Solar Strategy: A Guide for the
Global Investor
Suppliers offer the best opportunities in a difficult
market
Economic Research
Marc LevinsonAC
(1-212) 622-5552
marc.levinson@jpmorgan.com
J.P. Morgan Securities Inc.
See page 52 for analyst certification and important disclosures.
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Global Equity Research
Christopher BlansettAC
(1-415) 315-6708
christopher.r.blansett@jpmorgan.com
J.P. Morgan Securities Inc.
Jay DeahnaAC
(1-714) 957-7053
jay.deahna@jpmorgan.com
J.P. Morgan Securities Inc.
Sandeep S. DeshpandeAC
(44 20) 7325 0456
sandeep.s.deshpande@jpmorgan.com
J.P. Morgan Securities Ltd.
Marcus DiebelAC
(44-20) 7325 9424
marcus.x.diebel@jpmorgan.com
J.P. Morgan Securities Ltd.
Yoshiharu IzumiAC
(81 3) 6736 8637
yoshiharu.izumi@jpmorgan.com
JPMorgan Securities Japan Co., Ltd.
Liang-Chun LinAC
(886-2) 2725 9863
liang.c.lin@jpmorgan.com
J.P. Morgan Securities (Taiwan) Limited
Shoji SatoAC
(81 3) 6736 8661
shoji.sato@jpmorgan.com
JPMorgan Securities Japan Co., Ltd.
Manoj SinglaAC
(91 22) 6639 3017
manoj.singla@jpmorgan.com
J.P. Morgan India Private Limited
Jeffrey J. ZekauskasAC
(1-212) 622-6644
jeffrey.zekauskas@jpmorgan.com
Investors are increasingly treating solar energy as a global sector, as all
participants, regardless of home country or production locations, are
subject to the same underlying economic and political forces. In this
report, we look across national boundaries and technologies to offer ideas
for investors at a time when renewable energy is out of favor.
• We are cautious on solar energy worldwide. We see significant
demand weakness across the sector, and the threat of reductions in
government subsidies and supports remains a major risk for all parts of
the solar industry irrespective of geography.
• Expectations that the cost of solar power will reach grid parity in the
near term are overly optimistic, in our view. We think claims of sharp
reductions in the cost of solar systems require careful scrutiny. We do
expect the unit cost of large-scale utility and commercial photovoltaic
installations to fall by one-third by 2012, with thin-film systems gaining
share. However, these gains depend on continued conversion-efficiency
improvement, which we expect to be incremental rather than dramatic.
• We expect the incoming Obama administration to offer new
supports for renewable energy in the US, including solar power. The
specifics of the Obama plan are at this point unclear. However, we
expect any additional stimulus to solar energy from this source to be
offset by reduced subsidies in Europe and weak growth of power demand
around the world.
• Among solar manufacturers, we generally prefer companies that
have strong balance sheets and are free-cash-flow positive. We are
wary of companies that need additional funding to reach efficient scale.
Based on the J.P. Morgan forecast that the U.S. dollar will remain fairly
steady against the euro over the coming year and will decline against the
Norwegian krone, we think Moser Baer, based in India, Solar World,
from Germany, and SunPower, from the US, will outperform
competitors, though we expect all three companies to post negative
returns through year-end.
• The most prudent way to play solar power at this time, in our view,
is through companies with strong balance sheets and upside
potential in other lines of business. Our favorite names globally include
Applied Materials, a maker of manufacturing equipment; MEMC,
DuPont, and Wacker Chemie, all materials suppliers; and Kyocera, a
diversified company that is vertically integrated in solar.

Table of Contents
Thinking Globally about Solar Power .....................................4
Strategy and Recommendations.............................................4
An Industry Restructured ........................................................6
Investing in Solar Power..........................................................9
Solar Basics............................................................................11
Solar Economics ....................................................................20
The Outlook for Solar Cost Reductions ...............................23
The Outlook for Subsidies and Supports.............................28
Cloudy Future for US Tax-Equity Financing ........................33
Company Profiles...................................................................34
Applied Materials, AMAT, OW ...............................................34
Ascent Solar, ASTI, UW .........................................................35
DuPont, DD, OW .....................................................................36
Evergreen Solar, ESLR, UW ..................................................37
First Solar, FSLR, OW............................................................38
Kyocera, 6971.T, N..................................................................39
MEMC, WFR, OW ....................................................................40
Moser Baer India Ltd., MBI.IN, N ...........................................41
Motech Industries, 6244.TWO, UW........................................42
Q-Cells, QCEG.F, UW .............................................................43
REC, REC.OL, UW ..................................................................44
Sharp, 6753.T, N .....................................................................45
Solar World, SWVG.DE, UW ..................................................46
SunPower, SPWRA, OW ........................................................47
Suntech, STP US; UW ............................................................48
Wacker Chemie, WCH GR, UW..............................................49

Thinking Globally about Solar Power
The search for alternatives to fossil fuels has led to a boom in demand for solar
energy. The world’s installed capacity has risen 450% over the past five years,
according to data from the International Energy Agency (IEA), and production of
electricity from solar power has been growing at a similar clip. No end is in sight.
The IEA forecasts that global solar-energy generation capacity will expand from 7
gigawatts (GW) in 2006 to 35 GW in 2015. Despite such rapid growth, solar is
projected to provide less than 1% of the world’s electricity in 2015.
Rapid growth has gone hand in hand with a major change in the way investors
evaluate the solar-energy sector. Increasingly, investors are approaching solar
energy as a worldwide industry and are evaluating individual companies and
technologies in the context of global competition. This report examines the sector
from this perspective and offers our recommendations for investing in this fastchanging
area across political and technological boundaries.
Strategy and Recommendations
In current economic circumstances, we believe that investors are generally
better served by investing in suppliers to the solar industry than in
manufacturers of solar cells or components for generating stations. We
anticipate weak demand growth for solar power in the near term, given the poor
economic climate, financing difficulties, and rapid growth in solar manufacturing
capacity. Supplier companies generally enjoy higher barriers to entry and more
diversified income streams than companies directly engaged in the manufacture of
solar devices, and we judge them better investments at this time.
We have used the price expectations of J.P. Morgan equity analysts around the
world and the currency forecasts of J.P. Morgan foreign-exchange analysts to
rank 16 leading solar-energy names based in six different countries. Our top five
picks for both U.S. dollar and euro investors are as follows:
Applied Materials, a manufacturer of equipment for semiconductor and
solar manufacturing, including solar-cell production lines.
MEMC, which makes wafers for semiconductors and solar cells.
DuPont, whose businesses include various pastes, resins, and films used in
cell manufacturing.
Wacker Chemie, a producer of polysilicon and wafers for semiconductors
and solar manufacturing.
Kyocera, whose vertically integrated solar business makes polysilicon and
wafers as well as cells.
Within the universe of solar manufacturers, we prefer companies that have
strong balance sheets and positive free cash flow. Companies in this position can

reduce capital spending, if necessary, in order to remain free-cash-flow positive.
They also are less dependent upon capital markets at a time when both debt and
equity capital are difficult to raise.
We are least positive on solar companies with heavy debt loads and those that
need to raise capital to bring their production to efficient scale. We expect a
difficult environment for capital raising to persist for some time, complicating efforts
to restructure debt or accelerate investment. We think that, without other lines of
business to provide positive cash flow through the economic downturn, firms in this
position are particularly vulnerable to lower demand and declining average selling
prices.