Written evidence submitted by Storelectric (LCI0002)

Business Plan

Grid Scale Energy Storage

Company No. 08661270 Registered in England

Disclaimer This document represents the intentions of Storelectric Ltd at the time of writing, which may change for various reasons including (but not limited to) technical, strategic, political, financial and the wishes of investors. Any person or organisation considering investing in Storelectric does so at their own risk and is responsible for undertaking their own due diligence. Summary Storelectric seeks to construct Compressed Air Energy Storage (CAES), initially in the UK but with world-wide potential. Storelectric’s CAES: Aims to make renewable energy generation cost effective without subsidies; Incorporates patented technology to double its efficiency; Is environmentally friendly, mostly underground and intrinsically safe; Uses no fossil fuels.

Renewable power needs subsidies because it produces (and fails to produce) power regardless of demand. Traditional power stations’ electricity is dear as utilisation is poor for power stations that supply peak demand; and will become even dearer as increasing renewable power reduces utilisation further. Storelectric will store unwanted (cheap) electricity to use at peak (expensive) times, making renewable generation independently profitable and traditional generation more efficient. CAES works by using the unwanted electricity to compress air to ~70 bar. During peak demand, this pressurised air is let out to re-generate electricity. Grid scale CAES stores the compressed air in salt caverns well underground, which salt mining has made for over 100 years in some places, leaving vacant (brine filled) caverns. Rock salt is subject to plastic flow, and therefore re-seals every crack. It is sufficiently hermetic for (explosive) natural gas to be stored in salt caverns around the world, at pressures up to 300 bar (for particularly deep caverns, e.g. in France). Pressurising the air raises its temperature greatly. In current installations (Germany since 1978, USA since 1992) this heat is vented to the atmosphere. Expanding the air requires heating, so as not to cool the plant to extremes – currently done by gas. The current way of generating electricity from compressed air is by feeding it into a conventional gas fired power station, saving the 2/3 of energy that is normally used to compress the air and drive the turbines, thus trebling its efficiency.

The three elements in the paragraph above mean that efficiencies are low: 42% in Germany and 50% in USA, which is why CAES projects world-wide have not come to fruition. Storelectric has IP (patents applied for) offering efficiency improvements in all these areas, increasing efficiency to 70-85%. All technologies involved are well known, proven and reliable in different industries, at comparable scales. There are 10 salt basins in the UK and hundreds worldwide, most located near renewable generation and/or major population centres. Using existing salt caverns (which exist in some) will reduce construction time by ~1-2 years and cost by £1-3m. The only technology that competes with this scale of operation is pumped hydroelectric storage, which costs ~10x as much per megawatt, floods 2 valleys per installation, and has few potential locations – nearly all of them being far from both renewable generation and population centres. Storelectric has outlined 4 stages of development, each with its funding requirement. These have been constructed around how much early stage funding is likely to be available: if more is available, then we would seek to speed up the programme. At all stages we will apply for public grant funding. These 4 stages are:

1. Initial design, £150k, qualifies for Seed EIS tax incentives: build the consortium; calculate more accurate expected efficiencies from the IP, using data from off-the-shelf equipment; outline specifications of equipment, interfaces and control systems; analyse the thermodynamics; extend the IP protection; initial work on caverns, planning permissions etc.

2. Detailed design, £1.3m, qualifies for EIS tax incentives and (if funded by at least 3 angels) government co-investment: Detailed design of pilot plant and its upgrade to complete installation; source equipment and obtain quotes; source all civils, substation and other requirements; pursue planning applications, inc. public consultations if needed; develop and extend IP; negotiate with National Grid, renewables generators and other customers.

3. Pilot plant construction, £28m, 50% qualifies for EIS: construct a 25-40MW pilot plant using off-the-shelf equipment, on a full-size part-used cavern, focusing on the interfaces between subsystems and on the control systems, all designed for easy upgrade to full scale; build grid interface; start trading energy.

4. Full scale plant upgrade, £200-300m, part of it qualifies for EIS: upgrade the top-side equipment (compression, thermal management, expansion, generation, power conversion, ancillaries) to 250-500MW; construct further caverns if needed.

Return on investment for each stage of investment is very strong:

Year No. 1 4 6 8Year of Valuation 2013 2016 2018 2020

Patents (qty) 8 15 20 20Patent value each £ 400,000 1,000,000 5,000,000 5,000,000Forecast profit before interest, 2 years' time, discounted by 90% £ 3,519,065Forecast profit before interest, 2 years' time, discounted by 80% £ 7,269,824Profit before interest £ 36,349,121License income p.a. @5% of 50 further installations £ 90,872,802Profit Multiplier (Dinorwig multiplier is ~30) 10 10 10Business Valuation £ 3,200,000 50,190,651 172,698,242 1,372,219,228Investment

% of Equity for Investment 5% 10% 15% 25%Money paid for stake £ 150,000 1,300,000 28,000,000 290,000,000Project valuation including new investment £ 3,350,000 51,490,651 200,698,242 1,662,219,228Value of Equity based on Project Valuation (£m) if realising now £ 167,500 5,149,065 30,104,736 415,554,807Return on Investment

Following dilution Initial stake is now 5.00% 4.50% 3.83% 2.87%2nd investment is now 10.00% 8.50% 6.38%3rd investment is now 15.00% 11.25%

Return on Investment Initial £150k 1,673% 5,181% 34,992%Stake worth £ 2,258,579 6,605,708 39,365,539 Next £1.3m 1,328% 8,972%Stake worth £ 14,679,351 87,478,976 Next £28m 735%Stake worth £ 154,374,663

Note: equity disbursed 5.00% 14.50% 27.33% 45.49%These ignore all future UK installations built by us, all overseas installations (ours or licensed) and all future income from mass storage Each installation, as currently planned, will be: ½ of the capacity of Dinorwig and Ffestiniog Pumped Hydroelectric power

stations (the two parts of First Hydro Ltd www.fhc.co.uk) ~1/10 cost of Dinorwig alone First Hydro profits are £170m p.a. First Hydro is worth £3.5 – 5 bn (current valuation)

Introduction Renewable energy is famous for generating all the energy a country needs when it doesn’t need it, and for not generating it when it is needed. This is particularly true of wind power, but also applies to solar, wave and tidal power. For this reason each country needs enough traditional generation capacity to produce all its needs without renewable power, in addition to renewable generation capacity. Electricity generators and grids also have a problem supplying sufficient power for peaks and surges. Another problem is reinforcing the grid to accommodate surges in renewable power generation, e.g. when the wind is blowing hard. As a result, millions of pounds are paid each year to stop wind farms producing electricity during trough demand1. Millions more are paid to keep power stations (typically gas fired) operating at below 100% efficiency as a “hot standby” that can be fired up at a moment’s notice for peaks and surges. Millions more are paid (in discounted energy charges) to various energy users to permit the generators and

1 8/1/1: wind farms paid £25m to lose 149,983 MWh http://www.dailymail.co.uk/news/article-2088196/Wind-farms-paid-25million-NOT-produce-electricity-blustery.html Price paid: £167 per MWh (average) - four times the price they would have sold it for. 19/5/13: http://www.express.co.uk/news/uk/400755/Millions-for-wind-power-we-can-t-use From 2011: £26.5m paid to lose 185,000 MWh = £143/MWh 5/5/1: http://www.telegraph.co.uk/news/uknews/scotland/10038598/Scottish-wind-farms-paid-1-million-to-shut-down-one-day.html EDF charged between £89 to £149 for every megawatt hour (MWh) of energy that was not produced, compared to £50 per MWh the company would have received for selling it. 17/9/1: http://www.telegraph.co.uk/earth/energy/windpower/8770937/Wind-farm-paid-1.2-million-to-produce-no-electricity.html £1.2M paid to Crystal Rig at £999 /MWh to shut down instead of £100 /MWh for the electricity

grids to switch off parts of their consumption, to reduce the load during peaks and surges, accounting for about 2,000MW costing several thousand pounds per megawatt of capacity regardless of whether or not that capacity is used. They also keep about 500MW of diesel generators and 150MW of gas generators for standby service2. Peak energy sells for up to 5 times the normal wholesale price of electricity. Applying actual winds from January 2000 to the forecast wind farm generation capacity in 2030, and comparing this with the forecast mix of other generation technologies, shows the scale of the looming problem: While the country will need ~60GW of non-wind capacity for windless days such as 24-27 Jan, most of this is (expensively) unused most of the time. CCGT, for example, only has half of its capacity used four times in the month. However when the wind does blow, even much of the baseload nuclear capacity (which should never be stopped) has to be stopped 6 times. The Met Office says that it is likely that sometimes in January (peak month for consumption) the wind will be very light or zero for 7 consecutive days. The results of this intermittency can be seen in the plummeting value of both wind farms and gas fired power stations, and in the vast investment required in grid reinforcement. For example, DONG Energy invested £1bn in the Walney wind farm, sold a 25.1% stake in

it to SSE in December 2009 for just £39m, and a further 24.8% to a consortium of pension funds in January 2011 for just £16m3, implying a valuation of only £64.5m, only 6% of the initial investment.

In the last year, £29bn investments in gas-fired power stations have been cancelled4.

Grid reinforcement costs to meet the forecast energy generation scenarios are £8.8bn5.

Competing Technologies Therefore, over the years people have proposed diverse schemes to store energy during troughs that they can release during peaks. These have included6:

2 http://en.wikipedia.org/wiki/Control_of_the_National_Grid_%28Great_Britain%29#Spinning_Reserve 3 http://www.renewableenergymagazine.com/article/dong-energy-sells-off-minority-stake-in, http://www.dongenergy.com/Walney/News/data/Pages/DONGEnergysellsminoritystakeinWalneyOffshoreWindFarm.aspx 4 http://www.thisismoney.co.uk/news/article-2449055/Blackout-Britain-National-Grid-warns-risk-power-shortages-winter-highest-decade.html?ITO=1490&ns_mchannel=rss&ns_campaign=1490 5 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/48275/4264-ensg-summary.pdf 6 http://en.wikipedia.org/wiki/Grid_energy_storage

Hydroelectric pumped storage, in which two reservoirs at high and low level are linked. Water is pumped up during troughs to be released during peaks. About 300 such schemes have been installed world-wide, including Dinorwig (1,728 MW) and Ffestiniog (360MW) in Wales, and Cruachan Dam and Foyers in Scotland; two further schemes are proposed in Scotland. However there are not thought to be many more suitable sites available, and those that are suitable are also subject to environmental objections for flooding scenic valleys. They are also very expensive: Dinorwig cost £425m to build in 1974 – equivalent to £3.75bn now7.

Battery storage has been proposed, but no technology has been demonstrated that offers grid-scale (hundreds of megawatts) storage capacity. It also suffers from efficiencies of 50-85% depending on the technology: in general, cost rises with efficiency.

Cryogenic air or liquid air energy storage is 70% efficiency at best, but suffers from both cost and lack of scalability.

Flywheels have been proposed, but the only grid scale plant existing stores 20MW for 15 minutes only and, despite state loan guarantees of $43m, the company developing it went bankrupt8.

Hydrogen fuel cell energy storage is still on the drawing board, and likely to remain there while efficiencies remain around 20-40%. There are also issues of combustibility and scalability.

Britain also has many conventional power stations that would operate most efficiently generating a constant baseload power, but which are used to deliver variable power. If ever energy storage capacity becomes large enough, these can be run constantly with most (if not all) required variation being drawn from the energy storage sites. Finally, once Britain (or any other country, for that matter) has sufficient energy storage, we can power the ever increasing demands of the entire country from renewable sources, protecting the environment and reducing dependency on depleting fossil fuels, pollution and greenhouse gas emissions. Compressed Air Energy Storage Compressed Air Energy Storage (CAES) is not a new idea, having been proven in Huntorf in Germany (commissioned in 1978) and in McIntosh, Alabama, USA (1991). Huntorf currently stores and recovers energy with about 42% efficiency (McIntosh 50%), mainly because compressing the air loses lots of energy in heat, and re-heating it requires gas heating. However, even at 42% efficiency, it is considered a very useful addition to their grid’s capabilities. There is a project ongoing since 2001 between GE and RWE (the German utility that runs it) to develop solid (rock or ceramic) heat stores with the intention of increasing that efficiency to around 70%9. Other schemes have been proposed since then, but none have gone ahead, due to efficiencies. The British Geological Survey has advocated CAES to the government on a number of occasions as suitable for many areas of the UK, with suitable salt deposits in Northern Ireland, the Irish Sea, and various places around England10.

7 Using the Bank of England’s inflation calculator to calculate equivalent prices in 2012 http://www.bankofengland.co.uk/education/Pages/inflation/calculator/flash/default.aspx 8 http://en.wikipedia.org/wiki/Beacon_Power and http://www.beaconpower.com/files/Flywheel_FR-Fact-Sheet.pdf 9 http://www.livescience.com/4955-compressed-air-power-future.html 10 http://www.bgs.ac.uk/downloads/start.cfm?id=1370 from the bottom of p.13

Salt basins are used because rock salt exhibits a small amount of plastic flow. This means that not only is it hermetically sealed, but also any cracks that do happen to form are self-healed. This is why salt caverns are used throughout the developed world for storing pressurised natural gas, with a 100% safety record to date, and why it is also being considered for other industries such as radioactive waste storage11. The technology is completely scalable, since the Huntorf facility uses two small salt caverns in one of many huge salt fields across Europe, of which there are 10 in the UK onshore, with significant additional offshore extensions in some places and a large basin in the Irish Sea. The smallest of Britain’s salt basins, the Preesall basin across the Wyre estuary from Blackpool, has over 140 existing man-made salt caverns and capacity for many more. Because there is so much salt cavern capacity in the UK, there is no need for any conflict between applications, for example CAES, gas and hydrogen storage, and other uses such as document and waste storage. Our current estimates are that each 1 GW of power and 60 GWh of storage capacity installation will cost around £280m capital investment. Pro rata, Dinorwig costs £3bn, over 10 times the capital cost. Even if actual costs following the full design phase prove to be greater, the capital savings are enormous.

11 Analysis of gas storage properties of rock salt, including viscoelastic self healing: http://www.tecgraf.puc-rio.br/~lfm/papers/Costa-ISRM-2011.pdf. See also a review focused on the storage of radioactive waste: http://www.skb.se/upload/publications/pdf/ipr-04-55%20webb.pdf

The Storelectric Proposal Storelectric has: Applied for 3 patents by which we expect to increase efficiency from 42-50%

to 70-85%, with the threshold for profitability being below 60%. Prepared 5 further patent applications, ready for submission, with further

efficiency improvements. Identified two fields of salt caverns that are particularly suited to developing

CAES in Britain: Preesall and the Cheshire Basin. Identified two potential means (currently being patented) of storing the thermal

energy and re-combining it with the air by applying known and reliable technologies from other industries. We will undertake a comparison and cost / benefit analysis of these alternative methods.

Identified (again, from other industries) existing equipment, proven and in production, that will turn the compressed air efficiently into power.

Built a team of experts in fields such as thermodynamics, power generation, grid connection and planning.

Identified sources of extremely accurate geological data. There are two alternative methods for regenerating electricity. In Huntorf and Alabama, they use the compressed air as a supplementary input to a gas fired power station, roughly tripling the efficiency of the power station. This is a viable route for the Storelectric project. However there is another route that we would like to investigate in parallel, which could potentially simplify the operation greatly. We will undertake a comparison and cost / benefit analysis of these alternative methods. Government funding is available (subject to application and approval) to subsidise the initial stages, as far as detailed designs. There is also funding available to support development of a full scale prototype with a capacity of around 60 GWh and peak production between 250 and 500MW, operating at a few minutes’ notice. Operating at this scale leads the National Grid to suggest that, at least in part, we would be competing with future CCGT (Combined Cycle Gas Turbine) power stations – and indeed, large scale CAES investment would greatly reduce the numbers of CCGT power stations required. Current ambitions target an eventual capacity (once growth is self funding) of 27 Gigawatts output and a storage capacity of 3,800 Gigawatt Hours (GWh) in the UK alone, sufficient for the country’s entire energy reserve. This is equivalent to 13 Dinorwig power stations, and does not entail flooding any picturesque valleys. This technology can also be exported world-wide. Many of our developments are likely to be patentable, further enhancing future revenue streams. Details of all the above are available following signature of a non-disclosure agreement. Please see the letters of support in Appendix 3, which are self explanatory. Cheshire Basin The Cheshire Basin is one of the largest British salt basins. It has also been subjected to very extensive geological surveys, as there are gas storage facilities within the basin. Local opposition is unlikely due to those existing facilities and the fact that much of the basin is in sparsely populated areas in Shropshire, SW

Cheshire and parts of Wales (Wrexham County). We do not have the same level of community contacts here as in Preesall, but they can be set up soon and there is active opposition to gas storage proposals similarly to the Preesall basin. On the supply side, a Middlewich wind farm is being doubled in capacity. It also sits centrally to a large proportion of the National Electricity Grid because, on the demand side, it is central to the Merseyside, Manchester, Stoke-on-Trent and West Midlands conurbations. Preesall Basin The Preesall basin across the Wyre estuary, north of Blackpool, has been used for salt mining in the past, creating about 140 salt caverns. It is the smallest of the UK salt basins, but has considerable capacity for further caverns. Halite has recently done some in-depth geological studies on 19 of these caverns, which range from just larger than Huntorf to over 5 times its size. Their objective was compressed natural gas storage, which has been rejected due to very strong local opposition. The organisers of that opposition are strongly in favour of compressed air energy storage because compressed air is safe, being neither inflammable nor explosive, and it would occupy the caverns to prevent further applications for natural gas. Therefore we have strong community support, as well as good geological data. The Preesall field is onshore from the large Morecambe Bay (Walney) wind farm, currently 104 turbines with an extension in planning. There is a nascent proposal to develop hydro-electric power from the tidal race in the adjacent Wyre estuary, which would also improve the flood defences of Fleetwood. On the demand side it is also close to Liverpool and industrial Lancashire. Future Basins Once a viable and profitable energy storage business is set up, it can be replicated in other basins around the country, to distribute the storage and load on the National Grid, and to locate storage near to diverse locations of both generation and consumption. It is notable that most British salt basins are just by the coast, near the areas identified for large offshore wind generation, which would mean that our installations can intercept the power generated at landfall so as not to overload the grid when power is not needed. Please see Appendix 4 for a map of British salt basins, with the locations of offshore wind farms marked. The Market Renewables generation capacity is currently forecast to reach 42GW by 2020 and 77GW by 2030. Of these, wind, wave, tidal and solar are variable, generating or not generating regardless of demand. Because of this variability, planned capacity from traditional sources of power, plus CCS (Carbon Capture and Storage) adapted traditional power stations, is planned to be 100% of the 63GW demand. (Source: National Grid’s UK Future Energy Scenarios 201312.)

12 http://www.nationalgrid.com/NR/rdonlyres/A3A03257-3CCC-40DD-99C8-500A149D997D/61591/UKFES2013FINAL1.pdf

The more renewable energy can be stored, the less traditional (mainly fossil fuel) capacity will be needed to be built. While the rate of regeneration needs to be set to support this, the capacity (which includes the duration over which we can regenerate at those rates) is set by the total demand in GWh (GigaWatt Hours)13:

Our market can be split into two parts: power and storage. Peak energy is becoming ever scarcer: in the last year, £19bn power station projects have been cancelled due to the low utilisations and pay-backs in prospect14. For a fraction of that sum, Storelectric can make up the entire shortfall in capacity. The Energy Research Partnership, www.energyresearchpartnership.org.uk, published an in-depth report “The Future of Energy Storage in the UK”15 on 30th June 2011, which we have analysed separately from the point of view of CAES in the UK. Construction Strategy Power: Power is the rate at which power can be stored and generated. Wind power is projected to be 30GW by 2030, so our market size will be 30GW by then. Of this, 5GW will be supplied by pumped hydro (both current and planned capacity), so our target market is 25GW, or 50 installations of 500MW each and 2 caverns each.

13 Source: http://www.nationalgrid.com/NR/rdonlyres/2450AADD-FBA3-49C1-8D63-7160A081C1F2/61591/UKFES2013FINAL2.pdf p.63 14 http://www.thisismoney.co.uk/news/article-2449055/Blackout-Britain-National-Grid-warns-risk-power-shortages-winter-highest-decade.html?ITO=1490&ns_mchannel=rss&ns_campaign=1490, date 8/1013 15 www.energyresearchpartnership.org.uk/dl291

Note: Gone Green is the mid-range scenario

Our forecasts are based on the financial benefits of a single installation, because each future installation will need its own investment to be justified on its own returns. However the steady state profits will be multiplied by up to 50 times. Beyond that, the European market is 5-8 times the UK market, with salt basins in most countries; and the world market is considerably greater still. The rate of growth of the number of installations will depend on the up-front cash available and the expertise, which we will train up as rapidly as possible; we may also increase this rate of growth by licensing and selling consultancy services. Storage Capacity: Storage translates into the time for which we can generate at these rates of power. Since winter power is very roughly twice summer power, with Spring and Autumn in between, winter power consumption is around 114.3TWh16. The wind can (and does) stop blowing for 7 continuous days during winter months, according to the Met Office, during which time 8.8TWh is consumed17. Of this, about 30GW will be generated as baseload by traditional means, or 5TWh. Therefore, there is a market for storage capacity of 3,800GWh. As each cavern stores ~2.2GWh, there is a market for over 1,700 caverns. These can all be pumped, relatively cheaply, through the same installations at an average of ~34 caverns per installation. Our strategy is therefore to continue to add caverns to each installation as demand grows. As there is currently no market for selling mass storage capacity, we have not included these additional caverns and revenue streams in our main financial forecasts, though they are included in Appendix 5. The first dozen or so installations would target peak shaving, selling electricity at 2-5 times baseload electricity prices. The multiple is likely to drop a little with each installation, but we have budgeted at a price factor of only 2, which is far and away the most conservative view. After that first dozen, the cost/benefit model will change, principally to reflect the comparative capital costs and environmental performance of CAES storage and CCGT generation. But these are only very long term considerations: our business case is based on the enormous profitability of a single installation, with profits multiplied by the following installations. Project Stages This Business Plan is geared primarily towards the initial project development stage: detailed design, patenting, planning applications etc. Depending on the availability of funds, this may be divided into an initial sub-phase of £150k (eligible for SEIS, for which we have applied) and a later one of £1.3m (eligible for EIS). The first of these will select which of our patented methods will be most cost effective and lowest risk to use (so we would license out the other for an additional revenue stream), narrow the expected range of efficiencies, specify all systems in outline, build the consortium of suppliers to deliver the project, and start the planning processes. The second would complete the detailed designs and specifications, complete the planning processes, launch procurement activities, and identify any cavern work required. The second stage will be construction and proving of our pilot plant, a 25-40MW unit to be constructed using full-sized caverns and designs that lend themselves to easy upgrade. This enables us to use off-the-shelf designs for most of the well-known subsystems that we will use, prove the subsystems’ interfaces and refine the control system. Because of its scale and our conservative assumptions, we are not looking to make ongoing profits from this scale of plant. 16 Calculation: 343TWh *4 / 12 17 Calculation: 114.3TWh divided by the 91 days of winter, x 7 days.

The third stage is to upgrade the pilot plant to a full scale first installation of 250-500MW. Once proven, there will be roll-out of additional installations – initially nationally, then internationally. It is likely that we will also license plants that we do not build ourselves: for these we could also sell consultancy activities. Storelectric Ltd Development Phase Programme

Quarter no.: 1 2 3 4 5 6Cost £

Salaries, inc. on-costs 456,000£ Overhead 70,800£ Intellectual Property (IP) 140,000£ Engineering and thermodynamic review (Oswald) 25,000£

Ongoing technical oversight of programme 15,000£ Additional development work 99,000£

Environmental surveys and plansPublic consultationsApplications (planning, Crown Estate etc.)Grid feed-in and -out (outline, with Grid)Cavern surveys and proposalsDetailed design: equipment, interfaces, civils 540,000£

Control systems specification 29,000£ Equipment sourcing

CompressionExpansionGenerationCivil engineering and constructionCavern engineering and managementReservoir and relatedThermal transfer and storageGrid feed-in and -out substation(s)

Building a consortium; related expenses 17,000£ Funding applicationsRevise the business planFinance Commission 22,500£ Contingencies 36,000£ Total 1,450,300£ This schedule shows the first two development phases combined, with tasks running in parallel The first operational cavern will be generating electricity in year 4, and will be upgraded to full scale operation by year 7. If we divide the initial phase into two sub-phases of £150k and £1.3m, the first £150k will incorporate: Intellectual property Engineering and thermodynamic review Initial development work (some) Control systems specification (outline) Sourcing (initial contacts) Consortium building (initial) Overheads (not premises)

Combining any of these tranches will save time and/or reduce costs: Example combinations

and their effects Savings

Combine 1 and 2 (total £1.45m)

~3 months by running up-front work in parallel

Combine 1-3 ~6 months by working on final designs from very early Miss out pilot phase ~2-3 years: build full scale plant first-off

Design just the full scale plant instead of also pilot and scaleability

Eliminate duplicated work undone from pilot during upgrade Future UK installations built by us, overseas installations (ours or licensed) and future income from mass storage We have excluded all these factors from our projections, for the sake of prudence. However because they are an intrinsic part of Storelectric’s strategy, we have developed a 40-year projection based on assumptions for all three of these factors. These are in appendix 5. The UK market is up to 50 times the figures we have shown, for power; There is a large future market for reserve storage capacity in the UK; The European potential market is 6-8 times the UK market, with salt basins in

most countries; The world-wide market is 10-100 times this, depending on the availability of

salt basins. Therefore this is a massively scaleable business, with multiple revenue streams: Operate or set up a Joint Venture in power smoothing; Operate or set up a Joint Venture in mass storage; License both power and mass storage; Sell consultancy in building and operating.

There are also savings (25-50%) in installation costs from standardising designs of plant and equipment, and for purchasing equipment in a production line. These will also yield efficiencies in planning, approvals, training, installation services etc. And the self-contained nature of the plant (entirely self powered, no gas supply required) will facilitate installation in locations where there is little or no gas infrastructure. Funding Subject to the availability of match funding, we can seek match funding and support “in kind” from whichever source may offer it, such as: Distribution Network Operators National Grid – Electricity Power generators, especially those involved in renewables Equipment manufacturers Civil engineering companies Owners / operators of existing salt caverns Pure financial sources

There are various government and EU funding schemes available for such work. Therefore the support we seek is very cheap: £1.45m / $2.4m (SEIS/EIS eligible) for the design phase, then a potential exit

after 2-3 years – ◊ Depending on funding, an initial sub-phase of £150k (SEIS eligible),

◊ And a follow-on sub-phase of £1.3m (EIS eligible), ◊ We are seeking public funding to support this also, which would make it

even more attractive; £28m / $40m pilot plant construction (which may also be reduced

considerably by EU and UK public funding) and early operating costs until it is upgraded, roughly half of which can be EIS eligible;

A £270m upgrade to a full plant (the most conservative estimate, likely to be considerably less) is likely to be funded by the industry.

This business case is based on just one installation, as further installations will require additional funding. Nonetheless, the financial pay-backs are remarkable and sufficient profits will be generated to finance a new installation every 5-8 years from revenues. Financial Summary The projected financial requirements and other information are:

Design phase (potentially split into £150k and £1.3m; may be reduced by public funding)

£1.45m

Equity for match funding (as a basis for this calculation) 5% Construction and proving of pilot plant (total costs, may be partly offset by public funding)

£28m

Upgrade of pilot plant (top-end estimate) £270m Year of evaluation 2016

Year 4 2018 Year 6

2020 Year 8

Project valuation £213m £337m £8.14bn Valuation of equity stake £10.7m £16.8m £407m Min. £150k investment Value of investment Return on investment

£2.26m 1,673%

£6.6m 5,181%

£36.4m 35,000%

Max. £1.45m investment Value of investment Return on investment

£13.7m 1,328%

£87.5m 8,972%

For detailed figures, see Appendix 1. Note that these figures ignore all future UK installations built by us, all overseas installations (ours or licensed) and all future income from mass storage. Principal Assumptions in the Figures These figures only look at revenue from day/night arbitrage (buying power when cheap during the 24-hour daily cycle and selling it when expensive) on currently reported hourly payments on the commercial wholesale market, with the plant working at only 60% efficiency. The figures ignore the following less quantifiable (but much larger) revenue streams, which add greatly to revenue without significantly affecting costs: Operating at the expected 70-85% efficiency; Buying cheap rate electricity being offloaded during excess generation; Selling high value short term (minutes) peak power; Payments for power availability (£6.91 per MWh available and £200.59 per

MWh used, with ~12.5% of the available being used, under the National Grid’s Balancing Mechanism, in March 2013, for 400 MWh contracted at a rate of up to 205 MW);

Forward and medium term contracts for electricity purchase and/or sale;

Contracts with renewables generators to increase the value of their electricity; Contracts with traditional generators to increase their production efficiency; Contracts with DNOs for back-up storage to their local storage schemes; License income from both used and unused patents; Consultancy income from licensees; Any future income from mass storage.

The figures also ignore future roll-outs of wholly or partly owned (e.g. Joint Venture) plants: Roll-out throughout the UK (the valuation is based on a single installation); Roll-out Europe- and world-wide.

Value of the Investment Each installation, as currently planned, will be: ½ of the capacity of Dinorwig and Ffestiniog Pumped Hydroelectric power

stations (the two parts of First Hydro Ltd www.fhc.co.uk) ~1/10 cost of Dinorwig alone First Hydro profits are £170m p.a.

◊ (which illustrates how conservative our figures are: we plan on £33.7m profits for 17 installations, instead of the £85m for a single installation as suggested by this comparison with First Hydro)

First Hydro is worth £3.5 – 5 bn (current valuation) Partners and Key Players The partners in this project are Jeff Draper and Mark Howitt.

Partner Expertise / Contribution Jeff Draper BSc ACA Physicist, Chartered Accountant, an initiator,

renewable energy expert, entrepreneur Mark Howitt BSc Physicist, management, marketing, IP, developed the

concepts to increase efficiency, set up businesses Identified key players include:

Player Expertise / Contribution Edward Greenwood An initiator, local support, liaison with Wyre Barrage.

Retired founder and MD of civil engineering contractorJim Oswald, MD, Oswald Consultancy

Expertise in thermodynamics of power generation, gas compression & fluid transmission, ex Rolls-Royce

Kieran Tarpey, MD, Entrust

Expertise in planning, environmental impact & public consultations for major green infrastructure projects

Ineos and/or British Salt

Own and operate many salt caverns in the UK, operate in 11 countries, looking to CAES involvement

Costain Engineering and contracting expertise in all relevant fields, seeking grid-scale energy storage involvement

Geoff Owen Expertise in power electrics, substations and grid connection, links with network operators

Jacobs Engineering Prime contractor with compressed natural gas storage in salt caverns, in Cheshire

Dr George Aggidis Academic and Director of Lancaster University Renewable Energy Group & Fluid Machinery Group

For brief biographies, see Appendix 2.

Political Support18 “Electricity storage has the potential to provide savings of more than £10 billion per year by 2050 – that is £400 per household” – Lord Grantchester in parliament, 18/7/13. ".... we have designed the enduring capacity market to ensure that demand reduction and storage can participate effectively by running capacity auctions both four years ahead and one year ahead of when capacity is expected to be required. …." – the Minister, Baroness Verma, in parliament 18/7/13. "Electricity demand peaks at around 60GW, whilst we have a grid capacity of around 80GW – but storage capacity of around just 3GW. Greater capability to store electricity is crucial for these power sources to be viable. It promises savings on UK energy spend of up to £10bn a year by 2050 as extra capacity for peak load is less necessary." – Chancellor of the Exchequer George Osborne, 9/11/12 “Reports from Imperial College show that the cumulative value to the UK of flexibility [in power generation] is £60bn by 2030.” “Imperial College has recently quantified that by 2020, 35% of conventional generation assets will have a load of less than 10%.”

18 http://www.electricitystorage.co.uk/. See also “The Future of Energy Storage in the UK” report published 30 June 2011, and Pathways to energy storage in the UK http://www.lowcarbonfutures.org/sites/default/files/Pathways_for_Energy_Storage_UK.pdf

Variables SCENARIO Notes

Construction Costs - Pilot Plant Construction Costs - Production PlantDesign Phase Based on using existing caverns, without Ineos or another owner's support For a 500MW plant, based on CCGT power station costsCost of Design Phase £1,450,000 However, each new location will need its own permissions and geology Additional costs: caverns, thermal storage, compression

And we will need 3 caverns per installation (2 air, 1 water) Reduced costs: gas, combustion, lighter equipmentEstimate per installation, £m: 290 £m capital costs

Construction 2 Planning, surveys inc geological, permissions Note: the upgrade may be significantly cheaperConstruction Cost £28,000,000 1 Land acquisition

2 Prepare caverns, eg pump out waterInvestor Equity Injection 18 Plant & machinerySEIS £150,000 5 Grid connectionEIS £1,300,000 28 Total capital £14.0 m per cavern

£1,450,000 2.8 5% Mtce 5% Depreciation

1.0 Operational costs p.a. per installation (see above)Power GenerationPressure variation (min-max) in cavern bar 27.0 Huntorf and Halite (proposed gas storage in the Wyre salt basin) both operate at 70 bar max, Huntorf normal minimum 43 bar. Therefore 27 bar pressure differential. Both have safety max of 100 bar.Power Generation per bar per 1M m3 MWh 110 Huntorf = 290MW for 2 hrs for 27 bar pressure drop, with 0.31 million m3. This yields 3.4 hours' power at 20MW or 1 hour at 69MW. Deduct 1/3 of energy which is from gas burn. Divide by 0.42 efficiency of HuntorfPower Generation per 1M m3 at full pressure MWh 2,970Average size of cavern M m3 0.75 Actual average of the 19 caverns is 0.767 - but we can select larger ones, in which case this figure would be up to 1.5Installed Capacity per cavern MWh 2,228 A 2 cavern installation therefore has Efficiency % 60.0% Assume that our improvement is only to 60%, rather than the 70-80% targeted. Adele is aiming for 70%Peak Generating Hours Per Day Hours 4 When capacity increases, this could extend to 4 - but at cheaper electricity sale prices.Generation capacity per installation MW 500 40Annual Output per installation GWh 700 plant per cavern: 56 GWh (=40MW x 4 hrs x 350 days p.a. / 1000)

Installations built Cumulative Locations General Notes on Construction ProgrammeYear 3 1 1 Pilot 1 installation = 500MW power plant plus the associated caverns for power smoothing (as opposed to bulk storage)Year 4 0 1 London and the SE would have to be supplied from around the countryYear 5 0 1 Total: 8 installations at 2 per installation x 500 MW/installation, ~4 GW capacityYear 6 0 1 Wyre (For Merseyside and Lancashire) Takes more time to build plant in other salt basins - and this amount of storage would be wanted in distributed format.Year 7 0 1 (Need to prove it works before authorisation / ability to proceed) Note: UK generation capacity ~60GW. A single dead calm winter's day may require 20GW x 24 hours = 480 GWh.Year 8 0 1 Power generation: F/c 2030 wind capacity 30GW, deduct 5GW pumped hydro current and planned = 50 installations of 0.5GWYear 9 0 1 Cheshire, NE corner (For Manchester, Stoke-on-Trent and Merseyside) Energy storage: 7 days' supply of 1/3 of UK demand = 3.5TWh. Each installation is 4.5 GWh x 60% efficiency = 2.7 GWh.Year 10 0 1 Therefore max required capacity of storage = 2,600 caverns in total, i.e. ultimately each installation wants 52 caverns.Year 11 0 1 E Yorkshire, SW edge (for S&W Yorks, and central N Sea wind farms)Year 12 0 1 Future Installations (potential)Year 13 0 1 Worcester (for West Midlands and South East) E Yorkshire, S end (for SE England and the E Midlands, and southern N Sea wind farms)Year 14 0 1 Somerset (for Bristol, Cardiff, M4 corridor, and Bristol Channel wind farms) N and S Staffordshire (for Stoke-on-Trent and the E & W Midlands)Year 15 0 1 Wessex, E end (for Bournmouth & Southampton / Portsmouth, & South East) Additional installation in Somerset (for S England and S Wales, and Bristol Channel wind farms)Year 16 0 1 Larne (for N Ireland and offshore wind farms) Additional installation in Wessex (for S England and English Channel wind farms)Year 17 0 1 E Yorkshire, N end (for Teesside, Newcastle, and northern N Sea wind farms)Year 18 0 1 See additional caverns / future installations, column JYear 19 0 1Year 20 0 1

1 1

SalesElectricity Value £ per MWH £66 Wholesale Electricity Price See thumbnail data, day ahead electricity price contracts (and rate of increase)Electricity Price Annual Increase % 3.0% Assumed Energy Price Rise above Inflation (We should be able to buy surplus much more cheaply, but this is worst case and top-up costs)ROC Value £ per MWH £0.00 Market Price How can we claim a Renewable Obligation, since we're not generating - only regenerating?ROC Value Annual Increase % 1.0% Assumed ROC Value Price Rise above InflationROC's per MWH 0 Renewable Obligation Certificates

Peak EnergyElectricity Value multiplier 2 This is highly conservative. Wind energy prices indicate up to 5.

Cost of Electricity for Compressing Air Cost as a % of output electricity % 65%

Operating Costs NotesAnnual Operating Costs (all caverns operational) £2,025,000 2 caverns and pilot site only This is a zero Inflation ModelAnnual Maintenance Costs (all caverns operationa£100k per cavern £1,400,000 2 caverns and pilot site only VAT on Purchases and Sales has not been included in the model at this stageLoan Interest Rate % 10% - therefore 5% amortisation + 5% maintenance The model does not include Creditors and Debtors at this stage, transactions are assumed to be immediate.Loan Repayment Term Years 5 Maximum 5 years from initial drawdown No Depreciation or Amortisation has been included.Overdraft Interest Rate % 10% Interest rates are currently at historical lows

Rate of Corporation Tax 25% Not yet at 20%, future gov'ts may put it up

This version shows pay‐backs on a single installation

Appendix 1

Detailed Financials Cost and Sales Variables, Construction Costs, Notes on the Accounts

Business Summary, Valuation and Return on Investment

Year No. 1 4 6 8Year of Valuation 2013 2016 2018 2020

Patents (qty) 8 15 20 20Patent value each £ 400,000 1,000,000 5,000,000 5,000,000Forecast profit before interest, 2 years' time, discounted by 90% £ 3,519,065Forecast profit before interest, 2 years' time, discounted by 80% £ 7,269,824Profit before interest £ 36,349,121License income p.a. @5% of 50 further installations £ 90,872,802Profit Multiplier (Dinorwig multiplier is ~30) 10 10 10Business Valuation £ 3,200,000 50,190,651 172,698,242 1,372,219,228Investment

% of Equity for Investment 5% 10% 15% 25%Money paid for stake £ 150,000 1,300,000 28,000,000 290,000,000Project valuation including new investment £ 3,350,000 51,490,651 200,698,242 1,662,219,228Value of Equity based on Project Valuation (£m) if realising now £ 167,500 5,149,065 30,104,736 415,554,807Return on Investment

Following dilution Initial stake is now 5.00% 4.50% 3.83% 2.87%2nd investment is now 10.00% 8.50% 6.38%3rd investment is now 15.00% 11.25%

Return on Investment Initial £150k 1,673% 5,181% 34,992%Stake worth £ 2,258,579 6,605,708 39,365,539 Next £1.3m 1,328% 8,972%Stake worth £ 14,679,351 87,478,976 Next £28m 735%Stake worth £ 154,374,663

Note: equity disbursed 5.00% 14.50% 27.33% 45.49%These ignore all future UK installations built by us, all overseas installations (ours or licensed) and all future income from mass storage Net profit before interest £millionYear 10 £39Year 20 £53Year 30 £73Year 40 £99Total for first 40 years of project £2,111

Operational Costs, Per Installation and Head Office Operational costs p.a. per installation, £k Head office Costs - fixed

£k each Qty £k total (All-in costs of employment) £k total Including on-costs of employment60 1 60 Eng / Mtce Mgr 200 Directors50 4 200 Eng / mtce staff 80 Electricity trader30 1 30 Admin 80 Engineering director

200 Rent, rates, equipment, expenses etc. 60 Project Manager Additional staff will be needed for overseas development100 Transit rights from landowners; Crown Estate 200 Project Engineers x 2, procurement x 2, planning/admin, at average £40k each200 Professional support (IT, trading etc.) 30 Admin / reception Extra staff are on the variable precept100 Additional fuel (top-up heat: bleeding off 60 IT manager Staff are on the variable precept

some electricity output, at cost) 60 Finance100 Consumable costs, e.g. lubrication, de-icing 60 Operations Manager990 50 Publicity / marketing / guide

50 Health and Safety Manager300 Rent, rates, mtce, equipment, office expenses etc.

300 Travel, publicity, related expenses etc.1530

Note that head office costs are only relevant as and when additional installations are planned, and are therefore not accounted for in the financials of this single-installation scenario. Principal Assumptions in the Figures

These figures only look at revenue from day/night arbitrage (buying power when cheap during the 24-hour daily cycle and selling it when expensive) on currently reported hourly payments on the commercial wholesale market, with the plant working at only 60% efficiency. The figures ignore the following less quantifiable (but much larger) revenue streams, which add greatly to revenue without significantly affecting costs:

Operating at the expected 70-85% efficiency; Buying cheap rate electricity being offloaded during excess generation; Selling high value short term (minutes) peak power; Payments for power availability (£6.91 per MWh available and £200.59 per MWh used, with ~12.5% of the available being used, under the

National Grid’s Balancing Mechanism, in March 2013, for 400 MWh contracted at a rate of up to 205 MW); Forward and medium term contracts for electricity purchase and/or sale; Contracts with renewables generators to increase the value of their electricity; Contracts with traditional generators to increase their production efficiency; Contracts with DNOs for back-up storage to their local storage schemes; License income from both used and unused patents; Consultancy income from licensees; Any future income from mass storage.

The figures also ignore future roll-outs of wholly or partly owned (e.g. Joint Venture) plants:

Roll-out throughout the UK (the valuation is based on a single installation); Roll-out Europe- and world-wide

Cash Flow – First 15 Years Storelectric Ltd40 YEAR PROJECTIONS Generating

Design Phase Construction1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

CASH FLOW Totals 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Opening Balance b/f 0 54,950 684,450 450 9,402,553 14,401,331 19,103,876 54,400,959 81,952,417 110,407,481 139,793,260 170,137,674 201,469,484 233,818,310 267,214,664

RECEIPTSElectricity Generated 6,394,361,879 8,077,438 8,319,761 8,569,354 110,330,432 113,640,345 117,049,556 120,561,042 124,177,873 127,903,210 131,740,306 135,692,515 139,763,291ROC Value 0CO2 Saving - Carbon Credit 0Investor Equity Injection 299,450,000 150,000 1,300,000 28,000,000 10,000,000 130,000,000 130,000,000 Highlighting the stages of investmentCommercial Loan 0

TOTAL RECEIPTS 6,693,811,879 150,000 1,300,000 28,000,000 18,077,438 138,319,761 138,569,354 110,330,432 113,640,345 117,049,556 120,561,042 124,177,873 127,903,210 131,740,306 135,692,515 139,763,291

DESIGN PHASE & CONSTRUCTION Design Phase 1,449,550 95,050 670,500 684,000Construction 278,000,000 28,000,000 0 125,000,000 125,000,000 0 0 0 0 0 0 0 0 0

FUNDING COSTSLoan Interest Costs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Capital Repayments 0 0Overdraft Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

COST OF SALESInput electricity 0 0 0 5,250,335 5,407,845 5,570,080 71,714,781 73,866,224 76,082,211 78,364,677 80,715,618 83,137,086 85,631,199 88,200,135 90,846,139

OPERATING COSTSOperating Costs 74,925,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000Maintenance Costs 51,800,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000Corporation Tax 502,713,864 0 0 0 -511,862 -128,271 -106,432 8,797,663 9,087,280 9,385,586 9,692,841 10,009,314 10,335,281 10,671,027 11,016,845

TOTAL PAYMENTS 5,065,223,635 95,050 670,500 28,684,000 8,675,335 133,320,983 133,866,809 75,033,349 86,088,887 88,594,491 91,175,264 93,833,459 96,571,400 99,391,480 102,296,162 105,287,984

Monthly Inflow / (Outflow) 1,628,588,244 54,950 629,500 -684,000 9,402,103 4,998,778 4,702,545 35,297,083 27,551,458 28,455,064 29,385,779 30,344,415 31,331,809 32,348,826 33,396,354 34,475,307

Closing Balance c/f 1,628,588,244 54,950 684,450 450 9,402,553 14,401,331 19,103,876 54,400,959 81,952,417 110,407,481 139,793,260 170,137,674 201,469,484 233,818,310 267,214,664 301,689,970

Profit and Loss, First 15 Years Storelectric Ltd

40 YEAR PROJECTIONS Generating

Design Phase Construction1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

PROFIT & LOSS ACCOUN Totals 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

SALESElectricity Generated 6,394,361,879 0 0 0 8,077,438 8,319,761 8,569,354 110,330,432 113,640,345 117,049,556 120,561,042 124,177,873 127,903,210 131,740,306 135,692,515 139,763,291ROC's 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Carbon Credits 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Total 6,394,361,879 0 0 0 8,077,438 8,319,761 8,569,354 110,330,432 113,640,345 117,049,556 120,561,042 124,177,873 127,903,210 131,740,306 135,692,515 139,763,291

COST OF SALESInput electricity 4,156,335,221 0 0 0 5,250,335 5,407,845 5,570,080 71,714,781 73,866,224 76,082,211 78,364,677 80,715,618 83,137,086 85,631,199 88,200,135 90,846,139

GROSS PROFIT 2,238,026,658 0 0 0 2,827,103 2,911,916 2,999,274 38,615,651 39,774,121 40,967,344 42,196,365 43,462,256 44,766,123 46,109,107 47,492,380 48,917,152

COSTSDesign Phase 1,449,550 95,050 670,500 684,000 0 0 0 0 0 0 0 0 0 0 0 0

Operating Costs 74,925,000 0 0 0 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000 2,025,000Maintenance Costs 51,800,000 0 0 0 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000

Total 128,174,550 95,050 670,500 684,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000 3,425,000

EBITDA 2,109,852,108 -95,050 -670,500 -684,000 -597,897 -513,084 -425,726 35,190,651 36,349,121 37,542,344 38,771,365 40,037,256 41,341,123 42,684,107 44,067,380 45,492,152

Loan Interest Costs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Overdraft Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

NET PROFIT BEFORE TAX 2,109,852,108 -95,050 -670,500 -684,000 -597,897 -513,084 -425,726 35,190,651 36,349,121 37,542,344 38,771,365 40,037,256 41,341,123 42,684,107 44,067,380 45,492,152

Corporation Tax 527,463,027 -23,763 -167,625 -171,000 -149,474 -128,271 -106,432 8,797,663 9,087,280 9,385,586 9,692,841 10,009,314 10,335,281 10,671,027 11,016,845 11,373,038

NET PROFIT AFTER TAX 1,582,389,081 -71,288 -502,875 -513,000 -448,423 -384,813 -319,295 26,392,988 27,261,841 28,156,758 29,078,524 30,027,942 31,005,843 32,013,080 33,050,535 34,119,114

Balance Sheet, First 15 Years Storelectric Ltd40 YEAR PROJECTIONS Generating

Design Phase Construction1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

BALANCE SHEET 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

FIXED ASSETSProperty 0 0 12,600,000 12,600,000 68,850,000 125,100,000 125,100,000 125,100,000 125,100,000 125,100,000 125,100,000 125,100,000 125,100,000 125,100,000 125,100,000Plant & Machinery 0 0 14,000,000 14,000,000 76,500,000 139,000,000 139,000,000 139,000,000 139,000,000 139,000,000 139,000,000 139,000,000 139,000,000 139,000,000 139,000,000Fixtures & Fittings 0 0 1,400,000 1,400,000 7,650,000 13,900,000 13,900,000 13,900,000 13,900,000 13,900,000 13,900,000 13,900,000 13,900,000 13,900,000 13,900,000

Total 0 0 28,000,000 28,000,000 153,000,000 278,000,000 278,000,000 278,000,000 278,000,000 278,000,000 278,000,000 278,000,000 278,000,000 278,000,000 278,000,000

CURRENT ASSETSStock 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Trade Debtors 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Cash At Bank and in Hand 54,950 684,450 450 9,402,553 14,401,331 19,103,876 54,400,959 81,952,417 110,407,481 139,793,260 170,137,674 201,469,484 233,818,310 267,214,664 301,689,970

Total 54,950 684,450 450 9,402,553 14,401,331 19,103,876 54,400,959 81,952,417 110,407,481 139,793,260 170,137,674 201,469,484 233,818,310 267,214,664 301,689,970

less CURRENT LIABILITIESTax -23,763 -191,388 -362,388 -511,862 -128,271 -106,432 8,797,663 9,087,280 9,385,586 9,692,841 10,009,314 10,335,281 10,671,027 11,016,845 11,373,038Accruals & Deferred income 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Total -23,763 -191,388 -362,388 -511,862 -128,271 -106,432 8,797,663 9,087,280 9,385,586 9,692,841 10,009,314 10,335,281 10,671,027 11,016,845 11,373,038

NET CURRENT ASSETS 78,713 875,838 362,838 9,914,415 14,529,602 19,210,308 45,603,296 72,865,137 101,021,895 130,100,419 160,128,360 191,134,203 223,147,283 256,197,818 290,316,932

less FIXED LIABILITIESCommercial Loan 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Total 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL NET ASSETS 78,713 875,838 28,362,838 37,914,415 167,529,602 297,210,308 323,603,296 350,865,137 379,021,895 408,100,419 438,128,360 469,134,203 501,147,283 534,197,818 568,316,932

FINANCED BY:-CAPITAL & RESERVESOpening Balance b/f 0 78,713 875,838 28,362,838 37,914,415 167,529,602 297,210,308 323,603,296 350,865,137 379,021,895 408,100,419 438,128,360 469,134,203 501,147,283 534,197,818Investor Equity Injection 150,000 1,300,000 28,000,000 10,000,000 130,000,000 130,000,000 Highlighting the 0 0 0 0 0 0 0 0Retained Profit for Year -71,288 -502,875 -513,000 -448,423 -384,813 -319,295 26,392,988 27,261,841 28,156,758 29,078,524 30,027,942 31,005,843 32,013,080 33,050,535 34,119,114TOTAL FUNDS 78,713 875,838 28,362,838 37,914,415 167,529,602 297,210,308 323,603,296 350,865,137 379,021,895 408,100,419 438,128,360 469,134,203 501,147,283 534,197,818 568,316,932

Appendix 2

Brief Biographies Jeff Draper BSc(Hons) ACA Chartered Accountant, qualifying with Arthur Andersen in 1987. Joint Honours degree in Mathematics and Physics at Manchester University. Partner in accountancy firm, specialising in audit. Built up and sold award-winning 70 branch enterprise from 1997-2005. Built up own large property portfolio of over 30 commercial units. Extensive experience in preparation and management of annual budgets for large companies, monthly management accounts / forecasts and profitability analysis, raising finance and exit routes. Proven track record in business development, especially engineering projects. Expert in UK renewable energy infrastructure and strategy. Jeff’s combination of both strong financial and scientific skills and experience gives him a valuable and rare insight into the financial and scientific factors that need to be overcome to make present-day renewables projects commercially viable. Mark Howitt BSc(Hons) BSc (Hons) Physics with Electronics at UMIST. Member of Chartered Management Institute, and Institute for Enterprise & Entrepreneurship. A dynamic and experienced business consultant and senior manager with a proven track record of success within many market sectors and functions. Both commercially and technically innovative and results orientated. Strong skills and well balanced track record of success in strategic planning, operational leadership, business improvement, R&D, marketing, manufacturing, procurement and supply chain, sales and capital investment. Set up three business units for Bombardier Transportation, in non-destructive testing (for which he initiated and managed the R&D), workshop engineering and logistics. Immense number and range of contacts in diverse industries. Currently working as an innovation, marketing and management consultant primarily in renewable energy, energy storage, electrical products and chemicals. Was SME Project Manager of an EU financed R&D and commercialisation programme. Advisor on retaining intellectual property for renewable energy. Managed multi-site, multi-functional teams including technical experts in diverse fields. Edward Greenwood Higher National Certificate in Mechanical and Structural Engineering. Marine engineer officer in the merchant navy. Managing Director of Archbell Greenwood Limited, providing structural steelwork, complete buildings, chemical and industrial plants and public buildings. The company was a sub-contractor and also a main contractor on large structural and civil engineering works for organisations such as BNFL and ICI. Also a director of Brown & Jackson Plc, now Instore Plc. Oswald Consultancy Ltd Oswald Consultancy has expertise in thermodynamics of power generation, gas compression and fluid transmission, most employees having worked previously in the division of Rolls-Royce that designs and manufactures gas turbines and related equipment for both power generation and pumping gas through the gas grid. Experts in heat transfer and heat exchangers, stress (including thermal and gas turbine stress), heat loss and the monitoring and extension of turbine life. See www.oswald.co.uk

Entrust Ltd Entrust’s highly experienced multi-disciplinary team of chartered town planners, environmental and landscape consultants has considerable experience of renewable energy, telecommunications and infrastructure planning matters. They can manage all stages of a proposal; pre-planning constraints analysis/feasibility, planning application submission and project management throughout the planning process, EIA and public consultation if required. They have built up credibility and integrity with local planning authorities with whom they work on a daily basis right across the UK & Ireland. The key to their successful growth has been their track record at delivering excellent results very efficiently, our quality of service, expert specialist knowledge, project management capability, innovation and the professionalism in their approach. www.en-trust.co.uk Ineos Plc From the website: “Through the process of solution mining we produce around 45,000 m3 of brine and create around 10,000 m3 of storage space each day, equivalent to over 350,000 m3 of storage space per year. “Partnered with energy utility companies, the Brine & Water Business continues to develop a number of natural gas storage facilities using salt cavities created by the solution mining of brine. This area of Cheshire is one of the few locations within the UK that has very favourable geology with the potential to create energy storage caverns. This provides the opportunity to balance the gap between wind energy electrical generation and consumer demand, an important strategic element in the UK’s long term energy plan.” Ineos seek to develop CAES in their existing salt caverns in the Northwich brinefield. http://www.ineos.com/en/businesses/INEOS-Enterprises/Portfolio/, and are in advanced discussions with us on working together. British Salt – Tata Chemicals British Salt also operate salt caverns in the Cheshire Salt Basin and, owning Brunner Mond, have an outlet for the salt so produced. They too have longstanding involvement in partnership with natural gas storage operators, and further vacant caverns which they can use for CAES. We are in discussions about working together. www.british-salt.co.uk Costain Plc Costain have long engineering and contracting experience in all of the relevant industries, including: Renewables generation; Traditional power generation; Natural gas storage; Electricity distribution and substations; Civil works (building, ground works, infrastructure); Other relevant industries.

They are keen to be involved in projects developing grid-scale energy storage solutions, and are in advanced discussions with us on working together. http://www.costain.com/engineering-tomorrow/power/meeting-the-need.aspx

Jacobs Engineering Group Jacobs Engineering Group is one of the world’s largest and most diverse providers of professional technical services. Jacobs is a leading consultant of mechanical, electrical, structural, civil and architectural design for the energy and distribution markets. They provide designs for mechanical/electrical plants, power plants and electrical transmission systems. Consulting services include process assessments, facility appraisals, feasibility studies, technology evaluations, project finance structuring and support. They are active in the development of renewable technologies, including energy storage infrastructure and connection to Grid. Jacobs provides full-service engineering, design, construction, modular fabrication, maintenance, and construction management services to clients. They are main contractors for the Storengy Stublach natural gas storage site which stores the natural gas at pressures of up to 100 bar in salt caverns. Work involved constructing offices, installing plant and equipment and creating salt caverns by solution mining. This is very analogous to the installation that we propose. www.jacobs.com Geoff Owen Geoff Owen has expertise in high voltage systems and electrical grid connection. He is a grid connection engineer with over 30 years’ experience of working in the grid connection industry, previously based with United Utilities, Scottish Power, Central Networks and Envirolink. Dr G A Aggidis – Lancaster University Dr George A. Aggidis BEng(Hons), MSc, PhD, CEng, CMarEng, Eur Ing FIMarEST, FEI, FIMechE, FIET, is a Senior Lecturer in Engineering at Lancaster University, UK, and Director of Lancaster University Renewable Energy Group & Fluid Machinery Group. His previous career included 25 years industrial and academic experience, of which 9 years were abroad. Director and Engineering Development Manager for the Fluid Machinery, and Hydropower UK company, Gilbert Gilkes & Gordon Ltd. He has research, design, development and patent contributions in the field of fluid machinery, and renewable energy, developed turbines for hydro power generation projects and has physical research prototypes of fluid machinery operating successfully worldwide, and a number of patents for power generation fluid machinery. George has actively supported this project and has offered to continue to do so. To date he and Lancaster University have not charged for this support. Martin Brewin – Lancaster University 4th Year Sustainable Engineering student at Lancaster University, on course to achieve a First-class Honours degree qualification. He spent a large part of last year working on his 3rd year project under the supervision of Dr George Aggidis, looking into the 'Feasibility of Hydro Pumped Storage Systems Utilising Underground Cavities' which received a First-class grade and on which he is now writing a paper for publishing in the near future. He also worked this year on a placement project looking into renewable energy storage, with the directors. Luke Batten – Lancaster University Final Year Physics student at Lancaster University, on course to achieve a First-class Honours degree qualification. He is interested in the various applications of mathematics through physics to real-world practical application, particularly in the area of patent applications. He worked this year on a placement project looking into renewable energy generation and storage, with the directors.

Appendix 3

Letter of Support from UCLAN (University of Central Lancashire)

Letter of Support from UCLAN (continued)

Letter of Support from Oswald Consultancy

Appendix 4

Map of British Salt Basins With selected towns, and both current and planned Offshore Wind Farms

● Manchester

● Blackburn

● Wolverhampton

● Cardiff

● Southampton

● Kingston upon Hull

● Newcastle upon Tyne

● Middlesbrough

● Leeds

● Sheffield

● London

● Belfast

● Stoke-on-Trent

● Birmingham

● Bristol

● Bournemouth

● Liverpool

Appendix 5

Projections with Further Installations and Mass Storage For the sake of prudence, all of the above is based on a single installation, ignoring: All future UK installations built by us, All overseas installations (ours or licensed), and All future income from mass storage

In order to indicate the full potential of this business, the following incorporates estimates relating to all these factors.

For the UK only, Return on Investment £Billion

Total investment required (10 year 10% bonds) 9.80

Total cost of construction 19.50

Cumulative profits during construction phase (10 years) 27.18

Valuation of business at end of construction 250.02 (based on average energy sector pe)

Return on investment at end of construction phase (10 years) 2551%

Profitability £BillionYear 5 £0.23Year 10 £5.46Year 40 £13.69Total for first 40 years of project £289.14

Sensitivity to Electricity Price Annual Increases (above inflation)

Electricity Price Annual Increase 3% 5% 7%

Cumulative profits over f irst 40 years 289 442 757

Valuation of business at year 40 589 1,145 2,403 (based on average energy sector pe) Continental Europe is 5-6 times the size of the UK.

The world is 10-100 times the UK, depending on availability of suitably located salt basins.

Note that only one of the ten British salt basins (the Yorkshire one, which extends as far as Lithuania, and from north Denmark to north Netherlands) is large enough to figure on this map, which suggests that there may be ten times the number of suitable basins if we include the smaller ones. Many of these salt basins are at least partly offshore, which does not provide a problem. Where close to the shore (e.g. close to the major cities of Brazil and New England), diagonal drilling is easy. Where beyond suitable distances for diagonal drilling, offshore petrochemical technologies will work very well – and with a fraction of the required safety systems. There are, however, other investigations focusing on using subterranean aquifers, depleted gas and oil fields, and other rocks, for storing compressed air. Our patents cover all of these options too. December 2013