Sector Primer – Solar Industry

1. Sector Primer – Solar Industry Prepared by Queen’s Global Markets, a Commerce Society Partner Solar Industry Background History Technical Description 1839 - Edmund Becquerel discovers that certain materials can generate electricity when exposed to sunlight. Primitive models to harness this energy were made of selenium. The phenomenon is explained by the photoelectric effect - electrons are emitted from matter as a consequence of their absorption of energy. 1950’s - Bell Labs began using silicon to produce photovoltaic (PV) cells 1970’s - 1973 Oil embargo and large tax incentives boosted both R&D and demand 1980’s - Reduction of oil prices and tax incentives crucified 1970s momentum Solar power is produced using either photovoltaics (“PVs”) alone or concentrated solar power in conjunction with PVs (e.g., Solar II Mojave Desert).PVs are composed of two layers (semiconductors) of crystalized silicon; each has undergone a doping process to create opposite charges. When the PVs are exposed to sunlight, electrons are excited and, due to the photoelectric effect, released from the negative semiconductor and channelled through an external circuit to create current. There are three types of PVs (Single Crystal, photocrystaline, amorphous silicon). Substitutes for silicon are being researched for more efficient cells and lower production costs such as gallium-arsenide and cadmium telluride. Solar power is not available at night so storage is an issue for maintaining a constant energy supply. Thermal mass systems can store thermal energy for large commercial projects and use readily available materials with high specific heat capacities (e.g. Salt, water, earth) to store the energy with great efficiency (up to 99%). Rechargeable batteries typically fulfill domestic solar power storage requirements. The process of harnessing of solar energy creates no harmful emissions. Canada is also a well-known player in the solar power industry; a plant in Sarnia, Ontario was the largest plant in the world until 2010. Source: renewable-solarenergy.com Economic Viability Solar vs. the Rest Solar Race between U.S. and China • Solar has long been the center of governmental subsidization, with headline news such as the $535MM loan to Solyndra, a failed thin-film solar cell developer, from federal taxpayers. Since then, solar’s long-term economic feasibility has been heavily debated. • A fair assessment of solar’s viability can only be done by comparing its costs with other energy sources. A Forbes comparison study showed the following cost figures: • Coal: $41.44bn / 1tr kWhrs • Nuclear: $34.9bn / 1tr kWhrs • Solar: $76.8bn / 1tr kWhrs • Hydro: $32.8bn / 1tr kWhrs • Forbes claimed that solar will continue to fall behind due to extremely expensive infrastructure costs. At the same time, solar incurs one of the lowest maintenance and operating costs among the other options. • The supply chain for silicon solar manufacturing consists of Polycrystalline silicon, ingot, wafer, cell, module and system, in additional to PP&E and intermediate products. Global shipments have grown more than 53% CAGR over the past decade. Globally, $44bn of debt have been allocated for solar funding, 9% of which came from the U.S., in 2010. Furthermore, VC and PE investments were at $2.3bn, with 76% coming from the U.S. • In August 2010, China passed the U.S. to become the world’s biggest energy consumer. Currently, China is the world’s leader in production with a 55% market share (mainly lead by four companies: Trina Solar, Yingli, JA Solar and Suntech – a combined 131% CAGR over the past decade). 95% of production is exported. U.S. holds technologies that are believed to have industry-shaking potential, albeit most are in states of infancy. In both countries, access to capital and low legal barriers are keys to success. China has long relied on heavy government subsidies, reducing cost of capital from 26% to 18% (the U.S. is at ~18% as of 2011), estimated by the U.S. Department of Energy. • Benchmarked Regional Costs • ($US/ Watt - Unsubsidized)

2. Sector Primer – Solar Industry Prepared by Queen’s Global Markets, a Commerce Society Partner Industry Trends Industry Models Types and Uses • Industry has been around since the 1970s • There are three main industry models: • Ontario follows a system where the government contracts a solar energy provider for certain period of time at a fixed price • Quebec follows a system where their solar energy operations are handled internally by Hydro Quebec • U.S. and many Europeancountries follow a system where Energy prices are deregulated, and providers sell at market prices • Profitability is entirely dependent upon what percentage governments allocate to solar energy. • Two types of businesses: Panel Manufacturers, Owners of energy producing facilities • Largest panel manufacturers are Suntech, First Solar, Ying Li Solar, and Chinese owned Canadian Solar • Production prices for this industry have been falling dramatically in the past 30 years • They have fallen to the point where cost for production are matching that of other forms of energy Weak Outlook for the Solar Industry? Cuts in Subsidies Expected Growing Supply Glut • German government is cutting solar subsidies by 30% in what is the world’s largest solar panel market • Solar panel installations are expected to fall for the first time in a decade by 10% • Reduced subsidies in Europe and softening demand in the US will result in China being the main growth driver for the industry • Polysilicon prices have dropped by 90% since 2007 fuelling a glut in panels • Global PV cell factory supply is expected to exceed demand by 53% in 2012 • Oversupply in the heavily-subsidized Chinese market has led to a number of bankruptcies • If prices fail to increase, the industry will be downsized • Global Solar Panel Installations • (Gigawatts) Price per Watt of PV Modules Sold