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Equity Report | January 12, 2009 | Ticker – FSLR

Confidential 1 of 41

First Solar Inc. (FSLR) The Company is a leading low cost thin film solar module manufacturer. CURRENT – $149.93 TresVista Recommendation – BUY TARGET – $174.37 Executive Summary Investment Thesis: We have initiated our coverage of First Solar Inc. with a “Buy” rating. We have arrived at our valuation based on a DCF analysis, company comparable analysis, the current and future outlook for the company, and the outlook for the solar sector as a whole. The Company has been consistently showing improvement in earnings and is poised as one of the strongest players in the solar energy sector and will continue in this regards due to its technological advantage over its competitors. With the solar industry outlook in 2009 being forecasted to decline in terms of revenue, we believe First Solar will not be adversely affected as much as its competitors, and will continue to deliver consistent earnings. Validation: First Solar is currently the industry leader and has tremendous benefits of being the lowest cost producer in the market. Although the stock is already trading at a premium to almost the entire sector, it is also forecasted to outperform the sector. This is due to greater visibility of contracted supplies, a streamlined manufacturing process, consistency of earnings, conservative estimates on the part of the management, and diversification of operations through strategic acquisitions. The thin film technology adopted by the company largely eliminates the risk associated with fluctuation in the prices of raw materials. Crystalline silicon module manufacturers have historically faced significant problems with the sourcing of polysilicon, which is the major raw material used in the manufacture of modules, and also accounts for majority of the cost. With heavy expansion plans underway, the company aims to significantly build its capacity in the next few years. The balance sheet of the company, having a substantial net cash amount, increases the ability of the company to further lever its capital structure in case of need for expansion capital. Risks to our recommendation include fluctuations in exchange rates related to foreign currency denominated revenues, slowing growth in overall demand, competition from other thin film technologies, decrease in silicon prices, toxic and rare nature of raw materials, and other macroeconomic factors.

Sector – Solar Energy

Ticker FSLR Market Cap. $12,157.8 Enterprise Value $11,595.9 LTM Revenue $1,013.4

Per Share Data Current Price $149.93 52 Week High $317.00 52 Week Low $85.28 % of 52 Wk. High 47.3% Number of Shares 81.090 Multiples PE LTM 57.0x 2008E 35.6x 2009E 17.6x EV/EBITDA LTM 36.7x 2008E 23.2x 2009E 13.5x

52 Week Stock Performance

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First Solar Inc. S&P Global Clean Energy Index

TresVista Financial Services: All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Bloomberg and other vendors. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES ARE LOCATED IN DISCLOSURE APPENDIX

Historical Sales

3.2 13.548.1

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$ mn.

CAGR 254.0%



Table of Contents

1. Company Overview

− History and Background

− Brief Management Description

− Ownership Status

3. Sector Overview

− Introduction

− Solar Technologies

− Solar Value Chain

− Subsidies and Support Schemes for the Industry

− The Grid Parity Concept

− Major Solar Energy Markets

− Future Trends of the Solar Market

4. First Solar Business Model

5. Recent Financials and Guidance

6. Key Risks Faced

7. Key Investment Highlights

8. Valuation

9. Conclusion

10. Sources of Information



Company Overview History and Background Firs Solar was formed through an equity investment made by True North Partners (previously known as JWMA Partners) founded by John Walton (late son of Sam Walton and heir to the Wal-Mart empire) in 1999. The influx of capital amounted to $45.0 million with another $100.0 million being pumped in to get its first commercial production line running in 2004, in Perrysburg, Ohio.11 With its IPO in November 2006, the company raised around $458.0 million and an additional $618.0 million during its follow on primary offering in August 2007.6 First Solar Ltd., based in Phoenix, Arizona, is a leading manufacturer of solar panels. The Company designs and manufactures solar modules using thin-film technology which employs the use of cadmium telluride (a crystalline material formed by both cadmium and tellurium) as its main semiconductor material. Each module is manufactured using a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. First Solar is currently the largest producer of thin-film solar panels worldwide and is also the lowest cost producer. The Company aims to provide a cleaner, lower costing means of renewable electricity thereby reducing dependence on conventional electricity and the use of fossil fuels. Facilities There are totally seven manufacturing facilities with 28 operating lines6. They include the original Ohio Base plant, one manufacturing facility in Frankfurt, Germany which is fully operational, four facilities in Kedah, Malaysia4, and an expansion of the Ohio facility. The expansion of its original Ohio facility is currently underway and is expected to be completed by 2010. The first and second plants in Malaysia have already come on-stream and the third and fourth plants are expected to be operational in 2009. The company has setup operations in Malaysia to avail of its advantages as a low cost geography. The company’s manufacturing capacity has increased ~12.0x from 25 WM in 2005 to 308 MW in 2007, with the expected capacity to double at the end of 2008 to 735 MW.3 The total capacity is expected to reach around 1,127 MW by the end of the 2009 fiscal, based on 2008 run rates. The Company uses a systematic replication process for the construction of new manufacturing facilities which are comparable to the operating performance of the original plant in Ohio. This is called the “Copy Smart” process which has effectively increased the company’s capacity in a short span of time. First Solar is currently ramping up its production capacity by commissioning new facilities and aims to expand its geographic presence. Shown below are the different manufacturing facilities operated by the company and the time line for the construction and capacity to come on-stream: 3

2007 2008 2009 2010Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Ohio Base Fully Operational

Germany Qual Ramp Fully Operational

Malaysia 1 Start Construction Qual Ramp Fully Operational




Ohio Expansion Start Construction Qual Ramp Fully Operational

Facility

Applications The company sells its modules mostly to solar project developers, system integrators, and utility companies. First Solar works in close contact with the customer to ensure highest system efficiencies and economics through the System Design Application (SDA). This helps promote the safety, reliability, operational performance, and the predictable energy yield over the life of the system.



The solar modules are used in mainly three types of applications:

1) Free field power plants

2) Commercial rooftop systems

3) Residential rooftop systems

Free Field (Ground Mounted) Plant9 Commercial Rooftop System10 Residential Rooftop System10

First Solar’s foray into residential rooftop application of its PV modules is a relatively new venture and began with the acquisition of SolarCity Corp, which is a leading residential and small commercial solar power and solar leasing company based in the USA. The Company invested $25.0 million in the preferred shares of SolarCity and entered into an agreement to provide 100 MW of PV modules to SolarCity between 2008 and 2013 for residential installation purposes.2



Brief Management Description5

a) Michael J. Ahearn - Chief Executive Officer, Chairman Michael J. Ahearn has held the position of CEO and Chairman since August 2000 and has also formerly served as President of First Solar from August 2000 to March 2007. He is a qualified B.A. in Finance and also received a J.D., both from Arizona State University. He has been Partner and President of the equity investment firm, JWMA Partners (previously known as True North Partners L.L.C.), currently the majority stockholder of First Solar. Prior to joining JWMA, Mr. Ahearn practiced law as a partner with Gallagher & Kennedy.

b) Bruce Sohn - President Mr. Sohn has been on First Solar's Board of Directors since 2003 and joined in March 2007 as President. Prior to this, he worked as a senior executive at Intel Corporation and during his 24 year tenure at Intel, he was heavily involved in developing semiconductor technology. Mr. Sohn graduated from the Massachusetts Institute of Technology. He is currently in charge of technology development, manufacturing, expansion, quality, sales, EHS, supply chain, MIS, and worldwide human resources at First Solar.

c) Jens Meyerhoff - Chief Financial Officer Jens Meyerhoff joined First Solar in May 2006 as its Chief Financial Officer, prior to which he served in numerous organizations in various roles. He served as CFO of Virage Logic Corporation, a market leader in embedded infrastructure intellectual property. He also served as COO, Senior Vice President of Operations, and CFO of FormFactor, Inc., a manufacturer of advanced wafer probe cards at different time intervals from 2003 to 2005. Mr. Meyerhoff holds a German Wirtschaftsinformatiker degree, which is the equivalent of a Finance and Information Technology degree, from Daimler Benz' Executive Training Program.

d) John Carrington - Executive Vice President, Global Marketing & Business Development John Carrington joined First Solar in May 2008 as Executive Vice President, Global Marketing & Business Development. Mr. Carrington has held leadership positions with General Electric spanning more than 15 years. He has served as GM and Chief Marketing Officer of General Electric Plastics, GM of automotive marketing in Tokyo, Pacific Marketing Director in Tokyo, and Commercial Director for GE's Noryl resin business in Selkirk, New York. He is a qualified B.A. in Economics & Marketing from the University of Colorado.

e) John Gaffney - Executive Vice President

John Gaffney joined First Solar in January 2008 as Executive Vice President and General Counsel. Mr. Gaffney previously served as partner with Cravath, Swaine & Moore LLP in an advisory capacity on merger and acquisition transactions. He holds a B.A. from George Washington University, a J.D., and an M.B.A. from New York University. At First Solar, he heads the legal, corporate development, government affairs, and corporate communications activities.



Ownership Status5 Top 10 Institutional Holders:

Name of Institution Shares Held % Holding

Estate of John T. Walton 23,003,857 28.37%

JCL Holdings L.L.C. 12,102,002 12.46%

Michael J. Ahearn 3,573,839 3.79%

Fidelity Management & Research 2,811,022 3.41%

Federated Investors Inc. 1,943,501 2.40%

Jennison Associates LLC 1,921,211 2.37%

Wells Capital Management Inc. 1,573,024 1.94%

Maverick Capital Ltd. 1,475,883 1.82%

Gilder Gagnon Howe & Co. LLC 1,463,363 1.80%

Baillie Gifford & Co. 1,360,326 1.68%

Others 29,861,822 36.83%

Total Shareholding 81,089,850 100.00%



Sector Overview Introduction The solar photovoltaic market has developed significantly over the last decade as solar module manufacturers have tried to reduce costs and streamline operations with the aim of bringing the cost for producing solar powered electricity at par with conventional electricity. Although the industry is still young, it is still the fastest growing renewable energy source. The future of the industry does look promising with the concept of Grid Parity being the driving force. The Grid Parity concept is explained in detail later on in the report and basically signifies the level of cost at which solar power produced electricity equals or is less than the cost of grid power based conventional electricity. Global installed capacity has touched more than 9,162 megawatts (9.2 GW) at the end of 2007 from about 1.4 GW at the end of 2000. The installed capacities of PV cells and modules have been growing at an average annual growth rate of more than 35.0% since 1998. The graph below shows the historical trend of global PV capacity:8

Global Cumulative Solar Photovoltaic Capacity

502 580 669 795 948 1150 1428 17622201

2795

3847

5167

6770

9162

0

1000

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3000

40005000

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1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

MW

The solar power industry, which is worth around €13.2 billion, has been ramping up with many countries jumping into the race for opportunities within the PV arena. USA, Europe, China, and Japan especially have been building up capacity with new companies entering the solar energy space. Shown below is the contribution of the major solar markets around the world for 2007:8

Breakdown of PV Market in 2007 by Geography

73.2%

12.6%

0.4%

1.1%

1.0%

0.4%

0.8%

0.9%

8.5% 1.1%

EuropeOECD PacificNorth AmericaEast AsiaAfricaCentral and South AmericaSouth AsiaChinaMiddle East Economies in Transition



Due to robust growth over the last few years, the solar energy space has become an attractive investment destination. The forecasted value of the solar market is shown below: 8

Total Forecasted Value of PV market454.3

273.9

139.0

59.225.913.2

0.0

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2007 2010 2015 2020 2025 2030

€ bi

llion

The Solar Investment Decision The production of solar energy is not economically feasible in most countries, i.e., electricity produced through solar energy is still more expensive than electricity through conventional energy sources. Therefore, investments in the solar industry need to consider other micro and macro factors other than regular demand-supply conditions. The other factors that affect the solar investment decision and also the demand for solar panels are:

1) Supply of polysilicon Crystalline silicon (c-Si) technology based products constituted about 90.0%7 of the total output of the solar PV industry in 2007. Since polysilicon is the major raw material for the production of c-Si cells, its supply is a very significant factor in dictating production costs and margins within the industry. The demand in different countries also fluctuates due to differing subsidy arrangements.

2) Support schemes As existing solar electricity production is still costlier than conventional means, i.e., it is still sub grid-parity, government support schemes and subsidy policies play a very important role in providing impetus to the solar industry.

3) Conventional energy pricing The pricing of coal, gas, and oil also plays an important role in determining the grid parity levels for solar energy. Therefore, the lower the prices for conventional electricity generation, the longer it will take for solar energy production to match cost levels and compete with conventional means without any support schemes or subsidies.

4) Availability of financing With the current status of the market experiencing major turmoil due to the credit crisis, new ventures into the solar space and also existing company expansion plans may witness a slowdown due to lack of availability of adequate funding options.

5) Solar technology The c-Si and thin film technologies (explained in detail in the following sections) which are basically the two main types of producing solar cells, have also raised a debate as to which one is more cost effective. With c-Si technology, ~78.0%7 of the cost is attributable to raw materials (polysilicon) and hence profitability would mostly depend on raw material prices. Thin film technology is more capital intensive and raw material costs are comparatively lesser.

6) Solar value chain Integration within the solar value chain is another vital decision to make as there are different opinions as to whether a company should be integrated throughout the solar value chain or provide only certain components such as purely solar cell manufacturing companies.



Solar Technologies The two most widely adopted solar technologies are crystalline silicon (c-Si) and thin film. From these two, the more commonly used is the c-Si technology. Each type has its merits and demerits, the most prominent ones being the higher cost of material associated with c-Si based products and the higher capital expense associated with thin film technology. Also, between thin film technologies, there is considerable technological differentiation as compared to crystalline silicon. The working of a typical solar cell is as follows: A typical cell has three layers:

• A top layer (Phosphorous doped silicon) • An absorber layer • A back junction layer (Boron doped silicon).

These impurities (Boron and Phosphorous) are mixed with the solar wafer to create a p-n junction very similar to that of a semiconductor device. The conversion of sunlight into electricity is based on the photoelectric effect. The structure of a typical solar cell is shown below:7

The Photoelectric Effect Sunlight is composed of photons which are like packets of energy. When the solar cell is struck by sunlight, most of it is reflected, absorbed, or passed right through the cell. The energy from the photon is passed on to the semiconductor material in the cell and once the level of energy of the photon crosses a certain threshold, it dislodges an electron from the material’s atomic structure, causing the formation of a hole which is the spot where electron was located. Since these electrons and holes are bearers of electric current, the sunlight continues to create holes and electrons. This creates an electric field across the p-n junction as the imbalances of charge in the electrons try to diffuse across the junction to combine with the holes. The electric field creates a “diode” structure that promotes the current flow of the electrons from the n-type layer to the p-type layer while the holes flow from p-type to the n-type layer. This flow causes a current and creates voltage. It is the product of this voltage and power that defines the power output of a cell. Electrical contact layers are placed on the front and the back of the cell to complete the circuit whereby the current is allowed to flow out and back into the cell. The contacts usually are high conductivity materials such as aluminum, silver, and copper. Types Of Solar Cells

a. Crystalline Silicon (c-Si) Cells

This type of solar cell uses polysilicon as the major raw material for manufacturing. The manufacturing process of crystalline silicon cells is specified in detail in the following section. They can be sub-divided into three categories:

i. Mono-crystalline wafer based cells ii. Multi-crystalline wafer based cells

iii. String ribbon crystalline cells



Until recently, c-Si cells were manufactured only with the use of silicon wafers. Recent methods have been introduced into the market, such as c-Si String Ribbon cells, which made up 2.2% 8 of total c-Si cells produced in 2007. String ribbon cells have an advantage over wafers in that no loss of silicon takes place due to the sawing of wafers. String Ribbon manufacturers use a range of techniques such as pulling thin layers from the melt or melting powdered silicon into a substrate, lowering the amount of silicon needed to manufacture the cells. There have been commercially viable products manufactured using this technology with 12.0%-13.0%7 efficiencies, making this a promising technology. Evergreen Solar is the market leader in this technology. Wafer based cells have the advantage of higher conversion efficiencies and proven reliability with superior performance. Manufacturers typically guarantee warranties of 20-25 years for these types of cells. A major drawback with c-Si cells is the high cost of production and therefore higher selling prices. The steps involved in the production of c-Si cells are comparatively much more than thin film cells. C-Si cells also involve more manual labor and longer production times. Shown below is the typical cost breakup of a c-Si cell:7

Cost Structure of Crystalline Silicon Cells

78.0%

10.0%

7.0%

1.0%

4.0%

Materials

Personnel

Other Operating

Depreciation & Amortization

SG&A Expenses

b. Thin film Solar Cells This technology is relatively new and has gained a lot of popularity in recent times. Thin film cells involve higher capital expenses but use lesser steps to manufacture the module, with almost no dependency on major raw materials (using less than 1.0%)7. The manufacturing time is much shorter, although the efficiency is compromised. The technologies used in thin film based cells differ depending upon the light absorbing material used and whether the module comes on a rigid or flexible substrate. The efficiencies of different types of thin film products compared to c-Si products is shown below:8

C-Si Technology Efficiency Thin Film Technology EfficiencyMonocrystalline - Cell 16.0%-19.0% Amorphous Silicon 5.0%-7.0%Monocrystalline - Module 13.0%-15.0% CdTe 8.0%-11.0%Multicrystalline - Cell 14.0%-15.0% CIGS 7.0%-11.0%Multicrystalline - Module 12.0%-14.0% Micromorph ~8.0%

The different types of thin film solar cells are explained below:

i. Amorphous Silicon (a-Si) An amorphous silicon cell does not have any crystalline properties and hence possesses many structural defects. The advantage with this type of cell is that since amorphous silicon has a higher optical absorption coefficient that crystalline silicon, the construction can be much thinner than normal. Amorphous silicon has certain defects which further help in the process for electrons to recombine with holes rather than contributing to the electrical circuit. This enables deposition at temperatures as low as 75 Degrees Celsius, which facilitates its use not only on glass, but also on other materials such as stainless steel and polymer/plastic as well, without damaging the substrate. The most evident advantage of a-Si is the thin layer of silicon needed, reducing material costs. The lowered efficiency is its biggest disadvantage as there is the implication of the energy payback time (EPBT) being lowered substantially. This ranges from around 1 to 1.5 years, which is around half of that of crystalline silicon cells7. Some manufacturers of a-Si cells include USA -based Uni-Solar, Germany based Schott Solar, Ersol Solar, and Q-Cells subsidiary Flexcell.



ii. Micromorph Thin Film

The micromorph thin film cell uses two types of semiconductor material, i.e. micro-crystalline and amorphous silicon. The cell is able to make optimum use of the solar spectrum due to its dual layered structure, and is typically 20.0%-50.0% more efficient than an amorphous silicon cell. Another advantage of these cells is that they lose relatively less of their efficiency when exposed to high temperatures. They also require 200 times less silicon and around half as much energy to manufacture compared to c-Si cells. In this respect, the manufacturing advantages are offset by a lower amount of energy payback which is around half that of c-Si cells. 7 The diagram below represents the structure of a micromorph thin film module:12

The only challenge seen with this technology is that of being able to reproduce it on a large scale, which makes it commercially non-viable. Manufacturers of this technology are very few as most producers are still experimenting with this type of technology. Sontor, a Q-Cells subsidiary, has a 25 MW facility scheduled to start production at the beginning of 2009.7

iii. Cadmium Telluride Identified as a promising semiconductor material due to its high absorption coefficient, Cadmium telluride minimizes the solar energy that passes through without being utilized by the cell. CdTe has proven itself as a feasible solution and has been implemented in large scale production systems very successfully. These modules also tend to generate relatively more electricity under higher temperatures compared to traditional semiconductors. Cells of this type are easier to manufacture compared to other thin film technologies, although the major drawback for CdTe as a semiconductor material for solar cells is the perceived toxicity of the compound. Cadmium, which is a very toxic natured heavy metal, runs the risk of being released into the atmosphere during a fire or the recycling of modules. Presently, First Solar is the largest manufacturer of CdTe modules around the world. Calyxo, which is a Q-cells subsidiary has been reported as having trouble with ramping its 25 MW plant and is now in the process of constructing a 60.0 MW plant that will commence production in the second half of 2009 according to company information. Shown below is the structure of a CdTe module:13



iv. Copper indium diSelenide and related materials (CIS/CIGS)

Copper indium diSelenide has a very high absorption rate of ~99.0% of sunlight in the first micron of the material. The addition of Gallium to this material further enhances the absorption capacity thereby improving the voltage and the efficiency of the cell. CIGS cells are basically CIS cells with gallium and have reached efficiencies higher than any other thin film technology. CIS and CIGS have shown to be stable under normal conditions but do tend to get a little unstable under hot and humid conditions. Major manufacturers of CIS and CIGS solar cells include Global Solar, Wurth Solar, and Solibro (a subsidiary of Q-Cells). There are a number of small scale manufacturers who have ventured into this space but not yet begun commercial production, such as, Nanosolar, Miasolé, Solyndra, and Heliovolt. Of these companies, Nanosolar and Heliovolt are working on a revolutionary product which involves the construction of solar cells that are so thin and flexible, that buildings could be fitted with a virtually invisible wrapping of CIGS solar cells. Shown below is the cross section of a CIGS module.14

The diagram below represents the share of the different technologies in total cell production for 2007:8

Cell Technology Shares in 2007

45.2%

42.2%

5.2%

4.7%

2.2%

0.5%

Multi-c-Si

Mono-c-Si

Micromorph

CdTe

Ribbon c-Si

CIGS/CIS



Solar Value Chain The manufacturing process for solar companies differs based on the technology implemented. Traditionally, for crystalline silicon modules, material is the largest cost component. Polysilicon is the material from which solar wafers are made which in turn is used to build solar cells. Shown below is the manufacturing process for c-Si solar systems:15

Module Manufacturing Process

1. Polysilicon In the manufacturing process for both solar based cells and semiconductors, polysilicon is the major raw material component that is used. It is derived after processing raw silicon found as sand. Presently, ~90.0% of solar module production is wafer-based. Previously, scrap silicon from the semiconductor industry was used to make solar cells.7 In order to minimize or remove the effects of shortages in supply, wafer manufacturers have started entering into long term contracts for the supply of polysilicon. Sometimes, wafer manufacturers are also required to buy polysilicon at higher spot prices when contracted supplies are not enough to cover the production schedules. Due to the above mentioned factors, some wafer manufacturers have started to invest in polysilicon manufacturing. Prices of silicon witnessed an upsurge over the last few years wherein the demand had increased significantly, outstripping supply. However, recent market conditions concerning the credit crunch situation have resulted in the prices falling considerably. There is an eminent oversupply expected in the 2009 fiscal with falling prices forecasted, and capacity expansion and production being constrained due to lack of adequate expansion capital resources. Wacker Chemie and Hemlock Semiconductor are two of the biggest polysilicon suppliers in the industry with capacity of 10,000 metric tons each. Upgraded metallurgical grade silicon (UMGS) producers Another alternative to polysilicon that is currently being used in the production of solar cells is upgraded metallurgical grade silicon which is also referred to as Solar Grade Silicon (SGS). The purity of UMGS is less than that of polysilicon hence cells made using UMGS would generally have lower efficiencies than those fabricated with polysilicon. The efficiency however, can be improved by refining the other manufacturing processes involved in creation of the solar system. Another major advantage of using UMGS in cell and wafer production is the reduced capital cost incurred in building capacity. Timminco, a Canadian metal company, claims to have constructed a 3,600 metric tonne solar grade facility at an implied capex cost of $6.0/kg whereas a conventional polysilicon manufacturing process would imply a capex cost of ~$100.0/kg. This would imply a cost that is 17.0x less than that of polysilicon. Another great advantage is that of lower electricity consumption. The Timminco plant used 2kWh/kg compared to around 70-120 kWh/kg in the conventional process.7 Setting up of UMGS plants take around 2 years compared with a 3-4 year gestation period of polysilicon plants. Overall lower production costs, translating into lower selling prices, provide cost advantages to the solar industry.



Combined cumulative silicon capacity, including new UMGS and polysilicon capacity, could reach up to 6.0x its current 2007 capacity, in the year 2012. Shown below is the year end capacity forecasts of polysilicon producers:7

Year end Capacities of Polysilicon Producers

41,650 55,567 76,550 96,550 117,900 120,90012,010

123,760120,860108,260

78,610

25,340

17,0102,360

69,710

84,060

84,060 84,060

0

50,000

100,000

150,000

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250,000

300,000

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2007 2008 2009 2010 2011 2012

Met

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Existing Polysilicon Producers New Entrants New UMGS Producers

2. Ingots

Polysilicon is further processed into ingots, which can either be made from a single crystal (mono-crystalline) or multi-crystalline silicon. Multi-crystalline silicon has a non-uniform crystal structure and hence has lower conversion efficiencies than mono-crystalline silicon solar cells. The only drawback is the higher cost of producing mono-crystalline silicon.

3. Wafers The ingots are further divided into smaller segments by sawing or slicing them into silicon wafers. This steps results in the wastage of a significant amount of silicon as sawdust, which is also referred to as “kerf loss”. With the recently high prices of silicon, manufactures have come up with a few alternatives to reduce the wastage of silicon and also to utilize lesser silicon per wafer and per solar cell. The first method is to improve on the wafer sawing techniques and minimizing the kerf loss through the use of wire saws and lasers. Reducing the wafer thickness is another way to reduce significant wastage of silicon. Other alternative manufacturing techniques are also being tested which do no require the manufacturing of ingots and wafers. The average selling prices of select wafer manufacturing companies have been shown below:7

Average Selling Prices of Select Wafer Manufacturers

2.482.272.44

2.192.24

1.571.651.571.481.24

2.732.56 2.602.30

2.16

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2006 2007 Q108 Q208 Q308

LDK Solar REC Crystaloxola

4. Solar Cells

Crystalline solar wafers are used as substrate to manufacture the solar cell, which is the main part of the solar system that converts the sunlight into electricity. Solar photovoltaic cell production has boomed in the last few years due to the excessive demand for solar systems. The European Union has also given generous subsidies towards solar companies which have resulted in rapid growth. PV cell production has grown at a remarkable rate of ~51.0% in 2007 taking the total PV cell production figure to 3,733.0 MWp.7



Solar cells can be of crystalline silicon or thin-film types. Crystalline silicon currently accounts for a majority of PV cell production. However, due to silicon shortage negatively impacting the producers in recent periods, thin film based technology has become more popular due to the lowered dependence on silicon as a raw material, also resulting in lowered production costs. Shown below in the market share of the top 10 solar cell producers in 2007:8

Top 10 PV Cell Producers in 2007

47.0%

9.0%

8.0%

8.0%

5.0%

5.0%

4.0%

4.0%4.0%

3.0%3.0%

Rest of the WorldQ-CellsSharpSuntechKyoceraFirst SolarMotechSolarWorldSanyoYingliJA Solar

Region wise production of solar cells globally reveals that Japan was the largest producer till 2006, with Europe in second place. Due to a silicon shortage causing Japan’s production to remain flat in 2007, Europe took over as the largest producer. Players like Q-cells and SolarWorld led the growth in Europe. China emerged as second largest producer. The USA placed fifth in the 2007 PV cell production list and was overtaken by Japan and Taiwan, who took the third and fourth place respectively.8 Though China and Taiwan have both started production only recently, have embarked upon very aggressive capacity expansion plans. The major Chinese players in the market are Yingli Green Energy, China Sunergy, Suntech Power, Solarfun, and JA Solar. The major Taiwanese players are Motech Industries, Gintech, and E-Ton Solar. Most of these companies have nearly doubled production in 2007 and have set ambitious targets for the coming years as well. Even though reduction of government subsidies in Germany and Spain have been announced, these two markets have not been discourages and have announced aggressive capacity expansion plans over the next few years.

5. Solar Modules To generate sufficient amount of power enabling the operation of residential and commercial systems on solar energy, the power output of the solar cells need to be harnessed by taping and stringing them together to form solar modules which have specified electrical configurations. Most module manufacturers offer power output of ~90.0% and ~80.0% for the first 10 years and 25 years respectively. Shown below is the diagram of the module manufacturing process:7



Thin-Film Module Manufacturing Process The manufacturing of thin film modules is an entirely different process from that of c-Si modules, the most evident dissimilarity being that of the raw materials used. In c-Si modules, it is has been seen that dependence on polysilicon is very high and that raw materials make up the majority of the cost. In thin-film technology, the time taken to manufacture a module is much less compared to that of a c-Si module. The thin-film manufacturing process, (based on information from First Solar which uses CdTe technology), can produce a solar module from a single sheet of glass in under three hours without any manual labor compared to many more steps required in the value chain for manufacturing c-Si modules. The major module manufacturers around the world are Solon AG, Aleo Solar, SolarWorld, Suntech Power, Sunpower, Trina Solar, Yingli Green Energy, Sharp Corp, Kyocera, and Sanyo Electric. Major thin film module manufacturers are First Solar and United Solar. Solar Systems A solar system is an arrangement of solar modules at one specific point or area to capture sunlight to be converted into electricity. Apart from the module arrangement, a solar system’s other components (Balance Of System) include an inverter, meters for net metering and feed-in electricity, battery for storing power, if needed, power controls, connectors, and other electrical circuitry and installing materials needed for completing the system. The typical cost structure of a PV system is demarcated in the following illustration:7

Average Solar System Price by its Components

Silicon, 15.0%

Wafer, 15.0%

Cell, 20.0%

Installation, 15.0%

Inverter, 5.0%

Module, 10.0%

Other Components,

5.0%

Other Services, 15.0%

The solar systems can be installed on the roofs or walls, of houses and buildings, or can be ground based, for e.g., large solar farms and utility sized solar systems. Solar tracking systems, also called “Heliostats” have become popular and are used to track the sunlight by aligning the modules towards the direction of the sun to capture optimal amount of sunlight. Shown below is the structure of a dual tracking system:16



Solar Project Developers Solar project developers are the next step in the supply chain and are concerned with the designing and construction of solar power projects such as solar power plants. The developers conduct site analysis and select the best possible area for the setting up of a solar power project. After the plant construction is completed and it is operational, it is then sold to investors and customers. The solar project developers usually also take charge of the maintenance and repairs of the power plant after it is completed. The major solar project developers are Conergy, City Solar, Phoenix Solar, Acciona Solar, Sunpower, and Ecostream.

• Power Purchase Agreement (PPA) A power purchase agreement has become a very widely used means of financing large solar power plant projects and commercial solar systems. Under the PPA agreement, the customer does not buy the solar plant facility directly from the solar project developer; instead they agree to buy the electricity directly from the developers at predetermined prices for a fixed term, usually between 10-25 years. The solar systems are built, installed, and operated by the solar project developers on behalf of equity investors who provide the capital for building such facilities. The investors receive their return through the electricity sales income, and any other federal or state tax credits. The solar project developer receives his return for building, installing, and operating the system. In most PPA transactions, there is another player involved, referred to as the Solar Energy Service Providers, who mainly co-ordinate the financing, installing, and operation of solar systems. They approach investors and raise the required capital from them, hire the project developers to construct the system, and co-ordinate the power purchase agreements with the customers. Therefore, all the risks and responsibilities of the PPA rest with the energy service providers. Shown below is the general structure of a PPA financing model:17

Host/Customer Project Developer Investor

No Capital Required Designs, builds, and maintains system Provides capitalDoes not own system, only hosts it Arranges transaction and financing Owns equipmentProvides developer access to system Signs PPA with host Receives state and federal tax benefitsReceives fixed-price power at or below Receives income from the sale of RECs Receives income from electricity sales

current retail price Can purchase RECs

25 year PPA

Predetermined Power Price

Upfront Capital

Electricity Income

At the end of the term, the customer has the option of buying the facility or entering into a new PPA. The advantages of a PPA as opposed to owning a facility outright is:

• There is no significant capital expenditure required • The customer’s only cost is the electricity generated by the system • The prices are predetermined and hence less susceptible to fluctuations

The PPA transaction is generally suited to large commercial systems and utility sized power plants. According to Greentech Media Estimates, around 50.0% of commercial solar system installations in 2007 were financed using the PPA model and around 75.0% of installation in 2008 and 2009 will be financed with PPAs.7 Solar Equipment Companies The demand for Solar equipment has increased with the explosion of the solar energy space. Many semiconductor companies have started manufacturing equipment for the solar industry as the manufacturing processes and materials required for solar cells very closely resemble those of integrated circuits. Equipment companies have also started providing turnkey solutions for the manufacturing of c-Si cells and modules, as well as thin-film modules.



Subsidies and Support Schemes for the Industry The solar industry is still economically unfeasible as the electricity produced through solar power is more costly than conventional grid electricity. Hence, to provide impetus to solar power manufacturers, the government must provide certain subventions so that the production of solar powered electricity, apart from benefiting the environment, also results in a benefit for the producers and makes it commercially viable to produce on a large scale. Various countries have adopted different assistance plans and subsidy schemes. Feed-in Tariffs (FITs) FITs are the most established and successful policy adopted and used in mostly all of the major European solar markets such as Germany, Spain, Italy, Greece, Ireland, France, Portugal, etc. The feed-in tariff implies that renewable energy plant operators are paid a fixed tariff for every kilowatt hour (kWh) of electricity fed into the grid. The tariff to be paid depends on each country’s feed-in tariff plan and varies according to the size of the plant, its location, and the source of the renewable energy. The feed-in prices to be paid are fixed based on the cost of generating electricity for the renewable energy plant operator. The prices are usually fixed for a certain number of years after which they start declining so as to give the plant operator an incentive to reduce his cost of generating electricity thereby reducing the cost at which it is sold. In most countries, it is the norm to have the grid operators give priority to the renewable energy plant operators and purchase electricity from them first. The higher price paid by the grid operators is passed on to the utilities who in turn pass on the higher price to the consumers. This implies that consumers would not have to pay a higher price if there was no purchase of electricity from renewable sources. Germany is a prime example of a success story for feed-in tariffs. It is estimated that in 2008 in Germany, the utilities ended up paying a tariff of between €0.35/kWh and €0.47/kWh, depending on the size and type of PV system from newly installed solar plants. To absorb this extra cost, the utilities passed on this extra cost to electricity consumers resulting in German households paying an additional €1.25 per monthly due to the tariffs for solar electricity. It is also important to reduce the tariffs over time as it gives the plant operator an incentive to reduce his cost for producing solar power. It is because of this reason, that the feed-in tariffs in Germany are reduced each year by 5.0%, with the digression rate in 2009 rate being increased to 8.0% -10.0%. This policy is only valid for newly installed PV systems. The tariff is to remain constant for a period of 20 years once the PV system is connected to the grid. Hence the 5.0% reduction policy is very important as the market must reduce its costs in proportion to keep the margins from slipping. 8 Feed-in tariffs offer investment security and provide momentum to the industry to reduce costs while simultaneously benefiting the environment. It can also be customized to suit different types of technologies, such as higher tariffs for costlier and less developed technologies and vice-versa. Also, the cost escalation to be absorbed by the customer is minimal hence it does not place too much of a burden of households as well. One major disadvantage is of having the tariff rates too high, if cost reductions due to technology improvements and other reasons are not factored in. On the other hand, if the tariffs do not provide enough benefit due to higher production costs, the policy might fail to encourage manufacturers of solar energy. Renewable Portfolio Standards (RPS Policies) RPSs are also known as quota obligations and are mostly prevalent in North America, China, Japan, Australia, Italy, and Canada. By the end of 2007, 44 countries had enacted RPS policies. An RPS policy states that the final retailers of electric energy must have a certain portion of their electricity sales from renewable sources. Countries have also set their own targets for the amount of electricity that should be provided by renewable sources of energy. Since utilities are mostly the final retailers of electricity, it is up to them to meet the targets set which are usually in the range of 5.0%-20.0% to be achieved by 2012.7 They can reach the targets by self generation of electricity or by purchasing alternative sources of energy from other power plant operators. There is also another clause known as the Alternative Compliance Payment (ACP) which is the penalty that the utilities and other electricity retailers would have to pay in case they do not end up meeting the targets set in the RPS policies. The following two policies are usually used in conjunction with the RPS policies:

• Tendering Under the tendering scheme, power plant operators are allowed to bid for the projects to provide renewable energy and the lowest price quote wins the project. Therefore, the utilities purchase electricity from power producers at prices quoted by them.

• Renewable Energy Certificates (RECs) Also called green certificates, they help countries meet their obligations under the RPS policies.



These green certificates are awarded to renewable energy producers for every unit of electricity produced as a type of proof of renewable electricity generated. These certificates are traded in the market to help electricity retailers meet their obligations under RPS schemes. The electricity retailers can decide to either self produce the electricity or purchase the RECs from other power producers. The price of the REC is the biggest factor in this decision to make or buy. For example, if the demand for renewable energy is higher than its supply, i.e., its mandated amount under the RPS scheme, the price of the RECs would definitely go up and vice-versa. The ACP is one of the factors on which the price of the REC depends. The ACP needs to be sufficiently higher than the REC to motivate compliance under the RPS scheme. RPS policies, unlike feed-in tariffs, do not have any investment security, as the fluctuating prices of the RECs are the dictating factor for meeting quota compliance. The prices of RECs are also not technology specific, i.e., the price of an REC issued for generating solar powered electricity sells at a price equal to an REC issued for generating power from other sources of energy such as wind energy. Setting a quota for the amount of renewable energy to be generated in essence puts a cap on the amount of energy to be created and does not provide for any additional incentive for energy creation. Subsidies, rebates, tax incentives/exemptions etc. Subsidies, rebates, tax incentives/exemptions & tax credits are designed to make investments in renewable energy at lower costs. This can happen either upfront at the time of purchase through subsidies and rebates or it can take place after purchase through tax benefits or tax credits on production of renewable energy. The direct investment subsidy is offered in a minimum of 35 countries across the world and at least 40 countries offer different types of tax credits and incentives.7 Many countries have set aside special public funds for boosting the growth and development of renewable energy by channeling these funds towards directly financing investments, providing cheaper loans, and providing funds for R&D and education. Net metering This scheme is a very important incentive for solar installations in private households and especially for the rooftop solar PV installations. Under net metering, the customer is required to pay only for the net electricity consumed, and as and when the amount of electricity generated exceeds its consumption, the excess power can be sold back to the electricity retailers or the grid. This scheme, in effect allows customers to receive payment of retail prices for the excess electricity that they generate.



The Grid Parity Concept The grid parity concept denotes the price level at which the generation of electricity from renewable energy sources becomes equal to or cheaper than the cost of producing conventional grid electricity. Since the module cost is the main cost component of the PV system, the reduction in module costs will dictate the ability of solar power companies to reach grid parity. Therefore, to achieve grid parity without any government subsidies is the ultimate goal of the solar PV industry. The factors that will help companies reach grid parity quicker are technology differentiation and scale production. It has been proven that the cost per watt of manufacturing solar modules decreases with the increase in capacity. This would result in only companies with larger production scale being able to weather any pricing storm that might take place, with technology playing an important role in reducing manufacturing costs. Emerging thin film technologies are revolutionizing the module manufacturing process by reducing process times and costs associated with materials. The price of solar electricity differs from country to country depending upon the sunlight conditions, financing costs in the country, tax incentives and other subsidies provided. The PV module typically makes up around 60.0% of the cost for a residential or commercial system.7 For a PV system to near grid parity and to be able to compete with utility scale installations, prices would have to be reduced considerably. As a reference, conventional sources of electricity such as coal, nuclear, and hydroelectric plants generate electricity at a cost of ~€0.02 - €0.06 per kWh. Given below is a list of residential grid prices in different regions at price per kWh.7

Europe (in €) Per kWh

France 0.16

Spain 0.16

United Kingdom 0.17

Germany 0.25

Italy 0.30

USA (in US$)

Illinois 0.10

Florida 0.11

Texas 0.12

California 0.14

New York 0.17 The conventional thinking is that the cost of modules needs to be reduced to $1.00 per watt to reach grid parity and to be competitive. Since current module costs range from around $2.50 - $4.00 per watt, to reach a $1.00 per watt target may take some time.18 The truth of the situation is that the grid parity is not an exclusive number which applies to every country and every power producer. Grid parity levels depend on how cheaply grid electricity is available and which grid is being compared based on whom the electricity is provided to. For e.g., for residential or commercial scale distributed solar electricity, as opposed to utility scale power which is centralized, the grid that should be weighed against are the retail electricity rates. This needs to then be compared to the LOCE, which is the levelized cost of energy. The LOCE for solar power is essentially the present value of all the cost flows generated over the life of the PV system, divided by the total energy generated by the system. Hence, depending on which grid we are comparing with for parity the target cost could vary anywhere between 5.0¢/kWh for countries like and China and India, to a massive 25.0¢/kwh for a country like Italy. In the USA, retail rates for electricity can vary by a factor of up to 5.0x. Accordingly, for countries with high demand and consumption of electricity such as Italy, Spain, Holland, Great Britain, and California, the $1.00 per watt target would be around twice as low as we would have to go to achieve grid parity.18 Another major factor influencing the grid parity levels will be the cost of fossil fuels. The lower the price of fossil fuels, the lower will be the cost of producing electricity from the fossil fuels. Hence as the cost of producing conventional energy reduces, the cost of producing solar energy will have be reduced even further to be able to reach grid parity. The general observance is that when prices of conventional sources of producing electricity go down, solar energy becomes less attractive.



The graph below shows the correlation between the price of crude oil and the S&P Global Clean Energy Index, which consists of stocks of the major solar companies around the world. It can be seen that there is a strong correlation over the last few quarters between the price of crude oil and the index: 19 With recently decreasing oil prices, solar grid parity could be delayed for another couple of years.

Crude Oil vs. S&P Global Clean Energy Index

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

400.0%

Jan-05

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Apr-06

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Oct-06

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Crude Oil S&P Global Clean Energy Index Illustrated below is a chart showing the proximity of different countries to achieving grid parity:8



Major Solar Energy Markets Markets around the world have developed rapidly in recent years and have a lot more planned in the pipeline going forward. The global capacity breakdown by country is shown is the chart below:20

Global Solar PV Capacity Breakdown by Different Regions - 2007

3,862.0 , 47.4%

1,919.0 , 23.6%830.5 , 10.2%

655.0 , 8.0%

12.0 , 0.1%

18.0 , 0.2%

25.8 , 0.3%

31.4 , 0.4%

75.2 , 0.9%

83.0 , 1.0%

301.0 , 3.7%

120.2 , 1.5%

112.0 , 1.4%

100.0 , 1.2%

GermanyJapanUnited StatesSpainCaliforniaItalyIndiaChina AustraliaFranceSwitzerlandCanadaUnited KingdomOthers

The major solar markets around the world are: Germany The cumulative installed capacity in Germany increased to 3,862 MW at the end of 2007, including an additional 1,100 MW of power being installed in that year, making it the biggest global market for PV systems.20 Although Germany remained the largest market globally for PV systems by far, its market share within Europe declined as other countries such as Spain and Italy ramped up their output. The mix of PV applications in Germany in 2007 is well spread out as can be seen in the chart below.8

PV Applications in Germany - 2007

53.0%

30.0%

10.0%

7.0%

Small Commercial Plants/Buildings

Residential

Ground Mounted

Very Large Commercial Rooftops

Currently 0.6% of electricity consumption can be provided for through solar PV systems.8 Taking into account the current installation rates in Germany, solar power is forecasted to be a major technology of electricity production in the future. The EEG (Renewable Energy Sources Act) in Germany provides the framework for the functioning of the PV market.



The basic principles of the EEG are:21

• Every PV system must be connected to the grid • Every kWh of solar electricity has to be bought by the utility • There is a fixed feed-in tariff of over 20 years • There is also a fixed reduction of the feed-in tariff every year by 5.0% for newly installed PV systems

Spain The total capacity installed in Spain at the end of 2007 was ~655 MW.20 An additional 1,000 MW of installations were targeted by the end of September 2008, and a 500 MW cap of solar power deployment has been set for 2009. The government has also recently uncovered a host of projects that were falsely reported as being complete by the September 2008 deadline. These projects will now have first consideration to fill the 2009 allocation for solar deployment. It was found that only ~44.0% of the projects had been legitimately completed by September 2008. This would basically signify no new shipments for the entire year.22 Spain’s feed-in tariff program requires the utilities to buy the electricity at very high rates set by the government. After a major surge in the number of projects being developed, the government reduced the rates after the period of September 2008. The money committed for Spanish PV solar installations increased nearly 500.0% from 2006 to 2007, to about $3.45 billion.23 Spain had originally set a target of achieving 400 MW of installations which was achieved in 2007. Revised targets are 3,000 MW installed by 2010 and 10,000 MW installed by 2020.20 Ground mounted installations have been the concentration of the Spanish market with around 95.0% of the installations in 2007 being of this type.8 France France had a cumulative installed capacity of 75.2 MW at the end of 2007.20 The target capacity for France by the end of 2011 is 1.1 GW and by the end of 2020 the target capacity has been set at 5.4 GW. The 40.0% tax credit introduced in 2004, which was extended to 50.0% in 2005, along with a doubling of feed-in tariffs in 2006, has contributed greatly to the development of the French solar PV industry.8 In November 2008, the French government announced “50 Measures For The Development Of Renewable Energies”. This plan lays out specific approaches for each energy source and predicts a major scaling up of the solar PV sector. The plan outlines the following:20

• A new tariff for large commercial BIPV (Building-integrated PV) and a clarification of the BIPV requirements in general • Public buildings will benefit from feed-in buy-back rates • A call for tendering of 300 MW of large scale solar projects

France, through its feed-in tariffs, provides most incentives to the BIPV systems. With a need to diversify its energy sources portfolio, France also needs to focus on its non-BIPV sector. Italy Italy possesses a cumulative 2007 year end capacity of 120.2 MW, 20 with expected capacity set to double by the end of 2008.8 Long-term targets as of February 2007 were to reach 1.2 GW of installed PV capacity by 2010, 3.0 GW by 2016, and 8.0 GW by 2020. Feed-in tariffs in Italy are for a fixed period of 20 years with rates decreasing 2.0% annually for the next two years.20 Italy has many factors supporting the growth of the PV market such as the good climatic conditions and the availability of low cost land and therefore has the potential to grow as one of the most prominent solar PV markets worldwide. The second “Conto Energia” feed-in plan was much more effective than the first one as the first law posed huge problems of speculations with the systems. In Italy, solar electricity is very close to reaching grid parity with retail electricity prices for residential installations standing at €0.188/kWh or about 0.258 USD/kWh.20 This factor, combined with Italy’s solar resources holds a very promising future for the industry if the country shows sustained support for solar deployment. United States PV capacity in the United States stood at 830.5 MW at the end of 2007.20 California dominated the new installations with a ~60.0% share, with the rest of the USA growing by 83.0%.8 One major shortfall is that the United States does not have a coordinated national program for the development of the PV industry. Since electricity generation in the USA is states’ rights issue, most policies concerning the development of the PV industry have taken place at the state level.



• Federal Investment Tax Credit (ITC)20

The 2005 Federal Energy Bill ITC was brought into effect in 2006. It initially specified a 30.0% credit off the system’s cost which would be valid for 2 years. In 2008, it was reverted to a 10.0% credit. Also, the residential grid-connected systems were capped at $2,000.0 per system with no cap on commercial grid-connected systems. Under this system, utilities could not benefit from the tax credit. In 2008, the US Senate failed eight times in passing the renewable energy bills for the extension of the ITC. In October 2008, the ITC was finally extended under the gamut of the $700.0 billion stimulus package. Under this schedule, the ITC was extended for another 8 years for both residential and commercial installations, the $2,000.0 cap for residential applications was lifted, and utilities were also allowed the benefits of tax credits as well.

• Solar America Initiative20 The Solar America Initiative is a concentrated effort on behalf of the US Department of Energy (DOE) to make solar electricity cost competitive with conventional electricity by the year 2015. It is also expected that by that time, solar PV will provide up to 5.0-10.0 GW of new electricity capacity. Even though solar PV installation grew all over the USA, the main area for growth has been the thin film module industry. The US is still the global leader in thin film module production, accounting for nearly half of the world’s total thin film production. With a forecasted fall in silicon prices, the US is expected to witness a thriving solar PV industry. Japan The country’s cumulative installed capacity for PV was 1,919 MW.20 Japan became the first country in 1994 to introduce federal subsidies for the installation of residential solar PV systems. Due to this program, Japan gained the position of world leader in PV installations and production which it held for over a decade. The subsidies expired in 2006 which lead to Japan having to give up its place as the foremost installer and producer in the world. The policy saw a total of 932 MW being installed. Residential PV accounts for ~89.0% of demand in the Japanese PV market. The aim was to create a self-sustaining market, and with the end of the subsidy program, the market has added 290 MW in 2005, 287 MW in 2006, and 240 MW in 2007. These additions are just short of the ~1.0 GW capacity needed to be added annually in order to reach the 2010 target of 4.2 GW.20 In June 2008, Japan’s then Prime Minister Fukuda had announced a plan known as the “Fukuda Vision”, which aimed at creating a low carbon society and set capacity targets of 14.0 GW by 2020 and 50.0 GW by 2030.20 Since Japan depends on imports for almost 96.0% of its total energy supply, 50.0% of which is crude oil, energy security needs to be tightened. Also, federal support for the PV industry has dwindled in recent years which have hurt the solar power producers in meeting costs associated with the installation of systems.20 China Total cumulative capacity in China at the end of 2007 amounted to 100 MW.20 In China, so far only 6.0% of the total solar PV installed is on-grid installations. The biggest application of solar PV is on rural electrification.8 In 2007, China became the world’s largest solar cell manufacturer, increasing production by 138.0% and overtaking both Europe and Japan. China’s annual production reached 1,088 MW in 2007 with Suntech Power retaining the spot of industry leader, with a production output of 327 MW, accounting for 30.1% of total production in China. The Chinese solar PV industry has shown an average annual growth rate of 191.3% since 2002.20 The Chinese PV market has targeted installations of 300 MW by 2010 and 1,800 MW by 2020.20 In 2006, China enacted the Renewable Energy Law which provided a basic framework for renewable energy policies. Under the 2006 Renewable Energy Law, the following was effected:

• BIPV installation as well and large-scale desert PV installations will be subject to the feed-in-tariff policy • For rural based PV systems, the initial investment will be paid by the government, and other costs exceeding the revenue

from electricity fees will be allocated to the nationwide electricity network by increasing the electricity tariff proportionately

Although China’s Renewable Energy Law takes a positive step towards the development of renewable energy, it continues to remain non-committal towards PV. Government support to the industry in general, and the PV market in specific, would definitely help in providing various social, economic, and environmental benefits.



Future Trends of the Solar Market The solar market has grown in leaps and bounds in the last few years due to demand for alternative renewable sources of energy. Combined with government incentives provided to make the industry profitable, it provides impetus to manufacturers of solar power. The market for solar PV installations grew to 2.4 GW in 2007, and is expected to grow to 6.9 GW in 2010.8 The market began 2008 in a completely different manner finishing the year 2007 with solar stock prices having risen 289.0% on average.24 The graph below shows the historical and forecasted trend of the installations in the global solar photovoltaic market:8

Global Solar Photovoltaic Installation Forecasts

78 89 126 153 202 278 334 439 5941,052 1,321 1,603

2,392

4,175

5,160

6,950

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

MW

Demand for silicon modules is expected to decline in the next few years with a major factor being the global financial environment impacting the ability of solar project developers to raise financing. A great deal of attention will be paid to the policies implemented by the President-elect Barack Obama for the solar industry, and also for the betterment of the financial and economic situation worldwide. The major goals set by the U.S. include harnessing 12.5% of electricity generation from solar power by 2020 and creating 1.5 million new jobs in the solar industry.25 The SEIA (Solar Energy Industries Association) has recommended certain policies to be implemented by the new administration. A few of the important policies relating primarily to the solar industry are:25

• Improving of solar tax credits • Increasing the government procurement of solar energy by making available funds to invest in the construction and

operation of solar PV projects. The Federal government is the largest utility customer in the U.S., spending $5.8 billion annually on electricity

• Increase funding for the DOE (Department of Energy) solar program to $500.0 million including $300.0 million for photovoltaic (PV), $150.0 million for concentrating solar power (CSP), and $50.0 million for solar thermal programs

• Installing solar power on 10.0 million U.S. roofs by 2012 With average selling prices expected to decline across the board, most industry leaders with a larger market share will be able to sustain revenues over the short term. Also, a shift towards lower costing thin film modules is expected. The market for polysilicon is expected to witness a massive glut as polysilicon supply is expected to increase due to increased production capacity, coupled with the dwindling demand from the semiconductor and solar sector. The positive side is that with the prices of polysilicon slated to reduce drastically, solar producers can reduce their total costs thereby formulating an optimum pricing strategy that will help foster demand within the market. The average selling prices are expected to decline in 2009 for c-Si modules by 28.0% falling to $2.75/watt from an average of $3.85/watt in 2008.24 The market has historically been a sellers market with solar system producers being able to achieve high returns due to supply and capacity constraints. Now that supply shortages in raw materials have moved out, combined with the excess competition driving system prices lower, the solar market will turn to benefit the buyer. Germany is expected to remain the largest market for the solar power industry in 2009 accounting for about 45.0% of the worldwide demand. Spain’s module consumption is expected to decline 73.0% to 400 MW in 2009 due to the 500 MW limit of new installations. Japan is forecasted to be the second largest market in 2009 with growth being aided by Japan’s solar incentive program restarting after a two year interval. Italy’s solar market is forecast to consume 350 MW of modules in 2009, up significantly from the 150 MW estimated for 2008. France is expected to see rapid demand growth due to increases made to the solar incentive program in November 2008.24



Business Model The First Solar’s business model is very unique compared to its peers as the technology and the manufacturing processes involved are very different. As explained in the introduction, the company adopts the thin film technology to produce its modules. Thin film modules are fabricated through a high throughput manufacturing process which is considerably different from the multi-stage manufacturing process used for manufacturing c-Si modules. There is no requirement for any major raw materials in the thin film module manufacturing process. Manufacturing Process First Solar’s manufacturing process allows it to produce a fully complete solar module of regular dimensions (2ft x 4ft) from a single sheet of glass in less than 3 hours. This is a streamlined process compared to a conventional c-Si based solar panel which first needs to process wafers from polysilicon, and then into solar cells which in turn are finally integrated to manufacture the module. The time taken to process a fully completed crystalline silicon module can be around 12 hours or more, which takes place through multiple steps along the value chain.6 First Solar uses the CdTe technology for constructing its modules. Each module employs the use of a layer of Cadmium Telluride to convert sunlight into electricity. Most thin film technologies make the use of a light weight substrate such as the amorphous silicon and CIGS technologies, whereas First Solar CdTe modules are placed on glass. This creates a slight concern regarding the weight of the module which in some cases might limit its usage in rooftop applications. First Solar though, has already successfully completed projects which require rooftop installation of modules. The reason for the use of Cadmium telluride is because of its absorption properties that are in high correlation to the solar spectrum. The use of CdTe as the semiconductor material has potential to deliver competitive conversion efficiencies while using only ~1.0% of the semiconductor material that is used by traditional crystalline silicon solar modules. First Solar’s modules also perform well in low light conditions and high temperature environments as compared to c-Si solar modules. The conversion efficiency levels are currently around 10.7% with the company targeting efficiency levels of around 12.0% by 2012. Under laboratory conditions, First Solar modules have been known to reach conversion efficiencies of up to 14.5%.6 It is also seen that First Solar makes use of a laser to separate the CdTe layer to create cells on its glass modules which leaves minimal non-PV spacing on the module surface. This leads to a relatively small variance between the claimed conversion efficiencies and actual efficiency levels as measured on a surface area basis. This can be compared to other types of modules which may possess significant differences between claimed efficiency levels and actual surface-area efficiency. The structure of a CdTe module is shown below:6

Presently, the company purchases all its requirements of CdTe in compounded form from a limited number of suppliers. The use of Tellurium is sometimes questioned due to it extremely rare nature. Doubts have surfaced as to whether the company can ramp up to a multi-gigawatt capacity production scale through the use of this technology. This has been mostly averted as the company has managed to secure substantial amounts of the ingredient for its future growth. One of the risks the company faces is if their suppliers are not able to secure enough of the rare material to adhere to their contracts, or if other companies increase their demand for cadmium telluride in which case the prices may rise or not enough of the material may be available. The company has managed to mostly secure itself against price fluctuations as it has entered into a long term supply contract with a cadmium telluride supplier which provides for quarterly price adjustments based on the cost of tellurium.



Another concern about the semiconductor material used is that of the hazardous and toxic properties of cadmium as a primary raw material. Although there have been no such instances where cadmium has been released in a toxic form from CdTe modules, or any other situation where the modules have been barred from any markets or applications due to toxicity concerns. The Company also provides for and maintains engineering controls to minimize any exposure to cadmium. Safety equipments such as respirators, chemical goggles, and protective clothing are provided to the handlers of the substance. The Company announced a supply contract with Canadian based 5N Plus for Cadmium Telluride and Cadmium Sulfide in February 2008. The Company has also considered producing Cadmium Tellurium in-house in the future, although not much detail is available on this front. Due to the rapid throughput of First Solar’s manufacturing process, CdTe technology is considered as the preferred means of manufacturing for use in utility scale PV projects. The manufacturing process has been integrated into a continuous production line with each highly automated production line requiring a staff of approximately twenty employees per shift. Each of these production lines operates four shifts per day running 24 hours a day, 365 days a year. The manufacturing process consists of three main stages:1

a. Deposition The deposition process begins with the automatic loading of sheets of tin oxide coated soda lime glass onto the production line. They are then transported to a vacuum chamber where they are cleaned, heated, and layered with a coating of cadmium sulfide followed by a layer of cadmium telluride using the company’s proprietary vapor transport deposition technology. Each cadmium telluride layer requires less than 45 seconds for depositing. The semiconductor deposited pane is then cooled rapidly before entering the last stage of the deposition process which involves a re-crystallization step that reduces defects within the cadmium crystals.

b. Cell Definition

In the second stage, the company’s proprietary laser scribing technology is used to transform the singular semiconductor coated plate into a series of interconnected cells delivering the desired current and voltage output.

c. Assembly and Testing

In the last phase of production, the busbars, (metallic bars that pass the generated electricity to external contacts) are attached to the module followed by the application of ethyl vinyl acetate (EVA) laminate, and installation of a rear glass cover sheet and termination wires. The module is then quality tested and checked for current leakages. The assembly and testing stage is the only phase of the manufacturing process requiring manual labor. Business Strategy First Solar derives mostly all of its sales from the sale of solar modules to solar project developers, system integrators, and other operators of renewable energy projects, with the main consumer countries being Germany, France, and Spain. The company incurred ~91.0% of its sales to the EU in 20071, with their customers then reselling the modules to end-users who receive government subsidies and incentives. These end-users include owners of land, agricultural buildings, commercial warehouses, offices and industrial buildings, public agencies, municipal government authorities, utility companies, and financial investors who desire to own large scale solar power plants. The modules are mainly employed in large scale ground mounted systems (solar farms), and large commercial rooftop markets. First Solar has thirteen principal customers to which it sells its modules and with whom they have entered into Long Term Supply Contracts. In 2007, the company’s principal customers were Blitzstrom GmbH, Colexon Energy AG (previously Reinecke + Pohl), Conergy AG, Gehrlicher Umweltschonende Energiesysteme GmbH, Juwi Solar GmbH, and Phoenix Solar AG. Each of the aforementioned six companies accounted for between 10.0%-23.0% of First Solar’s net sales in 2007. All other customers individually accounted for less than 10.0% of net sales in 2007.1



An overview of First Solar’s major customers are given below:3

Majority of the company’s sales are denominated in foreign currency, with the company having the most exposure to the Euro. As A result of this, the company’s revenues are heavily influenced by the fluctuation between the Euro-US Dollar exchange rates. Recently in the fiscal year 2008, the company has also started recognizing revenues from the sale of components. The components are known as Balance of System components (explained later) which are procured from third parties and resold to system owners. The company also provides other services such as development, engineering, procurement of permits and equipment, construction management, monitoring, and maintenance. Long Term Supply Contracts & Backlog The company enters into long term supply contracts with its customers for the supply of a specific contracted amount of Megawatts of power. The company has very good visibility as regards its backlog of orders. The long term supply contracts entails the delivery of solar modules at a fixed price declared in Euros/Watt and does not fluctuate based on the fluctuations in the Euro-US Dollar exchange rate. For the nine months ended September, 2008, a 10.0% change in the exchange rates between the Euro and the US Dollar would have negatively impacted the company’s net sales by $81.3 million.2 The Company has a backlog of ~3.8 GW of contracted supply from 2008 to 2013 amounting to ~$6.3 billion of contracted sales. The following graph shows the contracted supply for each year and the cumulative backlog for the company under its Long Term Supply Contracts:3

Backlog under Long Term Supply Contracts

791 975 863 865

230

945

1,920

2,783

3,648 3,878

1540

5001,0001,5002,0002,5003,0003,5004,0004,500

2008 2009 2010 2011 2012 2013

MW

Contracted Supply for the Year Cumulative Contracted Supply

In certain cases, the company also enters into long term supply contracts for procuring raw materials and components. These contracts usually have a shorter duration than contracts entered into for the sale of modules. The Company is still exposed to price changes in the raw materials and components used to a certain extent. The provisions of the long term supply contracts necessitate the increase in the minimum average number of watts per module of ~5.0% annually from 2008 to 2009 and then by 3.0% in 2012. The other provision for the long term supply contracts specifies a sales price per watt that should decline by ~6.5% at the beginning of each year till 2012.1



The most recent contract entered into was with Sorgenia Solar S.r.l., a developer of large-scale, grid-connected solar power plants in Italy. The Company also extended its existing module supply contracts with several of its existing customers, including EDF EN Development, Ecostream Switzerland GmbH, Juwi Solar GmbH, and Phoenix Solar AG. Combining the new contracted supply of modules, the total additional contracted quantity amounts to 625 MW. This implies additional sales of $1,030.0 million at an assumed exchange rate of $1.15/€1.00 covering the period of 2009 to 2013. 500 MW of the new contracted supply is from existing customers, 25 MW is from the agreement with Sorgenia Solar S.r.l., and 100 MW is from a contract to supply to SolarCity.2 Acquisitions The company has carried out acquisitions as part of its plan to integrate itself downstream in the supply chain. First Solar purchased Turner Renewable Energy, LLC on Nov. 30, 2007, for $34.3 MM (100.0% interest), a company specializing in designing and deploying utility scale solar projects. The total consideration for the transaction was $34.3 million (excluding exit and transaction costs of $0.7 million), consisting of $28.0 million in common stock and $6.3 million in cash. 1 On October 28, 2008, First Solar purchased a 10.0% ($25.0 million) preferred equity interest in SolarCity, a private company specializing in the installation of power systems in residential and commercial markets (rooftops). First Solar and SolarCity also entered into a framework agreement to supply 100 MW of solar modules to SolarCity between 2009 and 2013.2 The acquisition of Turner Renewable Energy. LLC, and SolarCity has helped First Solar branch into solar project design and installation. Both the companies are involved in the integration, design, and installation of solar systems, with Turner focusing mainly on utility scale markets and SolarCity focusing on residential and small commercial markets. Turner Renewable Energy LLC was integrated in December 2007 and is now in operation under the name of First Solar Electric, LLC. The acquisition will help the company to offer solar electricity solutions to utility companies in the United States. Collection and Recycling Program The company implemented a program in 2005 wherein it collects and recycles the solar modules sold to its customers after its useful life is over. The agreement is entered into with the end-users of the solar systems that employ the company’s modules, where the company commits to remove the solar modules from the installation site, at their own expense. These modules are then transported to a processing center where the module materials and components both get restored and resold as used panels or they are recycled to recover some of the raw materials. The end-user guarantees, in return, not to dispose of the modules in any way except through the company’s collection and recycling program. The end-user is also responsible for dismantling the solar and packaging them in containers provided by the company. The company accounts for the cost of collecting and recycling the module at the time of the sale, assuming a minimum useful life of 20 years for the module. The expense recorded in relation to collection and recycling is estimated by calculating the present value of the expected future cost of the collecting and recycling process. This basically includes the cost of packaging the module for transport, the cost of freight from the installation site to a recycling center, and the material, labor, and capital costs of the recycling process. In addition, the end-users are entitled to return their solar modules at any time as a result of which the company could be required to collect and recycle the modules earlier than expected, possibly negatively impacting the company’s financial position due to a misjudgment in estimation of costs and useful life. Competitive Scenario – c-Si Modules

• Technology Differentiation

The adoption of the thin-film technology helps the company produce solar electricity at a much lower cost as compared to other competitors that utilize the traditional method of manufacturing solar photovoltaic modules with the use of silicon as the major raw material. The Company is the largest manufacturer of thin film modules in the world and currently produces modules at the lowest cost per watt in the entire industry. Thin film technology is considered to be a potentially profitable technology in the solar space due to the ability to create higher throughput with less labor intensive manufacturing techniques as compared to c-Si PV technology. Furthermore, thin film products may be suited for certain applications that conventional crystalline silicon modules may not be able to serve, such as those requiring flexible and lightweight materials. This could hold advantages in the BIPV (building integrated photovoltaic) solutions space, such as imbedding PV materials in building materials.



Since First Solar’s modules have a lower rate of conversion efficiency than c-Si modules, it would also be obvious that more of the company’s modules would be required to match up to the same power output to the of c-Si modules. It is assumed that around 15.0% more of First Solar’s modules are required to create the same sized system as a c-Si PV system.6 Since First Solar’s current conversion efficiency level is ~10.7% in comparison to the average crystalline silicon module conversion efficiencies of approximately 13.5%–14.0%, the company would have to provide around 26.0%-31.0% more modules to create the same amount of electricity output equivalent to a c-Si PV system.6 The following chart shows historical progression of production and conversion efficiencies for First Solar:6

Historical Production and Conversion Efficiency

26.133.7

69.477.1 79.4

114.1

136.5

10.3%

10.4%

10.5%

10.6% 10.6%

10.7% 10.7%

0.020.040.060.080.0

100.0120.0140.0160.0180.0

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08

MW

10.1%

10.2%

10.3%

10.4%

10.5%

10.6%

10.7%

10.8%

%

Production Conversion Efficiency The other factor to consider is that most thin film modules, including First Solar’s CdTe modules have a higher efficiency in low light and high temperature conditions, and is able to capture a greater light spectrum. The company’s modules would therefore generate 10.0%-15.0% more kWh per rated kW than c-Si modules if placed in similar conditions. This brings the required number of additional modules to ~15.0%. This would also lead to a higher amount of non-module costs, such as balance of systems cost which basically includes the costs related to the installing and connecting of the module which is not included in First Solar’s sales price to its customers. Balance of system costs includes racks, inverters, cables, labor, project costs, etc.6 The balance of system components are usually purchased separately by the customer or systems integrator. In 2008, First Solar has started purchasing these components from third party suppliers and then reselling them to the system owners, thereby recognizing profit from the sale of components as well. The types of components used usually depend on the size and scale of the project (i.e., utility scale, commercial rooftop, residential rooftop, etc.) and the configuration (tilt or flat mount). Due to the advantages in technology possessed by First Solar, its gross margins are currently double those of most c-Si competitors. For c-Si module manufacturers in the short term, it may be difficult to match up to First Solar’s margins unless polysilicon prices fall to drastically low levels.

• Cost Structure

First Solar’s manufacturing costs are relatively stable as compared to c-Si module manufacturers as there is much less dependence on raw material prices. The Company scales its high fixed costs through its high utilization rates. The gross margins as of the third quarter in 2008 were around 57.0% and are currently the highest in the industry. The cost per watt of the company in same period was $1.08 per Watt (inclusive of non-cash compensation costs as well as costs associated with ramping up of new facilities), compared to an average of ~$3.12 per Watt for crystalline silicon based modules.3 Raw material costs for the company represent approximately 55.0%–57.0% of the cost of goods sold, with soda lime glass sheets being the largest component of the raw materials costs. The remaining 43.0%– 47.0% of COGS include direct labor and manufacturing overheads such as engineering expense, equipment maintenance, environmental health and safety, quality and production control and procurement, depreciation of manufacturing plants and equipment, facility-related expenses, warranty expenses, and solar module end-of-life collection and recycling costs.6



The Company also held the lowest average module selling price per Watt of $2.53.3 The following graph shows the historical gross margin trend for the past 7 quarters compared to the average selling prices and cost per watt incurred in the same periods:2&6

Historical Gross Margin Trend vs. ASP and Cost Per Watt Trend

55.0%53.0% 54.0%

37.0%

45.0%

52.0%

56.0%

2.32 2.372.60 2.45 2.57 2.532.48

1.081.181.141.121.191.29

1.45

0.000.501.001.502.002.503.003.504.004.505.00

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08

MW

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

%

Gross Margin ASP Cost Per Watt

First Solar has managed to achieve the lowest cost per watt in the industry due to the following reasons: The Product

• The semiconductor material used, i.e., cadmium telluride is a much cheaper alternative to c-Si • The raw material usage per unit is much less for the company (~1.0%) than c-Si panels • Suitable for applications such as BIPV which may be not be suited for c-Si cells

The Manufacturing Process

• The manufacturing process is fully integrated and highly automated resulting in quick manufacturing times, ~2.5 hours for fabricating a single module compared to around 12 hours for manufacturing a c-Si module

• The process is less labor intensive and requires only 20 people for each of the four shifts, thereby allowing the plant to run 365 days a year and maximize production6

• Implementation of a continuous improvement process towards increasing both throughput and operating leverage Replicating the Manufacturing Process

• First Solar has adopted the “copy smart” process in which all of its manufacturing lines are modeled exactly after its base facility in Perrysburg, Ohio

• Rapid expansion of manufacturing presence into low cost geographies (e.g., Malaysia) with relatively quick lead times is also helping reduce the cost

The company’s target cost per watt by 2012 is between $0.65 and $0.70,3 which they believe will be driven by higher conversion efficiencies, low cost location benefits, increased capital spending and throughput, and greater plant scale. The company mentioned that it is currently operating its Malaysian facilities at cost per watt levels below the company average of $1.08 per Watt at around $0.90 per watt.6 The average balance of system costs in 2007 were around $1.56 for a large scale installation for which scale benefits offset the larger amount spent of balance of system components. This amounts to around $0.30 per watt more than a c-Si module because of the thin film module’s lower efficiency, as lower efficiency panels will require more panels to generate the same level of power output. This would also require a greater quantity of hardware to be installed, along with increased costs for inverters, labor, and other materials. The Company’s target balance of system cost is approximately $1.00 per watt by 2012, which will be brought about by a reduction in the costs of the inverters and other overheads as well as better material sourcing which should also contribute in reducing balance of system costs.6



Recent Financials And Guidance The company’s third quarter results beat consensus estimates yet again, and has been exceeding analyst’s estimates for the past seven quarters. Better than expected revenues and margins were due to better than expected production throughput, high utilization rates, and larger modules shipments from its Malaysian factory, where the company’s second plant ramp up is running ahead of schedule. Revenues for the nine months ended September, 2008 amounted to $812.7 resulting in a gross margin of 54.6%.2 Operating income margin for the same period was 34.1% improving from the 2007 margin of 27.2%. Net income for the period was $215.6 which is a 36.1% increase over the full year 2007 net income stated at $158.4. Net income margins for the period though, dropped from 31.4% in 2007 to 26.5%. The company’s cost per watt metric also reduced considerably from $1.18 in the previous quarter to $1.08 for the recent period.1&2 First Solar Holdings, LLC was created as a limited liability company and hence was not subject to USA federal or state income taxes, although some foreign subsidiaries were subject to income taxes in their local jurisdictions. When the company was incorporated as First Solar, Inc. during the first quarter of 2006, they then became subject to USA federal and state income taxes. The Company received a tax benefit in 2007 due to its net operating losses that were carried forward. The Company’s subsidiary in Malaysia was granted a tax holiday for a period of 16.5 years, beginning on January 1, 2009 and running through June 30, 2025.2

The provisions of this tax holiday include an income tax exemption of 100.0% on statutory income subject to certain criteria. Due to this, the tax rate in 2009 is expected to be ~11.0% compared to the 26.0% it had earlier.6 The company has hedged 62.0% of its forecasted sales in 4Q08 at a rate of $1.46/€1.00, and assumes an exchange rate of $1.20/€1.00 for the un-hedged portion of its sales for 2008. 26 For the company’s 2009 estimated sales, 26.0% are hedged at an exchange rate of $1.42/€1.00. For the first and second quarter of 2009, 52.0% of net incomes are hedged, and for the second half of 2009, 12.0% of net incomes are hedged. The un-hedged potion of sales in 2009 assumed an exchange rate of $1.15/€1.00. The overall assumed average exchange rate in 2009 is estimated at $1.22/€.1.00.26 Liquidity First Solar’s liquidity position in both, the short and long term, seems very comfortable due to its cash rich balance sheet along with a comparatively low debt burden.27

Capital Structure and Cash Position vs. Select Competitors

167.5542.2767.8 570.7 425.0

964.2

1,786.01,011.4

2,682.5

432.8

2,013.3

729.4

1,385.2996.4

1,095.1

1,134.6

999.4

215.5381.4

101.9

462.8518.7651.8

681.1

0

500

1000

1500

2000

2500

3000

3500

First S

olar REC

Q-Cell

s

Sunpower

Solarworld

Suntech

LDK Solar

Yingli

$

Total Debt Equity Cash

The cash on the balance sheet as of September, ’08, was $729.4 (including long term marketable securities), with $167.5 of short-term and long-term debt. The company believes that its current liquidity position will be sufficient enough to finance its capital expenditures and working capital needs for the next 12 months.2 The Company will also continue to receive indirectly subsidized loan terms for an estimated 85.0% of their module volumes in Germany in 2009. These loans will be provided by The German Reconstruction Bank (KFW) under attractive loan terms (70.0%-80.0% leverage, 5.0% interest rate, and above 12 year maturities).26 The Company has said that the recent adversities in the credit markets have not materially affected their liquidity situation. And it does not expect it to adversely affect the company’s performance in the near future.



Guidance The guidance estimates given by the company for the years of 2008 and 2009 are as follows:3

Guidance Estimate 2008 2009

Revenue $1,220.0 – $1,240.0 million $2.0 – $2.1 billion

Start up Expense $34.0 million $13.0 - $18.0 million

Stock Based Compensation $61.0 - $62.0 million $80.0 - $85.0 million

Operating Margin 34.0% – 35.0% 33.0% – 34.0%

Tax Rate 26.0% 11.0%

Share Count (Year End) 83.0 – 84.0 million 84.0 million

Capex $540.0 million $325.0 million



Key Risks Faced The various risks faced by the company are highlighted below:

• Foreign Exchange Risk The profitability of the firm depends heavily upon the exchange rate between the US Dollar and the Euro. Historically, majority of the company’s revenues have been derived from countries within the EU, with Germany being the main contributor of revenues. Going forward, the company has said that it will garner more business from non-EU countries, although this still leaves a significant percentage of revenues denominated in foreign currency.

• Failure of timely additional of capacity The future profitability of the firm depends on the ability to build manufacturing capacity and thereby increase production. Any delay in the ramp up of planned facilities might lead to loss in profitability for the company, thereby hampering the decrease in cost per watt, scale production, and possible faltering on its long term supply contracts. Also, the company uses the copy smart process for adding new manufacturing facilities. In case one facility does not perform up to the mark or at par with other facilities, there will be a noticed reduction in the performance of the modules.

• Raw material risks The Company uses a thin film technology which employs the use of a semiconductor material, cadmium telluride. Both elements required (i.e., cadmium and tellurium) have different risks associated with them. Cadmium is considered a very toxic material and its use poses severe potential health hazards. Tellurium has been regarded as one of the rarest elements on earth and its supply has turned into a major concern given its applications in many other sectors such as CD-RW, DVD-RW, and rewritable Blu-Ray. The company is also dependent on a very few number of suppliers for the procurement of its raw material and inability to supply by even one of them could significantly damage the flow of the manufacturing process.

• Concentration of revenues In 2007, six companies each accounted for between 10.0%-23.0% of total revenues1, as a result, the withdrawal of any customer, or the inability to pay would severely impact revenues. Also, current customers, under their long term supply contracts, have set aside a significant amount of production capacity to fulfill the obligations under the contracts thereby leaving a lesser amount of excess production capacity for bringing on new clients.

• Reduction in government subsidies and incentives Reduced growth or elimination or expiration of government subsidies, economic incentives, and other support for solar power producers can result in the reduced competitiveness of solar energy as a means of providing electricity compared to conventional renewable sources of energy. This could affect the solar industry as a whole and the company’s profitability.

• Competition from other thin film technologies

The competition from new thin-film technologies, such as amorphous silicon and CIGS, could take away the company’s market share in the thin film segment although in the near term, no other company is seen as achieving enough production capacity to enjoy scale benefits on the lines of First Solar.

• Decline in silicon prices A fall in silicon prices would make the c-Si module producers become more cost competitive and achieve cost levels that are currently being achieved by First Solar. A substantial price decrease though, would be required for other c-Si competitors to achieve cost parity with First Solar.

• Macroeconomic Factors The economic scenario has deteriorated considerably considering the current credit situation in global markets. The ability of First Solar’s end-users to obtain financing for expansion production plans and for building solar PV systems will depend on the global financial markets and the interest rate scenario. An increase in interest rates or further tightening of credit in the global markets could make it difficult for end-users to obtain expansion financing and therefore result in lowered demand for the company’s modules, since many users depend upon debt financing to fund the initial capital expenditure required to purchase and install a photovoltaic system.



Key Investment Highlights The following key investment highlights are noted for the company:

• Lowest cost per watt

First Solar is currently the lowest cost producer in the solar market reaching a cost per watt of $1.08 in the third quarter of 2008. Due its use of the thin film technology, it shares a distinct cost advantage over its peers who mostly use the crystalline silicon technology for the manufacturing of modules. Going forward, First Solar is expected to continue its position as lowest cost producer and is also the first producer of modules expected to reach grid parity in the next few years.

• High visibility The company has very high visibility regarding its backlog and contracted supply of modules under its long term supply contracts. The Company has a backlog of ~3.8 GW of contracted supply amounting to ~$6.3 billion of contracted sales.3

• Consistent earnings First Solar’s earnings have been consistently beating consensus street estimates for the last 7 quarters. Revenues have increased by a CAGR of 254.0% over the last 5 years1 and are forecasted to almost double over each of the next two years. Bottom line turned positive in 2006 and grew from $4.0 million in that year to a net income of $158.4 million in 2007.1

• Diversification of operations The Company has begun to diversify its operations in terms of geography. This is mostly due to the fact that the company is on an expansion scale and needs to start selling products outside Europe as well, and also because of the fact that most of its revenues are received in foreign currency, exposing them heavily to exchange rate fluctuations. Contracted sales under the long term supply contracts however are protected from fluctuations in the forex market and are fixed at a particular sales price.

• Improved tax structure Expansion plans in Malaysia have significantly improved the company’s tax structure with the company’s Malaysian subsidiary receiving a 16.5 year tax holiday.2 According to company guidance, the effective tax rate is expected to reduce from ~26.0% to ~11.0% from 2009 onwards.3

• Solar value chain integration Through its acquisition of Turner Renewables Energy LLC, and SolarCity, the company aims to expand downstream into the solar value chain by providing services such as solar system design and installation for utility scale projects and residential/commercial projects as well.

• Liquidity and debt burden The company’s capital structure is much less leveraged as compared to other competitors who have a significant amount of debt on their balance sheets. This also favors the company’s chances of raising debt for capacity expansion over other higher leveraged companies. With a cash rich balance sheet combined with positive operating cash flow, the company is in a good liquidity position and is expected to safely meet its working capital needs and capital expenditures for the next 12 months.2

• Conservatism of management First Solar has been very conservative in giving guidance for company earnings and that has been one of the reasons for the company consistently beating consensus estimates. The Company has assumed an exchange rate of €1.00/$1.15 for the un-hedged portion of revenues in 2009 guidance, which signifies that in case the Euro moves higher, there is significant scope for the company’s revenues to increase.26

• Subsidy Programs6 The First Solar management has met with subsidy program officials in most of the major subsidy markets, and they have confirmed that there are no plans to cut solar subsidy programs in any of these markets. This is due to the fact that any reductions would cause unwanted job losses in an already tight market.



Valuation We have initiated our coverage of First Solar Inc. with a “Buy” rating and a price target of $174.37, which is 20.5x our forecasted 2009 EPS. Discounted Cash Flow Analysis We have used a two-stage discounted cash flow analysis as part of our valuation method and have projected the company’s revenues till 2019 as we felt that a five year forecast period would be too short considering the industry is still young and it would not take into consideration the maturity of the industry. We have applied a perpetuity growth DCF assuming a perpetuity growth range of 1.0% - 2.0%, as well as an EBITDA exit multiple DCF with a conservative 2019 EBITDA multiple range of 4.5x – 6.5x. Our main assumptions are the average selling price per watt, cost per watt, capacity and production forecasts, and capacity utilization rates. Forecasts for the fiscal years 2008 and 2009 have been modeled based on company guidance. Public Comparable Analysis We have also conducted public comparable analysis as part of the valuation. We have divided our comparable companies into to Tier I companies and Tier II companies based on certain quantitative and qualitative measures such as visibility, production capacity, integration into the value chain, maturity of business, cost competitiveness, earnings strength, etc. We classify First Solar as one of the Tier I companies. The average 2009 P/E for Tier I and Tier II respectively are 12.0x and 9.0x. The target price is based on the following weights:

Average TargetValue Weight Price

DCF - Perpetuity Growth $182.61 40%DCF - EBITDA Exit Multiple $183.06 40%2009 Price/Earnings $140.51 20% $174.3752 Week High / Low $201.14 0%

The following floating bar chart shows the target price based on different valuation methods:

$85.28$76.64

$165.38$172.01

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

DCF - Perpetuity Growth DCF - EBITDA Exit Multiple 2009 Price/Earnings 52 Week High / Low

$317.00

$204.38 $193.21

Target Price:$174.37

$200.74



First SolarDiscounted Cash Flow - Perpetuity Growth 3 months (Figures in millions dollars, except per share amounts) ending Projected

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenues $438.5 $2,018.5 $3,341.9 $4,729.4 $6,180.9 $6,704.7 $7,509.3 $8,372.8 $9,293.8 $10,269.7 $11,296.7 $12,369.8

EBITDA 183.4 856.0 1,424.3 2,053.2 2,733.1 2,997.8 3,379.2 3,600.3 3,949.9 4,313.3 4,688.1 5,071.6Less: Depreciation and Amortization (22.5) (81.7) (103.6) (150.5) (199.9) (244.8) (200.0) (200.0) (200.0) (200.0) (200.0) (200.0)

EBIT 161.0 774.3 1,320.7 1,902.7 2,533.3 2,753.0 3,179.2 3,400.3 3,749.9 4,113.3 4,488.1 4,871.6Less: Taxes (42.2) (85.2) (145.3) (209.3) (278.7) (302.8) (349.7) (374.0) (412.5) (452.5) (493.7) (535.9)

Tax Effected EBIT 118.8 689.1 1,175.4 1,693.4 2,254.6 2,450.2 2,829.5 3,026.3 3,337.4 3,660.8 3,994.4 4,335.8

Add: Depreciation 22.5 81.7 103.6 150.5 199.9 244.8 200.0 200.0 200.0 200.0 200.0 200.0Less: Capex (181.0) (325.0) (625.0) (700.0) (700.0) (400.0) (400.0) (400.0) (400.0) (400.0) (400.0) (400.0) Less: Purchase of Marketable Securities - - - - - - - - - - - - Less: Purchase of Restricted Investments - - - - - - - - - - - - Less: Changes in Working Capital (5.8) 76.9 26.3 23.2 7.5 (31.9) (30.0) (30.0) (30.0) (30.0) (30.0) (30.0)Less: (Increase)/Decrease In Other Assets - - - - - - - - - - - - Less: Increase/(Decrease) In Other Liabilities - - - - - - - - - - - -

Unlevered Free Cash Flow (45.5) 522.8 680.3 1,167.1 1,762.0 2,263.1 2,599.5 2,796.3 3,107.4 3,430.8 3,764.4 4,105.8Unlevered Free Cash Flow Growth Rate 120.3% 30.1% 71.5% 51.0% 28.4% 14.9% 7.6% 11.1% 10.4% 9.7% 9.1%

Risk Free Rate (1) 2.45% Current Price (1) $149.93Beta (1) 1.67 DCF Target Price $182.62Equity Market Premium (1) 11.00% % Premium/(Discount) 21.8%Cost of Equity 16.73%Tax Rate 26.2%Cost of Debt 3.70%Market Value of Equity 81.090 * 149.930 = 12,157.8Book Value of Debt 167.5Debt / Market Capitalization 1.4%WACC 16.54%

(1) Source: Bloomberg as of January 12, 2009

Discounted PV of Terminal Value with a Cash Flows Perpetuity Growth Rate of Enterprise Value

Discount Rate (2008 - 2013) 1.0% 1.5% 2.0% 1.0% 1.5% 2.0%

15.5% $9,557.0 $5,824.0 $6,061.2 $6,316.1 $15,381.0 $15,618.3 $15,873.116.0% 9,297.0 5,369.1 5,581.3 5,808.5 14,666.1 14,878.3 15,105.516.5% 9,046.5 4,956.3 5,146.4 5,349.7 14,002.8 14,192.9 14,396.217.0% 8,805.1 4,580.9 4,751.7 4,933.9 13,386.0 13,556.8 13,739.017.5% 8,572.4 4,238.9 4,392.7 4,556.4 12,811.3 12,965.1 13,128.8

Net Debt Total Equity Value Value Per Diluted ShareDiscount Rate 09/30/08 1.0% 1.5% 2.0% 1.0% 1.5% 2.0%

15.5% ($561.9) $15,942.9 $16,180.2 $16,435.0 $196.6 $199.5 $202.716.0% (561.9) 15,228.0 15,440.2 15,667.5 187.8 190.4 193.216.5% (561.9) 14,564.7 14,754.9 14,958.1 179.6 182.0 184.517.0% (561.9) 13,947.9 14,118.7 14,300.9 172.0 174.1 176.417.5% (561.9) 13,373.2 13,527.0 13,690.7 164.9 166.8 168.8

Terminal Value as a % of Enterprise Value Implied EBITDA Exit MultipleDiscount Rate 1.0% 1.5% 2.0% 1.0% 1.5% 2.0%

15.5% 37.9% 38.8% 39.8% 5.6x 5.9x 6.1x16.0% 36.6% 37.5% 38.5% 5.4x 5.7x 5.9x16.5% 35.4% 36.3% 37.2% 5.3x 5.5x 5.7x17.0% 34.2% 35.1% 35.9% 5.1x 5.3x 5.5x17.5% 33.1% 33.9% 34.7% 4.9x 5.1x 5.3x

Valuation – Discounted Cash Flow Analysis (Perpetuity Growth)



First SolarDiscounted Cash Flow - EBITDA Exit Multiple 3 months (Figures in millions dollars, except per share amounts) ending Projected

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenues $438.5 $2,018.5 $3,341.9 $4,729.4 $6,180.9 $6,704.7 $7,509.3 $8,372.8 $9,293.8 $10,269.7 $11,296.7 $12,369.8

EBITDA 183.4 856.0 1,424.3 2,053.2 2,733.1 2,997.8 3,379.2 3,600.3 3,949.9 4,313.3 4,688.1 5,071.6Less: Depreciation and Amortization (22.5) (81.7) (103.6) (150.5) (199.9) (244.8) (200.0) (200.0) (200.0) (200.0) (200.0) (200.0)

EBIT 161.0 774.3 1,320.7 1,902.7 2,533.3 2,753.0 3,179.2 3,400.3 3,749.9 4,113.3 4,488.1 4,871.6Less: Taxes (42.2) (85.2) (145.3) (209.3) (278.7) (302.8) (349.7) (374.0) (412.5) (452.5) (493.7) (535.9)

Tax Effected EBIT 118.8 689.1 1,175.4 1,693.4 2,254.6 2,450.2 2,829.5 3,026.3 3,337.4 3,660.8 3,994.4 4,335.8

Add: Depreciation 22.5 81.7 103.6 150.5 199.9 244.8 200.0 200.0 200.0 200.0 200.0 200.0Less: Capex (181.0) (325.0) (625.0) (700.0) (700.0) (400.0) (400.0) (400.0) (400.0) (400.0) (400.0) (400.0) Less: Purchase of Marketable Securities - - - - - - - - - - - - Less: Purchase of Restricted Investments - - - - - - - - - - - - Less: Changes in Working Capital (5.8) 76.9 26.3 23.2 7.5 (31.9) (30.0) (30.0) (30.0) (30.0) (30.0) (30.0)Less: (Increase)/Decrease In Other Assets - - - - - - - - - - - - Less: Increase/(Decrease) In Other Liabilities - - - - - - - - - - - -

Unlevered Free Cash Flow (45.5) 522.8 680.3 1,167.1 1,762.0 2,263.1 2,599.5 2,796.3 3,107.4 3,430.8 3,764.4 4,105.8Unlevered Free Cash Flow Growth Rate 120.3% 30.1% 71.5% 51.0% 28.4% 14.9% 7.6% 11.1% 10.4% 9.7% 9.1%

Risk Free Rate (1) 2.45% Current Price (1) $149.93Beta (1) 1.67 DCF Target Price $182.64Equity Market Premium (1) 11.00% % Premium/(Discount) 21.8%Cost of Equity 16.73%Tax Rate 26.2%Cost of Debt 3.70%Market Value of Equity 81.090 * 149.930 = 12,157.8Book Value of Debt 167.5Debt / Market Capitalization 1.4%WACC 16.54%

(1) Source: Bloomberg as of January 12, 2009

Discounted PV of Terminal Value as a Cash Flows Multiple of 2019 EBITDA Enterprise Value

Discount Rate (2008 - 2013) 4.5x 5.5x 6.5x 4.5x 5.5x 6.5x

15.5% $9,557.0 $4,659.9 $5,695.4 $6,731.0 $14,216.9 $15,252.4 $16,288.016.0% 9,297.0 4,443.7 5,431.2 6,418.7 13,740.7 14,728.2 15,715.716.5% 9,046.5 4,238.4 5,180.3 6,122.2 13,284.9 14,226.8 15,168.717.0% 8,805.1 4,043.5 4,942.0 5,840.6 12,848.6 13,747.1 14,645.717.5% 8,572.4 3,858.2 4,715.6 5,573.0 12,430.7 13,288.0 14,145.4

Net Debt Total Equity Value Value Per Diluted ShareDiscount Rate 09/30/08 4.5x 5.5x 6.5x 4.5x 5.5x 6.5x

15.5% ($561.9) $14,778.8 $15,814.4 $16,849.9 $182.3 $195.0 $207.816.0% (561.9) 14,302.6 15,290.1 16,277.6 176.4 188.6 200.716.5% (561.9) 13,846.9 14,788.7 15,730.6 170.8 182.4 194.017.0% (561.9) 13,410.5 14,309.0 15,207.6 165.4 176.5 187.517.5% (561.9) 12,992.6 13,850.0 14,707.3 160.2 170.8 181.4

Terminal Value as a % of Enterprise Value Implied Perpetuity Growth Rate (%)Discount Rate 4.5x 5.5x 6.5x 4.5x 5.5x 6.5x

15.5% 32.8% 37.3% 41.3% (2.1%) 0.7% 2.7%16.0% 32.3% 36.9% 40.8% (1.7%) 1.1% 3.2%16.5% 31.9% 36.4% 40.4% (1.2%) 1.6% 3.6%17.0% 31.5% 35.9% 39.9% (0.8%) 2.0% 4.1%17.5% 31.0% 35.5% 39.4% (0.4%) 2.5% 4.5%

Valuation – Discounted Cash Flow Analysis (EBITDA Exit Multiple)



First Solar - Public Company Comparable Trading Analysis (Figures in millions dollars, except per share amounts)

Stock PriceBloomberg 52-Week % of 52 Diluted Market Value Book Value Cash & Total Net Enterprise Enterprise Value (1)/ Sales Enterprise Value (1) / EBITDA Price / EPS

Company Country Ticker Jan-12-2009 High Low Week High Beta Shares(mm) of Equity of Equity Equivalents Debt Debt Value (1) LTM CY 2008E CY 2009E LTM CY 2008E CY 2009E LTM CY 2008E CY 2009E

Tier IRenewable Energy Corporation Norway REC NO $9.95 $33.08 $5.91 30.1% 1.24 494.310 $4,919.2 $2,013.3 $432.8 $767.8 $335.0 $5,254.3 4.77x 4.43x 2.67x 11.5x 11.8x 6.1x 14.4x 14.0x 10.8xQ-Cells AG Germany QCE GR 29.49 118.96 21.58 24.8% 1.68 83.071 2,450.1 2,682.5 215.5 570.7 355.2 2,842.8 1.74x 1.73x 1.42x 7.6x 8.5x 8.2x 12.8x 14.1x 20.6xSunpower Corporation USA SPWRA US 34.89 111.14 18.50 31.4% 1.86 85.078 2,683.8 996.4 381.4 425.0 43.6 2,727.4 2.17x 1.86x 1.31x 9.8x 8.4x 5.7x 17.4x 14.8x 9.6xSolarworld Pvt. Ltd. AG Germany SWV GR 18.29 51.09 14.56 35.8% 1.54 111.720 2,043.6 1,095.1 651.8 964.2 312.5 2,356.1 1.98x 1.92x 1.41x 5.4x 5.1x 4.6x 11.7x 8.8x 8.4xErsol Solar Energy Germany ES6 GR 148.82 150.97 52.29 98.6% 0.56 10.765 1,601.9 395.8 70.8 164.4 93.6 1,724.4 4.77x 4.01x 3.12x 16.8x 13.1x 10.3x 38.9x 29.5x 24.4xSMA Solar Technology AG Germany S92 GR 46.55 90.99 31.00 51.2% 1.24 34.700 1,615.1 343.7 307.9 29.4 (278.5) 1,336.7 1.57x 1.45x 1.45x 5.9x 5.3x 6.2x 11.2x 10.2x 12.2xEnergy Conversion Devices USA ENER US 26.43 83.33 18.32 31.7% 1.51 45.859 1,212.1 656.0 478.2 316.3 (162.0) 1,050.1 3.45x 3.12x 1.96x 19.7x 17.3x 8.3x 34.2x 29.3x 12.1xE-Ton Solar Tech Co. Ltd. Taiwan 3452 TT 2.59 9.00 2.14 28.8% 1.21 102.419 265.7 205.3 44.4 339.0 294.6 649.7 1.50x 1.35x 1.23x 8.8x 10.0x 13.7x 6.4x 5.7x 8.6xSolon AG Fuer Solartechnik Germany SOO1 GR 16.61 89.78 13.88 18.5% 1.30 12.530 208.1 522.0 57.1 440.5 383.4 591.5 0.54x 0.52x 0.42x 6.3x 5.7x 5.4x 4.6x 4.5x 5.6xMotech Industries Taiwan 6244 TT 2.32 7.39 1.49 31.4% 1.12 249.485 579.4 410.9 123.6 98.6 (25.0) 555.1 0.83x 0.73x 0.59x 5.3x 5.0x 5.2x 6.7x 7.7x 7.5x

Low 0.54x 0.52x 0.42x 5.3x 5.0x 4.6x 4.6x 4.5x 5.6xMean 2.33x 2.11x 1.56x 9.7x 9.0x 7.4x 15.8x 13.9x 12.0xMedian 1.86x 1.79x 1.42x 8.2x 8.4x 6.1x 12.3x 12.1x 10.2xHigh 4.77x 4.43x 3.12x 19.7x 17.3x 13.7x 38.9x 29.5x 24.4x

Tier IISuntech Power Holdings (ADR) China STP US $10.96 $70.76 $5.36 15.5% 1.90 156.688 $1,717.3 $1,134.6 $518.7 $1,786.0 $1,267.3 $2,992.7 1.57x 1.61x 1.69x 9.2x 11.8x 14.2x 8.3x 12.2x 16.6xLDK Solar Co. Ltd. China LDK US 14.20 52.40 9.45 27.1% 1.69 115.327 1,637.6 999.4 462.8 1,011.4 548.6 2,186.3 1.55x 1.31x 1.14x 6.5x 6.3x 5.0x 4.8x 5.1x 5.5xYingli Green Energy Holdings Co. LChina YGE US 6.42 36.33 2.50 17.7% 2.27 126.964 815.1 681.1 101.9 542.2 440.3 1,454.0 1.37x 1.35x 1.15x 6.5x 7.1x 4.3x 7.3x 8.0x 5.5xConergy AG Germany CGY GR 1.26 9.98 1.11 12.6% 1.31 398.089 502.3 512.3 604.6 809.3 204.8 707.1 0.51x 0.52x 0.53x NA NA NA NA NA NA JA Solar Holdings Co. Ltd. (ADR) China JASO US 4.11 27.00 1.55 15.2% 2.22 167.948 690.3 673.2 328.6 315.5 (13.1) 677.1 0.95x 0.87x 0.72x 4.6x 5.3x 4.4x 4.7x 8.7x 8.1xEvergreen Solar Inc. USA ESLR US 3.01 15.45 1.89 19.5% 1.58 168.695 507.8 572.9 309.2 373.8 64.5 572.3 6.36x 4.92x 1.57x NA NA 5.6x NA NA NA Trina Solar Ltd. (ADR) China TSL US 9.05 53.50 5.61 16.9% 1.98 30.338 274.6 432.7 184.8 436.9 252.0 526.6 0.73x 0.65x 0.64x 4.1x 4.1x 4.2x 3.0x 3.7x 6.1xSolarfun Power Holdings (ADR) China SOLF US 5.31 29.17 2.67 18.2% 2.26 53.820 285.8 370.4 132.2 350.1 217.9 505.6 0.72x 0.73x 0.84x 9.1x 11.1x 18.2x 9.5x 19.7x NA Canadian Solar Inc. Canada CSIQ US 5.92 51.80 3.11 11.4% 1.77 36.042 213.4 380.9 137.1 191.4 54.3 267.7 0.35x 0.37x 0.37x 3.4x 4.0x 6.9x 3.2x 8.2x 14.4xChina Sunergy Co. Ltd. China CSUN US 3.67 15.66 1.33 23.4% 2.54 45.660 167.6 201.5 178.8 173.2 (5.6) 162.3 0.43x 0.47x 0.58x 9.4x 12.1x 6.1x NA NA 16.0xSolar-Fabrik AG Germany SFX GR 5.86 20.81 5.14 28.2% 0.86 11.685 68.5 111.5 36.1 21.7 (14.4) 55.3 0.20x 0.17x 0.13x NA 3.7x 1.9x NA 9.7x 3.9xSunways AG Germany SWW GR 3.50 12.78 2.95 27.4% 0.89 11.580 40.6 60.1 8.1 21.3 13.2 53.8 0.16x 0.16x 0.14x 5.6x 6.0x 2.7x 23.6x 20.0x 4.3xSpire Corp USA SPIR US 5.05 22.60 2.94 22.3% 1.23 8.331 42.1 8.5 2.5 2.0 (0.4) 41.6 0.67x 0.61x 0.51x 20.5x 8.0x 5.1x NA NA 9.9xDayStar Technologies Inc. USA DSTI US 2.00 5.87 0.80 34.1% 0.81 34.617 69.2 50.2 34.4 0.2 (34.2) 35.0 NA NA 35.04x NA NA NA NA NA NA XsunX Inc. USA XSNX US 0.18 0.59 0.17 29.7% 1.04 183.335 32.1 9.0 4.6 0.0 (4.6) 27.5 NA NA NA NA NA NA NA NA NA ICP Solar Technologies Inc. USA ICPR US 0.20 1.07 0.17 18.7% 2.28 34.136 6.8 (1.1) 0.9 1.0 0.0 6.9 1.22x NA NA NA NA NA NA NA NA



First Solar Inc. USA FSLR US $149.93 $317.00 $85.28 47.3% 1.67 81.09 $12,157.8 $1,385.2 $729.4 $167.5 ($561.9) $11,595.9 14.27x 9.27x 5.74x 36.7x 23.2x 13.5x 57.0x 35.6x 17.6x

(1) Enterprise Value = Market Value of Equity + Short-term Debt + Long-term Debt +Minority Interest + Preferred Equity - Cash and Equivalents.(2) All share prices are as of 12/26/08, except for European company share prices, which are as on 12/23/08



Sources Of Information The information in this report has been taken from the following sources:

1. Company’s Annual Report (10-K) for the period ended December 31, 2007 2. Company’s Quarterly Report (10-Q) for the period ended September 30, 2008 3. Company Investor Presentation Q3’08 4. Company Brochure 5. Company Website 6. Jeffries & Company research report – “First Solar – Initiating Coverage”, dated Dec 19, 2008 7. J.P. Morgan research report - “European Solar Energy”, dated December 16, 2008 8. EPIA – Solar Generation V - 2008 9. www.geosol.com 10. www.solar-fabrik.com 11. News article by Steve Gelsi-“For First Solar's Michael Ahearn, a year in the sun” dated Dec 6, 2007 12. www.sontor.com 13. www.calyxo-solar.com 14. www.solarthinfilms.com 15. UBS research report – “GT Solar International Inc. – Initiating Coverage”, dated September 2, 2008 16. www.solar-tracking.com 17. www.nrel.gov – NREL public – “Solar Photovoltaic Financing: Deployment on Public Property by State and

Local Governments” dated May, 2008 18. News article by Shyam Mehta, Greentech Media – “Grid Parity and the Great $1 Myth” dated December 8, 2008 19. Bloomberg 20. 2008 Global Solar Report Cards commissioned by Green Cross International’s Energy Program and compiled by

Global Green USA. 21. German Solar Industry Association (BSW-Solar) publication – “The Solar Market in Germany- snapshot and

outlook” dated April 09, 2008 22. News article by Ucilia Wang, Greentech Media – “Solar Fraud Could Eliminate Spanish Market” dated

December 15, 2008 23. News article Carolyn Whelan, Scientific American – “Is the Sun Setting on Solar Power in Spain?” dated October

20, 2008 24. Collins Stewart research report – “CY09 Solar Industry Outlook”, dated January 12, 2009 25. Solar Energy Industries Association publication – “Solar Energy Fuels Domestic Job Growth: A Blueprint for Job

Creation and Economic Security”, dated December 11, 2008 26. UBS research report – “First Solar Inc - Cautious Outlook on German Solar Market”, dated October 29, 2008 27. Latest financial results of competitor companies



Disclosure Appendix Stock Rating Key:

5-STARS (Strong Buy): Total shareholder return, is expected to outperform the broad market benchmark by a wide margin and we highly recommend that investors buy the stock.

4-STARS (Buy): Total shareholder return, is expected to outperform the broad market benchmark and we recommend that investors buy the stock.

3-STARS (Hold): Total return is expected to be in line with the overall expected market return in the short and long term and we do not recommend a Buy or Sell.

2-STARS (Sell): Total shareholder return is expected to underperform the broad market benchmark and the stock is not anticipated to show a gain.

1-STAR (Strong Sell): Total shareholder return is expected to underperform the broad market benchmark by a wide margin and the stock is anticipated to falling in price on an absolute basis.

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