The Economics of Solar Power

The Economics of Solar Power

The Economics of Solar Power Solar Roundtable Kansas Corporation Commission March 3, 2009 Peter Lorenz President Quanta Renewable Energy Services SOLAR POWER - BREAKTHROUGH OR NICHE OPPORTUNITY? MW capacity additions per year CAGR +82% 2000-08 Percent 5,600-6,000 40 RoW US 40 +43% Japan 10 +35% 2,826 Spain 55 1,744 1,460 1,086 598 Germany 137 241 372 427 2000 01 02 03 04 05 06 07 2008E Demand driven by attractive economics • Strong regulatory support • Increasing power prices • Decreasing solar system prices • Good availability of capital Source: McKinsey demand model; Solarbuzz 1 WE HAVE SEEN SOME INTERESTING CHANGES IN THE U.S. RECENTLY 2 TODAY’S DISCUSSION • Solar technologies and their evolution • Demand growth outlook • Perspectives on solar following the economic crisis 3 TWO KEY SOLAR TECHNOLOGIES EXIST Photovoltaics (PV) Concentrated Solar Power (CSP) Key • Uses light-absorbing material to • Uses mirrors to generate steam characteristics generate current which powers turbine • High modularity (1 kW - 50 MW) • Low modularity (20 - 300 MW) • Uses direct and indirect sunlight – • Only uses direct sunlight – specific suitable for almost all locations site requirements • Incentives widely available • Incentives limited to few countries • Mainly used as distributed power, • Central power only limited by some incentives encourage large adequate locations and solar farms transmission access ~ 10 Global capacity ~ 0.5 GW, 2007 Source: McKinsey analysis; EPIA; MarketBuzz 4 THESE HAVE SEVERAL SUB-TECHNOLOGIES Key technologies Sub technologiesDescription Development 1 Wafer- • Mono-crystalline • Uses solar cells combined to Commercial based • Poly-crystalline modules to generate electricity PV 2 • Thin layer of glass, steel, and Commercial Thin • Amorphous silicon (a -Si) semiconductor material used to film • Cadmium telluride (CdTe) Photo • Copper indium gallium convert light directly into electricity Voltaics selenide (CIGS) (PV) • Nano • Mixture of flexible polymer substrates Laboratory with nano materials phase • Organic dye • Flexible PV using plastic as substrate 3 Con- • N/A • Mirrors used to concentrate light onto Pilot cen- cells to increase effectiveness trating PV 4 Para- • Without storage or hybrid • Parabolic mirrors concentrate Commercial bolic fossil sunlight on a tube filled with heat trough • With storage transfer fluid • With storage and hybrid fossil • Heated fluid powers steam turbine 5 Dish- • N/A • Solar energy converted to heat in a Pilot Solar stirling dish collector drives stirling engine, thermal a heat engine that does not require water supply 6 Power • Without storage or hybrid • Sun-tracking mirrors focus sunlight Pilot tower fossil on a receiver at the top of a tower • With storage which heats water to produce • With storage and hybrid fossil electricity Source: Research reports; Wikipedia; team analysis 5 BOTH MAJOR PV TECHNOLOGIES HAVE COMPELLING Competes against retail rates COST REDUCTION ROADMAPS Competes against wholesale rates Wafer- Thin film based PV 35 19 -7% Full generation cost -7% ¢$/kWh 20 12 12 7 Current 2010 2020 Current 2010 2020 Key drivers 1. Technology evolution 2. Manufacturing improvements 3. Margin contraction * Systems located in Southern California; yearly O&M of 0.25% of initial investment; 1% yearly degradation for c-Si, 2% for thin film; 25 years useful life ** Based on a 10 MW plant; two axis tracking system; $ 5.85/Wp full installation cost for c-Si, $ 5.43/Wp to $ 6.27/Wp of thin film; 10% Investment Tax Credit (assumes tax credit reduction to 10% after expiration of current 30% credit on Dec 31, 2008) and 5 years accelerated depreciation *** Based on a 3 kW residential system; $ 7.5/Wp full installation cost. Source: NREL; Fraunhofer Institute; DOE; McKinsey analysis 6 FULL INSTALLATION PRICE FOR WAFER-BASED PV IS WAFER-BASED PV EXPECTED TO DECREASE BY ~60% UNTIL 2020 Total= 2006 price 2020 price Average price** and reduction potential Price Price reduction along the value chain reduction $/Wp Percent Silicon 0.12 0.50 77 Ingot and Key drivers 0.29 1.05 73 wafer Technological innovations • Thinner wafers Cell 0.41 1.15 64 • Optimized cell design Manufacturing improvements Module 0.34 0.90 62 • New manufacturing technology • Increased automation and scale • Standardization Total module 1.15 3.60 Margin contraction • Silicon supply situation 46 Inverter 0.25 0.46 • Increased competition BOS & 1.08 1.79 40 installation Full 2.48 5.85 58 installation * Based on efficiency gain from 14% to 20%, margin contraction from ~38% to ~21%, 80% market share of wafer-based PV in 2020, ~20% experience curve’s progress rate ** Based on cost of large commercial/industrial PV system Source: DOE; NREL; Photon; McKinsey analysis 7 EXPECTED PRICE REDUCTION WILL COME FROM COST WAFER-BASED PV IMPROVEMENTS AND MARGIN CONTRACTION* Average system prices and reduction potential Dollars/Wp 5.85 1.71 -58% 1.12 0.54 2.48 2006 price Margin Process/ Efficiency- 2020 price contraction innovation- driven cost driven cost reduction reduction Cost reduction * Based on efficiency gain from 14% to 20%, margin contraction from ~38% to ~21%, 80% market share of wafer-based PV in 2020, ~20% experience curve’s progress ratio Source: DOE, NREL, Photon, Santa Fe Institute, McKinsey analysis 8 Total Si demand-Baseline SILICON IS MOVING INTO OVERSUPPLY Total Si demand-Upside THROUGH 2012 Semiconductor demand New entrant new tech Total virgin silicon production volume* and demand** New entrant existing tech Thousand MT Incumbents 160 157 146 140 125 120 100 93 80 62 60 41 40 34 20 0 06 07 08E 09E 10E 11E 12E PV demand 1.9 2.9 5.8 4.4 6.6 9.6 11 GWp (upside) (6.1) (10.4) (13.7) (15.2) * Production volume estimated based on company announcements with adjustments to production from new entrants ** Demand includes both semiconductor and solar PV industry; Assuming demand from semiconductor industry drop by 16% in 09 and grows at 4% afterwards; Demand from Solar PV assumes silicon usage of 8.2 g/Wp in 2008, 7.4 g/Wp in 09 with continuous improvement through 2012 Source: Prometheus; Solarbuzz LLC; Company announcements; McKinsey analysis 9 AS A RESULT, PRICES OF POLYSILICON COULD DECREASE Spot price range Contracted price SIGNIFICANTLY AND ARE STARTING ALREADY TO DROP range Cash cost of Solar poly-silicon prices marginal production $/kg 300 250 200 “…Poly-silicon prices have declined about 20%-30% over the past three weeks” 150 ? Collins Steart, Nov 3, 2008 100 ? 50 20-30 0 2005 06 07 08 09 10 11 12 15 2019 Source: Team analysis 10 AND THE SILICON COST POSITION OF LEADING C-SI PLAYERS ESTIMATE COULD SIGNIFICANTLY CHANGE Silicon price, $/kg 300 • Q-Cells and Sunpower secured long-term silicon supply contracts at relatively low cost before other players entered the market • Suntech has a mix of long- term supply contracts and higher priced short-term 90 contracts to fill the gap 60 50 • Yingli almost exclusively buys silicon on the spot market due to late market entry Q-Cells Sunpower Suntech Yingli Note: Does not take into account differences in silicon usage and cell efficiency 11 CELL AND MODULE OVERCAPACITY INTENSIFY WITH EASE OF Cell FEEDSTOCK SHORTAGE Module PV Demand - Upside c-Si Cell and Module Average Production Capacity* and Demand GWp 20 Abundant poly Si 19 capacity 18 Production 16 constraint 15 15 by poly-Si 15 13 14 supply 13 10 9 9 5 5 5 0 2007 08 09 10 11 2012 Capacity 51 54 29 (40) 38 (60) 52 (74) 57 (79) utilization** (Percent) * Average capacity is average of year-beginning and year-end capacity; capacity based on company announcements with adjustments made to new capacity in 09 onwards as many companies announced reduction of capex in 09 and postpone of future capacity addition ** C-Si module capacity utilization based on total PV demand and assumed thin film market share of 15%-22% throughout 2012; Numbers in brackets represent utilization rates with lower range of demand Source: Prometheus; Solarbuzz LLC; iSuppli; company announcements; McKinsey analysis 12 CDTE TECHNOLOGY IS PROJECTED TO SEE A ~45% COST PRELIMINARY REDUCTION $/Wp Average prices and reduction potential Drivers* Percent Price drivers reduction • Efficiency increase from 9.5% to 11% – More transparent glass – Reduced operating temperatures 2008 Price 5.15 – Reduced resistive power losses Module/cell • Margin contraction from ~39% to ~19% 0.30 6 efficiency – Wafer-based PV price declines will force thin film prices to follow in order to remain competitive Margin 1.49 29 contraction • Process and innovation driven improvements could Process/ result in 10%+ cost decrease 0.45 9 innovation – Reducing cycle time (module in to module out) – Increasing yield and uptime – Recycling active materials 2015 Price 2.91 – Thinner CdS window – Better electron transportation and current collection - 40-45% – Larger modules * 8.8% market share in 2015, 15% experience curve’s progress ratio Source: DOE; NREL; Prometheus; Photon; analyst reports; team analysis 13 LEADING CDTE PLAYER TARGETS 48% REDUCTION IN MODULE COST BY 2012 Cost reduction projections $/Wp 1.3 0.2 0.2 -48% 0.1 0.7 0.1 0 Q107 Efficiency Low cost Spending ThroughputPlant 2012 location scale Source: Company websites; analyst reports 14 A-SI IS PROJECTED TO SEE A ~40% COST REDUCTION PRELIMINARY Dollars/Wp Average prices and reduction potential Drivers* Percent Price drivers reduction • Efficiency gain from 7.6% to 9.2% – More transparent and textured glass – Reduced resistive power losses 2008 Price 5.17 – Reduce operating temperature through encapsulations Module/cell 0.40 8 Margin

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