winning the race

through focus
and experience

Information in this online annual report may include disclosure regarding possible events, conditions, or results that are based on information currently available to Management, that indicate Management's expectations of future growth, results of operations, business performance, and business prospects and opportunities.

Such information is made as of the publication date of this report, and Primary Energy Recycling Corporation assumes no obligation to update or revise it to reflect new events or circumstances except as required by applicable securities laws.

The information involves significant risks and uncertainties, and is not a guarantee of future performance or results.

A number of factors could cause actual results to differ materially from the information contained in this report. Given the uncertainties one should not place undue reliance on this information. All of the amounts included in our 2011 online annual report are in U.S. dollars, unless otherwise noted.


    Our long term goal is to be one of the most financially stable and capital efficient owners of energy recycling and combined heat and power facilities in North America. We are on a path to achieve this by staying focused on our goals, leveraging our deep energy market knowledge and carefully evaluating capital allocation decisions... slow and steady wins the race.


    the frontrunner in energy recycling

    At Primary Energy, we are in a long race to help our clients achieve greater efficiency.

    By partnering with them to reduce their energy costs, we provide our clients with a competitive advantage that can have a profound impact on the economics of their operations.

    Our scalable, combined heat and power, and energy recycling technology captures wasted heat from our clients' industrial processes and produces energy that is affordable and as clean as renewable sources.

    Throughout North America, there is an abundance of industrial waste heat, which can be captured and turned into a significant source of emission-free electricity and thermal energy.

    We are frontrunners in energy recycling. Watch us lead




    We are focused on our scalable, energy recycling projects that provide a consistent return on investment

    our investment process
    • Cost and quality position of the host customer facility in its industry
    • Credit quality of host customer facility owner
    • Risk allocation between host customer and company
    • Capital allocation to project is highest and best use

    long term, stable contracts

    Our long-term agreements are mutually beneficial for our clients and Primary Energy Recycling


    We have put in many hard miles to gain a deep understanding of what motivates our customers. We have perfected our unique technical and efficiency skills. The result is an unparalleled portfolio of energy recycling and combined heat and power projects.


    energy recycling

    The recovery of energy that would normally be wasted in industrial processes and converting it into electricity or steam. Click here for more information.


    combined heat & power

    A process where power generation facilities are designed to produce energy and also supply heat rather than waste it. Click here for more information.


    Electric capacity: 50 MW
    Steam capacity: 460 Mlbs/hr steam
    Contract expiration: 2020

    Consists of a 460,000 pound-an-hour boiler and a 50-megawatt steam turbine generator located at ArcelorMittal in East Chicago. The Ironside boiler produces steam by burning blast furnace gas that is rejected from number three and number four blast furnaces. Ironside's condensing steam turbine generator then converts the steam to electricity. The Ironside equipment is then connected with other boilers and steam turbines onsite to ensure reliability of its host's power and thermal system.


    Electric capacity: 95 MW
    Steam capacity: 896 Mlbs/hr steam
    Contract expiration: 2013

    Consists of 16 waste heat recovery steam generators, otherwise known as HRSGs, one 95-megawatt General Electric extraction condensing steam turbine, a cooling tower, and a 300-megawatt class flue gas treatment system. Cokenergy is located adjacent to four coke batteries owned and operated by the Indiana Harbor Coke Company, a subsidiary of Sunoco, Inc. Both Cokenergy and the coke batteries are within ArcelorMittal's mill.


    Electric capacity: 75 MW
    Steam capacity: N/A
    Contract expiration: 2042+

    Consists of a 75-megawatt steam turbine generator that's located within Arcelor- Mittal's integrated steel mill. The North Lake steam turbine receives steam that is produced by the host boilers with off gas from blast furnace number seven. The North Lake steam turbine generator then converts the steam into electricity for the host's operation. North Lake is paid a fee for converting the steam into electricity under a long-term contract.


    Electric capacity: 63 MW
    Steam capacity: 495 Mlbs/hr steam
    Contract expiration: 2028

    A 63-megawatt natural gas fired clean heat and power facility located at U.S. Steel's Midwest plant in Portage, Indiana. The host supplies natural gas at no cost to the facility. Portside produces steam, hot softened water, and electricity for delivery to the host pursuant to a longterm tolling agreement. Portside's plant includes a 44-megawatt General Electric gas turbine, a once-through steam generator, a 19-megawatt back pressure steam turbine, and two auxiliary boilers.


    Capacity: 110 tons per hour of dried, pulverized coal for blast furnaces
    Contract expiration: 2025

    A pulverized coal injection, or PCI, facility that provides micron-sized pulverized coal to three of the five host blast furnaces in East Chicago, Indiana. The first long-term extension with the host became effective January 1, 2008. This contract renewal extended the term from 2013 to 2025. In order to improve predictability and stability of results, the extended contract converted the agreement into a coal toll structure whereby Harbor Coal is paid based on the amount of coal injected into the furnace.

    the reward

    • Greater flexibility to choose different paths forward
    • All paths lead back to shareholder value
    • Potential directions: growth, stock repurchase program, dividend

    Shareholder value creation past two years



    The potential for new combined heat and power capacity at industrial and commercial facilities in the U.S. exceeds 120,000 megawatts.

    Waste heat to power, which we refer to as energy recycling, represents an additional 10,000 megawatts potential.

    Primary Energy's current portfolio of project produces just 283 megawatts.

    We believe that Primary Energy, with its solid financial foundation and its scalable and effective technology, is in a strong position to capitalize on the transition to a cleaner, more sustainable energy future.


    the market opportunity

    According to the United States Department of Energy, more than two thirds of the fuel used to generate power in the U.S. is lost as heat.

    Data from The Heat is Power shows that American industry creates sufficient waste heat to generate emission-free electricity annually to power 10 million American homes.

    There is an exciting opportunity for Primary Energy to extend its lead in the energy recycling industry while simultaneously removing thousands of tons of CO2 from the atmosphere.


    the market opportunity

    Industrial – 50GW


    the market opportunity

    Commercial/Institutional - 33GW


    the market opportunity

    Waste Energy to Power– 10 GW Potential

    letter to shareholders

    Our long term goal is to be one of the most profitable, financially stable and capital efficient owners of energy recycling and combined heat and power facilities in North America. We believe we can achieve this objective by staying focused on our goals, leveraging our deep energy market knowledge and carefully evaluating capital allocation decisions... slow and steady wins the race.


    At the beginning of 2011, we identified several goals that we considered priorities to strengthen the company and build greater shareholder value. These goals were:

    1. Extend two of our five existing contracts
    2. Rapidly pay down our secured term loan
    3 Buy out the Manager's minority interest, terminate the management agreement and refinance the business

    In 2011, we accomplished the first two goals, and subsequent to year end we announced an agreement to complete the third goal in 2012. The success of these initiatives has strengthened—and will continue to strengthen—our financial foundation. They also allow us to improve the efficiency of our current projects for the benefit of our customers and investors. As a result of these initiatives, cash flow stability has increased, which supports further evaluation of growth opportunities in the energy recycling and combined heat and power industry.

    Contract extensions in 2011
    Extending our Northlake agreement, an estimated 30 years, was a notable accomplishment considering that the marketplace trend in 2011 was to contract shorter term deals. Extending Portside until 2028—or an additional 15 years—was also a significant milestone.

    These renewals prove that by providing quality service and enhanced economic savings to our customers, we create long term value for our investors. The renewals also further strengthen the relationships and goodwill that we have established with these customers.

    The completion of these two contract extensions is important for several additional reasons:
    • It creates momentum for Primary Energy as we enter into meaningful contact renewal discussions with the site host for our Cokenergy project
    • It signals to prospective customers how valuable energy recycling, and combined heat and power are for our current industrial customers in today's energy market
    • It allows us to gain valuable experience by enhancing our existing facilities with improved energy efficiency technology
    • It proves we can maintain and enhance our profitability during contract negotiations
    • It provides us with the financial flexibility to strategically plan for our future

    These extensions also support our vision of making an immediate, positive impact on the environment. With these renewals, we will continue to reduce an estimated 1 to 1.25 million tons of CO2 from the atmosphere annually while simultaneously generating solid financial returns for our shareholders.

    Financial results including debt repayment
    We began 2011 with $71.4 million of long-term debt and ended the year with only $42.8 million on the books, which is a reduction of 40 percent. This rapid debt repayment effectively added $28.6 million of equity into the business or approximately $0.56 cents per share for the benefit of shareholders.


    We were able to aggressively repay our debt because of our solid free cash flow. In 2011, we recorded $53.7 million of revenue, which generated adjusted EBITDA of $38.8 million. The cash-flow-to-revenue ratio from our energy recycling and highly efficient combined heat and power facilities was a robust 48 percent for the year.

    Buying out the Manager's interest in Primary Energy Recycling Holdings
    Subsequent to year end, we signed an agreement with Atlantic Power Corporation to purchase its common membership interests in Primary Energy Recycling Holdings LLC not currently held by the Company. The deal, which had not closed as of the writing of this letter, is expected to cost us approximately US$24 million plus a management termination fee of approximately US$6.1M for a total price of US$30.1M, subject to adjustment. This transaction would be accretive to shareholders in that each shareholder of Primary Energy will increase their ownership of the Company by 14.3 percent. Plus, this ownership was negotiated and purchased at a 16 percent discount to market. In addition, the transaction will provide the Company with operational autonomy and flexibility. As part of the transaction, our goal is to secure acceptable financing, which would include a refinancing of our current debt obligations.

    Looking ahead—Staying Focused
    While we are proud of our accomplishments in 2011, their true value will be reflected in 2012 and beyond.

    Our long term goal is to be one of the most profitable, financially stable and capital efficient owners of energy recycling and combined heat and power facilities in

    North America.

    We are going to get there by staying focused on our goals, leveraging our deep experience in energy efficiency, and then making methodical and intelligent capital allocation decisions—slow and steady wins the race.

    Through years of experience, we have gained a thorough understanding of what motivates our customers, and we have honed our unique technical and efficiency skills. By remaining focused, we have been able to wisely choose the right project investments, which have resulted in stable, long term supply contracts.

    The combination of experience and focus is a formula we are committed to following in the future to achieve our long term objectives within a growing marketplace.

    In 2011, we did an in-depth assessment of the market needs for recycled energy and combined heat and power opportunities. The market opportunity is immense and getting bigger due in part to low cost North American shale gas production, which is a natural fit for our business model.

    According to the study we commissioned from a leading market research firm, the potential for new combined heat and power capacity at industrial and commercial facilities in the U.S. exceeds 120,000 megawatts. Waste heat to power, which we refer to as energy recycling, represents about 10,000 megawatts of additional potential.


    For perspective, Primary Energy produces 283 megawatts. With a market this large, there is an exciting opportunity to make new, high quality investments using the disciplined approach we have established over the years.

    With regards to our current portfolio of clean power projects, we are expecting a stable performance from these assets in 2012, with revenue in line with 2011 totals. We anticipate modest increases in the United States steel production with continued solid performance from the mills we serve.

    In additional to a solid performance from our projects, in 2012, we are focused on:
    • Closing and financing the Atlantic Power transaction
    • Effectively managing the transition to self-management
    • Making substantial progress on the renewal of our Cokenergy contract
    • Executing on our project upgrade programs
    • Initiating a long term, accretive growth strategy

    We sincerely thank our investors for your continued support of Primary Energy Recycling. We will repay your confidence by delivering on our commitments and making astute capital allocation decisions. We are also grateful to our customers for allowing us the opportunity to serve them. Finally, we would like to thank our board members for their proactive and tireless service in support of the Company.


    Corporate Information

    Primary Energy Recycling Corporation
    2215 So. York Road, Suite 202
    Oak Brook, Illinois 60523
    United States of America
    T 630.230.1313
    F 630.368.1006

    Legal Counsel
    Torys LLP
    Toronto-Dominion Centre, Suite 3000
    79 Wellington Street West Box 270
    Toronto, Ontario M5K 1N2

    PricewaterhouseCoopers LLP
    One North Wacker
    Chicago, Illinois 60606
    United States of America

    Registrar and Transfer Agent
    Computershare Investor Services Inc.
    100 University Avenue
    Toronto, Ontario M5J 2Y1

    Executive Officers
    John D. Prunkl,
    President & Chief Executive Officer
    V. Michael Alverson,
    Vice President & Chief Financial Officer

    Board of Directors
    A. Michel Lavigne, Chair
    Rodney Boulanger
    Douglas Graham
    Donald Pether
    Christopher H. Pickwoad
    John D. Prunkl
    Lorie Waisberg

    Toronto Stock Exchange Listing
    Symbol: PRI

    Investor Relations Contact
    Adam Peeler
    T 416.815.0700 ext.225


    Annual General and Special Meeting
    June 14, 2012, 2:00 p.m. ET
    TSX Broadcast & Conference Centre
    The Gallery
    The Exchange Tower
    130 King Street West
    Toronto, Ontario