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
The Solar Industry 3
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
The Solar Industry 4
Clean Tech Eco System A
pplic
atio
n B
enef
its
Commercial
Industrial
Utilities Government and Others
bull Batteries bull Fuel Cells bull Utility Scale
grid storage
Materials and Manufacturing En
d U
ser
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
The Solar Industry 5
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 6
US Analysis of Top States for Renewable Energy Development
US Solar Energy Development1 US Geo-Thermal Generation2
US Hydropower Generation3 US Wind Power Generation4
Source 1234NREL (National Renewable Energy Laboratory) Data Book 2011
Solar Energy
The Solar Industry 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 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
The Solar Industry 3
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
The Solar Industry 4
Clean Tech Eco System A
pplic
atio
n B
enef
its
Commercial
Industrial
Utilities Government and Others
bull Batteries bull Fuel Cells bull Utility Scale
grid storage
Materials and Manufacturing En
d U
ser
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
The Solar Industry 5
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 6
US Analysis of Top States for Renewable Energy Development
US Solar Energy Development1 US Geo-Thermal Generation2
US Hydropower Generation3 US Wind Power Generation4
Source 1234NREL (National Renewable Energy Laboratory) Data Book 2011
Solar Energy
The Solar Industry 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 3
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
The Solar Industry 4
Clean Tech Eco System A
pplic
atio
n B
enef
its
Commercial
Industrial
Utilities Government and Others
bull Batteries bull Fuel Cells bull Utility Scale
grid storage
Materials and Manufacturing En
d U
ser
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
The Solar Industry 5
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 6
US Analysis of Top States for Renewable Energy Development
US Solar Energy Development1 US Geo-Thermal Generation2
US Hydropower Generation3 US Wind Power Generation4
Source 1234NREL (National Renewable Energy Laboratory) Data Book 2011
Solar Energy
The Solar Industry 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 4
Clean Tech Eco System A
pplic
atio
n B
enef
its
Commercial
Industrial
Utilities Government and Others
bull Batteries bull Fuel Cells bull Utility Scale
grid storage
Materials and Manufacturing En
d U
ser
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
The Solar Industry 5
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 6
US Analysis of Top States for Renewable Energy Development
US Solar Energy Development1 US Geo-Thermal Generation2
US Hydropower Generation3 US Wind Power Generation4
Source 1234NREL (National Renewable Energy Laboratory) Data Book 2011
Solar Energy
The Solar Industry 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 5
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 6
US Analysis of Top States for Renewable Energy Development
US Solar Energy Development1 US Geo-Thermal Generation2
US Hydropower Generation3 US Wind Power Generation4
Source 1234NREL (National Renewable Energy Laboratory) Data Book 2011
Solar Energy
The Solar Industry 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 6
US Analysis of Top States for Renewable Energy Development
US Solar Energy Development1 US Geo-Thermal Generation2
US Hydropower Generation3 US Wind Power Generation4
Source 1234NREL (National Renewable Energy Laboratory) Data Book 2011
Solar Energy
The Solar Industry 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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
Solar Energy
The Solar Industry 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 8
3800
720185 411 614 475
85 144 72481
7410
5000
740 8221448
1000500 389 158
1030
0
1000
2000
3000
4000
5000
6000
7000
8000
Ger
man
y
Italy
Fran
ce
Cze
ch
Rep
ublic
Res
t of E
urop
e
US
Can
ada
Chi
na
Indi
a
Japa
n
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
00
5000
10000
15000
20000
25000
30000
00
20
40
60
80
100
120
2003 2010 2015E 2020E 2025E 2030E
Solar GW Installed Solar Generation as of World Electricity Consumption
(MW)
(Sol
ar G
ener
atio
n as
o
f Wor
ld
Ele
ctric
ity C
onsu
mpt
ion)
(Solar G
W Installed)
Source 1Solarbuzz 2Energy Information Administration
The Solar Industry 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 9
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
00
100
200
300
400
500
0
50000
100000
150000
200000
250000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
100
200
300
400
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
00
40
80
120
160
200
0
6000
12000
18000
24000
30000
2010 2011E 2012E
Supply Demand Supply y-y growth Demand y-y growth
(MT)
(y-o-y grow
th)
Source 123Mirae Asset Research
(MW
)
(y-o-y grow
th) (M
W)
(y-o-y grow
th)
The Solar Industry 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 10
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
Challenges to Global Solar Power
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
The Solar Industry 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 11
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
The Solar Industry 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 12
$000
$005
$010
$015
$020
$025
$030
$035
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
$000
$005
$010
$015
$020
$025
$030
$035
2001 2002 2003 2004 2005 2006 2007 2008
Germany Italy Japan Spain US
$000
$002
$004
$006
$008
$010
$012
$014
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Residential US Commercial US Industrial
($
KW
h)
($
KW
h)
($
KW
h)
Source 123Energy Information Administration
The Solar Industry 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 13
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)
US
Germany
Italy
Spain
UK
Source Deutsche Bank ndash Alternative Energy Solar Photovoltaic Industry ndash January 2011 pg6
The Solar Industry 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 14
Levelized Cost Of Energy (LCOE)
LCOE Cost2 INDUSTRY1
bull LCOE is defined as the $MWh price for an inflation-adjusted fixed-price power off-take agreement that taking into account all project-specific costs offers the project developer the minimum equity return necessary to undertake the project
mdash LCOE is the sum of capital amortization interest payments to creditors and dividends to investors and operation and maintenance over the entire life-cycle of an electricity installation and is commonly used in the energy world to compare the generating costs of different technologies
mdash Factors that go into calculating it for solar the most important of which are costs of equity longevity efficiency of the panels and inverters and of course location
bull The all-in cost of electricity generation is the key factor influencing the feasibility and hence the growth of individual power generation technologies
bull The use of LCOE allows different power sources to be compared according to their long-term cost of production while taking into account financing costs capital and operating costs and generation efficiency
bull Solar LCOE is the highest amongst different sources of energy
bull LCOE estimates for wind and especially solar PV power have declining PV prices dropped sharply from 2008ndash2010 and for every doubling in capacity a corresponding 28 drop in solar PVrsquos cost is witnessed
LCO
E ($
M
Wh)
$2329
$1381$1298
$1044
$749 $701$598 $573
$00
$500
$1000
$1500
$2000
$2500
Sola
r PV
Biom
ass
Win
d
Mun
icip
al S
olid
Was
te
Geo
ther
mal
Coa
l
Nat
ural
Gas
Land
fill G
as
Source 12Bloomberg amp CIBC World Markets ndash Initiating Coverage April 2011
The Solar Industry 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 15
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
290
435
878
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Inst
alla
tions
(MW
) In
stal
latio
ns (M
W)
1 922 70
242
51 67 93190
208
372
27 3858
77
157
264
0
100
200
300
400
500
600
700
800
900
1000
2005 2006 2007 2008 2009 2010
Utility Non-Residential Residential
Source 12Solar Energy Industries Association
The Solar Industry 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 16
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
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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
Solar Photovoltaics
The Solar Industry 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 18
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
The Solar Industry 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 19
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
The Solar Industry 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 20
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
$00
$02
$04
$06
$08
$10
$12
$14
2011E 2012E
p-Si Cost Wafer Processing Cost Wafer GPCell Processing Cost Cell GP Module Assembly CosModule GP
US$120 US$110
AS
P
Cos
t per
wat
t
Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US Europe China US
Polysilicon - Spot US$ 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
The Solar Industry 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 21
$1210
$830
$670
$560 $550 $550
$700
$900
$740
$590
$480
$450
$400 $350 $350$300
$30
$230
$430
$630
$830
$1030
$1230
$1430
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011E
Q3 2
011E
Q4 2
011E
Q1 2
012E
Q2 2
012E
Q3 2
012E
Q4 2
012E
Polysilicon spot price (US$ kg)
Long term contracted price range
US
$ k
g
Analysis of Pricing amp Margins
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
$00
$02
$04
$06
$08
$10
$12
$14
$16
$18
$20
Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11
Polysilicon Wafer Cell Module
(21)
(35)
(43)
(23)
change
YTD
$160
$120
$090
$043
$127
$078
$051
$033
Spo
t AS
P in
US
$ pe
r w
att
The Solar Industry 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 22
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
(US
$)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
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
The Solar Industry 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 23
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
The Solar Industry 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 24
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
The Solar Industry 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 25
Photovoltaic Landscape
Equipment amp Polysilicon
Wafer
System
Module
Cell
Publicly Traded
Integrated Midstream
Ancillary Inverters
Note Partial list of companies
The Solar Industry 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 26
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
HCPV
LCPV
The Solar Industry 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 27
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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
Concentrated Solar Power Thermal (CSP CST)
The Solar Industry 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 29
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
Concentrated Solar Power Thermal (CSP CST)
ADVANTAGES
The Solar Industry 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 30
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
The Solar Industry 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 31
CST Technologiesrsquo Landscape
Parabolic Trough
Compact Linear Fresnel
Reflector Dish Engine
Power Tower
Note Partial list of companies
The Solar Industry 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 32
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
The Solar Industry 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 33
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
Solar Leasing Companies
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
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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
Appendix
The Solar Industry 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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 35
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
A B
C
D
E1
E2
F
To build PV arrays
G
SVB
$
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
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