Table of contents
1. EXECUTIVE SUMMARY ......................................................................7
1. SOLAR DESTINED FOR ANOTHER ROUGH YEAR 7
2. MODULE ASPS FALLING TO EUR 1.3/W IN 2010 7
3. WIND – BACK ON TRACK WHEN FINANCING NORMALIZE 7
4. SOLAR CLOSER TO GRID PARITY, BUT STILL A FEW YEARS BEHIND WIND 8
5. TOP PICKS: FSLR, SPWR AND STP 8
2. ELECTRICITY MARKET OUTLOOK.......................................................10
DEMAND GROWS SLOWLY, BUT SUPPLY FROM “OLD” ENERGY SOURCES CANNOT KEEP UP 10
ENERGY DEMAND: OUR SCENARIO IS GROWTH RETURNS 10
ENERGY SUPPLY: CURRENT NEW-BUILD PACE IS INSUFFICIENT 14
NUCLEAR: PHASE-OUT IMPENDING, BUT TIMING UNCERTAIN 15
COAL: CHEAP AND DIRTY 18
ENERGY SECURITY REMAINS A SIGNIFICANT DRIVER OF RENEWABLE ENERGY 20
3. ELECTRICITY PRICES LIKELY TO RISE .................................................23
ELECTRICITY MARKETS ARE VERY HETEROGENOUS 25
KEY PARAMETERS DETERMINING ELECTRICITY COST 26
DETERMINANT 1: CAPITAL-, FUEL- AND O&M COSTS 26
DETERMINANT 2: CAPACITY FACTOR 26
DETERMINANT 3: INTEREST RATES 27
ESTIMATING COST OF NEW ELECTRICITY PRODUCTION 27
4. HIGH POLITICAL RISK LEVEL NEXT 2-4 YEARS......................................35
SUMMARY: NOT ENOUGH POLITICAL WILL (YET) 35
THE OBJECTIVE: REDUCING MAN-MADE GREENHOUSE-GAS EMISSIONS 35
COPENHAGEN PRIMO DECEMBER: WHAT TO EXPECT 38
GREEN INCENTIVES: STIMULUS FUNDS AND GHG REDUCTION MECHANISMS 38
GREEN POLICIES AS SHARE PRICE DRIVERS: WATCH GERMANY FIRST 39
5. SOLAR INDUSTRY.........................................................................41
SUMMARY: MARGIN COMPRESSION CONTINUES 41
FUNDAMENTALS: SOLAR IS THE MOST ABUNDANT ENERGY SOURCE 42
INDUSTRY STRUCTURE: VERTICAL INTEGRATION TO MITIGATE RISK 42
KEY MARKETS: 2010 LIKELY TO REMAIN SUPPLY-DRIVEN 44
6. SOLAR COST AND PRICES................................................................50
SUMMARY – PRICES TO DECLINE IN ALL PARTS OF THE VALUE CHAIN 50
SILICON – PRICES DROPPING TO CASH COST OF MARGINAL PRODUCER 51
WAFER, CELL AND MODULE - OVERCAPACITY 53
PRODUCTION COST – THE CHINESE THREAT IS FOR REAL 54
CHINESE PRODUCERS WILL CONTINUE TO PUT PRESSURE ON ASP 56
ASP EXPECTATIONS 2010 – EUR 1.30/WP 58
LONG-TERM COSTS AND PRICES: GRID PARITY REMAINS AN ELUSIVE TARGET 59
7. PV PROJECT ECONOMICS: DRIVING H2/09 DEMAND BOOM ....................61
SUMMARY: VERY ATTRACTIVE RETURNS MAY FORCE REGULATORS TO REDUCE SUBSIDIES 61
KEY ASSUMPTIONS USED 62
GERMANY: 17.8% EQUITY IRR 64
CALIFORNIA: 7.9% EQUITY IRR 65
ITALY: 14.6% EQUITY IRR 66
FRANCE: 16.3% EQUITY IRR 67
8. WIND INDUSTRY..........................................................................71
SUMMARY: SIGNIFICANT GROWTH POTENTIAL NEXT DECADE 71
INDUSTRY STRUCTURE: DIVERSIFIED, FURTHER VERTICAL INTEGRATION LIKELY 73
COSTS AND PRICES: COMPETITIVE COST OF ELECTRICITY 79
KEY MARKETS: USA, CHINA AND EUROPE 84
9. VALUATION SUMMARY ...................................................................95
SHARE PRICE DEVELOPMENT 95
12-MONTH FORWARD P/E DEVELOPMENT 96
PEER GROUP MULTIPLES 97
EPS REVISION TABLES 99
10. APPENDIX ................................................................................100
A1: SOLAR TECHNOLOGY BASICS: TWO ROUTES TO HARNESS ENERGY FROM THE SUN 100
A2: WIND TECHNOLOGY BASICS: MATURE, BUT STILL COST-CUTTING POTENTIAL 103
A3: POLYSILICON PRODUCTION METHODS 107
A4: MISCELLANEOUS SOLAR EXHIBITS 110
A5: SOLAR TERMS AND EXPRESSIONS 112
11. COMPANY COVERAGE...................................................................114
FIRST SOLAR 115
Q-CELLS 119
RENEWABLE ENERGY CORP. 123
SOLARWORLD 129
SUNPOWER 132
SUNTECH POWER 136
VESTAS WIND SYSTEMS 139