CLEANTECH SECTOR REPORT SAVVIAN, LLC 150 CALIFORNIA STREET, SAN FRANCISCO, CA 94111 | www.savvian.com | 415.318.3600 MARKET HIGHLIGHTS Inside this issue In keeping with the broader equity markets, cleantech stocks were pressured in the middle part of Market Highlights Q3 but most cleantech sectors rebounded to finish the quarter on an up-tick Summary Performance Solar stocks were down over 12% in mid-August but finished the quarter up 18.2%, once again Observations giving the strongest quarterly performance amongst cleantech sectors Regulatory Environment Geo / Hydro and Wind stocks also faced a difficult August, finishing the quarter up 3.7% and Industry News 14.9%, respectively Trading Data Fuel Cell and Biofuels stocks have continued to face a difficult year as they posted losses of 9.8% Transaction Activity and 22.3% in Q3, respectively Savvian Update The Cleantech Venture Network tracked 74 private equity investments in cleantech companies raising a total of $1.5bn in Q3 versus 84 private equity investments raising a total of $1.1bn in Q2 San Francisco Office SUMMARY PERFORMANCE 150 California Street AV / Revenue AV / EBITDA Price / EPS San Francisco, CA 94111 CY 07E CY 08E CY 07E CY 08E CY 07E CY 08E Phone: (415) 318-3600 Geo / Hydro 6.9 x 3.4 x 21.8 x 13.3 x 72.4 x 32.5 x Efficiency Technology 10.3 x 5.7 x NM 30.7 x NM 73.0 x New York Office Solar 4.3 x 2.3 x 21.7 x 11.9 x 30.4 x 20.0 x 7 Times Square, Wind 2.9 x 2.2 x 20.8 x 13.2 x 40.9 x 24.6 x Biofuels 1.1 x 0.6 x 11.7 x 4.9 x 24.7 x 11.7 x Suite 2501 Fuel Cells 2.7 x 4.1 x NM NM NM NM New York, NY 10036 Phone: (212) 999-7090 Chicago Office 130 71 S Wacker Drive, Suite 1230 Chicago, IL 60606 120 18.2% 17.5% Phone: (312) 212-8210 14.9% 110 3.7% 100 (0.8%) For further information, Price Indexed 90 (9.8%) please contact: Mark McInerney 80 Managing Director (22.3%) Phone: (415) 318-3654 [email protected] 70 07/02/07 07/13/07 07/27/07 08/08/07 08/21/07 08/31/07 09/14/07 09/28/07 Bill Baker Date Director Solar Biofuels Fuel Cell Geo / Hydro Wind Efficiency Technology Phone: (415) 318-3641 Oil Futures [email protected] Note: Multiples as of 9/28/07. Source: Factset. OBSERVATIONS Research suggests that there will be adequate increases in polysilicon production over the next three years to satisfy growing demand and support growth in the solar PV sector. The research supports the view the solar PV market – silicon and thin-film – will continue expanding Street research and press attention have focused on the large amount of power consumed by datacenters, with approximately 10% annual growth until 2010. The Street estimates that by 2010, 34 1,000 MW dedicated electrical generation facilities would be needed to satisfy datacenter power consumption – which many expect will force the computer industry to become more sensitive to power management Even though wind power capacity has grown in the US by as much as 22% in the last five years, and the US installed more new wind last year than any other country, inconsistent government support has led to boom and bust cycles, resulting in a constrained domestic wind industry New financing mechanisms are proliferating for solar as utilities and investment funds arrange for power purchasing arrangements (PPAs) for both residential and commercial consumers of solar generated electricity. This is expected to help the industry overcome one of its biggest hurdles – the high upfront cost of installation of solar PV Attention has recently been drawn to the fact that one of the corollary benefits of having more hybrid electric and plug-in hybrid vehicles is their ability to serve a dual function as power storage that could be utilized to deliver power to a grid or to homes Source: News, Wall Street research. CLEANTECH UNIVERSE PERFORMANCE 160% 146% 140% 120% 109% 100% 90% 80% 60% 51% 34% 36% 39% 39% 40% 30% 29% 22% 20% 20% 14% 15% 14% 14% 0% (20%) (9%) (8%) Last Month YTD 1 Year (19%) (40%) (37%) (32%) (60%) Oil Futures Geo / Hydro Efficiency Solar Wind Biofuels Fuel Cells Technology Best Performers – Last Month Best Performers – YTD Best Performers – 1 Year Australian Biodiesel 102% First Solar 295% Wafer Works 329% Yingli Green Energy 92% Hoku Scientific 271% Tower Tech Hldgs. 253% Akeena Solar 91% Solon AG 263% Nordex AG 245% China Sunergy 81% Akeena Solar 208% REC 214% Source: Factset. SAVVIAN, LLC 150 CALIFORNIA STREET, SAN FRANCISCO, CA 94111 | www.savvian.com | 415.318.3600 REGULATORY ENVIRONMENT In the US Senate in July, a filibuster by Republicans prevented a vote on two renewable energy measures that Democrats hoped to append to the larger energy bill. One measure would establish a national renewables portfolio standard that would require electric utilities to get 15% of their energy from renewables by 2020 and the other would have taken away tax breaks for large oil companies worth over $28 billion over the next 10 years The German Ministry for the Environment has issued new rules for the Renewable Energy Sources Act that increase tariffs significantly for certain technologies such as offshore wind power, hydroelectricity, and geothermal energy beginning in 2009. The Act is reviewed every three years and has been instrumental to Germany’s global lead in the adoption of solar, wind, and other renewable energy technologies The press reported in late July that a one-sentence provision that was inserted without debate at the behest of the nuclear power industry into the recently-passed Senate energy bill could provide tens of billions of dollars in loan guarantees for developers of new nuclear power plants Now that Congress has resumed, it is expected that renewable portfolio standards and vehicle efficiencies will again be a popular topic as House-Senate conference committee discussions commence The USDA approved a guaranteed $97 million loan to help businesses in Georgia, Illinois and North Carolina develop renewable energy sources Six Western states and two Canadian provinces have formed a coalition called the Western Climate Initiative to reduce carbon emissions, following California’s legislative lead with the passage of AB32, requiring the state to reduce emissions 25 percent by 2020 INDUSTRY NEWS In July, First Solar signed up $1.28 billion of new contracts to supply a total of 685MW of capacity sales through 2012, underscoring the tremendous demand in the market place for solar PV product Louisiana, Kentucky and Nebraska tendered for 850MW of renewable power. Specifically, Louisiana Gas and Electric and Kentucky Utilities have issued RFPs seeking up to 750 MW of long-term renewable energy supplies beginning June 1, 2008 for up to 30 years Cleantech America LLC announced plans in July to build the world’s largest solar power farm near Fresno, California. The 80MW farm will occupy up to 640 acres and upon completion in 2011 will be 17 times larger than the largest U.S. solar farm Solar Power 2007, the largest solar conference in the U.S., took place over four days in late September in Long Beach, CA. 9,500 business representatives and 3,000 people from the general public visited the 2007 Solar Power Expo and attended conference sessions and seminars International Power announced that it has entered into an agreement to acquire the Trinergy wind portfolio, including 581 MW in operation and 67MW under construction, from private investors. Following the transaction, International Power will have 1,013 MW of operating wind capacity and another 117 MW in development Large hotel chains have begun to offer “green” hotel rooms; the Starwood Hotels & Resorts have inaugurated a new line of environmentally and socially conscious hotels known as Element, featuring recyclable products, towels and sheets made with organically grown fibers, efficient light bulbs and HVAC systems, and nontoxic cleaners Tower Tech Holdings, Inc., a wind tower manufacturer, has agreed to acquire Brad Foote Works, Inc., a producer of gearing systems for wind and other energy related industries, for total consideration of cash and shares of $123 million. The deal comes amidst increasing consolidation in the wind turbine component supply chain SunPower and First Solar both completed follow-on equity / equity-linked transactions in Q3 raising an aggregate of $976MM In July, the International Energy Agency released a medium-term forecast of energy supplies and needs through 2012, concluding that oil supply, for both oil and natural gas, will be tighter than it had previously forecast. With sustained higher prices, governments, producers, and consumers are expected to more aggressively pursue alternatives, likely benefiting solar PV, wind power, and hybrid vehicle technologies Source: Wall Street research, news releases. SAVVIAN, LLC 150 CALIFORNIA STREET, SAN FRANCISCO, CA 94111 | www.savvian.com | 415.318.3600 CLEANTECH COMPARABLE COMPANY UNIVERSE Stock LTM EPS Revenue Price (USD) Price Range Equity Aggregate AV / Revenue AV / EBITDA Price / EPS Long Term CY 07E Growth 9/28/07 Low High Value Value CY 07E CY 08E CY 07E CY 08E CY 07E CY 08E Growth PEG 08E/07E Geo / Hydro Ormat Technologies Inc. $46.34 $32.01 $49.21 $1,767 $2,170 7.2 x 5.4 x 21.8 x 13.3 x 72.4 x 32.5 x 22.8% 3.2 x 32.1% Ocean Power Technologies Inc. 15.72 10.00 27.50 160 48 6.7 1.3 NA NA NM NM 30.0% NM 407.7% Mean/Median 6.9 x 3.4 x 21.8 x 13.3 x 72.4 x 32.5 x 26.4% 3.2 x 219.9% Efficiency Technology EnerNOC Inc.