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

Agenda Solar Photovoltaic Technology Solar Thermal Technology – Concentrating Solar Power (CSP)

Appliance Manufacturer Crystalline Silicon PV Solar Photovoltaic (PV) - Business Model Options & Critical Success Factors Appliance Manufacturer Product Design Marketing & Distribution Stand-alone Manufacturer EPC Player Developer Grid Crystalline Silicon PV Thin-Film PV Engineering capability Tie-ups with suppliers Managing contracts including PPAs Land Bank Financing Low cost manufacturing Manufacturing Innovations Technology innovation

“Expect 2 Years With No Profits” There is currently oversupply in the value chain but supply dynamics could change based on demand visibility Zone of uncertainty Wafer and cell production could expand to meet the demand Wafer, ,Cell and Module capacities have lower gestation periods and can quickly ramp up production once there is more visibility on demand “Expect 2 Years With No Profits” Morgan Stanley Analyst Polysilicon shortage has led to a large addition of capacity OVERSUPPLY Source: Needham, Company reports, EPIA, KPMG analysis

Global Competitive Behavior – Past Trends (1/2 ) UPSTREAM DOWNSTREAM Poly silicon Wafer Cell Module Systems Integration/ Developer Key Strategic Initiatives PV Crystalox ,LDK Solar Expansion into poly-silicon space Strategic tie-ups with silicon manufacturers Yingli acquires Cyber Power Group Ltd., a solar-grade poly-silicon production company Trina Sola, Yingli Sun power Acquire other system integration companies in different geographies Strategic tie-ups with upstream manufacturers Conergy, Solon, Centro solar Canadian Solar Expansion into wafer segment …A vertically integrated presence to capture profits across value chain

Global Competitive Behavior – Recent Trends (2/2 ) UPSTREAM DOWNSTREAM Poly silicon Wafer Cell Module Systems Integration/ Developer Key Strategic Initiatives REC Solar, SolarWorld Downstream move – Equity Stake in solar farm developer Stake through subsidiaries in thin-film technology firms JV Partnership with LDK to develop PV systems in Europe and China Q cells Solarfun, Suntech, Evergreen solar, JA Solar JV to develop solar farms Suntech – Acquires MSK and EI Solutions System Integrators 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 …An increased focus on market access

CSFs for Business Model – Crystalline PV Manufacturing Poly silicon Wafer Cell Module 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 Capital & Energy Technology Labour Ability to secure low cost and good quality inputs ( Poly-silicon, Wafer, Cell) Ability to get market access – Increase capacity utilization …. Advancement in wafer and cell technologies are considered to be the key drivers in the overall cost reduction possibilities for crystalline PV

CSFs for Business Model – Thin Film Manufacturing A-Si CdTe CIGS 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 Players Concern CSF CIGS – Copper Indium Gallium Selenide CdTe – Cadmium Telluride A-Si – Amorphous Silicon

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 Crystalline Thin film The bars correspond to actual/planned capacity additions by year Expected economies of scale in thin film is likely to see capacity scale-ups

Players in Thin-film - CIGS technology is supported by new start-ups with strong venture capital funding… Solar Thin-film – Industry Profile Production > 25MW CIGS CdTe A-Si First Solar Mitsubishi Uni-solar Kaneka Production > 5MW Sanyo Honda Sharp Schott Wurth Solar Solyndra Development Status ersol Pilot Production Sontor Nanosolar Terrasolar NexPower Miasole Free Energy Heliovolt Solon CSG Kenmos Plant Construction / Ramp up Calyxo Signet Malibu Avancis Scheuten R&D Johanna PV Flex CIS Solartechnik 2006 or earlier 2007 2008 2009 2010 Source – KPMG Analysis, EuPD Research 2008 Year of Market Entry (Expected)

Industry clusters Capacity expansions along the value chain are clustered around certain key geographies Wafer Cell USA, Japan and Germany are hot-beds of thin film technology, while China and Taiwan are growing manufacturing bases for crystalline wafer and cell USA’s capabilities in research make it a significant thin film player China is gearing up to be a major cell and wafer player a-Si Cd-Te

CSFs for Business Model – Project Developer Solar Farm Roof Top Ability to sign a PPA with govt /utility Ability to secure low cost and high quality equipments Developing land banks and managing grid interconnections Ability to get access to customers Marketing and customer relationships Manage customer service and performance. Supply chain to manage multiple/retail customers CSF PPA with utility PPA with customers 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

CSFs for Business Model – Standalone Applications VALUE CHAIN Equipment Supply System 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 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 Design and develop solar solutions Customize solutions Configuration - Stand-alone systems; grid connection etc Appropriate Size and Orientation Description Cost competitiveness Product design Assure high reliability and performance Good quality service CSF

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.

Agenda Solar Photovoltaic Technology Solar Thermal Technology – Concentrating Solar Power (CSP)

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 15

Solar Thermal Technologies – Value Chain Project Development EPC Operations Key Industry Themes Land Permits Financing Engineering R&D Technology Manufacturing Construction Epuron Schott Solar , Rioglass, Flabeg Market Access – PPA’s with utilities Strategic Alliances Amongst Technology, EPC, Financing players. Solargenix Energy LLC Ausra, Solel, Skyfuel Iberdrola, ENEL, Energias de Portugal, FPL Diversification strategy in solar (Renewable portfolio, Solar Portfolio) Vertical integration- Presence across the entire value chain Solar Millennium AG, Abengoa S.A, BrightSource Energy, Acciona Energia

CSP - Business model options Technology Supplier/ Manufacturer Turn key EPC Provider Developer √ Niche or Integrated Presence 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 EPC – Project Management and Construction Capability Market Access – PPA with utility Efficient power plant operations Land Selection – Build land bank

Thank You Santosh Kamath Director KPMG Advisory Services Private Limited +91 99670 16369 skamath@kpmg.com 18

APPENDIX

Solar power offers immense potential as a clean alternative to meet the growing grid and off-grid energy requirements of the country Grid Power - India’s 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 India’s 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

Government has taken several investor friendly initiatives to promote solar power development in India Incentives for solar power generation in India  Governments Tariff for PV Tariff for Solar Thermal West Bengal Rs 11 per kwh Not Declared Haryana (12 MW) Rs 15.96 per kwh Tamil Nadu (50 MW) Rs 15.15 per Kwh Rajasthan (50 MW Cap) Rs 15.78 per kwh Rs 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 Rs 10/kwh for 12 year; Rs 3/Kwh from 13th to 25th year 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 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

A portfolio of technologies at different levels of maturity and outlook are available for consideration.. Established – Efficiency Improvements Solar Power Nascent - Innovation Stage Solar Thermal Technologies (CSP) Amorphous Silicon CdTe – (Proprietary Technology) Parabolic Trough Power Tower Dish Sterling CIGS Poly-Silicon Wafer Cell Module System Assembly / Integration Key challenge :- Outlook on grid parity for different solar technologies

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