solar plays russian roulette

Sector report: 2011 outlook

Renewable Energy

Solar plays Russian roulette Renewable Energy 02.09.2010 Renewable Energy vs Nasdaq (12m)

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Renewable Energy

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Analysts: Einar Kilde Evensen +47 22948232 [email protected] Trygve Lauvdal +47 22948932 [email protected] Dan Erik Glover [email protected] Please see the last page for important information.

The solar market has tangled itself into a risky "game", shovelling modules into Germany at an unsustainable pace. Our estimates indicate installations there may nearly triple from 2009 to 9.2GW in 2010, and will soar even higher next year if no decisive action is taken by the Bundestag. Sooner rather than later, we say, since the pain will be worse the longer the delay.

Mcap Price Target Poten- Price / earnings ratioTicker Curr. REC (EURm) (curr.) (curr.) tial 2010e 2011e 2012eFSLR US USD HOLD 8,159 127.9 140.0 10 % 14.4x 12.5x 16.6xQCE GR EUR SELL 619 5.1 5.0 -2 % n.m. 9.7x 25.3xREC NO NOK BUY 3,589 16.3 24.0 48 % 74.5x 11.9x n.m.SWV GR EUR SELL 1,713 9.0 8.0 -11 % 14.6x 15.3x n.m.SPWRA US USD HOLD 1,468 10.8 11.5 7 % 7.9x 6.0x 20.7xSTP US USD SELL 1,924 7.7 7.0 -10 % 15.3x 9.7x n.m.VWS DC DKK BUY 8,678 219.2 350.0 60 % 24.4x 8.6x 7.3x

Germany is seriously overheating. Our calculations indicate that the German market is heading for 9.2GW of installations this year. If no action is taken, the current legislation is likely to spur further rapid growth in 2011 – in stark contrast to Germany's long-term target of ~3GW per year. We see a capping of this market as inevitable, but for practical reasons not before mid-2011. Until then, demand will be strong and ASPs (relatively) resilient.

Module ASPs to fall 27% in 2012 from USD 1.55/Wp in 2011. During the last year, module ASPs has fallen almost around 15%, and now trades at USD 1.70 per Wp. Based on our analysis of German IRRs, production cost and available capacities we expect module ASPs next year to average USD ~1.55/Wp. We believe there is enough production capacity with combined cash costs below USD 1.55/W to supply 21 GW of polysilicon, wafers, cells and modules (including thin-film) in 2011.

World ex-Germany must grow by 18GW in 2012 to avoid oversupply. While we model 2011 to be another strong year with demand reasonably in balance with supply, our expected 4GW cap in Germany from 2012 coupled with 29GW worth of available modules means demand outside Germany needs to grow from 7GW in 2010 to 25GW in 2012.

Should we worry about 2012 when the party is extending into 2011? Of course, but there will come warning signs from Germany before the Bundestag revises the FiT legislation. In the mean time there are several (for some companies - very) good quarters ahead of us. Investors can ride this wave a little longer, but do stay alert. One could also hope (or pray?) the 2012 situation will somehow be resolved by the time we get there.

Sector report > Renewable Energy

DnB NOR Markets – 2

02.09.2010

Table of contents

1. EXECUTIVE SUMMARY 6 1. 2011 ANOTHER RECORD, BUT UNSUSTAINABLE – 2012 TO FACE SEVERE

OVERSUPPLY 6 2. MODULE ASPS SLIPPING TO EUR 1.20-1.25/W IN 2011, BUT BRACE

FOR 2012 6 3. GERMANY NEEDS TO INTRODUCE CAP – SOON! 6 4. WIND – GROWTH SLOWING IN 2010, CAGR OF 10% EXPECTED NEXT

FIVE YEARS 8 5. INVESTMENT STRATEGY 8

2. ELECTRICITY MARKET OUTLOOK 9 MACRO BACKDROP: MODEST RECOVERY 9 ELECTRICITY DEMAND GROWTH HAS HISTORICALLY BEEN RESILIENT VS MACRO 10 DEMAND GROWTH IS VULNERABLE, BUT AGING PLANTS MUST STILL BE

RETIRED 12 ENERGY SUPPLY: CURRENT NEW-BUILD PACE IS INSUFFICIENT 13 NUCLEAR: PHASING OUT OR NEW DAWN? 15 ENERGY SECURITY REMAINS A SIGNIFICANT DRIVER OF RENEWABLE ENERGY 17 ELECTRICITY PRICES LIKELY TO RISE 19 ELECTRICITY MARKETS ARE VERY HETEROGENOUS 21

3. ESTIMATING COST OF NEW ELECTRICITY PRODUCTION (LCOE) 22 WHAT IS LCOE AND WHY DO WE NEED IT? 22 KEY FINDINGS: WIND CAN COMPETE WITHOUT SUBSIDIES 22 LCOE: SENSITIVE TO THE DIFFERENT COST PARAMETERS 22 PROS AND CONS OF THE DIFFERENT TECHNOLOGIES 22 WIND – ONSHORE 24 WIND - OFFSHORE 25 SOLAR - PV 26 NUCLEAR 27 HYDRO 28 NATURAL GAS 29 COAL 30 DISCOUNT RATE SENSITIVITIES 31

4. POLITICAL FRAMEWORK 32 HOW EXPENSIVE ARE RENEWABLE ENERGY SUBSIDIES REALLY? 32 OVERVIEW OF WORLD SUBSIDIES FOR SOLAR AND WIND 33 OBJECTIVE OF POLICIES 1: REDUCING THE DEPENDENCE ON FOSSIL FUELS 33 OBJECTIVE OF POLICIES 2: REDUCING GREENHOUSE-GAS EMISSIONS 35 US POLICIES: AMBITIOUS TARGETS, LOW FIT RATES 36 GERMANY: LUCRATIVE TARIFFS SPURRING RAPID BUT UNSUSTAINABLE

GROWTH 37 GERMANY: WHY A CAP IS INEVITABLE 38 DEMAND - EUROPE: EMERGING SOLAR MARKETS 40 ASIA: A POLICY CHANGE CAN RESULT IN A SOLAR BOOM 40 WIND POWER: OFFSHORE BECOMING CLOSE TO COST COMPETITIVE 41

5. SOLAR COST AND PRICES 43 SUMMARY: MARGIN COMPRESSION CONTINUES 43 POLYSILICON: DIFFICULT, IF NOT IMPOSSIBLE, TO SEE PRICES NOT FALLING 44 WAFERS: NO LONG-TERM BOTTLENECK 46 CELL AND MODULE – NO BOTTLENECKS IN SIGHT 46 PROJECT COSTS: NO LONG-TERM BOTTLENECK 47 COST OUTLOOK THROUGH THE VALUE CHAIN IN 2011 48 DEMAND VS SUPPLY: OVERSUPPLY LOOMING FOR 2011 49



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6. WIND INDUSTRY 51 SUMMARY: SIGNIFICANT GROWTH POTENTIAL NEXT DECADE 51 INDUSTRY STRUCTURE: INCREASINGLY DIVERSIFIED 53 GEOGRAPHICAL PRESENCE 54 FURTHER CONSOLIDATION LIKELY 54 WIND OFFERS COMPETITIVE COST OF (UN-SUBSIDISED) ELECTRICITY 55 KEY MARKETS: EUROPE, THE AMERICAS AND ASIA/PACIFIC 56

7. ELECTRICAL CARS – A (SMALL) PIECE OF THE PUZZLE 65 EVS ARE SOON BECOMING COST COMPETITIVE 65 BATTERY COST IS THE KEY ISSUE FOR (PH)EVS 66 IMPACT ON ELECTRICITY DEMAND 67

8. VALUATION SUMMARY 69 SHARE PRICE DEVELOPMENT 69 HISTORICAL 1-YEAR FORWARD MULTIPLES 70 PEER GROUP MULTIPLES 74 EPS REVISION TABLES 76

9. APPENDIX 77 A1: TOP 10 PRODUCERS: POLY, WAFERS, CELLS AND MODULES 77 A2: SOLAR TECHNOLOGY BASICS: TWO ROUTES TO HARNESS ENERGY FROM

THE SUN 77 A3: SOLAR AND PV VALUE CHAIN 78 A4: WHAT IS A "SMART GRID"? 78 A5: US STATE AND LOCAL SUBSIDIES FOR RENEWABLE ENERGY 80 A6: GLOSSARY, RENEWABLE ENERGY TERMS AND EXPRESSIONS 81

10. COMPANY COVERAGE 83 FIRST SOLAR 84 Q-CELLS 88 RENEWABLE ENERGY CORP. 91 SOLARWORLD 100 SUNPOWER 103 SUNTECH POWER 106 VESTAS WIND SYSTEMS 109



02.09.2010

Table of exhibits EXHIBIT 1-1: ASP PROJECTIONS 2010-2012E............................................... 6 EXHIBIT 1-2: GERMAN SOLAR INSTALLATIONS (TWO SCENARIOS) ........................... 7 EXHIBIT 1-3: ELECTRICITY FROM PV VS GERMAN ELECTRICITY DEMAND .................... 7 EXHIBIT 2-1: KEY MACRO ASSUMPTIONS: GDP GROWTH ..................................... 9 EXHIBIT 2-2: GERMAN ELECTRICITY DEMAND VS GDP 1952-2010E ......................10 EXHIBIT 2-3: ELECTRICITY DEMAND BY REGION...............................................11 EXHIBIT 2-4: MWH/CAPITA AND POPULATION GROWTH .....................................11 EXHIBIT 2-5: ANNUAL ELECTRICITY USE PER CAPITA..........................................12 EXHIBIT 2-6: OECD ELECTRICITY USAGE INDICATORS.......................................13 EXHIBIT 2-7: EUROPE HAS AN AGE PROBLEM..................................................14 EXHIBIT 2-8: EUROPEAN THERMAL POWER CAPACITY TRENDS 1960-2010................14 EXHIBIT 2-9: THE 439 OPERATING NUCLEAR POWER PLANTS WORLDWIDE .................15 EXHIBIT 2-10: 31 CAPACITY OF NUCLEAR PLANTS UNDER CONSTRUCTION .................16 EXHIBIT 2-11: HOW SAFE AND RELIABLE IS REALLY NUCLEAR?..............................17 EXHIBIT 2-12: ENERGY SECURITY AND OIL SUPPLY “DEFICITS”..............................18 EXHIBIT 2-13: THE MARGINAL PLANT PRINCIPLE IN GERMANY...............................19 EXHIBIT 2-14: COST OF NEW ELECTRICITY PRODUCTION BY SOURCE .......................20 EXHIBIT 2-15: ELECTRICITY SUPPLY 2008 BY MARKET AND SOURCE .......................20 EXHIBIT 2-16: COST BREAK DOWN FOR A GERMAN KWH (23.69 EURC/KWH) ..........21 EXHIBIT 3-1: COST OF NEW ELECTRICITY PRODUCTION FROM ONSHORE WIND.............24 EXHIBIT 3-2: COST OF NEW ELECTRICITY PRODUCTION FROM OFFSHORE WIND ............25 EXHIBIT 3-3: COST OF NEW ELECTRICITY PRODUCTION FROM PV ...........................26 EXHIBIT 3-4: COST OF NEW ELECTRICITY PRODUCTION FROM NUCLEAR.....................27 EXHIBIT 3-5: COST OF NEW ELECTRICITY PRODUCTION FROM HYDRO .......................28 EXHIBIT 3-6: COST OF NEW ELECTRICITY PRODUCTION FROM NATURAL GAS ...............29 EXHIBIT 3-7: COST OF NEW ELECTRICITY PRODUCTION FROM COAL.........................30 EXHIBIT 3-8: DISCOUNT RATE IMPACT ON TOTAL GENERATION COST .......................31 EXHIBIT 4-1: NON-OECD ENERGY SUBSIDIES ...............................................32 EXHIBIT 4-2: CURRENT SOLAR FEED-IN TARIFFS IN KEY COUNTRIES 2010 ..............33 EXHIBIT 4-3: OPEC NET OIL EXPORT REVENUES..............................................34 EXHIBIT 4-4: THE STRAIT OF HORMUZ ........................................................34 EXHIBIT 4-5: REQUIRED FALL IN GHG EMISSIONS ...........................................35 EXHIBIT 4-6: US RENEWABLE PORTFOLIO STANDARDS (RPS) .............................36 EXHIBIT 4-7: GERMAN TARIFFS AND PV INSTALLATIONS.....................................37 EXHIBIT 4-8: SURCHARGES TO GERMAN RATEPAYERS RISING FAST .........................38 EXHIBIT 4-9: GERMAN SOLAR INSTALLATIONS (TWO SCENARIOS) ..........................39 EXHIBIT 4-10: ELECTRICITY FROM PV VS GERMAN ELECTRICITY DEMAND..................39 EXHIBIT 4-11: CURRENT WIND FEED-IN TARIFFS IN KEY COUNTRIES .....................42 EXHIBIT 5-1: MAIN ASSUMPTIONS SOLAR .....................................................43 EXHIBIT 5-2: ASP ESTIMATES FOR 2011 AND 2012........................................43 EXHIBIT 5-3: FORWARD ASP SUMMARY .......................................................44 EXHIBIT 5-4: SILICON SUPPLY 2006 – 2012E...............................................45 EXHIBIT 5-5: SILICON SPOT PRICE.............................................................46 EXHIBIT 5-6: PRODUCTION ESTIMATES THROUGH THE PV VALUE CHAIN....................47 EXHIBIT 5-7: PROJECT COSTS 2007 – 2010 ................................................47 EXHIBIT 5-8: UNIT (FULLY LOADED) COST OVERVIEW AND COST TARGETS .................48 EXHIBIT 5-9: VERTICAL INTEGRATION AND MARGIN IMPLICATIONS..........................48 EXHIBIT 5-10: WORLD SOLAR MODEL (SIMPLIFIED)..........................................49 EXHIBIT 5-11: WORLD PV DEMAND 2004 – 2012E ........................................50 EXHIBIT 6-1: MAIN ASSUMPTIONS WIND ......................................................51 EXHIBIT 6-2: YEARLY WIND INSTALLATIONS...................................................51 EXHIBIT 6-3: WIND AS PERCENTAGE OF ELECTRICITY CONSUMPTION .......................52 EXHIBIT 6-4: WIND TURBINE MANUFACTURER MARKET SHARE...............................53 EXHIBIT 6-5: MARKET SHARE DEVELOPMENT ..................................................53 EXHIBIT 6-6: TOP 3 PLAYERS IN TOP 10 MARKETS (2009) .................................54 EXHIBIT 6-7: ESTIMATED WIND FARM PROJECT COST.........................................55 EXHIBIT 6-8: COST OF NEW ELECTRICITY PRODUCTION FROM ONSHORE WIND.............56



02.09.2010

EXHIBIT 6-9: ANNUAL AND ACCUMULATED INSTALLATIONS IN EUROPE .....................57 EXHIBIT 6-10: NET INCREASE/DECREASE IN POWER CAPACITY EU 2000-2008..........57 EXHIBIT 6-11: NATIONAL RENEWABLE ENERGY PLANS (SUBMITTED)........................58 EXHIBIT 6-12: ANNUAL AND ACCUMULATED INSTALLATIONS IN THE AMERICAS............58 EXHIBIT 6-13: WIND INSTALLATIONS IN THE UNITED STATES ..............................59 EXHIBIT 6-14: US SUPPLY CURVE FOR WIND ENERGY (EXCL. CONNECTION) ...............60 EXHIBIT 6-15: US SUPPLY CURVE FOR WIND ENERGY (INCL. CONNECTION) ...............60 EXHIBIT 6-16: ANNUAL AND ACCUMULATED INSTALLATIONS IN ASIA/PASIFIC.............61 EXHIBIT 6-17: ANNUAL AND ACCUMULATED INSTALLATIONS IN ROW ......................62 EXHIBIT 6-18: ANNUAL AND ACCUMULATED INSTALLATIONS OFFSHORE ....................62 EXHIBIT 6-19: INSTALLED AND PLANNED OFFSHORE WIND CAPACITY IN UK ...............63 EXHIBIT 6-20: PLANNED OFFSHORE CAPACITY BY MARKETS..................................64 EXHIBIT 6-21: HYWIND, WORLD'S FIRST FLOATING WIND TURBINE.........................64 EXHIBIT 7-1: EVS THEN AND NOW .............................................................65 EXHIBIT 7-2: US CAR COSTS, 2011E .........................................................66 EXHIBIT 7-3: US DRIVING PATTERNS ..........................................................67 EXHIBIT 7-4: ELECTRICITY DEMAND IMPACT FROM MORE (PH)EVS.........................67 EXHIBIT 7-5: NEW EV AND PHEV MODELS ...................................................68 EXHIBIT 8-1: SOLAR SHARE PRICE DEVELOPMENT SINCE 2009 .............................69 EXHIBIT 8-2: WIND SHARE PRICE DEVELOPMENT SINCE 2009 ..............................69 EXHIBIT 8-3: FIRST SOLAR – HISTORICAL 1-YEAR FWD MULTIPLES ........................70 EXHIBIT 8-4: Q-CELLS – HISTORICAL 1-YEAR FWD MULTIPLES.............................70 EXHIBIT 8-5: REC – HISTORICAL 1-YEAR FWD MULTIPLES..................................71 EXHIBIT 8-6: SOLARWORLD – HISTORICAL 1-YEAR FWD MULTIPLES .......................71 EXHIBIT 8-7: SUNPOWER – HISTORICAL 1-YEAR FWD MULTIPLES ..........................72 EXHIBIT 8-8: SUNTECH POWER – HISTORICAL 1-YEAR FWD MULTIPLES....................72 EXHIBIT 8-9: VESTAS – HISTORICAL 1-YEAR FWD MULTIPLES ..............................73 EXHIBIT 8-10: WIND PEER GROUP MULTIPLES ................................................74 EXHIBIT 8-11: SOLAR PEER GROUP MULTIPLES ...............................................75 EXHIBIT 8-12: WIND EPS REVISIONS.........................................................76 EXHIBIT 8-13: SOLAR EPS REVISIONS........................................................76 EXHIBIT 9-1: TOP 10 PRODUCERS: POLY, WAFERS, CELLS AND MODULES .................77 EXHIBIT 9-2: THE WAYS TO CAPTURE ENERGY AND MAKE ELECTRICITY FROM THE SUN ....78 EXHIBIT 9-3: THE PV VALUE CHAIN............................................................78 EXHIBIT 9-4: SMART GRID LAYOUT.............................................................79 EXHIBIT 9-5: THE MYRIAD OF US INCENTIVES FOR RENEWABLE ENERGY ...................80 EXHIBIT 10-1: FSLR: MANUFACTURING COST TARGET BELOW 0.6 USD/W..............85 EXHIBIT 10-2: FSLR: MANUFACTURING COST TARGET BELOW 0.6 USD/W..............85 EXHIBIT 10-3: FSLR: BOS COST TARGET BELOW 1 USD/W...............................85 EXHIBIT 10-4: FSLR: ESTIMATE CHANGES ...................................................86 EXHIBIT 10-5: FSLR: QUARTERLY ESTIMATES ...............................................86 EXHIBIT 10-6: NEW ESTIMATES: YEARLY......................................................89 EXHIBIT 10-7: QUARTERLY ESTIMATES ........................................................89 EXHIBIT 10-8: NEW ESTIMATES: YEARLY......................................................92 EXHIBIT 10-9: QUARTERLY ESTIMATES ........................................................93 EXHIBIT 10-10: SOTP - VALUATION SUMMARY...............................................94 EXHIBIT 10-11: SOTP - ASSUMPTIONS.......................................................95 EXHIBIT 10-12: SOTP - BEAR CASE ..........................................................96 EXHIBIT 10-13: SOTP - BASE CASE ..........................................................97 EXHIBIT 10-14: SOTP - BULL CASE...........................................................98 EXHIBIT 10-15: NEW ESTIMATES: YEARLY ..................................................101 EXHIBIT 10-16: QUARTERLY ESTIMATES ....................................................101 EXHIBIT 10-17: NEW ESTIMATES: YEARLY ..................................................104 EXHIBIT 10-18: QUARTERLY ESTIMATES ....................................................104 EXHIBIT 10-19: NEW ESTIMATES: YEARLY ..................................................107 EXHIBIT 10-20: QUARTERLY ESTIMATES ....................................................107 EXHIBIT 10-21: VWS: CHANGES TO ESTIMATES ..........................................110 EXHIBIT 10-22: VWS: QUARTERLY ESTIMATES............................................110 EXHIBIT 10-23: VWS: BACKLOG ...........................................................110



02.09.2010

1. Executive summary

1. 2011 another record, but unsustainable – 2012 to face severe oversupply

In last year's report (published 29 Sept 2009), we predicted that 2010 would be a year of oversupply in the module market. What we overestimated was Germany's willingness to cut FiTs decisively (we expected up to 25% reduction), thereby underestimating the resulting demand following a smaller FiT reduction. In 2011, we see Germany becoming a 10-12GW market, if nothing is done to the existing legislation.

However, for reasons we explain inside this report, Germany needs to reduce annual installations to (or preferably below) 5GW as soon as possible. Based on our estimate of Germany growing to 11.2GW in 2011, a 4GW cap imposed from 1 Jan 2012 translates into a demand reduction for the PV industry of 7.2GW YoY. Coupled with around 7 GW of new supply in 2012, that means 14 GW without a "home", spelling "buyers' market" in capital letters with correspondingly falling ASPs to marginal production costs. The later the cap comes, the lower it must be, for reasons we explain from page 38 in Chapter 4 and in point 3 below.

2. Module ASPs slipping to EUR 1.20-1.25/W in 2011, but brace for 2012

The strong demand from Germany is going to prevent prices from falling in spite of the significant supply growth in 2011. As shown in Exhibit 1-1 below, we see module ASPs down 12% and silicon down 11% in 2011, to levels where top tier cost producers enjoy super profits. However, the tide will turn in 2012 at the latest, when Germany either imposes a cap or reduces their FiT by the scheduled, max rate of 21% (see Exhibit 4-7).

Unless new markets "magically" appear, with similar or higher paying propensities as German PV system buyers, prices must fall. A lot. It will be painful, with the marginal producers just breaking even at the EBITDA level. But even at these low levels, Chinese cost leaders will generate decent profits.

Exhibit 1-1: ASP projections 2010-2012e

(Estimated yearly ASPs) (YoY change)Product Unit 2010 2011e 2012e 2011e 2012eSilicon USD/kg 55.9 49.6 38.1 -11 % -23 %Wafer USD/Wp 0.90 0.78 0.58 -14 % -26 %Cell USD/Wp 1.32 1.13 0.84 -15 % -26 %Module USD/Wp 1.75 1.55 1.13 -12 % -27 %Silicon EUR/kg 43.3 39.7 30.5 -8 % -23 %Wafer EUR/Wp 0.70 0.62 0.46 -11 % -26 %Cell EUR/Wp 1.02 0.90 0.67 -12 % -26 %Module EUR/Wp 1.36 1.24 0.90 -9 % -27 %

* EURUSD 1.290 1.250 1.250

Source: DnB NOR Markets Equity Research

3. Germany needs to introduce cap – SOON!

In 2009, a record amount of 3.8 GW new capacity was installed, beating even the most bullish forecasts. Almost 83,000 individual solar systems with a total capacity of 2.3 GW were registered in the fourth quarter alone. This year, installations are set to grow at an even higher rate nearly tripling to 9.2 GW.

This enormous growth is rapidly becoming a headache for both German ratepayers (who are funding the subsidies) and utilities (who are required



02.09.2010

to absorb all the electricity coming from the PV systems). Exhibit 1-2 below shows two scenarios of growth in the German market. One with 5% annual growth after our 10-12 GW in 2011, and the other with a 4GW cap from 1 Jan 2012. Couple this with Exhibit 4-10, and you clearly see the challenges to the German grid even with an (for the PV industry) aggressive 4GW cap from as early as 2012.

Exhibit 1-2: German solar installations (two scenarios)

The German market by month in 2009

Monthly German installations 2009

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German PV market projections

159,697

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34,0252,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

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New installations (5% growth after 2011) New installations (w/ 4GW/yr cap in 2012)


Our 5% growth scenario means that on a beautiful sunny day across the whole of Germany in July, solar would completely inundate the German grid with electricity. And even in 2012, solar could supply 40-50% of demand at peak production. This is a big concern.

Exhibit 1-3: Electricity from PV vs German electricity demand

In 2012, with 4GW cap Germany: July weekday electricity demand and 34 GWp solar

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02.09.2010


Note: Calculations assume 10% derate factor, i.e. 1GW installed capacity on module level can deliver up to 900MW of electricity to the grid.

True, it is possible to export electricity from Germany, but it would be a very uneconomic proposition given the EUR 0.17-0.23/kWh paid by the German utilities (and their ratepayers) versus the much lower price they are likely to obtain in return.

4. Wind – Growth slowing in 2010, CAGR of 10% expected next five years

In 2009, growth in order intake slowed significantly due to reduced availability of capital, and this will slow installation growth in 2010. However, the attractive value proposition wind can offer today remains unchanged: a production cost in line with conventional sources like coal and natural gas (without subsidies), but with a highly predictable future cost. Driven by regional requirements for renewable energy share (e.g. in EU, 29 US states and Australia) and the need for new electricity generation capacity, wind is expected to grow 10% annually the next five years.

5. Investment strategy

Should investors worry about 2012 when the party is extending into 2011? Of course, we say, but there will come warning signs from Germany before the Bundestag revises the FiT legislation. In the mean time there are several (for some companies - very) good quarters ahead of us. Investors can ride this wave a little longer, but do stay alert. One could also hope (or pray?) the 2012 situation will somehow be resolved by the time we get there.



02.09.2010

2. Electricity market outlook

Macro backdrop: Modest recovery

The effects of the public stimulus efforts are fading and several countries will soon begin to tighten their fiscal policies. Meanwhile, unemployment is high and private demand still modest. After 3% growth since the trough a year ago, our macro team expects GDP growth in advanced countries to be significantly lower going forward. Overall OECD GDP is expected to grow by 1¾ per cent next year, with a growth rate of 2½ per cent thereafter. Global growth in 2011 is projected to be around 3½ per cent, and just above 4 per cent in years thereafter. Although potential output will grow more slowly than the historical norm, it will still take time to return to normal capacity utilization. Inflation will consequently remain low with a risk of deflation in some countries. They therefore expect the current zero interest rate policy to continue in the major economies until the first half of 2012. Unchanged short-term interest rates will lead to continued low long-term yields.

Ever since the Lehman bankruptcy our macro team predicted a modest recovery lasting several years. Unfortunately, even their relatively downbeat expectations have turned out to be too optimistic. Forecasts from November 2008 indicated that OECD GDP would only rise by 2.5% from 2008 to 2011. Almost a year later – in August 2009 – the prediction was 2%, and now, in August 2010, the best guess is 0.8%.

Exhibit 2-1: Key macro assumptions: GDP growth

Source: DnB NOR Markets 2010:III

This conservative prognosis is based on three fundamental assumptions.

First, history shows that economic setbacks in the wake of banking crises are generally both deeper and longer lasting than other setbacks, although the variation between countries is large. One reason for this is that the period prior to a banking crisis is generally characterized by excessive borrowing and risk taking. When the crisis materialises, businesses, households and/or financial institutions all have to simultaneously reduce their debt/income ratios. Put simple, this can be done in two ways: a) by

Our macro team still anticipates a weak, U-shaped recovery…

…because of past experience with banking crises…



02.09.2010

reducing debt (the numerator) or b) increasing income (the denominator). The latter is largely dependent on overall macro-economic conditions, while the former is controlled at the household level. When enough households choose to save more, savings will eventually rise on the macroeconomic level too, thus reducing growth in both activity and income. Lower income growth could in turn force households to save even more. This inevitable adjustment takes time. Until debt is brought down to a sustainable level output growth is expected to be low.

Second, the current downturn in economic activity was extraordinarily severe. Capacity utilization was thus also exceptionally low, as capacity does not adjust as quickly as activity. OECD estimates that actual GDP in advanced countries was 5.5% below potential GDP in the spring of last year, the largest negative output gap since the Second World War. This is coupled with the highest unemployment rates – in both absolute and relative terms – in the post-war period. In some industries, capacity utilization was even lower and in Japan, where capital goods production accounts for a large share of total production, capacity utilization fell at one point below 40% of the past four decades' average. The consequences of significant excess capacity are obvious. Companies operating in markets with too low demand will start to compete on prices (cut margins), stop expanding capacity and cut costs as much as possible. This keeps total demand weak. Similarly, households that have either experienced or fear for job losses or wage cuts will hold back on spending. Price, margin and wage cuts all amplify deflationary forces.

Finally, it was pointed out that the stimulus were largely temporary, albeit not without nuances. When interest rates are cut to zero, it is not possible to cut them any further. The substitution effect1 will still be there, but the income effect2 is exhausted now that interest rates have reached bottom.

Electricity demand growth has historically been resilient vs macro

Historically, electricity demand growth has been resilient, even in times of slow or even negative GDP growth. Until last year, there were only three instances with negative electricity demand growth rates in Germany3, and they were caused by specific external shocks like the oil crisis and the collapse of the Eastern European industries.

Exhibit 2-2: German electricity demand vs GDP 1952-2010e

OECD electricity demand fell 4% in FY 2009, with 1Q 2010 up 1.9% again

-8

-6

-4

-2

0

2

4

6

8

10

12

14

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

e

YoY

chan

ge (%

)

Electricity demand / production

GDP growth

Industrial collapse in parts of Eastern

Europe; Reunification

Oil price shock

Oil price shock

Recent financial

crisis

Source: IEA, IMF, Eurostat, Destatis, Photon International, Kohlenstatistik.de

1 Substitution effect = low interest rates stimulate borrowing and consumption rather than savings 2 Income effect = lower borrowing costs increase disposable income 3 Germany used as example because this is where we found the longest data sets

…and weak demand caused by ample capacity



02.09.2010

As economies grow the electricity intensity in an economy tends to grow. This is reflected in our electricity demand estimates where we expect electricity to increase its share of total energy demand from 13.3% in 2006 to 20.2% in 2030. As a reference, IEA’s figures1 estimate that world electricity demand growing 2.7% p.a. from 2007 to 2015.

Exhibit 2-3: Electricity demand by region

Demand conclusion: Developing countries will be the primary drivers for electricity demand, particularly India and China, somewhat countered by higher energy efficiency.

Electricity Demand by Region

18,302

21,55424,494

28,023

32,240

37,298

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2005 2010 2015 2020 2025 2030

TWh

RoW: 4.1%China: 4.7%Japan: -0.1%Europe: 1.8%America: 1.2%

2005-2030 CAGR 2.8%

Source: IEA, DnB NOR Markets Equity Research

The table below shows some of the data we used for Exhibit 2-5. Today the developing countries (including China, India and Brazil) combined represent approximately 45% of total world electricity demand with an average MWh/capita of 2.5. With higher economic growth than developed countries this is expected to increase to 67% by 2030 (the population of these countries comprise more than 80% of the world's total). However, this still implies significantly lower electricity consumption per capita for developing countries.

Exhibit 2-4: MWh/Capita and population growth

Our electricity demand estimates are based on assumptions made for MWh/capita across regions.

TWh Population (mn) MWh/CapitaCountry 2005 2010 2020 2030 2005 2010 2020 2030 2005 2010 2020 2030EuropeGermany: 2.4% 620 650 755 876 82 82 80 78 7.5 7.9 9.4 11.2Spain: 0.5% 294 321 372 432 43 45 49 50 6.8 7.1 7.7 8.7France: 2.0% 575 593 706 819 61 63 65 66 9.4 9.5 10.9 12.3Italy: 1.2% 304 326 388 450 59 60 60 60 5.2 5.4 6.4 7.6UK: 1.6% 398 401 477 553 60 62 65 68 6.6 6.5 7.3 8.1Russia: 5.4% 953 1,054 1,206 1,358 143 140 135 129 6.7 7.5 8.9 10.5Other Europe: 1.9% 1,767 1,989 2,485 3,120 281 280 278 273 6.3 7.1 8.9 11.4Total Europe 4,911 5,335 6,388 7,608 729 733 733 723 6.7 7.3 8.7 10.5

AmericaCanada: 1.9% 597 651 678 734 32 34 37 40 18.5 19.2 18.3 18.3USA: 2.0% 4,257 4,370 4,664 5,152 303 318 346 370 14.1 13.8 13.5 13.9Latin America: 2.2% 1,171 1,386 1,818 2,327 557 589 646 690 2.1 2.4 2.8 3.4Total America 6,025 6,407 7,160 8,213 892 940 1,029 1,100 6.8 6.8 7.0 7.5

RoWJapan: 1.9% 1,134 1,087 1,098 1,109 127 127 124 117 8.9 8.6 8.9 9.4China: 7.7% 2,500 3,733 5,659 8,789 1,312 1,354 1,431 1,462 1.9 2.8 4.0 6.0South Korea: 4.4% 397 444 517 695 48 49 49 49 8.3 9.2 10.5 14.1India: 6.4% 709 886 1,514 2,465 1,131 1,214 1,367 1,485 0.6 0.7 1.1 1.7Other RoW: 3.0% 2,626 3,662 5,687 8,418 2,273 2,492 2,914 3,372 1.2 1.5 2.0 2.5WORLD 18,302 21,554 28,023 37,298 6,512 6,909 7,648 8,309 2.8 3.1 3.7 4.5

Source: UN, IEA, DnB NOR Markets Equity Research

Our electricity demand estimates are based on 1) energy intensity, 2) GDP 3) electricity intensity and 4) population growth. All these vary across 1 WEO 2010



02.09.2010

regions and ultimately provide an MWh/capita result. The population estimates are according to UN's moderate population prospects scenario.

Exhibit 2-5 below shows a selection of countries for which we have modelled energy consumption development and compared them to consensus GDP growth estimates and UN population projections. We expect developing countries like China and India to demand and need much more energy per person: currently they use only tiny fractions of what the developed world does. Russia’s leap on MWh/Capita is explained by the expected 10% drop in their population from 2005 to 2030, and with our estimate of 1.3% annual energy consumption growth, together implies a gradually less efficient energy market and higher use per person.

Exhibit 2-5: Annual electricity use per capita

We expect electricity consumption per capita among different countries to converge Percentage after country represents annual GDP per capita growth 2008 largest electricity users: Country TWh %USA 4,355 21 %China 3,451 17 %Japan 1,085 5 %Russia 1,023 5 %India 781 4 %Germany 633 3 %Canada 633 3 %France 575 3 %Other 7,939 39 %Total 20,475 100 %

Electricity use and GDP per capita2005, 2010e, 2020e and 2030e (big dot is 2030)

Germany: 2.4%

France: 2.0%Italy: 1.2% Canada: 1.9%

USA: 2.0%

China: 7.7%

India: 6.4%

Oth

er R

oW: 3

.0% Russia: 5.4%

Japan: 1.9%

1

10

100

- 2 4 6 8 10 12 14 16 18 20MWh/Capita

GD

P pe

r cap

ita (U

SD '0

00)

1

10

100

GD

P pe

r cap

ita (U

SD '0

00)

Country/region with % showing estimated nominal yearly

GDP/capita growth

Source: IEA Source: DnB NOR Markets Equity Research, EIA, World Bank, Bloomberg, UN

Demand growth is vulnerable, but aging plants must still be retired

The world is facing a slowly, but steadily growing energy problem the coming years. This comes from the combination of

• A steadily growing demand for electricity, particularly (in percentage terms) from developing regions of the world. In its projections published 10 August 2010, the EIA1 projects that total US electricity consumption will grow by 4% during 2010 and another 0.4% in 2011 – a slower rate assuming more normalised temperatures during the next summer. The same agency projects residential electricity prices to grow by 0.6% in 2010 and 2.9% in 2011.

• Increasing pressure to reduce carbon emissions; of which the energy sector is the main culprit

• An aging base of conventional energy generation assets (coal, oil and nuclear in particular)

• In the case of nuclear, uniquely long lead-times (10-20 years) for the construction of new, efficient, low-carbon and safe(r) plants

• The possibility of having seen peak oil; at least, there is a broad consensus that new discoveries are unlikely to be made in easily

1 www.eia.gov



02.09.2010

accessible locations. This means the average cost per barrel of oil will be accreted with production from new fields.

Adding to this, the geopolitical situation is such that the need for distributed electricity generation that reduces dependence on foreign imports of oil, gas, nuclear feedstock and to a lesser extent coal. Renewable energy is part of the solution to this.

A mitigating factor of energy demand growth will be the strong drive towards energy efficiency solutions. A large portion of such projects, also referred to as the generation of “negative demand”, not only reduces energy demand and thereby reduces carbon emissions, but also offers positive investment IRRs.

Exhibit 2-6 below supports our assumption that we have described above:

• Electricity demand outpaces population growth. Shown by the “long-dashed” line (Elec./Population)

• Electricity demand and GDP are correlated ~1:1. Shown by the “short-dotted” line (Elec./GDP) shows.

Exhibit 2-6: OECD electricity usage indicators

Electricity demand will grow faster than total energy growth because of economies advancing and a waning off coal and oil

Source: IEA

Notes:

* Elec./TFC: Relative contribution of electricity to Total Final energy Consumption;

* Elec./GDP: Electricity intensity of economic activity; Prod./Cons.: Electricity supply self-sufficiency = Net Production / (Net Production + Imports – Exports);

* Elec./Population: Per capita electricity consumption

Energy Supply: Current new-build pace is insufficient

In addition to building new capacity to supply our projected growth in demand for energy in general and electricity in particular, a significant portion of existing production capacity must be replaced over the next years. This is predominantly the case in the western world, and much less a concern in the developing region.

If we take Europe as an example, a 1.8% annual growth of demand translates into a supply shortage of 2,300 TWh in 2020 and nearly 4,200 TWh in 2030. Using an average load factor of 60%, this is 440 GW and 800 GW of capacity by those years respectively. In other words, by 2030 Europe needs to add and replace the equivalent of more than 80% of the existing asset base by 2030 in order to meet this demand.

The world needs to build and replace the equivalent to 80 per cent of all current capacity by 2030



02.09.2010

Exhibit 2-7: Europe has an age problem

Projected European demand vs supply from existing capacity

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

TWh

Supply shortage: Demand @ 1.8% annual growth

Generation capacity, existing plants

Demand

Source: DnB NOR Markets Equity Research, RWE, VGB PowerTech, Electricity Generation 2007

To put these figures into perspective, there are 196 existing nuclear power plants in Europe that together provide a capacity of 170 GW. Considering a nuclear power plant like the state-of-the-art 1.6 GW Olkiluoto-3 which is being built in Finland (last update regarding commissioning is 2013, nearly four years after the original schedule), Europe would need almost 500 similar plants over the next two decades if nuclear alone should satisfy the expected growth in demand. According to The International Energy Atomic Agency however, only 19 plants (see Exhibit 2-10 on page 16) with a combined capacity of 17 GW are under construction.

Exhibit 2-8 below supports our opinion of a growing sense of urgency concerning Europe’s electricity supply situation. The figure shows five main types of electricity generation assets, and their respective age profiles as of 2007. For example, it shows that during the next 15 years, approximately 69 GW, or half, of the 134 GW hard coal capacities online today will have reached the end of their planned lives. Decisions will have to be made on whether to make expensive life extension investments, or close them permanently.

Exhibit 2-8: European thermal power capacity trends 1960-2010

Hard coal: 74GW built in the 1960s and '70s

Annual commissioning of power generation capacities in the EU-27 in GW *

Source: RWE (2010), Platts Database, Worldwatch Institute

Note * Adjusted net generation capacity. Lignite = Brunt kull (Norwegian)

If nuclear was to satisfy all replacements and new demand, Europe would need to build and complete 500 new state-of-the-art nuclear plants the next twenty years



02.09.2010

Nuclear: Phasing out or new dawn?

In 2002, the then-ruling coalition of Social Democrats and Greens passed a law that said all of Germany's nuclear power plants were due to go off line by 2022 at the latest. However, it now looks like this will be delayed by 10 to 15 years, "on technical grounds", based on recent comments by Chancellor Angela Merkel. An independent consultants' report published in mid-August 2010 this week, indicated that such a time frame would ensure Germany's energy needs, in terms of energy prices and greenhouse gas emissions, are met as the country transitions to renewable energy sources.

By 2050, however, Germany still aims to have half of all energy needs supplied by renewable energy, with nuclear and coal power continuing until supplies can be met entirely by clean energy. A poll published on Friday 27 August found that 56% of Germans are against keeping nuclear power plants beyond 2021.

There are three main arguments backing a phase-out of nuclear energy:

• "Chernobyl-like" incidents

• Increasingly problematic to dispose of radioactive waste; particularly long-term, but also short-term repositories are in thin supply

• Non-proliferation of nuclear weapons, and the difficulty of separating civilian nuclear electricity plants with military (or indeed civilian, in the case of Iran, where this border is particularly fuzzy) nuclear arms

With fossil fuel costs at historical highs, many countries are discussing a new look at nuclear energy as a proven technology to deliver large quantities of base-load electricity. Nuclear's benefits are obvious: near-zero CO2 emissions; the ability of to a certain extent to balance intermittent wind energy production; no sensitivity to oil and coal prices; security of supply (if your country has uranium and plutonium resources), and all this with a proven technology.

Exhibit 2-9: The 439 operating nuclear power plants worldwide

Existing in Europe

Total 195 plants

Total 169 GW

Source: International Atomic Energy Agency (IAEA)

Hearing these arguments, many find it hard to understand why the world’s major utilities, with strong credit ratings and cash flows, are not scrambling to submit plans for new reactors. There are currently 61 nuclear plants under construction where the lion's share is in China (23), Russia (11), Korea (6) and India (4). Compared to the just mentioned 69GW of hard coal capacity which is to close down in Europe within the next 15 years, only 19 new plants are under construction in Europe with a total capacity of

World operational nuclear reactors by country (total 439# @ 372 GW)

0

20

40

60

80

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120

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entin

aA

rmen

iaB

elgi

umB

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ulga

riaC

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ch R

ep.

Finl

and

Fran

ceG

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any

Hun

gary

Indi

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Mex

ico

Net

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Pak

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US

A

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of u

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0

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60,000

80,000

100,000

120,000

Tota

l MW

cap

acity

Total MW (right scale)

No. of Units (left scale)

Benefits of nuclear: • CO2 free electricity • Low exposure to fuel

cost Issues for nuclear: • Long lead time • Usually ends up costing

much more than originally planned

• Lack of long-term waste repositories

• NIMBY factor



02.09.2010

17GW. For the time being, not enough nuclear plants are being planned for nuclear to be a substitute to the high carbon alternatives and be the solution to the energy crises.

Exhibit 2-10: 31 Capacity of nuclear plants under construction

Under construction in Europe

Total 19 plants

Total 17.0 GW


The Finnish nuclear project Olkiluoto-3, with its 1.6GW net capacity, was designed to be a shiny showcase for the nuclear industry. It was originally meant for start up in summer 2009, but various problems have delayed the construction and the current completion date is set to be in 2013. It is estimated to be at least 50 per cent over budget. In June 2010 the AREVA-Siemens Consortium announced that the majority of the work is expected to be completed in 2012 and electricity production at Olkiluoto 3 is scheduled to start in 2013.

In July 2010 the Finnish parliament granted a license to build a fourth reactor on the Olkiluoto site (Olkiluoto-4). As previously mentioned, Europe would need to build around 500 plants similar to Olkiluoto-3 over the next two decades if nuclear alone was to substitute both replacement needs and the expected growth in demand.

Exhibit 2-11 below shows unplanned power losses from all nuclear plants in the world. Although a range of factors can trigger these unplanned shutdowns, it is obvious that several countries have serious challenges linked to the predictability of supply from their nuclear sector.

World nuclear reactors under construction (total 61# @ 59GW)

0

5

10

15

20

25

Arge

ntin

a

Braz

il

Bulg

aria

Chi

na

Finl

and

Fran

ce

Indi

a

Iran

Japa

n

Kore

a

Paki

stan

Rus

sia

Slov

akia

Taiw

an

Ukr

aine

USA

Num

ber o

f uni

ts

0

5,000

10,000

15,000

20,000

25,000

Tota

l MW

cap

acity

Total MW (right scale)

No. of Units (left scale)



02.09.2010

Exhibit 2-11: How safe and reliable is really nuclear?

Several countries have serious problems with unplanned losses of production from their nuclear plants.

These losses can come from:

• Grid instability or failure

• Environmental factors (low cooling pond level, deluges, earthquakes)

• Labour strikes • Fuel coast downs • Lack of demand

Unplanned Capacity Loss factors

0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

Arg

entin

aA

rmen

iaB

elgi

umB

razi

lB

ulga

riaC

anad

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hina

Cze

chFi

nlan

dFr

ance

Ger

man

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unga

ryIn

dia

Japa

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orea

Lith

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aM

exic

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ethe

rland

Pak

ista

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oman

iaR

ussi

aS

lova

kia

Slo

veni

aS.

Afri

caS

pain

Sw

eden

Sw

itzer

land

Taiw

anU

krai

ne UK

US

AW

orld

UC

L

2006

2007

2008

2009

Average 2006-09


Note 1: Number after country indicates number of reactors

Note: Unplanned capacity loss (UCL) factor is defined as the ratio of the unplanned energy losses during a given period of time, to the reference energy generation. UCL is energy that was not produced during the period because of unplanned shutdowns, outage extensions, or unplanned load reductions due to causes under plant management control. Causes of energy losses are considered to be unplanned if they are not scheduled at least four weeks in advance. Reference energy generation is the energy that could be produced if the unit were operated continuously at full power under representative annual mean conditions for the unit.

Our conclusion on nuclear is that while it on paper provides an attractive solution by i) cost/kWh and ii) energy stability measures, the length and degrees of uncertainty regarding a) plant lead-times and costs, b) operational predictability in geologically unstable regions and c) permanent waste repositories, we factor nuclear in only to be a help, not a solution to the world’s growing need for energy. Nuclear can be used as a bridging technology until renewable energy can reliably replace it.

Energy security remains a significant driver of renewable energy

Energy security will remain one of the most important drivers behind renewable energy in the coming years. The underlying concern is the same everywhere: Countries need secure and inexpensive access to energy to see continued economic growth. The main reason for the growing concern is the high fossil fuel prices and uneven distribution of oil production and consumption in the world, see Exhibit 2-12.



02.09.2010

Exhibit 2-12: Energy security and oil supply “deficits”

Supply(million barrels per day) 2006 2007 2008 2009 2010OECD 21.6 21.5 20.9 20.8 20.4

USA 8.3 8.5 8.5 8.9 9.0Canada 3.3 3.4 3.4 3.4 3.4Mexico 3.7 3.5 3.2 2.9 2.7North Sea 4.8 4.5 4.3 4.0 3.7Other OECD 1.5 1.5 1.6 1.6 1.6

Non-OECD 63.0 63.0 64.5 63.1 64.3OPEC 34.7 34.4 35.7 33.9 34.5Former Soviet Union 12.2 12.6 12.5 12.8 13.0China 3.9 3.9 4.0 4.0 4.0Other Non-OECD 12.2 12.1 12.3 12.5 12.8

Total World 84.5 84.4 85.4 83.9 84.7Non-OPEC Production 49.8 50.0 49.7 50.0 50.2

Consumption(million barrels per day) 2006 2007 2008 2009 2010OECD 49.5 49.2 47.6 45.5 45.4

USA 21.0 21.0 19.8 19.0 19.2Canada 2.3 2.3 2.3 2.2 2.3Europe 15.7 15.3 15.3 14.7 14.6Japan 5.2 5.0 4.8 4.3 4.1Other OECD 5.3 5.5 5.4 5.3 5.3

Non-OECD 35.4 36.8 37.9 38.2 39.2Former Soviet Union 4.2 4.2 4.3 4.2 4.1Europe 0.8 0.8 0.8 0.8 0.8China 7.2 7.6 7.9 8.1 8.4Other Asia 8.8 9.1 9.2 9.2 9.3Other Non-OECD 14.4 15.1 15.7 16.0 16.6

Total World 84.9 85.9 85.5 83.7 84.6

Source: EIA

Also refer to Exhibit 4-3 on page 34 for details on how USD 11 trillion was spent on oil by oil importers to OPEC from 1975-2009, with Saudi Arabia, Iran and the United Arab Emirates the biggest benefactors. In addition, IEA estimates that OPEC will pocket another USD 28 trillion for oil and gas exports in the period 2008-2030.

As discussed through the preceding pages, the need for new production capacity is expected to increase significantly the next years, and even without growth in demand, the problem of aging energy plants will require capacity to be replaced. The governments around the world are then faced

Oil "deflicts" (negative) or "surpluses" (positive)

-20

-10

0

10

20

30

40

USA Canada Other OECD Former SovietUnion

China Other Non-OECD

mbp

d

20062007200820092010e*

Estimated OPEC revenues from oil and gas exports 2008-2030: $28 trillion.



02.09.2010

the following problem: If new generation capacity is based on fossil fuel, dependence of potentially unstable regimes will increase in the future.

Examples of energy security concerns are China’s future availability of coal and Europe’s dependence of natural gas from Russia (again, there is speculation that supplies of Russian gas to Ukraine will be shut down, as issues of payment for deliveries persist). China’s massive investments in renewable energy and EU's aggressive targets for renewable energy in 2020, are, at least partly, openly motivated by energy security.

Electricity prices likely to rise

The electricity price is the single most important long-term driver for renewable energy, and for renewable sources like solar and wind to capture significant market shares in the future, they must be competitive without subsidies.

Short-term, the electricity price (before transmission costs and taxes) is determined by the marginal – the last kWh of – electricity, see Exhibit 2-13. In most markets, this is gas and/or coal, due to the relative short start-up time and their high fuel costs. Hence, the current base load prices in deregulated markets like Germany equal their respective costs of producing electricity.

Exhibit 2-13: The marginal plant principle in Germany

"Must run" is hydro, wind and CHP.

CO2 costs have a significant impact on generation costs for fossil fuels and thus electricity prices

Source: RWE 2010

Notes: 1) OCGT: Open-Cycle Gas Turbine. 2) CCGT: Combined-Cycle Gas Turbine. 3) Must run: run-of-river, wind, CHP.

Long-term, the electricity prices are determined by the cost of new capacity. And to build new capacity, decent returns on invested capital are needed. This, rather than the marginal costs that we observe today, is the benchmark for renewable sources. The main reason is that renewable electricity generation is not expected to replace existing capacity, but rather to reduce the share of fossil fuels in new capacity needed the upcoming decades. Hence, the theory behind electricity prices is relatively straightforward in a deregulated market with no limitations in transmission capacity:

Short-term, it is the marginal cost of electricity production ("the marginal plant") that sets the electricity prices.

Long-term, utilities need a certain return on invested capital in order to ensure a dynamic efficient market with new production capacity coming online.

Coal and gas provides the marginal kWh and therefore defines the electricity price

Long-term, renewables must be bench-marked against other new-build costs, not today’s electricity prices



02.09.2010

In Exhibit 2-14 we show our high-low estimated costs of electricity production, including capital expenses. Our calculations show that wind already today is competitive with conventional sources used for electricity production. This is especially the case when including possible costs related to CO2 emissions. For solar, the financial crisis has driven the sector to close the gap on the other power generating resources.

Exhibit 2-14: Cost of new electricity production by source

From last year's report, the solar mid-point is down $1¢ and the low point down $3¢, while the cost of conventional energy sources is revised upwards $1-3¢.

MPR – Market price referent

California's estimated cost of electricity generation from a new, combined-cycle natural gas power plant

Levelised Cost of Energy (LCOE)Discounted lifetime costs over lifetime production

5 4 4 59

13

3 4 35 7

147

9 811 12

24

6 6 7 811

25

1014 13

2116

47

11 1013 14

18

45

0

10

20

30

40

50

60

Nucl

ear

Coal

Nat

. G

as(C

C)

Nat

. G

as(C

T/S

T)

Coal

(CCS)

Oil

Hyd

ro

Geo

ther

mal

Bio

mas

s

Win

dO

nsh

ore

Win

dO

ffsh

ore

Sola

r

Conventional Renewable

US

cen

t/kW

h

CO2 cost

Low-high range

Cal. MPR 2011 (20-yr)

Base case


In most markets today, fossil fuels are the marginal cost of electricity production. Exhibit 2-15 below illustrates the world’s ten largest energy consumers’ respective shares of electricity sources. The mix varies greatly from market to market!

Exhibit 2-15: Electricity supply 2008 by market and source

Examples:

• USA: 70% from coal and gas

• France: 77% from nuclear

• China: 67% from coal

• Italy: 54% from gas • India: 81% from

coal

Electricity generation by source(shares of total)

0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 %

OECD: 10,702 TWh

USA: 4,355 TWh

China: 3,451 TWh

Japan: 1,085 TWh

Russia: 1,023 TWh

India: 781 TWh

Germany: 633 TWh

Canada: 633 TWh

France: 575 TWh

Italy: 318 TWh

Spain: 309 TWh

Coal Oil Gas Nuclear Hydro Other renew. Other

Source: DnB NOR Markets Equity Research, IEA

One important fact to keep in mind when comparing cost of electricity is predictability of future cost. The last two years have shown us that future



02.09.2010

price of fossil fuels are very difficult to predict and the future generating cost is not determined by spot prices. Adding the probability of a future CO2-tax, return on investment in a new coal or natural gas plant is very unpredictable. This is a significant advantage for renewable energy, since production cost (mostly capital cost) is known for the next 20-25 years.

Electricity markets are very heterogenous

The world electricity market is impossible to analyze as one single entity due to widely different government price regulations and limitations in the transmission capacities, generation portfolios, marginal production costs and source etc. Often, prices are regulated with the government setting the electricity price and subsidizing the power producer if they produce power with losses. Either the customers or the tax payers pay the true cost of electricity – the only difference is that in the latter case it is not visible on the monthly bill from the utility.

Furthermore, in deregulated markets there may be different prices in different regions due to constraints in the transmission capacity. An example is Norway; 2008 gave very low prices in the southern parts due to high water reservoir levels, while the Northern parts saw significantly higher prices, for the opposite reason. It is important to differentiate between wholesale price and retail price to analyze the competitiveness of the different energy sources used for electricity production. In Exhibit 2-16 we show a breakdown of the retail price for a kWh in Germany (January 2009).

Exhibit 2-16: Cost break down for a German kWh (23.69 EURc/kWh)

The German consumer’s electricity bill as of April 2010

• Price: EUR 23.7ct/kWh

• REA surcharge: 2.05ct

January 2009

• Price: EUR 22.7ct/kWh

• REA surcharge: 1.13ct

Assumptions: 3,500 kWh per year consumption, 19% VAT, wholesale prices for prorated purchases

Source: RWE, Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), April 2010.

The wholesale price for electricity is only a small portion (34%) of the consumer’s electricity bill. The difference between wholesale electricity price and consumer prices is important in discussions on grid parity.

When solar companies discus grid parity of PV installation, it is usually seen from the consumer's perspective. On that basis, grid parity will be reached when a PV-system can be installed on a roof and produce power at a lower cost than the price of buying it in the market (EUR 22.7ct /kWh in the example above). Hence, since electricity is produced locally (no grid needs) the PV system’s owner can include grid fees and taxes in addition to the wholesale price of electricity for the purpose of comparison.

For utilities or IPPs, on the other hand, the picture is completely different. Their investment conclusion is based on the wholesale price. Since the truly big volumes of demand for renewable energy will have to come from utilities, it is in our view correct to mark the cost of renewables against this benchmark. Hence, the solar industry is still some way from reaching grid parity.



02.09.2010

3. Estimating cost of new electricity production (LCOE)

What is LCOE and why do we need it?

Levelized cost of energy (LCOE) is the net present value of all the costs connected to the energy technology investment divided by the net present value of the energy generated during the expected lifetime of the technology. LCOE gives an estimate of the cost per kWh which makes different energy technologies comparable. When compared to local electricity prices (or subsidies) it determines if a specific energy technology project is economical profitable. It also takes the different investment patterns and returns on investment into account.

Key findings: Wind can compete without subsidies

Our calculations show that in favourable locations, onshore wind can cost as little as USD 0.05-0.06 per kWh, but a more typical cost is USD 0.07-0.10 per kWh. This is competitive, excluding subsidies, with conventional energy sources like coal, gas and hydro.

At a typical cost of USD 0.20-0.30 per kWh, solar PV still has quite a distance to go before reaching grid parity on a broad level.

However, as we discuss in the following paragraph, the variations from country to country and in between regions are so significant that a global conclusion is impossible to reach. An LCOE evaluation will only yield "proper" results when made for a specific project, taking into account local and regional grid capacities, load curves and demand curves, availability and predictability of feedstock (coal, gas etc) and many more factors.

LCOE: Sensitive to the different cost parameters

The levelized cost of energy (LCOE) for the different electricity sources is very sensitive to the different cost parameter assumptions. Fuel and carbon prices, construction costs, load factors, lifetimes, lead times and discount rates will deeply affect the cost results. Uncertainty drives up the costs through higher discount rates for all technologies. This is specially the case for low carbon technologies due to their higher investment costs. The competitiveness of solar, wind and hydro is also very dependent on the local characteristics of each particular market.

Pros and cons of the different technologies

It is impossible to say that any one technology has an overall advantage over the others on a global scale – not even regionally. That comes from the wide dispersion of actual and estimated cost data gathered by the IEA1. Global LCOE comparisons can therefore only be done for illustrative purposes – however each technology nevertheless has an inherent set of traits that sets it apart:

1 International Energy Agency (IEA): “Projected Costs of Generating Electricity” (2010)



02.09.2010

Technology Pros Cons

Nuclear • Low-carbon • Low fuel cost, opex • Predictable costs • Significant size

• Long lead time • High capital at risk • Long-term waste disposal • Security • Nuclear proliferation • NIMBY • High decommissioning cost

Coal • Cheap (excl CO2 and other emissions), if close to mine

• Significant size • Can be sited near demand

center • Large fuel reserves

• Dirty, both on CO2 and other pollutants

• High CCS cost

Gas • Lower carbon than coal and oil

• Can be cited near demand center

• Suitable for marginal production capacity

• Still emits carbon compounds

• Leakage of methane gas is 21 times worse than CO2

Hydro • Low-carbon • No fuel costs • Minimal stop/start costs • Low maintenance • Ease of energy storage

• Limited potential for new sites

• Transmission costs significant

Wind • Low-carbon • No fuel costs • Land area can still be used

to i.e. agriculture

• NIMBY • Unpredictable output • Significant transmission

costs. (especially offshore)

Solar (PV) • Low-carbon • No fuel costs • Cost are less scale

dependent • Low maintenance

• Expensive CapEx. • Unpredictable output • Expensive energy storage

(battery technology)

The main changes since our 2009 report are;

1) Higher carbon price. We increased our future base carbon price to $30/ton which we still believe is a conservative assumption due to more political pressure to increase low carbon energy technologies.

2) Lower Solar PV capital expenditure due to the impressive cost reductions throughout the value chain.

3) Different discount rates to illustrate the impact discount rates have on total costs.



02.09.2010

Wind – onshore

Exhibit 3-1: Cost of new electricity production from onshore wind

ONSHORE WINDAssumptions unit Low Base HighInvestment Costs

Discount Rate 7.5% 7.5% 7.5%Economic lifetime years 25 20 20CapEx USD/kW 1,500 1,750 2,200Capacity Factor 35% 30% 22%

Fuel Costs- - - -- - - -

O&M CostsFixed USDc/kWh 1.0 1.5 3.1Variable USDc/kWh - - -

Externality costsCO2 quota price USD/ton 30 50Investment USDc/kWh 4.4 6.5 11.2Fuel USDc/kWh - - -O&M USDc/kWh 1.0 1.5 3.1Externalities USDc/kWh - 0.0 0.0

Total cost USDc/kWh 5.4 8.1 14.3

Source: DnB NOR Markets

Evaluation of the cost factors

Capital cost Fuel cost O&M cost Externalities

Onshore wind is capital intensive and the investment depends on factors like location, existing infrastructure, and grid connection. Construction time on the other hand is very low, around one year. Typical investment costs in main markets like Europe and USA is 1.5-2.5 USD/Wp for a wind park, all included. In China, wind parks are constructed at close to half of this. A wind turbine normally will stay in operation for 20 years, and depending on the wind resources the capacity factor is 25-40%.

None The reported specific O&M costs for wind power plants vary widely from country to country, even in the same region there can be significant differences. The US Department of Energy (2007) reported O&M costs below USDc 1 /kWh. According to IEA (2010 numbers) the costs vary from 0,5 to 4,2 USDc/kWh depending on the location, size and age of the wind park. If we assume that most parks in the future will be more operating and maintenance efficient, an average of USDc 1.5 /kWh is reasonable.

Only related to production of wind turbine

LCOE Cost Onshore wind

81 %

0 %

19 %0 %

Investment

Fuel

O&M

Externalities



02.09.2010

Wind - Offshore

Exhibit 3-2: Cost of new electricity production from offshore wind

OFFSHORE WINDAssumptions unit Low Base HighInvestment Costs


Fuel Costs- - - -- - - -







Offshore wind is more capital intensive than onshore and the investment depends on factors like location, existing infrastructure, and grid connection. The variety in CapEx depends significantly on the different technologies used, i.e. floating vs. bottom mounted technologies. Offshore wind as an alternative to onshore has just recently started to be attractive. Therefore investment costs are likely to decrease steadily from today's values. Typical investment costs in Europe today is 3-5 USD/Wp, all included. A wind turbine will normally stay in operation for at least 20 years (some expect up to 25 years due to less turbulence), but no turbine has been tested off-shore for that time period. There is typically better wind resources off-shore, giving a capacity factor of 35-55%.

None There are few offshore wind farms in operation and O&M costs are thus more uncertain than for onshore. IEA (2010) collected data from eight different offshore wind farms where O&M costs varied from USDc 1.0 to USDc 5.0 per kWh. IEA expect O&M costs to drop to USDc 1.5 – 2.0 on average over the next decade, but stated that the assumptions were subject to high uncertainty.

Only related to the production of the wind turbines and base structures.

LCOE Cost Offshore wind

0 %

23 %

0 %

77 %

Investment

Fuel

O&M

Externalities



02.09.2010

Solar - PV

Exhibit 3-3: Cost of new electricity production from PV

SOLARAssumptions unit Low Base HighInvestment Costs


Fuel Costs- - - -- - - -






Capital cost Fuel cost O&M cost Externalities PV is highly capital intensive. However, the cost is less scale dependent than other renewable energies, meaning it can be installed in small, decentralized units, without making each kWh hopelessly expensive. Investment costs generally reflect the level of support mechanisms in each market, and therefore vary significantly. The fallout of the Spanish market in 2008 was countered by the record breaking growth in Germany resulting in a positive growth in 2009. This resulted in a 16% mid-year FIT cut in July 2010 in Germany. Other markets have also experienced significantly growth which is a necessity for the growth in solar to continue. Technological progress will probably decrease capital costs per kW in 2011 by 10 to 20 per cent from 2010 levels, possibly even more.

None Very low. Since solar plants are a fairly recent phenomena, real-life and long-term data on specific O&M costs is limited. The only moving parts are the tracking systems, and most are designed to last more than 20 years, many without lubrication. In addition, the inverter will have to be changed every 6-7 years or so. And in regions without rain, the panels need to be cleaned routinely. In total, O&M costs average around USDc 1.5-3.5 per kWh, maybe less, and for residential systems it will be next to nothing.

Only related to production of the solar module and its components.

LCOE Cost Solar

89 %

0 %

10 % 1 %Investment

Fuel

O&MExternalities



02.09.2010

Nuclear

Nuclear power generated electricity has a vast potential. The existing plants produce electricity at a very low price, and emit no CO2. However, there is a very high NIMBY factor and waste disposal is still an environmental concern. In addition the lead times are long, often more than 7-8 years.

Exhibit 3-4: Cost of new electricity production from nuclear

Assumptions unit Low Base HighInvestment Costs


Fuel CostsUranium Price USD/lbm 20 30 50Waste disposal USDc/kWh 0.10 0.20 0.25Efficiency 34% 34% 34%

O&M CostsFixed USDc/kWh 0.76 1.03 1.37Variable USDc/kWh 0.16 0.20 0.24

Externality costsCO2 quota price USD/ton 30 50Investment USDc/kWh 2.89 4.29 5.94Fuel USDc/kWh 0.83 1.24 2.07O&M USDc/kWh 0.92 1.23 1.61Externalities USDc/kWh - - -




Capital cost Fuel cost O&M cost Externalities The capital costs constitute a significant part of the total LCOE, thus the construction and red tape involved in the investment process are the most important factors determining the final LCOE. According to IEA the capital costs of 20 nuclear plants from OECD countries lay between 2 USD/W and 5 USD/W.

Platt’s estimated that the construction cost for an EPR power plant is around 3 USD/Wp. However, the Finnish Olkiluoto3 1.6 GWp nuclear power plant under construction will realise significantly higher costs. The plant, scheduled for completion by 2011 at the earliest, has run into problems and the final cost will most likely exceed 5 USD/Wp. Plants have low incremental fuel cost, and achieve a typically capacity factor of 75-90%.

The fuel cost is approximately 15-20% of the current generation cost. This, however, is based on long-term contracts with significantly lower prices than spot. There are worries regarding future supply constraints and fuel costs may increase. Waste disposal is also included in this LCOE estimate and is accounted to be USDc 0.2 per kWh.

Nuclear plants have been in operations for decades and there exists exact information regarding O&M cost. Nuclear Energy Institute (NEI) has reported O&M costs of USDc 1.29 - 1.4 per kWh in the US every year since 2003. More concerning is that nuclear generation requires nuclear physicists and engineers and hence requires highly skilled and attractive labor. The supply of personnel may be a bottleneck for nuclear expansion going forward.

Only related to construction, the CO2 emissions from nuclear generated electricity are minimal.

Decommissioning costs usually is accounted to be 15% of construction costs on average and runs at the end of the plants lifetime. Due to a nuclear power plants long lifetime, the levelised decommissioning costs are negligible with any reasonable discount rate and therefore excluded from this report.

LCOE Cost Nuclear

18 %

18 %0 %

64 %

Investment

Fuel

O&MExternalities



02.09.2010

Hydro

Hydro is the most competitive energy source according to our calculations, but the supply constraint is obvious. A hydro plant is dependent on environmental factors as waterfalls and streams, and most of the ones viable for energy production already have a power plant installed. Therefore the price of hydro varies and may be a lot higher than our estimates. According to IEA, some power plants, i.e. Japan and Czech Republic, are 10 times more expensive than some power plants in China.

Exhibit 3-5: Cost of new electricity production from hydro

HYDROAssumptions unit Low Base HighInvestment Costs


Fuel Costs- - - -- - - -







Hydro is a capital intensive energy source, but measured by capital cost per Wp it is much less expensive than e.g. nuclear. The capital costs vary considerably dependant on suitable locations.

None O&M of a hydro plant is very low compared to other power producers. It varies between plants and regions, but it is typically well below 1 USDc/kWh.

Only in construction of the plant. Hydro plants may at some extent threaten local biodiversity.

LCOE Cost Hydro

12 % 0 %

0 %

88 %

Investment

Fuel

O&MExternalities



02.09.2010

Natural Gas

Natural gas is the most versatile and economically attractive interesting fossil fuel electricity source in the current environment. Capital investments are comparatively low, and the externalities are significantly lower than coal and oil. Since most new gas power plants in North America and Europe are combined cycle power plant1, we use these to calculate power price from new natural gas electricity generation.

Exhibit 3-6: Cost of new electricity production from natural gas

NATURAL GASAssumptions unit Low Base HighInvestment Costs


Fuel CostsGas Price USD/Mbtu 4 6 10Efficiency 60% 60% 60%


Externality costsCO2 quota price USD/ton 30 50Investment USDc/kWh 1.51 2.18 3.49Fuel USDc/kWh 2.28 3.26 5.70O&M USDc/kWh 0.43 0.59 0.81Externalities USDc/kWh - 1.69 2.95




Capital cost Fuel cost O&M cost Externalities Data from IEA estimated that the construction cost for a Combined Cycle power plant is 1-1.5 USD/Wp, approximately 28% of the LCOE cost of electricity. Given the short lead-time and technological maturity, the investment cost is fairly transparent. Natural gas often represents the marginal cost of electricity and the capacity factor is therefore usually low, often down to 10-30%. Hence, even though capital cost is low per Wp, the cost per kWh is high.

Gas plants are highly fuel-intensive and the business case is thus mainly dependent on the projections one makes about the gas prices vs the electricity prices. The gas prices vary from country to country and the spot prices NBP (UK) and Henry Hub (US) where at levels half of oil-linked spot prices (Japanese LNG) in summer 2009. Since then, spot prices have increased, and we estimate a gas price of around USD 6 per MBtu.

O&M Costs equals less than 10% of the levelised cost of electricity generated from gas plants.

While the CO2 emissions are in a different league than nuclear, hydro and other carbon neutral energy sources it is also in a different league than its fellow fossil fuel sources. Coal emits 50% more CO2 than gas generated electricity. But even so, given today's CO2 quota price the externality cost/kWh is approximately 25% of cost cost/kWh.

1 In a combined cycle power plant (CCPP), or combined cycle gas turbine (CCGT) plant, a gas turbine generator generates electricity and the waste heat is used to make steam. This steam is then used to generate additional electricity via a steam turbine. The last step increases the efficiency of electricity generation to around 60% for state-of-the-art power plants.

LCOE Cost Natura Gas

28 %

42 %

8 %

22 %

Investment

Fuel

O&MExternalities



02.09.2010

Coal

Coal is by far the most important electricity source in the world contributing more than 40% of all electricity produced. While generation costs historically have been extremely low, explaining its vast impact, the current coal prices and environmental concerns are turning coal into a high cost electricity source.

Exhibit 3-7: Cost of new electricity production from coal

COALAssumptions unit Low Base HighInvestment Costs


Fuel CostsCoal Price USD/s.ton 60 75 100Efficiency 41% 41% 41%


Externality costsCO2 quota price USD/ton 30 50Investment USDc/kWh 1.10 2.97 4.53Fuel USDc/kWh 1.99 2.37 3.32O&M USDc/kWh 0.66 0.86 1.07Externalities USDc/kWh - 2.73 4.77





Capital cost per MW is high for coal, but high capacity factor reduce the capital cost per kWh. Platts estimates and IEA market data indicate a construction cost for a supercritical, pulverized coal plant is around 2 -3 USD/Wp. This implies that capital costs comprise ~32% of the LCOE.

Up till 2006 the fuel costs were negligible, but when coal drove though USD 100/short ton the fuel costs became a major cost driver. Some countries (i.e. Australia and the US) are not subject to the fluctuations of the international market. They operate with domestic coal prices below the current spot price.

A coal plant is labor intensive and the O&M costs will vary depending on the local salary level.

Coal plants emit 0.95kg/kWh thereby being the worst polluter in the electricity sector. With a CO2 quota price of ~30 USD/ton this equals 2.73 USDc/kWh. If CO2 quota prices were to increase to USD 75/ton the cost of CO2 would exceed the entire low-cost scenario.

LCOE Cost Coal

32 %

10 %

31 %

27 %

Investment

Fuel

O&MExternalities



02.09.2010

Discount rate sensitivities

High discount rates increase the costs of investments. Some technologies, especially low carbon technologies, have high overnight costs and therefore are highly impacted by the discount rate. It has been a norm to set discount rates at 10%, but with the current scenario of low economic growth and corresponding low interest rates, discount rates should be expected to be lower. Exhibit 4-9 illustrates the impact on LCoE from 5.0%, 7.5% and 10.0% discount rate assumptions.

Exhibit 3-8: Discount rate impact on total generation cost

Discount rate sensitivities on Low Case estimates

13.7

3.5 4.0

4.1

2.6

8.0

5.6

13.214

.5

3.8 4.5 5.0

3.5

9.3

6.6

16.2

15.4

4.2 5.0 5.9

4.5

10.8

7.7

19.6

0

5

10

15

20

25

30

35

40

45

Oil Coal NaturalGas

Nuclear Hydro WindOffshore

WindOnshore

Solar

USD

c / k

Wh

5.0 %

7.5 %

10.0 %

Discount rate sensitivities on Base Case estimates

22.2

8.1

7.1

5.6

4.2

9.7

6.9

19.9

23.9

8.9

7.7

6.8

5.6

11.3

8.1

24.525

.7

9.8

8.3

8.0

7.1

13.0

9.4

29.5

0

5

10

15

20

25

30

35

40

45

Oil Coal NaturalGas


WindOnshore

Solar

USD

c / k

Wh

5.0 %

7.5 %

10.0 %

Discount rate sensitivities on High Case estimates

35.8

12.2

11.5

7.5

6.1

12.8

9.9

27.8

38.4

13.3

12.2

9.0

8.2

14.8

11.4

33.9

41.1

14.6

13.0

10.7

10.3

17.0

13.0

40.5

0

5

10

15

20

25

30

35

40

45

Oil Coal NaturalGas


WindOnshore

Solar

USD

c / k

Wh

5.0 %

7.5 %

10.0 %




02.09.2010

4. Political framework

The political framework is important to the renewable energy industry since demand still depends upon subsidies in various shapes and sizes in order for prices to be competitive with conventional forms of electricity.

Drawing out a comprehensive overview is both a daunting and hopeless task, given the complex structure of policies, their lack of comparability across borders and simply the sheer number of different legislations that support the absorption of renewable energy.

In the paragraphs below, we draw some headlines of the most important policies. But first, it is important to put things into perspective:

How expensive are renewable energy subsidies really?

In 2008, the 20 largest non-OECD countries subsidised oil, gas and coal products by $233 billion, in order to keep the retail or wholesale price below the true market level. It should be noted that many of these countries acknowledge the cost to their societies from these support mechanisms, and therefore have plans to fade them out over time. One conclusion from the G20 summit in June 2010 was to phase out subsidies for “inefficient” fossil fuels in the medium term, but no concrete solutions or strategies were proposed.

Exhibit 4-1: Non-OECD energy subsidies

USD 233 billion spent in 2008 alone to subsidise oil, gas and coal prices by largely developing countries

Non-OECD Energy subsidies (2008)

56.4

51.1

38.7

25.2 23.6

17.9 17.3 15.7 15.2

9.5

43.5

313.9

0

10

20

30

40

50

60

Iran

Rus

sia

Chi

na

Sau

di A

rabi

a

Indi

a

Ven

ezue

la

Indo

nesi

a

Egy

pt

Ukr

aine

Arg

entin

a

Nex

t 9(a

ggre

gate

d)

Tota

l (rig

htax

is)

USD

bill

ion

0

60

120

180

240

300

360

USD

bill

ion

ElectricityCoalGasOil

Source: IEA December 2008, DnB NOR Markets Equity Research

A common objection to renewable energy is the "high cost to society" because of the subsidies involved. However, it has been estimated by New Energy Finance that the world's governments in 2009 spent USD 43-46bn in direct subsidies and support for renewable energy projects and technologies. The largest single program was Germany's, where the FiT cost ratepayers an estimated USD 9.6bn. The US was the country with the highest total subsidies totalling USD 18.2bn, through a large number of different federal and state programs.

World subsidies for renewable energy: USD 43-46bn in 2009



02.09.2010

Overview of world subsidies for solar and wind

Exhibit 4-2 and Exhibit 4-11 shows a brief overview of current wind- and solar feed-in tariffs in key countries. The tariffs typically guarantees grid access and long term contracts with purchase prices based on the cost of renewable energy generation. The tariffs depreciate over time as renewable energy generation costs decrease due to technological progress and cost efficiency improvements. Some counties set a cap to prevent renewable investment booms which can result in an overheated market. This was the case in Spain in 2008.

The rightmost column in Exhibit 4-2 below shows the present value of ground-mounted PV system tariffs in some of the countries. The values are calculated with a 7% pretax cost of capital. Compared with the module and inverter prices, installation costs and other costs, a best in class ground mount PV system in 2010 is estimated by New Energy Finance to be $3.6/W. Many markets, and especially Israel, are therefore very lucrative markets to invest in solar energy at the moment.

Exhibit 4-2: Current Solar Feed-in Tariffs in Key Countries 2010

"Present value of tariffs" indicates discounted future revenue from electricity sales or FiTs per W on an installed PV system.

PVoT compares to a best-in-class system cost of USD 3.60/W

Country Roof-Top

(EUR/kWh)Free-field

(EUR/kWh)Term

(Years)

Present value of tariffs

($/W)USA* California 0.07-0.11 0.07-0.11 10-25 Florida 0.25 0.22-0.25 20 Illinois 0.52 0.52 New Jersey 0.28 0.28Canada (Ontario) 0.43 0.33 20 5.61China 0.36 0.21Japan 0.39 0.39 15Korea 0.24-0.34 0.24-0.34 20Czech Rep. 0.49-0.50 0.49-0.50 20 5.99Spain 0.29-0.31 0.29 5.21France 0.29 0.31-0.38 20 4.96Germany 0.26-0.33 0.24 20 3.02 2011 (Max deprec.) 0.23-0.29 0.21 20 2.63Italy 0.38-0.42 0.35-0.39 20 6.14UK 0.29-0.41 0.29 25 3.61Israel 0.44 0.40 10.05

Source: DnB NOR Markets Equity Research, PV-tech.org, Bloomberg NEF

* With July exchange rates

Objective of policies 1: Reducing the dependence on fossil fuels

The International Energy Agency (IEA) expects the market share of OPEC to increase from 2008 to 2030 as non-OPEC production remains largely flat over this time period leaving the supply gap to be filled by OPEC. This is going to heighten concerns about OPEC pricing and production policies. Exhibit 4-3 below shows the inflow of money into OPEC as estimated by the US Energy Information Administration (EIA). It shows that from 1975 to 2009, a total of USD 11.1 trillion was paid from oil importers to OPEC, with Saudi Arabia, Iran and the United Arab Emirates being the largest benefactors, receiving USD 2,536bn, USD 794bn and USD 732bn respectively. Amounts are in real terms (2000-dollar).

Payment for oil from 1975-2009: * Saudi: $ 2.5 trillion * Iran: $ 0.8 trillion * UAE: $ 0.7 trillion



02.09.2010

Exhibit 4-3: OPEC net oil export revenues

Yearly revenues OPEC Net Oil Export Revenues real (2000$B)

406

421

433

380

543

650

522

329

258

242

202

115 14

512

4 159 20

016

016

714

515

416

9 201

192

127 17

128

022

021

2 255

348

511

593 63

485

951

066

2 711

0

100

200

300

400

500

600

700

800

900

1,000

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

USD

bill

ion

(200

0)

Venezuela

UAE

Saudi Arabia

Qatar

Nigeria

Libya

Kuwait

Iraq

Iran

Ecuador

Angola

Algeria

Aggregated revenues OPEC Net Oil Export Revenues real (2000$B)

11,036

12,409

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

USD

bill

ion

(200

0)

VenezuelaUAESaudi ArabiaQatarNigeriaLibyaKuwaitIraqIranEcuadorAngolaAlgeriaOPEC

Source: DnB NOR Markets Equity Research, EIA

Governments around the world are increasingly seeking to reduce their vulnerability from disruptions to supplies of fossil fuels.

One case in point is the Strait of Hormuz. On average, 16.5-17.0mbpd passes through this 34 km narrow strait, equivalent to roughly 40 per cent of the world's seaborne traded oil and nearly 20 per cent of total oil demand. The consequences of a major international political crisis involving Iran could potentially disrupt this flow of oil. Choking off supply, this would lead to a significant short-term spike in the price of oil, with worldwide oil spare capacity limited to 1mbpd, possibly 2mbpd. However, a blockage of Hormuz over a longer time period is highly unlikely, given the stakes involved. Finally, with world stocks of oil currently at 60 days (measured at 88mbpd full consumption), the world inventories would take about ten months to dry out with these 17mbpd cut off.

Exhibit 4-4: The strait of Hormuz

An average of 16.5-17.0 mbpd passes through the Strait of Hormuz. This is equivalent to nearly 20% of the world's consumption (~88 mbpd)

Source: Google Maps



02.09.2010

Our main concern is that while Hormuz is probably the most significant, single risk point, there are others, albeit smaller, that seem to be developing, and that aggregated is enough to cause concern for energy security. We can mention:

• Russian gas supplies

• Eurasian gas pipelines

• (North) Korean situation

• Increasing occurrences of extreme weather events affecting deliveries

• …and more

Objective of policies 2: Reducing greenhouse-gas emissions

In 2005, the world emitted about 43 billion tonnes of CO2-equivalents1. Although the developing countries' share of this is growing rapidly, they only accounted for a bit less than half of the total (at far lower emission rates per capita2). China and India alone accounted for about 25%.

The consensus in the scientific community is that worldwide green house gas emissions need to be curbed by 50% by 2050 from their 1990 levels. For the developed world, this translates into a preliminary target of 30% by 2020.

Exhibit 4-5: Required fall in GHG emissions

Source: UNDP, Meinshausen

Since pre-industrial times, the amount of CO2 in the atmosphere has risen from near 280 parts per million (ppm) to around 455ppm today. This is far higher than the natural range of 180-300ppm during the last 650,000 years, as recorded from ice-core and tree samples. This will cause the global average temperature to rise to a level never experienced in historical times. While some sceptics argue that the world has experienced much higher temperatures in the more distant past, the broad consensus in the scientific camp is that these temperature rises will significantly (and adversely) affect the human civilization.

1 Source: IEA WEO 2008 2 In 2006, USA emitted 18.6 tonnes per capita; Russia 11 tonnes; Japan 9.5 tonnes; EU 8 tonnes; China 4.3 tonnes; India 1.1 tonnes and Africa 0.9 tonnes. Source: IEA.

Current CO2 content in atmosphere is much too high and must be reduced in order to minimize effect on climate



02.09.2010

US Electricity supply 2009

Nuclear20 %

Gas24 %

Coal44 %

Other renew. 4 %

Hydro7 %

Oil1 %

Source: EIA

US Policies: Ambitious targets, low FIT rates

In USA, subsidies exist on both federal, state and local levels. US states have considerable autonomy in setting up renewable energy targets and to decide how to reach those targets, i.e. which incentives to employ.

Federal support mechanisms In February 2009 the American Recovery Act was signed extending two of the most important US federal subsidies and introducing a third:

• Production Tax Credit (PTC) provides a USD 0.021 per kWh benefit for the first ten years of a renewable energy facility's operation.

• Investment Tax Credit (ITC) is a reduction in the overall tax liability for individuals or businesses that make investments in a variety of pre-determined areas. Until 1 Jan 2009, the credit for solar-electric and solar water heating residential property expenditures was 30% of the cost with a maximum cap of USD 2,000 for residential installation. After 1 Jan 2009, the USD 2,000 cap was lifted.

• The national Cash Grant Program gives 30% of the cost of small solar, wind or fuel cell investment reimbursed in the form of a grant. This grant is set to expire within the end 2010.

Exhibit 4-6: US Renewable Portfolio Standards (RPS)

Source: DSIRE

State support mechanisms California’s target that 20% of total electricity supply should come from renewable energy sources by 2010 has not yet been met, in spite of California representing 50% of all solar installations in the US in 2009, with 1.1 GW cumulative capacity installed at the end of 2009 was 1.1GWp. This is 67% of the total solar capacity in the US.

In line with the general US level, California’s subsidies are among the lowest in the world. Still California has set a new target of 33% renewable electricity production within 2020. Similarly New Jersey’s Renewable Portfolio Standard (RPS) has set a target of 22.5% within 2021. Exhibit 4-2 shows that New Jersey has higher subsidy rates than California. In New Jersey the cumulative capacity increased by 80% compared to California’s increase of only 24% from 2008 to 2009.

Florida adopted a European-style FIT rate in Gainseville in 2009. Florida installed 36MWp of solar electric power during 2009, which is an increase of 1200% from 2008. Some states, i.e. Illinois and Florida, have implemented tariffs for solar similar to those in Germany. It is not unlikely that other states will follow. European tariffs have had great success in shortening the time remaining before the price of solar energy reaches grid parity.



02.09.2010

Some 20bn Euro has been spent in cumulative subsidies by German ratepayers since the introduction of the EEG program in 2004.

The province of Ontario in Canada implemented in October 2009 a FIT program similar to those found in Germany, Italy and France. These FIT rates will be open to various types of energy technologies (bio, wind, solar, water) and allow all types of generators. Four months after the FIT program was implemented there were almost 1000 applications totalling 8GW of potential renewable energy. Transmission capacity expansion is therefore a focus area for Ontario. In April 2010 the Ontario Power Authority's (OPA) announced the approval of 76 ground-mounted PV projects along with the previously announced 94MW of rooftop and ground-mounted solar projects.

Germany: Lucrative tariffs spurring rapid but unsustainable growth

Germany installed 3,800 MW of new solar capacity in 2009 alone, which is an increase from 1,500MW in 2008. In 2010 over 3GW was installed the first 6 months, and we estimate a total of 9.2GW will be installed in 2010, 24% more than the world total in 2009.

The installation numbers from 2009 made the German government pursue extraordinary mid-year cut in incentives of 16% in 2010. The FiT degression intervals which depend upon installed volumes are set forth in Exhibit 4-7 below.

Since Germany currently represents more than 50 per cent of the global PV market, many companies are heavily exposed to the German market, and will need to search hard for other markets for expansion to continue their growth trend. This is especially the case for those whose business is tied to ground mounted systems.

Exhibit 4-7: German tariffs and PV installations

Germany total 2009: 591 TWh

Oil2 %

Hydro3 %

Other renew.14 %

Coal45 %

Gas13 %

Nuclear23 %

EURc/kWh, valid 1 Jan - 31 Dec 1H 2HCategory 2007 2008 2009 2010e 2010e 2011e 2012eFree-field (not farmland) 37.96 35.49 31.94 28.43 24.26 21.11 16.67Free-field (farmland) 37.96 35.49 31.94 28.43 0.00 0.00 0.00Rooftop systems< 30 kWp 49.21 46.75 43.01 39.14 33.03 28.74 22.7030 – 100 kWp 46.82 44.48 40.91 37.23 31.27 27.21 21.49100 – 1,000 kWp 46.30 43.99 39.59 35.32 29.60 25.75 20.34> 1MWp 46.30 43.99 33.00 29.37 26.14 22.74 17.97"Market corridor" (MWp installed)Minimum 1,000 1,100 2,500 2,500 2,500Maximum 1,500 1,700 3,500 3,500 3,500DnB NOR estimates (MWp installed)Installations in Germany 1,328 1,855 3,807 3,500 5,700 11,200 4,000

YoY degression 1H 2HCategory 2007 2008 2009 2010e 2010e 2011e 2012eFree-field (not farmland) 6.5% 6.5% 10.0% 11.0% 15.0% 13.0% 21.0%Free-field (farmland) 6.5% 6.5% 10.0% 11.0% 100.0% - -Rooftop systems< 30 kWp 5.0% 5.0% 8.0% 9.0% 16.0% 13.0% 21.0%30 – 100 kWp 5.0% 5.0% 8.0% 9.0% 16.0% 13.0% 21.0%100 – 1,000 kWp 5.0% 5.0% 10.0% 9.0% 16.2% 13.0% 21.0%> 1MWp 5.0% 5.0% 25.0% 11.0% 11.0% 13.0% 21.0%* Note: Degression from 2010 potentially 2.5%-point higher if preceding years' installations exceed ''market corridor'

(#) Roof-mounted: 1 April. Ground-mounted: 1 July

Intervals (MW) FiT reductionDegression intervals Min Max Int'v. # 2011e 2012eUnder 1,500 MW 0 1,499 1 6.00 % 1.50 %

1,500-1,999 MW 1,500 1,999 2 7.00 % 4.00 %

2,000-2,499 MW 2,000 2,499 3 8.00 % 6.50 %

2,500-3,500 MW 2,500 3,500 4 9.00 % 9.00 %

3,501-4,500 MW 3,501 4,500 5 10.00 % 12.00 %

4,501-5,500 MW 4,501 5,500 6 11.00 % 15.00 %

5,500-6,500 MW 5,501 6,500 7 12.00 % 18.00 %

Over 6,501 MW 6,501 8 13.00 % 21.00 %



02.09.2010

Some 20bn Euro has been spent in cumulative subsidies by German ratepayers since the introduction of the EEG program in 2004.

Exhibit 4-7: German tariffs and PV installations

German FiT "Market corridor" vs estimates

750 850 1,3281,855

3,807 3,500

11,200

4,000

5,700

13% 56% 40% 105% 142% 220% -30%

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2006 2007 2008 2009 2010e 2010e 2011e 2012e

1H 2H

MW

p

"Market corridor" (full-year)

Installations (est.)

YoY growth


Germany: Why a cap is inevitable

In 2009, a record amount of 3.8 GW new capacity was installed, beating even the most bullish forecasts. Almost 83,000 individual solar systems with a total capacity of 2.3 GW were registered in the fourth quarter alone. This year, installations are set to grow at an even higher rate nearly tripling to 9.2 GW.

According to estimates made by the German utility company RWE (Europe's fourth largest in terms of TWh delivered in 2009), surcharges to German ratepayers for electricity from wind, solar and biofuels will increase rapidly going forward. In 2008, the surcharges were EUR 9.7bn, but in only three years this is estimated to grow by 70% to EUR 16.4bn.

Exhibit 4-8: Surcharges to German ratepayers rising fast

German renewable energy: Output vs Surcharges

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Estimates

RE

gene

rate

d (T

Wh)

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REA

sur

char

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R b

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Surcharges forecasted (right)

Source: DnB NOR Markets Equity Research, RWE, Bundesverband der Energie- und Wasserwirtschaft e.V. (German Energy and Water Association), German transmission system operators

This enormous growth is rapidly becoming a headache not only for German ratepayers (as discussed above), but also for utilities (who are required to absorb all the electricity coming from the PV systems). Exhibit 4-9 below shows two scenarios of growth in the German market. One with 5% annual growth after our 10GW in 2011, and the other with a 4GW cap from 1 Jan 2012. Couple this with Exhibit 4-10, and you clearly see the challenges to



02.09.2010

the German grid even with an (for the PV industry) aggressive 4GW cap from as early as 2012.

Exhibit 4-9: German solar installations (two scenarios)

The German market by month in 2009.

Monthly German installations 2009

0

400

800

1,200

1,600

Jan Mar May Jul Sep Nov

Inst. (MW)

Source: BMU. www.bundesnetzagentur.de

German PV market projections

159,697

41,78566,025

34,0252,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Estimates

New

inst

alla

tions

(MW

p)0

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140,000

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180,000

Agg

rega

ted

inst

alla

tions

(MW

p)

Aggregated EoY (5% growth after 2011) Aggregated EoY (w/ 4GW/yr cap in 2012)

New installations (5% growth after 2011) New installations (w/ 4GW/yr cap in 2012)


Our 5% growth scenario means that on a beautiful sunny day across the whole of Germany in July, solar would completely inundate the German grid with electricity. And even in 2012, solar could supply 40-50% of demand at peak production. This is a big concern, and we think that the German government is likely to react quickly and decisively when serious concerns are raised from the utilities.

Exhibit 4-10: Electricity from PV vs German electricity demand


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02.09.2010


Note: Calculations assume 10% derate factor, i.e. 1GW installed capacity on module level can deliver up to 900MW of electricity to the grid.

True, it is possible to export electricity from Germany, but it would be a very uneconomic proposition given the EUR 0.17-0.23/kWh paid by the German utilities (and their ratepayers) versus the much lower price they are likely to obtain in return.

Demand - Europe: Emerging solar markets

Italy has finally passed a law fixing tariffs for projects beyond 2010. The law will come into effect on January 1st. The cuts are between 20-25 per cent and a 3GW cap in solar capacity might also be established. Still, the Italian tariffs are among the most lucrative in Europe, and with the combination of high yearly irradiation, Italy is one of Europe's most attractive PV markets in terms of IRRs. This has resulted in a 700MW installation in 2009, putting Italy in second place for total cumulative solar capacity in Europe. We expect total installation of PV in Italy to be 1.1GW for 2010.

In France, the current tariffs are high compared to other markets, and the depreciation rate is believed not to reflect the underlying cost decline. A cut in tariffs already in September 2010 is proposed by the country's renewable energy association (SER) as well as caps on the total amount of eligible new capacity. A misfortunate cause of caps is the participants urge to get their project under those caps allocating recourses to bureaucratic tasks in stead of technological progress.

After a solar boom in 2008, the tariff cuts made 2009 a very slow year for Spain. Only 70MW of the 500MW cap were built and 2010 is also likely to be a slow year. Solar installations are not picking up and additional, retroactive cuts on already allocated subsidies from 25 to 45 per cent are proposed by the government. The government needs to eliminate a deficit of EUR 16bn which it owes to power producers by 2013.

Israel is a very attractive market for solar investments, considering the high tariffs coupled with the country's high solar irradiation. The present value of future revenues from an Israeli PV module is the highest in the world, see Exhibit 4-2. A boom in installations in Israel is not impossible considering they recently lifted the cap for their tariffs up to 15kW systems. However, we do not see this market ever coming close to being able to absorb the shortfall we expect from Germany's impending cap.

In the Czech Republic, over 235MW of PV systems were installed in H1 2010 compared with 26MW the first six months 2009. The Czech Republic is currently one of the most profitable solar markets in Europe. In September 2010 the existing permits will expire, and with the recently new elections, no new tariffs for 2011 will be presented before November 2010.

Asia: A policy change can result in a solar boom

After two stagnant years, Japan announced in 2008 a funding of 9 billion yen (USD ~1,070m) for encouragement of installing solar power systems in 70% of new houses. The Japanese Prime Minister, Yukio Hatoyama, announced in September 2009 that his country should make a 25 per cent cut in greenhouse gas emissions (GHG) from 1990 levels by 2020. In November the same year, the Democratic Party of Japan (DPJ) reintroduced a national FIT system for solar power. During 2009 Japan installed 484MW of solar power capacity, more than the US. 212MW of PV was installed in Q1 2010. The DJP has proposed to extend the FIT-program to include other renewables, and to introduce a global warming tax.

The Golden Sun subsidy in China which subsidizes 50 per cent of investment for solar power projects has been patchily implemented. It

Spain total el. prod. '09: 292 TWh

Nuclear18 % Gas

38 %

Coal13 %

Other renew.16 %

Hydro9 %

Oil6 %

Japan total el. prod. '09: 1,040 TWh

Oil9 %

Hydro7 %

Other renew.

2 %Coal29 %

Gas26 %

Nuclear27 %

Italy total el. prod. '09: 286 TWh

Oil10 %

Hydro17 %

Other renew.

7 % Coal15 %

Gas51 %



02.09.2010

could have invested some 600MW of rooftop projects, but, New Energy Finance estimates only 250 to 300MW of PV to be installed in 2010.

The Chinese government charges renewable energy fees for all residential and industrial users. These fees are used to subsidise the electricity grid operators to make up the cost difference between renewable energy and coal-fired power, but China does not have any fixed solar tariffs. The price of solar electricity is still twice as expensive as coal-fired electricity, and 95% of all manufactured photovoltaic (PV) panels are exported. If the Chinese government decide to implement fixed price tariffs similar to the ones in Italy and Germany, there will probably be a boom in the solar sector. Both China and India announced in 2009 their plans to expand their solar power capacity to 20GW each by 2020, indicating an annual market of 1GW in each country.

The selection guidelines for the Indian Solar Mission, which targets 1000MW of grid connected and 200MW of small-scale and off-grid solar capacity by March 2013, has been released by the federal regulator in India. The cap for the first round is 150MW which is likely to be surpassed. Developers probably need to offer a discount to the current tariff of INR 17,91/kWh (EURc 30/kWh) to become a part of the National Solar Mission.

Wind power: Offshore becoming close to cost competitive

Wind power has in many regions come close to cost competitive compared to traditional energy sources. Denmark, where more than 20 per cent of the domestic electrical market capacity comes from wind power, introduced renewable subsidies in the late 1970s as a reaction to the oil shocks in 1973 and 1979. More markets have began offering high tariffs for wind electricity production, which is still needed for onshore and especially offshore wind generation to be cost competitive.

The UK, with the best and most geographically spread wind resources in Europe, will mainly focus on offshore wind farms to reach their 15% renewable energy source target by 2020. The feed-in tariffs lie between £ 0.045 /kWh for systems up to 5MW and £ 0.345/kWh for systems smaller than 1.5kW. The YoY degression rates lie between 4.5% and 5.5% for the smaller systems. In February 2010 UK reached the 1GWp mark of installed offshore wind farms, and a total of 4.5GW wind power capacity installed. UK used £1 billion in renewable power subsidies in 2009 compared to £278 million in 2002.

Germany has a feed-in tariff for both on- and offshore wind power generation similar to the solar FIT. Germany is also Europe's leading wind power producer, with a total of 26GW installed capacity equalling to 6 per cent of total power production in the country.

China passed a nationwide fixed FIT regulation for onshore wind in July 2009. Four specific tariffs were established to be applied on a regional basis based on geographic wind resources. China was the world largest wind turbine market in 2009, more than doubling its capacity to 25.1GW total installed capacity. The national Energy Administration is currently developing a reasonable tariff level for offshore wind power.

China total el. prod. '08: 3,451 TWh

Nuclear2 %

Coal67 %

Hydro13 %



02.09.2010

Exhibit 4-11: Current Wind Feed-in Tariffs in Key Countries

Country Onshore

(EUR/kWh)Offshore

(EUR/kWh)

Wind Capacity end

2009 (GW)

Electricity prices

(EUR/kWh)USA 35.2Canada (Ontario) 0.135 0.19 3.3 0.04China 0.06-0.07 25.1 0.07Denmark 0.078 0.078 3.5 0.132Spain 0.06-0.08 0.09 19.1 0.09France 0.08 0.13 4.5 0.07UK 0.045-0.345 0.045-0.345 4.0 0.11

Source: http://www.energy.eu, www.fitariffs.co.uk, www.renewable-energy-sources.com



02.09.2010

5. Solar cost and prices

Exhibit 5-1: Main assumptions solar

With a 21% annual growth from 2005, solar could in 2030 deliver 4.9% of world electricity consumption

CAGR Unit 2005 2010 2020 2030 2005-30

World Primary Energy Demand Mtoe 11,730 13,612 15,031 18,594 1.9%Growth YoY % 3.0% 1.0% 2.1%

World Electricity Demand TWh 18,302 21,554 28,023 37,298 2.9%Growth YoY % 3.3% 2.7% 2.9%

Additional capacity GWp/year 1.2 16 110 242 24%Aggregated installations GWp 5.2 39 531 2,199 27%Electricity Production TWh 2.0 49 733 3,105 34%

Solar share of world generation % 0.0% 0.2% 2.6% 8.3%


Summary: Margin compression continues

2011 is going to be another challenging year for many players in the solar sector. The flow of large, low-cost and low-capex capacity addictions seems not to be abating, on the contrary. As we argue below, it is hard to see the PV market not being supply-driven (i.e. a buyer’s market), with corresponding pressure on ASPs. We judge the current pull in demand to be temporary, being a product of the impending reduction of German feed-in-tariffs.

Exhibit 5-3 below shows that during the last 12 months, the average selling price for modules has fallen almost around 15% (after falling about 60% from the beginning of 2008), and now trades at USD 1.70 per Wp. Looking forward, it is almost impossible to paint a realistic scenario where ASPs will rise again, except for short pockets of time (like the current 2Q-3Q 2010) or in the (very) long run where world energy and electricity prices rise far enough for solar to compete on a utility level with conventional energy sources. But we are not there now.

Based on our analysis of production cost and available capacities we expect factory gate module ASPs next year to average EUR 1.20-1.25/Wp (USD ~1.55), see Exhibit 5-2 below. We believe there is enough production capacity with combined cash costs below EUR 1.20/W to supply 21 GW of polysilicon, wafers, cells and modules in 2011.

Exhibit 5-2: ASP estimates for 2011 and 2012

(Estimated yearly ASPs) (YoY change)Product Unit 2010 2011 2012 2011 2012Silicon USD/kg 55.9 49.6 38.1 -11 % -23 %Wafer USD/Wp 0.90 0.78 0.58 -14 % -26 %Cell USD/Wp 1.32 1.13 0.84 -15 % -26 %Module USD/Wp 1.75 1.55 1.13 -12 % -27 %Silicon EUR/kg 43.3 39.7 30.5 -8 % -23 %Wafer EUR/Wp 0.70 0.62 0.46 -11 % -26 %Cell EUR/Wp 1.02 0.90 0.67 -12 % -26 %Module EUR/Wp 1.36 1.24 0.90 -9 % -27 %

* EURUSD 1.290 1.250 1.250


Note that we have here detailed our estimates for the spot market. There are a number of companies that have entered into long-term sales



02.09.2010

agreements, particularly on polysilicon but also to a certain extent on wafers. Many of these contracts typically allow for a pre-agreed ASP degression which is likely to be less steep than what our estimates point out. It is also normal that these contracts have clauses that allow for adjustment of prices according to the movements in the spot market. But just like what happened in 2009 (many contracts, including those perceived to be “bullet proof” got renegotiated), we see that these long-term agreements cannot survive for long with excessive disparity versus the spot market.

Exhibit 5-3: Forward ASP summary

Silicon ASPs

0

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e

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e

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per

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Forecasts

Wafer ASPs

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Cell ASPs

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.02.

2008

01.0

8.20

0801

.02.

2009

08.0

7.20

0919

.08.

2009

30.0

9.20

0911

.11.

2009

23.1

2.20

0903

.02.

2010

17.0

3.20

1028

.04.

2010

09.0

6.20

1021

.07.

2010

01.0

9.20

1013

.10.

2010

24.1

1.20

1020

11e

2012

e

USD

per

Wp

Monthly data to June 2009

Weekly data from July 2009

Forecasts


Polysilicon: Difficult, if not impossible, to see prices not falling

As Exhibit 5-4 below shows, there is going to be enough silicon available for over 21 GW in 2011. 82% of our 2011 projected silicon production comes from Tier 1 plus GCL Poly, while 58% of the increase from 2010 to 2011 comes from the same group of companies. The vast majority of the total material, therefore, comes from producers whose fully loaded costs (i.e. including depreciation) are below USD 40/kg, some even near USD 30/kg. The corresponding cash cost is approximately USD 10/kg lower.

Unless market demand grows to 20GW or higher, we see polysilicon prices in 2011 and 2012 trending down as a necessity of allowing end-module producers to offer competitive prices in an environment where subsidy rates are falling rapidly. By far the most important market to follow in this respect is Germany – see page 37.



02.09.2010

Exhibit 5-4: Silicon supply 2006 – 2012e

Production cost levels:

• Tier 1 is producing at cash costs of $25-30 /kg, some possibly even lower

• Tier 2 has a wider range with a cash/fully loaded cost of $23/32 per kg1, up to around $35/kg. GCL is most likely the cheapest producer inside this tier

• Tier 3 produces polysilicon typically at cash costs of $40/kg and (much) higher

Capex levels

"Industry standard" of USD 80-100/kg, but OCI is investing $312m for a 8,000MT facility ($39 per kg), to be constructed over 17 months.

Polysilicon production (tons) BB code 2006 2007 2008 2009 2010E 2011E 2012E

Hemlock Private 8,900 10,500 15,500 21,000 26,650 33,450 39,625Wacker WCH GR 6,200 8,100 11,900 18,100 24,500 29,500 37,000MEMC WFR US 4,400 5,300 5,600 8,000 8,000 8,000 10,000REC REC NO 5,556 5,783 6,241 7,638 13,495 16,144 17,836OCI Company (KOR) 010060 KS 0 0 3,100 9,500 17,000 25,000 34,000Tokuyama 4043 JP 5,200 5,200 5,900 6,700 8,200 8,200 11,200Mitsubishi Materials 5711 JP 3,000 3,270 3,300 3,300 3,300 3,300 3,300Osaka Titanium 5726 JP 800 900 1,000 1,100 1,200 840 1,400Tier 1 34,056 39,053 52,541 75,338 102,345 124,434 154,361

Elkem (NOR) ORK NO 0 0 0 300 3,000 6,000 6,000M. Setek (JPN) Private 0 500 2,700 3,000 3,200 4,200 5,200JSSI (SolarWorld/Evonik) Private 0 0 100 850 850 850 850Dow Corning (US) Private 100 1,000 3,000 3,000 3,000 3,000 3,000GCL-Poly (CHN) 3800 HK 0 0 1,800 7,454 16,000 20,000 24,000Tier 2 100 1,500 7,600 14,604 26,050 34,050 39,050

LDK (CHN) LDK US 0 0 0 210 4,000 11,000 16,000Yingli (CHN) YGE US 0 0 0 0 400 2,400 3,000Renesola (CHN) SOL US 0 0 0 450 900 2,500 3,000Taiwan PolySilicon Private 0 0 0 0 100 3,500 5,000Daqo New Energy (CHN) IPO pending 0 0 289 1,575 3,000 3,500 4,500Tier 3 0 89 1,334 2,235 8,400 22,900 31,500

Other 5,144 8,658 8,825 6,452 6,840 7,255 8,996

Estimated total 39,300 49,300 70,300 98,629 143,635 188,640 233,907OCI market estimates, Y-E capacity 167,100 220,600 272,100 294,300

Market estimates 2006 2007 2008 2009 2010E 2011E 2012E

Total production (tons) 39,300 49,300 70,300 98,629 143,635 188,640 233,907Semiconductor industry (tons) 24,000 26,000 24,770 22,293 28,981 30,430 31,951Solar industry (tons) 15,300 23,300 45,530 76,336 114,654 158,210 201,956

g/W (grams) 9.0 8.5 8.0 7.8 7.5 7.4 7.3

Polysilicon module production (MW) 1,700 2,506 5,166 8,697 13,487 19,555 25,805First Solar production (MW) 57 204 508 1,053 1,430 2,025 2,722Other thin-film production (MW) 121 294 396 596 1,000 1,500 2,000Total module production (MW) 1,878 3,003 6,071 10,346 15,917 23,080 30,527

Inventory EoY (MW) 200 376 601 728 3,104 3,502 4,847 6,105- Available for modules current year (MW) 200 376 601 728 3,104 3,502 4,847

PV installation capacity (MW) 1,703 2,778 5,943 7,971 15,519 21,735 29,268 - Tier 1 + GCL Poly 6,118 12,762 16,704 22,358

Production* (MW) 2,204 3,436 6,850 10,500Installation* (MW) 1,728 2,816 5,950 7,700* SolarBuzz, New Energy Finance

Source: DnB NOR Markets Equity Research, company filings

Tier definitions: Companies with multiple years' experience in producing large quantities of polysilicon. Tier 2 definition: Large chemicals or materials corporations with multiple years' experience in production of industrial metals, AND with strong balance sheets. Tier 3: Promising upstarts (LDK Solar still in this bracket).

We have not drawn up a graphical cost curve, but using the production cost data from above, it is clear that the vast majority of this polysilicon is going to be produced as long as ASPs remain above USD 40 / kg. At 7 grams per watt, that translates into a module cost of USD 0.28 /W. We think that USD 0.28/Wp is nothing more than the cost tolerable for module producers in a scenario where module ASPs need to trend towards USD 1/Wp.

As Exhibit 5-5 below shows, silicon prices in the "spot" market (as reported by BNEF) have been very stable in 2010. The July spot price of USD 54.80/kg is down 88% from the peak of USD 460/kg in January 2008, and with many contracts having been renegotiated – there are no major latent price adjustments to be made.

Several players have openly said there is renewed demand for long-term contracts, with prepayments of 20% or more, like in 2007-2008. Wacker has signed some, but of undisclosed size. REC confirms they also have had requests, but not had volumes to allocate for new, external buyers.

The rapid expansions in polysilicon supply coupled with the market downturn has led to poly prices falling from peak above USD 400/kg to

1 Source: OCI



02.09.2010

current spot prices around USD 60/kg. As a consequence, the silicon cost in a typical module today is around USD 0.40/Wp.

Exhibit 5-5: Silicon spot price

0

50

100

150

200

250

300

350

400

450

500

jan.00

jan.01

jan.02

jan.03

jan.04

jan.05

jan.06

jan.07

jan.08

jan.09

jan.10

jan.11

jan.12

jan.13

jan.14

jan.15

US

D/k

g

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

US

D/W

p

Silicon price (left)

2007 contracts

2008 contracts

2009 contracts

Silicon module cost (@ 7 g/W)

2000-2016 CAGR: 5.0%

Source: Photon, NEF, DnB NOR Markets Equity Research

Wafers: No long-term bottleneck

Announced capacities of wafers tally 19.5 GW, according to our dataset. Some may therefore think that this would potentially represent a bottleneck. However, there are a number of companies that are able to construct and commission new capacity rapidly, and GCL Poly is one of them. 28 July 2010 the company announced it was going to build a new plant with a 1GW capacity, for USD 300m. Completion was set at end-of-year 2010, allowing a construction period of just five months.

While one can speculate who will be the world's cheapest (definition: lowest cash-cost) wafer manufacturer in 2011, and argue that a USD 0.30/W capex plant cannot be it, GCL and its Asian peers of OCI and LDK have shown impressive abilities to push down unit costs far and fast.

With limited capex requirements and short construction periods, we think that wafer production capacity cannot become and remain bottlenecks in the solar industry for any period extending more than a few months. For cells, the situation is similar but capacity is even faster and cheaper to build than for wafers.

Cell and module – no bottlenecks in sight

Since 2008, the investments in wafer, cell and module production capacities have been enormous. Exhibit 5-6 below shows announced capacities in the next steps of the value chain. While there is clearly no lack of module capacity, and cell capacity seems to match that of our expected output volumes, one could be led to think that we may see a bottleneck in the wafer segment.

GCL Poly to build a 1GW wafer plant in 5 months, costing USD 300m or USD 0.30/W



02.09.2010

Exhibit 5-6: Production estimates through the PV value chain

Polysilicon capacity and likely production

-

100,000

200,000

300,000

400,000

500,000

2005 2006 2007 2008 2009 2010 2011 2012

tonnes

0 %

20 %

40 %

60 %

80 %

100 %

Ambitions less semiconductor poly Tier 1 companies onlyTotal growth (right axis)

CAGR 2009-2012: 35%

Wafers, total announced capacity

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2005 2006 2007 2008 2009 2010 2011 2012

MWp

0 %

20 %

40 %

60 %

80 %

100 %

120 %

140 %

160 %

Volume (left axis) Growth (right axis)

CAGR 2009-2012: 30%

Cells, total announced capacity

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2005 2006 2007 2008 2009 2010 2011 2012

MWp

0 %

20 %

40 %

60 %

80 %

100 %

120 %

140 %

160 %

Volume (left axis) Growth (right axis)

CAGR 2009-2012: 36%

Modules, total announced capacity

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2005 2006 2007 2008 2009 2010 2011 2012

MWp

0 %

20 %

40 %

60 %

80 %

100 %

120 %

140 %

160 %

Crystalline Thin-film Si Thin-film other Total gr. (right)

CAGR 2009-2012: 39%

Source: DnB NOR Markets Equity Research, New Energy Finance

Project costs: No long-term bottleneck

Exhibit 5-7 below shows how the project cost has developed from 2007 to 2010, over 495 observations of PV projects. With 2009 running from observation 273 to observation 431, one can see that not only module costs declined in that year, but also project costs. The 25 observations' moving average fell from USD 8.8/Wp on 1 January 2009 to USD 5.7/Wp 31.12.2009. In early 2010 it climbed back up slightly, before coming down again to USD 5.5/Wp.

Exhibit 5-7: Project costs 2007 – 2010

Cost / W over time

-

2

4

6

8

10

12

14

1 51 101 151 201 251 301 351 401 451Observations

USD

/ W

25 obs.' moving avg.

USD / W

Source: DnB NOR Markets Equity Research, New Energy Finance

Note: 46 projects are dated 2001-2006.

Date markers: 2007 from #47, 2008 from #111, 2009 from #273, 2010 from #432.



02.09.2010

Cost outlook through the value chain in 2011

The table in Exhibit 5-8 below shows the announced and reported cost positions of thirteen companies that together comprise a meaningful portion of the world’s silicon, wafer, cell and module capacity.

Exhibit 5-8: Unit (fully loaded) cost overview and cost targets

Silicon Wafer Cell Module End-2011 target2Q 2010 USD/kg USD/W USD/W USD/W USD/WFirst Solar <--------------- 0.76 s/c ---------------> 0.58 by 2014 1

OCI 32 s $30/kgElkem 52 c $20/kgGCL Poly 32 s 0.35 s $28/kg; 0.25/W 2

LDK Solar 53 s 0.31 s $30/kg; 0.25/W 3

REC 35 c high high high TBA 2 Nov 2010Yingli 65 s <---------- 0.74 s ----------> $40/kg; <0.70/W 4

ReneSola 0.26 s 0.18Solarfun [- 1.12s -> <---- 0.57 s ----> $1.25/W incl poly 5

Trina Solar <---------- 0.74 s ----------> 0.63 6

Q-Cells 0.34 c EUR 0.20/W (M'sia)JA Solar "< 0.20 s" Driven by ++ efficiencySuntech Power <---- 0.52 s ----> < 0.50

Notes "s"-denominated figures = stated by management. "c"-denominated figures = calculated1 FSLR: Target of between USD 0.52-0.63 by 20142 GCL: Target by 3Q 20103 LDK: Poly cost target at full utilisation of 15,000MT. Wafer target by end 20104 Yingli: Soft indication / aspiration of $40/kg; then $25/kg later. $ 0.70 by YE 2010.

6 Trina Solar: $0.70/W by YE 2010, then another -10% by YE 2011.

5 Solarfun: Target by year-end 2010. Current is $1.12/W non-poly and $1.42/W with wafers bought at $0.85/W.

Source: DnB NOR Markets Equity Research, company filings

The presented data should be interpreted as averages, with the changes from one year to the next more representative as benchmarks for each company in the industry than the levels themselves. Each individual company will have its own set of contracts, meaning that in practice, very few companies will reach exactly the prices and costs we have presented.

Exhibit 5-9: Vertical integration and margin implications

Top tier integrated poly-to-module producer

1.55

0.180.07

0.05

0.04

0.02

0.18

0.10

0.14

0.10

0.11

0.45

0.92

0.21

0.24

0.29

0.18 0.42 0.63 0.920.78 1.13 1.550.35

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

Silicon(27.4%)

Wafer(18.0%)

Cell (8.9%) Module(7.1%)

Sales price Total(28.8%)

Value chain (EBIT margin)

USD

per

Wp

MarginDepr.Cash costSales price

ASPAggregated cash cost

Top tier wafer-to-module producer: Silicon as feedstock

1.55

0.35

0.05

0.04

0.02

0.11

0.14

0.10

0.11

0.350.29

0.24

0.21

1.09

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Silicon Wafer(18.0%)

Cell (8.9%) Module(7.1%)

Total Total(22.6%)


USD

per

Wp

Margin

Depr.

Cash cost

Sales price



02.09.2010

1.120.52

Top tier cell-and-module producer: Wafers as feedstock

1.55

0.78

0.04

0.020.06

0.10

0.110.21

0.29

0.21

1.28

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Wafer Cell (8.9%) Module (7.1%) Total Total (13.6%)


USD

per

Wp

Margin

Depr.

Cash cost

Sales price

Top tier pure module producer: Cells as Feedstock

1.55

1.13

0.02 0.020.11 0.11

0.29

1.42

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Cell Module (7.1%) Total Total (7.1%)


USD

per

Wp

MarginDepr.Cash costSales price


Demand vs supply: Oversupply looming for 2011

Demand is Exhibit 5-10 and Exhibit 5-11 below shows our assumptions for growth in the PV market of the world’s various regions.

Our model estimates that by 2030, there will out of the 13 individual countries in the list above be seven countries with solar penetration of 10% or higher. In order to get there, the world CAGR from 2009 (which was a very good year historically) must be 18.0%. Clearly, this is and will remain a growth market.

Exhibit 5-10: World solar model (simplified)

2008 2010 2015 2020 2030 2008-12 2013-20 2021-30 2005 2020 2030 2005 2020 2030

EuropeGermany 1.9 9.2 4.0 4.0 4.0 21 % 0 % 0 % 1 64 100 0 % 8 % 11 %Spain 2.5 0.2 0.8 1.3 2.1 -30 % 10 % 5 % 0 20 47 0 % 5 % 11 %France 0.0 0.6 0.9 2.1 3.9 82 % 20 % 6 % 0 17 61 0 % 2 % 7 %Italy 0.3 1.1 1.4 1.2 0.9 55 % -3 % -3 % 0 25 41 0 % 7 % 9 %UK 0.0 0.1 0.9 2.1 3.9 88 % 20 % 6 % - 11 40 0 % 2 % 7 %Russia 0.0 0.0 0.6 1.8 4.6 640 % 25 % 10 % - 13 65 0 % 1 % 5 %Total Europe 4.9 11.9 10.3 19.5 31.7 14 % 12 % 5 % 2 185 499 0 % 3 % 7 %

AmericaCanada 0.0 0.2 1.7 4.4 7.8 74 % 20 % 6 % 0 26 96 0 % 4 % 13 %California 0.2 0.5 0.9 1.2 1.2 50 % 5 % 0 % 1 19 39 0 % 9 % 16 %Other USA 0.2 0.5 4.2 18.8 29.7 74 % 35 % 5 % - 110 487 0 % 2 % 10 %Total America 0.4 1.4 8.5 33.1 53.1 83 % 30 % 5 % 0 177 754 0 % 2 % 9 %

RoWJapan 0.2 0.8 2.1 4.3 5.8 56 % 15 % 3 % 2 41 113 0 % 4 % 10 %China 0.0 0.5 8.6 30.7 95.3 207 % 29 % 12 % 0 172 993 0 % 3 % 11 %South Korea 0.3 0.2 0.9 2.1 4.6 1 % 20 % 8 % - 17 65 0 % 3 % 9 %India 0.0 0.5 2.5 8.1 21.1 134 % 27 % 10 % - 60 294 0 % 4 % 12 %Other RoW 0.1 0.8 3.9 11.9 30.9 106 % 25 % 10 % 2 82 386 0 % 1 % 5 %

WORLD 5.9 16.0 36.8 109.8 242.4 38 % 23 % 8 % 6 733 3,105 0 % 3 % 8 %

Yearly installation growth (CAGR)

PV generation (TWh)Additional capacity (GWp)

PV shareof total

Source: DnB NOR Markets equity research

Our 2010 estimates of about 16.0 GW imply a 116% growth over 2009. This enormous growth rate is possible for the following main reasons:

• Stabilizing module prices, but continued southward trend. From January 2008 to August 2009, module prices fell by roughly 60%. By June 2010, they were down another 14%. After that, overall prices have been fairly stable, with some producers even reporting increases. As long as module prices are falling, investment decisions often get postponed in anticipation of a “better deal” later. Now, when prices are more stable, there is less incentive to wait, often also releasing volumes of pent-up demand from the previous period of falling prices.

• Improving risk appetites. While investors remain cautious about the virtues of the stock market and bond yields are at or near all-time lows, the observed growth in the solar market so far in 2010 tells us there is



02.09.2010

more willingness to accept German sovereign risk through guaranteed 20-year feed-in tariffs financed by the country’s electricity consumers.

• Available financing at record low interest rates. Financing is continuing to become more available to an increasing number of investors as investment appetites gradually return after the “the end is nigh” experience in late 2008 / early 2009. However, banks are still said to be very cautious and selective on projects. Interest rates are projected to remain record low for a record period of time.

These factors together translate into a comparatively attractive risk/reward prospect for investments into PV systems even though project IRRs are lower now in 2010 than they have been for a number of years. Our calculations indicate that they well be even lower in 2011.

But it is the relative IRR that counts.

Exhibit 5-11: World PV demand 2004 – 2012e

Germany overheating, needs to impose cap or significantly reduce tariffs further

PV market

0.6 0.8 1.0 1.31.9

3.8

9.2

11.2

4.0

1.4 1.2 1.72.5

5.97.4

21.4

16.0

21.2

-

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011 2012

GW

(ind

ivid

ual c

ount

ries)

-

5

10

15

20

25

GW

(to

tal m

ark

et)

GermanySpainItalyOther Eur.JapanUSA + Can.ChinaRest of WorldTotal (right axis)

Germany 2012: Cap!

PV market (stacked)

0.6 0.8 1.0 1.3 1.93.8

9.211.2

4.01.4 1.2 1.7

2.5

5.97.4

21.421.2

16.0

-

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012

GW

inst

alle

d (n

ew)

Rest of World

China

USA + Can.

Japan

Other Eur.

Italy

Spain

Germany




02.09.2010

6. Wind industry

Exhibit 6-1: Main assumptions wind

With 15% annual growth from 2010-20, wind could deliver 9% of world electricity

CAGR Unit 2005 2010 2020 2030 2005-30

World Primary Energy Demand Mtoe 11,730 13,612 15,031 18,594 1.9%Growth YoY % 3.0% 1.0% 2.1%

World Electricity Demand TWh 18,302 21,554 28,023 37,298 2.9%Growth YoY % 3.3% 2.7% 2.9%

Additional capacity GWp/year 12 41 80 49 6%Aggregated installations GWp 62 199 832 1,428 13%Electricity Production TWh 111 454 1,967 3,502 15%

Wind share of el. generation % 0.6% 2.1% 7.0% 9.4%


Summary: Significant growth potential next decade

Wind is the fastest-growing form of renewable energy in terms of electricity production, and we expect this to continue for at least a decade. The financial crisis' negative impact on growth in 2010 is expected to be temporary, and the main reasons for our bullish view on wind energy are:

• Wind is cost competitive compared to traditional alternatives like coal and natural gas in good wind sites onshore, i.e. limited need for subsidies. In addition, the cost of producing a kWh of wind energy is predictable (no fuel cost and emits no CO2)

• More than enough wind resources in the world to reach the practical limit for wind contribution in a grid (20-30% of electricity)

The funding problems in the wake of the financial crisis have impacted 2009/10 demand, but we expect solid growth in installed wind capacity the coming years, see Exhibit 6-2.

Exhibit 6-2: Yearly wind installations

Wind market

8.211.5

19.5

27.1

37.840.5

45.5

52.9

15.0

-

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012

GW

(ind

ivid

ual c

ount

ries)

-

10

20

30

40

50

60G

W (

tota

l m

ark

et)

GermanySpainUKOther EuropeChinaTotal AmericaRest of WorldTotal (right axis)

Source: GWEC, DnB NOR Markets

Wind benefits • Low cost, modular and

quick to install • Energy payback time

of less than 1 year • No fuel • Land can be used for

other purposes, e.g. agriculture/livestock

• Complementary to electricity from natural gas- (reserve) and hydro (reserve and storage)

• Almost all parts can be recycled

Wind drawbacks • Stability of electricity

network with high penetration

• Access to the grid in remote areas

• Backup needed for periods without wind

• Visual impact and acoustic emissions

• Impact on habitats of birds and animals



02.09.2010

From a cost perspective, the attractiveness of wind power has improved considerably the last two decades. Capital expenses have dropped significantly and stability has improved. Compared to the cost of energy in oil, with exception of a period in 2007/08, it has never been more competitive than today.

Wind can make a significant contribution to power production in the short-to-medium term. Installations in 2010 is estimated to be around 40GW, whose production is equivalent to 12-15 nuclear plants of 1 GW capacity each. The Global Wind Energy Council (GWEC), has stated that wind could supply 12% of world electricity needs by 2020 against just over 1% in 2007. We believe this is possible, but in our base-case scenario we estimate that 6-8% of electricity production in 2020 is wind generated. This includes offshore wind, which represents a significant untapped potential. Exhibit 6-3 below shows the status in the main wind regions today.

Exhibit 6-3: Wind as percentage of electricity consumption

0 % 5 % 10 % 15 % 20 % 25 %

JapanChina

CanadaTurkey

AustraliaBrazil

FranceSwedenAustria

USItalyUK

IndiaNetherlands

GreeceGermany

IrelandPortugal

SpainDenmark

2006 2007 2008 2009

Source: NREL, DnB NOR Markets

Not only is wind cost competitive, it will also help reducing CO2 emissions. No fuel is needed and the energy used to produce a wind turbine is limited. For example, a V90-3.0 MW turbine from Vestas takes less than seven months to generate the amount of energy used to build (incl. extraction of raw materials), install, operate and dispose. No other form of electricity generating technology can match this figure.

Although wind turbines generates clean and renewable energy and is considered environmentally friendly, there are also negative issues relating to the impact on the surrounding environment, e.g. noise pollution, visual impact and impact on wildlife. This is the reason for the significant interest in offshore wind farms, since, by placing the turbines out to sea and out of sight, the negatives are almost removed. However, offshore wind today is much more expensive both to build and to operate than onshore and needs higher incentives. Despite the high interest, offshore will remain a niche market the next five years. Long-term, however, the potential is significant and if floating solutions become economically competitive, the available wind resources increases several times.



02.09.2010

Industry structure: Increasingly diversified

The wind turbine market is dominated by a few players with the top ten producers accounting for close to 80% of total production in 2009, see Exhibit 6-4 below. This is down from around 90% in 2008 due to strong growth among Chinese manufactures.

Exhibit 6-4: Wind turbine manufacturer market share

Vestas13 %

GE Wind13 %

Sinovel9 %

Enercon9 %

Goldw ind7 %

Gamesa7 %

Dongfang7 %

Suzlon7 %

Siemens6 %

Repow er4 %

Others18 %

Source: BTM Consult, 2009

As seen from the chart above, Vestas and GE are the leading players with 13% market share, followed by Sinovel (9%).

Compared to 2008, there were some shifts in market shares, see Exhibit 6-5.

Exhibit 6-5: Market share development

2009Producers Growth Share

Supplied Accumulated Supplied Accumulated Supplied AccumulatedVestas 4,503 29,508 5,582 35,090 4,766 39,856 -14.6 % 12.9 %GE Wind 3,283 12,979 5,243 18,222 4,741 22,963 -9.6 % 12.8 %Sinovel 671 746 1,410 2,156 3,510 5,666 149.0 % 9.5 %Enercon 2,769 13,770 2,819 16,589 3,221 19,810 14.3 % 8.7 %Goldwind 830 1,457 1,128 2,585 2,727 5,312 141.8 % 7.4 %Gamesa 3,047 13,306 3,383 16,689 2,546 19,235 -24.7 % 6.9 %Dongfang 1,290 2,475 3,765 n.a. 6.7 %Suzlon 2,082 4,724 2,537 7,261 2,421 9,682 -4.6 % 6.5 %Siemens 1,397 7,002 1,945 8,947 2,265 11,212 16.4 % 6.1 %Repower 3,597 1,297 4,894 n.a. 3.5 %Others 3,625 16,826 4,144 19,219 7,033 26,252 69.7 % 19.0 %Total 22,207 100,318 28,190 131,644 37,002 168,646 28.4 % 100.0 %

20082007 2,009



02.09.2010

Source: BTM Consult

Most noticeably loss of market share for most of the players outside China while the Chinese producers gained market share. This can be explained by the strong market growth in China, markets where the local manufacturers have an especially strong position.

Geographical presence

Companies with a large home market can be among the top ten players without being present in any other markets. This, of course, makes them vulnerable to changes in their home markets. In Exhibit 6-6 below, the top three players in the top ten markets are shown, and Vestas clearly has the broadest geographical strength.

Exhibit 6-6: Top 3 players in top 10 markets (2009)

Market Market size 1 2 3China 13,000 Sinovel Goldwind DongfangUSA 9,922 GE Wind Siemens VestasSpain 2,459 Gamesa Vestas Alstom WindGermany 1,917 Enercon Vestas REpowerIndia 1,271 Suzlon Vestas RRB VestasItaly 1,114 Vestas Gamesa EnerconFrance 1,088 Enercon REpower VestasUK 1,077 Siemens REpower VestasCanada 950 Vestas GE Wind EnerconPortugal 673 Enercon Nordex VestasTotal 33,471

Source: BTM Consult

Further consolidation likely

Since 2000, there has been a considerable M&A activity in the industry. Excluding acquisition of suppliers to the turbine manufacturers, the most important are:

• GE acquired wind turbine production unit Enron Wind in 2002

• Gamesa acquired wind turbine production unit MADE from Endesa in 2003

• Vestas acquired Danish competitor NEG Micon in 2003

• Siemens acquired Bonus Energy (Denmark) in 2004

• Suzlon acquired share majority in REpower (Germany) in 2007

• Alstom acquired Ecotecnia (2007)

• GE acquired Scanwind of Norway in 2009

Out of the seven deals above, three of them represent large corporations entering the wind industry through an acquisition (GE, Siemens and Alstom) and the other three represents consolidation in the industry.

Even though the wind turbine market has experienced significant growth for a number of years, there have been few new entrants. Outside China, the only significant entrants the last ten years have been Clipper (USA) and REpower (Germany). One explanation is that there exists no proven, standardized technology, but the most important reason is most likely the importance of an operational track record. Even established manufacturers experience problems with their turbines, for example the blade problems Suzlon experienced in US with their S88 turbine. Therefore operational experience and financial strength is needed.



02.09.2010

Wind offers competitive cost of (un-subsidised) electricity

Under auscpicious conditions, like sufficient wind resources, existing infrastructure and grid availability, new wind energy today is less expensive per kWh than new fossil fuel generation (based on future prices for coal, natural gas and fuel oil). This, combined with predictable future generation cost (no fuel, predictable O&M cost, and no future CO2 costs), makes wind power competitive. Still, limited subsidies are needed to generate sufficient demand.

Wind is a capital-intensive form of electricity and cost of capital represents the major part of a kWh produced. Since the early days of the wind industry, significant advances have been made to drive down the cost/Wp and thus cost of a kWh. The major factors in bringing down the costs have been efficiency improvements and increased size of the wind turbines. Since 2004/05, this development has been reversed and the cost of a wind turbine, measured in USD/Wp, has increased by approx. 20-30%. The main reason for this is increased prices of raw materials like steel, but increased margins for the manufacturers show that the higher demand has given opportunity to increase prices. Average cost in Europe and USA is 1-1.5 USD/Wp for a wind turbine.

In addition to the cost of the turbines, the main cost contributors are foundations (including other infrastructure costs), grid connection and O&M costs. Foundations and grid connection costs vary significantly from project to project depending on factors like ease of access and existing infrastructure. In some cases, new transmission lines connecting high-wind resource areas to the consumer are needed. This may very well be cost-effective, but high transmission costs may also offset the current cost advantage of wind generation. Typical total investment costs for a wind farm in main markets like Europe and USA is 1.5-2.5 USD/Wp, all included, see Exhibit 6-7.

Exhibit 6-7: Estimated wind farm project cost

Cost / W over time

-

1

2

3

4

5

1 101 201 301 401 501 601 701 801 901 1001 1101 1201 1301 1401 1501 1601Observations

USD

/ W

25 obs.' M Avg.USD / W

Source: Berkeley Lab database, NREL, DnB NOR Markets



02.09.2010

Note: Second graph shows data for 1645 observations starting 1 Jan 2000

Given the maturity of the industry and the fact that the sheer size of mass-produced turbines is closing the practical limit for land transportation, we do not expect significant cost reduction for turbines onshore going forward. US Department of Energy assumes only a 10% reduction in capital costs over the next 22 years in their 20% wind in 2030 scenario.

For offshore turbines, it is a different story since the market is still immature and cost reductions are therefore more likely. It is easy to draw the parallel to the development of onshore wind the last two decades where increasing size of the turbine was an important factor in bringing down costs onshore. Road transportation limits do not apply offshore, and we expect larger turbines to bring down offshore costs over the next decade. This is already ongoing and seen through the large turbines under development, e.g. Clippers 10 MW turbine designed for offshore installations.

Based on the above cost estimates, the cost of electricity can be calculated. In order to compare with other energy sources like fossil and nuclear, we base our calculation on LCOE approach. See Exhibit 6-8 for onshore and offshore wind costs compared to other sources of energy.

Exhibit 6-8: Cost of new electricity production from onshore wind

Levelised Cost of Energy (LCOE)Discounted lifetime costs over lifetime production

59

13

3 5 7

14

5 44 437 9 8

11 12

24

6 6 7 811

25

14 13

2116

47

11 1013 14

18

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10

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20

30

40

50

60

Nucl

ear

Coal

Nat

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Nat

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(CCS)

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Hyd

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Low-high range

Base case


Key Markets: Europe, The Americas and Asia/Pacific

2009 was yet another record year for the wind sector and 37 GW of wind power capacity was installed globally. The cumulative installed capacity of wind turbines worldwide reached more than 159 GWp, up from 121 GWp in 2008. Assuming a capacity factor of 30%, the new installations in 2009 will produce close to 100 TWh annually, corresponding to 12-15 nuclear power plants. Hence, the wind industry has grown to make a significant contribution to world electricity demand. Exhibit 6-9 below shows our assumptions for growth in the various regions of the world.

• Europe



02.09.2010

Wind power has experienced dramatic growth over the last years, and there are five countries (Denmark, Spain, Portugal, Ireland and Germany), which had more than 5% of their electricity demand covered by wind energy.

Exhibit 6-9: Annual and accumulated installations in Europe

The large variability in yearly growth rates illustrates the stop-start nature of national wind turbine markets

Accumulated Installations (MW)Europe 2008 2009 Growth 2008 2009 Growth

Austria 14 0 -100 % 997 997 0 %Belgium 104 149 43 % 401 550 37 %Czech Rep. 34 0 -100 % 148 148 0 %Denmark 77 334 334 % 3,165 3,499 11 %Finland 33 0 -100 % 146 146 0 %France 950 1,088 15 % 3,421 4,509 32 %Germany 1,665 1,917 15 % 23,942 25,859 8 %Greece 114 102 -11 % 1,101 1,203 9 %Hungary 62 0 -100 % 127 127 0 %Ireland 208 233 12 % 1,015 1,248 23 %Italy 1,010 1,114 10 % 3,731 4,845 30 %Netherlands 500 39 -92 % 2,245 2,284 2 %Norway 102 0 -100 % 457 457 0 %Poland 196 181 -8 % 509 690 36 %Portugal 712 673 -5 % 2,862 3,535 24 %Spain 1,609 2,459 53 % 16,323 18,782 15 %Sweden 236 512 117 % 1,025 1,537 50 %Turkey 286 343 20 % 511 854 67 %UK 836 1,077 29 % 3,230 4,307 33 %Other Europe 129 304 136 % 183 487 166 %

Total 8,877 10,525 19 % 65,539 76,064 16 %

Annual (MW)

Source: GWEC

Wind energy today produces around 4-5% of EU's electricity demand, a number that will increase the coming years. Since 2000, around 30% of all new installed electricity generating capacity in the EU has been wind power. The only energy source exceeding wind in new generating capacity in that period is natural gas, see Exhibit 6-10.

Exhibit 6-10: Net increase/decrease in power capacity EU 2000-2008

83.7

55.3

8.82.9 1.9 1.2

-6.25-11.2 -1320

20

40

60

80

100

Naturalgas

Wind Solar Hydro Biomass Other Nuclear Coal Fuel oil

New

cap

acity

(GW

)

Sources: EWEA

Spain was the largest European market in 2009 with 2.5 GW of new capacity. The Spanish market has become a market with one of the highest penetration of wind power in the world with approx. 12% of electricity consumption. The supply of wind turbines is dominated by local players, with Gamesa, Acciona and Ecotecnia accounting for more than 60% of the market.

Wind power generates 4% of EU's electricity



02.09.2010

Germany was the second-largest European market in 2009 with 1.9 GW of new capacity, and the largest country in Europe measured by installed capacity (26GW). New capacity has trended downwards the last years, but increased slightly in 2009. Close to 8% of electricity production from wind is among the highest in the world.

Outlook – Based on the targets regarding usage of renewable energy in Europe (EU), the market is expected to show a CAGR above 10% the next 10 years. Annual installations are expected to grow 2-8% compared to 2009, since annual installations are high compared to installed base.

The most important driver for wind in Europe the next decade is EU's renewable energy goal for 2020. Each member country must submit plans showing how they will reach the individual goals. In the table below, some of the wind installation targets are shown.

Exhibit 6-11: National renewable energy plans (submitted)

Sources: Vestas

• The Americas

The Americas in total installed 11.5 GW of wind power in 2009 (28% growth compared to 2008), see Exhibit 6-12. The region is completely dominated by the US with 9.9 GW, representing close to 90% of new installations. The US market grew 19% compared to 2008 and installed capacity is more than 35 GW. Canada and Brazil experienced strong installation growth in 2009.

Exhibit 6-12: Annual and accumulated installations in the Americas

Accumulated Installations (MW)

Americas 2008 2009 Growth 2008 2009 GrowthArgentina 2 2 0 % 31 33 6 %Brazil 94 264 181 % 341 605 77 %Canada 526 950 81 % 2,371 3,321 40 %Costa Rica 0 0 0 % 70 70 0 %Mexico 0 0 0 % 87 87 0 %USA 8,358 9,922 19 % 25,237 35,159 39 %Other 0 356 0 % 100 456 356 %

Total 8,980 11,494 28 % 27,708 38,936 41 %

Annual (MW)

Source: GWEC



02.09.2010

Outlook – USA has significant wind resources that can be utilized at a cost per kWh lower than USD 0.10. Continued good incentives are expected to drive demand the coming years. Short-term, we see a declining market in 2010 and growth to return in 2011. Brazil and Canada are also expected to be growth markets the next five years.

We expect solid demand in the US in 2010-12 for the three main reasons below:

1. Incentives. The incentives for wind were strengthened by the Obama administration in 2009 and what was previously PTC for one year at a time will now last until 2012.

2. Regulatory issues on state level. States have set requirements

regarding the share of renewable energy (RPS). When no restriction applies to the type of renewable, wind is the clear option due to the low cost of electricity.

3. Solid economics. As shown above, wind power is today able to

compete with traditional sources of electricity production when capital expenses are included. Adding the uncertainty regarding future costs related to fuel prices and CO2 emission, wind appears as an attractive alternative.

The current installed based in the US is shown in Exhibit 6-13.

Exhibit 6-13: Wind installations in the United States

Source: US DoE, NREL, DnB NOR Markets

If we look at the long-term potential in the USA, it is big. In a report from US Department of Energy (March 2008), it is estimated that USA has more than 8,000 GW of available land-based wind resources that can be captured economically, see Exhibit 6-14.



02.09.2010

Exhibit 6-14: US supply curve for wind energy (excl. connection)

Costs of the wind plant only, excluding transmission/integration costs and the PTC

Source: US Department of Energy

The above cost estimates do not include transmission and integration costs. However, electricity must be transmitted from generated site using the existing or new transmission lines where necessary. If these costs are included, US Department of Energy estimates that 600 GW of wind resources could be utilized for USDc 6 to 10 per kWh, see Exhibit 6-15. Note that these estimates do not include incentives, e.g. the PTC would reduce the cost by USDc 2 per kWh.

With these costs, wind is competitive with other sources of energy, including coal and gas, and is expected to give strong growth in the USA for years.

Exhibit 6-15: US supply curve for wind energy (incl. connection)

Energy costs including connection to existing transmission grid capacity

Source: US Department of Energy



02.09.2010

Canada has some of the best wind resources in the world and with a high share of hydropower today, the country is expected to increase wind power significantly the coming years. There exists incentives on both federal and provincial.

• Asia/Pacific

Asia/Pacific grew 68% in 2009 and 15.2W of wind power were installed, see Exhibit 6-16.

Exhibit 6-16: Annual and accumulated installations in Asia/Pasific

Accumulated Installations (MW)Asia/Pacific 2008 2009 Growth 2008 2009 Growth

China 6,300 13,000 106 % 12,175 25,175 107 %India 1,800 1,271 -29 % 9,645 10,916 13 %Japan 346 178 -49 % 2,027 2,205 9 %Australia 482 406 -16 % 1,454 1,860 28 %New Zealand 4 171 4175 % 325 496 53 %Taiwan 81 78 -4 % 305 383 26 %Other Asia 52 112 115 % 874 986 13 %

Total 9,065 15,216 68 % 26,805 42,021 57 %

Annual (MW)

Source: GWEC

This region is dominated by China and India, representing more than 90% of new installations. China more than doubled both new installations and accumulated capacity. Australia experienced a slight decline, while New Zealand had a boost in installations.

At the end of 2009, China's installed base of wind power totalled more than 25 GW, making China the third largest producer of wind power behind Germany and USA.

Outlook – China has a significant potential for wind power, and will dominate the regions growth the next years. In addition, we expect Australia to contribute to the regions growth in annual installations. China has significant potential for wind energy and the government is driving the development to reduce the use of fossil fuel. The Chinese government has an overall goal of generating 15 percent of its energy needs from renewable sources by 2020. Short-term it is possible that the installations will almost double again in 2009, if so the sixth year in a row with close to or more than 100% increase.

Medium- and long-term, the market is more difficult to estimates. The official goal is 100 GW by 2020, but previous targets have been surpassed before scheduled. It seems clear that China will have the largest installed wind capacity within a few years.

India, currently having the fifth largest installed base of wind turbines, is expected to continue to grow the coming years. The official target is to install 2 GW per year, although 2009 was significantly below this. Over the next years, India's demand for electricity will grow and wind will be an important contributor to increase supply.

• Rest of World

In 2009, the market in RoW increased 77%, see Exhibit 6-17. This region is comprised mainly by Egypt, Marocco, and Tunisia.



02.09.2010

Exhibit 6-17: Annual and accumulated installations in RoW

Accumulated Installations (MW)RoW 2008 2009 Growth 2008 2009 Growth

Egypt 55 65 18 % 365 430 18 %Morocco 10 119 1090 % 134 253 89 %Tunisia 34 34 0 % 54 88 63 %Other 31 12 -61 % 116 128 10 %

Total 130 230 77 % 669 899 34 %

Annual (MW)

Source: GWEC

Outlook – The markets in RoW is not expected to contribute significantly to market growth the next 5 years.

Egypt has very good wind resources and will most likely increase installations the coming years. The official goal is to cover 20% of electricity demand through wind power, corresponding to around 7-8 GW of installed capacity. Other countries that have potential and is actively targeting use of wind power is Morocco and South Africa.

• Offshore

Onshore wind is by far the largest market for wind turbines today, and will remain so for several years. Despite the fact that onshore locations in general are less windy than offshore sites and have larger visual impact on the environment, the high capital expenses and construction risk are significantly lower compared to offshore installations.

The first offshore wind farm was constructed in Denmark (1991), and since then more than 2.5 GW of offshore wind has been installed in Sweden, Denmark, the Republic of Ireland, the Netherlands and the United Kingdom. The offshore installations in 2008 and 2009 are shown in Exhibit 6-18.

Exhibit 6-18: Annual and accumulated installations offshore

Accumulated Installations (MW)Offshore 2008 2009 2008 2009 Growth

Denmark 0 224 n.m. 398 622 0 %Sweden 0 0 n.m. 133 133 0 %The Netherland 120 0 -100 % 247 247 94 %UK 194 768 296 % 588 1,356 49 %Other 0 165 n.m. 25 190 0 %

Total 344 1,157 236 % 1,421 2,578 32 %

Annual (MW)

Source: GWEC, BTM Consult

Outlook – Offshore has a significant long-term potential, but the next five years it will only be around 3-5% of the total market for wind turbines

The next five years, offshore will remain a niche market compared to onshore. Offshore wind farms offer numerous advantages, like windier sites, larger turbines, nearly unlimited available sites, and small environmental conflicts. However, the capital and operational costs are significantly higher and subsidies are needed.

UK has the most aggressive offshore wind strategy in the world. The British government has already, through the Crown Estate, carried out three rounds of bids resulting in more than 48 GW of offshore wind farms in either operation, construction or planning, see Exhibit 6-19. Last year the government opened the third round, calling for bids to build up to 25 GW of offshore wind turbines by 2020.



02.09.2010

Exhibit 6-19: Installed and planned offshore wind capacity in UK

Wind farm Status Turbines Size (MW) MWBarrow Operational 30 3 90Beatrice Operational 2 5 10Blyth Offshore Operational 2 2 4Burbo Bank Operational 25 3.6 90Kentish Flats Operational 30 3 90Lynn & Inner Dowsing Operational 54 3.6 194North Hoyle Operational 30 2 60Scroby Sands Operational 30 2 60Gunfleet Sands I Operational 30 3.6 108Gunfleet Sands II Operational 18 3.6 65Rhyl Flats Operational 25 3.6 90Robin Rigg Operational 60 3 180Greater Gabbard Under construction 140 3.6 504Ormonde Under construction 30 5 150Sheringham Shoal Under construction 88 3.6 315Thanet Under construction 83 3 300Walney I Under construction 42 3.6 184Gwynt y Mor Approved 250 0 576Lincs Approved 41 0 270London Array Approved 341 3 1000Teeside Approved 30 3 90Walney II Approved 51 3.6 184West of Duddon Sands Approved 160 3.6 500Docking Shoal Submitted (S36) 100 0 540Dudgeon Submitted (S36) 168 0 560Humber Gateway Submitted (S36) 83 3.6 300Race Bank Submitted (S36) 88 0 620Westernmost Rough Submitted (S36) 80 3 240Triton Knoll Site awarded 240 5 1200Galloper Wind Farm Extensions round 1 & 2 504Kentish Flats 2 Extensions round 1 & 2 51Thanet 2 Extensions round 1 & 2 147Burbo Bank Extension Extensions round 1 & 2 234Walney Extension Extensions round 1 & 2 750Argyll Array Site awarded (Scotland) 1500Beatrice Site awarded (Scotland) 920Forth Array Site awarded (Scotland) 415Inch Cape Site awarded (Scotland) 905Islay Site awarded (Scotland) 680Kintyre Site awarded (Scotland) 378Neart na Gaoithe Site awarded (Scotland) 360Solway Firth Site awarded (Scotland) 300Wigtown Bay Site awarded (Scotland) 280Bristol Channel Round 3 1500Dogger Bank Round 3 9000Firth of Forth Round 3 3500Hastings Round 3 600Hornsea Round 3 4000Irish Sea Round 3 4200Moray Firth Round 3 1300Norfolk Round 3 7200West of Isle of Wight Round 3 900Total 48197

Source: BWEA, DnB NOR Markets

The total capacity from offshore installations is still very small compared to onshore, but it is expected to grow significantly over the next decade. The last 12 years' growth rate has on average been 64%. Higher costs and temporally capacity problems in the manufacturing stages and in availability of installation vessels causes some delays at present. Still several projects in both UK, Denmark will be finished with in the next 2-3 years, and several larger projects are being planned both in Europe and Canada. Offshore wind farms have long lead-time from initiation to start of operation, typically several years. Exhibit 6-20 shows BTM Consult's estimates for 2010-2012.



02.09.2010

Exhibit 6-20: Planned offshore capacity by markets

Accumulated AccumulatedOffshore 2008 2009 2010 2011 2012 2012 Growth

Denmark 398 224 200 0 400 1,222 207 %Sweden 133 0 0 150 300 583 338 %The Netherl 247 0 0 0 0 247 0 %UK 588 768 1,245 250 1,480 4,331 637 %Belgium 30 0 330 0 0 360 n.m.USA 0 0 0 420 0 420 n.m.Germany 0 60 0 452 0 512 n.m.Finland 0 0 0 0 0 0 n.m.France 0 105 0 0 0 105 n.m.Asia 0 0 50 100 200 350 n.m.Ireland 25 0 0 0 0 25 0 %

Total 1,421 1,157 1,825 1,372 2,380 8,155 474 %

Annual Installations (MW)

Source: BTM Consult

The European Union has set an energy target of a 20% renewable energy share by 2020, implying that approximately 34% of the electricity supply is provided by renewable sources. Furthermore, it is estimated that wind energy could cover approximately 12% of the total electricity demand inside the EU in 2020. The European Wind Energy Association (EWEA) have stated that this target cannot be met without large-scale offshore wind farms and estimate that almost one third of the 12% will come from offshore installations.

All existing and planned offshore wind farms today are based on a construction that is placed on the sea bed. These designs need shallow water with depths typically less than 30 m. I many regions, locations outside the visibility zone (20-25 km) are considered in order to eliminate conflicts with people living near the coast. Water depth outside the visibility zone is often significant and this has sparked development efforts to try to develop floating wind turbines.

If the floating designs succeed and become cost competitive, the available wind resources in the world increase several times. As an example, Enova made a study of the Norwegian wind resources, showing that in water depths below 30 meters, there is an estimated potential of 125 TWh annual production. The same study gave a potential 12 970 TWh in water depths between 60 and 300 meter and outside 20 km from the coastline. In comparison, Europe consumed approx. 3 300 TWh of electricity in 2005…

There are several concepts for floating wind turbines under development and Hywind (StatoilHydro) last summer became the worlds first full-scale floating wind turbine, see Exhibit 6-21. It is 2.3 MW and designed for water depths between 120 and 700 meters. The construction was finalized last summer and the trial period will be two years.

Exhibit 6-21: Hywind, world's first floating wind turbine

Hywind concept

Hywind during towing

Source: Companies



02.09.2010

7. Electrical cars – a (small) piece of the puzzle

As the production of electricity from solar and wind increases as a portion of total electricity production, new challenges arise with respect to 1) supply stability and 2) demand/supply mismatch during the day and over the seasons. If renewable energy is to grow above and beyond a 10%1 share of electricity production, both of these factors warrant a significant build-out of storage capacity. In Norway and other countries blessed with generous hydro electric resources, pumped storage is used for storage purposes, but most countries do not have that opportunity or at least such available resources are insufficient or are situated too far away from where the electricity is produced and/or consumed. Sending electricity back and forth over great distances increases the cost of transmission grid, and creates electricity losses.

In this respect, since most cars including electric ones are typically parked most of the day, they can function as distributed energy storage units that can support not only the home, but also the electrical grid. The cars can be charged over night when power demand is low and utilities have available capacity. This, however, requires a smart grid2 that can , a two way energy and information exchange. The American government has set up several funds for development and installation of smart meters and transformers. Europe will probably not have a fully established smart grid before 2020- 2030.

a pool of electric vehicles would create a "sink" for surplus electricity. EVs are therefore an important piece of the renewable energy "puzzle".

EVs are soon becoming cost competitive

Electric vehicles (EVs) have been available since the 1800s, but were effectively out-competed by the now common internal-combustion engine. As a matter of fact, in the very early 1900s, out of 34,000 registered American cars, around 20% ran on gasoline, and the remaining 80% was split evenly between steam and electricity3. Sales of electric cars reached a peak in 1912, after which they were out-competed by ICE cars sold at half the price.

Exhibit 7-1: EVs then and now

Thomas Edison and EV, 1913

Nissan Leaf, 2010

1 10% is a general rule-of-thumb, but the higher the daily and seasonal mismatch, the lower portion of renewable energy is possible without more storage. 2 How a smart grid functions, see 3 We have not been able to independently verify this information.



02.09.2010

In northern regions, heating will reduce the driving range of EVs since energy needs to be pulled from the battery in absence of waste heat from engine

Source: Smithsonian Institute, Opel

Nissan Leaf range of 160km per charge. Speed up to 140km/h, 5 passengers, 5 doors1.

Battery cost is the key issue for (PH)EVs

The challenge with electric cars is today in essence the same as a hundred years ago: Cost and weight of batteries, along with limited travel range. The Wall Street Journal reported in May 20102 that Nissan's cost for the Leaf's battery was USD 750/kWh, or USD 18,000 for the total 24 kWh battery. That means the battery cost equals 55% of the car's total cost. The CEO of leading battery manufacturer A123 Systams (AONE US) in a webcast presentation noted that a battery cost of USD 450-500/kWh was achievable by year-end 2010. That could shave USD 7,200 off the cost of a 24 kWh battery, equivalent to the tax credit the Nissan Leaf is currently applicable for.

Exhibit 7-2 below breaks down the economics of an EV versus an ICE vehicle of similar size.

Exhibit 7-2: US car costs, 2011e

$450/kWh instead of current $750/kWh reduces battery cost by $7,200, equivalent to the tax credit the car is currently applicable for.

Cost and emission differenceScenario USA 2011

Fuel efficiency 0.15 kWh/km 30 MPGCost of fuel 0.15 USD/kWh 3 USD/GallonFuel cost per distance 0.023 USD/km 0.062 USD/km

EV vs ICE 64 % ...cheaper

Assumed annual driving length 20,000 km/Year 20,000 km/YearMaintenance cost 0.09 USD/km 0.05 USD/kmA: Annual operational cost 2,250 USD/year 2,243 USD/year

EV vs ICE 0.3 % ...more expensive

Price of Car 33,000 USD 28,000 USDBattery capacity 24 kWh - n.a.

Stated battery cost 750 USD/kWh - n.a.Stated battery cost 18,000 kWh - n.a.Battery cost % of car price 55 % kWh - n.a.

Tax Credit * -7,500 USD 0 USDLife time 10 Years 10 YearsB: Annual depreciation 1,750 USD 1,922 USD

EV vs ICE 8.9 % ...cheaper

C: Total annual cost (A+B) 4,000 USD 4,165 USDEV vs ICE 4.0 % ...cheaper

Total CO2 Emissions 88 g/km 148 g/kmEV vs ICE 40 % …less

(ICE)Honda AccordNissan Leaf

(EV)

Source: EAA Europe, Nissan, Honda

So with lower battery cost, it is quite clear that EVs will become increasingly economically attractive to consumers. Another relevant question is whether these vehicles can deliver sufficient mileage to take the owners where the want and need to go.

According to the US Bureau of Transit Statistics, 95% of US car drivers travel less than 190km per day (often 50/50 morning and evening) and 50% travel less then 40km per day. This is shown by Exhibit 7-3 below. European drivers travel on average between 30 and 50km per day. Most of the biggest EV models penetrating the market in the next few years have a range between 140km and 400km. This indicates that when these new models reach the market, the range should not be a limiting factor to sales.

1 Source: Nissan 2 http://online.wsj.com/article/SB10001424052748704635204575242382820806878.html



02.09.2010

In the northern region where temperatures are lower, heating is going to remain an Achilles' heel for EV. Electric motors generate very little waste heat like ICEs do, so energy for heating needs to be pulled from the battery, reducing the driving range correspondingly.

Exhibit 7-3: US driving patterns

50% of US cars travel 25 miles of less per day

95% of US cars travel less than 120 miles per day

PHEVs can compete here…

Source: US Bureau of Transit Statistics, A123, DnB NOR Markets Research

Impact on electricity demand

The Obama administration has declared a goal of putting 1 million PHEVs on the roads of America by 2015. Germany has also set a goal of 1 million EVs and PHEVs on the German roads by 2020. These numbers are not particularly high compared to the 3.7 million cars sold in Germany this year alone, and compared to the ~140 million1 registered cars in the US today.

Nissan estimates electric car demand to be around 10% of total demand in 2020. From 1999 to 2009 the globally yearly production of cars has increased from 40 million to 50 million. If this trend continues, there will be produced 60 million cars in total in 2020. If Nissan is right, this implies a total world demand for new electrical cars in 2020 to be 6 million, and an estimated 15 to 20 million EVs sold between 2010 and 2020. The resulting increase in electricity demand is between 0.1% and 0.4% of total generated electricity.

Exhibit 7-4: Electricity demand impact from more (PH)EVs

Total # cars 140,000,000 54,000,000 25,000,000(PH)EV penetration 0.7 % 1.9 % 10.0 %(PH)EVs 1,000,000 1,000,000 2,500,000Average fuel efficiency kWh/km 0.15 0.15 0.15Assumed annual driving length km/year 20,000 20,000 20,000

A: Electricity demand generated TWh 3.0 3.0 7.5

B: Total electricity (2015e) TWh 4,410 700 24,890- A share of B 0.07 % 0.43 % 0.03 %C: Total renewable electricity * TWh 330 140 1,460- A share of C 0.91 % 2.14 % 0.51 %

* Wind and solar

Nissan 10% estimate 2020

Germangoal 2020

Obama US goal 2015

Source: DnB Nor Markets Equity Research

1 Excluding buses and trucks



02.09.2010

1 to 2 percent increase of renewable electricity generation demand by 2020 due to growth in demand for electrical powered cars.

Clearly, for the penetration of electrical cars in the market to make a significant contribution to reduction of climate gas emissions, a simultaneous increase in demand for renewable electricity is needed. If these goals are met within the timeframes set, renewable electricity demand should increase by 1 to 2 percent due to the introduction of the electrical powered car to the transportation market.

While the adoption of electric vehicles until recently has been assigned to early adaptors, the sheer number of new models about to roll out of producers' factories the next months is going to change that scenery. Exhibit 7-5 below lists some of the models that are on the way.

Exhibit 7-5: New EV and PHEV models

Source: EAA Europe, Nissan, Honda

Model Stats Available/Target IntroEV

Testla RoadsterSeats: 2Range: 390kmBattery: Lithium ion

Currently available in U.S. & Europe

Nissan LEAFSeats: 5Range: 160kmBattery: Lithium ion Fall 2010

Mitsubishi i-MiEVSeats: 4Range: 140kmBattery: Lithium ion

2009 Japan & UK2011 U.S.2011 Europe

Ford Focus EVSeats: 4Range: 160kmBattery: Lithium ion

Limited in UK and U.S.On sale in U.S. 2011

Th!nk City EVSeats: 2+2Range: 180kmBattery: Lithium ion

Available in Norway2010 U.S.

Testla Model SSeats: 4Range: 400kmBattery: Lithium ion 2011 U.S. & Europe

VW E-Up!Seats: 4Range: 130kmBattery: Lithium ion 2013 U.S. & Germany

PHEV

Chevrolet Volt PHEVSeats: 4AER: 60kmBattery: Lithium ion Fall 2010 U.S.

Fisker Karma PHEVSeats: 4AER: 70kmBattery: Lithium ion Fall 2010 U.S.

Toyota Prius Plug-inSeats: 4AER: 30kmBattery: Lithium ion

Test fleet 2010Mass production 2012



02.09.2010

8. Valuation Summary

Share price development

Exhibit 8-1: Solar share price development since 2009

Start of 2009 to date:

(Return 02.01.2009 - 01.09.2010)

REC (NOK) -68 %SolarWorld (EUR) -44 %Q-Cells (EUR) -81 %First Solar (USD) -16 %SunTech Power (USD) -40 %SunPower (USD) -74 %

Start of 2010 to date

(Return 04.01.2010 - 01.09.2010)

REC (NOK) -55 %SolarWorld (EUR) -41 %Q-Cells (EUR) -54 %First Solar (USD) -6 %SunTech Power (USD) -55 %SunPower (USD) -55 %

0

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8.20

10

Indexed to 100(fixed f/x

REC (NOK) First Solar (USD) Q-Cells (EUR)

SolarWorld (EUR) SunPower (USD) SunTech Power (USD)

Exhibit 8-2: Wind share price development since 2009

Start of 2009 to date:

(Return 02.01.2009 - 01.09.2010)

VESTAS (DKK) -32 %Nordex (EUR) -32 %Gamesa (EUR) -60 %Suzlon (INR) -28 %

Start of 2010 to date

(Return 04.01.2010 - 01.09.2010)

VESTAS (DKK) -32 %Nordex (EUR) -32 %Gamesa (EUR) -55 %Suzlon (INR) -48 %

0

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08.0

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Indexed to 100(fixed f/x)

VESTAS (DKK) Gamesa (EUR) Nordex (EUR) Suzlon (INR)

Source: Bloomberg




02.09.2010

Historical 1-year forward multiples

Exhibit 8-3: First Solar – Historical 1-year fwd multiples

Last, Historical averages31.08.10 2010 2009 2008

EV/EBITDA 10.2x 11.1x 13.6x 34.0xEV/EBIT 12.2x 13.5x 16.0x 40.0xP/E 15.9x 17.2x 19.8x 56.3xAverage 12.8x 14.0x 16.5x 43.4x

2007

56.4x77.3x137x

90.3x

Last vs average2010 2009 2008

EV/EBITDA -8 % -25 % -70 %EV/EBIT -9 % -23 % -69 %P/E -8 % -19 % -72 %Average -8 % -23 % -70 %

2007

-82 %-84 %-88 %-85 %

-

20x

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120x

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160x

jul 0

7

sep

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mai

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0

1-year fwd x

EV/EBITDA EV/EBIT P/E

Source: Factset

Exhibit 8-4: Q-Cells – Historical 1-year fwd multiples



2007 2006

21.0x 17.2x25.6x 20.1x38.8x 32.9x28.4x 23.4x


EV/EBITDA -28 % -34 % -54 %EV/EBIT -29 % -13 % 9 %P/E -70 % 176 % 117 %Average -42 % 43 % 24 %

2007 2006

-72 % -65 %-32 % -13 %26 % 49 %

-26 % -10 %

-

5x

10x

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35x

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nov

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mai

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nov

09

feb

10

mai

10

aug

10

1-year fwd x


Source: Factset



02.09.2010

Exhibit 8-5: REC – Historical 1-year fwd multiples



2007

23.0x27.4x39.5x30.0x


EV/EBITDA -24 % -20 % -19 %EV/EBIT -27 % 73 % 78 %P/E -60 % 68 % 76 %Average -37 % 40 % 45 %

2007

-71 %-21 %-39 %-44 %

-

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

mai

06

jul 0

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sep

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jan

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ar 0

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mai

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sep

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nov

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jan

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nov

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10m

ar 1

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mai

10

jul 1

0

1-year fwd x


Source: Factset

Exhibit 8-6: SolarWorld – Historical 1-year fwd multiples



2007 2006 2005

14.7x 14.3x 10.5x18.8x 17.6x 14.6x30.7x 31.2x 25.4x21.4x 21.0x 16.8x


EV/EBITDA -12 % -1 % -33 %EV/EBIT -15 % 14 % -16 %P/E -14 % 12 % -17 %Average -14 % 8 % -22 %

2007 2006 2005

-57 % -56 % -40 %-46 % -42 % -31 %-52 % -53 % -42 %-52 % -50 % -37 %

-

5x

10x

15x

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25x

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des

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jun

09

sep

09

des

09

mar

10

jun

10

1-year fwd x


Source: Factset



02.09.2010

Exhibit 8-7: SunPower – Historical 1-year fwd multiples



2007

12.3x15.2x47.8x25.1x



2007

-71 %-65 %-87 %-74 %

-

5x

10x

15x

20x

25x

30x

35x

40x

des

06

feb

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apr 0

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okt 0

9

des

09

feb

10

apr 1

0

jun

10

aug

10

1-year fwd x


Source: Factset

Exhibit 8-8: Suntech Power – Historical 1-year fwd multiples



200724.3x26.6x30.4x27.1x



2007

-74 %-64 %-67 %-68 %

-

5x

10x

15x

20x

25x

30x

35x

40x

des

06

feb

07

apr 0

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09

feb

10

apr 1

0

jun

10

aug

10

1-year fwd x


Source: Factset



02.09.2010

Exhibit 8-9: Vestas – Historical 1-year fwd multiples



2007 2006 2005 2004 2003

14.4x 10.2x 8.9x 7.1x 6.1x19.7x 16.2x 17.5x 12.4x 9.3x28.9x 24.1x 26.0x 16.8x 13.9x21.0x 16.8x 17.5x 12.1x 9.8x


EV/EBITDA -10 % -24 % -46 %EV/EBIT 1 % -10 % -36 %P/E 0 % -7 % -33 %Average -3 % -14 % -38 %

2007 2006 2005 2004 2003

-52 % -32 % -23 % -3 % 12 %-46 % -35 % -40 % -15 % 13 %-47 % -36 % -41 % -9 % 10 %-49 % -35 % -35 % -9 % 12 %

-

10x

20x

30x

40x

50x

60x

70x

80x

mar

99

sep

99

mar

00

sep

00

mar

01

sep

01

mar

02

sep

02

mar

03

sep

03

mar

04

sep

04

mar

05

sep

05

mar

06

sep

06

mar

07

sep

07

mar

08

sep

08

mar

09

sep

09

mar

10

1-year fwd x


Source: Factset



02.09.2010

Peer group multiples

Exhibit 8-10: Wind peer group multiples

EV / EBITDA EV / EBIT P/EName Price 2010 2011 2012 2010 2011 2012 2010 2011 2012

Clipper Windpower PLC GB GBP 43.75 114 n.a. 3.9x 3.1x n.a. 8.6x 4.7x n.a. 9.4x 5.4xGamesa ES EUR 5.30 1,302 5.4x 4.2x 3.7x 13.5x 9.3x 7.5x 16.6x 11.8x 8.5xHansen Transmissions BE GBP 57.50 466 8.8x 5.8x 4.5x 38.0x 11.2x 6.7x high 13.9x 7.7xIberdrola Renovables ES EUR 2.58 10,902 10.4x 9.7x 8.7x 19.7x 17.9x 15.9x 24.4x 21.5x 17.5xNordex SE DE EUR 7.32 489 6.7x 5.1x 3.7x 9.7x 7.6x 5.7x 17.8x 13.1x 9.2xREpower Systems AG DE EUR 104.90 964 6.9x 6.1x 5.1x 8.3x 7.8x 6.4x 15.2x 13.3x 12.4xSuzlon Energy Ltd. IN INR 46.30 1,352 12.3x 9.0x 6.3x 19.4x 12.5x 8.1x n.a. 15.2x 12.9xTERNA S.p.A. IT EUR 3.17 6,359 9.8x 9.8x 9.8x 14.4x 14.7x 15.0x 15.1x 15.8x 15.9xVestas Wind Systems DK DKK 219.20 5,998 10.6x 5.8x 4.7x 19.9x 8.5x 6.4x 29.4x 12.3x 9.2xXinjiang Goldwind CN CNY 18.84 4,878 16.0x 12.6x 10.9x 16.2x 12.5x 10.4x 19.6x 15.7x 14.0xMedian 1,327 9.8x 6.0x 4.9x 16.2x 10.2x 7.1x 17.8x 13.6x 10.8x

Source: Factset, DnB NOR Markets estimates

Data as of 31.08.2010

Ctry. Curr.MCap.

(EURm)



02.09.2010

Exhibit 8-11: Solar peer group multiples

EV / EBITDA EV / EBIT P/EName Price 2010 2011 2012 2010 2011 2012 2010 2011 2012Integrated GroupsFirst Solar Inc. USA USD 127.85 8,606 11.6x 9.6x 7.1x 14.1x 11.5x 8.6x 17.3x 15.3x 12.5xRenewable Energy Corp. ASA NOR NOK 16.26 2,027 9.6x 5.7x 4.7x 203.2x 14.8x 10.7x 35.6x 20.8x 13.8xSolarWorld AG GER EUR 8.97 1,003 6.1x 6.4x 5.7x 9.8x 10.3x 9.2x 15.2x 14.5x 11.4xTrina Solar CHN USD 25.78 1,577 6.0x 6.1x 5.1x 6.1x 6.6x 6.0x 9.3x 8.8x 7.9xYingli Solar CHN USD 11.13 1,301 5.3x 5.3x 4.8x 6.7x 6.9x 7.0x 12.0x 9.8x 10.2xPolysilicon & WafersGCL-Poly CHN HKD 1.80 2,817 7.8x 6.5x 5.7x 11.1x 10.2x 7.7x 12.5x 10.5x 9.1xLDK Solar CHN USD 6.81 705 6.3x 6.5x 5.7x 9.5x 11.3x 13.1x 6.5x 9.6x 7.2xMEMC USA USD 10.29 1,841 8.1x 5.0x 4.4x 19.9x 8.0x 7.0x 22.9x 9.9x 6.9xMitsubishi Materials JAP JPY 222.00 2,735 9.4x 8.9x 8.4x 23.8x 18.5x 16.5x 25.5x 9.1x 8.2xOCI Co. Ltd. KOR KRW 372k 5,587 10.9x 8.7x 8.1x 14.6x 12.4x 10.5x 16.5x 14.4x 13.0xPV Crystalox Solar PLC GBR GBP 56.00 282 5.1x 4.5x 5.1x 7.3x 6.0x 4.7x 13.3x 9.7x 10.8xReneSola Ltd. CHN GBP 281.75 589 5.7x 5.8x 4.7x 6.5x 7.6x 6.5x 6.2x 6.2x 6.2xTokuyama Corp. JAP JPY 407.00 1,334 3.0x 3.2x 3.6x 9.1x 9.0x 9.0x 15.9x 14.8x 13.5xWacker Chemie AG GER EUR 119.70 6,243 5.7x 5.1x 4.6x 9.4x 8.1x 7.2x 13.2x 11.0x 10.0xCells & ModulesCanadian Solar Inc. CHN USD 11.75 395 6.1x 6.9x 4.7x 7.0x 8.0x 6.5x 10.2x 8.0x 8.0xChina Sunergy Co. Ltd. ADS CHN USD 3.86 135 -0.4x -1.0x -1.4x -0.4x -1.3x -2.1x 5.8x 6.4x 5.8xE-Ton Solar TWN TWD 42.45 260 15.6x 10.5x 8.3x 36.2x 35.8x 29.4x n.a. 11.6x 19.3xEvergreen Solar Inc. USA USD 0.67 111 high 10.0x 4.5x n.a. n.a. 27.9x n.a. n.a. n.a.Gintech Energy Corp. TWN TWD 93.20 730 6.9x 7.6x 5.5x 11.6x 18.1x 6.9x 7.9x 11.5x 7.8xJA Solar CHN USD 6.15 819 4.2x 3.7x 3.9x 4.9x 4.5x 6.1x 6.2x 6.6x 8.5xMotech Industries Inc. TWN TWD 124.50 1,152 10.9x 9.0x 6.7x 17.0x 16.7x 12.6x 19.5x 18.9x 12.8xQ-Cells SE GER EUR 5.12 464 7.6x 5.4x 4.5x 29.0x 14.5x 9.7x n.a. 28.4x 11.4xSharp Corp. (JP Listing) JAP JPY 804 8,368 3.5x 3.2x 3.0x 11.9x 9.1x 8.3x 17.5x 13.1x 13.4xSolarfun CHN USD 10.48 479 4.0x 3.1x 1.7x 4.3x 3.5x 2.1x 5.9x 7.3x 5.0xSunPower USA USD 10.79 816 4.7x 3.1x 2.8x 7.3x 4.7x 3.5x 7.7x 5.9x 5.4xSuntech Power CHN USD 7.74 1,097 7.0x 6.1x 5.0x 10.7x 9.0x 8.5x 13.9x 8.9x 7.6xEquipment & BosApplied Materials Inc. USA USD 10.37 10,958 6.1x 4.3x 4.4x 7.2x 4.6x 5.0x 11.0x 8.2x 8.7xcentrotherm photovoltaics AG GER EUR 33.50 709 6.2x 5.6x 5.2x 8.5x 8.0x 7.4x 15.0x 13.8x 12.5xGT Solar International Inc. USA USD 7.73 912 4.6x 3.6x 2.9x 4.7x 3.5x 3.0x 8.2x 8.6x 9.1xManz Automation AG GER EUR 49.91 224 11.8x 6.5x 5.3x 28.4x 9.9x 8.2x 45.4x 15.9x 11.1xMeyer Burger Technology AG CHN CHF 27.95 983 11.7x 9.9x 7.9x 17.9x 12.7x 10.9x 23.1x 18.0x 14.9xPVA TePla AG GER EUR 4.38 95 5.6x 4.7x 4.1x 7.0x 5.7x 5.0x 11.5x 9.1x 8.4xRoth & Rau AG GER EUR 19.86 322 6.8x 5.3x 4.2x 10.2x 7.9x 6.7x 16.6x 12.9x 10.9xSMA Solar Technology AG GER EUR 85.30 2,960 5.4x 6.4x 5.6x 5.8x 7.0x 6.6x 9.2x 11.2x 11.3xDownstreamAkeena Solar Inc. USA USD 0.60 19 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.Conergy AG GER EUR 0.60 233 15.2x 8.7x 6.7x 74.3x 16.5x 9.9x n.a. 30.2x 12.0xEDP Renovaveis S/A (PT Listing) POR EUR 4.39 3,829 10.8x 9.4x 8.2x 24.9x 19.6x 17.3x 31.4x 24.4x 19.2xPhoenix Solar AG GER EUR 27.80 205 4.8x 4.6x 3.7x 4.9x 4.6x 3.7x 7.5x 7.6x 6.7xSolon SE GER EUR 3.58 62 19.1x 12.1x 10.4x 210.3x 27.6x 18.6x n.a. n.a. n.a.Other5N Plus Inc. CAN CAD 5.19 175 5.7x 4.1x 2.7x 5.9x 4.1x n.a. 11.8x 9.7x 8.7xSolar Millennium AG GER EUR 18.14 227 6.7x 4.4x 5.0x 7.1x 5.1x 5.5x 8.2x 6.4x 4.5x

Median, Integrated Groups 2,027 9.6x 6.4x 5.7x 14.1x 11.5x 9.2x 17.3x 15.3x 12.5xMedian, Polysilicon & Wafers 1,587 6.3x 5.8x 5.1x 9.5x 9.0x 7.7x 13.3x 9.9x 9.1xMedian, Cells & Modules 605 6.1x 5.8x 4.5x 10.7x 9.0x 7.6x 7.9x 8.9x 8.0xMedian, Equipment & Bos 810 6.2x 5.5x 4.8x 7.9x 7.5x 6.6x 13.3x 12.1x 11.0xMedian, Downstream 205 13.0x 9.0x 7.5x 49.6x 18.1x 13.6x 19.4x 24.4x 12.0xMedian, Other 201 6.2x 4.2x 3.8x 6.5x 4.6x 5.5x 10.0x 8.1x 6.6x

Source: Factset, DnB NOR Markets estimatesData as of 31.08.2010

Ctry. Curr.MCap.

(EURm)



02.09.2010

EPS revision tables

Exhibit 8-12: Wind EPS revisions

Price Mcap. # of Share Target prices 2010 EPS 2011 EPS 2012 EPS(local (EUR ana- change (local curr.) Revisions, since… Revisions, since… Revisions, since…

Name Curr. curr.) mill.) lysts 6 m 1 m 1 w Min Mean Max Min Mean Max 6 m 1 m 1 w Min Mean Max 6 m 1 m 1 w Min Mean Max 6 m 1 m 1 wPremium companiesClipper GBP 43.75 94 8 -65% 5% -1% 46 91 116 -12.36 -5.74 0.24 neg. neg. - -2.60 5.01 14.97 -72% -14% 8% 0.65 7.53 12.36 -17% 16% 14%EDF EUR 30.74 2,384 19 -19% -6% 2% 30 38 45 1.29 1.44 1.77 -5% 1% -1% 1.48 1.81 2.36 -3% 1% -1% 1.85 2.24 2.82 -17% 3% 2%Gamesa EUR 5.30 1,302 24 -42% -21% 0% 6 9 16 0.14 0.32 0.64 -46% -9% -1% 0.27 0.47 0.91 -44% -10% - 0.30 0.65 1.33 -35% -4% -Hansen GBP 57.50 385 11 -39% -16% 6% 64 92 138 -0.97 0.55 2.48 -94% -75% -50% 2.01 4.02 7.42 -51% -1% 1% 4.47 7.12 9.26 -39% -11% 1%Iberdrola EUR 2.58 10,902 25 -16% -4% 2% 3 4 4 0.10 0.11 0.11 -4% -0% -1% 0.10 0.12 0.15 -8% - - 0.11 0.14 0.18 -8% 5% 5%Nordex EUR 7.32 489 16 -18% -7% 4% 7 9 11 0.33 0.42 0.64 -14% 9% 2% 0.40 0.62 1.29 -33% -5% -3% 0.42 0.88 2.16 -8% -9% -6%REPower EUR 104.90 964 4 -16% -10% 5% 115 135 165 6.22 7.02 8.06 5% 2% -11% 6.66 8.19 10.04 -1% -7% -12% 7.96 8.44 8.93 pos. -15% -5%Suzlon Ener. INR 46.30 80,811 19 -36% -18% -8% 41 55 89 -7.88 -1.22 5.70 neg. neg. - -1.68 3.26 10.20 -56% -9% - 0.42 19.69 96.83 -94% -30% -30%Terna EUR 3.17 6,359 18 5% -1% 2% 3 3 4 0.18 0.21 0.22 13% - - 0.20 0.20 0.22 1% -0% - 0.17 0.20 0.21 6% 1% -Vestas DKK 219.20 44,652 35 -19% -21% -8% 200 296 440 -0.28 8.03 19.33 -60% -54% -1% 8.49 18.15 28.29 -26% -19% -3% 8.86 23.11 33.77 -11% -8% 1%Xinjiang CNY 18.84 42,202 5 -9% 2% -3% 19 24 33 0.78 0.96 1.11 20% -2% - 0.97 1.22 1.52 21% 6% - 1.14 1.41 1.81 43% - -Median -19% -7% 2% -5% -0% -1% -26% -5% - -14% -4% -

Source: JCF Quant, Company, DnB NOR Markets estimatesData as of 31.08.2010

Exhibit 8-13: Solar EPS revisions

Price Mcap. # of Share Target prices 2010 EPS 2011 EPS 2012 EPS(local (EUR ana- change (local curr.) Revisions, since… Revisions, since… Revisions, since…

Name Curr. curr.) mill.) lysts 6 m 1 m 1 w Min Mean Max Min Mean Max 6 m 1 m 1 w Min Mean Max 6 m 1 m 1 w Min Mean Max 6 m 1 m 1 wIntegrated GroupsFSLR US USD 127.9 8,606 41 21% 2% 2% 70 148 190 6.60 7.34 7.88 18% 0% - 4.89 8.10 9.30 9% 2% - 8.82 10.23 13.02 27% 3% -REC NO NOK 16.3 2,027 35 -8% -3% 4% 13 23 40 -1.12 0.47 2.56 pos. pos. - -0.80 0.67 1.55 -46% -6% - -0.53 1.06 2.10 -38% -1% -SWV GR EUR 9.0 1,003 31 -12% -14% -1% 6.0 10.7 15 0.31 0.61 0.86 -5% 18% 2% 0.04 0.62 1.01 -20% 5% -1% -0.08 0.76 1.24 -19% 7% -1%Trina Solar USD 25.8 1,577 23 17% 19% 9% 18 31 42 1.71 2.66 3.65 32% 29% 0% 1.81 2.81 3.50 25% 29% -3% 1.98 3.04 3.67 24% 31% -Yingli Solar USD 11.1 1,301 25 -4% 2% 9% 8.00 13.9 23.0 0.72 0.97 1.33 7% -1% - 0.55 1.08 1.55 10% 8% 0% 0.74 1.09 1.42 -1% 14% -Median -8% -3% 2% 6% 9% - -20% 2% - -19% 3% -Polysilicon & WafersGCL Poly HKD 1.80 2,817 7 -5% - -5% 1.20 1.85 2.44 0.08 0.14 0.18 12% -2% -2% 0.07 0.16 0.23 11% 1% -2% 0.06 0.17 0.28 -3% 6% 7%LDK US USD 6.81 705 15 10% 4% 1% 6.00 7.84 10.00 -0.01 0.86 1.34 pos. 84% 0% -0.41 0.78 1.65 -18% 9% - 0.23 0.97 1.89 -39% 23% -MEMC USD 10.29 1,841 25 -15% 8% 1% 8.50 13.3 19 0.15 0.41 0.72 -39% - - 0.55 0.99 1.30 -9% - - 1.14 1.45 1.71 7% - -Mits. Mat. JPY 222.00 2,735 12 -3% -3% -4% 260 296.1 330 3.81 10.27 21.64 71% 42% - 6.80 21.69 31.70 66% 27% - 14.23 26.55 35.59 73% 9% -OCI Co. KRW 372.0k 5,587 14 111% 34% 4% 220k 336k 460k 19.5k 22.4k 24.0k 14% 3% - 21.4k 25.7k 35.4k 10% 5% - 23.5k 29.3k 40.8k 29% 5% -PV Cryst. GBP 56.0 282 8 14% -5% -3% 52 70 90 2.48 4.22 5.53 56% 10% 8% 1.65 4.81 6.46 15% 15% 38% 0.83 4.44 6.62 -37% 35% 3%ReneSola GBP 281.8 589 13 65% 19% 16% 206 330 488 26.68 41.59 52.05 pos. 13% 1% 23.42 45.99 89.51 pos. 23% 1% 10.41 45.37 85.30 60% 12% 1%Tokuyama JPY 407.0 1,334 10 -14% -6% -7% 470 527 600 19.25 24.64 29.31 -8% 9% 13% 22.13 28.64 40.52 7% -1% 2% 23.00 30.75 40.80 44% -1% 4%Wacker EUR 119.7 6,243 27 36% -3% 1% 90 133 160 7.01 8.98 10.42 22% 6% 0% 7.81 10.42 12.11 14% 3% 2% 8.74 11.84 15.05 6% 2% -1%Median 3% -1% -1% 14% 9% 0% 10% 5% - 7% 6% -Cells & ModulesCSIQ US USD 11.8 395 13 -39% -3% 5% 11 15 27 0.49 1.15 1.77 -44% 14% - 1.10 1.60 2.27 -29% -6% - 1.39 1.67 2.15 pos. 1% -CSUN US USD 3.86 135 5 -7% -11% 2% 5.00 6.13 8.00 -0.09 0.61 1.00 66% 23% - 0.48 0.58 0.75 8% 22% - 0.59 0.67 0.75 0% 15% -E-Ton TWD 42.5 260 4 -38% -11% -13% 40 61 80 -13.40 -3.97 4.43 neg. neg. neg. 1.80 3.67 5.53 20% 21% 21% 2.20 2.20 2.20 pos. pos. pos.Evergreen USD 0.67 111 14 -40% 2% 8% 0.50 0.71 1.00 -0.52 -0.37 -0.23 neg. pos. - -0.34 -0.19 0.04 neg. neg. - -0.13 -0.13 -0.13 neg. neg. -Gintech TWD 93.2 730 6 7% -0% -12% 30 105 146 3.56 10.13 13.68 95% 0% - 2.27 7.73 12.48 6% -1% - 11.19 11.89 12.59 pos. -5% -JA Solar USD 6.15 819 18 24% 3% 12% 4.70 7.95 14.00 0.57 0.99 1.42 pos. 23% - 0.51 0.93 1.36 pos. 28% - 0.50 0.87 1.54 7% -23% -Motech TWD 124.5 1,152 11 1% 5% -10% 84 117 160 3.16 6.31 10.53 32% 14% 1% 3.94 6.75 9.40 -10% 5% 9% 6.48 9.86 14.63 -14% 39% 35%Q-Cells EUR 5.12 464 30 -27% -12% -5% 4.50 6.48 18 -0.57 -0.05 0.63 neg. pos. pos. -0.41 0.20 0.58 -47% 46% -10% -0.32 0.38 1.04 19% 25% -2%Sharp JPY 804.0 8,368 20 -22% -15% -2% 720 1,008 1,550 11.0 42.8 66.8 -2% -6% -0% 16.2 55.6 101.6 -5% -2% 6% 39.0 64.9 122.8 -3% -5% -Solarfun USD 10.48 479 12 59% 11% 6% 12.00 14.55 20.00 1.19 1.74 2.04 pos. 42% - 1.03 1.44 1.90 84% 37% - 2.10 2.10 2.10 pos. 15% -SunPower USD 10.8 816 34 -42% -13% 7% 11.0 17 30 1.03 1.41 1.65 -22% 8% - 0.96 1.82 2.35 - 1% - 1.45 2.04 2.83 -36% -0% -Suntech P. USD 7.7 1,097 34 -42% -22% -1% 6.00 10.95 21 -0.46 0.38 0.96 -18% -10% - 0.52 0.88 1.50 -11% 9% - 0.58 1.02 1.44 -24% 6% -Median -24% -7% 1% -2% 14% - -3% 9% - -3% 4% -Equipment & BosAMAT US USD 10.4 10,958 20 -15% -12% -2% 12 15 19 0.74 0.89 0.99 40% 10% 1% 1.00 1.27 1.75 15% 8% -2% 1.08 1.19 1.30 -8% -3% -9%centrotherm EUR 33.5 709 19 13% 8% 3% 25 40 58 1.83 2.28 2.70 9% 21% 3% 1.49 2.44 3.16 -1% 7% 1% 1.88 2.75 3.42 -19% 5% -GT Solar USD 7.73 912 10 30% 19% 7% 6.0 9.2 11 0.68 0.91 0.97 71% 46% - 0.56 0.86 1.02 23% 14% - 0.85 0.85 0.85 17% 16% -Manz Auto. EUR 49.9 224 13 -11% -8% 2% 40 60 90 0.70 1.16 1.88 -15% -10% - 2.08 3.14 4.32 1% 3% - 2.68 4.68 8.04 62% 10% -Meyer Burger CHF 28.0 983 12 22% -1% 6% 23 30 42 0.82 1.30 1.85 41% 11% -9% 1.08 1.61 2.42 6% 3% -5% 1.58 2.00 3.15 4% -1% -0%PVA Tepla EUR 4.38 95 6 -1% -0% -0% 5.70 6.14 6.50 0.29 0.37 0.42 19% - - 0.39 0.46 0.52 20% 2% - 0.39 0.50 0.57 -5% 3% -Roth & Rau EUR 19.9 322 18 -19% -22% -2% 22 30 43 1.00 1.19 1.40 4% 1% - 0.96 1.51 2.00 -2% -2% 1% 1.11 1.85 2.70 -23% -0% -2%SMA Solar EUR 85.3 2,960 19 12% -10% 6% 75 113 140 6.11 9.11 10.57 87% 6% 3% 5.88 7.79 9.57 32% 9% 9% 6.73 7.87 9.62 10% 7% 3%Median 5% -4% 2% 29% 8% - 10% 5% - -1% 4% -DownstreamAkeena USD 0.60 19 3 -43% -28% -6% 1.25 1.38 1.50 -0.30 -0.28 -0.24 - - - -0.22 -0.17 -0.13 pos. - - pos. pos. pos.Conergy EUR 0.60 233 10 -19% -17% -1% 0.40 0.60 0.96 -0.21 -0.04 0.01 pos. - - -0.03 0.01 0.06 64% 47% - -0.02 0.05 0.09 4% 4% -EDP Renov. EUR 4.39 3,829 24 -26% -4% -1% 5.10 6.64 8.90 0.10 0.14 0.19 -18% - - 0.14 0.19 0.27 -19% -5% - 0.17 0.23 0.28 -20% -5% -1%Phönix S. EUR 27.8 205 18 -4% -17% -4% 28 40 51 2.70 3.76 4.52 29% 6% - 1.06 3.57 5.25 6% 8% - 3.38 4.28 6.54 1% 7% -SOO1 GR EUR 3.58 62 13 -21% -11% -7% 3.50 4.91 10 -2.29 -0.94 -0.42 pos. pos. - -1.11 -0.24 0.48 neg. neg. - -1.06 -0.16 0.40 neg. neg. -Median -21% -17% -4% - - - 6% 4% - 1% 4% -Other5N Plus CAD 5.2 175 7 -3% 0% - 5.00 7.20 8.40 0.38 0.43 0.48 - 5% 5% 0.49 0.54 0.60 6% 11% - 0.49 0.60 0.70 -7% 21% -S2M GR EUR 18.1 227 6 -36% -15% -14% 27 33 45 1.32 2.23 3.40 -20% - - 1.67 2.90 4.59 -19% - - 3.78 3.99 4.20 -21% - -Median -20% -8% -7% -10% 3% 2% -7% 6% - -14% 11% -

Source: Factset, Company, DnB NOR Markets estimatesData as of 31.08.2010

Source: Factset consensus (updated as of close 25 Sept 2009)



02.09.2010

9. Appendix

A1: Top 10 producers: Poly, wafers, cells and modules

Exhibit 9-1: Top 10 producers: Poly, wafers, cells and modules

Polysilicon

-

20,000

40,000

60,000

80,000

100,000

Hem

lock

Wac

ker

OC

I

ME

MC

RE

C

GC

L-P

oly

Toku

yam

a

Mits

ubis

hi

M. S

etek

Dow

Cor

ning

Tota

l

MT

Wafers

-

1,000

2,000

3,000

4,000

5,000

6,000

LDK

Sola

r

RE

C

Sola

rWor

ld

Ren

esol

a

Yin

gli

ME

MC

M.S

etek

Trin

a

Jing

long

SAS

Tota

l

MW

Cells

-

1,000

2,000

3,000

4,000

5,000

Sun

tech

Q-C

ells

Yin

gli

JA S

olar

Sha

rp

Kyo

cera

SunP

ower

Trin

a

Gin

tech

Mot

ech

Tota

l

MW

Modules

-

1,000

2,000

3,000

4,000

5,000

6,000Fi

rst S

olar

Sun

tech

Yin

gli

Shar

p

Kyo

cera

SunP

ower

Trin

a

Can

adia

nS.

Son

arfu

n

Sola

rWor

ld

Tota

l

MW

Source: DnB NOR Markets Equity Research, Photon International

A2: Solar Technology Basics: Two routes to harness energy from the sun

There are two main ways to capture energy from the sun. Photovoltaics (PV) make electricity directly, while solar thermal generates heat that may later be converted into electricity. These two routes are illustrated in Exhibit 9-2 below.



02.09.2010

Exhibit 9-2: The ways to capture energy and make electricity from the sun


Note: STEG = Solar Thermal Electrical Generation

A3: Solar and PV value chain

Exhibit 9-3: The PV value chain

Source: DnB NOR Markets equity research

A4: What is a "smart grid"?

A smart grid is an electricity network that uses digital technology to monitor and manage the transport of electricity from all generation sources to meet the varying electricity demands of end users. Such grids will be able to co-ordinate the needs and capabilities of all generators, grid operators, end users and electricity market stakeholders in such a way that it can optimise asset utilisation and operation and, in the process, minimise both costs and environmental impacts while maintaining system reliability, resilience and stability.



02.09.2010

Exhibit 9-4: Smart grid layout

Source: IEA



02.09.2010

A5: US state and local subsidies for renewable energy

Exhibit 9-5: The myriad of US incentives for renewable energy

<------------ Tax incentives ------------> State Personal Corp. Sales Property Rebates Grants Loans Federal 3-F 4-F 3-F 5-F 1-F 1-F Alabama 1-S 3-U 1-S 1-S 2-U 1-U Alaska 1-S 2-S 1-U Arizona 4-S 2-S 1-S 2-S 6-U 1-U 1-S Arkansas 1-S 1-U 1-U 1-S California 1-S 8-S 43-U 3-L 1-S 1-U 3-L 1-S 1-S 2-U

Colorado 2-S 1-L 3-S 2-S 16-U 3-L 1-S 1-L 1-S 2-U 1-L

Connecticut 2-S 1-S 3-S 2-U 2-S 2-S 1-P 2-S Delaware 3-S 2-S Florida 1-S 11-U 2-L 1-S 5-U 1-L 1-L 2-U Georgia 1-S 1-S 1-S 1-S 9-U 1-S 2-U Hawaii 1-S 1-S 1-L 1-S 1-U 2-S 2-U 1-L 1-S 1-S Idaho 1-S 1-S 1-S 1-S 2-U 1-P 1-S 1-S Illinois 1-S 2-S 1-S 5-U 1-S 1-L 1-P 2-S 1-S 1-P Indiana 1-S 1-S 25-U 1-S 1-U 1-U Iowa 1-S 2-S 1-S 3-S 15-U 2-S 2-U 1-U Kansas 1-S 1-S 1-S 2-U 1-S 1-S Kentucky 1-S 2-S 1-S 1-S 10-U 1-S 1-S 1-U 1-L 1-

P 1-U

Louisiana 1-S 1-S 1-S 1-S 2-S Maine 1-S 2-S 1-S 2-S 1-P 1-S Maryland 3-S 3-S 2-S 4-S 7-L 4-S 1-L 3-S 1-S Massachusetts 1-S 2-S 1-S 1-S 2-S 6-U 4-S 2-S 1-U 1-P 3-S 1-S Michigan 2-S 2-S 6-U 2-S 4-S 1-U Minnesota 2-S 1-S 4-S 41-U 2-S 2-U 6-S 3-U 1-S 1-U Mississippi 6-U 1-S 3-U 1-S 1-U Missouri 1-S 1-S 10-U 2-S 2-U Montana 3-S 1-S 3-S 4-U 1-U 1-S 2-S Nebraska 1-S 2-U 1-S Nevada 1-S 3-S 1-S 1-U 1-S 1-S New Hampshire 1-S 2-S 4-U 4-S 1-P New Jersey 1-S 1-S 6-S 1-S 2-S 1-U 1-S 2-S New Mexico 5-S 4-S 4-S 1-S 1-S 1-S 1-S 3-U New York 3-S 1-S 1-S 2-S 1-L 6-S 5-U 1-S 3-S 1-L 2-S North Carolina 1-S 1-S 1-S 2-S 6-U 1-S 3-S 1-S 4-U 1-P North Dakota 1-S 1-S 2-S 1-U 2-U Ohio 1-S 1-S 2-S 2-L 3-U 1-P 6-S 2-S 1-U 1-L 1-S Oklahoma 1-S 4-U 4-S 2-U 1-S Oregon 1-S 1-S 1-S 7-S 20-U 2-S 1-P 3-S 9-U 1-S 1-S 1-U Pennsylvania 1-S 1-S 2-U 7-S 1-U 2-L 6-S 1-U 5-L 3-S 1-S Rhode Island 1-S 1-S 1-S 2-S 1-U 1-S 1-S 1-P South Carolina 1-S 2-S 1-S 6-U 1-S 5-U 1-S 3-U 1-P South Dakota 1-S 3-S 5-U 2-U Tennessee 1-S 1-S 1-U 2-S 2-S 1-U 1-S 1-U Texas 1-S 1-S 25-U 2-L 2-S 2-S 1-S 2-U Utah 1-S 1-S 1-S 1-S 6-U 1-S Vermont 1-S 1-S 1-S 1-S 1-S 2-S 1-U 2-S 1-P 1-S 2-U Virginia 1-S 1-S 1-S 2-S 1-U Washington 1-S 17-U 1-L 1-P 11-U 1-S 1-S 3-U West Virginia 1-S 1-S 1-S Wisconsin 1-S 1-S 1-S 1-S 9-S 6-U 2-S 3-U 2-S 2-L 2-S 5-U Wyoming 1-S 2-S 3-U 2-U District of Columbia 1-S 1-S Palau Guam Puerto Rico 1-S 2-S 1-S 4-S 1-S Virgin Islands 1-S 1-S 1-S N. Mariana Islands American Samoa Totals 41 39 38 66 436 67 172 39 3 57

F = Federal S = State/Territory L = Local U = Utility P = Private

Bonds Industry s

upport Performance-

based incentives

Source: DSIREUSA


DnB NOR Markets - 81

02.09.2010 02 09 201002.09.2010

A6: Glossary, renewable energy terms and expressions

AMORPHOUS Means "without shape", i.e. a solar cell that is not crystallized. Amorphous solar cells are usually created by applying doped silicon material to the back of a plate of glass. The cells usually appear dark brown on the sun-facing side and silvery on the conductive side.

CdTe Cadmium Telluride

CIGS Copper Indium Gallium di-Selenide

CLFR Compact Linear Fresnel Reflector

CPV Concentrating PV. A technology using mirrors and/or lenses to increase the output from the PV cells. The mechanism is still semiconductor-based.

CRUCIBLE A quartz vessel used for melting and crystallization of polysilicon when producing multicrystalline silicon ingots.

CRYSTALLIZATION The key process in the production of multicrystalline ingots. The crystallization starts from the bottom of the crucible and proceeds towards the top as it is gradually cooled (directional solidification). The multicrystalline qualities of the silicon result from this process.

CSP Concentrating Solar Power. See STEG.

DM2 Square decimeters, measurement used for unification of different wafer sizes.

ELECTRONIC GRADE SILICON (EG) Silicon with a purity of between 99.9999999% to 99.999999999%. (9N to 11N purity)

EPIA The European Photovolataic (PV) Industry Association. EPIA represents 95% of the European PV industry, covering the whole production chain.

FEED-IN TARIFF (FIT) Subsidy scheme where investors in solar power systems receive a guaranteed, fixed price from the

utilities for the electricity fed into the grid.

FLUIDIZED BED REACTOR (FBR) TECHNOLOGY A process for solidification of silicon from silane gas using a chemical reactor where solid particles (silicon) are floating in an upward gas flow (silane) inside a tailor-made chamber.

GRID-CONNECTED SYSTEM Solar power system connected to the electric grid. Used in areas where other electricity systems are available.

ICE Internal Combustion Engine. Standard engine used in cars today, fuelled by diesel or gasoline.

IEA International Energy Agency

INGOT The silicon block created when polysilicon is melted and crystallized in a furnace. The Ingot is cut into smaller blocks which in turn are sliced into wafers.

kW Kilowatt (1,000 watts).

kWh Kilowatt-hours. A unit of energy equal to that expended by one kilowatt in one hour.

MICRON Micrometer (μm). 1/1000 millimeter.

MODULE Interconnected solar cells encapsulated and protected in transparent materials that protect against humidity, air and mechanical damage. Normally, solar modules are made with a glass front and aluminium frame. Popularly referred to as “panel”.

MONOCRYSTALLINE SILICON Processed silicon where all the material consists of only one crystal.

MULTICRYSTALLINE SILICON Processed silicon where the material consists of several small (typically 1-20 mm) grains.

MW Megawatt (One million watt). Used as volume measure in the PV industry implying the potential peak effect produced by the produced solar cells.


02.09.2010


MWp MegaWattpeak Production capacity, a measure of effective MW equivalents is produced of typically wafers, cells and modules.

OFF-GRID SYSTEM Solar power system not connected to the electric grid. Normally used in areas where grid-connected electricity is unavailable.

PHEV Plug-in Hybrid Electrical Vehicle. A car which uses a combustion engine when the battery is empty. Generally a larger car with shorter 'all-electric' range (AER) than EVs. The combination of the two engines reduces the emission of green house gases considerably compared to hybrids, diesel and gasoline powered cars, and makes it more practical than cars powered solely by electrical engines.

POLYSILICON Highly purified silicon used in the electronic and solar industry. Popularly abbreviated as “poly”.

PHOTOVOLTAIC EFFECT The generation of electricity when radiant energy, such as sunlight, falls on the boundary between two different substances (e.g. two different semiconductors).

PPA Power Purchase Agreement

PV PhotoVoltaic. A process to convert light directly into electricity, using cells made from semiconductor material (usually silicon, but also CdTe, CIGS or other compounds).

RPS Renewable Portfolio Standard. Defines a share of total electricity supply to come from renewable sources.

SIEMENS REACTOR Conventional reactor used for deposition of silane on long silicon rods. Used by most manufacturers of silicon feedstock.

SILANE A compound gas consisting of hydrogen and silicon. An intermediary stage in the production of polysilicon.

SILICON The most abundant element next to oxygen in the

earth’s crust. The raw material for solar grade silicon as well as electronic grade silicon.

SLURRY Cutting fluid used when sawing silicon blocks into wafers. Consists of silicon carbide and polyethylene glycol.

SoG SILICON Solar grade silicon, both mono- and poly crystalline, used by the PV industry as opposed to electronics grade silicon, which is typically used in semiconductors.

SOLAR CELL Semiconductor device that creates electricity when exposed to sunlight. Normally made from silicon wafers.

SOLAR GRADE SILICON (SOG) Silicon with a 99.9999% to 99.999999% purity.

THIN-FILM Photovoltaic technology where the conversion of solar energy takes place in a thin film of semiconductor material assembled in several layers. Conventional solar modules are made with sawn wafers as the semiconductor material.

WAFER A thin, sawn slice of silicon used as the key component in a solar cell module. The wafers produced by REC have a thickness of 160-200 microns.

WIRE SAWING The process where crystallized silicon blocks are cut into thin wafers using a saw with a network of thin metal wires.

Wp Peak effect from solar cells measured in watt.

μm Micrometer (micron) 10–6 meters

Source: Company, DnB NOR Markets


02.09.2010


10. Company Coverage

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02.09.2010

First Solar HOLD

Cost leader, but oversupply to put pressure on margins

FSLR vs Nasdaq (12m)

100

110

120

130

140

150

160

aug okt des feb apr jun

First SolarNasdaq (Rebased)

Share price and targetPrice USD 126.3Price target 12m USD 140.0Prev. Recommendation BuyKey data per shareBook value USD 18.10P/Book X 6.98EPS gr09-12e %cagr 3.3%Sales gr09-12e %cagr 22.8%PE10e/EPS gr X 5.0Financial structureMarket cap. USDm 10,918Net int. bear debt USDm -755.5Enterprise value USDm 10,162Shares outst. Millions 86.46Equity/tot assets % 82.6Share price performanceAbs. 1/3/12m 1/12/2Rel. 1/3/12m 6/16/-6High/Low 12m USD 160/103Nasdaq index 1772.130days volatility % 23Company attributesReuters ticker FSLR.OEnergyRenewable EnergyUnited States Analyst: Trygve Lauvdal+47 [email protected] Kilde Evensen+47 [email protected] Please see the last pagefor important information.

First Solar has the lowest production cost per Wp in the PV industry, a position the company is likely to keep for years and making it a likely long-term winner in the solar industry. The coming quarters we expect First Solar to deliver strong results, and the company looks attractive on our 2010 and 2011 earnings estimates. We do, however, expect Germany to introduce a cap in 2012 at the latest, making the solar market oversupplied in all parts of the value chain. This will lead to global module prices decline, and we estimate First Solar's ASP to drop below USD1/W. The main risk factor for our 2011 estimates is a German cap introduce already next year. Based on the regulatory risk in Germany we change our recommendation to Hold from Buy. Year end Dec 2007 2008 2009 2010e 2011e 2012eEPS USD 2.07 4.17 7.40 7.66 8.79 6.52EPS adj USD 1.83 4.94 7.12 9.06 10.41 7.84Dividend ps USD 0.00 0.00 0.00 0.00 0.00 0.00P/E X nm 33.1 18.3 16.5 14.4 19.4P/E adj X nm 27.9 19.0 13.9 12.1 16.1Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 19.13 7.62 5.44 3.88 3.05 2.64EV/Sales X 41.1 8.8 5.3 4.1 2.7 2.6EV/EBITDA adj X nm 21.9 13.4 9.8 8.0 9.9EV/EBIT adj X nm 24.8 15.9 12.2 10.2 14.2Revenue USDm 504 1,246 2,066 2,585 3,685 3,823EBIT USDm 137 438 680 747 853 578Pre-tax profit USDm 161 464 686 761 885 647Revenue growth % 273.4 147.3 65.8 25.1 42.6 3.7EPS growth % 2518.0 101.0 77.6 3.5 14.7 -25.8EBIT margin % 27.2 35.2 32.9 28.9 23.1 15.1ROCE adj % 11.4 25.6 28.9 28.3 25.6 15.8ROE % 14.8 23.0 29.7 23.5 21.3 13.6

• Production cost leader, by a solid margin. In Q2/10, production cost (excluding share-based) was USD 0.74 per Wp. This is in line with Trina Solar's processing cost (total cost less silicon purchase cost). Trina is considered the cost-leader among silicon-based module manufacturers.

• Lowest capex per W. Not only has First Solar a cost advantage in production, the capex needed are also much lower. The total investment for silicon-based production (including silicon, wafer, cell and module) is USD 1.3-2.5 per Wp production, First Solar needs less than USD 0.8.

• Production capacity growing. First solar is currently constructing additional capacity in Malaysia. We expect ramp-up to start early 2011, contributing to volume growth. We estimate that the company will produce more than 2 GW in 2011.

• Oversupplied solar market to impact margins. We expect the solar market to become oversupplied in 2012, at the latest. The expected cap in Germany will make it very challenging to achieve market growth, and capacity will most likely exceed demand. In this scenario, we foresee significant global module price decline. For First Solar we estimate ASP to drop below USD 1/W in 2012.


02.09.2010

Charts and tables Exhibit 10-1: FSLR: Manufacturing cost target below 0.6 USD/W

Strong track record on production cost-cutting

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Q1/06Q2/0

6Q3/0

6Q4/0

6Q1/0

7Q2/0

7Q3/0

7Q4/0

7Q1/0

8Q2/0

8Q3/0

8Q4/0

8Q1/0

9Q2/0

9Q3/0

9Q4/0

9Q1/1

0Q2/1

0

USD

/Wp

Ramp-up cost

Share-based

Production cost


Exhibit 10-2: FSLR: Manufacturing cost target below 0.6 USD/W

Targets production cost of $0.52-0.63/W by 2014

Source: First Solar, DnB NOR Markets Equity Research

Exhibit 10-3: FSLR: BoS cost target below 1 USD/W

A balance of system cost of 0.95 USD/W combined with an module ASP of USD 1 implies unsubsidised cost of electricity around 0.15 USD/kWh



02.09.2010

Tables

Exhibit 10-4: FSLR: Estimate changes

USDm2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

Revenues 2,585 3,685 3,823 2,713 3,310 3,955 -128 376 -133 - Module 2,194 2,639 2,672 2,203 2,628 3,072 -9 12 -400 - EPC/project 391 1,046 1,150 509 682 883 -119 364 267COGS 1,408 2,313 2,695 1,581 2,049 2,578 -172 264 117 Gross margin 45.5 % 37.2 % 29.5 % 41.7 % 38.1 % 34.8 % 4 % -1 % -5 %EBIT 747 853 578 708 755 810 38 98 -231Net financial items 14 32 69 14 29 69 1 3 0EBT 761 885 647 722 784 879 39 100 -232Minorities and taxes 98 125 83 97 110 113 2 14 -30Net profit 663 760 564 625 674 766 37 86 -202EPS (reported) 7.66 8.79 6.52 7.23 7.79 8.86 0.43 1.00 -2.34

MW produced 1,430 2,045 2,749 1,385 1,968 2,646 45 77 104Avg. annual line production 60.5 67.1 74.3 58.2 64.5 71.5 2.3 2.5 2.8Efficiency 11.3 % 11.6 % 11.9 % 11.3 % 11.6 % 11.9 % 0.0 % 0.0 % 0.0 %Avg. ASP (USD/Wp)* 1.53 1.30 0.98 1.59 1.35 1.17 -0.06 -0.05 -0.19COGS/Wp (USD) 0.76 0.68 0.61 0.79 0.72 0.66 -0.04 -0.04 -0.05

EBIT margin (non-GAAP) 33.9 % 27.4 % 18.8 % 30.8 % 27.1 % 24.1 % 3.1% 0.2% -5.3%EBIT margin (GAAP) 28.9 % 23.1 % 15.1 % 26.1 % 22.8 % 20.5 % 2.8% 0.3% -5.3%* Reported numbers are DnB NOR estimates

ChangeOld estimates New estimates


Exhibit 10-5: FSLR: Quarterly estimates

We expect a strong finish of 2010 and expect the company to report above guidance

USDm Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10E Q4/10E

Revenues 418 526 481 641 568 588 795 634 - Module 413 520 480 537 529 500 575 590 - EPC/project 5 5 1 104 39 88 220 44COGS 183 228 236 375 286 304 474 345 Gross margin 56 % 57 % 51 % 42 % 50 % 48 % 40 % 46 %EBIT 168 204 163 145 191 180 208 167Net financial i tems 2 -3 2 6 4 0 5 5EBT 170 201 165 150 195 180 213 172Minorities and taxes 5 21 12 9 23 21 30 24Net profit 165 181 153 142 172 159 183 148EPS (reported) 1.97 2.16 1.83 1.69 1.99 1.84 2.12 1.71

MW produced 220 290 292 311 322 344 372 391Avg. annual line production (Wp) 49.4 51.7 53.0 53.4 55.7 59.0 62.0 65.2Efficiency 10.9 % 10.9 % 11.0 % 11.1 % 11.1 % 11.2 % 11.3 % 11.4 %Avg. ASP (USD/Wp)* 2.14 2.02 1.73 1.66 1.69 1.60 1.47 1.39COGS/Wp (USD) 0.93 0.87 0.85 0.84 0.81 0.76 0.74 0.73

EBIT margin (non-GAAP) 46.1 % 42.6 % 39.2 % 28.9 % 37.2 % 35.2 % 30.9 % 33.3 %EBIT margin (GAAP) 40.2 % 38.8 % 33.8 % 22.6 % 33.7 % 30.7 % 26.1 % 26.4 %* Reported numbers are DnB NOR estimates


FIRST SOLAR (FSLR.O)

PROFIT & LOSS USDm 2007 2008 2009 2010e 2011e 2012eRevenues 504 1,246 2,066 2,585 3,685 3,823Other income/gain on sales 0 0 0 0 0 0Operating costs -89 -181 -235 -222 -248 -253EBITDA 162 498 809 955 1,125 874Depreciation & amortisation -25 -60 -130 -208 -272 -296EBIT 137 438 680 747 853 578Associated companies 0 0 0 0 0 0Net interest 23 21 4 18 32 69Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 161 464 686 761 885 647Tax 2 -115 -46 -98 -125 -83Minority interest 0 0 0 0 0 0Net profit 163 348 640 663 760 564

Q4 09 Q1 10 Q2 10 Q3 10e Q4 10e641 568 588 795 634

0 0 0 0 0-80 -52 -47 -57 -65186 230 237 264 224-41 -39 -57 -56 -56145 191 179 208 167

0 4 0 5 5

0 0 0 0 0150 195 179 213 172

-9 -23 -21 -30 -240 0 0 0 0

142 172 158 183 148

BALANCE SHEET USDmIntangible assets 39 49 49 49 49 49Operating assets 15 55 69 79 87 93Cash & cash equivalents 511 818 1,056 656 1,183 1,339Total assets 1,371 2,115 2,762 3,409 4,233 4,726Equity & minority interest 1,097 1,513 2,153 2,816 3,576 4,140Interest bearing debt 108 198 198 198 198 198Non interest bearing debt 166 403 410 394 458 387Total liabilities & equity 1,371 2,115 2,762 3,409 4,233 4,726Net interest bearing debt -296 -518 -755 -356 -883 -1,038

CASH FLOW USDmCash earnings 81 398 758 864 1,025 852Working capital -203 237 -214 -136 -192 -103Investments -217 -413 -306 -1,128 -306 -593Debt 27 90 0 0 0 0Equity/dividends 407 0 0 0 0 0Change in cash & liquids 96 312 238 -400 527 155

VALUATION 2007 2008 2009 2010e 2011e 2012eEPS USD 2.07 4.17 7.40 7.66 8.79 6.52EPS adj USD 1.83 4.94 7.12 9.06 10.41 7.84Dividend ps USD 0.00 0.00 0.00 0.00 0.00 0.00Book per share USD 13.96 18.10 24.90 32.57 41.36 47.89Year end shares Millions 78.58 83.58 86.46 86.46 86.46 86.46Price USD 267.1 138.0 135.4 127.8 127.8 127.8P/E X nm 33.1 18.3 16.7 14.5 19.6P/E adj X nm 27.9 19.0 14.1 12.3 16.3Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 19.1 7.6 5.4 3.9 3.1 2.7EV/EBITDA adj X nm 21.9 13.4 10.0 8.1 10.1EV/EBIT adj X nm 24.8 15.9 12.4 10.4 14.4EV/Cap employed X 17.1 6.4 4.6 3.5 2.7 2.3EV/Sales X 41.1 8.8 5.3 4.1 2.8 2.6

ASSUMPTIONS/SEGMENTS 2007 2008 2009 2010e 2011e 2012eMW sold* 203.8 508.2 1052.9 1429.7 2024.9 2721.9Avg. ASP (USD/Wp)* 2.6 2.4 1.9 1.5 1.3 1.0COGS/Wp (USD) 1.2 1.1 0.9 0.8 0.7 0.6Opex/Wp (USD) 0.3 0.3 0.2 0.2 0.2 0.2Avg. annual line production (Wp 38.8 47.5 51.9 60.5 67.1 74.3Efficiency 0.1 0.1 0.1 0.1 0.1 0.1

Share price and targetPrice USD 127.8Price target 12m USD 140.0Recommendation HOLDKey data per shareBook value USD 18.10P/Book X 7.06EPS gr09-12e %cagr 3.3%Sales gr09-12e %cagr 22.8%PE10e/EPS gr X 5.1Financial structureMarket cap. USDm 11,054Net int. bear debt USDm -755.5Enterprise value USDm 10,298Shares outst. Millions 86.46Equity/tot assets % 82.6Share price performanceAbs. 1/3/12m 2/14/5Rel. 1/3/12m 7/19/-4High/Low 12m USD 160/103Nasdaq index 1767.430days volatility % 23Company attributesReuters ticker FSLR.OEnergyRenewable EnergyUnited States

Reporting

ManagementCEO Michael J. AhearnCFO Jens MeyerhoffAddressFirst Solar350 West Washington Street Suite 600Tempe, Arizona 85281-1244, USAH.p.: N.A.Tel

Analyst: Trygve Lauvdal+47 [email protected]



02.09.2010

Q-Cells SELL

2011 to be a short breather

QCE vs Nasdaq 100 (12m)

456789

101112131415


Q-CellsNasdaq 100 (Rebased)

Share price and targetPrice EUR 5.12Price target 12m EUR 5.00Prev. Recommendation SellKey data per shareEPS gr09-12e %cagr R+Sales gr09-12e %cagr 22.7%PE10e/EPS gr X nsFinancial structureMarket cap. EURm 601.8Net int. bear debt EURm 639.1Enterprise value EURm 1,241Shares outst. Millions 117.5Equity/tot assets % 30.7Share price performanceAbs. 1/3/12m -12/-1/-52Rel. 1/3/12m -9/7/-75High/Low 12m EUR 14/5Nasdaq 100 index 1390.630days volatility % 53Company attributesReuters ticker QCEG.FEnergyRenewable EnergyGermany Analyst: Einar Kilde Evensen+47 [email protected] Lauvdal+47 [email protected] Please see the last pagefor important information.

Just when Q-Cells is coming injured but alive out of the boxing ring, the referee is signalling for a new round. Our 2012 EBITDA estimates are down 31% to EUR 137m, and EBIT reduced by two thirds to EUR 28m after we took down our factor price estimates. Spot cell prices of EUR 0.67/W is going to make life hard for Q-Cells. We reiterate our Sell recommendation with a EUR 5.50 price target and. Year end Dec 2007 2008 2009 2010e 2011e 2012eEPS EUR 1.40 1.72 -12.00 -0.07 0.61 0.21EPS adj EUR 1.53 1.43 -4.13 -0.04 0.54 0.21Dividend ps EUR 0.00 0.00 0.00 0.00 0.00 0.00P/E X 69.9 14.8 nm nm 8.3 24.0P/E adj X 63.7 17.7 nm nm 9.4 24.7Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0EV/Sales X 0.0 0.4 0.7 0.4 0.4 0.4EV/EBITDA adj X nm nm nm nm nm nmEV/EBIT adj X nm nm nm nm nm nmRevenue EURm 859 1,195 792 1,291 1,450 1,464EBIT EURm 197 205 -486 42 66 28Pre-tax profit EURm 210 227 -1,468 4 80 29Revenue growth % 59.2 39.1 -33.7 62.9 12.4 0.9EPS growth % 6.5 22.8 nm nm nm -65.3EBIT margin % 22.9 17.2 nm 3.2 4.6 1.9ROCE adj % 8.3 8.4 nm 2.5 3.9 1.6ROE % 8.1 10.4 nm nm 8.7 3.2

• Q-Cells' 2Q firmly beat expectations, and the company followed by raising 2010 revenue guidance from EUR 1.0-1.2bn to EUR 1.1-1.3bn. 2010H1 revenues were EUR 601m, and outlook for the 2H 2010 and 2011 is fairly good as German installations once again races for the deadline of securing this year's feed-in tariffs before year-end.

• Turnaround progressing well. In 2Q, 150MW of new cell capacity was ramped up in Malaysia. By New Year, Q-Cells aims to have an additional 250MW running, bringing the total capacity to 1,200MWp of which 700MWp in Malaysia.

• Cost visibility is low. A result of Q-Cells' restructuring is a lack of visibility into the production costs of cells and modules. We remain concerned that Q-Cells' costs are still significantly higher than that of Asian peers, with a correspondingly high risk of margin pressure as markets in 2011 may again become oversupplied.

• 2011 looks better, but 2012 is a big challenge. Having seen no firm contracts on wafers, cells and modules for 2011 and beyond, visibility remains low. In 2012, our expectation of Germany imposing a 4GW cap means the world must find markets for 18GW of cells and modules, and Chinese low-cost producers will be ready to fight over market shares.

• 2012 estimates are cut severely; the share is still not cheap. Our 2012 EBITDA and EPS has been cut by 31% and 69% respectively because of our lower ASP expectations. Q-Cells benefits from lower wafer costs, but margins will still get squeezed. At EV/EBITDA 2010 and 2011 of 7.7x and 6.5x respectively, we do not consider the share attractive, particularly considering the lack of earnings visibility.



02.09.2010

Exhibit 10-6: New estimates: yearly

• 2012 is going to become a very difficult year for Q-Cells, with fierce competition

New estimates Old estimates ChangeEURm 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

Revenues 1,291 1,450 1,464 1,295 1,475 1,636 -4 -25 -172EBITDA 134 166 137 134 168 199 -0 -1 -62EBIT 42 66 28 42 68 90 -0 -1 -62Pre-tax profit 48 80 29 48 81 91 -0 -1 -62Net profit -7 64 24 -6 65 76 -0 -1 -52

EBITDA margin 10.4% 11.5% 9.4% 10.4% 11.4% 12.2% 0 %p 0 %p -3 %p EBIT margin 3.2% 4.6% 1.9% 3.2% 4.6% 5.5% -0 %p -0 %p -4 %p

EPS -0.07 0.61 0.21 -0.07 0.62 0.69 -0.00 -0.01 -0.47EPS adjusted -0.04 0.54 0.21 -0.04 0.55 0.65 -0.00 -0.01 -0.44


Exhibit 10-7: Quarterly estimates

EURm 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Qe 4Qe

Revenues 270 299 363 319 247 304 184 58 268 334 320 369EBITDA 68 71 65 47 36 -49 -71 -160 19 50 32 33EBIT 59 60 54 32 21 -66 -164 -277 -9 27 9 15Pre-tax profit 67 31 58 20 12 -121 -277 -483 4 37 -0 7Net profit 54 28 74 37 -392 -309 -248 -407 -46 35 -0 5

EBITDA margin 25% 24% 18% 15% 15% -16% -39% -278% 7% 15% 10% 9% EBIT margin 22% 20% 15% 10% 9% -22% -89% -480% -3% 8% 3% 4%

EPS 0.49 0.25 0.65 0.34 -3.46 -2.74 -2.27 -3.61 -0.40 0.30 -0.00 0.03EPS adjusted 0.48 0.20 0.50 0.27 -0.80 -1.09 -1.25 -1.02 -0.39 0.32 -0.00 0.04

201020092008




02.09.2010

Q-CELLS (QCEG.F)

PROFIT & LOSS EURm 2007 2008 2009 2010e 2011e 2012eRevenues 859 1,195 792 1,291 1,450 1,464Other income/gain on sales 0 0 0 0 0 0Operating costs -637 -944 -1,037 -1,157 -1,284 -1,327EBITDA 222 251 -244 134 166 137Depreciation & amortisation -25 -46 -242 -92 -100 -109EBIT 197 205 -486 42 66 28Associated companies -3 -18 -303 -4 0 0Net interest -7 -23 -74 -36 -33 -46Other financial items -35 11 -5 47 47 47Extraordinary items 58 52 -601 -44 0 0Pre-tax profit 210 227 -1,468 4 80 29Tax -64 -38 83 -16 -19 -6Minority interest 3 3 29 5 3 1Net profit 148 193 -1,356 -6 64 24

Q4 09 Q1 10 Q2 10 Q3 10e Q4 10e58 268 334 320 369

0 0 0 0 0-218 -249 -283 -288 -336-160 19 50 32 33-116 -28 -23 -23 -18-277 -9 27 9 15-170 -4 0 0 0

-34 -10 -8 -9 -8-1 28 19 0 00 -42 -2 0 0

-483 -37 35 0 759 -14 0 0 -216 5 0 0 0

-407 -46 35 0 5

BALANCE SHEET EURmIntangible assets 43 52 15 15 15 15Operating assets 450 904 908 986 1,056 1,117Associated companies 1,207 1,125 93 89 89 89Other current assets 474 569 600 565 604 600Cash & cash equivalents 414 177 412 370 323 281Total assets 2,588 2,835 2,228 2,225 2,286 2,302Equity & minority interest 1,834 1,877 737 682 734 751Interest bearing debt 415 650 933 933 933 933Non interest bearing debt 340 308 558 610 620 618Total liabilities & equity 2,588 2,835 2,228 2,225 2,286 2,302Net interest bearing debt 0 474 521 562 610 652

CASH FLOW EURmCash earnings 171 235 -1,144 81 161 132Working capital 6 -290 189 87 -29 2Investments -118 -365 -345 -170 -170 -170Debt 382 200 1,844 0 0 0Equity/dividends 40 52 -324 1 -9 -5Other 4 70 -298 -40 0 0Change in cash & liquids 484 -98 -77 -41 -48 -42

VALUATION 2007 2008 2009 2010e 2011e 2012eEPS EUR 1.40 1.72 -12.00 -0.07 0.61 0.21EPS adj EUR 1.53 1.43 -4.13 -0.04 0.54 0.21Dividend ps EUR 0.00 0.00 0.00 0.00 0.00 0.00Year end shares Millions 0.00 0.00 0.00 0.00 0.00 0.00Price EUR 97.60 25.30 11.40 5.12 5.12 5.12P/E X 69.9 14.8 nm nm 8.3 24.0P/E adj X 63.7 17.7 nm nm 9.4 24.7Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0EV/EBITDA adj X nm nm nm nm nm nmEV/EBIT adj X nm nm nm nm nm nmEV/Cap employed X nm nm nm nm nm nmEV/Sales X 0.0 0.4 0.7 0.4 0.4 0.4

Share price and targetPrice EUR 5.12Price target 12m EUR 5.00Recommendation SELLKey data per shareEPS gr09-12e %cagr R+Sales gr09-12e %cagr 22.7%PE10e/EPS gr X nsFinancial structureMarket cap. EURm 601.8Net int. bear debt EURm 639.1Enterprise value EURm 1,241Shares outst. Millions 117.5Equity/tot assets % 30.7Share price performanceAbs. 1/3/12m -12/-1/-52Rel. 1/3/12m -9/7/-75High/Low 12m EUR 14/5Nasdaq 100 index 1390.630days volatility % 53Company attributesReuters ticker QCEG.FEnergyRenewable EnergyGermany

Reporting2Q 2010 12.08.20103Q 2010 12.11.2010

ManagementCEO Dr. Nedim CenCFO Dr. Marion HelmesAddressQ-CellsGuardianstrasse 1606766 Bitterfeld-Wolfen, GermanyH.p.: www.q-cells.comTel +49 3494 6699-199

Analyst: Einar Kilde Evensen+47 [email protected]



02.09.2010

Renewable Energy Corp. BUY

Singapore cost position is underestimated

REC vs OSEBX (12m)

10152025303540455055


Renewable Energy Corp.OSEBX (Rebased)

Share price and targetPrice NOK 16.26Price target 12m NOK 24.00Prev. Recommendation BuyKey data per shareBook value NOK 25.44P/Book X 0.64EPS gr09-12e %cagr R-Sales gr09-12e %cagr 21.2%PE10e/EPS gr X 0.0Financial structureMarket cap. NOKm 16,214Net int. bear debt NOKm 8,800Enterprise value NOKm 25,014Shares outst. Millions 997.2Equity/tot assets % 52.7Share price performanceAbs. 1/3/12m -3/3/-60Rel. 1/3/12m -1/1/-77High/Low 12m NOK 53/15OSEBX index 352.730days volatility % 50Company attributesReuters ticker REC.OLEnergyRenewable EnergyNorway Analyst: Einar Kilde Evensen+47 [email protected] Lauvdal+47 [email protected] Please see the last pagefor important information.

We have slashed our 2012 EBITDA estimates by 29% to NOK 4,149m but raised 2011 EBITDA by 13% to NOK 5,374m. As we detail in this sector update, 2011 is looking better, while REC will be tested for real in 2012 when oversupply kicks in and the Chinese producers start fighting for market share. For now they are comfortable acting as price takers. We think 3Q and the concurrent Singapore field trip will be triggers for the share, and with our updated sum-of-the-parts netting NOK 25 per share, we uphold our Buy recommendation albeit at a lower price target of NOK 24. Year end Dec 2007 2008 2009 2010e 2011e 2012eEPS NOK 2.70 6.13 -3.43 1.35 1.11 -0.17EPS adj NOK 4.23 4.32 0.56 0.23 1.44 -0.17Dividend ps NOK 0.00 0.00 0.00 0.00 0.00 0.00P/E X nm 10.5 nm 12.1 14.6 nmP/E adj X 65.3 14.9 80.1 70.6 11.3 nmDividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 11.60 1.93 1.76 0.73 0.69 0.70EV/Sales X 20.2 4.8 4.5 1.8 1.2 1.1EV/EBITDA adj X nm 11.8 21.7 7.9 3.9 4.2EV/EBIT adj X nm 15.2 nm nm 9.4 39.6Revenue NOKm 6,643 8,035 8,833 13,867 18,009 15,741EBIT NOKm 1,453 2,526 453 563 2,222 439Pre-tax profit NOKm 842 4,379 -204 2,047 1,409 -198Revenue growth % 56.9 21.0 9.9 57.0 29.9 -12.6EPS growth % 6.3 127.1 nm nm -17.4 nmEBIT margin % 21.9 31.4 5.1 4.1 12.3 2.8ROCE adj % 14.9 10.9 1.7 1.8 7.9 1.8ROE % 1.7 18.6 nm 6.1 4.8 nm

• 2011 situation looks better, but 2012 looms. With Germany likely to continue absorbing large volumes also in 2011, our module ASP estimates are at USD 1.55/W, down "only" 12% YoY. The hit comes in 2012 when Germany is scheduled to slash their FiT by a maximum of 21%, and very likely impose a hard cap.

• REC's 2Q 2010 EBITDA came in at NOK 455m, 13% above our estimate but a full 56% above consensus. REC Solar was the biggest positive surprise, improving its EBITDA margin by a full 17%-points from -19% to -2%.

• Silicon guidance was actually +1,600MT – at higher ASPs. REC's 2Q upgrade of FY2010 silicon production guidance to 13,000MT was in fact significantly more than its "face value" of 1,000MT. As we detail on pp 5-6, the upgrade translates into ~1,800MT more production and ~1,600MT more sales in 2H 2010 than for the previous guidance. In addition, these volumes are of a better product mix than before – excluding powder & fines – making for higher ASPs.

• 2H 2010 wafer ASPs will rise rather than stay flat. In 2H, wafer prices are more likely to rise than stay flat, as most of REC's wafer contracts are adjusted every second quarter, thus lagging the general market.

• Valuation: Conservatively priced at NOK 24. At NOK 24, REC trades at 7.9x 2010 EV/EBITDA and 3.9x 2011 EV/EBITDA, which is in line with or below its historical average since 4Q 2008. In addition, we have updated our Sum-of-the-parts Bear/Base/Bull valuation which indicate a value of NOK 7.50/20.50/49.00.



02.09.2010


Main changes:

• Polysilicon prices 7% higher in 2010 and 2011; 12% lower in 2012

• Wafer prices 7% higher in 2011; 7% lower in 2012

• Module prices (EUR) 27% lower in 2012

New estimates Old estimates ChangeNOKm 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

Revenues 13,867 18,009 15,741 13,611 16,963 17,617 256 1,046 -1,876EBITDA 3,120 5,374 4,149 3,080 4,768 5,857 40 606 -1,708EBIT 549 2,222 439 510 1,616 2,146 40 606 -1,707Pre-tax profit 2,033 1,409 -198 1,993 801 1,509 40 608 -1,707Net profit 1,343 1,110 -173 1,311 624 1,193 32 486 -1,366

EBITDA margin 22 % 30 % 26 % 23 % 28 % 33 % 0 % 2 % -7 % EBIT margin 4 % 12 % 3 % 4 % 10 % 12 % 0 % 3 % -9 %

EPS reported 1.35 1.11 -0.17 1.31 0.63 1.20 0.03 0.49 -1.37EPS adjusted 0.23 1.44 -0.17 0.14 0.94 1.20 0.09 0.50 -1.37

Revenue by segmentSilicon 5,518 6,416 6,289 5,167 5,589 6,384 351 827 -95Wafer 7,699 10,800 9,705 7,699 10,116 10,405 - 683 -700Solar 5,041 6,591 4,863 5,059 6,712 6,569 -19 -120 -1,706

EBITDA by segmentSilicon 3,055 3,668 3,277 2,759 3,056 3,472 296 612 -195Wafer 425 1,712 1,701 660 1,614 2,094 -235 97 -393Solar -149 407 -548 -130 473 663 -19 -65 -1,211

EBITDA margin by segmentSilicon 55 % 57 % 52 % 53 % 55 % 54 % 2 % 2 % -2 %Wafer 6 % 16 % 18 % 9 % 16 % 20 % -3 % 0 % -3 %Solar -3 % 6 % -11 % -3 % 7 % 10 % 0 % -1 % -21 %

Volumes PRODUCED (ex. silane gas)Silicon (MT) 13,495 16,144 17,836 13,495 16,144 17,836 - - -Silane gas sold (MT) 2,451 2,700 2,835 2,451 2,700 2,835 - - -Wafers (MWp) 1,435 2,196 2,378 1,435 2,196 2,378 -0 - -Modules (MWp) 461 623 638 461 623 638 - - -

Prices observedSoG silicon (USD / kg) 57.1 51.9 41.5 53.1 48.2 47.2 3.9 3.7 -5.7Multi wafers (EUR/Wp) 0.68 0.63 0.52 0.68 0.59 0.56 - 0.04 -0.04Modules (EUR / Wp) 1.47 1.29 0.94 1.47 1.31 1.29 -0.01 -0.02 -0.35Modules (USD / Wp) 1.86 1.54 1.13 1.90 1.70 1.68 -0.04 -0.16 -0.55

Currencies (avg.) and otherUSDNOK 6.28 6.50 6.50 6.16 6.00 6.00 0.13 0.50 0.50EURNOK 7.96 7.80 7.80 7.96 7.80 7.80 - - -CapEx -4,050 -750 -507 -4,050 -750 -561 - - 54

Note: "Prices observed" through REC accounting may differ significantly from market prices, since REC sells auxiliary products (silane gas, ingots etc.)




02.09.2010


2009 2010 2011NOKm 1Q 2Q 3Q 4Q 1Q 2Q 3Qe 4Qe 1Qe 2Qe 3Qe 4Qe

Revenues 1,936 2,280 2,072 2,545 2,360 2,758 4,091 4,658 4,618 4,446 4,432 4,513EBITDA 511 250 449 595 414 455 1,005 1,246 1,287 1,289 1,369 1,428EBIT 286 -65 -645 -1,336 -126 -145 327 493 520 508 574 619Pre-tax profit 585 -689 -1,123 -1,190 729 866 143 296 313 303 373 420Net profit 379 -652 -988 -1,020 403 598 109 233 246 238 294 332

EBITDA margin 26 % 11 % 22 % 23 % 18 % 16 % 25 % 27 % 28 % 29 % 31 % 32 % EBIT margin 15 % -3 % -31 % -52 % -5 % -5 % 8 % 11 % 11 % 11 % 13 % 14 %

EPS reported 0.77 -1.32 -1.49 -1.53 0.61 0.60 0.11 0.23 0.25 0.24 0.29 0.33EPS adjusted 0.49 1.64 -0.20 1.22 0.07 -0.23 0.15 0.36 0.33 0.32 0.38 0.41

Revenue by segmentSilicon 947 929 937 1,130 967 1,159 1,579 1,813 1,692 1,440 1,651 1,633Wafer 1,589 1,525 1,155 1,590 1,571 1,714 2,006 2,408 2,741 2,727 2,628 2,704Solar 388 426 524 543 567 1,016 1,679 1,778 1,675 1,710 1,579 1,627

EBITDA by segmentSilicon 450 442 454 574 452 577 954 1,073 976 836 937 919Wafer 242 321 77 351 -13 18 148 272 329 437 440 506Solar 2 -528 -256 -219 -107 -19 -16 -7 81 115 97 113

EBITDA margin by segmentSilicon 48 % 48 % 48 % 51 % 47 % 50 % 60 % 59 % 58 % 58 % 57 % 56 %Wafer 15 % 21 % 7 % 22 % -1 % 1 % 7 % 11 % 12 % 16 % 17 % 19 %Solar 1 % n.m. -49 % -40 % -19 % -2 % -1 % 0 % 5 % 7 % 6 % 7 %

Volumes PRODUCED (ex. silane gas)Silicon (MT) 1,657 1,624 1,736 2,621 3,057 2,854 3,535 4,049 4,220 3,507 4,208 4,208Silane gas sold (MT) 366 488 579 755 275 586 750 840 675 675 675 675Wafers (MWp) 191 205 174 247 287 329 371 448 549 549 540 558Modules (MWp) 27 27 23 34 48 111 140 162 152 160 152 160

Prices observedSoG silicon (USD / kg) 58.0 59.5 62.0 58.0 54.0 61.0 58.4 55.3 53.0 52.2 51.5 50.8Multi wafers (EUR/Wp) 0.98 0.92 0.83 0.78 0.68 0.67 0.68 0.69 0.64 0.64 0.62 0.62Modules (EUR / Wp) 2.42 1.44 1.70 1.63 1.51 1.55 1.48 1.41 1.34 1.31 1.26 1.24Modules (USD / Wp) 3.08 1.95 2.38 2.31 2.06 1.93 1.86 1.69 1.60 1.57 1.51 1.49

Currencies (avg.) and otherUSDNOK 7.01 6.63 6.22 5.90 5.98 6.35 6.30 6.50 6.50 6.50 6.50 6.50EURNOK 8.93 8.98 8.74 8.38 8.16 7.92 7.94 7.80 7.80 7.80 7.80 7.80CapEx -2,707 -2,874 -3,302 -1,940 -1,776 -1,303 -827 -144 -161 -179 -196 -214

Note: "Prices observed" through our breakdown of REC accounting may differ significantly from market prices, since REC sells auxiliary products (silane gas, second grade material, ingots etc.)




02.09.2010

Sum-of-the-parts: NOK 25.00 per share average

Sum-of-the-parts methodology We have valued each of REC's plants based on their estimated EBITDA-contribution ability. There is no specific time defined for these estimates, but we assume each plant is fully up and running at their individual plant-specific cost levels.

For ASPs, we have defined a baseline of "sustainable prices" through the value chain resulting in a USD 1.13/Wp module ASP that, together with a near-future USD 0.90/Wp BoS enables an electricity cost of USD 0.12-0.13 per kWh. We identify this as a long-term sustainable level.

Inside this framework, we defined three scenarios; Bear, Base and Bull, where the variations are 1) REC's attainable cost levels, 2) EV/EBITDA multiples and 3) further growth opportunities. Last, we set up a fourth valuation route based on P/B multiples, where we distributed REC's shareholder equity by the split of investments in each segment.

The separate valuations were then weighted, using equal weights. A summary of our results can be seen below:

Exhibit 10-10: SoTP - Valuation summary

Value perCase share (NOK) WeightBear: ''EUR 0.92/Wp'' 7.50 25 %Base: ''EUR 0.75/Wp'' 20.50 25 %Bull: ''EUR 0.63/Wp + growth'' 49.00 25 %Capital Employed valuation 23.50 25 %Average (weighted) 25.00 100 %Discount on implied equity value -8.89Current share price 16.11Potential to target 49 %Target price 24.00


Sum-of-the-parts assumptions The most important assumptions can be separated into two parts. The first is to establish a set of market prices on silicon, wafers, cells and modules that should be long-term compatible with a final module price that allows for a competitive cost of electricity without subsidies. We call this the “sustainable price”. As an integral part of this set of prices, we have identified “typical” cash costs (excl depreciation) for the industry. As a cross-check, we have used the resulting EBITDA margins to calculate RoIs across the value chain. Trying to keep things simple, we have aimed for RoIs around 10% which should be reasonably attractive.

The second part is to ascertain where REC fits into this picture. According to REC’s ancient cost roadmap dating back to 2006 but somewhat narrowed down in June 2008, the company aims for an “all-in” cost per watt of “below EUR 1/Wp” (i.e. including depreciation). We have taken this as our Bear case. We have built subsequent Base and Bull scenarios assuming progressively lower “all-in” costs as seen below.



02.09.2010

Exhibit 10-11: SoTP - Assumptions

Sustainable prices reflect 1) possibility to reach USD 0.12-0.13 per kWh electricity cost in near future and 2) 10% RoI for investors albeit very thin EBITDA margins

EV/EBITDA multiples usedCase Silicon Wafer SolarBear 6.8x 6.3x 6.2xBase 8.0x 7.4x 7.3xBull 10.0x 8.9x 8.8x

Assumptions Silicon Wafer Cells Modules TotalSustainable price $38.13 $0.58 $0.84 $1.13 $1.13Production unit kg MW MW MWMarket average costs and marginsUnit processing cost $28.00 $0.25 $0.21 $0.27 $0.93Production cost * $28.00 $0.52 $0.79 $1.11EBITDA margin $10.13 $0.06 $0.05 $0.02 $0.20EBITDA margin % 27 % 11 % 6 % 2 % 18 %Typical investment / unit $100.00 $0.50 $0.30 $0.20 $1.70Typical RoI 10 % 12 % 17 % 11 % 12 %

REC costs and margins at case Bear: ''EUR 0.92/Wp ex. D&A''Unit processing cost $23.00 $0.33 $0.27 $0.40 $1.16 --> € 0.92Production cost * $23.00 $0.60 $0.85 $1.24 (ex. depr.)EBITDA margin $15.13 -$0.02 -$0.01 -$0.11 -$0.03EBITDA margin % 40 % -3 % -1 % -10 % -3 %REC investment / unit $85.00 $0.80 $0.70 $0.45 $2.55REC RoI 18 % -2 % -1 % -24 % -1 %

REC costs and margins at case Base: ''EUR 0.75/Wp ex. D&A''Unit processing cost $20.00 $0.27 $0.23 $0.31 $0.95 --> € 0.75Production cost * $20.00 $0.54 $0.81 $1.15 (ex. depr.)EBITDA margin $18.13 $0.04 $0.03 -$0.02 $0.18EBITDA margin % 48 % 7 % 4 % -2 % 16 %REC investment / unit $85.00 $0.80 $0.70 $0.45 $2.55REC RoI 21 % 5 % 4 % -4 % 7 %

REC costs and margins at case Bull: ''EUR 0.63/Wp ex. D&A + growth''Unit processing cost $17.00 $0.22 $0.19 $0.26 $0.79 --> € 0.63Production cost * $17.00 $0.49 $0.77 $1.10 (ex. depr.)EBITDA margin $21.13 $0.09 $0.07 $0.03 $0.34EBITDA margin % 55 % 16 % 8 % 3 % 30 %REC investment / unit $85.00 $0.80 $0.70 $0.45 $2.55REC RoI 25 % 11 % 10 % 7 % 13 %* Transfer cost of raw materials to next value chain at market terms ("sustainable price")


The cases Below we specify each case: Bear, base and bull.



02.09.2010

Sum-of-the-parts Bear case: NOK 7.50

Exhibit 10-12: SoTP - Bear case

Bear: ''EUR 0.92/Wp ex. D&A''

P/B valuation (NOKm)Sustainable EBITDA EV/ EV Per shr Share of BV of P/B Market Per shr

Date: 02.09.2010 per unit per year EBITDA (NOKm) (NOK) group Equity* mult. value (NOK)Silicon USD/kg USDm 2010 comparables

ML Poly I: 3,300 MT (Siemens) 12.10 40 6.8x 1,711 1.50 8 % 2.0x GCL-PolyButte Poly II: 5,300 MT (Siemens) 12.10 64 6.8x 2,748 3.00 16 % 1.1x MEMCML Poly III: 6,500 MT (FBR) 16.34 106 6.8x 4,550 4.50 24 % 0.8x OCI GroupML Poly IV: 4,800 MT (FBR) 16.34 78 6.8x 3,360 3.50 19 % 0.6x WackerNew plant: None - 0 4.8x 0 0.00 0 %

Silane gasML Silane Poly III: 2,000 MT 20.00 40 6.8x 1,714 1.50 8 %ML Silane Poly IV: 2,300 MT 20.00 46 6.8x 1,971 2.00 11 %

REC Silicon (average-->) 15.48 375 6.8x 16,052 16.00 86 % 11,150 0.9x 10,515 10.50Wafers EUR/W EURm 2010 comparables

Glomfjord: 660 MW -0.01 -7 6.3x 0 0.00 0 % 0.9x LDK SolarHerøya I ('03): 150 MW -0.01 -1 6.3x 0 0.00 0 % 1.2x Motech IndustriesHerøya II ('06): 320 MW -0.01 -4 6.3x 0 0.00 0 % 1.0x ReneSolaHerøya III-IV ('08-'09): 650 MW -0.02 -11 6.3x 0 0.00 0 % 1.1x SolarWorldSingapore I: 740 MW -0.02 -13 6.3x 0 0.00 0 %

REC Wafer, in EUR (average-->) -0.01 -36 - 0 0.00 0 % 8,630 1.0x 8,908 9.00Cells and modules EUR/W EURm 2010 comparables

Narvik: 237 MW cells 0.00 -1 5.0x 0 0.00 0 % 2.2x Q-CellsGlava : 155 MW modules -0.07 -11 3.1x 0 0.00 0 % 0.7x Suntech PowerSing. 1: 550 MW cells -0.01 -4 6.2x 0 0.00 0 % 1.7x TSLR / YGESing. 1: 590 MW modules -0.09 -51 6.2x 0 0.00 0 %

REC Solar, in EUR (average-->) -0.04 -67 n.m. 0 0.00 0 % 3,140 1.2x 3,768 4.00Premium Face value Prob., contr. Est'd ASP Implied

Above-market contracts & goodwill margin (NOKm) breakage in contract MT/MWSilicon: NOK 3,000m USD/kg 21.87 1,089 20 % 871 1.00 5 % 60 7,900Wafers: NOK 20,000m EUR/Wp 0.07 2,239 60 % 896 1.00 5 % 0.65 3,900Silane gas: NOK 4,500m USD/kg 21.87 1,640 40 % 984 1.00 5 % 60 11,900Silicon powder: NOK 2,800m USD/kg 2.00 160 50 % 80 0.00 0 % 35 12,700

Goodwill 615 0 0.00 0 %Liabilities NOKm

HQ costs -100 6.0x -600 -0.50 -3 %Pension liabilities -60 0.00 0 %

REC Group (NOK) 1,445 12.6x 18,222 18.50 100 % 22,925 1.0x 23,191 23.50Approved (but not committed), and committed capex -2,000 -2.00 -11 %Growth capex: None 0 0.00 0 %NIBD per 2Q 2010 -8,800 -9.00

Estimated market value 7,422 7.50 23,191 23.50Number of shares (m): 997.2 EURUSD 1.260 * BV distributed by invested amount

USDNOK 6.300 EURNOK 7.940



02.09.2010

Sum-of-the-parts Base case: NOK 20.50

Exhibit 10-13: SoTP - Base case

Base: ''EUR 0.75/Wp ex. D&A''



ML Poly I: 3,300 MT (Siemens) 14.50 48 8.0x 2,412 2.50 8 % 2.0x GCL-PolyButte Poly II: 5,300 MT (Siemens) 14.50 77 8.0x 3,874 4.00 13 % 1.1x MEMCML Poly III: 6,500 MT (FBR) 19.58 127 8.0x 6,414 6.50 21 % 0.8x OCI GroupML Poly IV: 4,800 MT (FBR) 19.58 94 8.0x 4,736 4.50 14 % 0.6x WackerNew plant: None - 0 5.6x 0 0.00 0 %



Glomfjord: 660 MW 0.02 15 7.4x 879 1.00 3 % 0.9x LDK SolarHerøya I ('03): 150 MW 0.01 2 7.4x 114 0.00 0 % 1.2x Motech IndustriesHerøya II ('06): 320 MW 0.03 9 7.4x 517 0.50 2 % 1.0x ReneSolaHerøya III-IV ('08-'09): 650 MW 0.04 23 7.4x 1,360 1.50 5 % 1.1x SolarWorldSingapore I: 740 MW 0.04 28 7.4x 1,619 1.50 5 %

REC Wafer, in EUR (average-->) 0.03 76 7.4x 4,489 4.50 14 % 8,630 1.0x 8,908 9.00Cells and modules EUR/W EURm 2010 comparables

Narvik: 237 MW cells 0.01 3 5.8x 132 0.00 0 % 2.2x Q-CellsGlava : 155 MW modules -0.01 -2 3.7x 0 0.00 0 % 0.7x Suntech PowerSing. 1: 550 MW cells 0.02 13 7.3x 765 1.00 3 % 1.7x TSLR / YGESing. 1: 590 MW modules -0.01 -9 7.3x 0 0.00 0 %

REC Solar, in EUR (average-->) 0.00 5 20.6x 896 1.00 3 % 3,140 1.2x 3,768 4.00Premium Face value Prob., contr. Est'd ASP Implied

Above-market contracts & goodwill margin (NOKm) breakage in contract MT/MWSilicon: NOK 3,000m USD/kg 21.87 1,089 20 % 871 1.00 3 % 60 7,900Wafers: NOK 20,000m EUR/Wp 0.07 2,239 40 % 1,343 1.50 5 % 0.65 3,900Silane gas: NOK 4,500m USD/kg 21.87 1,640 25 % 1,230 1.00 3 % 60 11,900Silicon powder: NOK 2,800m USD/kg 2.00 140 50 % 70 0.00 0 % 40 11,100



REC Group (NOK) 3,407 9.2x 31,401 31.50 100 % 22,925 1.0x 23,191 23.50Approved (but not committed), and committed capex -2,000 -2.00 -6 %Growth capex: None 0 0.00 0 %NIBD per 2Q 2010 -8,800 -9.00





02.09.2010

Sum-of-the-parts Bull case: NOK 49.00

Sum-of-the-parts P/BV: NOK 23.50

Exhibit 10-14: SoTP - Bull case

Bull: ''EUR 0.63/Wp ex. D&A + growth''



ML Poly I: 3,300 MT (Siemens) 16.90 56 10.0x 3,514 3.50 5 % 2.0x GCL-PolyButte Poly II: 5,300 MT (Siemens) 16.90 90 10.0x 5,644 5.50 8 % 1.1x MEMCML Poly III: 6,500 MT (FBR) 22.82 148 10.0x 9,344 9.50 14 % 0.8x OCI GroupML Poly IV: 4,800 MT (FBR) 22.82 110 10.0x 6,900 7.00 10 % 0.6x WackerNew plant: 15,000 MT (FBR) 23.66 355 7.0x 11,760 12.00 18 %



Glomfjord: 660 MW 0.05 33 8.9x 2,347 2.50 4 % 0.9x LDK SolarHerøya I ('03): 150 MW 0.03 4 8.9x 305 0.50 1 % 1.2x Motech IndustriesHerøya II ('06): 320 MW 0.06 20 8.9x 1,382 1.50 2 % 1.0x ReneSolaHerøya III-IV ('08-'09): 650 MW 0.08 52 8.9x 3,632 3.50 5 % 1.1x SolarWorldSingapore I: 740 MW 0.08 61 8.9x 4,323 4.50 7 %

REC Wafer, in EUR (average-->) 0.07 170 8.9x 11,989 12.00 18 % 8,630 1.0x 8,908 9.00Cells and modules EUR/W EURm 2010 comparables

Narvik: 237 MW cells 0.03 7 7.0x 367 0.50 1 % 2.2x Q-CellsGlava : 155 MW modules 0.02 3 4.4x 107 0.00 0 % 0.7x Suntech PowerSing. 1: 550 MW cells 0.06 31 8.8x 2,132 2.00 3 % 1.7x TSLR / YGESing. 1: 590 MW modules 0.02 15 8.8x 1,022 1.00 1 %

REC Solar, in EUR (average-->) 0.04 55 8.3x 3,628 3.50 5 % 3,140 1.2x 3,768 4.00Premium Face value Prob., contr. Est'd ASP Implied

Above-market contracts & goodwill margin (NOKm) breakage in contract MT/MWSilicon: NOK 3,000m USD/kg 21.87 1,089 20 % 871 1.00 1 % 60 7,900Wafers: NOK 20,000m EUR/Wp 0.07 2,239 10 % 2,015 2.00 3 % 0.65 3,900Silane gas: NOK 4,500m USD/kg 21.87 1,640 10 % 1,476 1.50 2 % 60 11,900Silicon powder: NOK 2,800m USD/kg 2.00 112 50 % 56 0.00 0 % 50 8,900



REC Group (NOK) 7,412 9.0x 66,634 67.00 100 % 22,925 1.0x 23,191 23.50Approved (but not committed), and committed capex -2,000 -2.00 -3 %Growth capex: 15,000MT FBR Si plant @ USD 85 per kg -6,962 -7.00 -10 %NIBD per 2Q 2010 -8,800 -9.00



Note that in the bull case we have assumed an additional three years' construction period, discounting the value of the new plant by (1+10%)3, and the construction capex by (1+10%)1.5, assuming an even distribution of the capex throughout the three years.



02.09.2010

RENEWABLE ENERGY CORP. (REC.OL)

PROFIT & LOSS NOKm 2007 2008 2009 2010e 2011e 2012eRevenues 6,643 8,035 8,833 13,867 18,009 15,741Other income/gain on salesOperating costs -3,471 -4,795 -7,028 -10,747 -12,635 -11,592EBITDA 3,172 3,240 1,805 3,120 5,374 4,149Depreciation & amortisation -574 -714 -1,352 -2,556 -3,152 -3,710EBIT 1,453 2,526 453 563 2,222 439Associated companies -45 0 -64 -6 -7 10Net interest 251 125 -195 -717 -805 -647Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 842 4,379 -204 2,047 1,409 -198Tax -644 -1,314 136 -690 -299 26Minority interest 0 0 0 0 0 0Net profit 198 3,064 -68 1,357 1,110 -173

Q4 09 Q1 10 Q2 10 Q3 10e Q4 10e2,545 2,360 2,758 4,091 4,658

-1,950 -1,946 -2,303 -3,086 -3,412595 414 455 1,005 1,246

-446 -526 -600 -677 -753149 -112 -145 327 493-52 1 -1 -5 -1

-123 -165 -177 -180 -196

0 0 0 0 0295 742 866 143 296170 -326 -267 -34 -63

0 0 0 0 0465 416 599 109 233

BALANCE SHEET NOKmIntangible assets 1,056 1,414 1,434 1,341 1,261 1,181Operating assets 7,635 20,995 25,285 26,857 24,535 21,413Associated companies 9 288 146 140 133 143Other current assets 1,742 4,223 5,146 8,153 7,426 6,619Cash & cash equivalents 5,816 497 1,702 5,321 9,241 12,654Total assets 17,919 30,209 34,135 42,235 43,017 42,431Equity & minority interest 11,757 16,512 16,909 22,239 23,349 23,176Interest bearing debt 3,804 7,203 12,531 15,166 15,166 15,166Non interest bearing debt 2,359 6,494 4,694 4,829 4,502 4,088Total liabilities & equity 17,919 30,209 34,135 42,235 43,017 42,431Net interest bearing debt -2,012 6,706 9,629 8,645 4,726 1,313

CASH FLOW NOKmCash earnings 772 3,779 1,284 3,913 4,262 3,537Working capital 793 -635 -820 -2,872 400 393Investments -4,302 -9,964 -10,823 -4,050 -750 -507Debt 975 975 5,328 2,635 0 0Equity/dividends 0 0 4,301 3,887 0 0Other -1,582 1,159 470 0 0 0Change in cash & liquids -3,343 -4,687 -261 3,513 3,912 3,423

VALUATION 2007 2008 2009 2010e 2011e 2012eEPS NOK 2.70 6.13 -3.43 1.35 1.11 -0.17EPS adj NOK 4.23 4.32 0.56 0.23 1.44 -0.17Dividend ps NOK 0.00 0.00 0.00 0.00 0.00 0.00Book per share NOK 23.79 33.41 25.44 22.30 23.42 23.24Year end shares Millions 494.2 494.2 664.8 997.2 997.2 997.2Price NOK 276.0 64.50 44.75 16.26 16.26 16.26P/E X nm 10.5 nm 12.1 14.6 nmP/E adj X 65.3 14.9 80.1 70.6 11.3 nmDividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 11.6 1.9 1.8 0.7 0.7 0.7EV/EBITDA adj X nm 11.8 21.7 7.9 3.9 4.2EV/EBIT adj X nm 15.2 nm nm 9.4 39.6EV/Cap employed X 13.8 1.6 1.5 0.8 0.7 0.7EV/Sales X 20.2 4.8 4.5 1.8 1.2 1.1

ASSUMPTIONS/SEGMENTS 2007 2008 2009 2010e 2011e 2012eSilicon (MT) 5783.0 6302.9 7638.0 13495.3 16144.2 17835.6Wafers (MWp) 506.0 582.1 816.8 1434.9 2196.2 2377.9Modules (MWp) 41.8 80.2 110.8 460.8 623.3 638.0SoG si $/kg 53.2 55.3 55.5 50.6 47.7 39.0Wafer EUR/Wp 1.2 1.1 0.9 0.7 0.6 0.5Module EUR/Wp 3.3 2.9 1.7 1.5 1.3 0.9

Share price and targetPrice NOK 16.26Price target 12m NOK 24.00Recommendation BUYKey data per shareBook value NOK 25.44P/Book X 0.64EPS gr09-12e %cagr R-Sales gr09-12e %cagr 21.2%PE10e/EPS gr X 0.0Financial structureMarket cap. NOKm 16,214Net int. bear debt NOKm 8,800Enterprise value NOKm 25,014Shares outst. Millions 997.2Equity/tot assets % 52.7Share price performanceAbs. 1/3/12m -3/3/-60Rel. 1/3/12m -1/1/-77High/Low 12m NOK 53/15OSEBX index 352.730days volatility % 50Company attributesReuters ticker REC.OLEnergyRenewable EnergyNorway

Reporting2Q 2010 19.07.20103Q 2010 26.10.2010

ManagementCEO Ole EngerCFO Bjørn BrennaAddressRenewable Energy Corp.Kjørboveien 291337 Sandvika, NorwayH.p.: www.recgroup.comTel +47 6757 4450




02.09.2010

SolarWorld SELL

Over-exposed to vulnerable premium segments

SWVG vs Nasdaq (12m)

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SolarWorldNasdaq (Rebased)

Share price and targetPrice EUR 8.97Price target 12m EUR 8.00Prev. Recommendation SellKey data per shareBook value EUR 7.75P/Book X 1.16EPS gr09-12e %cagr R-Sales gr09-12e %cagr 15.5%PE10e/EPS gr X 0.0Financial structureMarket cap. EURm 1,003Net int. bear debt EURm 387.8Enterprise value EURm 1,390Shares outst. Millions 111.7Equity/tot assets % 32.9Share price performanceAbs. 1/3/12m -14/4/-40Rel. 1/3/12m -11/12/-63High/Low 12m EUR 18/8Nasdaq index 1390.630days volatility % 32Company attributesReuters ticker SWVG.DEEnergyRenewable EnergyGermany Analyst: Einar Kilde Evensen+47 [email protected] Lauvdal+47 [email protected] Please see the last page for important information.

Not only does SolarWorld have an opaque earnings model, but they have a uniquely high exposure to the premium German market segment. That spells trouble as we see no way for Germany not to impose a cap on its runaway market. Our 2012 EBITDA is cut in half to EUR 132m. With our target price down one notch from EUR 8.50 to EUR 8.00, we reiterate our Sell recommendation. Year end Dec 2007 2008 2009 2010e 2011e 2012eEPS EUR 1.01 1.33 0.53 0.64 0.61 -0.09EPS adj EUR 0.99 1.21 0.53 0.64 0.61 -0.09Dividend ps EUR 0.14 0.15 0.16 0.17 0.17 0.05P/E X 41.1 11.4 28.9 14.1 14.7 nmP/E adj X 42.0 12.5 28.9 14.1 14.7 nmDividend yield % 0.3 1.0 1.0 1.9 1.9 0.6P/Book X 6.74 2.01 1.98 1.09 1.04 1.05EV/Sales X 7.4 2.2 2.0 1.2 1.2 1.3EV/EBITDA adj X 21.1 6.4 9.6 6.5 7.8 15.2EV/EBIT adj X 25.5 7.8 13.6 9.9 13.4 nmRevenue EURm 690 900 1,013 1,340 1,581 1,562EBIT EURm 199 257 152 156 137 31Pre-tax profit EURm 176 188 132 112 93 -14Revenue growth % 35.6 30.4 12.6 32.3 18.0 -1.2EPS growth % -15.0 30.9 -60.1 20.1 -4.3 nmEBIT margin % 28.8 28.6 15.0 11.7 8.7 2.0ROCE adj % 12.5 13.3 7.7 6.2 5.5 1.3ROE % 16.1 16.0 6.8 7.7 7.0 nm

• 2011 looks better, but competition will be fierce in 2012. Chinese low-cost producers are expanding like mad, erecting record-cheap plants in record time. GCL Poly just started ramping up a 600MW wafer plant just four months after construction started. In 2012, our expectation of Germany imposing a 4GW cap means the world must find markets for 18GW of wafers, cells and modules, and Chinese low-cost producers will be ready to fight over market shares. SolarWorld's earnings are uniquely exposed because of their dependence on the German market.

• Earnings visibility is low. We remain concerned that SolarWorld's processing costs are still significantly higher than that of Asian peers, with a correspondingly high risk of margin pressure as markets in 2012 are looking to become oversupplied.

• 2Q: EBIT of EUR 56m once again beat our and street estimates. The group booked other operating income of EUR 17.6m, of which most was regular write-backs of prepayments (a customer walked out on their wafer contract), affecting EBIT correspondingly. On the positive side, net finance cost of EUR 8m was lower than expected.

• Margins set to contract in 2H 2010. While most pure module manufacturers confirm the picture of European module prices being fairly flat from 2Q to 3Q, we see SolarWorld's premium modules to be particularly vulnerable to an even more ruthless competitive climate which will be exacerbated by Germany's next FiT reduction.

• Share near historical lows but pricing isn't. On our estimates, SolarWorld trades at 2010/11 P/Es of 14.1x/14.7x respectively. While this appears reasonably attractive relative to own history, we see other close peers as more attractive at current levels: Suntech Power trades at 2011 P/E of 9.0x, while Trina and Yingli offer 32%-39% lower P/Es and with superior cost structures.



02.09.2010


New estimates Old estimates ChangeEURm 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

Revenues 1,340 1,581 1,562 1,340 1,581 1,707 - - -145EBITDA 240 237 132 240 237 257 - - -125EBIT 156 137 31 156 137 156 - - -125Pre-tax profit 112 93 -14 112 93 112 -0 -0 -125Net profit 71 68 -10 71 68 84 -0 -0 -94

EBITDA margin 18% 15% 8% 18% 15% 15% - - -7% EBIT margin 11.7% 8.7% 2.0% 11.7% 8.7% 9.1% - - -7 %p Pre-tax margin 8.4% 5.9% -0.9% 8.4% 5.9% 6.5% -0 %p -0 %p -7 %p

EPS 0.64 0.61 -0.09 0.64 0.61 0.75 -0.00 -0.00 -0.84EPS adjusted 0.64 0.61 -0.09 0.64 0.61 0.75 -0.00 -0.00 -0.84Dividend per share 0.17 0.17 0.05 0.14 0.14 0.14 0.03 0.03 -0.09



• No changes to 2011 estimates

EURm 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Qe 4Qe

Revenues 167 260 238 235 176 226 233 379 226 383 322 409EBITDA 51 86 103 72 52 61 51 51 44 78 58 60EBIT 39 73 90 55 38 45 35 34 25 56 37 38Pre-tax profit 28 72 51 42 30 36 26 40 12 48 22 29Net profit 33 51 34 34 18 28 15 -2 5 30 16 20

EBITDA margin 31% 33% 43% 31% 30% 27% 22% 14% 19% 20% 18% 15% EBIT margin 23% 28% 38% 23% 21% 20% 15% 9% 11% 15% 12% 9% Pre-tax margin 17% 28% 21% 18% 17% 16% 11% 11% 5% 13% 7% 7%

EPS 0.29 0.46 0.30 0.31 0.17 0.25 0.13 -0.02 0.05 0.27 0.14 0.18EPS adjusted 0.18 0.45 0.30 0.31 0.17 0.25 0.13 -0.02 0.05 0.27 0.14 0.18

201020092008




02.09.2010

SOLARWORLD (SWVG.DE)

PROFIT & LOSS EURm 2007 2008 2009 2010e 2011e 2012eRevenues 690 900 1,013 1,340 1,581 1,562Other income/gain on sales 0 0 0 0 0 0Operating costs -449 -588 -797 -1,100 -1,344 -1,429EBITDA 241 312 216 240 237 132Depreciation & amortisation -42 -55 -64 -84 -99 -101EBIT 199 257 152 156 137 31Associated companies 0 -9 -5 0 0 0Net interest -21 -8 -25 -44 -45 -45Other financial items -2 -58 10 0 0 0Extraordinary items 0 6 0 0 0 0Pre-tax profit 176 188 132 112 93 -14Tax -65 -53 -73 -41 -25 3Minority interest 0 0 0 0 0 0Net profit 111 135 59 71 68 -10

Q4 09 Q1 10 Q2 10 Q3 10e Q4 10e379 226 383 322 409

0 0 0 0 0-328 -182 -305 -264 -349

51 44 78 58 60-17 -19 -21 -21 -2234 25 56 37 38-1 0 0 0 0

-11 -13 -8 -15 -919 0 0 0 0

0 0 0 0 040 12 48 22 29

-42 -7 -19 -7 -90 0 0 0 0

-2 5 30 16 20

BALANCE SHEET EURmIntangible assets 33 34 37 37 37 37Operating assets 350 575 788 1,024 1,224 1,344Associated companies 0 0 0 0 0 0Other current assets 1,006 1,022 907 929 1,089 1,118Cash & cash equivalents 264 432 428 742 366 110Total assets 1,704 2,121 2,217 2,789 2,773 2,666Equity & minority interest 692 841 865 918 967 951Interest bearing debt 680 751 789 1,289 1,209 1,114Non interest bearing debt 333 529 562 582 597 600Total liabilities & equity 1,704 2,121 2,217 2,789 2,773 2,666Net interest bearing debt 416 319 361 547 844 1,005

CASH FLOW EURmCash earnings 153 190 123 155 167 91Working capital -143 -100 -189 -2 -145 -26Investments -115 -269 -318 -320 -300 -220Debt 0 0 51 500 -80 -95Equity/dividends -16 -17 -18 -19 -19 -6Other -10 22 5 0 0 0Change in cash & liquids -131 -174 -347 314 -376 -256

VALUATION 2007 2008 2009 2010e 2011e 2012eEPS EUR 1.01 1.33 0.53 0.64 0.61 -0.09EPS adj EUR 0.99 1.21 0.53 0.64 0.61 -0.09Dividend ps EUR 0.14 0.15 0.16 0.17 0.17 0.05Book per share EUR 6.19 7.53 7.75 8.21 8.65 8.51Year end shares Millions 111.7 111.7 111.7 111.7 111.7 111.7Price EUR 41.75 15.10 15.33 8.97 8.97 8.97P/E X 41.1 11.4 28.9 14.1 14.7 nmP/E adj X 42.0 12.5 28.9 14.1 14.7 nmDividend yield % 0.3 1.0 1.0 1.9 1.9 0.6P/Book X 6.7 2.0 2.0 1.1 1.0 1.1EV/EBITDA adj X 21.1 6.4 9.6 6.5 7.8 15.2EV/EBIT adj X 25.5 7.8 13.6 9.9 13.4 nmEV/Cap employed X 3.2 1.0 1.0 0.6 0.7 0.8EV/Sales X 7.4 2.2 2.0 1.2 1.2 1.3

Share price and targetPrice EUR 8.97Price target 12m EUR 8.00Recommendation SELLKey data per shareBook value EUR 7.75P/Book X 1.16EPS gr09-12e %cagr R-Sales gr09-12e %cagr 15.5%PE10e/EPS gr X 0.0Financial structureMarket cap. EURm 1,003Net int. bear debt EURm 387.8Enterprise value EURm 1,390Shares outst. Millions 111.7Equity/tot assets % 32.9Share price performanceAbs. 1/3/12m -14/4/-40Rel. 1/3/12m -11/12/-63High/Low 12m EUR 18/8Nasdaq index 1390.630days volatility % 32Company attributesReuters ticker SWVG.DEEnergyRenewable EnergyGermany

Reporting2Q 2010 11.08.20103Q 2010 11.11.2010

ManagementCEO Frank AsbeckCFO Philipp KoeckeAddressSolarWorldMartin-Luther-King-Str. 2453175 Bonn, GermanyH.p.: www.solarworld.deTel +49 2285 59200




02.09.2010

SunPower HOLD

All-time cheap, margins are vulnerable

SPWR vs Nasdaq (12m)

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25

30

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SunPowerNasdaq (Rebased)

Share price and targetPrice USD 10.79Price target 12m USD 11.50Prev. Recommendation BuyKey data per shareBook value USD 14.53P/Book X 0.74EPS gr09-12e %cagr -22.3%Sales gr09-12e %cagr 23.1%PE10e/EPS gr X -1.1Financial structureMarket cap. USDm 1,031Net int. bear debt USDm -141.0Enterprise value USDm 890.1Shares outst. Millions 95.56Equity/tot assets % 52.8Share price performanceAbs. 1/3/12m -13/-18/-57Rel. 1/3/12m -8/-13/-66High/Low 12m USD 34/10Nasdaq index 1767.430days volatility % 63Company attributesReuters ticker SPWRA.OEnergyRenewable EnergyUnited States Analyst: Einar Kilde Evensen+47 [email protected] Lauvdal+47 [email protected] Please see the last page for important information.

SunPower's shares trade at all-time lows. On consensus earnings, it's P/E 2010 and 2011 of 7.7x and 5.9x respectively. But our new estimates see 2012 gross profit cut by 41% to USD 299m, pushing the operating profit into red territory. SunPower's technological edge will still be their biggest asset in 2012, securing higher ASPs than anyone else. However, the group's opaque earnings structure still makes us cautious. Our recommendation is reduced from Buy to Hold. Year end Dec 2007 2008 2009 2010e 2011e 2012eEPS USD 0.31 1.11 0.37 0.44 0.64 -0.42EPS adj USD 1.48 2.25 1.14 1.40 1.86 0.54Dividend ps USD 0.00 0.00 0.00 0.00 0.00 0.00P/E X nm 33.3 63.9 24.7 16.9 nmP/E adj X 88.1 16.4 20.7 7.7 5.8 20.1Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 11.79 2.80 1.63 0.74 0.72 0.74EV/Sales X 12.9 2.1 1.3 0.4 0.3 0.4EV/EBITDA adj X nm 11.2 7.2 1.4 1.5 3.5EV/EBIT adj X nm 15.6 15.1 2.8 2.6 nmRevenue USDm 775 1,438 1,524 2,127 2,940 2,841EBIT USDm 16 154 62 63 108 -19Pre-tax profit USDm 17 116 44 56 63 -65Revenue growth % 227.6 85.6 6.0 39.5 38.3 -3.4EPS growth % -57.3 260.5 -66.7 17.7 46.9 nmEBIT margin % 2.1 10.7 4.1 3.0 3.7 nmROCE adj % nm nm nm nm 127.1 7.3ROE % 2.7 8.2 2.4 2.9 4.2 nm US GAAP figures except "EPS adj." = reported non-GAAP figures.

• 2011 estimates up, 2012 down. Through higher ASPs, SunPower's 2011 operating profit is up 31% to USD 108m, and non-GAAP EPS up 17% to USD 1.86. However, the annus horribilis 2012 sees gross margin down 5.7% points to 10.5%, as competition intensifies in a market with spot module ASPs coming close to USD 1.00/W.

• Strong 2Q. SunPower reported non-GAAP EPS for 2Q 2010 of USD 0.15, ahead of consensus' estimate of USD 0.10. Non-GAAP gross margin of 23% was the best since 4Q 2008, but was offset by higher opex. On guidance, there were minimal adjustments to their existing FY2010 target of USD 2,000-2,250m revenue, 20-22% GM and USD 1.35-1.65 non-GAAP EPS.

• Cost competitive, but still losing market share. In their 2Q call, SunPower deliberated on their "efficiency-adjusted" cost position which allegedly accounts for the lower BoS cost on SPWR's 19% panels vs "regular" 14% panels (both on trackers). Using that adjustment, SPWR is targeting USD 1.36/W (1.71/W un-adj.) by 4Q 2010, and USD 1.08/W (1.48/W un-adj.) by 4Q 2011. True, this looks like a comparatively strong cost position, but the new reporting structure allows for no direct observation of these key measures. Further, SunPower still appears to be losing market share in California, making us question the practical merit of these adjustments.

• Pricing is low but be cautious. SPWRA trades at a very attractive P/E on consensus earnings, but our estimates tell a different story. A severely oversupplied market in 2012 is only 18 months away, and we see all western manufacturers struggling to cope with Chinese producers when that happens.



02.09.2010


• New estimates Old estimates ChangeUSDm 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

Revenues 2,127 2,940 2,841 2,127 2,798 3,119 - 143 -279Gross profit 416 512 299 416 487 507 - 26 -207EBIT 63 108 -19 63 82 86 - 26 -106Pre-tax profit 48 63 -65 48 37 41 - 26 -106Net profit GAAP 42 62 -40 42 41 45 - 21 -85

Net profit adj. 135 179 52 135 154 158 - 26 -106

Gross margin 19.6% 17.4% 10.5% 19.6% 17.4% 16.2% - 0 %p -6 %p EBIT margin 3.0% 3.7% -0.7% 3.0% 2.9% 2.8% - 1 %p -3 %p Pre-tax margin 2.3% 2.1% -2.3% 2.3% 1.3% 1.3% - 1 %p -4 %p

EPS (US GAAP) 0.44 0.64 -0.42 0.44 0.43 0.46 - 0.21 -0.88EPS adj. (non-GAAP) 1.40 1.86 0.54 1.40 1.59 1.64 - 0.27 -1.10



• USDm 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Qe 4Qe

Revenues 274 383 382 398 212 299 465 548 347 384 465 930Gross profit 51 84 102 112 32 41 100 111 72 88 74 182EBIT 13 36 50 55 -18 -9 46 43 -3 -2 -16 83Pre-tax profit 12 29 42 33 -30 6 37 31 -21 31 -31 70Net profit GAAP 11 24 20 20 -11 11 17 6 9 -16 -24 54

Net profit adj. 31 49 51 59 -0 13 47 46 5 14 12 104

Gross margin 18.8% 22.0% 26.7% 28.1% 15.2% 13.6% 21.5% 20.3% 20.7% 22.9% 16.0% 19.6% EBIT margin 4.7% 9.4% 13.1% 13.9% -8.5% -3.0% 9.9% 7.8% -0.8% -0.5% -3.4% 9.0% Pre-tax margin 4.3% 7.6% 10.9% 8.4% -14.2% 2.0% 7.9% 5.7% -6.2% 8.0% -6.7% 7.5%

EPS (US GAAP) 0.14 0.34 0.29 0.34 -0.12 0.16 0.21 0.09 0.13 -0.07 -0.23 0.59EPS adj. (non-GAAP) 0.37 0.59 0.60 0.69 -0.00 0.14 0.49 0.48 0.05 0.15 0.12 1.08

201020092008




02.09.2010

SUNPOWER (SPWRA.O)

PROFIT & LOSS USDm 2007 2008 2009 2010e 2011e 2012eRevenues 775 1,438 1,524 2,127 2,940 2,841Other income/gain on sales 0 0 0 0 0 0Operating costs -703 -1,204 -1,360 -1,945 -2,709 -2,719EBITDA 72 233 164 181 231 121Depreciation & amortisation -56 -79 -103 -118 -124 -141EBIT 16 154 62 63 108 -19Associated companies 0 0 0 28 0 0Net interest 9 -38 -26 -75 -45 -45Other financial items -8 0 9 32 0 0Extraordinary items 0 0 0 8 0 0Pre-tax profit 17 116 44 56 63 -65Tax 6 -41 -21 -25 -13 13Minority interest 0 14 10 10 12 11Net profit 23 90 33 42 62 -40

Q4 09 Q1 10 Q2 10 Q3 10e Q4 10e548 347 384 465 930

0 0 0 0 0-477 -321 -350 -455 -820

71 27 35 10 110-28 -29 -36 -26 -2743 -3 -2 -16 83

0 0 28 0 0-11 -16 -30 -15 -14

0 -2 34 0 00 0 8 0 0

31 -21 39 -31 70-25 31 -47 7 -15

3 3 2 3 39 13 -6 -22 57

BALANCE SHEET USDmIntangible assets 236 236 223 194 170 146Operating assets 378 622 682 774 874 957Associated companies 0 0 0 28 28 28Other current assets 755 847 864 939 1,112 1,073Cash & cash equivalents 285 378 927 749 671 586Total assets 1,654 2,083 2,696 2,684 2,855 2,791Equity & minority interest 864 1,099 1,376 1,407 1,457 1,405Interest bearing debt 425 412 786 631 631 631Non interest bearing debt 365 572 535 647 768 755Total liabilities & equity 1,654 2,083 2,696 2,684 2,855 2,791Net interest bearing debt 140 34 -141 -119 -41 44

CASH FLOW USDmCash earnings 79 168 135 160 186 100Working capital -252 -59 -99 37 -52 26Investments -205 -95 -99 -180 -200 -200Debt 425 -13 310 -155 0 0Equity/dividends 167 0 0 0 0 0Other 0 14 10 -26 12 11Change in cash & liquids 214 15 257 -164 -55 -62

VALUATION 2007 2008 2009 2010e 2011e 2012eEPS USD 0.31 1.11 0.37 0.44 0.64 -0.42EPS adj USD 1.48 2.25 1.14 1.40 1.86 0.54Dividend ps USD 0.00 0.00 0.00 0.00 0.00 0.00Book per share USD 11.05 13.20 14.53 14.54 15.06 14.52Year end shares Millions 75.41 80.52 88.96 95.72 96.77 96.77Price USD 130.4 37.00 23.68 10.79 10.79 10.79P/E X nm 33.3 63.9 24.7 16.9 nmP/E adj X 88.1 16.4 20.7 7.7 5.8 20.1Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 11.8 2.8 1.6 0.7 0.7 0.7EV/EBITDA adj X nm 11.2 7.2 1.4 1.5 3.5EV/EBIT adj X nm 15.6 15.1 2.8 2.6 nmEV/Cap employed X nm nm nm 6.1 3.3 6.8EV/Sales X 12.9 2.1 1.3 0.4 0.3 0.4

Share price and targetPrice USD 10.79Price target 12m USD 11.50Recommendation HOLDKey data per shareBook value USD 14.53P/Book X 0.74EPS gr09-12e %cagr -22.3%Sales gr09-12e %cagr 23.1%PE10e/EPS gr X -1.1Financial structureMarket cap. USDm 1,031Net int. bear debt USDm -141.0Enterprise value USDm 890.1Shares outst. Millions 95.56Equity/tot assets % 52.8Share price performanceAbs. 1/3/12m -13/-18/-57Rel. 1/3/12m -8/-13/-66High/Low 12m USD 34/10Nasdaq index 1767.430days volatility % 63Company attributesReuters ticker SPWRA.OEnergyRenewable EnergyUnited States

Reporting2Q 2010 10.08.20103Q 2010 22.10.2010

ManagementCEO Thomas WernerCFO Dennis ArriolaAddressSunPower3939 N. 1st StreetSan Jose, CA 95134 USAH.p.: www.sunpowercorp.comTel +1 408 240 5500




02.09.2010

Suntech Power SELL

Risk of two-way margin squeeze

STP vs Nasdaq (12m)

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Suntech PowerNasdaq (Rebased)

Share price and targetPrice USD 7.74Price target 12m USD 7.00Prev. Recommendation SellKey data per shareBook value USD 9.04P/Book X 0.86EPS gr09-12e %cagr -83.2%Sales gr09-12e %cagr 21.2%PE10e/EPS gr X nsFinancial structureMarket cap. USDm 1,390Net int. bear debt USDm 677.1Enterprise value USDm 2,067Shares outst. Millions 179.6Equity/tot assets % 40.6Share price performanceAbs. 1/3/12m -22/-23/-46Rel. 1/3/12m -17/-18/-55High/Low 12m USD 18/8Nasdaq index 1767.430days volatility % 42Company attributesReuters ticker STP.NEnergyRenewable EnergyUnited States Analyst: Einar Kilde Evensen+47 [email protected] Lauvdal+47 [email protected] Please see the last page for important information.

"Record-cheap" solar shares seem to go nineteen a dozen these days. The cell- and module manufacturer Suntech Power is one of them, trading at P/E and EV/EBITDA near all-time lows. However, we are very concerned about the combination of falling module ASPs and (so far) resilient, even rising wafer prices. Management's idea to expand vertically and start producing wafers also keeps us awake at night, considering the extra capex needed and Suntech's limited experience in this segment. Year end Dec 2007 2008 2009 2010e 2011e 2012eEPS USD 1.13 0.72 0.55 -0.46 0.86 0.00EPS adj USD 1.01 0.65 0.50 0.54 0.85 0.00Dividend ps USD 0.00 0.00 0.00 0.00 0.00 0.00P/E X 72.9 16.3 30.2 nm 9.0 nmP/E adj X 81.3 18.0 33.4 14.3 9.1 nmDividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 13.90 1.62 1.84 0.90 0.82 0.82EV/Sales X 9.5 1.5 2.0 0.9 0.8 0.8EV/EBITDA adj X nm 7.7 11.1 5.7 5.3 12.9EV/EBIT adj X nm 9.3 15.3 11.4 7.4 32.4Revenue USDm 1,348 1,924 1,693 2,709 2,879 3,017EBIT USDm 172 182 174 162 235 60Pre-tax profit USDm 182 113 94 -77 169 0Revenue growth % 125.1 42.7 -12.0 60.0 6.3 4.8EPS growth % 58.4 -36.5 -23.1 nm nm -99.7EBIT margin % 12.7 9.5 10.3 6.0 8.2 2.0ROCE adj % 11.6 8.0 7.0 6.8 9.2 2.6ROE % 19.3 10.1 5.7 nm 9.2 0.0

• 2012 gross profit cut by 44% to USD 266m. With module ASPs down 21% to USD 1.15/W in 2012, Suntech's P&L will look very different that year versus 2011. The competition will become fierce in 2012 as the market is severely oversupplied following Germany's cap and/or 21% FiT reduction.

• 2011 EPS sensitivity: 11% on 1 cent lower wafer cost. A simple and transparent business model has many advantages. One of them is that analysts are able model Suntech's earnings better than peers. However, given the operational and financial leverage very small changes in wafer costs hit EPS hard. For 2011, slicing 1 cent off Suntech's wafer cost increases EPS by 11% to USD 0.93.

• Upwards integration into wafer production is a concern. In the 2Q call, CEO Shi indicated that unstable wafer prices was making management look into the possibility of expanding vertically into wafer production. This concerns us because such a new venture, with Suntech lacking real experience, would mean buying off-the shelf equipment giving the company little or no long-term competitive edge.

• Share on historical lows but pricing isn't. On our adjusted EPS estimates, Suntech trades at 2010/11 P/Es of 14.3x/9.1x respectively. While this appears reasonably attractive relative to own history, we see other close peers as more attractive at current levels. Trina and Yingli offer lower P/Es but being vertically integrated they enjoy more resilient, and therefore more attractive cost structures.



02.09.2010


Our changes to 2012e:

• Module ASP to USD 1.15/Wp from 1.46

• Wafer cost to USD 0.58/Wp from 0.75

• 7% higher shipments

• Some improvements to OpEx cost and net interest

• Tax rate down from 11% to 9%

FY 2010 guidance:

• Shipments of 1.5GW (up from 1.3GW)

• Capex of USD 300-350m (up from USD 200m)

New estimates Old estimates ChangeUSDm 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

Revenues 2,709 2,879 3,017 2,709 2,879 3,153 - - -136Gross profit 465 464 266 465 460 478 - 4 -211EBIT 162 235 60 162 231 236 - 4 -176Pre-tax profit -77 169 0 -77 165 174 - 4 -173Net profit GAAP -82 154 0 -82 151 155 - 4 -154

Net profit adj. 99 154 0 99 151 336 - 4 -335

Gross margin 17.2% 16.1% 8.8% 17.2% 16.0% 15.2% - 0 %p -6 %p EBIT margin 6.0% 8.2% 2.0% 6.0% 8.0% 7.5% - 0 %p -6 %p Pre-tax margin -2.8% 5.9% 0.0% -2.8% 5.7% 5.5% - 0 %p -5 %p

EPS (US GAAP) -0.46 0.86 0.00 -0.46 0.84 0.86 - 0.02 -0.86EPS adj. (non-GAAP) 0.54 0.85 0.00 0.54 0.83 0.85 - 0.02 -0.85

Key figures (USD)ASP (USD/Wp) 1.80 1.56 1.15 1.80 1.56 1.46 - - -0.30COGS (USD/Wp) -1.50 -1.30 -1.04 -1.50 -1.31 -1.22 - 0.00 0.18OpEx (USDm) -388 -453 -435 -388 -453 -470 - - 35Shipments (MW) 1,503 1,780 2,134 1,503 1,780 1,988 - - 147

CoGS compositionProcessing ex D&A -0.46 -0.42 -0.39 -0.46 -0.42 -0.39 - - -D&A -0.06 -0.05 -0.04 -0.06 -0.05 -0.05 - - 0.00Freight -0.03 -0.03 -0.02 -0.03 -0.03 -0.03 - 0.00 0.01Share-based comp. -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 - - -Wafer cost -0.94 -0.80 -0.58 -0.94 -0.80 -0.75 - - 0.17

Total -1.50 -1.30 -1.04 -1.50 -1.31 -1.22 - 0.00 0.18

Cost sharesR&D costs -1.5% -1.4% -1.2% -1.7% -2.0% -1.8% 0 %p 1 %p 1 %pSelling expenses -2.9% -2.9% -2.4% -3.7% -3.9% -3.9% 1 %p 1 %p 1 %pG&A expenses -3.9% -3.7% -3.2% -3.5% -3.7% -3.9% -0 %p 0 %p 1 %p



• No changes to 2011 estimates

Guidance for 3Q 2010

• Shipments +15-20% QoQ

• ASP to "tick down slightly" (we model -3% QoQ)

• Wafer prices (cost) indicated upward

• Comments on 2011 demand: "a lot of positive requests, from all customers". We interpret this as no or few firm orders yet.

USDm 1Q 2Q 3Q 4Q 1Q 2Q 3Qe 4Qe 1Qe 2Qe 3Qe 4Qe

Revenues 316 321 473 584 588 625 715 781 642 681 775 781Gross profit 56 60 84 139 115 114 111 125 90 106 129 140EBIT 21 21 45 87 63 -19 55 62 35 53 68 79Pre-tax profit 2 9 30 52 24 -180 35 44 18 36 52 63Net profit GAAP 2 10 30 50 21 -175 32 40 16 33 47 58

Net profit adj. 2 10 30 50 21 6 32 40 17 33 47 58

Gross margin 17.8% 18.6% 17.8% 23.8% 19.5% 18.2% 15.6% 16.0% 13.9% 15.6% 16.6% 17.9% EBIT margin 6.7% 6.6% 9.5% 14.9% 10.8% -3.1% 7.7% 8.0% 5.5% 7.7% 8.8% 10.1% Pre-tax margin 0.6% 2.9% 6.4% 9.0% 4.0% -28.7% 4.9% 5.6% 2.8% 5.3% 6.7% 8.1%

EPS (US GAAP) 0.01 0.06 0.17 0.28 0.12 -0.97 0.18 0.22 0.09 0.18 0.26 0.32EPS adj. (non-GAAP) 0.01 0.06 0.16 0.27 0.11 0.03 0.18 0.22 0.09 0.18 0.26 0.32

Key figures (USD)ASP (USD/Wp) 3.16 2.59 2.28 2.12 1.92 1.82 1.77 1.73 1.56 1.55 1.58 1.56COGS (USD/Wp) -1.71 -2.00 -1.87 -1.61 -1.55 -1.49 -1.49 -1.46 -1.34 -1.30 -1.31 -1.27OpEx (USDm) -35 -39 -39 -52 -51 -53 -57 -63 -54 -53 -61 -61Shipments (MW) 100 124 208 275 306 343 404 450 405 428 473 475

CoGS compositionProcessing ex D&A -0.48 -0.51 -0.53 -0.48 -0.50 -0.46 -0.45 -0.44 -0.43 -0.42 -0.41 -0.41D&A -0.15 -0.12 -0.07 -0.08 -0.06 -0.06 -0.05 -0.05 -0.06 -0.05 -0.05 -0.04Freight -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03Share-based comp. -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01Wafer cost -1.03 -1.33 -1.23 -1.01 -0.95 -0.93 -0.95 -0.92 -0.81 -0.79 -0.81 -0.78

Total -1.71 -2.00 -1.87 -1.61 -1.55 -1.49 -1.49 -1.46 -1.34 -1.30 -1.31 -1.27

Cost sharesR&D costs -1.6% -1.3% -1.4% -2.2% -1.6% -1.4% -1.4% -1.4% -1.4% -1.4% -1.4% -1.4%Selling expenses -3.6% -3.6% -3.3% -3.5% -3.4% -2.8% -2.8% -2.8% -3.2% -2.8% -2.8% -2.8%G&A expenses -6.0% -7.1% -3.6% -3.1% -3.7% -4.3% -3.7% -3.8% -3.8% -3.7% -3.6% -3.6%

2010 20112009




02.09.2010

SUNTECH POWER (STP.N)

PROFIT & LOSS USDm 2007 2008 2009 2010e 2011e 2012eRevenues 1,348 1,924 1,693 2,709 2,879 3,017Other income/gain on sales 0 0 0 0 0 0Operating costs -1,156 -1,702 -1,454 -2,383 -2,554 -2,865EBITDA 192 222 239 326 325 152Depreciation & amortisation -20 -39 -65 -165 -90 -91EBIT 172 182 174 162 235 60Associated companies -1 0 3 -90 12 12Net interest 7 -25 -94 -89 -78 -72Other financial items 4 -44 9 -59 0 0Extraordinary items 0 0 3 0 0 0Pre-tax profit 182 113 94 -77 169 0Tax -13 -4 -3 -5 -15 0Minority interest 3 1 0 0 0 0Net profit 171 111 91 -82 154 0

Q4 09 Q1 10 Q2 10 Q3 10e Q4 10e584 588 625 715 781

0 0 0 0 0-476 -506 -544 -639 -694108 82 81 76 87-21 -19 -100 -21 -2487 63 -19 55 62

6 5 -101 3 3-24 -23 -23 -23 -22-13 -22 -37 0 0-4 0 0 0 052 24 -180 35 44-3 -3 5 -3 -40 0 0 0 0

50 21 -175 32 40

BALANCE SHEET USDmIntangible assets 116 264 253 173 173 173Operating assets 307 831 887 1,142 1,212 1,281Associated companies 1 221 257 167 179 191Other current assets 726 743 1,198 1,402 1,369 1,336Cash & cash equivalents 521 578 833 300 300 300Total assets 1,957 3,249 3,989 3,746 3,795 3,843Equity & minority interest 906 1,106 1,619 1,537 1,691 1,691Interest bearing debt 872 1,667 1,510 1,446 1,341 1,359Non interest bearing debt 179 476 860 763 763 793Total liabilities & equity 1,957 3,249 3,989 3,746 3,795 3,843Net interest bearing debt 351 1,088 677 1,146 1,041 1,059

CASH FLOW USDmCash earnings 192 150 156 82 244 92Working capital -151 113 196 -302 33 62Investments -215 -486 -161 -340 -160 -160Debt 248 254 80 -64 -106 18Equity/dividends 0 0 0 0 0 0Other 1 0 -3 90 -12 -12Change in cash & liquids 74 31 269 -533 0 0

VALUATION 2007 2008 2009 2010e 2011e 2012eEPS USD 1.13 0.72 0.55 -0.46 0.86 0.00EPS adj USD 1.01 0.65 0.50 0.54 0.85 0.00Dividend ps USD 0.00 0.00 0.00 0.00 0.00 0.00Book per share USD 5.92 7.23 9.04 8.58 9.44 9.45Year end shares Millions 151.7 154.7 166.0 179.0 179.0 179.0Price USD 82.32 11.70 16.63 7.74 7.74 7.74P/E X 72.9 16.3 30.2 nm 9.0 nmP/E adj X 81.3 18.0 33.4 14.3 9.1 nmDividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 13.9 1.6 1.8 0.9 0.8 0.8EV/EBITDA adj X nm 7.7 11.1 5.7 5.3 12.9EV/EBIT adj X nm 9.3 15.3 11.4 7.4 32.4EV/Cap employed X 8.3 0.7 1.1 0.8 0.7 0.8EV/Sales X 9.5 1.5 2.0 0.9 0.8 0.8

ASSUMPTIONS/SEGMENTS 2007 2008 2009 2010e 2011e 2012eASP/Wp (USD) 3.7 3.6 2.2 1.8 1.6 1.2Cost/Wp (USD) 2.9 2.9 1.8 1.5 1.3 1.0Production MW 358.7 497.5 706.4 1502.8 1780.0 2134.0

Share price and targetPrice USD 7.74Price target 12m USD 7.00Recommendation SELLKey data per shareBook value USD 9.04P/Book X 0.86EPS gr09-12e %cagr -83.2%Sales gr09-12e %cagr 21.2%PE10e/EPS gr X nsFinancial structureMarket cap. USDm 1,390Net int. bear debt USDm 677.1Enterprise value USDm 2,067Shares outst. Millions 179.6Equity/tot assets % 40.6Share price performanceAbs. 1/3/12m -22/-23/-46Rel. 1/3/12m -17/-18/-55High/Low 12m USD 18/8Nasdaq index 1767.430days volatility % 42Company attributesReuters ticker STP.NEnergyRenewable EnergyUnited States

ManagementCEO Dr. Zhengrong SHICFO Amy Yi ZHANGAddressSuntech Power17-6 Changjiang South RoadWuxi, 214028 ChinaH.p.: www.suntech-power.comTel +86 510 8534 3321




02.09.2010

Vestas Wind Systems BUYPW for 2010 reduce visibility, focus on orders going forward

VWS vs OSEBX (12m)

200

250

300

350

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450

500

aug okt des feb apr jun

Vestas Wind Systems A/SOSEBX (Rebased)

Share price and targetPrice DKK 224.7Price target 12m DKK 350.0Prev. Recommendation BuyKey data per shareBook value EUR 17.56P/Book X 1.72EPS gr09-12e %cagr 9.5%Sales gr09-12e %cagr 11.4%PE10e/EPS gr X 3.0Financial structureMarket cap. DKKm 45,772Market cap. EURm 6,147Net int. bear debt EURm 101.3Enterprise value EURm 6,248Shares outst. Millions 203.7Equity/tot assets % 51.8Share price performanceAbs. 1/3/12m -19/-23/-41Rel. 1/3/12m -17/-24/-65High/Low 12m DKK 398/225OSEBX index 44.230days volatility % 99Company attributesReuters ticker VWS.COIndustrialsCapital GoodsDenmark Analyst: Trygve Lauvdal+47 [email protected] Kilde Evensen+47 [email protected]

Please see the last page for important information.

Vestas recently lowered revenue guidance for 2010 to EUR 6bn from EUR 7bn, surprising considering order intake seemed to be on track. This has reduced visibility and creates short-term risk since order intake for the reminder of 2010 has become very important. We believe the company will deliver order intake in line with guidance, implying a solid backlog going into 2011 and improving outlook. However, visibility in future order intake is low, implying risk for disappointing order intake. As a leading player in a market with solid long-term growth outlook, we consider Vestas a good bet in the renewable energy sector. However, short-term visibility is low and risk high. Year end Dec 2007 2008 2009 2010e 2011e 2012eEPS EUR 1.70 2.76 2.84 1.05 3.28 4.03EPS adj EUR 1.93 2.90 3.14 1.24 3.49 4.12Dividend ps EUR 0.00 0.00 0.00 0.00 0.00 0.00P/E X 43.5 14.8 15.0 28.7 9.2 7.5P/E adj X 38.4 14.1 13.6 24.4 8.6 7.3Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 9.04 3.86 2.58 1.72 1.45 1.21EV/Sales X 2.7 1.2 1.3 1.0 0.8 0.7EV/EBITDA adj X 22.1 8.8 7.0 8.6 4.1 3.3EV/EBIT adj X 25.9 10.0 8.5 15.6 5.4 4.5Revenue EURm 4,861 6,035 6,636 5,987 7,975 9,172EBIT EURm 467 668 856 322 957 1,126Pre-tax profit EURm 467 714 809 297 929 1,141Revenue growth % 26.1 24.2 10.0 -9.8 33.2 15.0EPS growth % 183.8 62.2 3.0 -63.1 212.9 22.8EBIT margin % 9.6 11.1 12.9 5.4 12.0 12.3ROCE adj % 29.8 33.7 23.9 8.5 21.2 21.3ROE % 20.8 26.1 17.2 6.0 15.8 16.2

• Lower 2010 outlook reduce visibility. Vestas lowered their outlook at the Q2-presentation to revenue of EUR 6bn and EBIT margin of 5-6% (prev. EUR 7bn and EBIT margin of 10-11%). This was a surprise, considering the strong order intake in 2010. Going forward, the main focus will be on order intake, reducing visibility considerably. We do, however, expect Vestas to report orders in line with guidance of 8-9 GW.

• Utilization expected to improve. The company is ramping up production capacity and by the end of 2010 Vestas will have the capacity to produce 10 GW of power. In 2011, utilization is expected to be low, increasing to 80-90% in 2012.

• Orders strong, taking market share. The main uncertainty in 2010 has been order intake, especially in the US. As of today, the company has signed orders for 5.8 GW and is on track to secure orders in line with guidance. Considering general order intake in the wind industry, we believe Vestas is taking market share.

• Significant upside potential, but high risk. The key for the Vestas share going forward is order intake. If they secure orders in line with guidance, we estimate an order backlog above 5 GW going into 2011. This is the highest order backlog ever at the start of a new year, and is expected to give strong revenue and earnings growth in 2011. Using our estimates, Vestas trades at a 2011 P/E below 10x, implying significant upside potential.



02.09.2010

Charts and tables

Exhibit 10-21: VWS: Changes to estimates

We have lowered our 2010 estimates according to reduced guidance, 2011 reduced slightly on reduced visibility

EURm

2010E 2011 E 2012 E 2010E 2011 E 2012 E 2010E 2011 E 2012 E

Revenues 5,787 7,980 9,177 6,922 8,235 9,707 -1,135 -255 -530COGS 4,907 6,694 7,699 5,666 6,667 7,859 -760 27 -160 Gross margin 15.2 % 16.1 % 16.1 % 18.1 % 19.0 % 19.0 % -2.9 % -2.9 % -2.9 %EBIT 282 957 1,127 701 983 1,207 -419 -25 -80Net financial items -26 -29 13 -19 -11 33 -7 -19 -20EBT 257 928 1,140 682 972 1,240 -425 -44 -100Minorities and taxes 72 260 319 191 272 347 -119 -12 -28Net profit 185 668 821 491 700 893 -306 -32 -72EPS (reported) 0.91 3.28 4.03 2.41 3.44 4.38 -1.50 -0.16 -0.35

EBIT margin 4.9 % 12.0 % 12.3 % 10.1 % 11.9 % 12.4 % -5.2 % 0.1 % -0.1 %

ChangeOld estimates New estimates


Exhibit 10-22: VWS: Quarterly estimates

We expect a solid improvement in H2, uncertainty relates to split between Q3 and Q4

EURm Q1/09 Q2/09 Q3/09 Q4/09 Q1/10E Q2/10 Q3/10E Q4/10E

Revenues 1,105 1,211 1,814 2,506 755 1,007 1,750 2,275COGS 889 988 1,437 1,881 711 963 1,413 1,820 Gross margin 19.5 % 18.4 % 20.8 % 24.9 % 5.8 % 4.4 % 19.3 % 20.0 %EBIT 76 78 244 458 -96 -148 150 377Net financial i tems 2 -19 -15 -16 -18 -17 5 5EBT 78 59 229 443 -114 -165 154 381Minorities and taxes 22 16 64 128 -32 -46 43 107Net profit 56 43 165 315 -82 -119 111 275EPS (reported) 0.30 0.21 0.81 1.55 -0.40 -0.58 0.54 1.35

EBIT margin 6.9 % 6.4 % 13.5 % 18.3 % -12.7 % -14.7 % 8.5 % 16.6 %


Exhibit 10-23: VWS: Backlog

Based on order intake in line with guidance for 2010, Vestas should enter 2011 with a healthy backlog.

Key investment risk is considered disappointing order intake for reminder of 2010.

Backlog (MW)

0

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2000

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6000

7000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010

MW




02.09.2010

VESTAS WIND SYSTEMS A/S (VWS.CO)

PROFIT & LOSS EURm 2007 2008 2009 2010e 2011e 2012eRevenues 4,861 6,035 6,636 5,987 7,975 9,172Other income/gain on sales 0 0 0 0 0 0Operating costs -244 -376 -367 -311 2 85EBITDA 581 803 1,074 609 1,300 1,578Depreciation & amortisation -114 -135 -218 -287 -343 -451EBIT 467 668 856 322 957 1,126Associated companies 0 0 0 0 0 0Net interest 0 46 0 15 13 14Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 467 714 809 297 929 1,141Tax -152 -203 -230 -83 -260 -319Minority interest 0 0 0 0 0 0Net profit 315 511 579 214 669 821

Q4 09 Q1 10 Q2 10 Q3 10e Q4 10e2,506 755 1,007 1,750 2,475

0 0 0 0 0-105 -88 -113 -110 0520 -44 -69 228 495-62 -52 -79 -78 -78458 -96 -148 150 417

0 0 0 0 0

0 0 0 0 0443 -114 -165 154 422

-128 32 46 -43 -1180 0 0 0 0

315 -82 -119 111 304

BALANCE SHEET EURmIntangible assets 507 644 812 1,149 1,480 1,804Operating assets 520 759 1,107 1,483 1,886 2,155Cash & cash equivalents 1,024 644 1,520 1,282 1,205 1,341Total assets 4,261 5,139 6,386 6,909 8,401 9,633Equity & minority interest 1,516 1,955 3,364 3,578 4,247 5,068Interest bearing debt 150 123 351 351 351 351Non interest bearing debt 2,630 3,230 2,720 3,029 3,852 4,262Total liabilities & equity 4,296 5,308 6,435 6,958 8,450 9,682Net interest bearing debt -614 -39 -137 101 178 42

CASH FLOW EURmCash earnings 437 743 862 501 1,012 1,273Working capital 243 -548 -783 261 -12 -92Investments -337 -770 -26 -1,000 -1,077 -1,044Debt -24 -27 228 0 0 0Equity/dividends 0 0 45 0 0 0Change in cash & liquids 319 -602 326 -238 -77 136

VALUATION 2007 2008 2009 2010e 2011e 2012eEPS EUR 1.70 2.76 2.84 1.05 3.28 4.03EPS adj EUR 1.93 2.90 3.14 1.24 3.49 4.12Dividend ps EUR 0.00 0.00 0.00 0.00 0.00 0.00Book per share EUR 8.19 10.56 16.51 17.56 20.85 24.88Year end shares Millions 185.2 185.2 203.7 203.7 203.7 203.7Price DKK 551.1 303.5 317.1 219.2 219.2 219.2P/E X 43.5 14.8 15.0 28.0 9.0 7.3P/E adj X 38.4 14.1 13.6 23.8 8.4 7.1Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 9.0 3.9 2.6 1.7 1.4 1.2EV/EBITDA adj X 22.1 8.8 7.0 8.3 4.0 3.2EV/EBIT adj X 25.9 10.0 8.5 15.1 5.3 4.3EV/Cap employed X 7.7 3.4 2.0 1.3 1.1 0.9EV/Sales X 2.7 1.2 1.3 1.0 0.8 0.7

Share price and targetPrice DKK 219.2Price target 12m DKK 350.0Recommendation BUYKey data per shareBook value EUR 17.56P/Book X 1.68EPS gr09-12e %cagr 9.5%Sales gr09-12e %cagr 11.4%PE10e/EPS gr X 2.9Financial structureMarket cap. DKKm 44,652Market cap. EURm 5,998Net int. bear debt EURm 101.3Enterprise value EURm 6,100Shares outst. Millions 203.7Equity/tot assets % 51.8Share price performanceAbs. 1/3/12m -21/-24/-41Rel. 1/3/12m -18/-26/-68High/Low 12m DKK 398/219OSEBX index 44.130days volatility % 99Company attributesReuters ticker VWS.COIndustrialsCapital GoodsDenmark

ManagementCEO Ditlev EngelCFO Henrik NørremarkAddressVestas Wind Systems A/SAlsvej 21 8940 Randers SV, DenmarkH.p.: N.A.Tel

Analyst: Trygve Lauvdal+47 [email protected]



02.09.2010

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