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Solar Opportunity - Business Model Options
Infrastructure & Government
Santosh Kamath
Director, KPMG Advisory Services Private Limited
2©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Agenda
1.Solar Photovoltaic Technology
2.Solar Thermal Technology – Concentrating Solar Power (CSP)
3©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Solar Photovoltaic (PV) - Business Model Options & Critical Success Factors
Manufacturer
EPC Player Developer
Appliance Manufacturer
Crystalline Silicon PV
Thin-Film PV
• Low cost manufacturing
• Manufacturing Innovations
• Technology innovation
• Engineering capability
• Tie-ups with suppliers
• Managing contracts including PPAs
• Land Bank
• Financing
• Product Design
• Marketing & Distribution
Stand-alone
Grid
4©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Supply outlook
0
2000
4000
6000
8000
10000
12000
14000
16000
2006 2007 2008 2009E 2010E 2011E
MW
Polysilicon capacity Wafer production Cell production Demand - moderate Demand - policy driven
There is currently oversupply in the value chain but supply dynamics could change based on demand visibility
Source: Needham, Company reports, EPIA, KPMG analysis
Wafer and cell production could expand to meet the demand
Polysilicon shortage has led to a large addition of capacity
Zone of uncertainty
OVERSUPPLY
“Expect 2 Years With No Profits”
Morgan Stanley Analyst
Wafer, ,Cell and Module capacities have lower gestation periods and can quickly ramp up production once there is more visibility on demand
5©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Global Competitive Behavior – Past Trends (1/2 )
Poly silicon Wafer Cell Module Systems Integration/ Developer
Sun power
Conergy, Solon, Centro solar
Canadian Solar
UPSTREAM DOWNSTREAM
Acquire other system integration companies in different geographies
Strategic tie-ups with upstream manufacturers
Expansion into wafer segment
Key Strategic Initiatives
…A vertically integrated presence to capture profits across value chain
PV Crystalox ,LDK Solar
Trina Sola, Yingli
Expansion into poly-silicon space
Strategic tie-ups with silicon manufacturers
Yingli acquires Cyber Power Group Ltd., a solar-grade poly-silicon production company
6©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Global Competitive Behavior – Recent Trends (2/2 )
Poly silicon Wafer Cell Module Systems Integration/ Developer
REC Solar, SolarWorld
Solarfun, Suntech, Evergreen solar, JA Solar
Downstream move – Equity Stake in solar farm developer
UPSTREAM DOWNSTREAM
JV to develop solar farms
Suntech – Acquires MSK and EI Solutions System Integrators
Key Strategic Initiatives
…An increased focus on market access
Thin-film Module
First Solar*, Ascent Solar ,Energy Conversion Devices First solar acquires solar power project pipeline n USA*Strategic land rights of approximately 136,000 acres (approximately 210 square miles) with the potential to
deploy up to 19 gigawatts
Q cells
Stake through subsidiaries in thin-film technology firms
JV Partnership with LDK to develop PV systems in Europe and China
7©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
• Ability to procure solar silicon
• Ability to reduce energy costs
• Ability to reduce silicon consumption
• Ability to produce high quality thinner wafers
• Ability to increase cell conversion efficiency
• Access to cheap and skilled labor
• Ability to secure module supply contracts
Wafer Cell Module
Technology
…. Advancement in wafer and cell technologies are considered to be the key drivers in the overall cost reduction possibilities for crystalline PV
Capital & Energy Labour
CSFs for Business Model – Crystalline PV Manufacturing
Poly silicon
• Ability to secure low cost and good quality inputs ( Poly-silicon, Wafer, Cell)
• Ability to get market access – Increase capacity utilization
8©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
CSFs for Business Model – Thin Film Manufacturing
Concern
Players
A-Si CdTe CIGS
•Many established players like Sharp, Q cells and Schott Solar have diversified into A-Si
•First solar is the largest thin-film manufacturer in the world
•Some industry players have exited this space
•New entrants and start-ups are focused
•Efficiency degradation
•Lower conversion efficiency
•Feedstock limitation -Availability of telluride
•Cadmium is carcinogenic
•CIGS is limited by availability of Indium , a rare earth metal that could cause supply bottleneck
• Ability to manage technology vendors for up-gradation and quality assurance.
•Ability to partner with existing CdTe players like First Solar
•Ability to drive technology innovation
•Ability to invest risk moneyCSF
CIGS – Copper Indium Gallium Selenide
CdTe – Cadmium Telluride
A-Si – Amorphous Silicon
9©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
111 106.5
159 165
2 1.5 5
238 250
30 22.5 27
381.5
50 37.5 50
493
73 8060
0
100
200
300
400
500
600
Wafer Cell a-Si Cd-Te CIGS
MW
2006 2007 2008 2009E 2010E
Build-up of scaleAcross the value chain, the median capacity of the industry has been going up, which is most significant in the case of Wafers and Cells
Economies of scale in Thin film
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
30 60 100 200 300 400 500
Capacity (MW)
USD
/W
a-Si CIS CdTe
Expected economies of scale in thin film is likely to see capacity scale-ups
Crystalline Thin film
The bars correspond to actual/planned capacity additions by year
10©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Players in Thin-film - CIGS technology is supported by new start-ups with strong venture capital funding…
2006 or earlier
2007 2008 2009 2010
Plant Construction /
Ramp up
Pilot Production
Production > 5MW
Production > 25MW
Year of Market Entry (Expected)
Development Status
PV Flex
Scheuten
CIS Solartechnik
Johanna
Avancis
MalibuSignet
NexPower
Kenmos
CSG
Calyxo
Sontor
ersolSchott
HondaSharpSanyo
Uni-solarKaneka
Mitsubishi
First Solar
Source – KPMG Analysis, EuPD Research 2008
Free Energy
R&D
Nanosolar
Heliovolt
Miasole
Terrasolar
Solyndra
Solon
Wurth Solar
CIGS
CdTe
A-Si
Solar Thin-film – Industry Profile
11©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Industry clustersCapacity expansions along the value chain are clustered around certain key geographies
Wafer Cell
a-Si Cd-Te
48%41%
3%8%
4%
12% 14%
34%
4%
20%14%
25%
6%
49%
17%
11%
14%
93%
47%
5%
7%
22%
0%
20%
40%
60%
80%
100%
120%
Wafer Cell a-Si Cd-Te CIGS
China Taiwan Japan Germany Norway USA Spain Philippines India
China is gearing up to be a major cell and wafer player
USA’s capabilities in research make it a significant thin film
player
USA, Japan and Germany are hot-beds of thin film technology, while China and Taiwan are growing manufacturing bases for crystalline wafer and cell
12©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
CSFs for Business Model – Project Developer
Solar Farm Roof Top
PPA with customersPPA with utility
• Ability to get access to customers
• Marketing and customer relationships
• Manage customer service and performance. Supply chain to manage multiple/retail customers
• Ability to sign a PPA with govt /utility
• Ability to secure low cost and high quality equipments
• Developing land banks and managing grid interconnections
Key challenges -
•Risk of default from customers
•Dealing with utility / electricity metering & measurement, grid connections etc.
•Permits and clearances
•O&M of equipment at customer premises
CSF
13©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
CSFs for Business Model – Standalone Applications
Equipment Supply System Solution DesignDistribution &
InstallationMaintenance &
Service
• Source Equipments - Tie-ups with Manufacturers
• Secure supply of good quality and low cost modules
• Procure balance of system components – battery, inverter, cables, electrical components from vendors
• Design and develop solar solutions
• Customize solutions
• Configuration - Stand-alone systems; grid connection etc
• Appropriate Size and Orientation
• System assembly and installation
• Adhere to standards & specifications
• Install and connect the system through meters and other equipments
• Provide quick and high quality service at customer end
• Local infrastructure in-place to respond to breakdowns or any other problems
Description
VALUE CHAIN
• Cost competitiveness
• Product design
• Assure high reliability and performance
• Good quality service
CSF
14©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
To Summarise for PV
Business Model Options Include:
• Wafer & Cell Manufacturing: Scale, Government incentives and ability to innovate in manufacturing processes and access to cell technology are key drivers. Strategic tie-ups for supply contracts are also key differentiators.
• Modules: Likely to be low margin game. Could be a potential entry point for a new entrant. Can also be part of integrated play with cells and wafers.
• Polysilicon: Ability to source cheap energy and negotiate Government incentives will be key drivers
• Thin-Film: Access to technology will be the key factor
• Standalone Systems: Product design and marketing will be key capability requirements. Potential could be large.
15©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Agenda
1.Solar Photovoltaic Technology
2.Solar Thermal Technology – Concentrating Solar Power (CSP)
16©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Solar thermal technologies - Brief Snapshot
Key Parameters
Parabolic Trough(Most commercially proven
technology)
Central Receiver Systems(Prototype, Semi Commercial )
Parabolic Dish(Prototype testing)
Key Advantages
• High system reliability• Low materials demand• Proven hybrid concept• Storage capability• Best land use factor
• High temperature (around 500-800°C)• High efficiency possible• Hybrid operations possible
• Potential for low capex• High efficiency• Modularity
Disadvantages• Low operating temperatures
(around 400°C)• Land needs to be graded level
• High maintenance and equipment costs• Reliability concerns
• Highly complex• No storage possible
ApplicationsGrid connected plants, mid-to-high process heat
Grid connected plants, high temperature process heat
Stand alone, small off-grid power systems or clustered to larger grid connected dish-parks
17©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Solar Thermal Technologies – Value Chain
Engineering R&D
EPCProject Development Operations
Iberdrola, ENEL, Energias de
Portugal, FPL
Schott Solar , Rioglass, FlabegEpuron
Solargenix Energy LLC
Solar Millennium AG, Abengoa S.A, BrightSource Energy, Acciona Energia
Ausra, Solel, Skyfuel
• Vertical integration- Presence across the entire value chain
• Diversification strategy in solar (Renewable portfolio, Solar Portfolio)
• Market Access –
• PPA’s with utilities
• Strategic Alliances
• Amongst Technology, EPC, Financing players.
Key Industry Themes
Technology ManufacturingLand Permits Financing Construction
18©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
CSP - Business model options
Technology Supplier/ Manufacturer
√
√
√
√ √ √
• Technology R&D Innovation – Drive
costs towards grid parity
• Low cost manufacturing
• Core Component Access – License
or partnerships for – components like :-
Heliostats, Absorber tubes, Curved
mirrors and receivers etc
• Market Access – PPA
with utility
• Efficient power plant
operations
• Land Selection –
Build land bank
Developer
•EPC – Project
Management and
Construction
Capability
Niche or Integrated Presence
Turn key EPC Provider
19©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Thank You
19
Santosh Kamath
Director
KPMG Advisory Services Private Limited
+91 99670 16369
20©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
APPENDIX
21©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Solar power offers immense potential as a clean alternative to meet the growing grid and off-grid energy requirements of the country
Grid Power -
• India’s energy shortage is about 10%*
• Peak deficit about 17%*
• Government announced the “National Solar Mission” - which envisages capacity addition goal of 1000 MW of solar power per year
Potential in Remote Villages -
• 33% of India’s population has no access to grid electricity
• Replace kerosene lighting consumption per household – 50 to 70 liters per year
• Solar Lamps could be used for lighting load
Commercial Applications -
• Replace diesel generators in stand-alone systems like telecom towers, oil & gas platforms, railway communications etc
…Solar power can be used to meet energy requirements for centralized as well as decentralized applications as solar systems can be built for capacities varying from Wp to MWp
*CERC
22©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Government has taken several investor friendly initiatives to promote solar power development in India
Along with incentives for power generation, there are favorable incentives for setting up manufacturing facility in India.
• Semiconductor policy - Government will bear 20 % of Capex during the first 10 years, if a unit is located within Special
Economic Zones (SEZs) and 25% for industries not located in an SEZ. Capital subsidy can be in the form of investment
grant and interest subsidy
Incentives for solar power generation in India Governments Tariff for PV Tariff for Solar Thermal
West Bengal Rs 11 per kwh Not Declared
Haryana (12 MW) Rs 15.96 per kwh Not Declared
Tamil Nadu (50 MW) Rs 15.15 per Kwh Not Declared
Rajasthan (50 MW Cap) Rs 15.78 per kwh Rs 13.78 per kwh
GUJARAT (500MW)
Projects commissioned before 31-12-2010
Rs 13/kwh for 12 years; Rs 3/Kwh from 13th to 25th year
Other projects commissioned before 31-03-2014
Rs 12/kwh for 12 years; Rs 3/Kwh from 13th to 25th year
Projects commissioned before 31-12-2010
Rs 10/kwh for 12 year; Rs 3/Kwh from 13th to 25th year
Other projects commissioned before 31-03-2014
Rs 9/kwh for 12 year; Rs 3/Kwh from 13th to 25th years
MNRE ( 50MW Cap)Generation-based subsidy up to Rs. 12/kWh for 10 years so that the maximum tariff a project may receive after state support is Rs. 15/kWh ( 5% digression starting 2010: Rs. 11.40/kWh )
Other fiscal benefits include:-•Accelerated Depreciation – 80% in the first year•Excise duty cuts and Tax holiday
23©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
A portfolio of technologies at different levels of maturity and outlook are available for consideration..
Solar Power
Solar Thermal Technologies (CSP)
Parabolic Trough
Dish SterlingPower Tower
Poly-Silicon Wafer Cell ModuleSystem Assembly /
Integration
Established – Efficiency Improvements
Nascent - Innovation Stage
Amorphous Silicon
CdTe – (Proprietary Technology)
CIGS
Key challenge :- Outlook on grid parity for different solar technologies
24©2009 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved.
Detailed Approach – Real Options Evaluation Framework
Option 1: Start as an EPC Player, License Technology as soon as industry growth is visible
Modest Returns EP = +20 Slow growth pattern of the
Industry
EP = -10
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Specific Technology
EPC Player, Tech agnostic
Multiple Technologies
EP = -100
EP = -200
Right Bet EP = +500
Rapid Growth commences in
Year 4
Wrong Bet (Switching Costs)
EP = -200 EP = +500
EP = +700
EP = +600
Some Win
All Win
Rapid Growth
Option 2: Take Technology Position Now (Acquire, JV, In-house)
EP = -50
EP = -100
One Technology
Multiple Technology
Rapid Growth
EP = +700
EP = +1000
ILLUSTRATION
Expected payoffs and probability of the event shall be estimated by studying past trends in similar technology oriented industries.
P = 50%
P = 30%
P = 70%
P = 30%
P = 70%
P = 30%
P = 70%
P = 30%