 Summary
Presentation ENVIRONMENTAL POWER CORPORATION (NASDAQ: EPG) Underwriter – B.C. Ziegler and Company Member SIPC and FINRA Environmental Power Corporation has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents Environmental Power has filed with the SEC for more complete information about Environmental Power and this offering You documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, Environmental Power and the underwriter will arrange to send you the prospectus if you request it by calling (888) 884-8339. A copy of the most recent prospectus may also be found by clicking on the following hyperlink: Prospectus Issuer Free Writing Prospectus Filed Pursuant to Rule 433 Registration Statement on Form S-1 No. 333-158286 |
 ENVIRONMENTAL POWER CORPORATION SAFE HARBOR STATEMENT The Private Securities Litigation Reform Act of 1995, referred to as the PSLRA, provides
a "safe harbor" for forward-looking statements. Certain
statements contained in this presentation, such as statements concerning planned manure-to-energy systems, our sales pipeline, our backlog, our projected sales and financial performance,
statements containing the words "may," "assumes,"
"forecasts," "positions," "predicts," "strategy," "will," "expects," "estimates," "anticipates," "believes," "projects," "intends," "plans," "budgets,"
"potential," "continue," "targets" "proposed," and variations thereof, and other statements contained in this presentation regarding matters that are not historical facts are forward-looking statements as such term is defined in the PSLRA. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially include, but are not limited to: uncertainties involving development-stage companies, including our ability to continue as a going concern; uncertainties regarding project financing, the lack of binding commitments and/or the need to negotiate and execute definitive agreements for the construction and financing of projects, the sale of project output, the supply of substrate and other requirements and for other matters; financing and cash
flow requirements and uncertainties; inexperience with the development of
multi-digester projects; risks relating to fluctuations in the price of commodity fuels like natural gas, and our inexperience with managing such risks; difficulties involved in developing and executing a business plan; difficulties and uncertainties regarding acquisitions; technological
uncertainties; including those relating to competing products and
technologies; risks relating to managing and integrating acquired businesses; unpredictable developments; including plant outages and repair requirements; the difficulty of estimating
construction, development, repair and maintenance costs and timeframes; the
uncertainties involved in estimating insurance and implied warranty recoveries, if any; the inability to predict the course or outcome of any negotiations with parties
involved with our projects; uncertainties relating to general economic and
industry conditions, and the amount and rate of growth in expenses; uncertainties relating to government and regulatory policies and the legal environment; uncertainties relating to the availability of tax credits, deductions, rebates and similar incentives; intellectual property issues; the
competitive environment in which Environmental Power Corporation and its subsidiaries operate and other factors, including those described in the prospectus relating to the offering to which this presentation relates, well as in other filings we make with the
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date that they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 1 |
 2 Proven Company • Environmental Power Corporation (EPC) owns and operates proven, commercial-scale renewable energy facilities producing a versatile methane-rich biogas from waste products consisting of agricultural livestock and other organic wastes. • EPC has a proven track record and is a leader in the biogas based renewable energy market and evolving carbon credit market. Market Drivers First-mover Status Unique Offering – Projects “Ready to Go” • Unique opportunity to provide project dedicated funds at a market coupon rate and participate in equity upside. • High and volatile energy prices, growing renewable energy demand (RPS), increasing environmental concerns (carbon emissions) and increasing regulation of agricultural waste have led to increased interest in EPC’s renewable product. EXECUTIVE SUMMARY |
 PROCESS
OVERVIEW 3 |
 ADVANTAGES OF BIOGAS Versatility Biogas can be used to displace an array of conventional fuels Infrastructure already exists compared to other renewables Renewable Waste to Energy Good for Environment High Economic Efficiency Output Available 24/7 Security of Support Income Alternative Provides income diversification and cost savings for farmers Reduces dependence on fossil fuels and is a domestic supply of energy Produces energy when needed, unlike wind and solar, which are intermittent Does not require government subsidies Production efficiency is significantly higher than other biofuels Addresses farms nutrient management concerns Biogas process sequesters methane; 21x the effect of carbon dioxide as greenhouse
gas Waste products (manure and other organic wastes) are the feedstock and
not dependent on food crops Non-depleting asset utilizing waste streams 4 |
 CONFLUENCE OF AGRICULTURE AND ENERGY Solutions that are clean, proven, cost-effective and operate at the confluence of the
agriculture and energy markets. 5 • Agriculture – Outsourcing of manure management issues – Alignment of long-term interest • Reduced farm operating/capital costs • Lease payment for the site of facilities • Project profit sharing with local farmers – By-products can be used as bedding for animals and liquid fertilizer add value to farm; potential third-party sales • Energy – Useful renewable energy product (Renewable Portfolio Standards, state mandates, Renewable Energy Credits, etc.) – Most projects expected to qualify for salable carbon credits Environment |
 EPC AS A RENEWABLE E &P PLAY • EPC is essentially a renewable exploration and production natural gas company
with some key differences: - No exploration risk - No drilling risk - No dry holes - Non-depleting resources Also an active participant in the evolving carbon credit market 6 EPC produces pipeline-quality natural gas… with renewable attributes. |
 OPERATING FACILITIES Huckabay Ridge • Largest Renewable Energy Gas ® (RNG ® ) facility of its kind in North America • Commercial operation: January 14, 2008 • 635,000 MMBtu/year RNG ® production target – Enough natural gas to heat approximately 7,000 midwestern homes for the winter 7 Huckabay Ridge Stephenville, TX Operational: Q1 2008 635,000 MMBtu/year Norswiss Facility Rice Lake, WI Operational: Q4 2005 850kw Wild Rose Facility La Farge, WI Operational: Q2 2005 750kw Five Star Facility Elk Mound, WI Operational: Q1 2005 750kw |
 STRATEGIC RELATIONSHIPS 8 Cargill – Provider of food, agricultural and other products and services Business Development Agreement to accelerate market penetration PG&E – Distributor of natural gas and electricity focused on renewable energy Long-term purchase and gas distribution agreements Provides off-take and pipeline access in critical markets Dairyland Power – Provider of electricity generation and transmission services Biogas offtake on three initial facilities in Wisconsin (proven platform for biogas production and electric generation) Xergi A/S - Danish contractor and O&M operator of energy and environmental plants Provides EPC’s anaerobic digestion technology Texas Gas Service – Third largest natural gas distribution company in Texas Established agreement to purchase RNG from Texas projects Xcel Energy – A leading electricity and natural gas energy company Comprehensive portfolio of energy-related products and services with regulated operations in eight western and midwestern states ® |
 Micky Thomas Senior VP & Chief Financial Officer Dennis Haines VP & General Counsel Michael Hvisdos Executive VP Growth Team Mike Newman VP Operations Rich Kessel CEO and President EPC and Microgy, Inc. LEADERSHIP TEAM 9 Finance Accounting Treasury Human Resources IT Project Cost Control Investor Relations Public Relations Corporate Secretary Legal Ethics Risk Management Insurance E/H/S/Q Government Affairs Growth Team Business Development Market Development Project Development Project Execution Strategic Alliances Carbon Strategy Operations Plant Operations Substrate Logistics Plant Betterment Plant E/H/S |
 PROJECTS “READY TO GO” 10 Debt financing in place • To date, $130 million of tax-exempt debt financing has been raised from
institutional lenders in support of construction of these projects.
• Investors in the 2006 Texas bond issue purchased California bonds in September 2008
(Release of California and certain Texas bond proceeds remains subject to
satisfaction of certain performance and further financing conditions).
• Tax-exempt debt financing required analysis by independent third-party
experts. – Economic analysis – SJH, a leading Ag Consultant – Technical/operational analysis – RW Beck, a leading independent engineering consulting firm Permits in place • All necessary permits to begin construction are in place for identified Texas,
California and Nebraska projects. Revenue streams secured • Gas offtake agreements are in place for stability of revenue streams reflecting premium,
“green” attributes of our natural gas. • When these projects are operational, targeted 2010, EPC expects to have an annualized
revenue stream of $40 million. |
 PROJECT
PIPELINE 11 Facility Location Type Annual Energy Production Notes Mission Texas RNG ® 635,000 Project Debt Financing obtained; permitted Rio Leche Texas RNG ® 635,000 Project Debt Financing obtained; permitted Cnossen Texas RNG ® 635,000 Project Debt Financing obtained; permitted Hanford Cluster California RNG ® 732,000 Project Debt Financing obtained; permitted Bar 20 California RNG ® 601,000 Permitted; in financing Riverdale Cluster California RNG ® 621,000 Project Debt Financing obtained; permitted Cargill 1 Idaho RNG ® 550,000 Option Agreements executed Cargill 2 Colorado RNG ® 365,000 Option Agreements executed Swift-Grand Island Nebraska Inside- the-fence 235,000 Project Debt Financing obtained; permitted Total Announced Projects 5,009,000 Notes 1. Additional 10,700,000 MMBtu under development 2. All amounts in MMBtu/year sales |
 PROJECT
ECONOMIC HIGHLIGHTS 12 Long/medium-term natural gas sales agreements • We use long/medium-term gas sales agreements with fixed prices recognizing “green” value of our gas to provide certainty of revenue streams. Carbon credit revenue opportunity • In the current U.S. voluntary market, we see $2.00 to $7.00/metric ton depending on
demand. Utility executives are planning on $12.00 to $30.00/metric ton under
proposed mandatory markets; market will dictate price. • Typical lagoon-based 635,000 MMBtu project is expected to produce 75,000 – 250,000 metric tons of carbon offsets per year, depending upon final protocols. Waste-based feedstocks used to create biogas • Manure – We typically get manure for free from the farm or industry. • Substrate (organic materials) – We pay transport, but may get tipping fee for partial offset. Potential by-product value • Solids – third-party discussions as a peat replacement or as an eco-friendly building
product • Liquids – fertilizer without odors, seeds or pathogens and in more suitable form to meet
permit requirements |
 TARGETED PROJECT ECONOMICS 13 • Subsidies are not assumed in project economic forecasts compared to other industries, such as ethanol, biodiesel, etc. • Long/medium-term off-take RNG ® agreements recognizing premium value of RNG ® • Finance with combination of equity and debt – Cross-collateralization and revenue pooling to create portfolio
diversification – Tax-exempt financing: target 80% debt / 20% equity • Long-term alignment of interest with project participants • Targeted project economics provide: – Attractive returns – Further upside potential should subsidies be established similar to other renewable and clean energy sources |
 Fixed-rate tradeable security Fixed-rate debt fully registered with the SEC and unrestricted from trading (though not listed and no developed trading market) Senior to holding company equity Debt has seniority in the holding company capital structure, ahead of the existing convertible preferred stock and common stock Dedicated project funding With $130 million in project financing already raised, money raised in this offering will go to costs and expenses related to facility construction/operations Contracts and permits in place Contractors pre-qualified, permits obtained and site arrangements secured for the next seven projects Convertible equity at 2008 price Debt convertible into common equity at a minimum conversion price achieved in summer 2008 Transition to operating company When construction of the seven permitted facilities is complete (anticipated to be in 2010), EPC annual revenues expected to be greater than $40 million Carbon credit revenue Likely transition to mandatory market could significantly increase EPC revenue opportunity Substantial potential market U.S. dairy, cattle and hog farms can take advantage of this cost- effective environmental waste management solution DEBT CONVERTIBLE INTO COMMON EQUITY 14 |
 UPDATE
TO SUMMARY PRESENTATION Overall Message: We believe momentum is growing for our business model… more certainty as to key initiatives since six months ago. 15 |
 UPDATE
TO SUMMARY PRESENTATION (CONTINUED) 16 • Huckabay operating performance: Reliable operations being experienced. RNG ® production levels are meeting expectations at volatile solid concentration levels. • National emphasis on renewables - Political pressure has greatly increased at the federal level to promote technologies that reduce carbon emissions, including an increased emphasis on
the production of renewable electricity. – Mandatory Cap and Trade program being pursued – National Renewable Electricity Standard (Replaces RPS program) – Renewable Fuel Standards: Increasing LNG/CNG marketplace demand – Federal support for Renewable Gas Incentive: Provides parity with other
renewables – Federal stimulus funds being pursued • Xergi, our Danish technology partner, renegotiated the license agreement and acquired $3
million of our 14% convertible notes of the type being offered. – We believe this reflects a knowledgeable party’s commitment to EPC’s business model and growth. • Xcel Energy, an electric and gas utility operating in eight western and midwestern states, entered into an agreement to purchase 916,000 MMBtu per year of our RNG ® from a new Colorado facility, for a ten-year period renewable for an additional ten years, at a premium to the
market. – We believe this reinforces the premium value of our RNG ® product; priced based on the cost of other alternative renewables. • Funds raised by Ziegler in March 2009 under similar terms as this offering are being
deployed for Texas projects. • Marathon capital is being utilized to manage a parallel process, to complement funds raised by Ziegler . |
 OPERATING PERFORMANCE AT HUCKABAY RIDGE 17 Huckabay is operating reliably with production levels at expectation based on volatile solid concentrations. Comprehensive upgrades complete • Consistent operations in meeting specifications for pipeline grade RNG ® - CO2 – Less than 10% of the limit, H2S – 5% to 15% of the limit, and H2O – 40% to 50% of the limit • Ability to manage fluctuations in biogas production, as well as varying ambient
conditions Reliability • Huckabay Ridge has produced salable gas with a high degree of reliability since the beginning of
April Production • Production levels improving with reliable operations; RNG ® production equal to or higher than expectations based on volatile solid concentrations being realized Focus • Feedstock being optimized to achieve maximum RNG ® production, replacing volatile solid feedstock supply, temporarily affected by the recession: - New suppliers identified and being qualified - Environmental permit being expanded to allow for non-food based substrate
feedstock - 3 generation design criteria for all new projects utilizes lower volatile solid concentration as baseline (should previous levels be experienced, more RNG ® will be produced for same design volume) rd |
 NATIONAL EMPHASIS ON RENEWABLE ENERGY 18 • Mandatory Cap & Trade - Waxman-Markey Bill (HR 2454) approved by House Energy & Commerce Committee – Economy-wide program beginning in 2012, with a cap on emissions at 17% below 2005
levels by 2020 (83% by 2020). Senate version of bill in earlier committee stages. – Full vote on House bill expected this summer – Floor price on allowances of $10.00, with a 1st year ceiling of $28.00 – Adds more certainty and definition to carbon offset market • National Renewable Electricity Standard – HR2454 requires utilities to produce 15% of electricity from renewable sources by 2020. Renewables broadly defined to include biogas. Senate version in earlier committee stages. – Supplements state mandates and broadens market demand for our RNG ® product • Renewable Fuels Standard – 2009 RFS increased to 10.21% (at least 11.1 billion gallons of renewable fuels to be blended into transportation gasoline). 2008 RFS was 7.76%.
By 2022, 36 billion gallons required (more than 3 times 2009 levels). – Potential increases in demand for RNG ® as an LNG/CNG product |
 SIGNIFICANT LEGISLATIVE FUNDING POTENTIAL; TAX CREDIT OR INVESTMENT GRANT 19 • Senate Bill S306 (Nelson, D-NE) and House Bill HR1158 (Higgins, D-NY) have
been introduced into Congress, which if enacted will provide a $4.27 per
MMBtu production tax credit for renewable gas produced by manure-based projects such as ours, for a period of ten years. Alternatively, a 30% investment grant may also
be available. – S306 Supporters – 10: Co-sponsors including Hatch (R-UT), Stabenow (D-MI), Wyden (D-OR) – HR 1158 Supporters – 22: Co-sponsors including Lewis (D-GA), Radanovich (R-CA), Roskam (R-IL) – Bi-partisan support of our production tax credit • A broad coalition has been formed, including such firms as Gas Technology Institute, American Gas Association, Waste Management and utilities such as PG&E and Sempra, to support this initiative. • We are also actively pursuing stimulus funds under a variety of federal programs
announced earlier this year in support of the development of the renewable energy sector. |
 XERGI $3
MILLION INVESTMENT AND NEW COOPERATION AGREEMENT 20 • EPC has renegotiated its licensing arrangement with Danish Biogas Technology, A.S.
and its parent, Xergi. The new Cooperation Agreement better reflects the
Company’s build / own / operate business model and will provide
substantial long-term savings in reduced license fees to EPC and
Microgy, Inc. • Pursuant to the new Cooperation Agreement, Xergi acquired $3 million of EPC’s 14% convertible notes, having the same terms as the $5 million of our convertible notes
issued in March 2009, in payment of certain license fees. • We believe this reflects a knowledgeable party’s commitment to EPC’s business model and growth. |
 LONG-TERM PREMIUM PRICE AGREEMENTS WITH MAJOR UTILITY SUPPORTS FUTURE PROJECTS 21 Our sales agreement with Xcel, like the comparable one with Pacific Gas & Electric,
highlights that our RNG ® product is sold and priced as RENEWABLE ENERGY, not a natural gas substitute. • In March 2009, we announced a long-term RNG ® supply agreement to Xcel Energy (NYSE: XEL). The ten-year contract, which is renewable for an additional ten
years, is for a fixed price reflecting the value of our green RNG ® versus other renewable alternatives. – Xcel will use our RNG ® product to generate carbon-neutral electricity. – The agreement will help Xcel continue to meet its mandates under the Colorado’s Renewable Energy Standard and support the company’s efforts to reduce carbon
dioxide emissions. – The Colorado PUC has approved the agreement. |
 RENEWABLE ENERGY MARKET-BASED PRICING FOR RNG ® PROJECT 22 Note: Biogas shown as least cost by California PUC |
 CAPITAL
FUNDING SOURCES AND USES 23 Sources Ziegler March Bond Offering $5,000,000 Xergi Bond Acquisition $3,000,000 (non-cash -->
for license fees) This Offering $5,000,000 Marathon Process Presently evaluating financing proposals and options Federal Stimulus Funds Q3/Q4 potential; dependant on application process and approval Uses We intend to prioritize the use of proceeds from this offering for projects that are
furthest along in development and construction.
|
 PROJECTS ARE PROFITABLE AND SCALABLE 24 Project portfolio build-out plan • Our business model is to develop, build and own RNG ® and biogas facilities designed to be individually profitable and scalable in number, with the profitability of
any one facility not dependent upon the number of facilities. • We are encouraged by the drop in prices for metals and other commodities, which is
expected to lower construction costs on pending and planned projects.
• Our rate of growth is dependent upon how quickly we can raise capital to construct
our existing shovel-ready projects and further develop our pipeline of
projects which we are ready to pursue. • Our debt service requirements, as well as our resources for debt service are expected to scale in proportion to the number of projects we pursue. • Therefore, Ziegler bond funds are focused on the next two Texas projects and Swift;
projects for which bond financing is in place and accessible and construction is underway. • Marathon’s process will determine what funds are initially available to complement
Ziegler’s efforts. |
 CALIFORNIA BOND TEST 25 What will be evaluated by bondholders on June 30, 2009: • Results of 60-day financial and operating performance test at Huckabay; and
• Ability to raise new equity in the amount of $39 million ($45 million if Bar 20 had
been financed). Discussion • The June 30 date is a point in time for bondholders to evaluate our performance against the criteria established in September 2008. The bondholders can then
determine their course of action. • We intend to discuss our performance against these criteria with the bondholders and what, if any, accommodations we may require. • The tax-exempt bondholders are aware of the various initiatives to meet the
criteria and ultimately may be satisfied with progress toward meeting the
milestones. However, should they decide to call the bonds, we would focus the
funds raised through Ziegler on the next two projects in the Texas portfolio
and Swift, which are unencumbered by the test, and build out those
projects. • We would then seek alternative financing for the California projects as the various
contracts remain in place and only spend a limited amount of funds until
greater certainty develops as to their financing. th |
 GOING-CONCERN QUALIFICATION 26 • As is typical for start-up growth companies, going-concern qualifications are an
accounting disclosure requirement that results from the need to raise
additional funding. The amount of our funding requirements is based on our projected build-out plans, as well as our ongoing General and Administration (G&A) requirements. Sources of
capital are expected to come from various initiatives discussed
previously. Funds raised are to be focused on Texas, California, or Swift projects projects that have initiated construction or are shovel ready. • We have implemented significant steps to reduce our G&A expenses, but will need to
raise funds during the first half of 2009 in order to cover ongoing G&A,
as well as interest and dividend requirements. • We are actively seeking additional sources of capital to meet these financing needs and
requirements of our projects in development – Via this offering – Hired Marathon Capital in Q1 to assist us in identifying and managing discussions with
entities interested in investing in our projects – Federal stimulus funds / State energy programs (potential support from CA & TX for
our projects) |
 COMPELLING VALUE PROPOSITION Unique offering Projects “ready to go” that: • Have debt financing and permits in place • Have secure and stable revenue streams as gas offtake agreements are in place which reflect premium “green” attributes of our natural gas • Have multiple revenue streams – renewable natural gas, carbon credits, other by-products • Do not rely on subsidies, although we will seek parity with other renewables Unique company • EPC holds market leadership position with first-mover status in the renewable biogas
energy sector • Strong growing market for cost-effective renewable and domestic energy sources
• Large, untapped market with announced projects and robust development pipeline
- 5 million MMBtu/year with an additional 10.7 million MMBtu/year in development
• Target project long-term stable cash flow steams resulting in attractive
returns • EPC can be viewed as an E&P company without exploration risks or depletion curve • Innovative, proven and scalable technology • Valuable strategic relationships • Leadership team with deep industry experience to execute the plan Unique opportunity to participate in the renewable energy sector 27 |
 FINAL
THOUGHTS Dominant player • We believe our unique product will be a key component in addressing the future
energy and environmental needs of the U.S., because it addresses the environmental needs of the agricultural and food processing sectors while creating a
versatile and renewable energy product with greenhouse gas offset
credits. Momentum swing • We believe momentum is swinging our way for our business model and growth. • Emphasis on renewable forms of energy, carbon awareness, transportation fuel options and pricing with other renewables • Huckabay proving itself as a reliable facility; lessons learned will be employed in future projects • Xergi investment confirms belief in our business model • Xcel agreement reinforces the value of our RNG ® • Experienced leadership team 28 |
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www.environmentalpower.com Environmental Power Corporation has filed a registration statement (including a
prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents Environmental Power has filed with the
SEC for more complete information about Environmental Power and this
offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, Environmental Power and the underwriter will arrange to send you the prospectus if you request it by calling 888 884
8339. A copy of the most recent prospectus may be found by clicking on the following hyperlink: Prospectus 29 |