Tecogen’s Emerging Opportunities for Growth: Cogeneration and Chilling, Indoor Cultivation, and Vehicle Emissions Control January 7, 2019 Tecogen’s DG (Distributed Generation) products Case in Point: Cannabis (Marijuana) and technology has significant near-term potential Cultivation – a Major Growing Market for for growth as worldwide electric power generation Tecogen moves from large centralized sources to smaller A prime example of Tecogen’s success following onsite sources that are cleaner, more efficient, and the reasoning outlined above, is the emerging less costly. Driving this shift are infrastructure industry of indoor cultivation of cannabis for shortcomings of aging utility grids. These have medicinal and recreational use. Our products, become increasingly strained and less reliable particularly our air-conditioning chillers, have sold while major expansion upgrades are politically exceptionally well to these applications where difficult and slow to implement, especially in urban cannabis has been legalized (Massachusetts, areas where upgrades are most urgently needed. Colorado, Florida, and Canada). In 2016, only 2% of Predictably, utilities have managed the demand by Tecogen production was slated to the Cannabis invoking higher tariffs, many heavily weighted to market, increasing, remarkably, two years later 14- the time of use, which has opened the door to fold (28% of 2018 our production). innovative DG technology. The DG/microgrid technology developed by Tecogen and embodied in the company’s InVerde and natural gas air-conditioning products (Tecochill) circumvent the negative consequences of an aging power system; our reliable power production technology is over twice as efficient as the US power grid while its fuel source, natural gas, is plentiful and inexpensive. Moreover, the microgrid feature of the company’s products enable facilities to operate indefinitely when the grid has failed, an increasing concern in the United Intense lighting and space conditioning needs in Indoor Cannabis growing operation place heavy burden most States and elsewhere as the power grid becomes electric supply services more vulnerable to climate change induced outages. Our modular approach allows scalable Growers are typically confronted with especially project implementation to proceed quickly at acute electricity supply issues due to the energy modest cost, especially relative to the alternative: intensity of their process. The strong lighting and utility infrastructure upgrades and expansion. resulting cooling load coupled with humidity Notably, Tecogen revenue has nearly quadrupled control often exceed the electrical capacity of in the last ten years, which we believe is strong preexisting warehouses being converted for affirmation of the increasing microgrid market as cultivation. At the same time, the market favors we have envisioned. locally grown “craft” product which generally discourages consideration of locating to states having less expensive and more abundant electricity (which is not an option, in any case, as January 7, 2019


 
product transport across state lines is prohibited chemicals directly impacting human health and by federal law). This presents an ideal opportunity highlighted in the recent Volkswagen scandal for Tecogen: our Tecochill natural gas chillers can (nitrogen oxides, carbon monoxide, and be used to eliminate the electrical load required for hydrocarbons). The development program was cooling and dehumidification, avoiding the need initiated by the emergence of extremely restrictive for an expensive service upgrade to the building, emissions regulations in Southern California in while at the same time reducing operating costs for 2010 for stationary equipment applied to cooling and dehumidification by two thirds in electricity generation. The levels of criteria states with higher electric rates. pollution required to meet these regulations are the lowest in the United States and far lower than We believe legalization of marijuana throughout those required of mobile sources, even in optional, most of the US and Canada is inevitable. In this rarely attained “near-zero” certifications. past election cycle, three states affirmed legal status including Michigan which voted positively for recreational use. Legalization appears imminent in New Jersey and New York which, if approval indeed ensues, will create enormous demand in the region where Tecogen microgrid products already are in high demand due to high electricity tariffs and grid reliability concerns (Hurricane Sandy aftermath). As cannabis production ramps up, we anticipate a flourishing market for the company’s chiller and Combined Heat and Power (CHP) systems especially where the demand is Tecochill natural gas-powered air-conditioner utilized in Massachusetts for Cannabis cultivation accentuated by recreational use legalization. Further, we anticipate similar opportunities for the company will be found in the expanding indoor The aftertreatment process was subsequently cultivation market1 as consumers increasingly value patented by the company both domestically and locally sourced produce. In Q4 2018, we completed internationally and successfully commercialized as our first product sale of three chillers for indoor Ultera. It is utilized in most Tecogen product lettuce cultivation (see our December 13, 2018 shipments. The process is generally applicable to press release). any spark-ignited internal combustion engine configured to use a conventional catalyst Developing Technology: Ultera Low aftertreatment system. It has been applied to a Emissions Technology Application to Mobile variety of engines operating on biofuels, propane, Sources gasoline and natural gas with similarly successful In conjunction with the State of California and the results. Currently, Ultera-equipped engines are the Southern California Gas Co., Tecogen has only ones successfully permitted in Southern developed groundbreaking emissions technology California for electricity generation without for its stationary, natural gas fueled products. The operating limits or special exemption since the technology applies to “criteria pollutants”, those passing of the new regulation in 2010. Most recently, the SoCal regulatory body has broadened 1 See, for example: https://www.producegrower.com/article/greenhouse- https://www.eater.com/2018/7/3/17531192/vertical- operations-forbes-agtech-startup/ farming-agriculture-hydroponic-greens https://techcrunch.com/2017/07/19/billionaires-make- it-rain-on-plenty-the-indoor-farming-startup/ January 7, 2019


 
these restrictive permit requirements, influenced under US EPA standards, a heretofore unachieved by Ultera’s practicality and successful results, to status in the industry. Our goal is to ultimately other stationary engine categories (see our press commercialize the Ultera option with MCFA (and release here). perhaps others) which will help the propane industry regain lost ground to battery powered Tecogen’s Ultera system eventually attracted the units and open up opportunities in food interest of the propane (LPG) industry, whose once applications where propane is currently prohibited. dominant position in fueling fork lift trucks is being Currently, we are working with MCFA engine eroded by competing models powered by control technologists in Japan to tune the engine rechargeable batteries, largely because of their optimally for the Ultera process, after which the emissions shortcomings and despite significant prototype will be sent to MCFA in Texas for their disadvantages of the battery systems -- they are own inhouse evaluation. costlier and often unable to complete a full shift because of energy storage limitations. If the company is successful with the MCFA Consequently, Tecogen was funded by the program, we believe the technology will gain industry’s research group PERC (Propane Education important credibility in larger mobile markets. We and Research Council) to demonstrate Ultera have investigated automotive applications and performance on a propane fueled forklift truck. The project has significant potential for this industry as these vehicles generally operate indoors where health concerns are magnified. Several forklift companies expressed interest in participating in the project with MCFA (Mitsubishi Caterpillar Forklift America) eventually being selected. They supplied a forklift truck to Tecogen for modification and testing which was successfully utilized in demonstrating the potential of an MCFA product attaining a “near-zero” certification status believe the barriers to entry are formidable with MCFA (Mitsubishi Caterpillar Forklift America) test technology mainly controlled by large; and forklift truck equipped with Ultera system conservative suppliers, while at the same time the industry seems focused on electrification of highly problematic with regard to criteria vehicles as their emissions solution. A more pollutants) to alternative fuels such as propane, modest but substantial market where Tecogen natural gas and biofuels. Engines powered by these believes a nearer term opportunity for Ultera is fuels are ideal applications for the Ultera process. medium duty trucks (school buses, delivery Our approach to further application of Ultera in vehicles, etc.). This application does not typically mobile sources will be to establish success in the adapt well to electrification because of the longer, forklift market before seeking partners heavier duty cycles, and the supply chain is far less manufacturing medium in the more approachable, entrenched. For medium duty trucks, we believe stronger market of medium sized commercial the shift will be from diesel vehicles (which are vehicles. January 7, 2019