The World Leader in Microturbine Power Generation

Annual Stockholder Meeting

August 28, 2008

1

Safe Harbor StatementDuring the course of this presentation, we may make projections or other forward-looking statements regarding future events or financial performance of the Company within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including:

• reference to the potential market for our products;• future results of operations and achieving profitability;• sales expectations;• distribution capabilities and agreements with certain new distributors;• manufacturing improvements and cost reductions;• increased production capacity;• low emissions, energy efficiency and reliability of our products;• our business initiatives and relationships with third parties and related expanded market opportunities;• the advantages of our products over our competitors and competing technologies;• expanded aftermarket service and remanufacturing business;• compliance with government regulations;• new products and product platforms, including our C200 and C1000 products; • the application of our products in the solar market; and• the value and savings to be realized by our customers.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties which may cause Capstone's actual results to be materially different from future results predicted or implied in such statements, including:

• our expectations about expansion into additional markets;• new applications of our products may not be realized; • certain strategic business initiatives may not be sustained and may not lead to increased sales; • we may not be able to reduce costs, improve customer satisfaction, or increase our cash flow or profitability; • our release of new products such as the C200 and C1000 may be delayed or new products may not perform as we expect;• we may not be able to comply with all applicable government regulations;• we may not be able to obtain or maintain customer, distributor and other relationships that result in an increase in volume and revenue; and• we may not be able to retain or develop distributors or dealers in our targeted markets, in which case our sales would not increase as expected

and product quality expectations may not be met.

We refer you to the Company's Form 10-Q, Form 10-K and other recent filings with the Securities and Exchange Commission for a description of these and other risk factors. Because of the risks and uncertainties, Capstone cautions you not to place undue reliance on these statements, which speak only as of today. We undertake no obligation and specifically disclaim any obligation to release any update or revise any forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.

2

Capstone History

• Established in 1988

• Early Stage• First successful test in a hybrid vehicle application• Sale of the first commercial Microturbine system

• Capstone Initial Public Offering• Listed on the NASDAQ exchange (ticker: CPST) in June 2000

• Commercialization Stage• C30 and C60 products are launched and operating in the field • Over 4,000 units shipped with over 19 million operating hours• Mean Time Between Failures (MTBF) of 14,000 hours for the

C60 Series and over 15,000 hours for the C30• Development of sales, service and distribution channel• Repositioned as Green technology• Introduction of C200 and C1000 products

3

Darren JamisonCEO

Management Team

Industry Experience

• 60+ years of direct distributed generation and co-generation experience

• Management team has successfully sold competing products including GE Jenbacher, Caterpillar, Deutz, Waukesha and Elliott Microturbines

• Proven industry track record of managing high growth organizations

Keys to Growth

• Maturing distribution channel• Expand and develop new markets• Successful launch of C200/C1000

products• Expand aftermarket service and

remanufacturing business• Leverage fixed cost structure• Licensing and component sales• Strategic partnerships

Edward ReichFinance

James CrouseSales

Leigh Estus Operations

Mark GilbrethEngineering

Shelby AhmannService

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FY’08 Company Highlights

• Year over year improvements:• Backlog: $27.9M, up 458%

• Revenue: $31.3M, up 60%

• Cash used in Operations

$21.1M, down 50%

• Cash balance $42.6M

• Inventory: $16.7M, down 31% Installation at NY Downtown Marriott

5

Building Momentum

$-

$2

$4

$6

$8

$10

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09

Net Revenue ($ Millions)

$-

$10

$20

$30

$40

$50

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09

Backlog ($ Millions)

$-

$10

$20

$30

$40

$50

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09

Net Revenue/Backlog ($ Millions)

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Stock Price Reflects Momentum• Institutional ownership

• Approximately 45%

• Analyst Coverage• Lazard Capital

Markets• Ardour Capital

Investments• Northland Securities• Merriman Curhan

Ford & Co.• Broadpoint Capital• Wachovia Capital Markets

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• Over $100M invested in product development

• 95 U.S. Technology Patents• Air bearing technology• One moving part• No coolants, oils or grease

• Flexible and economic technology• Flexible configuration• Lightweight & small footprint• Multi-fuel capability• Cost-competitive positioning

• Capstone value proposition• Low total cost of ownership• Ultra low emissions• High reliability• Minimal scheduled maintenance

Capstone’s Microturbine

Spring

Foil

Shaft

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Technology ComparisonSample Installed Cost

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

Solar PV Fuel Cells Wind Microturbine Recip

$ Pe

r K

w

Equivalent Cars Removed (CO2) for 1 MW Project

0

200

400

600

800

1,000

1,200

Solar PV Wind Recip Fuel Cells Microturbine

Num

ber o

f Car

s

Assumptions:

• Capstone C200 System

• Combined Heat and Power Systems

• Natural Gas Fueled

• California Emission Standards

• Initial Investment Data: CA Statewide SGIP Program Statistics through Q4 2007

• Analysis assumes no incentives

Sample Net Benefit of Ownership Over 10 Years

$(6,000)

$(5,000)

$(4,000)

$(3,000)

$(2,000)

$(1,000)

$-

$1,000

$2,000

$3,000

$4,000

Solar PV Fuel Cells Wind Recip CHP Microturbine CHP

$ Pe

r kW

9

Microturbines vs Piston Engines

Scheduled maintenance – 118 times in 5 yearsScheduled maintenance – Six times in 5 years

External controls without power electronicsOn board digital electronics

Requires external relays & control equipmentIntegrated utility protection & synchronizing

More than twice the weight & footprintLightweight & small footprint

Local air permits and exhaust cleanup requiredUltra low emissions – C65/C200 CARB Certified

Traditional Piston EnginesCapstone Microturbines

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CARB Emissions

• CARB 2007 is a world-leading emissions standard

• Only Microturbines, Fuel Cells, Solar and Wind meet standard

Units 2003 2007 ReductionNOx lb/MWh 0.5 0.07 86%CO lb/MWh 6.0 0.10 98%VOC lb/MWh 1.0 0.02 98%

CARB Natural Gas Emission Standard

Relative NOx Emissions

US Grid Avg

NG Recip

C200

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Market Drivers

Rising Energy Prices

Grid Capacity Constraints

Power Security

Climate Change

• 2005 much of the Eastern U.S. and California experience double digit .increases in energy costs

• 2006 constraints in capacity pushed energy prices to record levels• 2007 Consolidated Edison releases an RFP for 158 MW of demand reduction

• 2006 report by the North American Electric Reliability Council• Warned demand for electricity in the U.S. is increasing three times

as fast as resources are being added (20% from 2006 to 2015)• Estimated that the U.S. is on track for a shortfall of about 81 GW in

2015 (equivalent to 160 large power plants)

• According to the Electric Power Research Institute, power outages and disturbances cost the U.S. economy $188 billion per year

• The 9/11 attacks, Hurricane Katrina and the 2003 Northeast blackout have brought attention to the need for secure power

• Of the 12 warmest years on record, 11 have occurred since 1995• Climate change is a major platform for both political parties• More than 160 countries have signed the Kyoto treaty• U.S. has implemented federal and state clean air initiatives to control

greenhouse gas emissions and global warming

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Cogeneration Market

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Mar

ket P

oten

tial

$ M

illio

ns

28-300 kW .3-1 MW 1-5 MW 5-10 MW 10-20 MW 20-50 MW

CHP/CCHP Market Potential By Size

Microturbine Market

Source: Resource Dynamics Corporation (extrapolated based on industrial uses)

C200/C1000 Market Expansion

• Introduction of the C200 and C1000 increases addressable market by over approximately $4 billion annually

• Integrated Energy Systems (IES) for Buildings: A Market Assessment prepared for the U.S. Dept. of Energy:

– 16.8GW demand by 2010– Over 35.5GW demand by 2020– 62% straight CHP

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C200/C1000 Benefits• High efficiency

– Superior load matching• Pricing competes with piston engines• Built-in redundancy• Integrated package

– Small footprint - 8’ x 30’ ISO– Stackable– Multi-pack to 10MW

• Ultra low emissions– 1/10th of best In class piston engine

• Low maintenance– High reliability

Piston Engine Price, Fuel Cell Emissions, Turbine ReliabilityPiston Engine Price, Fuel Cell Emissions, Turbine Reliability

C1000

Part Load Efficiency

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First Production C200 Shipped to Italy

CORDAR IMM. S.p.A. - Biella

Waste Water Treatment Plant

“Cossato Spolina” Site• Shipped August 28, 2008

• Population Equivalent: 520,000

• Biogas Production: 2.600 m3/day

• Electrical energy production per year: ~ 1,700,000 kWh

• Thermal energy production per year: ~ 2,300,000 kWh

• CO2 savings: ~ 1.8 ton/year

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Current Market Segments

Hospitals

Hotels Schools

Large Retailers

Oil & Gas

U.S. Gov’t

Landfills Waste Water Plants

Telecom

Digesters

Hybrid EV

Office Buildings

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CCHP Case Study:Ronald Reagan Presidential Library and Museum

The Issues:– Overcome potential power supply issues

and rolling blackouts– Keep exhibit building containing retired

Air Force One jet cool, comfortable, and well lit

The Solution:– 16 C60 microturbines running on clean-

burning natural gas supply 95% of the facility’s electricity

– Three 129-ton direct exhaust-fired absorption chillers create 387 tons of refrigeration for cooling

– Exhaust from the microturbines provides hot water to heat the pavilion

Savings:– Over $300,000 in annual operating

costs– $823,156 incentive reduced installation

cost 30%

Site Tour Following PresentationSite Tour Following Presentation

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Potential Market Segments

Military/CommercialPortable Power

Marine Solar Concentrator

Class 8Trucks

18

56 in

26 in

Intercooler

Alternator

Intake

Recuperator

Turbine

• Capstone proven air bearings• Oil free system with 40,000

hours MTBF

• Proven compact high speed alternator

• Designed to meet CARB 2010 emission targets

• Multi-fuel (diesel, CNG, LNG, bio-oil, ethanol, hydrogen)

• Nearly flat efficiency over 20 to 100% power range

• Low frontal area intercooler• Less than half that of typical

Class-8 radiator

Future ICR Product

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Cycle comparisions used in Dr. Burke HEV Study

0.1000

0.1500

0.2000

0.2500

0.3000

0.3500

0.4000

0.4500

0 0.2 0.4 0.6 0.8 1

Normalized power

Effic

ienc

y, L

HV

-DC

pow

er

Diesel – Cat-15 (w/ radiator fan, pumps and DC generator)

ICR – DC Power w/ Intercooler fan

Fuel to Drive Motor Output

Competitive Advantages

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• Advantages– Solar Efficiency – 25% (15% typical)– Fuel Efficiency - 29% to 100%– Less Land Required - 400kW/ac vs 160kW/ac– Increased Land Slope - 5% grade (1% typical)– Continuous Power with Series Gas Combustor

• HelioFocus - Technology– Mirror concentrates Sunlight to Receiver– Receiver Heats Combustion Air– Instantaneous Heat– Series Combustor when Sunlight not Available

• Sun Power - Technology– Mirror concentrates Sunlight to Silicon Bath– Bath Heats Combustion Air– Heat Storage– Series Combustor when Sunlight not Available

• Next Steps– Preparing response to RFP – Seeking initial POs

Solar Powered MicroTurbine

Opportunity to Participate in Solar MarketOpportunity to Participate in Solar Market

24 m dia.

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Path to Profitability

IncreaseProduction

Rates & Yields 2008

MaximizeMargin &Inventory

Turns2009 +

ProductAcceptance2001 - 2008

• Adding multiple shifts

• Working to reduce touch labor

• 2,000 unit current capacity

• 4,000 unit maximum capacity

• Backlog $43 Million

• Unit backlog

•C30 282 units

•C65 206 units

•C200 122 units

• Increase prices

• Reduce costs

• Target 40% GM at 2,000 units

• Target 4X inventory turns

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Capstone Summary

• Experienced management team

• Strong global market drivers

• Green ultra low emission technology

• New C200 product enables megawatt solution

• Evaluating potential future markets

• Benefiting from restructured distribution

• Q1’09 backlog up over 700% from Q1’08

• Path to Profitability