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Solar Opportunity - Business Model Options Infrastructure & Government Santosh Kamath Director, KPMG Advisory Services Private Limited.

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Presentation on theme: "Solar Opportunity - Business Model Options Infrastructure & Government Santosh Kamath Director, KPMG Advisory Services Private Limited."— Presentation transcript:

1 Solar Opportunity - Business Model Options Infrastructure & Government Santosh Kamath Director, KPMG Advisory Services Private Limited

2 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 1 Agenda 1.Solar Photovoltaic Technology 2.Solar Thermal Technology – Concentrating Solar Power (CSP)

3 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 2 Solar Photovoltaic (PV) - Business Model Options & Critical Success Factors Manufacturer EPC PlayerDeveloper Appliance Manufacturer Crystalline Silicon PV Thin-Film PV Low cost manufacturing Manufacturing Innovations Technology innovation Engineering capability Tie-ups with suppliers Managing contracts including PPAs Land Bank Financing Product Design Marketing & Distribution Stand-alone Grid

4 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 3 There is currently oversupply in the value chain but supply dynamics could change based on demand visibility Source: Needham, Company reports, EPIA, KPMG analysis Wafer and cell production could expand to meet the demand Polysilicon shortage has led to a large addition of capacity Zone of uncertainty OVERSUPPLY Expect 2 Years With No Profits Morgan Stanley Analyst Wafer,,Cell and Module capacities have lower gestation periods and can quickly ramp up production once there is more visibility on demand

5 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 4 Global Competitive Behavior – Past Trends (1/2 ) Poly siliconWaferCellModule Systems Integration/ Developer Sun power Conergy, Solon, Centro solar Canadian Solar UPSTREAM DOWNSTREAM Acquire other system integration companies in different geographies Strategic tie-ups with upstream manufacturers Expansion into wafer segment Key Strategic Initiatives …A vertically integrated presence to capture profits across value chain PV Crystalox,LDK Solar Trina Sola, Yingli Expansion into poly- silicon space Strategic tie-ups with silicon manufacturers Yingli acquires Cyber Power Group Ltd., a solar-grade poly- silicon production company

6 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 5 Global Competitive Behavior – Recent Trends (2/2 ) Poly siliconWaferCellModule Systems Integration/ Developer REC Solar, SolarWorld Solarfun, Suntech, Evergreen solar, JA Solar Downstream move – Equity Stake in solar farm developer UPSTREAMDOWNSTREAM JV to develop solar farms Suntech – Acquires MSK and EI Solutions System Integrators Key Strategic Initiatives …An increased focus on market access Thin-film Module First Solar*, Ascent Solar,Energy Conversion Devices First solar acquires solar power project pipeline n USA *Strategic land rights of approximately 136,000 acres (approximately 210 square miles) with the potential to deploy up to 19 gigawatts Q cells Stake through subsidiaries in thin-film technology firms JV Partnership with LDK to develop PV systems in Europe and China

7 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 6 Ability to procure solar silicon Ability to reduce energy costs Ability to reduce silicon consumption Ability to produce high quality thinner wafers Ability to increase cell conversion efficiency Access to cheap and skilled labor Ability to secure module supply contracts Wafer CellModule Technology …. Advancement in wafer and cell technologies are considered to be the key drivers in the overall cost reduction possibilities for crystalline PV Capital & Energy Labour CSFs for Business Model – Crystalline PV Manufacturing Poly silicon Ability to secure low cost and good quality inputs ( Poly-silicon, Wafer, Cell) Ability to get market access – Increase capacity utilization

8 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 7 CSFs for Business Model – Thin Film Manufacturing Concern Players A-SiCdTeCIGS Many established players like Sharp, Q cells and Schott Solar have diversified into A-Si First solar is the largest thin-film manufacturer in the world Some industry players have exited this space New entrants and start-ups are focused Efficiency degradation Lower conversion efficiency Feedstock limitation - Availability of telluride Cadmium is carcinogenic CIGS is limited by availability of Indium, a rare earth metal that could cause supply bottleneck Ability to manage technology vendors for up-gradation and quality assurance. Ability to partner with existing CdTe players like First Solar Ability to drive technology innovation Ability to invest risk money CSF CIGS – Copper Indium Gallium Selenide CdTe – Cadmium Telluride A-Si – Amorphous Silicon

9 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 8 Build-up of scale Across the value chain, the median capacity of the industry has been going up, which is most significant in the case of Wafers and Cells Expected economies of scale in thin film is likely to see capacity scale-ups CrystallineThin film The bars correspond to actual/planned capacity additions by year

10 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 9 Players in Thin-film - CIGS technology is supported by new start-ups with strong venture capital funding… 2006 or earlier 2007200820092010 Plant Construction / Ramp up Pilot Production Production > 5MW Production > 25MW Year of Market Entry (Expected) Development Status PV Flex Scheuten CIS Solartechnik Johanna Avancis Malibu Signet NexPower Kenmos CSG Calyxo Sontor ersol Schott Honda Sharp Sanyo Uni-solar Kaneka Mitsubishi First Solar Source – KPMG Analysis, EuPD Research 2008 Free Energy R&D Nanosolar Heliovolt Miasole Terrasolar Solyndra Solon Wurth Solar CIGS CdTe A-Si Solar Thin-film – Industry Profile

11 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 10 Industry clusters Capacity expansions along the value chain are clustered around certain key geographies Wafer Cell a-Si Cd-Te China is gearing up to be a major cell and wafer player USAs capabilities in research make it a significant thin film player USA, Japan and Germany are hot-beds of thin film technology, while China and Taiwan are growing manufacturing bases for crystalline wafer and cell

12 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 11 CSFs for Business Model – Project Developer Solar FarmRoof Top PPA with customersPPA with utility Ability to get access to customers Marketing and customer relationships Manage customer service and performance. Supply chain to manage multiple/retail customers Ability to sign a PPA with govt /utility Ability to secure low cost and high quality equipments Developing land banks and managing grid interconnections Key challenges - Risk of default from customers Dealing with utility / electricity metering & measurement, grid connections etc. Permits and clearances O&M of equipment at customer premises CSF

13 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 12 CSFs for Business Model – Standalone Applications Equipment SupplySystem Solution Design Distribution & Installation Maintenance & Service Source Equipments - Tie-ups with Manufacturers Secure supply of good quality and low cost modules Procure balance of system components – battery, inverter, cables, electrical components from vendors Design and develop solar solutions Customize solutions Configuration - Stand-alone systems; grid connection etc Appropriate Size and Orientation System assembly and installation Adhere to standards & specifications Install and connect the system through meters and other equipments Provide quick and high quality service at customer end Local infrastructure in- place to respond to breakdowns or any other problems Description VALUE CHAIN Cost competitiveness Product design Assure high reliability and performance Good quality service CSF

14 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 13 To Summarise for PV Business Model Options Include: Wafer & Cell Manufacturing: Scale, Government incentives and ability to innovate in manufacturing processes and access to cell technology are key drivers. Strategic tie- ups for supply contracts are also key differentiators. Modules: Likely to be low margin game. Could be a potential entry point for a new entrant. Can also be part of integrated play with cells and wafers. Polysilicon: Ability to source cheap energy and negotiate Government incentives will be key drivers Thin-Film: Access to technology will be the key factor Standalone Systems: Product design and marketing will be key capability requirements. Potential could be large.

15 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 14 Agenda 1.Solar Photovoltaic Technology 2.Solar Thermal Technology – Concentrating Solar Power (CSP)

16 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 15 Solar thermal technologies - Brief Snapshot Key Parameters Parabolic Trough (Most commercially proven technology) Central Receiver Systems (Prototype, Semi Commercial ) Parabolic Dish (Prototype testing) Key Advantages High system reliability Low materials demand Proven hybrid concept Storage capability Best land use factor High temperature (around 500- 800°C) High efficiency possible Hybrid operations possible Potential for low capex High efficiency Modularity Disadvantages Low operating temperatures (around 400°C) Land needs to be graded level High maintenance and equipment costs Reliability concerns Highly complex No storage possible Applications Grid connected plants, mid-to-high process heat Grid connected plants, high temperature process heat Stand alone, small off- grid power systems or clustered to larger grid connected dish-parks

17 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 16 Solar Thermal Technologies – Value Chain Engineering R&D EPC Project Development Operations Iberdrola, ENEL, Energias de Portugal, FPL Schott Solar, Rioglass, Flabeg Epuron Solargenix Energy LLC Solar Millennium AG, Abengoa S.A, BrightSource Energy, Acciona Energia Ausra, Solel, Skyfuel Vertical integration- Presence across the entire value chain Diversification strategy in solar (Renewable portfolio, Solar Portfolio) Market Access – PPAs with utilities Strategic Alliances Amongst Technology, EPC, Financing players. Key Industry Themes Technology Manufacturing LandPermitsFinancingConstruction

18 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 17 CSP - Business model options Technology Supplier/ Manufacturer Technology R&D Innovation – Drive costs towards grid parity Low cost manufacturing Core Component Access – License or partnerships for – components like :- Heliostats, Absorber tubes, Curved mirrors and receivers etc Market Access – PPA with utility Efficient power plant operations Land Selection – Build land bank Developer EPC – Project Management and Construction Capability Niche or Integrated Presence Turn key EPC Provider

19 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 18 Thank You 18 Santosh Kamath Director KPMG Advisory Services Private Limited +91 99670 16369 skamath@kpmg.com

20 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 19 APPENDIX

21 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 20 Solar power offers immense potential as a clean alternative to meet the growing grid and off-grid energy requirements of the country Grid Power - Indias energy shortage is about 10%* Peak deficit about 17%* Government announced the National Solar Mission - which envisages capacity addition goal of 1000 MW of solar power per year Potential in Remote Villages - 33% of Indias population has no access to grid electricity Replace kerosene lighting consumption per household – 50 to 70 liters per year Solar Lamps could be used for lighting load Commercial Applications - Replace diesel generators in stand-alone systems like telecom towers, oil & gas platforms, railway communications etc …Solar power can be used to meet energy requirements for centralized as well as decentralized applications as solar systems can be built for capacities varying from Wp to MWp *CERC

22 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 21 Government has taken several investor friendly initiatives to promote solar power development in India Along with incentives for power generation, there are favorable incentives for setting up manufacturing facility in India. Semiconductor policy - Government will bear 20 % of Capex during the first 10 years, if a unit is located within Special Economic Zones (SEZs) and 25% for industries not located in an SEZ. Capital subsidy can be in the form of investment grant and interest subsidy Incentives for solar power generation in India GovernmentsTariff for PVTariff for Solar Thermal West Bengal Rs 11 per kwhNot Declared Haryana (12 MW) Rs 15.96 per kwhNot Declared Tamil Nadu (50 MW) Rs 15.15 per KwhNot Declared Rajasthan (50 MW Cap) Rs 15.78 per kwhRs 13.78 per kwh GUJARAT (500MW) Projects commissioned before 31-12-2010 Rs 13/kwh for 12 years; Rs 3/Kwh from 13th to 25th year Other projects commissioned before 31-03-2014 Rs 12/kwh for 12 years; Rs 3/Kwh from 13th to 25th year Projects commissioned before 31-12-2010 Rs 10/kwh for 12 year; Rs 3/Kwh from 13th to 25th year Other projects commissioned before 31-03-2014 Rs 9/kwh for 12 year; Rs 3/Kwh from 13th to 25th years MNRE ( 50MW Cap) Generation-based subsidy up to Rs. 12/kWh for 10 years so that the maximum tariff a project may receive after state support is Rs. 15/kWh ( 5% digression starting 2010: Rs. 11.40/kWh ) Other fiscal benefits include:- Accelerated Depreciation – 80% in the first year Excise duty cuts and Tax holiday

23 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 22 A portfolio of technologies at different levels of maturity and outlook are available for consideration.. Solar Power Solar Thermal Technologies (CSP) Parabolic Trough Dish SterlingPower Tower Poly-SiliconWaferCell Module System Assembly / Integration Established – Efficiency Improvements Nascent - Innovation Stage Amorphous Silicon CdTe – (Proprietary Technology) CIGS Key challenge :- Outlook on grid parity for different solar technologies

24 ©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. 23 Detailed Approach – Real Options Evaluation Framework Option 1: Start as an EPC Player, License Technology as soon as industry growth is visible Modest ReturnsEP = +20 Slow growth pattern of the Industry EP = -10 Year 0Year 1Year 2Year 3 Year 4 Year 5 Specific Technology EPC Player, Tech agnostic Multiple Technologies EP = -100 EP = -200 Right Bet EP = +500 Rapid Growth commences in Year 4 Wrong Bet (Switching Costs) EP = -200 EP = +500 EP = +700 EP = +600 Some Win All Win Rapid Growth Option 2: Take Technology Position Now (Acquire, JV, In-house) EP = -50 EP = -100 One Technology Multiple Technology Rapid Growth EP = +700 EP = +1000 ILLUSTRATION Expected payoffs and probability of the event shall be estimated by studying past trends in similar technology oriented industries. P = 50% P = 30% P = 70% P = 30% P = 70% P = 30% P = 70% P = 30%


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