INTRODUCTION BASIS OF PRESENTATION Management’s discussion and analysis (“MD&A”) summarizes Capstone Infrastructure Corporation's (the "Corporation" or "Capstone") consolidated financial position, operating results and cash flows as at and for the years ended December 31, 2013 and 2012. This MD&A should be read in conjunction with the accompanying audited consolidated financial statements of the Corporation and notes thereto as  at and for the years ended December 31, 2013 and 2012. Additional information about the Corporation, including its Annual Information Form ("AIF") for the year ended December 31, 2012, quarterly financial reports of Capstone and other public filings of the Corporation will be available under the Corporation’s profile on the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com.  The information contained in this MD&A reflects all material events up to March 6, 2014, the date on which this MD&A was approved by the  Corporation’s Board of Directors. Financial information in this MD&A is prepared in accordance with International Financial Reporting Standards (“IFRS”) and amounts are in Canadian  thousands of dollars or thousands of share amounts unless otherwise indicated. Amounts included in the consolidated financial statements of each entity in the Corporation are measured using the currency of the primary  economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in Canadian dollars  (“presentation currency”), which is Capstone’s functional currency. The exchange rates used in the translation to the presentation currency are: CHANGES IN THE BUSINESS Acquisition of ReD As at and for the year ended Swedish Krona (SEK) UK Pound Sterling (£) Average Spot Average Spot Dec 31, 2012 0.1476 0.1528 1.5840 1.6178 Dec 31, 2013 0.1581 0.1655 1.6113 1.7627 On October 1, 2013, Capstone acquired 100% of the issued and outstanding shares of Renewable Energy Developers Inc. ("ReD") by issuing common shares of Capstone, pursuant to a plan of arrangement (the “Arrangement”). At closing, each ReD shareholder received 0.26 of a Capstone  common share ("Capstone Share") and $0.001 in cash in exchange for each share of ReD. Capstone issued 19,699 common shares to acquire ReD, resulting in a total of 92,719 common shares outstanding as at October 1, 2013. In addition, each outstanding option to purchase ReD Shares (“ReD Option”) was exchanged for an option to acquire Capstone Shares  (“Replacement Option”). A Replacement Option entitles the holder thereof to purchase 0.26026 of a Capstone Share for each ReD Option being replaced. The obligations of ReD with respect to its outstanding common share purchase warrants have been assumed by Capstone in accordance  with the terms of the warrant indenture whereby each warrant is now exercisable to receive 0.26 of a Capstone Share and $0.001 in cash. Also pursuant to the Arrangement, on October 1, 2013, the 6.75% convertible unsecured subordinated debentures of ReD due December 31, 2017 (the “ReD Debentures”) became convertible into Capstone Shares and cash pursuant to the terms of the debenture indenture, while remaining outstanding obligations of ReD. The Corporation has agreed to provide credit support for the ReD Debentures (TSX: CPW.DB) and ReD has agreed  to provide credit support for the obligations of Capstone under its 6.50% convertible unsecured subordinated debentures (TSX: CSE.DB.A) due December 31, 2016. Capstone has consolidated the assets, liabilities and attributable net income of ReD from October 1, 2013. With the addition of ReD, Capstone is a larger infrastructure company with power generation facilities across Canada totaling approximately net 439 MW of installed capacity, an attractive pipeline of contracted development opportunities in Canada representing an expected net 79 MW of  capacity, and international investments in regulated water and district heating businesses. 2013 ANNUAL REPORT  21