines. Our field work suggests while SolarEdge’s partnership with Tesla is not
an exclusive supplier arrangement, the company’s technology is positioned much better than peers and the opportunity to capture a
significant, if not 100%, share of initial Powerwall volumes is high. While visibility is still relatively limited, we believe the potential
for Tesla to become a 10% customer in the coming years exists and adds another lever to drive further volume growth in the next
12-24 months. For every 25k Powerwall units, we estimate SolarEdge will generate over $20mn of sales (vs. $215mn total in CY2014)
and roughly $0.10 of incremental EPS, all else equal. Additionally, we believe SolarEdge’s solid relationship and technology
integration with SolarCity – its #1 customer – sets it up well for share gains in this new segment.
Sumitomo Electric (5802.T, Neutral)

Company profile
Covered by Ikuo Sumitomo Electric Industries (SEI) is the one of the top 3 main cables/wires suppliers in Japan. Although electronics is not the
Matsuhashi, Japan
biggest segment of its total business, they have been stating that redox flow battery is one of the key investment areas. Overall, we
Integrated
Electricals/Semiconduct take a positive view of multiple businesses including redox flow battery which could act as core growth drivers over the medium to
ors/Telecom Services/IT long term. But our rating is still Neutral as consensus is already assuming a guidance overshoot; it is unlikely to be raised soon in
Services analyst our view. Our 12-month price target is ¥1,800 implying ~9% upside, based on a P/B of ~ 1X our midpoint FY3/16-FY3/17 BPS
estimate, derived from P/B-ROE correlation.
Exposure to EES
The company expects its revenue from redox flow related products to be JPY100bn in FY2020, but our view is that it is too soon to
quantitatively factor in its impact to our estimate. They are working on the demonstration experiment with HEPCO (Hokkaido Electric
Power Company) and its contribution to sales will be recognized from 2H of FY2015. Their next step is to take part in the competition
of the installation in the state of California in FY 2016.
Tesla (TSLA, Neutral)

Company profile
Covered by Patrick Tesla is a pure EV manufacturer headquartered in Fremont, California. Unlike many other competitive EV offerings, Tesla has
Archambault, US Autos focused on the performance space with its flagship Model S offered at a base price range of $70,000-$105,000 (+$10,000 of options
analyst
is typical) and the Model X launched very recently with an initial price tag of just over $130k fully loaded. While there are more than
a dozen pure EVs that are either on the market or planned in the next two years, what sets Tesla apart is its long travel range, with
the standard Model S able to drive 265 miles (430 km) on a single charge. A large part of Tesla’s competitive advantage is its battery
cost (about $250/Kwh vs. $500/Kwh for large form factors) driven by its use of less expensive 18650 cells, which are available at
scale. While this results in a physically larger battery, it does afford Tesla more flexibility for the price.

Exposure to EES
With Tesla’s production plans for the S/X and ultimately Gen 3 likely to outstrip the available capacity of small cylindrical cells, the
company partnered with cell provider Panasonic to put into place 50Gwh of new capacity, 15Gwh of which will be dedicated to EES.
The Gigafactory is expected to start module pack and Tesla Energy (stationary storage) production in 1Q16, and will begin
manufacturing cells by the end of 2016. The company has publicly said that it has received $1bn worth of Powerpack and Powerwall
reservations and envisions Tesla Energy revenues of $400mn to $500mn in 2016, and perhaps “a few billion” in 2017.
Downstream / integrators
SolarCity (SCTY, CL-Buy)

Company profile
Covered by Brian Lee, SolarCity is a downstream solar company which primarily develops, installs and finances rooftop solar energy systems for the US
US Clean Energy analyst residential market. The company also serves the commercial end market, which represents about 20% of volumes and has just
recently begun to expand into international end markets with an acquisition of a commercial platform in Mexico. Similar to peers,
SolarCity monetizes solar systems via 20-year contracts under which it sells solar power to customers at a discount to the prevailing
utility grid price of electricity. Increasingly, we expect the company to offer solar plus storage solutions that provide resiliency in the
case of blackouts, peak shaving, or energy arbitrage capacities.
We reiterate our Buy rating (on CL) and $79, 12-month price target on SCTY, which remains our top pick in US solar given its
disruptive business model, attractive end market exposure to the fastest-growing and highest-returning vertical within solar (US
resi), and growing market share presence.
Exposure to EES
Solar plus storage adds to market TAM, opens up more commercial presence. SolarCity’s strong position in the rooftop solar
market and sister relationship with Tesla could make it an early mover in the electrical energy storage market. For SolarCity, current
exposure is low but the company believes storage could be deployed alongside solar in every installation within several years in
certain locations. We believe solar plus storage could increase SCTY’s ability to size systems by 20%-40% on a kW basis given
higher potential to cover a customer's entire energy consumption. Economically, we see solar plus storage as driving higher value
in commercial vs. residential via (a) energy arbitrage, and (b) demand charge reduction – thus further enhancing SolarCity’s ability
to tap into this vertical – on top of its core residential footprint – with a portfolio that includes solar plus storage offerings.

Private companies to watch
Exhibit 65: List of private energy storage focused companies (not a complete list)
Company Technology Note

Advanced Microgrid Solutions LLC Developer US-based building energy storage systems solutions provider.
Alevo Lithium-ion Marketed as the first inorganic lithium battery to commercial market. Healthy capex to date
indicates ambitious near-term growth targets.
Ambri Liquid metal Developing a liquid metal battery technology. Has an initial factory in place but missed
commerialization targets, leading to early setbacks.
Amprius Lithium-ion Develops high-capacity lithium-ion batteries, was originated at Stanford University.
Aquion Aqueous hybrid ion Aqueous hybrid ion battery technology, characterized by its long cycle life and range of suitable
durations (4 to 20 hour).
CODA Lithium iron phosphate Once an electric car company, CODA now focuses C&I and renewable microgrids and offers no-
money-down financing.
EnerVault Redox-flow EnerVault’s long-duration batteries employ iron-chromium redox-flow batteries, targeting grid and
commercial/industrial applications.
GELI Software Provides hardware-agnostic software platform and business solutions to for energy storage and
microgrid systems.
Greensmith Energy Management Developer Maryland-based turnkey distributed energy storage system integrator.
Systems LLC
GridPoint Inc Software Arlington-based provider of smart grid software solutions for grid control and demand-side
management.
Imergy Vanadium flow Vanadium redox flow battery company targeting applications ranging from stationary storage
applications down to the residential level. Notable deals include the US Navy.
LightSail Energy Inc Compressed air California-based developer of energy-storage systems.
Primus Power Corp Zinc flow Offers a modular approach to megawatt scale deployments and flexible, mobile applications.
Sakti3 Inc Lithium-ion Lithium ion battery technology company with a broad investor base and focus on cost reductions.
Solar Grid Storage LLC Developer Philadelphia-based battery project development and finance firm.
Sonnenbatterie GmbH Developer Bavaria-based lithium battery storage technology developer.
Spider 9 Inc Lithium-ion Michigan-based energy storage solutions provider focused on applications ranging from residential
to utility scale.
Stem Inc Software San Francisco-based provider of cloud-based energy optimization solutions.
Sunverge Energy Inc Developer California-based solar and energy storage developer focused on serving utility and customer
demands synergistically.
Valence Technology Inc Lithium iron magnesium phosphate Austin-based company that develops, manufactures, sells, and supplies high-energy power
systems.
ViZn Energy Systems Inc Redox-flow Montana-based zinc redox grid scale fuel cell technology developer.

Appendix
What is a battery: Tech mechanics 101

Battery cells are composed of three components – the anode, cathode, and electrolyte – which together create a current of
electricity through oxidation reactions. When a battery is charging, electrons become concentrated in the anode – to discharge, an
electric current flows to release the stored energy.
The cell: The basic building block of a battery is known as the cell, where energy is stored and released from when a series of
chemical reactions occur. A battery functions as an electron pump, figuratively speaking, which moves negatively charged electrons
from a negative electrode (anode) toward a positively charged electrode (cathode).
 Anode (negative electrode): Most commercial cells use carbon/graphite based electrode or, less typically, a metal alloy.
Lithium, magnesium, and zinc are considered to be the best materials.
 Cathode (positive electrode): Usually a lithium transition metal oxide or phosphate is used. However, ferrate, iron oxide,
and cuprous oxide are considered the best materials for the cathode.
 Electrolyte: This separates the two electrodes and provides a medium for charge transfer inside the cell between the anode
and cathode. A simple way to look at this is a ‘charge carrier’ for the electron. Generally speaking, for a lithium ion battery,
the electrolyte is a non-aqueous inorganic solvent.
Exhibit 66: The basic chemistry of a battery is over 200 years old, but incremental manufacturing, technical, and material
improvements continue to transform the breadth of potential applications
Simplified battery diagram

How to measure performance – more than one yardstick for batteries

Below we detail the relationship between power, energy, and length of cycle. Batteries are typically measured in terms of energy, or
in kWh or MWhs. In terms of electric vehicles, a battery with a higher kW rating would be able to get from zero to sixty faster than
peers with a lower kW rating. A battery with a higher kWh rating would have longer range potential than lower kWh competitors.
Exhibit 67: Storage is measured in terms of both energy and power, making it more complex than typical generation assets
Illustrations of how a 15kWh battery can be cycled
Energy Power Cycle time Lifespan
15 kWh = 2 kW x 7.5 hours
15 kWh = 3 kW x 5 hours
15 kWh = 5 kW x 3 hours Gentle cycling leads to

extended lifespans
Max number of cycles

The potential to The rate at which Duration of storage
before significant
perform work energy is delivered per charge
degradation

Exhibit 68: Summary of assumptions used throughout this report
Category Detailed assumptions

Batteries
Type Assume Lithium ion in all analysis - most prominent and well funded technology
Cost Assume GS forecast of ~10%-15% annual decline
Assume standard battery sizing ratio is 2 MWh energy for every 1 MW of power, for market sizing conversion
Size Assume autos industry will drive down prices across the market
Cycle life Assume no significant improvements
ASP Assume 10% gross margin on forecasted costs
US generation capacity
Annual growth Assume ~1% annual growth
Reserve margin Assume steady 15%
Mix Assume renewable capacity additions are governed by existing RPSs
Utility power prices Assume prices will be flat to up in line with historic trends
Policy Assume current net metering and FERC Orders remain intact and are fully implemented
Methodology for application sizing Detailed assumptions

- Based on Generac estimates for residential generator market
Backup power - Assumes 8% annual market growth
- Convert to MWh market size via standard generator metrics
- Based on C&I sector electricity consumption
Peak shaving - Assess average hourly electricity demand for sector
- Assumes 4 hour battery as standard
- Based on expected wind and solar build needed to meet existing RPS targets
- Assess production level of 2020 installed base
Renewables integration
- Derive average hourly production level
- Assume 4 and 8 hour batteries adopted for solar and wind, respectively
Standard T&D deferral:
- Based on incremental peak demand forecast
- Assumes 7.7% of incremental peak necessitates T&D upgrades
- Assumes 50% of upgrades can feasibly be met with energy storage
T&D deferral
Transmission congestion relief:
- Based on peak demand forecast
- Assume 20% of demand is eligible for congestion relief
- Assume 20% of need can be met with energy storage
Natural gas peaker plant displacement:
- Based on annual natural gas peakers capacity additions
- Assume full displacement
Bulk storage
Transmission support:
- Based on peak demand forecast
- Assume 1.5% of peak demand is eligible for transmission support
- Assume full need can be met by storage

Exhibit 69: Price targets, methodologies and risks
Valuation
Ticker Company Price Target Risks
method
ALB Albemarle Corp. $63.00 SOTP Downside: Lower growth for lithium and bromine weakness.
Upside: Higher crop prices, deeper cost cutting.

FMC FMC Corp. $37.00 SOTP, M&A
Downside: FX, Brazil exposure and balance sheet leverage.
6701.T NEC ¥530 P/B Downside: Increase in tolerance for investment, overly conservative guidance.
Upside: Sharp yen depreciation, automobile production increase.

NGK Insulators, EV/GCI vs
5333.T ¥2,490 Downside: Sharp yen appreciation, automobile production decrease, environmental regulation
Inc CROCI/WACC
changes.
Upside: Better-than-expected volume growth/margin improvement, business model reforms.
6752.T Panasonic ¥1,300 EV/DACF
Downside: Macro risks in housing/appliances, deterioration in low-margin businesses
Upside: Faster ramp-up for xEV battery and electronic material businesses.
006400.KS Samsung SDI ₩120,000 SOTP
Downside: Slower ramp-up for xEV battery and electronic material businesses.
SEDG SolarEdge $37.00 DCF Downside: Technology obsolescence, margin degradation, customer concentration
Upside: An acceleration in auto-related demand.

5802.T Sumitomo Electric ¥1,800 P/B
Downside: A deceleration in auto-related demand, forex rate fluctuations.
Upside: Faster-than-expected adoption of energy storage and EV control sales.
300274.SZ Sungrow Rmb 23.70 P/B vs. ROE
Downside: Lower EPC margin and price competition in the inverter business.
Upside: Gigafactory timing.
TSLA Tesla* $234.00 Weighted scenario
Downside: Sustained pace of Model S demand, FCF.
SCTY SCTY $79.00 DCF Downside: Treasury grant investigations and net metering.
Note: Price targets are for 12-month timeframes, except TSLA, which has a 6-month timeframe.

Glossary of terms
Anode: The electrode that releases electrons on discharge, the negative side
C-rating: The C rating of a battery (or cell) is used to indicate the continuous current draw (amps) the cell will support. By
multiplying the C rating times the cell capacity in milliampere-hours (mAh), the continuous current in milliamperes (mA) of a cell is
easily calculated.
Cathode: The electrode that receives electrons through the discharge process, the negative side
Charge/discharge: The process by which energy is produced in a battery, as electrons flow from the anode to the cathode
Cycle life: The number of charge/discharge cycles after which the battery becomes ineffective or inoperable.
EES: Electrical Energy Storage, or related to the storage of electricity
Electrolyte: The material that separates anodes and cathodes and acts a medium for charge transfer inside the cell
Energy density: The amount of energy (Wh) that a battery can deliver per unit of volume, similar to specific energy
kWh: kilowatt-hour; The measure of energy use or discharge over a specific period of time
kW: kilowatt; The measure of energy use or discharge at a moment of time
Load: The sum of the effect of all end users demanding energy from the grid at a given time
LCOE: Levelized Cost of Energy; the total power generated by a source divided by the discounted cost of operation over a lifetime
LCOS: Levelized Cost of Storage; the total power discharged by a source divided by the discounted cost of operation over a lifetime
Specific energy: The amount of energy (Wh) that a battery can deliver per unit of mass
Specific power: The measure of power (W) per unit of mass
Thermal runaway: A situation where an increase in temperature changes the conditions in a way that causes a further increase in
temperature, often leading to a destructive result
TOU: Time-of-use, an electricity bill structure that charges customers a different rate for electricity depending on the time of day
VC: Venture capital

Disclosure Appendix
Reg AC
We, Brian Lee, CFA, Patrick Archambault, CFA, Robert Koort, CFA, Michael Lapides, Ikuo Matsuhashi, CMA, Marcus Shin, Masaru Sugiyama, Daiki Takayama, Kota Yuzawa, Frank He, Brian Maguire,
CFA and Hank Elder, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify
that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
Investment Profile
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returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage
universe.
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Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,
ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month
volatility adjusted for dividends.
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GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well
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environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Brian Lee, CFA: America-Clean Energy, America-Solar Energy. Patrick Archambault, CFA: America-Autos & Auto Parts, America-Autos Dealers. Robert Koort, CFA: America-Chemicals - Specialty US.
Michael Lapides: America-Diversified Utilities, America-Independent Power Producers, America-Regulated Utilities. Ikuo Matsuhashi, CMA: Japan-Integrated Elec./Semicon, Japan-Telecom & IT
Services. Marcus Shin: Korea Technology. Masaru Sugiyama: Japan Internet and Games, Japan-Consumer Electronics. Daiki Takayama: Japan-Electronic Components. Kota Yuzawa: Japan-
Automobiles. Frank He: Asia Pacific Conglomerates, China Clean Energy. Brian Maguire, CFA: America-Chemicals - Specialty US.
America-Autos & Auto Parts: BorgWarner Inc., Dana Holding, Delphi Automotive Plc, Ford Motor Co., General Motors Co., Harley-Davidson Inc., Johnson Controls Inc., Lear Corp., Magna International
Inc., Magna International Inc., Meritor Inc., Metaldyne Performance Group, Nemak, Tenneco Inc., Tesla Motors Inc., Tower International Inc..
America-Autos Dealers: AutoNation Inc., Group 1 Automotive Inc., Penske Automotive Group, Sonic Automotive Inc..
America-Chemicals - Specialty US: Air Products & Chemicals Inc., Airgas Inc., Albemarle Corp., Ashland Inc., Axalta Coating Systems Ltd., Axiall Corp., Celanese Corp., Chemours, Compass Minerals
International, Cytec Industries, Dow Chemical Co., E.I. duPont de Nemours, Eastman Chemical Co., Ecolab Inc., FMC Corp., Huntsman Corp., LyondellBasell Industries, Monsanto Co., OCI Resources LP,
Polyone Corp., PPG Industries Inc., Praxair Inc., Sherwin-Williams Co., Trinseo SA, Univar Inc., Valspar Corp., W. R. Grace & Co., Westlake Chemical Corp., Westlake Chemical Partners LP.
America-Clean Energy: Acuity Brands Inc., Cree Inc., Solazyme Inc., Universal Display Corp., Veeco Instruments Inc..
America-Diversified Utilities: Ameren Corp., Centerpoint Energy Inc., Dominion Resources Inc., Edison International, Entergy Corp., Exelon Corp., FirstEnergy Corp., NextEra Energy Inc., PPL Corp.,
Public Service Enterprise Group, Sempra Energy.
America-Independent Power Producers: Calpine Corp., Dynegy Inc., NextEra Energy Partners, NRG Energy Inc., NRG Yield Inc..
America-Regulated Utilities: American Electric Power, American Water Works, Cleco Corp., Consolidated Edison Inc., Duke Energy Corp., Eversource Energy, Great Plains Energy Inc., PG&E Corp.,
Pinnacle West Capital Corp., Portland General Electric Co., SCANA Corp., Southern Co., WEC Energy Group Inc., Westar Energy Inc..
America-Solar Energy: 8point3 Energy Partners, Enphase Energy Inc., First Solar Inc., SolarCity Corp., SolarEdge Technologies Inc., SunEdison Inc., SunPower Corp., Sunrun Inc., TerraForm Global Inc.,
TerraForm Power Inc., Vivint Solar Inc..
Asia Pacific Conglomerates: Beijing Enterprises Holdings, Cheung Kong Infrastructure, China Gas Holdings, China Merchants Holdings, China Resources Gas Group, China Suntien Green Energy, CITIC
Ltd., CK Hutchison Holdings, COSCO Pacific, Dalian Port Co., ENN Energy Holdings, Fosun International, Galaxy Entertainment Group, Hopewell Holdings, Hutchison Port Holdings Trust, Jardine

Matheson, Kunlun Energy Co., Legend Holdings, Melco Crown Entertainment (ADR), Melco International Development, MGM China, MTR Corp., NWS Holdings, Sands China, Shanghai Industrial,
Shanghai International Port, Shun Tak Holdings, Sinopec Kantons, SJM Holdings, Summit Ascent Holdings, Swire Pacific, Tianhe Chemicals Group, Tianjin Development Holdings, Tianjin Port
Development Holdings, Towngas China, Wharf Holdings, Wheelock and Co., Wynn Macau, Yingde Gases Group.
China Clean Energy: Canadian Solar Inc., China High Speed Transmission, GCL-Poly Energy Holdings, JinkoSolar Holding Co., Longi Silicon Materials, Singyes Solar, Sungrow Power Supply Co., Trina
Solar, Xinjiang Goldwind (A), Xinjiang Goldwind (H).
Japan Internet and Games: Bandai Namco Holdings, Capcom, CyberAgent, DeNA Co., FreakOut, Gree, Kakaku.com, Konami, mixi, Nexon, Nintendo, Rakuten, Sega Sammy Holdings, Square Enix
Holdings, Yahoo Japan.
Japan-Automobiles: Aisin Seiki, Bridgestone, Calsonic Kansei, Daihatsu Motor, DaikyoNishikawa, Denso, FCC, Fuji Heavy Industries, Hino Motors, Honda Motor, Isuzu Motors, Keihin, Mazda Motor,
Mitsubishi Motors, Nissan Motor, Nissin Kogyo, Stanley Electric, Sumitomo Rubber Industries, Suzuki Motor, Toyota Boshoku, Toyota Industries, Toyota Motor, TS Tech, Unipres, Yamaha Motor.
Japan-Consumer Electronics: Panasonic Corporation, Sony.
Japan-Electronic Components: Alps Electric, Hirose Electric, Ibiden, IRISO Electronics, Japan Aviation Electronics Industry, Japan Display Inc., Kyocera, Mabuchi Motor, Minebea, Mitsumi Electric,
Murata Mfg., NGK Insulators, NGK Spark Plug, Nichicon, Nidec, Nippon Ceramic, Nippon Chemi-Con, Nitto Denko, Pacific Industrial, Shinko Electric Industries, Taiyo Yuden, TDK.
Japan-Integrated Elec./Semicon: Fujikura, Fujitsu, Furukawa Electric, Hitachi, Mitsubishi Electric, NEC, Oki Electric Industry, Renesas Electronics, Rohm, Sumitomo Electric Industries, Toshiba, Yamaha.
Japan-Telecom & IT Services: Itochu Techno Solutions, KDDI, Nippon Telegraph & Telephone, Nomura Research Institute, NS Solutions, NTT Data, NTT DoCoMo, Otsuka, Softbank.
Korea Technology: Samsung Electro-Mechanics, Samsung Electronics, Samsung SDI Co., Samsung SDS Co., Seoul Semiconductor, SK Hynix Inc..
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Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 32% 53% 15% 63% 57% 52%
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EQUITY RESEARCH October 18, 2015

The Great Battery Race

Brian Lee, CFA Patrick Archambault, CFA Robert Koort, CFA

Michael Lapides Ikuo Matsuhashi, CMA Masaru Sugiyama

PM Summary: The Great Battery Race 3

Goldman Sachs Global Investment Research 2

PM Summary: The Great Battery Race

Goldman Sachs Global Investment Research 3

600 Total EES TAM Total EES TAM

Goldman Sachs Global Investment Research 4

Exhibit 3: GS author list

Clean Energy Autos & Auto Parts Chemicals Utilities

Hank Elder David Tamberrino, CFA Brian Maguire, CFA David Fishman

Asia Pacific Energy Autos & Auto Parts Electronic Components Japan Consumer Electronics Japan Integrated Electricals

Yang Liu Yipeng Yang Takafumi Hara Yukiko Nonami Takehiro Akamatsu

Beijing Gao Hua Securities Company Limited Beijing Gao Hua Securities Company Limited Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd. Goldman Sachs Japan Co., Ltd.

Goldman Sachs Global Investment Research 5

11 global stocks with leverage to the theme

*6-month price target 5% or less 5% to 20% 20% to 50% 50% or greater

Source: FactSet, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 6

Goldman Sachs Global Investment Research 7

Source: BNEF, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 8

Industry evolution at-a-glance: From gadget to grid

Source: BNEF. Source: BNEF.

Goldman Sachs Global Investment Research 9

Why now? Energy storage goes large-scale

$1.60 400 $800 Energy storage (LHS) Solar (RHS) $6,000

$0.80 200 $400 $3,000

$0.60 150 $300

Source: Goldman Sachs Global Investment Research. Source: BNEF.

Goldman Sachs Global Investment Research 10

Goldman Sachs Global Investment Research 11

Policy could open up the flood gates

Energy Storage Procurement Targets (in MW) 45 1,200,000

Total 200 270 365 490 1325

Goldman Sachs Global Investment Research 12

Key applications: We estimate a long-term TAM of ~$100-$150bn

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 13

Total EES TAM Total EES TAM

Source: Goldman Sachs Global Investment Research.

Large / Centralized Small / Distributed

Utilities, Commercial & Residential and

Monetization Grid optimization - Deferred grid upgrade Incremental revenue

Source: DOE, BatteryUniversity.com, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 14

Backup Power: $1-$1.5bn

Source: Generac company data Source: Company data.

Peak shaving: $45-$71bn

Goldman Sachs Global Investment Research 15

Goldman Sachs Global Investment Research 16

Goldman Sachs Global Investment Research 17

Total Normal kWh Hourly kWh demand

Source: PG&E, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 18

Source: Goldman Sachs Global Investment Research. Source: EIA.

Goldman Sachs Global Investment Research 19

$0.70 Total US Solar + storage economics 2015E 2020E 2025E 2030E

$0.40 Total battery system price $7,000 $3,106 $1,378 $611

Annual grid cost increase 2.8% 2.8% 2.8% 2.8%

Goldman Sachs Global Investment Research 20

Renewables integration: $20-$32bn