Energy Storage in a Competitive Market: the Business Case and Challenges

Alberta Innovates Energy Storage Symposium November 19, 2013

Special thanks to the Climate Change and Emissions Management Corporation (CCEMC) for their financial support

Legal notice
This presentation contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of applicable Canadian securities legislation (collectively, forward -looking statements), including statements about Suncors growth strategy and expected future production, operating and financial results that are based on Suncors current expectations, estimates, proje ctions and assumptions that were made by Suncor in light of its experience and its perception of historical trends. Some of the forward-looking statements may be identified by words such as objective, targets, estimates, anticipated, plans, vision, strategy, expects, proposed, intention, continue, may, outlook, opportunity and projected and similar expressions. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Suncor. Users of this information are cautioned that actual results may differ materially as a result of, among other things, assumptions regarding expected synergies and reduced operating expenditures; volatility of and assumptions regarding oil and gas prices; assumptions regarding timing of commissioning and start-up of capital projects; assumptions contained in or relevant to Suncors current corporate guidance; fluctuations in currency and interest rates; pro duct supply and demand; market competition; risks inherent in marketing operations (including credit risks); imprecision of reserves and resources estimates and estimates of recoverable quantities of oil, natural gas and liquids from Suncors properties; the ability to access external sources of debt and equity capital; the timing and the costs of well and pipeline construction; assumptions regarding the timely receipt of regulatory and other approvals; the ability to secure adequate product transportation; changes in royalty, tax, environmental and other laws or regulations or the interpretations of such laws or regulations; applicable political and economic conditions; the risk of war, hostilities, civil insurrection, political instability and terrorist threats; assumptions regarding OPEC production quotas; risks associated with existing and potential future lawsuits and regulatory actions.

Although Suncor believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Suncors Earnings Release, Quarterly Report and Managements Discussion & Analysis for the first quarter of 2011 and its most recently filed Annual Information Form/Form 40-F, Annual Report to Shareholders and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions and other factors that could influence actual results and such factors are incorporated herein by reference. Copies of these documents are available without charge from Suncor at 150 6th Avenue S.W., Calgary, Alberta T2P 3Y7, by calling 1-800-558-9071, or by email request to info@suncor.com or by referring to the companys profile on SEDAR at www.sedar.com or EDGAR at www.sec.gov. Except as required by applicable securities laws, Suncor disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Compounded annual growth rate (CAGR) is the calculation of that rate at which the business is expected to grow over a period of time, taking into account the effect of annual compounding. Planned net capacity is Suncors planned production capacity on a calendar day basis, which takes into account r egular planned maintenance on an annual basis. Target first oil is the indicative timing of the start up and commission of new capital projects, when oil production is first anticipated. Reserves and contingent resource information presented herein is presented as Suncors working interest (operating and non -operating) before deduction of royalties, and without including any royalty interests of Suncor, and is at December 31, 2010. For more information on Suncors reserves and contingent resources, please see Suncors current Annual Information Form dated March 3, 2011 available at www.sedar.com. Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. There is no certainty that it will be commercially viable to produce the contingent resources.

Legal notice
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Agenda
Who are Suncor and Teck Why look at Energy Storage? The Process of Assessment The Project CCEMC funding Who benefits from Energy Storage Challenges Next Steps Questions

Who are Suncor and Teck?

Suncor Energy Canadas largest integrated energy company Market Cap: $50B, 14,000 employees Canadian company on the Global 100 Most Sustainable Corporations List (#81) Named to Dow Jones Sustainability World Index for 13 consecutive years

Industry leading investments in Renewable Energy: 6 wind projects in operation, 2 ON projects in advanced permitting stage; own and operate Canadas largest ethanol facility.
Developed innovated tailings management approach called TRO (Tailings Reductions Operation); significant investment underway Triple bottom line vision of sustainable development; must provide economic prosperity, promote social well-being and preserve healthy environment
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Who are Suncor and Teck?

Teck Resources Canadas largest diversified resource company; committed to sustainability Market Cap: $16B, 14,000 employees Top Canadian company on the Global 100 Most Sustainable Corporations List Named to Dow Jones Sustainability World Index for the past 3 years; ranked in the top 2% of mining companies worldwide Long-term commitment to renewable energy: 2030 goal to develop or source a cumulative 100 megawatts (MW) of alternative energy generation Ongoing work in battery technology R&D

Why look at Energy Storage?

Suncor and Teck have a strong commitment to renewable energy, including existing assets and a stated commitment to the development of future projects. Energy Storage is strategically important to Suncor/Teck Opportunity to support existing renewable energy projects and enable future investment in intermittent Renewable Energy in AB Suncor and Teck made a commitment in 2011 to look at Energy Storage opportunities Looked at a number of storage technologies (CAES, pumped hydro, natural gas back up generation, batteries)

Why look at Energy Storage?

Why Alberta? Only Canadian jurisdiction with a wholesale competitive energy market Highest proportion of installed wind capacity relative to total capacity of any Canadian jurisdiction at 7.5%, and large number of projects queuing to interconnect. Current AESO studies indicate that system reliability can be maintained up to 1200 MW of wind and perhaps 1500 MW. AESO expects to reach 1400 MW this year. As wind penetration continues to grow, one of the solutions being considered is wind curtailment In 2012 wind generation saw a 40% discount to pool price. Wind is the only form of generation that sees a discount.

Why look at Energy Storage?

Why battery storage? Batteries can integrate directly with intermittent RE facilities and offer fast generation or load response at relatively high efficiently rates vs. other forms of energy storage Batteries enable the integration of additional intermittent generation such as wind and solar, provide firming Batteries have the ability to provide faster and more accurate regulating reserve services than other forms of generation increase market efficiency and grid stability improve utilization of transmission system

Batteries can provide both real and reactive power

Battery storage was the right solution for Suncor / Tecks portfolio at this time for a demonstration project
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The Process of Assessment

Interconnection Engaged with Alberta Electric System Operator (AESO) in Spring 2012 to identify regulatory and market hurdles

Identify necessary revisions to market framework to connect battery to grid and provide services
Appropriate tariffs

Technical requirements to qualify to provide services

Submitted a System Access Service Request (SASR) to initiate system studies for the interconnection of the project with AESO in December 2012

Supportive of the AESOs ongoing efforts

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The Process of Assessment

Technology Selection Completed comprehensive review of available technologies and leading technology providers

Included a full range of technologies from conventional to flow, and varied chemistries.
Visited manufacturing facilities and operating sites

Issued RFP in Fall 2012 and received proposals from numerous vendors and completed comprehensive review
Conclusion: Lithium-Ion

Long history as a proven technology in various applications Fast reacting with high efficiency (~85%+) vs. other battery technologies Scalable electrochemistry
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The Project
Project Site Wintering Hills Wind Power Project, owned by Suncor and Teck, operated by Suncor Located 30 km Southeast of Drumheller AB, in Wheatland County 88 MW total wind generation capacity Battery Energy Storage System (BESS) will be located near the substation and tied in on the distribution side

Project Site

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The Project
Wintering Hills Battery Storage Pilot
3 MW / 6 MWhr lithium-ion battery integrated behind the fence at the existing wind project in Alberta

Connected to the 34.5 kV wind farm collector system

Project Objectives: 1) Support the integration of increased renewable energy capacity

2) Support the reduction of GHG emissions

3) Use pilot to test the viability of regulating reserve/arbitrage markets and the storage concept 4) Demonstrate the benefits of fast response Regulating Reserves to reduce the cost of Ancillary Services and improve grid management 5) Improve the utilization of renewable energy assets by storing off-peak energy

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CCEMC Funding
Climate Change and Emissions Management Corporation (CCEMC) included Energy Storage projects in their Renewable Energy Call for Proposals in 2012 The Project was awarded $ 9.2 MM in funding from the CCEMC as part of the Renewable Energy Project Call for proposals The Project is currently in the Contribution Agreement Stage This project is an enabling project. As the technology matures and is validated, the ability to store energy will be a major contributing factor to the reduction of GHG emissions.

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Who benefits from Energy Storage?

Transmission and Distribution (T&D)
VAR support

Generation
FEOC Price fidelity Renewable integration Time Shifting Energy Market

End Use Customer

FEOC Price fidelity Improved power quality Reliable back-up power Energy management Peak shaving Increased/Improved availability of ancillary services

Society
Reduced need for peak generation capacity

Improving T&D Utilization factor

Load following Deferral of T&D T&D support and congestion relief

Lower GHG and other emissions

Supply surplus curtailment minimization

Reducing T & D losses Wind firming

Operating Reserves
More efficient use of Renewable off-peak generation

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Challenges
Design and Operating Maturity Early battery technologies were not designed for stationary grid applications No precedent to follow - expect to be the first in a deregulated, energy-only, competitive market in the world Utility scale - has challenges in scaling up, in permitting, market framework The effects of cycling and depth of discharge based on operation is not fully understood.

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Challenges
Revisions to Regulatory and Market Framework
Alberta lags other jurisdictions in terms of developing market framework for energy storage integration

No rate base to rely on - must earn a return in a competitive energy market

The only other source of revenue is ancillary services but current framework is constraining Need an ancillary services framework that permits all potential suppliers of service to participate. Recognition of fast response, highly accurate reserves can lower transmission costs to load. Reduction in minimum size requirements to qualify to participate in ancillary services markets.

Require an energy neutral dispatch signal

Require an interconnection standard

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Challenges
Project Economics Energy storage technologies are still emerging, battery installations are still small compared to conventional generation. Limited economies of scale

Installed costs are expected to decrease with increased adoption (similar to wind and solar)
Preliminary economic analysis indicates that energy arbitrage is inadequate other sources of revenue are required Ancillary services is the alternate source of revenue and will require revisions to the AESO framework

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Next Steps
Sign contribution agreement with the CCEMC Confirm BESS design Award contract to preferred technology vendor Begin detailed engineering and system integration design Engage in further discussions with the appropriate regulatory bodies Work with AESO to secure ability to connect and operate the project Participation in stakeholder sessions Reform framework to be FEOC Develop an dispatch strategy that guides the management of depth of discharge and cycle life Participate in the development of an Energy Storage GHG protocol

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Thank You

Thank You

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