Leadership Forum

SOLAR
resuLts book 2011

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TABLE OF CONTENTS PARTNERS & SPONSORS 03 NOTE FROM THE FORUM CHAIR 07 FOREWORD FROM THE FORUM HOST 09 COMMUNIQU TO GOVERNMENTS AND INVESTORS 11 THE VIEW FROM THE INDUSTRY 13 AREVA SOLAR: FULFILLING THE PROMISE OF CONCENTRATING SOLAR POWER 29 ERNST&YOUNG: PERSPECTIVE ON RENEWABLE ENERGY INVESTMENT 30 PARTICIPANTS 31 ABOUT US 36

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PARTNERS & SPONSORS

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WITH SPECIAL THANkS TO OUR PARTNERS AND SPONSORS

FORUM PARTNERS

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FORUM SPONSORS

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NOTE FROM THE FORUM CHAIR

bloomberg New energy Finance convened its 2011 solar Leadership Forum February 2-3 in sunny Napa, California. a crosssection of senior executives attended the Forum, including investors, manufacturers, and users of solar energy from abu dhabi, China, taiwan, Japan, singapore, Germany, France, Norway, and the u.s.

the Forum provided rare opportunities for attendees normally consumed with short-term problems to think about long term prospects and solutions. We were able to reflect on the technological, financial and policy issues that must be addressed and overcome if we are to benefit from solar energys great promise. i believe that solar energy will become predominant as the world comes to better understand the risks and costs associated with our existing fossil fuel energy system. the continued reduction in solar costs, and the continued rise in the risks of conventional energy, reinforce our belief that solar energy must have a seat at the big energy table, the sooner the better.

Norman pearlstine, Chairman Chief Content officer bloomberg Lp

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FOREWORD

WELCOME TO THIS SPECIAL PUBLICATION DOCUMENTING THE FIRST SOLAR LEADERSHIP FORUM, HELD AT THE CARNEROS INN IN NAPA, CALIFORNIA 2-3 FEBRUARY 2011. the solar Leadership Forum was the fourth in the bloomberg New energy Finance Leadership Forum series of invitation-only, executive level think tanks to examine renewable energy sectors at key moments in their growth and maturation. the solar Leadership Forum convened 50 industry thought leaders from photovoltaic and solar thermal electric technology, materials science, venture capital and private equity, project development, and utilities. thought leaders joined us from americas, europe, and asia; 60% of them were Chief-level executives within their organizations. the solar industry is undergoing a seismic shift from a sector defined by technology development and deployment, into a maturing and expanding part of the worlds energy supply. With a 40% compound annual growth rate of new build since the 1970s, solar is not slowing down; it saw a 140% growth spurt in 2010. While the technology is decreasing in cost cent by cent, governments around the world are spending billions after billions of dollars in solar subsidies. it is this very rapidity of growth that provides the industrys greatest challenge. When markets are created by policy mechanisms and sustained through abovemarket energy payments, they have proven prone to explosive growth as as well as to economy-driven implosion. When technology developers can earn 30% margins on pV panels while their established contract-manufacturer peers are satisfied with 5%, compression, substitution - or consolidation - will become inevitable. as the solar industry continues to grow, it will face a world of second-order effects beyond the growth concerns of today. solar at 50GW or 100GW per year will force the industry to address the drawbacks of intermittency and the benefits of dispatchable peak load generation; to optimize the balance of system, and not just pV modules; and to consider solar not as a niche source of energy generation, but as a ubiquitous source of power in developed and developing countries. by design, the solar Leadership Forum was an executive gathering. the unique perspectives of so many highly-placed decisionmakers in the sector, gathered for a common purpose, allowed Ceos and analysts to examine solars emergent issues and opportunities - those of today, and those of coming years and decades. in publishing our results book, it is our ambition that not only the solar sectors leaders, but leading policymakers, financiers, and corporate managers will read our findings as guidance to the industry as it continues to grow and mature.

Nathaniel bullard Lead analyst, North american solar bloomberg New energy Finance

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COMMUNIQU TO GOVERNMENTS AND INVESTORS

////////////////////////////////////////////////////////////////////////////////////////////////////////// THE SOLAR INDUSTRY IS IN A STATE OF SEEMINGLY PERPETUAL GROWTH AND MATURATION. YET FOR ALL ITS GROWTH AND PROVEN COST REDUCTIONS, SOLAR IS STILL WAITING FOR ITS SEAT AT THE BIG ENERGY TABLE, IN THE WORDS OF ONE SOLAR LEADERSHIP FORUM DELEGATE. the debates and discussions of our Napa gathering inspired six principles for solar energy technologists, financiers, and policymakers, in pursuit of that seat at the big energy table: 1. STABILITY, NOT GENEROSITY, IS PARAMOUNT FOR SUPPORT POLICIES in most markets, solar energy is still more costly than avoided power purchased from the grid, and therefore exists as a creature of support mechanisms such as feed-in tariffs, tax incentives, or direct grants. solar markets are born through policy; they thrive through policy; and, they die through policy. it is an unfortunate truth of policy-driven markets that todays rich returns become tomorrows retroactive tariff cuts. With costs continuing to fall, Forum participants agreed that it is policy stability, not generosity, which is now paramount for solar markets to continue to grow and provide sufficient reassurance to investors and utilities that solar energy will be a robust energy source. 2. TECHNOLOGICAL INNOVATION MUST CONTINUE in order to continue improving competitiveness, photovoltaics and solar thermal electricity generation must continue to seek new materials, processes, and techniques to enhance todays products. With all renewable energy technologies on their own cost curves, solar cannot count simply on advancement as a given. technology providers and policymakers must both see innovation as imperative and fundamental to the sector itself. 3. TECHNOLOGICAL INNOVATION WILL CONTINUE as nearly every Forum thought leader stated, technological innovation is practically bred into the solar industry. in a dynamic, competitive market where contracts can be decided on a fraction of a percent difference, companies have devoted entire research teams to wringing out every cost at the device level, no matter how small. at the project level, industry leaders will pursue consistent rigor and creativity in installation and integration. if there is a penny per Watt to be saved or shaved, in the words of one thought leader, there is a team of experts already working to do so. 4. NO ONE SOLAR TECHNOLOGY HAS YET EMERGED TO DOMINATE solar is not a market, per se, but rather many markets and not a technology, but many technologies, each with specific attributes for specific applications. No one technology has emerged to dominate in either pV or solar thermal electricity across applications, and none may ever do so. if the solar market doubles in size to 30GW per annum, a handful of technologies may prove winners on a cost basis. if the sector grows to 100GW per year, however, even niche application technologies may have a market worth several gigawatts per year. 5. THE SOLAR SECTOR MUST ACkNOWLEDGE THE CHALLENGES POSED BY INTERMITTENCY IN ENERGY GENERATION, AND WILL BENEFIT FROM HYBRIDIzATION FOR DISPATACHABILITY AND CONTINUED PURSUIT OF COMPETITIVE ENERGY STORAGE photovoltaic energy remains an intermittent resource, by its nature prone to quick ramping up and down, and disruption due to environmental conditions. in order for solar compete not just as a source of energy, but as a source of power, developers and technology providers must acknowledge the challenge of intermittency, and work to mitigate it. For solar thermal steam turbine technologies, smooth dispatch is an inherent virtue in performance, and developers can convey this virtue and bank upon it in negotiations with grid operators and utilities. solar/ natural gas hybridization is a near-term, cost-effective option for solar thermal electricity as it continues to pursue costeffective, long-term storage options, and solar augmentation of existing power plants offer low-cost, dispatchable solutions. For pV, storage solutions and energy management will become essential. 6. STATIC BUSINESS MODELS WILL NOT DOMINATE A DYNAMIC MARkET No static approach can dominate a dynamic market. market participants will need to remain nimble and dedicated to change, and persistently focused on identifying new opportunities and potential disruptions. supply chain management will remain essential for successful enterprises. solar will provide a greater and greater share of the global energy mix, but will only do so through innovation, dedication, and persistent application of technology, policy, and finance.

Nathaniel Bullard Lead analyst, North american solar bloomberg New energy Finance Bill Gallo Ceo areVa solar Gil Forer Global Leader, Global Cleantech Center ernst & Young LLp Jenny Chase Global head, solar industry analysis bloomberg New energy Finance

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THE VIEW FROM THE INDUSTRY

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THE VIEW FROM THE INDUSTRY

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POLICY: CHEAPER, SIMPLER, LONGER-TERM the solar industry has historically been promoted for its social benefits and attributes, such as the creation of green jobs and impact on global climate change. as the industry matures, it will need a chair at the big energy table; the industry must present itself and be treated as an energy concept.

in the energy industry, the value of solar energy generation is set rather arbitrarily by incentive regimes, rather than the market. as one panelist pointed out, as a relative newcomer to the energy game, the solar industry is the new kid on the block, with its very visible subsidies more susceptible to scrutiny than entrenched support for fossil fuels. this shows not only in

Figure 1: share of pV fee on household electricity price 2011 estimate

Figure 2: annual net cost of tariffs as share of Gdp, versus pV electricity production as share of consumption
0.4% 5GW Czech Republic

250

5.6% 1.9% 3.0%

200

0.3%
0.5% 0.8%

Germany

150

7.4%

100

0.2%

Spain Italy

50

0.1% Ontario France 0.5%

0 Germany Czech Republic Spain Electricity price Italy PV Fee Ontario France

0.0% 0.0%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

source: bloomberg New energy Finance, eurostat

source: bloomberg New energy Finance, ontario energy board, eurostat, Canada statistics. Note: Gdp for 2010 estimated by eurostat. ontario calculations using 2009 Gdp. assumes pV installations built before the end of 2010 and consumption from 2009 increased by 2%. size of bubbles represents cumulative pV capacity at the end of 2010.

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Figure 3: What policy would you like to see implemented or maintained in your key market?
Feed-in tariffs; 20%

Tax incentives, such as the US investment tax credit (ITC); 16% Renewable energy credits (RECs) or Renewable portfolio standards (RPS); 30% Grants; 9%

Supply-side supports, (manufacturer tax credits, debt guarantees); 7% Demand-side supports (debt guarantees, export assurance); 15%

Other; 3%

Note: Voters were asked to pick 3, so this does not add up to 100%.

incentive settings but also in planning regimes, where a solar project may well have to pass more environmental hurdles than a housing project or fossil energy project of greater local impact. in order for solar to become more competitive with conventional sources of energy, the industry must work more closely with governments and financiers as well as by reducing its internal costs. Future solar policies must be tailored to individual regions, where technology problems can vary a little, and political and financial environments can vary drastically. at the same time, as the solar industry continues to mature, its technologies are increasingly able to compete against other renewable generation sources on cost. With current solar incentives focused on the short term, new policies need to create a more secure long-term environment for developers. in fact, it was generally agreed that the wildly effective, but

costly, feed-in tariff incentives are no longer seen as the best support mechanism for solar (see the chart of voting results, above), since they are precarious. if, as one panelist suggested, the four markets that drive solar go poof, international module demand will crash. a policy with built in volume and cost limitations, such as a national renewable energy credit (reC) or a renewable portfolio standard (rps) program, would enable developers to plan long term and therefore reduce technology, financing and development costs. one developer noted that they only rely on the us federal 30% tax credit, because the incentive is in place until 2016; all other incentives are just potential bonuses. it is widely agreed that in ten years time, the policies that support the solar industry will be completely different, suited for a much larger and more competitive segment of the energy mix.

table 1: summary of panel and interactive discussions on smart buildings

Cheap
- Competitive tenders/ reverse auctions: start with ideal sites and prearranged transmission and permission (China, brazil, saudi arabia, south africa) - Nationwide renewable portfolio standard (rps) (us) - Consumer purchasing of systems: offer residential solar kits (italy) - make low interest rate financing available and investigate what works best from a technical perspective (saudi arabia)
source: bloomberg New energy Finance

Fast
- Feed-in tariffs (italy, us)

Good
- supply-side support: build up manufacturing, supply domestic capacity, create jobs (brazil, China, italy, us) - use solar water heaters until cost of pV goes down (south africa) - tie together utility and residential markets (brazil) - apply flexible standards for regional adoption (us)

- rps for eskom (south africa) - National solar programme (brazil, saudi arabia, us) - direct government procurement (China)

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POLICY: CHEAPER, SIMPLER, LONGER-TERM Four thought leaders examined the role of technology development in driving photovoltaic costs lower, and efficiencies higher. one executive opened remarks with to get to the point where a technology can change the world, you need a lot of capital and a lot of time, a theme which was echoed and elaborated upon throughout the session. Crystalline silicon photovoltaic modules have already had forty years of time and tens of billions in capital, but one panelist noted that any place where we can shave off a penny per Watt of module costs, there is a team working to force improvements, and these improvements are continuously reflected in the experience curve. Crystalline pV benefits from a predictable forward cost curve, and the room was nearly unanimous in expecting average module prices in the $0.60-1.00/W range in 2015, from todays $1.80. at the same time, crystalline silicon pV module manufacturing processes are far from completely standardized. thus, panelists debated the role and potential prevalence of contract manufacturers in the value chain, which are making their mark on bringing down costs. With ebit margins below 6% enabled by very high capacity utilization across several industries contract manufacturers can speedily and cheaply make cells and assemble modules, and manufacture inverter parts. the crystalline silicon learning curve is not the only cost forecast for the pV industry, however. thin-film leader First solar has its own experience curve, shallower but starting at a lower point.

the hundreds of other companies developing thin film are nearly all working on innovations in one of five deposition processes, and any company could realize a breakthrough allowing it to dramatically increase the width of the substrate used and therefore increasing the speed of production - beating batchbased crystalline silicon to form a second First solar. soon, a thin-film company could stabilise a process to deposit an
Figure 4: the pV module experience curve

100

1976

10

1985 2003 2006 2010 2010

0.1 1 10 100 1,000 10,000 100,000 1,000,000 historic prices experience curve Chinese c-Si module prices First Solar thin-film module cost

source: paul maycock, bloomberg New energy Finance

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photovoltaics], and then wed end up back with 1x concentration. We then went and screwed it up at least twelve ways and then ended up back at 1x. in other words, we should have listened to him. While this attitude is capital efficient, it is unlikely to lead to successful disruptive innovation! it is also unlikely that any one technology will push out all the others in the next ten years, at least according to the Forum participants (see Figure 5 and 6). SOLAR THERMAL ELECTRICITY GENERATION (STEG): WORTH THE WAIT steG technologies experience inherently different industry dynamics from pV: utility-scale in nature; project- rather than device-based; with an established energy conversion mechanism familiar from fossil fuel generation coupled with long lead times and daunting financial requirements. however, this similarity and affinity to fossil fuel generation has advantages for developers; utilities prefer to rely on large amounts of steG to cover their renewable power needs than on a portfolio of photovoltaics, even at a lower per-kWh price. all participants agreed that in the us, the governments role as project financier of first resort is essential to enable the first commercial plants to prove their technologies at 100500mW scale. Few, if any, commercial lenders are willing or able to back a $2bn project which has not been guaranteed by the government. however, steG executives were optimistic about their ability to compete on price in suitable markets with weak electricity grids, or with a high penetration of intermittent renewable energy. in sunny markets with high penetration of intermittent renewable energy, steG companies should find that utilities properly value the technologys operational advantages of dispatchability, storage, and power quality. it is possible that advances in battery technology will enable cheaper intermittent

active solar semiconductor of consistent efficiency on a flexible substrate a holy grail of the industry, opening up new niches and moving away from the limitations of expensive glass. Concentrator pV also shows promise, a promise which first emerged with satellite power decades ago. CpV can reduce costs either by improving concentration architecture or by improving cell conversion efficiency, and can also move much of the balance of plant work from the field to the factory. this gives it a number of interacting possibilities for beating the crystalline silicon experience curve. of course, a positive outlook is required. one participant remarked, a technical advisor, dick swanson, patiently told us the twelve ways wed screw up [developing concentrator

Figure 5: in 2020, the number of unique technologies available for steG (eg parabolic trough, Fresnel, tower & heliostat, dish & stirling engine) will be

Figure 6: in 2020, the number of unique technologies available for pV (eg crystalline silicon, Cdte, thin film silicon, CiGs, organic) will be

90%
29%

21%

21%

20%

20%

34%
10% 10%

25%
5%

11% 0%

14% 7% 0% 0%
9

0%
1 2 3 4 5 6 7 8

0%
9 10

0%
10

source: paul maycock, bloomberg New energy Finance

source: paul maycock, bloomberg New energy Finance

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table 2:

solar technology summary

Cheap
applications

Crystalline silicon PV
everywhere

Parabolic trough STEG

With storage, deserts with water where pV is at saturation or where grid is weak. augmentation for coal and gas plants, industrial process heat may have missed the boat per-kWh costs no longer compete with pV. Water requirements greater than for pV even with dry cooling. Need for flexible joints on pipes containing heat transfer fluid (htF). many countries have hazardous material restrictions on htFs. technology of today

Thin film PV
as buildingintegrated pV, ground mounted projects Few suppliers yet competitive with crystalline silicon, low efficiency

Concentrator PV
Ground-mounted high-insolation areas where space is at a premium, or where shoulder generation ideal. achieving scale and bankability, may have missed the boat now c-si is cheap

Linear Fresnel STEG

a range of temperature applications, up to superheated steam for power generation may have missed the boat on costs now pV is cheap. Water requirements greater than for pV even with dry cooling.

Tower & heliostat STEG

as for parabolic trough, potential to be significantly cheaper

Challenges

as with all pV, grid issues may ultimately limit universality

may have missed the boat. Water requirements greater than for pV even with dry cooling.

advantages

technology of today

Good performance in low light, often high temperatures

Low space requirements, tracking an advantage anyway. Can move balance of plant work from field to factory Concentration separate from conversion triple junction cell efficiency always improving, with multiplier effects for CpV, plus concentrator designs improving

uses less space than parabolic trough, flat mirrors are cheap and joints in pipes do not need to allow movement Newest designs have the same temperatures as parabolic trough and 60% of the area

Very high temperatures possible, central receiver design avoids need for miles of pipe First few large scale plants being built; dramatic learning effects possible in all integration areas

breakthrough Likely to be continuous but potential incremental

Likely to be continuous but incremental

ability to deposit on flexible substrate, or substrate cheaper than glass

renewable generation to be balanced effectively and weaken the case for steG as power generation, but gambling on the emergence of transformative technology is not an option for a utility making 30-year resource plans. in addition, some markets, particularly in the developing world, are intrinsically suitable for steG investments. one participant noted that in ouarzazate, morocco, where a solar tender for 125mW is underway, peak electricity demand is driven by lighting, and there is no fuel easily available at the site. since morocco has no underused capacity elsewhere on the grid (like most developing economies), tender organizer masen specifies that power output must meet peak demand, which is achievable only via steG with thermal energy storage. masen has preselected four parabolic trough consortia, although both solarreserve and torresol made tower and heliostat bids

with molten salt storage - probably, as the participant noted, resulting from the current lack of proven, commercial molten-salt tower technologies. this will change soon. there are major barriers to steG deployment in the planning process. solar developers seeking approval to build on public lands in the us need to satisfy at least as many conditions as fossil fuel plants, and often more; for example, they need to pass air quality review, and extensively document their projected water usage (one participant noted, nobody suggests retrofitting gas and coal power plants with dry cooling, and dry cooled steG systems use about a tenth as much water as a gas plant). the cycle time for planning and permission is decreasing rapidly, however, with two panelists noting that the time required to permit the second large California project was approximately one-third of the time required for the first.

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Figure 7: perceived challenges for the steG industry in 2020

Technology applicability; 6% Levelised cost competition; 24% Consistent policy support; 12% Planning and permission; 9% Water availability; 12% Adequate project sites; 11% Infrastructure; 6% Project finance; 20%

collector designs (see Figure 8). although, in the words of one participant, investors in turnkey steG plants are currently requiring more watertight performance guarantees than are usual for fossil fuel power plants, there are now a number of groups (siemens, areva, brightsource-bechtel-alstom) which can provide these guarantees. solar thermal designs will likely be deployed as augmentation to fossil fuel power plants in much of the world, and also for steam generation for enhanced oil recovery and industrial process heat. UTILITIES AND THE GRID: NOT THE ENEMY the solar industry has historically focused on more on generating energy at a low cost per kilowatt-hour than on avoiding intermittent generation and delivery. a number of markets, particularly in europe, have now achieved considerable progress at low penetration levels. however, as pV becomes a meaningful portion of energy portfolios, operational issues will emerge. in the words of one panelist as-generated electricity is low value electricity, and developers will need to work with utilities to share and minimize the costs of intermittency. there was a broad concern in the room that regulated utilities and the residential consumers they serve will lose out most from the roll-out of pV. as regulated entities, utilities have to

source: bloomberg New energy Finance solar Leadership Forum voting

the steG industry is rapidly organizing into a handful of global consortia, which bring expertise and credibility from the traditional energy and engineering industries to new solar

Figure 8: the solar thermal electricity landscape 2011-2020: industry consortia, multinational power generators, and local and international expertise

source: bloomberg New energy Finance

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WAR GAME strategic simulations, or war games, are a trademark of the bloomberg New energy Finance Leadership Forum series. the solar Leadership Forum featured a war game expressly designed for the solar sector: a simulation of renewable energy procurement in a competitive energy market from 2010-2020, without technology-specific capacity requirements or technology-specific energy payments. the war game featured two groups of teams: project developers, which could select from a suite of technologies and applications in order to build power generation; and utilities, which could buy either buy power from developers, or build power storage facilities. this market is different from the feed-in tariff markets of europe, but it very much resembled the energy market in California. the game posed key challenges to participants: it asked evaluate each technology and application on its strengths and weaknesses and will price those attributes or drawbacks accordingly. it required several rounds of re-assessment of the value proposition of given technologies as their own cost curves change, and the overall market changes. it forced participants to compromise on building and procurement plans, or to prioritize investment in one subsector at the expense of another. the game created a dynamic idea of procurement strategies for utilities which had a requirement to purchase clean energy to meet their needs, but was otherwise free to select technologies and applications according to their electrical load profiles and growth expectations. developers could choose from commercial-scale pV, utility-scale pV, and solar thermal electricity generation (steG) with and without thermal energy storage. the result was mixed portfolio of technologies. in the early years, pV dominated, with no solar thermal technology; by the final years, the attributes of thermal energy storage and penalties for intermittency resulted in procurement only of central station steG with storage. in early years, transmission was not a priority, but it emerged as an essential investment for utilities in later years.
Figure 7: utility procurement of solar capacity by technology, 2010-2010 (mW)
1,200

1,000

800

600

400

200

0 2010 2011 2012 2013 2014 PV - Utility 2015 2016 2017 2018 2019 2020 PV - Commercial STEG STEG with storage

source: bloomberg New energy Finance

developers sought to maximize return on investment; utilities, to minimize payments for energy. the winning strategy among the developers resulted in a return on equity of 18.2%. the winning strategy among the utilities resulted in a weighted average power cost of $79/mWh, 9% lower than the second-place utility, and 38% of the regulated penalty cost for not purchasing renewable energy. an experienced California developer described the games as a highlight of the event which felt quite a bit like reality.

do what they are told and cannot take a visionary approach; consumer protection and a low price guarantee makes utilities always choose the lesser evil when it comes to fossil or renewable energy power purchase agreements. they are also understandably cautious about entrusting their renewable portfolio standard compliance, and future ability to deliver power, to developers consisting of two men, a van and a dog in a garage. examples from hawaii suggest that high renewable energy penetration is possible; the island of maui has 72mW of wind

and 5-6mW of distributed solar, out of a total 180mW peak demand. this is, however, fairly expensive, and not universally effective; the island of Lanai has a 1.6mW pV project which can only feed 600kW onto the grid at a time, because the local diesel generators cannot keep up with the variability. utilities voiced a disconnect between their very long financial and operational timeframes, and those of their customers. to incent a developer to build a project, a 20-year ppa is required, but even large commercial customers prefer not to lock in their electricity prices so far in the future. this disconnect leads to

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table 3: possible milestones to 2020

2011

First major bankruptcy of venture-backed solar company

policy Finance technology energy markets

2012

Saudi Arabia adopts major PV incentive program

Massive upstream consolidation in PV cell and wafer manufacturing

2013

China has a major internal solar market

China supplies 70% of world PV module demand

2014

First Solar Asset Investment Trust established

Thin-film PV widely deployed in vehicles

New solar build exceeds new coal build in US

2015

US institutes a carbon price

PV is more than 50% of new energy capacity installed in Africa Utilities require energy storage with all gridconnected 1MW+ PV projects

Chinese solar company sponsors Super Bowl

2016

Solar at grid parity in US

Green bank introduced in US

2017

Time of day electricity pricing in every market

First 1GW solar power plant

PV installed at every major electrical substation in US

Desertec Phase I initiated in Morocco and Tunisia

2018

Natural gas exceeds coal for power generation in the US

First Solars market cap exceeds that of Conoco Phillips

50% of all new water heating is solar thermal

Local grids routinely operate with 50% renewable energy

2019

Building code requires PV in all new buildings

Installed PV cost below $1/W

Electric vehicles 20% of new car market in Europe

2020

1% of global energy comes from solar

North Africa - to - EU undersea transmission enabled

Solar employs 1m workers in US

20202050

Sunspots lead to overloading of grid

Last coal-fired power plant retired

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Figure 9: most compelling arguments in favour of solar thermal designs gaining ground against pV in suitable regions
Other 0% None - STEG designs are doomed to obsolescence 6% Steam generation for non-power applications 8% Better and more reliable power quality 9% Potential for hybridisation with fossil fuels 26% New STEG designs will generate energy at lower costs than PV 4% Potential for energy storage, allowing high capacity factors and dispatchable or baseload generation 47%

Figure 10: Who stands to lose the most from the roll-out of solar onto the grid?
Residential consumer; 16%

Commercial / industrial consumer; 8%

Renewable generator; 3%

Thermal generator; 13%

Regulated utility; 21%

Competitive energy supplier; 12% Energy service company / other service providers; 6% Incumbent technology vendors; 17%

New technology vendors; 4%

source: bloomberg New energy Finance solar Leadership Forum voting

source: bloomberg New energy Finance solar Leadership Forum voting Note: participants were asked to pick three, hence values do not sum to 100%

disparate incentives, with one utility noting that it is a crime how little we invest in storage. one low-cost solution for a high-cost problem is demand response, which has already been effective in preventing blackouts in texas when wind energy production was significantly below hour-ahead forecasts. to date, this has been managed in a very low-technology way, with a utility employee phoning major customers with shiftable load and simply offering them money to temporarily halt production, turn off air conditioning or take other measures. Future demand response mechanisms will be more sophisticated. transmission remains a huge issue for utilities, especially when they want to buy large blocks of steG. one noted that we have a very congested system each Western state takes a parochial attitude to transmission and renewables, so for our rps we are not waiting for transmission were building pV. some of our transmission lines are already carrying 20% solar at times. only Japan, to date, has a plan on how to deal with large volumes of solar.

the us department of energy was quickly tagged as an essential player in the project finance game; however, the problem with the us department of energy as a lender is that it is the most conservative on the market. it does not have an institutional understanding of risk management, or a preexisting project financing team, and is having to learn how to invest project finance from the start. as one panelist noted, it has a conflicting mandate to foster new technologies, and to have zero default rate and it certainly brings complication to the process, a complaint about government financing the world over. moving away from the inevitable focus on the direct role of government, it was suggested that solar asset backed
Figure 11: Japans pV integration roadmap
REAL-TIME BALANCING (2030)
28.000

30

DYNAMIC PV CONTROL

20

PROJECT FINANCE: WILL NEVER BE EASY the group of thought leaders from project developers, law firms, engineering firms, and insurers all agreed that in the West, large-scale project finance suffers the challenges previously mentioned in the steG session. private lending is seen as the only long-term option for solar energy projects, but the financial market does not yet have the mechanisms in place to back billion-dollar projects using unproven technology. in China and the middle east, direct government funding for large scale projects carries much less stigma, and is being deployed for technical feasibility testing prior to further investment.

DEMAND CONTROL PV OUTPUT CONTROL

10

SMART METERS

2.533

0 2004 2006 2008 2010 2012 2014 2016 2018 2020

source: aNre/meti Note: milestones based on Japan ministry of economy, trade and industry (meti) targets.

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requirements of the federal government make standardizing deals impossible, and significantly drive up transaction costs; one participant noted finance arrangement costs of $0.90/W in the states, compared with below $0.20/W in Germany. insurance providers naturally have an important role to play in pricing the inherent risks of investing in the solar market. in the future, manufacturers may well benefit from warranty insurance, to make their products bankable, but at present just a few proprietary warranty insurance products have been sold, and those under strict non-disclosure agreement. project developers may also want to consider insuring marine cargos for loss during transit, and will need environmental coverage and business interruption coverage. if a project is not organized as a special purpose vehicle, it may also need an executive policy coverage. panelists recommended getting insurers and legal advisors involved in project development early. there remains little than can be done about political risk, a problem particularly relevant to many of the markets where solar makes most sense. VENTURE CAPITAL AND PRIVATE EQUITY: OPPORTUNITIES, ALWAYS traditionally, investors have backed companies that are either active in very large markets, have disruptive technologies, or can grow very large, very quickly. as the panelists pointed out, the solar industry as a whole cannot be grouped together as a single investment opportunity. rather, investors should be focused on the individual product, with a wary eye on what the market is doing and what parts of the value chain are likely to win and lose from it. there was no point in investing in a superb typewriter technology in 1985.

securities (abss) could be launched to allow individuals to participate in financing the solar market, particularly commercial rooftop pV. real estate investment trusts (reits) would allow unspecialized corporations to do likewise. similar vehicles have already been used in Germany, with considerable success in mobilizing pools of unsophisticated capital with relatively low return requirements. one problem for us-based project finance is that the patchwork of local incentives and the tax appetite

Figure 12: Which scenario best describes the likely structure of the small pV and solar water heating installation industry in 2020?

Figure 13: if you were a venture capital investor with a general clean energy focus, which of the following business plans would you find most exciting at first glance?
A module with built-in control chip, which can be shut down if stolen 14% Software to manage molten heat storage output 19%

Large construction companies or utilities 5% Small, independent, local installers 40% Large, independent specialized solar installers 25% Solar manufacturers 5% Fully integrated systems from IKEA or Wal-Mart, assembled at home 25% Other 0%

A new quantum dot architecture nanostructed PV technology 9% A compact racking system for residential PV 25% A high-efficiency solar water heater with several patents 18% PV distributor and microfinancier active in Ghana 6% Residential PV installation in Italy 9%

source: bloomberg New energy Finance solar Leadership Forum voting

source: bloomberg New energy Finance solar Leadership Forum voting Note: participants were asked to pick 3, so the totals will not add up to 100%

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as the industry matures and solar experiences wide-scale rollout, the panelists see secondary investment opportunities arising. these secondary investments will have less to do with producing solar energy or pV modules, and more to do with the deployment and integration of the technologies, such as storage and grid investments. as one panelist suggested, investment in websites such as Facebook.com was not a direct part of the initial investment in creating the internet, but the existence of the internet created a previously unimaginable infrastructure for investments like Facebook. during the growth stage, many iterations and tuning will be needed to support product launch. however, there was divergence amongst the panelists on the research and development phase of new products: some argued for researching new technologies for a game-changing release, while others practiced developing and releasing new iterations of their product, building upon past experiences. regardless, the panelists believed that correct timing was essential for the investments success, and that spending other peoples money (for example by having export-import bank loan guarantees) is a vital component of achieving universal bankability.

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AREVA SOLAR ERNST & YOUNG

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FULFILLING THE PROMISE OF CONCENTRATING SOLAR POWER

THE AREVA SOLAR PERSPECTIVE: THE CONCENTRATED SOLAR POWER INDUSTRY IS AT A CRITICAL JUNCTURE, COLLECTIVELY CONTINUING TO LOWER POWER COSTS AND ENHANCE PERFORMANCE. WITH UTILITIES AND GOVERNMENTS PLANNING CSP ADDITIONS TO THEIR ENERGY PORTFOLIOS, A NUMBER OF MARkET DRIVERS AND OTHER FACTORS WILL ULTIMATELY DETERMINE WHETHER THE SOLAR THERMAL INDUSTRY REACHES ITS FULL POTENTIAL IN THE UNITED STATES AND GLOBALLY.

MARkET DRIVERS, INNOVATION & COMMERCIALIzATION First, the industry continues to lower costs toward grid parity, which the energy industry must define in the fullest sense of the term, by capturing the true cost of land, water and emissions. second is solar thermals ability to match and optimize existing power infrastructure. solar thermal produces steam, not only to generate electricity or to augment production at existing fossilfired power plants, but also for industrial applications, such as desalination, enhanced oil recovery and food processing. Global deployment is also opening market opportunities for the Csp industry, creating jobs and building local economies. the industry can leverage local content, further driving the market in many countries that mandate and reward localization.

Consider recent, strategic investments in Csp by areVa, siemens, abb, alstom, bechtel and mitsubishi. these global energy leaders bring the bankability to deploy on a global scale. they can reliably offer the full package of necessary services and guarantees from technology leadership and epC services to o&m expertise and all backed by solid balance sheets. STRATEGIC VISION Lastly, the Csp industry must demonstrate its value proposition in both the near- and long-term. in areVa solars view, this includes four key solutions:

1. standalone power generation; 2. solar steam to augment power generation at existing fossil-fired power plants without added power block costs or emissions; 3. thermal storage and solar hybrid plants to offer full Finally, there is the driver of strong public policy support for Csp, dispatchability; particularly overseas as progressive government programs are 4. and steam for industrial process applications and helping to promote new Csp development. desalination. together, these dynamics have opened the door for Csps largescale, global ramp-up. that is where technical evolution comes into play. in fact, innovation and commercialization are tied together, and with more than 1GW of installed capacity, solar thermal has proven it can deliver. as the industry commercializes on a large-scale, innovation must continually drive technological advancements to capture additional cost reductions and performance enhancements. GLOBAL SCALE DEPLOYMENT For the Csp industry to truly realize its potential, innovation and commercialization must be coupled with the ability to deploy on a global scale quickly. With the growing number of large, global energy players entering the industry, this is now possible. to fully leverage these market opportunities, the industry must ramp up construction of the full range of Csp plants and in doing so create local jobs and boost local economies. these factors and market drivers combined make Csp a serious participant in the global energy dialogue. the industry must now seize this moment to expand its role in the global energy mix and fulfill the promise of Csp.

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PERSPECTIVE ON RENEWABLE ENERGY INVESTMENT

THE RENEWABLE ENERGY SECTOR IS MASSIVELY CAPITAL HUNGRY. WERE SEEING A GLOBAL RACE FOR CAPITAL, WITH A LARGE NUMBER OF JURISDICTIONS AROUND THE WORLD COMPETING FOR GREEN JOBS, STRATEGIC POSITIONS AROUND CERTAIN TECHNOLOGIES AND ECONOMIC DIVERSIFICATION. OVER THE LAST 12-24 MONTHS, DIVERGENT POLICY APPROACHES HAVE EMERGED IN THE RAPIDLY GROWING RENEWABLE ENERGY MARkETS OF THE EASTMAINLAND CHINA, TAIWAN AND SOUTH kOREAAND THE MATURE WESTERN MARkETS, SUCH AS THE US AND EUROPE. policy setters in the east are focused on driving economic growth to seize advantage in this increasingly important sector, providing an energy policy framework designed to stimulate investmenttogether with closely aligned economic and industrial policies to generate manufacturing jobsto capture intellectual property or cost reductions as a source of long-term competitive advantage. Western government policy has pursued the same strategic objectives but with the realization that manufacturing jobs might not be sustainable in the longer run. in some of the more mature renewable energy markets, policy is now focused on energy security and delivering de-carbonized energy at the lowest possible cost. as a result, much of the intellectual property-driven technology developed in europe or the us is likely to be transferred over the longer-term to developing markets for commercial deployment or industrial scale manufacturing. at the same time, capital flows will become truly global with donor organizations and multilaterals deploying funds from developed countries in developing ones. despite recent investment growth, capital scarcity remains the biggest inhibitor to renewable energy infrastructure deals. Following the recession, corporations and utility companies no longer have the deep balance sheets that they can bring to bear. banks, with the minimum capital requirements of baseL iii coming into play, are also busily rebuilding their balance sheets. at the same time, government policy support in the us and europe is likely to become less generous as objectives shift from stimulus to austerity and debt reduction. With these traditional sources of capital likely to remain constrained for the foreseeable future, the sector needs new investors and new conduits for their capitalthere are some encouraging signs that these will emerge. Given the very long-term and low-risk nature of renewable energy infrastructure investments, along with the benefit they receive from transparent long-term feed-in tariffs or other forms of government backing, the asset class appears well-suited to attract annuity funds, such as defined benefits pension schemes. in the uk, for example, there has been a lot of debate about the proposal to create a green investment bank, whose role could be to consolidate and repackage existing project finance debt. this would free up bank balance sheets; and if such an institution had the ability to issue bonds it could enable pension funds, life and insurance funds and fixed income to invest in the sector. spurred by government policy objectives, state-owned banks and multilateral financial institutions are also becoming more active players in cleantech. For example, Chinese state-owned banks have stepped up lending to renewable energy companies. both the european investment bank and the european bank for reconstruction and development are focused on stimulating clean energy markets and are actively lending to the sector.

Ben Warren environment and energy infrastructure advisory Leader, ernst & Young

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PARTICIPANTS
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PARTICIPANTS
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FORUM CHAIR: Norman Pearlstine Chief Content officer, bloomberg kEYNOTE SPEAkER: Dan Reicher executive director, steyer-taylor Center for energy policy and Finance Dan Adler president, CalCeF John Andersen, Jr. Group Coo & eVp, reC Group Guy Auger Coo, eolfi Julien Bailliet Chief of staff and director of Corporate affairs, solar trust of america Thomas Bartolomei senior Vice president, business development , areVa solar Andrew Beebe Chief Commercial officer, suntech Paul Breslow head of us project and Corporate development, au optronics Nathaniel Bullard Lead analyst, solar North america, bloomberg New energy Finance Alexandre Chavarot head of Clean energy Finance & Clinton Global initiative, solar program Coordinator Jenny Chase manager, bLoomberG NeW eNerGY FiNaNCe Jimmy Chuang head of structured Finance, GCL solar John Clapp executive Vice president & CFo, solar trust of america Paul Deninger senior managing director, evercore partners

Martha Duggan Vice president, Government and regulatory affairs, uni-solar Mike Eckhart president, american Council on renewable energy Christoph Fark managing director, sChott solar Bob Fishman Ceo, areVa solar Joseph Fontana partner, transaction advisory service, ernst & Young George Frampton senior of Counsel, Covington & burling Vahan Garboushian Cto, Founder, amonix, inc. Richard Gruber president, schott solar Csp Arno Harris Ceo, recurrent energy Darrell Hayslip Chief development officer, Xtreme power Andrew Jack partner, Covington & burling Sami khoreibi Ceo, enviromena power systems John king executive Vice president, Ls power development, LLC Susan kish head, Cross media initiatives, bLoomberG Jack Lai eVp & Ceo, Ldk solar usa

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Jeff Lang ernst & Young Angiolo Laviziano Ceo, mainstream energy Dr. Paul MacGregor senior Vice president, Nexant Mike Marelli director, southern California edison Peter Mavraganis renewable energy practive Leader, marsh Doug May president & Ceo, unirac Jim Modak CFo, suniva Paul Nahi Ceo, enphase energy Greg Nelson executive director , pNm resources Daniel Oros partner, kleiner perkins Caufield & byers Dr. karsten Otte Ceo, solarion Cdric Philibert senior analyst renewable energy division, iea Philippe Poux General manager , areVa solar Derek Price program manager - renewable energy , Johnson Controls Dr. Ryne Raffaelle director, National Center of photovoltaics, NreL

Heather Sibley assurance partner, ernst & Young kevin Smith Ceo, solarreserve E.C. Sykes president, Flextronics industrials Dr. Anish Tolia head of market development, Linde electronics Drew Torbin Vice president - renewable energy, proLogis Marc van Gerven Ceo, Q-Cells North america David Wenstrup program manager, Clinton Global initiative Ellen White Global marketing manager , 3m red Dr. Christoph Wolff Ceo, solar millennium John Woolard Ceo, brightsource

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ABOUT US
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ABOUT BLOOMBERG NEW ENERGY FINANCE

bloomberg New energy Finance is the worlds leading independent provider of subscription-based research to decision-makers in renewable energy, carbon markets, energy efficiency, biofuels, carbon capture and storage, and nuclear power. it has a staff of more than 130, based in London, Washington, New York, san Francisco, beijing, tokyo, delhi, Cape town, sao paulo, perth and sydney.

bloomberg New energy Finances insight services provide deep market analysis to investors in wind, solar, bioenergy, geothermal, carbon capture and storage, energy efficiency, nuclear power and the traditional energy markets. it also offers dedicated services for each of the major emerging carbon markets: european, international (kyoto), australia, and the us where it covers the planned regional markets as well as potential federal initiatives as well as the voluntary carbon market. bloomberg New energy Finances industry intelligence service provides access to the most comprehensive database of investors and investments in clean energy. the News and briefing service is the leading global news and newsletter service focusing on clean energy investment. bloomberg New energy Finance also undertakes custom research and consultancy and runs senior-level networking events. For more information on bloomberg New energy Finance please visit:
WWW.BNEF.COM

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DISCLAIMER the information contained in this publication is derived from selected public sources we believe to be reasonable. We do not guarantee the accuracy or completeness of this information, which is subject to change without notice, and nothing in this document shall be construed as such a guarantee. the statements in this publication reflect the current judgment of the authors of the relevant articles or features, and do not necessarily reflect the opinion of bloomberg Finance L.p., bloomberg L.p. or any of their affiliates (bloomberg). bloomberg disclaims any liability arising from use of this document or its contents. Nothing herein shall constitute or be construed as an offering of financial instruments, or as investment advice or recommendations by bloomberg of an investment strategy or whether or not to buy, sell or hold an investment. bLoomberG, bLoomberG proFessioNaL, bLoomberG markets, bLoomberG NeWs, bLoomberG aNYWhere, bLoomberG tradebook, bLoomberG boNdtrader, bLoomberG teLeVisioN, bLoomberG radio, bLoomberG press, bLoomberG.Com, bLoomberG NeW eNerGY FiNaNCe and NeW eNerGY FiNaNCe are trademarks and service marks of bloomberg Finance L.p. or its subsidiaries. bloomberg Finance L.p. 2011. No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of bloomberg Finance L.p.

For Further iNFormatioN pLease CoNtaCt:

Joshua Slusarz, New York t: +1 212 617 5955 e: jslusarz2@bloomberg.net Nathaniel Bullard t: +1 415 617 7289 e: nbullard@bloomberg.net