The Solar Industry

March 2012

Solar Outlook Macro Observations

OBSERVATIONS Large and growing market Through it all the installed solar market is growing rapidly with no end in sight. Even as subsidies may be eliminated, new markets, grid parity/cost, and better distributed transmission should continue to fuel growth. Activity from foreign strategics Foreign corporate investors offer glimmers of hope for second generation technologies as several have recently struck joint venture or merger agreements with leading technology. These include Total/SunPower, SK/Heliovolt, Stion/Avaco, and others in the pipeline. Good news for downstream Lower costs equal grid parity, better downstream margins. Good for the developers and financiers of generation. Dont underestimate China (or South Korea for that matter) Chinas commitment can not be ignored. South Korean companies have become very active recently. It could be that the country hopes to leapfrog China in bringing second generation technologies such as CIGS to scale. ASPs may continue to plummet as oversupply sustained for at least 12 months Gluts in all steps of the supply chain from crystalline silicon to panels will take time to work through. Massive consolidation The lucky ones have enough technology to interest foreign and the remaining US players (e.g., First Solar). In fact, much of this will just be liquidation. In addition to the obvious oversupply and large number of manufacturers, China has indicated that it expects just 4 or 5 of its manufacturers to survive. Government will likely pick the strongest and allow the rest to drift away. Exits will only occur on results, not promise The Solyndra Effect In the current environment, every solar investment decision bears the cloud of Solyndra. Much of this stigma is well-earned as we embark on consolidation. There will be winners but selection will take time and be difficult to predict. There will likely be good companies that will be adversely selected in the fallout.

The Solar Industry 2

Solar Outlook Micro Observations

OR LESSONS TO LIVE BY Its all about the costs stupid In this environment great technology loses out to lower costs. Downstream buyers can command prices in a commodity market defined by oversupply. Companies that cannot deliver continuous cost reduction will suffer. Revenue growth is fleeting As suggested above, revenues can dissipate quickly if a lower cost alternative appears. Supply contracts are still subject to price adjustment and are not commitments. Meeting price adjustments could equally result in margin pressure or worse. Sales cycles are very long for certain channels In particular, utility buyers are monolithic and slow to act, This is compounded be the project nature of those solar purchases. Power Purchase Agreements, the foundation for project financings, often drag through extended approval processes. Bad news for new entrants Yes, there are still new players devising ever more advanced technologies. The likelihood of venture support is negligible. Exits may look more like absorption than traditional M&A or IPO Except for potential downstream plays like Solar City and BrightSource, IPO is likely a distant aspiration and certainly challenged valuation.

The Solar Industry 3

Clean Tech Eco System

Materials & Manufacturing Materials and Manufacturing

Energy Generation Solar / Thermal Wind Hydro Alternative fuels

Energy Storage Batteries Fuel Cells Utility Scale grid storage

Energy Efficiency Building materials Lighting Demand response systems Energy Management Reduced operating costs Lower maintenance costs Extended equipment lives

Energy Infrastructure Smart Grid Hardware Smart meters Transmission

Recycling & Waste Management Waste to energy Waste repurposing

Agriculture, Air & Water Agriculture Air Water

Improved and economical source of energy Less pressure on nonrenewable resources (oil and gas) Energy security Grid/ Off Grid

Application Benefits

Improved power reliability Intermittency Management Increased cycles/longer storage Efficiency

Reduction in wastage Reduce outage frequency / duration Reduce distribution loss

Economic in nature - wellrun recycling programs cost less to operate than waste collection and landfilling

Organic pesticides / fertilizers Water purification Water remediation Purification Management

Residential End User Commercial Industrial Utilities, Government and Others

The Solar Industry 4

Global Analysis of Renewable Energy Development

Top Countries with Installed Renewable Electricity by Technology1

Source: 1NREL (National Renewable Energy Laboratory) Data Book, 2011.

The Solar Industry 5

U.S. Analysis of Top States for Renewable Energy Development

U.S. Solar Energy Development1

U.S. Geo-Thermal Generation2

U.S. Hydropower Generation3

U.S. Wind Power Generation4

Source: 1,2,3,4NREL (National Renewable Energy Laboratory) Data Book, 2011.

The Solar Industry 6

Solar Energy

Global Solar Market

OVERVIEW Solar energy demand has been on the rise, and the past decade was dominated by Europe, especially Germany
Germany

Global Solar Demand1

8000

(MW)

7,410

2009

2010

7000 6000
5,000

and Italy continue to rank as the two highest volume demand markets for solar PV in 2011 demand remains more uncertain, as slowdown is expected in Germany and limited growth in Italy

5000 4000 3000

3,800

2012

2000 1000 0
720 740 185 822 411

1,448 614 1,000 475 500 85 389 144 72158 1,030 481

Germany

Czech Republic

Rest of Europe

Canada

Asia and the U.S. are expected to emerge as the next powerhouses of growth in solar demand The solar industry has been hard hit again by increasing global competition, price pressure, supply chain bottlenecks, capacity oversupply and reduced subsidy support in key markets CRITICAL SUCCESS FACTORS
(Solar Generation as % of World Electricity Consumption)

France

India

Italy

US

Solar Generation as % of World Electricity Consumption2

12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2003 2010 2015E 2020E 2025E 2030E 3,000.0

Low production costs: Current European producers face plant closures, write downs and losses, while newer Chinese and U.S. manufacturers continue to expand and grab share with low price offers and improving product quality. This divergence is likely to accelerate as capital will flow from higher-cost to lowercost manufacturers Cost leadership and superior market access: In an increasingly competitive global market, solar panel manufacturers will need to lower costs by investing in R&D (i.e., increased efficiency) and scale to stay ahead of the pack New strategies: More JVs, outsourcing & tolling arrangements, mergers and levels of integration are possible responses to future industry growth
Source: 1Solarbuzz, 2Energy Information Administration.

China

Japan

(Solar GW Installed)

2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0

Solar GW Installed

Solar Generation as % of World Electricity Consumption

The Solar Industry 8

Global Supply and Demand Forecast

Poly-Si Supply and Demand Forecast1

250,000 50.0%

Wafer Supply and Demand Forecast2

30,000 40.0%

200,000

40.0%

24,000 30.0%

(y-o-y % growth)

(y-o-y % growth)

(MW)

(MT)

150,000

30.0%

18,000 20.0% 12,000 10.0% 6,000

100,000

20.0%

50,000

10.0%

0 2010 Supply Demand 2011E Supply: y-y growth 2012E

0.0%

0 2010 Supply Demand 2011E Supply: y-y growth 2012E

0.0%

Demand: y-y growth

Demand: y-y growth

Cell Supply and Demand Forecast3

30,000 20.0%

FY2011 witnessed a massive over-supply in silicon, wafer and cells segment

16.0%

24,000

18,000

12.0%

12,000

8.0%

6,000

4.0%

0 2010 Supply Demand 2011E Supply: y-y growth 2012E

0.0%

The supply-demand gap is expected to reduce in FY2012, driven through a potential revival of demand in Europe, which is the largest market for solar PV products Global capex is expected to decline by ~15% in FY2012 Further production capacity shutdowns in Europe are likely, while many second-tier players in China could also close capacity in the next 4 quarters if significant pressure remains on prices Current economic situation in Euro zone could be a major threat to demand Decrease in FiT in Europe particularly in Germany Fiscal uncertainty in Euro zone

(y-o-y % growth)

(MW)

Demand: y-y growth

Source: 1,2,3Mirae Asset Research.

The Solar Industry 9

Challenges to Global Solar Power

We believe the next 3-4 quarters will remain a difficult time for the players with lower margins and weaker balance sheets. Top producers with lower production costs and healthy balance sheets will be more resilient, while Tier II and III producers will face margin squeeze. This could lead to consolidation as comparatively healthier crystalline silicon or other energy companies look to acquire failing or weaker thin film companies

Challenges to Global Solar Power

Economic uncertainties

The economic trend in Europe and the US may impact every countrys government policy to support solar power across the globe, especially as Europe is the largest solar market in the world The favorable tax credits and Feed-In Tariff (FIT) might face cuts which will reduce the Internal Rate of Return (IRR) of solar power projects, thereby a fall in demand for solar power

Conventional power price The high coal and oil prices have lowered the IRR of conventional power projects, decrease thereby increasing the attractiveness of renewable energy If coal and oil prices drop, the IRR of conventional power projects will be higher, which will reduce the attractiveness of solar power Environmental policy to The process to produce PV components causes a certain degree of pollution. If the control the manufacturing government implements stricter standards or policies, it leads to an increase in the cost process of manufacturing Technology breakthrough Demand for solar power might be impacted if there is a technology breakthrough for in other renewable wind power to reduce wind power cost, or a technology breakthrough for nuclear power energies to reinforce safety, or a new development for other types of power such as, geothermal power, biomass generation or even nuclear fusion Infrastructure bottleneck If solar power demand or capacity installation is too fast, the development of the infrastructure for solar power, such as power grid connections, high voltage cables and storage batteries, may not be fast enough to facilitate the high growth of solar power capacities Eventually, the solar power demand growth may be capped by the growth of infrastructure Falling production costs have created an oversupply of PV components, leading to depressed ASPs. Therefore, marginal players lacking economies of scale with higher production costs will face higher margin squeeze pressure and this difficult environment could last until early 3Q12

Survival of the fittest

Source: SVB Analysis, Mirae Asset China Green Energy Report November 2011, pg.47

The Solar Industry 10

Key Global Solar Valuation Drivers

Brand Positioning
Outsource & Partnership

Cost Structure
Investment in Brand, Distribution & R&D

Western Solar Manufacturers

Quality & Innovation Distribution Strategy
Sell direct vs. distributor Sell modules vs. projects Sell projects vs. energy

Chinese Solar Manufacturers

Conversion Efficiency
R&D budgets Partnerships

Scale

Manufacturing Strategy
Horizontal vs. Vertical Processing expertise

Average Selling Price

Cost

Profit

Quality & Innovation Brand quality in solar is crucial because Solar industry requires 25year warranties Risk profile around module performance determines both bankability and project return Innovation in product quality and efficiency is a key factor

Distribution Strategy Using distributors lowers selling and distribution costs Increasingly, companies are moving downstream to chase greater profit pools and sell projects, not just modules alone

Conversion Efficiency Higher conversion efficiency lowers balance of system and fixed project costs and allows the installation customer to maximize revenue Higher efficiency modules are preferred, and command a premium price relative to conversion efficiency modules. All panels are becoming commoditized

Scale Scale or volume drives both cost and profitability Scale allows purchasing economies and improvements to cost based on the experience curve

Manufacturing Strategy Manufacturing in low cost geographies versus higher cost end markets is a key differentiator of cost today Firms decide to focus on kaizen1 process optimization and Just-InTime (JIT) inventory

Attributes

Source: SVB Analysis, Jeffries & Co. Energy Generation Solar report July 2010, pg.7. Note: 1Kaizen refers to "improvement", or "change for the better" , implies a philosophy or practice that focus upon continuous improvement of processes in manufacturing and engineering.

The Solar Industry 11

Electricity Prices

Select Countries: Cost of Electricity for Industrial Usage1

$0.35 $0.30 $0.25

Select Countries: Cost of Electricity for Household Usage2

$0.35 $0.30 $0.25

($ / KWh)

($ / KWh)

$0.20 $0.15 $0.10 $0.05 $0.00 2001 2002 2003 Italy 2004 2005 Japan 2006 Spain 2007 2008 U.S.

$0.20 $0.15 $0.10 $0.05 $0.00 2001 2002 2003 Italy 2004 2005 Japan 2006 Spain 2007 2008 U.S.

Germany

Germany

U.S.: Average Retail Price of Electricity to End-Customer3

$0.14 $0.12 $0.10

Typically, investments in electricity generation capacity have gone through boom and bust cycles, with periods of slower growth followed by strong growth, in response to changing expectations for future electricity demand and fuel prices According to Energy Information Administration, in the U.S., renewable electricity generation, excluding hydropower, accounts for nearly one-quarter of the growth in electricity generation from 2009 to 2035 Total non-hydropower renewable capacity is forecast to increase from 47 GW in 2009 to 100 GW in 2035 The largest increase is in wind-powered generating capacity Solar generating capacity expected to increase five-fold, with most capacity additions coming in the end-use sectors. The additions are based on a decline in the cost of PV systems and the availability of Federal tax credits through 2016

($ / KWh)

$0.08 $0.06 $0.04 $0.02 $0.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 U.S. Residential U.S. Commercial U.S. Industrial

Source: 1,2,3Energy Information Administration.

The Solar Industry 12

Feed-In Tariff (FIT) Overview Select Countries

A Feed-In Tariff (FIT), also known as standard offer contract or advanced renewable tariff is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering longterm contracts to renewable energy producers, typically based on the cost of generation of each different technology
In addition, FITs often include "tariff degression", a mechanism according to which the price (or tariff) ratchets down over time. This is done in order to track and encourage technological cost reductions The goal of FITs is ultimately to offer cost-based compensation to renewable energy producers, providing the price certainty and long-term contracts that help finance renewable energy investments. Hence incentives are the key drivers in the solar PV systems
History
Main incentives in form of invest. Tax Credit (ITC), and accelerated depreciation benefits, along with some state level incentives Boosted by cash grants in lieu of ITC in ACES bill passed in 2009 Adopted FIT program in mid 2006 Rooftop/BIPV get best rates Focus on aesthetics

Recent Activity
California fails to pass SF722; 33% renewable energy by 2020 expected Treasury cash grant extended for one more year (part of new tax bill) Cash grant due to lapse at end of 2011, revert to Inv. Tax credit (ITC) Enacted FIT rate cut for ground mount installs in September 2010 4 month moratorium on new solar PV connections to slow growth

Outlook
Approval of the treasury cash grants could divert some resources to regions where FIT rates are on the decline and more time sensitive Large scale projects for utilities should drive meaningful growth French government will likely cut FIT rates in 2011 (when install moratorium is lifted) Likely to mandate an installation cap

U.S.

France
Longest history of FIT incentives Adopted a very attractive FIT program in 2004 Revised its FIT program in 2009 to curb installation growth Midyear FIT cuts effective July 2010 and October 2010 Restrictions in the use of farm land for open field installations Further growth will become increasingly more challenging Ground mount power-plants to drop sharply in 2011 More FIT cuts likely in 2011

Germany

Italy

Adopted FIT program in 2007 with 2% digression scheduled for 2009 and 2010 Italy has a ~3GW installing goal over 3 years (2010 2012)

Planned 2011 FIT cuts to be implemented in three phases, with ground mount systems seeing larger cuts than rooftop

More FIT cuts likely to be announced for 2012, along with talks of a cap Installations are expected to grow y/y as FIT rates remain relatively attractive Given growing burden of funding the FIT program, Spain is not expected to be a meaningful market in 2011

Adopted one of the most attractive FIT programs in 2006 Surge in installations lead to severe cuts and 500MW hard cap

Spain
Adopted FIT program in early 2010

Announced planned FIT cuts: 5% for small rooftop, 25% larger rooftop, and 45% for power plants Threats of retroactive FIT cuts did not pass

Adoption of new FIT rates have led to robust growth, but not likely to break over 200MW in 2011

Installations in the UK expected to grow y/y, but at a moderate pace (and still relatively small)

U.K.

Source: Deutsche Bank Alternative Energy Solar Photovoltaic Industry January 2011, pg.6.

The Solar Industry 13

Levelized Cost Of Energy (LCOE)

INDUSTRY1 LCOE is defined as the $/MWh price for an inflation-adjusted, fixed-price power off-take agreement that, taking into account all projectspecific costs, offers the project developer the minimum equity return necessary to undertake the project

LCOE Cost2

$250.0
$232.9

LCOE ($ / MWh)

LCOE is the sum of capital amortization, interest payments to creditors and dividends to investors, and operation and maintenance over the entire lifecycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies Factors that go into calculating it for solar, the most important of which are costs of equity, longevity, efficiency of the panels and inverters, and of course location

$200.0

$150.0

$138.1 $129.8 $104.4

$100.0
$74.9 $70.1 $59.8 $57.3

The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs, capital and operating costs, and generation efficiency Solar LCOE is the highest amongst different sources of energy LCOE estimates for wind and especially solar PV power have declining. PV prices dropped sharply from 20082010, and for every doubling in capacity a corresponding 28% drop in solar PVs cost is witnessed
Source: 1,2Bloomberg & CIBC World Markets. Initiating Coverage April 2011.

$50.0

$0.0

Municipal Solid Waste

The Solar Industry 14

Natural Gas

Landfill Gas

Wind

Geothermal

Solar PV

Biomass

Coal

U.S. Solar Market

OVERVIEW The total size of the U.S. solar market grew 67% from $3.6 billion in 2009 to $6.0 billion in 2010 Solar electric installations in 2010 totaled 956 megawatts (MW) to reach a cumulative installed capacity of 2.6 gigawatts (GW) Photovoltaic (PV): Grid-connected PV installations grew 102% in 2010 to reach 878 MW, up from 435 MW in 2009, bringing cumulative installed PV capacity in the U.S. to 2.1 GW Sixteen states had installed more than 10 MW of PV in 2010, up from four states in 2007 52,600 PV systems were connected in 2010, bringing the cumulative number of grid-connected PV systems in the U.S. to 152,516 U.S. PV cell production capacity reached 2,112 MW in 2010, with cell production across all technologies increasing by 88% to by the end of the year Historically in the U.S., non-residential installations drove the market, comprising more than 45% of total installations. In 2010, however, both the residential and utility markets expanded rapidly such that each of the three market segments contributed over 25% of total installations Concentrating Solar Power / Thermal (CSP / CST): The largest U.S. CST plant to come online in nearly 20 years, was completed in 2010 - The 75 MW Martin Next Generation Solar Energy Center Six U.S. states have operating CST projects, a total of 17 operating plants which cumulatively generated 507 MW in 2010

U.S. PV Installations (2005 - 2010)1

1,000 900 800 878

Installations (MW)

700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 79 160 105 290 435

U.S. PV Installed Capacity by Segment (2005 - 2010)2

1,000 900

Installations (MW)

800
264

700 600 500 400

157 372

300
77

200 100 0
58 27 51 1 38 67 93 9 22 190

208 242 70

2005

2006 Utility

2007

2008

2009

2010

Non-Residential

Residential

Source: 1,2Solar Energy Industries Association.

The Solar Industry 15

Solar Value Chain

Solar Electric Technology

Solar Photovoltaic

Concentrated Solar Power / Thermal (CSP / CST)

Silicon

Compounds

Parabolic Trough

Power Tower

Dish Design

Fresnel Reflector

Wafers

Traditional Silicon Cell

Thin Film

Modules

Balance of System Components

Installation / Servicing

The Solar Industry 16

Solar Photovoltaics

PV Value Chain
Polysilicon & precursors Wafers to PV modules Installation to energy

C-Si approach

SIH4 / TCS

Polysilicon

Wafers

PV Cells

PV Modules

Distribution

Installation

Energy

Manufacturing Equipment

Ancillary Equipments

Financing

Thin film approach

PV Cells Upstream (manufacturing) Polysilicon manufacturing industry has moved to Asia Global incumbents increasing capacity

PV Modules

Distribution

Installation

Energy

Downstream (energy) Installation to energy end market in the U.S is anemic compared to leading markets Effective feed-in tariff (FIT) incentives drove primary markets largely in Europe U.S market is driven largely by tax incentives a less efficient approach to drive market growth

The market

Wafer to PV module manufacturing is weak and getting weaker in the U.S. Tax incentives/holidays, labor costs and supply chain benefits have driven ingot/wafer to module manufacturing to Asia All the industrys leaders and largest players are expanding capacity in Asia

Issues / drivers

Tax liability Geography safety Supply chain cost Consumables (electricity) cost Skills-set; experience base Labor cost Landed cost1

Tax liability Supply chain cost Labor cost Landed cost Geography end market

Project returns (ROI) Incentives Risk mitigation Geography Cash flow mismatch - structured finance vehicles Private capital scarcity Limited supply of tax equity

Source: Deutsche Bank Alternative Energy Solar Photovoltaics May 2010, pg. 25. Note: 1The total cost of a landed shipment including purchase price, freight, insurance, and other costs up to the port of destination.

The Solar Industry 18

Global PV Market

OVERVIEW1
European Photovoltaic Industry Association (EPIA) estimated that global cumulative installed PV capacity totaled nearly 40GW by the end of 2010 The ~16.6GW of additional capacity installed in 2010 constituted a 131% increase over the 7.2GW installed in 2009, for a 71% increase in global cumulative installed PV capacity European markets accounted for ~74% of installed capacity

Global Installed PV Capacity (2010)2

The biggest markets globally are Germany, Italy, Spain, France, U.S. and Czech Republic

Other markets include Japan, China and India Wafer to module manufacturing has largely moved to Asia

With the rapid initial phase growth of the solar PV industry over the past several years, manufacturing moved to lower cost/heavily subsidized regions in Asia

EU (74%)

Japan (9%)

U.S. (6%)

China (2%)

ROW (8%)

2012 Global Solar Industry - Outlook3

Subsidy reductions in major solar PV markets Large subsidy reductions in major solar PV markets, including Germany, Italy and U.S. might negatively impact demand level and pricing in 2012 2nd and 3rd tier companies might disappear due to consolidation in the sector, which might lead to a predatory product pricing scenario Historically, PV module makers primarily focused on increasing manufacturing scale in order to reduce product and associated solar PV system costs, but 2012 is expected to be the year where manufacturers fully switch their focus to improving efficiency of products Shale-based natural gas production growth in North America is being viewed as an alternative to more expensive renewable energy sources (like solar) until such renewable technologies can become competitive

Industry consolidation

Raising R&D expense

Other conventional alternatives

Source: 1,2U.S. Department of Energy ,2010 Solar Technologies Market Report released in November 2011, pg. xiii, 3JP Morgan Alternative Energy report January 2012.

The Solar Industry 19

Analysis of Pricing & Margins

OVERVIEW
Module prices have dropped 60-80% over the last 2 years. Sharp drop in production costs enabled module prices to drop sharply. Module suppliers would have started to post losses and supply would have contracted, if the costs had not declined on pace with Average Selling Price (ASP) Module production costs and pricing: Gross margin dollars are earned in every segment of the solar PV module supply chain but how much of the gross margin dollars captured depends on how vertically integrated a company is, and how efficient they are in each sub-segment

Breakdown of Costs and GP by Segment1

$1.4

US$1.20
$0.06 $0.35

ASP / Cost per watt

$1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $0.0

US$1.10
$0.07 $0.33

Full vertical integration: Top tiered, vertically integrated suppliers can drive low to mid-30% gross margins. However, this comes at the expense of higher capex and fixed overhead. As a result, production costs would go up if capacity were to be under-utilized Less integrated: Less integrated suppliers purchase wafers, and/or cells to build modules and do not benefit from the associated gross margins dollars. But wafer/cell prices are likely to be at a discount in an oversupply state, potentially offering more flexibility and better cost structure in a downturn Drive to vertical integration: Most module suppliers are ramping internal wafering and cell processing while wafer and cell suppliers are expanding into module assembly, in an effort to improve gross margins. This is driving capacity ramp throughout the supply chain, and raising the risk of over-supply should demand growth slow or contract

$0.08 $0.18 $0.01 $0.22 $0.30 2011E

$0.07 $0.16 $0.03 $0.20 $0.24 2012E

p-Si Cost Cell Processing Cost Module GP

Wafer Processing Cost Cell GP

Wafer GP Module Assembly Cos

Prices of modules expected to fall below US$1.0 / Watt for top tiered companies in FY2012

Forecast for Solar Pricing across Value Chain2

FY2010 Europe China Polysilicon - Spot US$ / kg 70.0 60.0 0.90 1.36 2.08 85.0 80.0 0.92 1.30 1.82 U.S. 1.47 1Q 2011 Europe China 69.0 65.0 0.90 1.23 1.93 74.0 70.0 0.90 1.20 1.71 U.S. 1.53 2Q 2011E Europe China 65.0 58.0 0.84 1.11 1.78 69.0 65.0 0.70 0.95 1.50 U.S. 1.34 3Q 2011E Europe China 48.0 54.0 0.67 0.94 1.58 48.0 60.0 0.57 0.80 1.35 U.S. 1.25 4Q 2011E Europe China 45.0 50.0 0.64 0.88 1.43 45.0 55.0 0.55 0.75 1.22 U.S. 1.10 FY2011E Europe China 57.0 58.0 0.76 1.04 1.68 59.0 63.0 0.68 0.93 1.45 U.S. 1.30 FY2012E Europe China 35.0 51.0 0.53 0.81 1.35 35.0 45.0 0.45 0.69 1.15 U.S. 1.00

Polysilicon - Contract US$ / kg Wafer Cell Module US$ / Watt US$ / Watt US$ / Watt

Source: 1,2Goldman Sachs Global Clean Energy Solar July 2011, page 10 & 13.

The Solar Industry 20

Analysis of Pricing & Margins

MODULE PRICING & COST DYNAMICS IMPACT ON GROSS MARGINS1
When the solar PV industry enters an over-supply state, second tier suppliers are expected to be the first to see drop off in demand. Price cuts in response would then lead module prices lower, eventually pulling down module ASPs across the board, to include top tiered suppliers Module prices will drop faster than cost cuts, leading to a gross margins squeeze (proportional to the level of over-capacity). If these price cuts fail to stimulate enough demand to support utilization levels, production costs would also start to increase pressuring gross margins from both sides (lower ASPs and rising costs) As module prices decline, the same level of gross margin percentage yields lower gross margin dollars. If operating expenses were to hold flat as gross margin dollars trended lower, profitability would quickly diminish

Global: Solar ASPs Dropped Faster than Expected2

$2.0 $1.8
$1.60

$1.6 $1.4
Spot ASP in US$ per watt $1.20

% change YTD (21%) $1.27

$1.2 $1.0 $0.8

$0.90

$0.78

(35%) (43%) (23%)

$0.6
$0.43

$0.4 $0.2 $0.0 Jun-10 Aug-10 Oct-10 Dec-10 Wafer Feb-11 Cell Apr-11 Module

$0.51 $0.33

Jun-11

Polysilicon

DRIVERS TO LOWER PRODUCTION COSTS3

Polysilicon costs: Prices have come down very substantially since peaking in mid 2008. At present capacity and on-going capacity ramp, prices could approach $45/kg and possibly go even lower should the supply demand imbalance extend over the next two years. Thinner wafers and higher efficiencies will all help to reduce the cost of polysilicon in solar PV modules Processing costs: Costs of ingoting, wafering, cell processing, and module assembly are all driving lower. Declining capital costs, larger ingots, faster ingot cutting (wafering), improved cell processing, and faster module assembly are all aiding cost improvement Conversion efficiency: Crystal (c-Si) silicon based solar PV module suppliers are driving to improve conversion efficiencies by adopting technology advances such as selective emitter, stacked metal lines, N-type wafers, backside contacts, etc. Average c-Si solar PV module conversion efficiency is expected to increase from ~15% to ~16% or more over the next couple of years

Global: Poly-silicon spot prices4

Long term contracted price range
$143.0
$121.0

$123.0 $103.0
US$ / kg
$83.0 $90.0 $70.0 $67.0 $56.0 $55.0 $55.0 $59.0 $45.0 $48.0 $30.0 $40.0 $35.0 $35.0 $74.0

$83.0 $63.0 $43.0 $23.0 $3.0

Q2 2011E

Q3 2011E

Q4 2011E

Q1 2012E

Q2 2012E

Q3 2012E

Polysilicon spot price (US$ / kg)

Source: 1,3Deutsche Bank Solar Photovoltaic Industry January 2011, pg. 19,

2,4Goldman

Sachs.

The Solar Industry 21

Q4 2012E

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

U.S.: Production, System Prices and Irradiance

OVERVIEW1
2010 production increased substantially year-over-year for wafers (97% growth), cells (81% growth), and modules (62% growth) Factors contributing to strong domestic manufacturing include: Strong growth in global demand: From 7.1 GW in 2009 to over 17 GW in 2010 (a significant percentage is exported to Germany) Doubling of domestic demand: From 435 MW in 2009, to 878 MW Increases in manufacturing capacity in the U.S.: Wafer capacity increased 82% to 1,018 MW Cell capacity increased 32% to 1,657 MW Module capacity increased 20% to 1,684 MW National weighted-average system prices fell by 20.5% over the course of 2010, from $6.45/W to $5.13/W. Much of this decline was due to a shift toward larger systems, particularly utility systems Market is highly disintegrated even within a given state and market segment Due to high solar irradiance in certain parts of the U.S., states such as CA and AZ have the highest usage of Solar PV and CST technologies

U.S. National Weighted-Average System Prices2

$7.5 $7.0 $6.5 $6.0

(US$)

$5.5 $5.0 $4.5 $4.0 $3.5 $3.0 Q1 2010 Residential Q2 2010 Non-residential Q3 2010 Utility Q4 2010 Blended

Global Solar Irradiance3

U.S. Solar Irradiance4

Source: 1,2Solar Energy Industries Association, 2010 Year in Review, pg.10 & 11, 3Prometheus Institute, 4Greentech Media.

The Solar Industry 22

U.S. PV Market

OVERVIEW
By the end of 2010, cumulative installed PV capacity reached 2.5GW, following the installation of approximately 918MW that same year In 2010, the U.S. moved down from fourth to fifth place in terms of annual installed PV capacity, despite the 54% increase in cumulative installed PV capacity from 2009 to 2010 Outlook: In 2011, installations in the U.S. are likely to double the 2010 total, but global markets will experience slower growth Project financing remains available at attractive terms for some projects, new markets are emerging and showing strength, and incumbent markets continue their rise The expiration of the Treasury Cash Grant program at the end of 2011, as well as the potential rescission of Federal Loan Guarantee funds remain a concern

Grid-connected PV Capacity by State Market Share 20101

California (47%) Nevada (5%) Pennsylvania (3%)

New Jersey (12%) Arizona (5%) Florida (3%)

Colorado (6%) New York (3%) Others (16%)

PV: Thin Film Technologies vs. Silicon Wafer based Technologies2

Thin Film Technologies Lower material requirements Simpler manufacturing process Favorable temperature coefficient and diffuse light performance Steeper learning curve improvements Energy value advantage Silicon Wafer based Technologies Highest market share in solar technology Higher panel efficiencies Well suited for confined areas such as residential rooftops Producers have achieved economies of scale

Advantages

Challenges

Unfavorable module efficiency at standard test conditions Relatively small share of todays market Expensive technology SmartCards, RFID tags, implantable medical devices, microelectronic devices, flexible displays and E-papers

Higher material and production costs

Application
Source: 1NREL.

Electronics, panels

The Solar Industry 23

Photovoltaic Process Technologies

Wafers Crystalline Silicon PV Cells Modules Thin Films PV

Thin slice of semiconductor material, such as a silicon crystal, used in the fabrication of integrated circuits and other microdevices Technology The wafer undergoes many microfabrication process steps such as doping or ion implantation, etching, deposition of various materials, and photolithographic patterning

Solid state electrical device that converts the energy of light directly into electricity by the photovoltaic effect Separated into 3 categories based on crystallinity and crystal size in the resulting ingot, ribbon or wafer Monocrystalline Silicon (c-Si), Polycrystalline Silicon (mc-Si) and Ribbon Silicon

Assemblies of cells constitute a module or panels

Layer of material ranging from fractions of a nanometer (monolayer) to several micrometers in thickness 4 basic categories based on materials used - Amorphous silicon (a-Si), Cadmium telluride (CdTe), Copper Indium Gallium Selenide (CIS/CIGS), and Emerging (dye-sensitized, organic, GaAs) Cadmium Telluride and Copper Selenide are not widely supported, have high production cost and material instability (toxic etc) Conversion efficiencies are not as high as crystalline silicon PV

Higher material cost and higher installation cost, even though costs continue to decrease as companies ramp up new capacity and improve production processes Functionality during non-ideal sun conditions (early morning and late afternoon) Key bets

Developers

Note: Partial list of developers..

The Solar Industry 24

Photovoltaic Landscape

Ancillary / Inverters

System

Equipment & Polysilicon

Module

Wafer

Integrated Midstream

Cell

Publicly Traded

Note: Partial list of companies.

The Solar Industry 25

New Technologies Concentrator Photovoltaics (CPV)

OVERVIEW How it works: CPV uses inexpensive materials such as mirrors or plastic lenses to capture the suns energy and focuses it onto PV solar cells. CPV technology differs from flat-plate PV modules through the use of high-efficiency, multijunction PV solar cells Concentrated PV (CPV) systems concentrate sunlight on solar cells, greatly increasing the efficiency of the cells The PV cells in a CPV system are built into concentrating collectors that use a lens or mirrors to focus the sunlight onto the cells
CPV

CPV Systems Classification1

CPV Type HCPV Lens CPV Medium CPV Tracking Medium CPV Tracking LCPV LCPV Non-Tracking LCPV <5 300 - 1000 5 < x < 120 <5 System Dish CPV Concentration Ratio "Suns" 500 - 1500

systems must track the sun to keep the light focused on the PV cells

CPV Collector

Advantages: High efficiency Low system cost: The systems use less expensive semiconducting PV material to achieve a specified electrical output Low capital investment to facilitate rapid scale-up Ability to use less solar cell material Concerns: Reliability: Systems generally require highly sophisticated tracking devices
Source: 1Solar EIS Note: Suns: Intensity concentration, since standard peak solar irradiance is often set at 0.1 W/cm, the suns concentration is defined as the ratio of the average intensity of the focused light on the cell active area divided by 0.1 W/cm.Suns concentration is typically less than geometric concentration, because a CPV system only responds to direct normal irradiation (DNI), which is about 0,085 W/cm and does not take into consideration optical losses.

The Solar Industry 26

Solar Value Chain

Solar Electric Technology

Solar Photovoltaic

Concentrated Solar Power / Thermal (CSP / CST)

Silicon

Compounds

Parabolic Trough

Power Tower

Dish Design

Fresnel Reflector

Wafers

Traditional Silicon Cell

Thin Film

Modules

Balance of System Components

Installation / Servicing

The Solar Industry 27

Concentrated Solar Power / Thermal (CSP / CST)

Concentrated Solar Power / Thermal (CSP / CST)

OVERVIEW
CST technology has a global installed capacity of around 600 MW. The industry added only 60MW in 2009 Around 80% of installed CST capacity is in the U.S., while other countries that have CST installations include Spain (60-80 MW) and Israel (5-10 MW)

ADVANTAGES
While not competitive with coal or other base-load sources, CST costs have fallen to the point where these plants can be competitive with conventional energy at peak demand in locations with high Direct Normal Irradiance (DNI)1 and supportive government policy environments Many modern CST technologies in use have been tested and conceptually proven since the 1980s, thus providing a stable platform which attracts significant project financing Collection of solar energy in thermal (rather than electric) form allows for low cost storage, which eases intermittency burdens on utilities as their renewable energy loads increase. This creates a compelling commercial argument for CST, which fits very well with the needs of utilities while avoiding many of the intermittency drawbacks inherent to other grid-scale renewable energy sources Solar operation provides a significant hedge against increased costs of conventional power generation (including fuel and potential carbon costs), particularly as rising international natural gas prices continue to impact peak generation costs For the project financiers who must evaluate generating plants over 20+ year timelines, this reduction in uncertainty is vital Scalability of CST technologies allows for significant growth in global installed capacity, subject to resource, land, funding and component/ equipment constraints

Investors Ample room for venture capital-stage investing, particularly in sub-sector/component innovators and follow-on rounds for tower, Compact Linear Fresnel Reflector (CLFR) and dish-engine developers Project financing inflows will rise dramatically as developers of established technologies execute their announced pipelines Companies Maturation and rapid expansion of deployed CST will provide significant opportunities for both primary project developers and a range of sub-component suppliers and technology providers Impact of component supply constraints, policy uncertainty and bureaucratic burdens will continue to be felt by developers Proving viability of advanced designs will be vital for growth of non-trough CST systems Outlook 2011 is expected to be a light year for CST with few projects expected to complete within the year However, there are over 6.4 GW of CST projects with signed utility Power Purchase Agreements (PPAs) with expected completion between 2011 and 2017
Source: Cleantech Technology Innovation Report.

Note: 1Direct Normal Irradiance (DNI) is the amount of solar radiation received per unit area by a surface that is always held perpendicular (or normal) to the rays that come in a straight line from the direction of the sun at its current position in the sky. Typically, you can maximize the amount of irradiance annually received by a surface by keeping it normal to incoming radiation.

The Solar Industry 29

Primary CST Technologies

Parabolic Trough Compact Linear Fresnel Reflector Power Tower Dish Engine

Most common collector at CST plants, utilizes long, parabolic reflectors that tilt with the sun as it moves across the sky

CLFRs use long, thin segments of mirrors to focus sunlight onto a fixed absorber located at a common focal point of the reflectors These mirrors are capable of concentrating the suns energy to approximately 30 times its normal intensity Lower capital cost through simplified design, which reduces material inputs and precision requirements, will compensate for reduced CLFR optical performance CLFR developers will be able to validate their claims by bringing commercial-scale systems online successfully in the next few years

Technology

The reflectors focus sun rays on a receiver pipe filled with fluid. The heated fluid is used to produce steam, which in turn powers turbines just as in a fossil fuel or nuclear-powered system Most powerful type of collector where losses due to atmosphere between the dish and its focal point are minimal as compared to other designs

Although utilizing many of the same basic principles as trough and CLFR systems, towers use a field of two-axis, tracking heliostats (mirrors) arrayed around a central receiver tower to concentrate solar energy on a single receiver point

Consists of a stand-alone parabolic reflector that concentrates light onto a receiver positioned at the reflector's focal point. The reflector tracks the Sun along two axes

Success with full-size and/or micro-heliostat approaches will lead to declining tower project costs and increased commercial development of power towers Precise monitoring and control of both heliostat arrays and high temperature receiver/transfer systems will allow towers to capitalize on their technical strengths

Capital costs will fall as manufacturing processes are streamlined and large-scale deployments begin The lack of immediate energy storage options will not undermine dish-engine competitiveness relative to other CSP technologies

Key bets

In desert climates parabolic trough offers the lowest cost solar electric option for large-scale power plants, where electricity from large-scale parabolic trough plants is 50% to 75% cheaper than electricity from PV system

Key developers

The Solar Industry 30

CST Technologies Landscape

Parabolic Trough

Dish Engine

Compact Linear Fresnel Reflector

Power Tower

Note: Partial list of companies..

The Solar Industry 31

PV Balance of Systems

OVERVIEW1 Balance of System (BoS) costs refers to all costs except the PV module

BoS Cost Roadmap, 10 MW Fixed Tilt Blended c-Si Project in U.S., 2010-20132

BoS costs currently account for about half the installed cost of a commercial or utility PV system Module price declines without corresponding reductions in BoS costs will hamper system cost competitiveness and adoption

BOS components generally fall into three categories:

Mounting, which includes racking and tracking systems Power electronics, which includes inverters and maximum power point tracking devices Installation, which includes the engineering and design work and the actual labor of putting a system in place

Cost Breakdown of Conventional U.S. PV Systems 20103

In 2010, BOS costs accounted for approximately 44.8% (US$1.43 per watt) of a typical, utility-scale crystalline silicon (c-Si) project, with that percentage forecasted to increase to 50.6% in 2012 Innovation in the BOS space has been limited, given its smaller share of the total system. But as many BOS players begin to integrate their offerings into full-service component packages, the market is positioning for meaningful economic gains Considerations for BoS cost reduction strategies:

Each PV system has unique characteristics and must be individually designeddifferences between sites, regions, and design objectives Cost is dispersed across several categories, therefore reductions will come from many relatively small improvements

Source: 1,3RMI.org, Solar PV Balance of System pg.2, 5, September 2010, and GreenTech Media; 2GreenTech Media June 2011 Solar PV Balance of System (BOS): Technologies and Markets.

The Solar Industry 32

Residential Photovoltaic Systems Solar Leasing

OVERVIEW1 Rooftop solar panels are becoming attractive to a set of consumers who are choosing to lease rather than buy, and enjoying the low upfront costs and immediate savings Fresh demand for PV cells is expected to be driven by solar leasing as against a subsidy and regulation-dependent distribution model How it works:
Solar

Parties in Leasing Agreement1

Government
Tac Incentives Rebates REC Issuance Sale of clean solar kWh MACRS

System sale

Solar Integrator
100% of cost of commissioning

Solar Leasing Companies

Customer

leasing companies raise money by guaranteeing a certain rate of return for investors

Reduced cost per kWh paid to company under PPA terms

Sale of SREC to market

Instead

of purchasing a PV system, a homeowner enters into a contract with a lessor (the owner) of a PV system and agrees to make monthly lease payments over a set period of time while consuming the electricity generated. If the local utility has a net-metering policy, the homeowner will receive credit for any excess electricity sent back to the grid

Solar Leasing Companies

Source: 1www.Solarpowerwindenergy.org.

The Solar Industry 33

Appendix

Fund Flow for Purchase & Installation of PV Solar Panels

Utility Solar Initiative Rebates

Tax Equity Fund

Lease PV for 18 yrs.

Tax Equity Investor

60-90 day A/R payment

$
SVB

E2

Owner 50.01% Sponsor 49.99% Tenant

B $
To build PV arrays

Tenant 99.99% Bancorp 0.01% Sponsor

A $

$ $ E1
Financing to purchase arrays

C
Lease payments under 18 year PPA

$G

SVB advances

Sponsor

D $ $ F
Customer down payments

Customer

Purchase & installation of PV arrays

Solar Equipment Manufacturers & Installers

SVB Analysis.

The Solar Industry 35

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