21 January 2009
Solar Photovoltaic Industry
Looking through the storm
Steve O'Rourke
Research Analyst
(1) 212 250-8670
stephen.orourke@db.com
Peter Kim
Research Analyst
(1) 415 617 4246
peter-d.kim@db.com
Hari Polavarapu
Research Analyst
(1) 212 250 2076
hari.chandra@db.com
Fundamental, Industry, Thematic, Thought Leading
Deutsche Bank Company Research's Research Product Committee has deemed
this work F.I.T.T. for investors seeking differentiated ideas. In this piece we
address the solar photovoltaic (PV) industry, and assess the potential impact of the
ensuing shake-out on the solar PV industry and company business models, as well
as provide an updated supply/demand forecast. We address price and cost
dynamics through 2010, establishing a framework for analysis, and identifying
what we believe will be the winning technologies and business models.
Deutsche Bank Securities Inc.
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factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
FITT Research
Companies featured
SunPower (SPWRA.OQ),USD33.62 Hold
2007A 2008E 2009E
EPS (USD) 1.00 1.67 2.25
P/E (x) 71.7 32.3 24.0
EV/EBITDA (x) 38.2 16.1 12.6
First Solar Inc. (FSLR.OQ),USD145.42 Hold
2007A 2008E 2009E
EPS (USD) 1.34 3.89 6.45
P/E (x) 76.4 37.4 22.6
EV/EBITDA (x) 43.6 23.5 15.0
Energy Conversion Devices
(ENER.OQ),USD26.05 Hold
2008A 2009E 2010E
EPS (USD) 0.32 1.37 2.23
P/E (x) 104.1 19.1 11.7
EV/EBITDA (x) 42.6 11.9 7.1
Evergreen Solar (ESLR.OQ),USD2.88 Hold
2007A 2008E 2009E
EPS (USD) -0.19 -0.37 0.04
P/E (x) – – 70.2
EV/EBITDA (x) – – 7.0
Canadian Solar (CSIQ.OQ),USD5.29 Hold
2007A 2008E 2009E
EPS (USD) -0.03 1.34 -0.12
P/E (x) – 4.0 –
EV/EBITDA (x) – 2.6 15.9
Applied Materials (AMAT.OQ),USD10.18 Hold
2008A 2009E 2010E
EPS (USD) 0.78 0.06 –
P/E (x) 23.1 158.7 –
EV/EBITDA (x) 11.5 28.6 –
MEMC Electronic Materials (WFR.N),USD14.76 Buy
2007A 2008E 2009E
EPS (USD) 3.24 3.23 2.30
P/E (x) 18.9 4.6 6.4
EV/EBITDA (x) 13.4 2.0 2.3
Related recent research Date
Clouds are rolling in, downgrading to Hold
Stephen O'Rourke
10 Nov 2008
Solar PV industry outlook and economics
Stephen O'Rourke
27 May 2008
Technology and economics: thin films and crystalline
silicon Stephen O'Rourke
9 Jul 2007
Fundamental: 1H09 below expectations; 2H09 may be better; 2010 better
We expect 1H09 fundamentals to be worse than already low expectations, with
2H09 potentially better than expectations should incremental lending return by
mid-year; we anticipate a reacceleration of industry growth in 2010. We expect y/y
demand growth (MWp installed) of 10% in 2009, well below our mid-08 forecast
of 38%, and we are biased negatively; the year will be 2H09 weighted. We see
the potential for conditions to return closer to supply/demand equilibrium in 2010.
Industry: the shake-out will be brutal; over-supply is inevitable
Even with much lower supply estimates, we expect acute credit tightness
resulting in demand destruction to drive a vexing c-Si module oversupply at least
through 1H09; this oversupply dynamic has already begun. We expect the shakeout
to be brutal, with a strong balance sheet the potential key to survival. We
expect differentiated industry leaders (i.e. via products yielding the lowest LCOEs)
with strong balance sheets to fare best, less differentiated companies to struggle,
and non-differentiated companies with weak balance sheets to become casualties.
We expect significant reductions to 2009 consensus estimates.
Thematic: the spoils go to the strong; CdTe and high efficiency Si will win
We believe industry leaders are gaining market share, will gain market share
through the shake-out, and will consolidate market share as industry growth
accelerates at the expense of non-differentiated players with weaker balance
sheets. Earlier in 2008 success seemed to primarily hinge on access to silicon,
now it rests on access to projects and project financing. We believe CdTe will
retain its LCOE advantage (albeit with a narrowing gap) as polysilicon costs
decline; we believe that only high efficiency c-Si solutions can rival CdTe LCOE.
Thought Leading: business models are critical and are being tested
2009 will show winning and losing business models. Downstream integrated
business models for c-Si, and low cost thin film business models are faring much
better. High cost module makers (i.e. c-Si) will struggle unless the company’s
technology enables adequate cost to be extracted downstream, and the business
model enables it to capitalize downstream. We view First Solar and SunPower as
industry leaders with sustainable, technology based competitive advantages. We
believe First Solar can retain industry leading margins through and after the shakeout,
and SunPower has the most mature business model, addressing the
industry’s broadest markets and geographies, with a healthy long-term model. We
expect these companies to benefit disproportionately as the industry recovers.

Table of Contents
Investment thesis .............................................................................. 3
The solar PV industry and the accelerating shake-out...............................................................3
Conclusions..............................................................................................................................3
Solar PV coverage companies...................................................................................................4
Valuation ..................................................................................................................................5
Risks ........................................................................................................................................6
Macroeconomic backdrop ................................................................ 7
Deutsche Bank’s macroeconomic outlook................................................................................7
Conclusions..............................................................................................................................9
The shakeout has begun................................................................. 11
A solar PV industry shakeout was accelerated by the credit crisis .........................................11
Revisiting our industry shakeout scenario...............................................................................11
Who is best positioned among our coverage universe? .........................................................19
Supply/demand update .................................................................. 21
Update on supply and demand ...............................................................................................21
Near-term demand re-assessment .........................................................................................21
Near-term supply re-assessment ............................................................................................27
Supply and demand – updated forecast..................................................................................35
A final word on supply/demand forecasts and our near-term outlook ....................................37
Price and cost dynamics ................................................................. 38
The near term environment has changed substantially...........................................................38
Primary factors influencing module ASP and costs ................................................................39
Currency exchange rates have been very volatile ...................................................................40
Crystalline-silicon (c-Si) solar PV modules cost dynamics .......................................................41
Cadmium telluride solar PV module ASP and cost dynamics .................................................46
Comparing baseline c-Si to CdTe ............................................................................................48
System cost/Wp and LCOE ............................................................ 52
Installed system cost/Wp – crystalline silicon.........................................................................52
Levelized Cost of Electricity (LCOE) – crystalline silicon .........................................................54
A step function LCOE reset and eventual rebalance (c-Si) ......................................................55
Comparing the leaders.................................................................... 58
CdTe versus high efficiency c-Si with and without tracking ....................................................58
Conclusions............................................................................................................................65
Near-term and numbers.................................................................. 66
The strong get stronger ..........................................................................................................66
Quantifying the shake-out in 2009 – the present disconnect ..................................................67
A referendum on business models .........................................................................................71
Valuation framework ...............................................................................................................72
Coverage companies and estimates.......................................................................................74
Final comment on stocks and the industry .............................................................................82
Companies mentioned............................................................................................................91