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

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

2. 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

3. “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

4. 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

5. 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

6. 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

7. 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

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
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

9. 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)

10. 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

11. 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

12. 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

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.

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

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 °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

16. 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

17. 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

18. Thank You Santosh Kamath Director
KPMG Advisory Services Private Limited 18

19. APPENDIX

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 -
India’s energy shortage is about 10%*
Peak deficit about 17%*
Government announced the “National Solar Mission” - which envisages capacity addition goal of 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

21. 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 per kwh
Tamil Nadu (50 MW)
Rs per Kwh
Rajasthan (50 MW Cap)
Rs per kwh
Rs per kwh
GUJARAT (500MW)
Projects commissioned before
Rs 13/kwh for 12 years; Rs 3/Kwh from 13th to 25th year
Other projects commissioned before
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 /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

22. 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

23. 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.