Silicon Valley Bank Solar Industry Report

The Solar Industry March 2012

The Solar Industry 2

Solar Outlook ndash Macro Observations

bull Large and growing market mdash Through it all the installed solar market is growing rapidly with no end in sight Even as subsidies may be eliminated new markets grid

paritycost and better distributed transmission should continue to fuel growth

bull Activity from foreign strategics mdash 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 TotalSunPower SKHeliovolt StionAvaco and others in the pipeline

bull Good news for downstream mdash Lower costs equal grid parity better downstream margins Good for the developers and financiers of generation

bull Donrsquot underestimate China (or South Korea for that matter) mdash Chinarsquos 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

bull ASPs may continue to plummet as oversupply sustained for at least 12 months mdash Gluts in all steps of the supply chain from crystalline silicon to panels will take time to work through

bull Massive consolidation mdash The lucky ones have enough technology to interest foreign and the remaining US players (eg 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 ldquodriftrdquo away

bull Exits will only occur on results not promise

bull The Solyndra Effect mdash 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

OBSERVATIONS

Solar Outlook ndash Micro Observations

bull ldquoItrsquos all about the costs stupid helliprdquo mdash 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

bull Revenue growth is fleeting mdash 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

bull Sales cycles are very long for certain channels mdash 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

bull Bad news for new entrants mdash Yes there are still new players devising ever more advanced technologies The likelihood of venture support is negligible

bull Exits may look more like ldquoabsorptionrdquo than traditional MampA or IPO mdash Except for potential downstream plays like Solar City and BrightSource IPO is likely a distant aspiration and certainly challenged valuation

hellip OR LESSONS TO LIVE BY

Clean Tech Eco System A

Commercial

Industrial

Utilities Government and Others

bull Batteries bull Fuel Cells bull Utility Scale

grid storage

Materials and Manufacturing En

bull Building materials bull Lighting bull Demand

response systems bull Energy

Management

bull Smart Grid Hardware

bull Smart meters bull Transmission

bull Agriculture bull Air bull Water

bull Improved and economical source of energy

bull Less pressure on non-renewable resources (oil and gas)

bull Energy security bull Grid Off Grid

bull Improved power reliability

bull Intermittency Management

bull Increased cycleslonger storage

bull Efficiency

bull Reduced operating costs

bull Lower maintenance costs

bull Extended equipment lives

bull Reduction in wastage

bull Reduce outage frequency duration

bull Reduce distribution loss

bull Economic in nature - well-run recycling programs cost less to operate than waste collection and landfilling

bull Organic pesticides fertilizers

bull Water purification

bull Water remediation

bull Purification bull Management

Residential

bull Solar Thermal bull Wind bull Hydro bull Alternative fuels

Energy Generation Energy Storage Energy

Efficiency Energy

Infrastructure

Recycling amp Waste

Management

Agriculture Air amp Water

Materials amp Manufacturing

bull Waste to energy bull Waste

repurposing

Global Analysis of Renewable Energy Development

Top Countries with Installed Renewable Electricity by Technology1

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

US Analysis of Top States for Renewable Energy Development

US Solar Energy Development1 US Geo-Thermal Generation2

US Hydropower Generation3 US Wind Power Generation4

Solar Energy

720185 411 614 475

85 144 72481

740 8221448

1000500 389 158

t of E

2009 2010

Global Solar Market

Global Solar Demand1

Solar Generation as of World Electricity Consumption2

OVERVIEW

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

mdash Germany and Italy continue to rank as the two highest volume demand markets for solar PV in 2011

mdash 2012 demand remains more uncertain as slowdown is expected in Germany and limited growth in Italy

bull Asia and the US are expected to emerge as the next powerhouses of growth in solar demand

bull 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

bull Low production costs Current European producers face plant closures write downs and losses while newer Chinese and US 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 lower-cost manufacturers

bull Cost leadership and superior market access In an increasingly competitive global market solar panel manufacturers will need to lower costs by investing in RampD (ie increased efficiency) and scale to stay ahead of the pack

bull New strategies More JVs outsourcing amp tolling arrangements mergers and levels of integration are possible responses to future industry growth

2003 2010 2015E 2020E 2025E 2030E

Solar GW Installed Solar Generation as of World Electricity Consumption

(Solar G

W Installed)

Source 1Solarbuzz 2Energy Information Administration

Global Supply and Demand Forecast

Poly-Si Supply and Demand Forecast1 Wafer Supply and Demand Forecast2

Cell Supply and Demand Forecast3 bull FY2011 witnessed a massive over-supply in silicon wafer and cells segment

bull 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

mdash Global capex is expected to decline by ~15 in FY2012 mdash 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

bull Current economic situation in Euro zone could be a major threat to demand

mdash Decrease in FiT in Europe particularly in Germany mdash Fiscal uncertainty in Euro zone

100000

150000

200000

250000

2010 2011E 2012E

Supply Demand Supply y-y growth Demand y-y growth

2010 2011E 2012E

(y-o-y grow

Source 123Mirae Asset Research

(y-o-y grow

th) (M

(y-o-y grow

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

Source SVB Analysis Mirae Asset China Green Energy Report November 2011 pg47

bull The economic trend in Europe and the US may impact every countryrsquos government policy to support solar power across the globe especially as Europe is the largest solar market in the world

bull 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

Economic uncertainties

bull The high coal and oil prices have lowered the IRR of conventional power projects thereby increasing the attractiveness of renewable energy

bull If coal and oil prices drop the IRR of conventional power projects will be higher which will reduce the attractiveness of solar power

Conventional power price decrease

bull The process to produce PV components causes a certain degree of pollution If the government implements stricter standards or policies it leads to an increase in the cost of manufacturing

Environmental policy to control the manufacturing process

bull Demand for solar power might be impacted if there is a technology breakthrough for wind power to reduce wind power cost or a technology breakthrough for nuclear power to reinforce safety or a new development for other types of power such as geothermal power biomass generation or even nuclear fusion

Technology breakthrough in other renewable energies

bull 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

bull Eventually the solar power demand growth may be capped by the growth of infrastructure

Infrastructure bottleneck

bull 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

Key Global Solar Valuation Drivers

Quality amp Innovation

Distribution Strategy

Conversion Efficiency

Scale Manufacturing Strategy

Western Solar Manufacturers

Chinese Solar Manufacturers

Profit

Cost Average Selling Price

bull Sell direct vs distributor bull Sell modules vs projects bull Sell projects vs energy

bull RampD budgets bull Partnerships

bull Horizontal vs Vertical bull Processing expertise

Outsource amp Partnership Investment in Brand Distribution amp RampD

Brand Positioning Cost Structure

Attributes

Brand quality in solar is crucial because - bull Solar industry requires 25-

year warranties

bull Risk profile around module performance determines both bankability and project return

bull Innovation in product quality and efficiency is a key factor

bull Using distributors lowers selling and distribution costs

bull Increasingly companies are moving downstream to chase greater profit pools and sell projects not just modules alone

bull Higher conversion efficiency lowers balance of system and fixed project costs and allows the installation customer to maximize revenue

bull Higher efficiency modules are preferred and command a premium price relative to conversion efficiency modules All panels are becoming commoditized

bull Scale or volume drives both cost and profitability

bull Scale allows purchasing economies and improvements to cost based on the experience curve

bull Manufacturing in low cost geographies versus higher cost end markets is a key differentiator of cost today

bull Firmrsquos decide to focus on ldquokaizenrdquo1 process optimization and Just-In-Time (JIT) inventory

Quality amp Innovation Distribution Strategy Conversion Efficiency Scale Manufacturing Strategy

Source SVB Analysis Jeffries amp Co Energy Generation ndash Solar report July 2010 pg7 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

2001 2002 2003 2004 2005 2006 2007 2008

Germany Italy Japan Spain US

Electricity Prices

Select Countries Cost of Electricity for Industrial Usage1 Select Countries Cost of Electricity for Household Usage2

US Average Retail Price of Electricity to End-Customer3 bull Typically investments in electricity generation capacity have gone through ldquoboom and bustrdquo cycles with periods of slower growth followed by strong growth in response to changing expectations for future electricity demand and fuel prices

bull According to Energy Information Administration in the US renewable electricity generation excluding hydropower accounts for nearly one-quarter of the growth in electricity generation from 2009 to 2035

mdash Total non-hydropower renewable capacity is forecast to increase from 47 GW in 2009 to 100 GW in 2035

mdash The largest increase is in wind-powered generating capacity mdash 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

2001 2002 2003 2004 2005 2006 2007 2008

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US Residential US Commercial US Industrial

Source 123Energy Information Administration

Feed-In Tariff (FIT) Overview ndash 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 long-term contracts to renewable energy producers typically based on the cost of generation of each different technology In addition FITrsquos 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 FITrsquos 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 Recent Activity Outlook

France

bull Main incentives in form of invest Tax Credit (ITC) and accelerated depreciation benefits along with some state level incentives

bull Boosted by cash grants in lieu of ITC in ACES bill passed in 2009

bull California fails to pass SF722 33 renewable energy by 2020 expected

bull Treasury cash grant extended for one more year (part of new tax bill)

bull Cash grant due to lapse at end of 2011 revert to Inv Tax credit (ITC)

bull Approval of the treasury cash grants could divert some resources to regions where FIT rates are on the decline and more time sensitive

bull Large scale projects for utilities should drive meaningful growth

bull Adopted FIT program in mid 2006 bull RooftopBIPV get best rates bull Focus on aesthetics

bull Enacted FIT rate cut for ground mount installs in September 2010

bull 4 month moratorium on new solar PV connections to slow growth

bull French government will likely cut FIT rates in 2011 (when install moratorium is lifted)

bull Likely to mandate an installation cap

bull Longest history of FIT incentives bull Adopted a very attractive FIT

program in 2004 bull Revised its FIT program in 2009 to

curb installation growth

bull Midyear FIT cuts effective July 2010 and October 2010

bull Restrictions in the use of farm land for open field installations

bull Further growth will become increasingly more challenging

bull Ground mount power-plants to drop sharply in 2011

bull More FIT cuts likely in 2011

bull Adopted FIT program in 2007 with 2 digression scheduled for 2009 and 2010

bull Italy has a ~3GW installing goal over 3 years (2010 ndash 2012)

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

bull More FIT cuts likely to be announced for 2012 along with talks of a cap

bull Installations are expected to grow yy as FIT rates remain relatively attractive

bull Adopted one of the most attractive FIT programs in 2006

bull Surge in installations lead to severe cuts and 500MW hard cap

bull Announced planned FIT cuts 5 for small rooftop 25 larger rooftop and 45 for power plants

bull Threats of retroactive FIT cuts did not pass

bull Given growing burden of funding the FIT program Spain is not expected to be a meaningful market in 2011

bull Adopted FIT program in early 2010 bull Adoption of new FIT rates have led to robust growth but not likely to break over 200MW in 2011

bull Installations in the UK expected to grow yy but at a moderate pace (and still relatively small)

Germany

Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6

Levelized Cost Of Energy (LCOE)

LCOE Cost2 INDUSTRY1

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

mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies

mdash 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

bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies

bull 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

bull Solar LCOE is the highest amongst different sources of energy

bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed

$1381$1298

$749 $701$598 $573

fill G

Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011

US Solar Market

US PV Installations (2005 - 2010)1

US PV Installed Capacity by Segment (2005 - 2010)2

OVERVIEW

bull The total size of the US solar market grew 67 from $36 billion in 2009 to $60 billion in 2010

bull Solar electric installations in 2010 totaled 956 megawatts (MW) to reach a cumulative installed capacity of 26 gigawatts (GW)

Photovoltaic (PV) bull 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 US to 21 GW

bull Sixteen states had installed more than 10 MW of PV in 2010 up from four states in 2007

bull 52600 PV systems were connected in 2010 bringing the cumulative number of grid-connected PV systems in the US to 152516

bull US PV cell production capacity reached 2112 MW in 2010 with cell production across all technologies increasing by 88 to by the end of the year

bull Historically in the US 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) bull The largest US CST plant to come online in nearly 20 years

was completed in 2010 - The 75 MW Martin Next Generation Solar Energy Center

bull Six US states have operating CST projects a total of 17 operating plants which cumulatively generated 507 MW in 2010

79 105160

2005 2006 2007 2008 2009 2010

1 922 70

51 67 93190

27 3858

2005 2006 2007 2008 2009 2010

Utility Non-Residential Residential

Source 12Solar Energy Industries Association

Solar Value Chain

Solar Photovoltaic

Solar Electric Technology

Concentrated Solar Power Thermal (CSP CST)

Silicon

Modules

Installation Servicing

Balance of System Components

Parabolic Trough

Power Tower Dish Design Fresnel

Reflector Compounds

Wafers

Traditional Silicon Cell Thin Film

Solar Photovoltaics

Distribution

PV Value Chain

SIH4 TCS Polysilicon Wafers PV Cells PV Modules Installation Energy

PV Cells PV Modules Distribution Installation Energy

Manufacturing Equipment Ancillary Equipments Financing

Polysilicon amp precursors Wafers to PV modules Installation to energy

Upstream (manufacturing) Downstream (energy)

C-Si approach

Thin film approach

The market

bull Polysilicon manufacturing industry has moved to Asia

bull Global incumbents increasing capacity

bull Wafer to PV module manufacturing is weak and getting weaker in the US

bull Tax incentivesholidays labor costs and supply chain benefits have driven ingotwafer to module manufacturing to Asia

bull All the industryrsquos leaders and largest players are expanding capacity in Asia

bull Installation to energy end market in the US is anemic compared to leading markets

bull Effective feed-in tariff (FIT) incentives drove primary markets largely in Europe

bull US market is driven largely by tax incentives ndash a less efficient approach to drive market growth

Issues drivers

bull Tax liability bull Geography ndash safety bull Supply chain cost bull Consumables (electricity)

cost bull Skills-set experience base bull Labor cost bull Landed cost1

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

bull Project returns (ROI) ndash Incentives ndash Risk mitigation ndash Geography

bull Cash flow mismatch - structured finance vehicles bull Private capital scarcity bull Limited supply of tax equity

Source Deutsche Bank ndash 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

bull European Photovoltaic Industry Association (EPIA) estimated that global cumulative installed PV capacity totaled nearly 40GW by the end of 2010

bull The ~166GW of additional capacity installed in 2010 constituted a 131 increase over the 72GW installed in 2009 for a 71 increase in global cumulative installed PV capacity

bull European markets accounted for ~74 of installed capacity mdash The biggest markets globally are Germany Italy Spain France

US and Czech Republic mdash Other markets include Japan China and India

bull Wafer to module manufacturing has largely moved to Asia mdash With the rapid initial phase growth of the solar PV industry over the

past several years manufacturing moved to lower costheavily subsidized regions in Asia

Global PV Market

2012 Global Solar Industry - Outlook3

OVERVIEW1 Global Installed PV Capacity (2010)2

Subsidy reductions in major solar PV markets

Large subsidy reductions in major solar PV markets including Germany Italy and US might negatively impact demand level and pricing in 2012

Industry consolidation 2nd and 3rd tier companies might disappear due to consolidation in the sector which might lead to a predatory product pricing scenario

Raising RampD expense 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

Other conventional alternatives

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

EU (74) Japan (9) US (6) China (2) ROW (8)

Source 12US Department of Energy 2010 Solar Technologies Market Report released in November 2011 pg xiii 3JP Morgan ndash Alternative Energy report January 2012

Analysis of Pricing amp Margins

Forecast for Solar Pricing across Value Chain2

OVERVIEW bull 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 bull 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

mdash 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

mdash Less integrated Less integrated suppliers purchase wafers andor cells to build modules and do not benefit from the associated gross margins dollars But wafercell prices are likely to be at a discount in an oversupply state potentially offering more flexibility and better cost structure in a downturn

mdash 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

Breakdown of Costs and GP by Segment1

Prices of modules expected to fall below US$10 Watt for top tiered companies in FY2012

$030 $024

$022$020

$001$003

$018$016

$008$007

$035$033

$006$007

2011E 2012E

p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP

US$120 US$110

Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US

Polysilicon - Spot US$ kg 700 850 - 690 740 - 650 690 - 480 480 - 450 450 - 570 590 - 350 350 -

Polysilicon - Contract US$ kg 600 800 - 650 700 - 580 650 - 540 600 - 500 550 - 580 630 - 510 450 -

Wafer US$ Watt 090 092 - 090 090 - 084 070 - 067 057 - 064 055 - 076 068 - 053 045 -

Cell US$ Watt 136 130 - 123 120 - 111 095 - 094 080 - 088 075 - 104 093 - 081 069 -

Module US$ Watt 208 182 147 193 171 153 178 150 134 158 135 125 143 122 110 168 145 130 135 115 100

FY2010 1Q 2011 2Q 2011E 3Q 2011E 4Q 2011E FY2011E FY2012E

Source 12Goldman Sachs Global ndash Clean Energy Solar July 2011 page 10 amp 13

$560 $550 $550

$400 $350 $350$300

Polysilicon spot price (US$ kg)

Long term contracted price range

Global Solar ASPrsquos Dropped Faster than Expected2

Global Poly-silicon spot prices4

MODULE PRICING amp COST DYNAMICS ndash IMPACT ON GROSS MARGINS1

bull 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

bull 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 ndash pressuring gross margins from both sides (lower ASPs and rising costs)

bull 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

DRIVERS TO LOWER PRODUCTION COSTS3

bull Polysilicon costs Prices have come down very substantially since peaking in mid 2008 At present capacity and on-going capacity ramp prices could approach $45kg 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

bull 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

bull 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

Source 13Deutsche Bank Solar Photovoltaic Industry January 2011 pg 19 24Goldman Sachs

Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11

Polysilicon Wafer Cell Module

change

US Production System Prices and Irradiance

US Solar Irradiance4

US National Weighted-Average System Prices2

Global Solar Irradiance3

OVERVIEW1

bull 2010 production increased substantially year-over-year for wafers (97 growth) cells (81 growth) and modules (62 growth)

bull Factors contributing to strong domestic manufacturing include mdash Strong growth in global demand From 71 GW in 2009 to over

17 GW in 2010 (a significant percentage is exported to Germany) mdash Doubling of domestic demand From 435 MW in 2009 to 878 MW mdash Increases in manufacturing capacity in the US

bull Wafer capacity increased 82 to 1018 MW bull Cell capacity increased 32 to 1657 MW bull Module capacity increased 20 to 1684 MW

bull National weighted-average system prices fell by 205 over the course of 2010 from $645W to $513W Much of this decline was due to a shift toward larger systems particularly utility systems

bull Market is highly disintegrated even within a given state and market segment bull Due to high solar irradiance in certain parts of the US states such as

CA and AZ have the highest usage of Solar PV and CST technologies

Q1 2010 Q2 2010 Q3 2010 Q4 2010

Residential Non-residential Utility Blended

Source 12Solar Energy Industries Association 2010 Year in Review pg10 amp 11 3Prometheus Institute 4Greentech Media

US PV Market

PV Thin Film Technologies vs Silicon Wafer based Technologies2

OVERVIEW bull By the end of 2010 cumulative installed PV capacity reached 25GW

following the installation of approximately 918MW that same year bull In 2010 the US 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 bull In 2011 installations in the US are likely to double the 2010 total but

global markets will experience slower growth bull Project financing remains available at attractive terms for some projects

new markets are emerging and showing strength and incumbent markets continue their rise

bull 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 ndash Market Share 20101

bull Highest market share in solar technology bull Higher panel efficiencies bull Well suited for confined areas such as residential rooftops bull Producers have achieved economies of scale

Advantages

Challenges

Application

Thin Film Technologies Silicon Wafer based Technologies

bull Lower material requirements bull Simpler manufacturing process bull Favorable temperature coefficient and diffuse light performance bull Steeper learning curve improvements bull Energy value advantage

bull Unfavorable module efficiency at standard test conditions bull Relatively small share of todayrsquos market bull Expensive technology

bull Higher material and production costs

bull SmartCards RFID tags implantable medical devices microelectronic devices flexible displays and E-papers

bull Electronics panels

California (47) New Jersey (12) Colorado (6)

Nevada (5) Arizona (5) New York (3)

Pennsylvania (3) Florida (3) Others (16)

Source 1NREL

Photovoltaic Process Technologies Wafers Crystalline Silicon PV Cells Modules Thin Films PV

Technology

bull Thin slice of semiconductor material such as a silicon crystal used in the fabrication of integrated circuits and other microdevices

bull The wafer undergoes many microfabrication process steps such as doping or ion implantation etching deposition of various materials and photolithographic patterning

bull Solid state electrical device that converts the energy of light directly into electricity by the photovoltaic effect

bull Separated into 3 categories based on crystallinity and crystal size in the resulting ingot ribbon or wafer ndash Monocrystalline Silicon (c-Si) Polycrystalline Silicon (mc-Si) and Ribbon Silicon

bull Assemblies of cells constitute a module or panels

bull Layer of material ranging from fractions of a nanometer (monolayer) to several micrometers in thickness

bull 4 basic categories based on materials used - Amorphous silicon (a-Si) Cadmium telluride (CdTe) Copper Indium Gallium Selenide (CISCIGS) and Emerging (dye-sensitized organic GaAs)

Key bets

bull Higher material cost and higher installation cost even though costs continue to decrease as companies ramp up new capacity and improve production processes

bull Functionality during non-ideal sun conditions (early morning and late afternoon)

bull Cadmium Telluride and Copper Selenide are not widely supported have high production cost and material instability (toxic etc)

bull Conversion efficiencies are not as high as crystalline silicon PV

Developers

Note Partial list of developers

Photovoltaic Landscape

Equipment amp Polysilicon

System

Module

Publicly Traded

Integrated Midstream

Ancillary Inverters

Note Partial list of companies

CPV Collector

New Technologies ndash Concentrator Photovoltaics (CPV)

CPV Systems Classification1 OVERVIEW

How it works bull CPV uses inexpensive materials such as mirrors or plastic lenses

to capture the sunrsquos energy and focuses it onto PV solar cells

bull CPV technology differs from flat-plate PV modules through the use of high-efficiency multijunction PV solar cells

bull Concentrated PV (CPV) systems concentrate sunlight on solar cells greatly increasing the efficiency of the cells

mdash 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

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

Advantages bull High efficiency bull Low system cost The systems use less expensive

semiconducting PV material to achieve a specified electrical output

bull Low capital investment to facilitate rapid scale-up bull Ability to use less solar cell material

Concerns bull Reliability Systems generally require highly sophisticated

tracking devices

Source 1Solar EIS Note ldquoSunsrdquo Intensity concentration since standard peak solar irradiance is often set at 01 Wcmsup2 the lsquosunsrsquo concentration is defined as the ratio of the average intensity of the focused light on the cell active area divided by 01 Wcmsup2ldquoSunsrdquo concentration is typically less than geometric concentration because a CPV system only responds to direct normal irradiation (DNI) which is about 0085 Wcmsup2 and does not take into consideration optical losses

CPV Type System Concentration Ratio Suns

Dish CPV 500 - 1500

Lens CPV 300 - 1000

Medium CPV Tracking Medium CPV 5 lt x lt 120

Tracking LCPV lt 5

Non-Tracking LCPV lt 5

Solar Value Chain

Solar Photovoltaic

Silicon

Modules

Parabolic Trough

Reflector Compounds

Wafers

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

OVERVIEW

bull CST technology has a global installed capacity of around 600 MW The industry added only 60MW in 2009

bull Around 80 of installed CST capacity is in the US while other countries that have CST installations include Spain (60-80 MW) and Israel (5-10 MW)

Investors bull Ample room for venture capital-stage investing particularly in

sub-sectorcomponent innovators and follow-on rounds for tower Compact Linear Fresnel Reflector (CLFR) and dish-engine developers

bull Project financing inflows will rise dramatically as developers of established technologies execute their announced pipelines

Companies bull 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

bull Impact of component supply constraints policy uncertainty and bureaucratic burdens will continue to be felt by developers

bull Proving viability of advanced designs will be vital for growth of non-trough CST systems

Outlook bull 2011 is expected to be a light year for CST with few projects

expected to complete within the year bull However there are over 64 GW of CST projects with signed utility

Power Purchase Agreements (PPAs) with expected completion between 2011 and 2017

bull 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

bull 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

bull 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

bull 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

bull For the project financiers who must evaluate generating plants over 20+ year timelines this reduction in uncertainty is vital

bull Scalability of CST technologies allows for significant growth in global installed capacity subject to resource land funding and component equipment constraints

ADVANTAGES

Primary CST Technologies

Parabolic Trough Compact Linear Fresnel Reflector Power Tower Dish Engine

Technology

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

bull 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

bull CLFRrsquos use long thin segments of mirrors to focus sunlight onto a fixed absorber located at a common focal point of the reflectors

bull These mirrors are capable of concentrating the sunrsquos energy to approximately 30 times its normal intensity

bull 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

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

Key bets

bull Most powerful type of collector where losses due to atmosphere between the dish and its focal point are minimal as compared to other designs

bull 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

bull Lower capital cost through simplified design which reduces material inputs and precision requirements will compensate for reduced CLFR optical performance

bull CLFR developers will be able to validate their claims by bringing commercial-scale systems online successfully in the next few years

bull Success with full-size andor micro-heliostat approaches will lead to declining tower project costs and increased commercial development of power towers

bull Precise monitoring and control of both heliostat arrays and high temperature receivertransfer systems will allow towers to capitalize on their technical strengths

bull Capital costs will fall as manufacturing processes are streamlined and large-scale deployments begin

bull The lack of immediate energy storage options will not undermine dish-engine competitiveness relative to other CSP technologies

Key developers

CST Technologiesrsquo Landscape

Parabolic Trough

Compact Linear Fresnel

Reflector Dish Engine

Power Tower

PV Balance of Systems

BoS Cost Roadmap 10 MW Fixed Tilt Blended c-Si Project in US 2010-20132

Cost Breakdown of Conventional US PV Systems 20103

OVERVIEW1

bull ldquoBalance of Systemrdquo (BoS) costs refers to all costs except the PV module

mdash BoS costs currently account for about half the installed cost of a commercial or utility PV system

mdash Module price declines without corresponding reductions in BoS costs will hamper system cost competitiveness and adoption

bull BOS components generally fall into three categories

mdash Mounting which includes racking and tracking systems

mdash Power electronics which includes inverters and maximum power point tracking devices

mdash Installation which includes the engineering and design work and the actual labor of putting a system in place

bull In 2010 BOS costs accounted for approximately 448 (US$143 per watt) of a typical utility-scale crystalline silicon (c-Si) project with that percentage forecasted to increase to 506 in 2012

bull 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

bull Considerations for BoS cost reduction strategies

mdash Each PV system has unique characteristics and must be individually designedmdashdifferences between sites regions and design objectives

mdash Cost is dispersed across several categories therefore reductions will come from many relatively small improvements

Source 13RMIorg Solar PV Balance of System pg2 5 September 2010 and GreenTech Media 2GreenTech Media June 2011 Solar PV Balance of System (BOS) Technologies and Markets

Residential Photovoltaic Systems ndash Solar Leasing

Parties in Leasing Agreement1

Solar Leasing Companies

OVERVIEW1

bull 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

bull Fresh demand for PV cells is expected to be driven by solar leasing as against a subsidy and regulation-dependent distribution model

bull How it works

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

mdash 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

Government

Customer

Sale of SREC to market

Solar Integrator

System sale

100 of cost of commissioning

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

Reduced cost per kWh paid to company under PPA terms

Source 1wwwSolarpowerwindenergyorg

Appendix

Lease payments

under 18 year PPA

Fund Flow for Purchase amp Installation of PV Solar Panels

Lease PV for 18 yrs

Owner 5001 Sponsor 4999 Tenant

Tenant 9999 Bancorp 001 Sponsor

Tax Equity Fund

Sponsor

Financing to purchase

arrays $

Utility Solar Initiative Rebates

$ SVB advances

60-90 day AR payment $

$ Customer

down payments

Solar Equipment Manufacturers amp Installers

$ Purchase amp installation of

PV arrays

To build PV arrays

Tax Equity Investor

Customer

SVB Analysis

Silicon Valley Bank Headquarters 3003 Tasman Drive Santa Clara California 95054 4086547400 Svbcom

This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete The information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation or offer or recommendation to acquire or dispose of any investment or to engage in any other transaction copy2012 SVB Financial Group All rights reserved Silicon Valley Bank is a member of FDIC and Federal Reserve System SVBgt SVBgtFind a way SVB Financial Group and Silicon Valley Bank are registered trademarks B-12-12170 Rev 05-03-12

The Solar Industry

Clean Tech Eco System

Solar Energy

Global Solar Market

Electricity Prices

Feed-In Tariff (FIT) Overview ndash Select Countries

US Solar Market

Solar Value Chain

Solar Photovoltaics

PV Value Chain

Global PV Market

US PV Market

Photovoltaic Process Technologies

Solar Value Chain

Appendix

Slide Number 36