REC Webinar - Engineering Modules for Financial Return

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  • Tellthemwhatyouaregoingtotellthem
  • Read through the 3 key discussion points.The reason the presentation is structured this way is that reducing CAPEX is always a prominent issue with PV projects and reducing it is important way of enhancing project returns.Maximising the income stream and ensuring it survives is also key to meeting performance expectations
  • There are many key inputs to assessing the profitability of a project Broadly we have separated the major issues into the following 4 categories with some key sub-categories that are pertinent to nearly all PV projects
  • In the short time I have today these are the 3 key ingredients to project returns that I am going to focus on today
  • Ton:
  • Basically 100% of the revenue of a solar project comes through electricity so ensuring technology selection yields a healthy level of electricity is important- PV modules are not a commodity as invariably in the same conditions they will generate a different amount of electricity even given the same power rating- This graph illustrates that given the same CAPEX if the PV module yielding 6% more over the time period then the IRR of the project increases in a non-linear fashion. For the case here in Australia it is 8% change in IRR
  • I mentioned in the previous slide the concept of nameplate power, here is how this works...1000W/m2 is somewhere to start the story but certainly not where it ends
  • For the situation in Bangkok Thailand the irradiance distribution is heavily weighted toward the middle of the curve, 500W/m2 This curve serves as message on buyer beware as the marketed headline power rating is not appropriate for most projects- You wouldn’t buy a car designed to speed at 300kph if you are driving around suburban streets at 60kph
  • This graph is interesting as it will lead me into the justification of yield back to capex valueYield is not currently the universal language in PV but is the most important for anyone at the pointy end of project finance calculationsHere is a demonstration of our superior performance in Japan as simulated by Pvsyst, the leading software for PV systems
  • This is how the yield benefit translate to $/W, which is the universal language for PV- You can see the benefit from yield alone is significant in the premium a developer would be willing to pay for a certain module- Note Sanyo has a benefit here in that it is a more spatially efficient module and has less mounting and land costs
  • Generally impacts and then how REC has positive influence: - increasing efficency, reduces land and mounting equipment needed some of minor electrical parameters can affect the BOS costs - reverse current rating as an exampleInnovative methods of installing can save material and labour cost, perhaps they increase the price of the module but need to look at the impact on the whole system
  • - Relating back to REC we have many benefits to our module that reduce the system install cost but we’d also like to emphasise that our module cost is reducing at an aggressive rate and is set to remain one of the cost leaders in the market through 2012
  • The risk of performance over a project’s lifetime is at the heart of all risk assessments of developers and financiers- With a changing and immature technology, quality needs to be assessed from the manufacturing and product development disciplineAt REC we pride ourselves on our quality and attitude to performance longevity- Range of certifications to help assist decisions here: additional loading weelbeyind IEC minimum requirments, Salt and Ammonia as extra certifications
  • - Which is how we can have confidence in offering an industry leading warranty- 0.7% is worst case scenario
  • - An insight into our claims rate as proof in the quality of our processes
  • Further proof in our performance is via these test cases in the Asia Pacific region
  • REC Webinar - Engineering Modules for Financial Return

    1. 1. RENEWABLE ENERGY CORPORATIONEngineering ModulesFor Financial ReturnREC WebinarSeptember 18, 2012Nick Rose, APAC Technical Manager
    2. 2. DisclaimerThis Presentation includes and is based, inter alia, on forward-looking information and statements that are subject to risks anduncertainties that could cause actual results to differ. These statements and this Presentation are based on currentexpectations, estimates and projections about global economic conditions, the economic conditions of the regions andindustries that are major markets for REC ASA and REC ASA’s (including subsidiaries and affiliates) lines of business. Theseexpectations, estimates and projections are generally identifiable by statements containing words such as”expects”, ”believes”, ”estimates” or similar expressions. Important factors that could cause actual results to differ materiallyfrom those expectations include, among others, economic and market conditions in the geographic areas and industries that areor will be major markets for REC’s businesses, energy prices, market acceptance of new products and services, changes ingovernmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussedfrom time to time in the Presentation. Although REC ASA believes that its expectations and the Presentation are based uponreasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be asset out in the Presentation. REC ASA is making no representation or warranty, expressed or implied, as to theaccuracy, reliability or completeness of the Presentation, and neither REC ASA nor any of its directors, officers or employeeswill have any liability to you or any other persons resulting from your use.This presentation was prepared in May 2012. Information contained within will not be updated. The following slides should beread and considered in connection with the information given orally during the presentation.The REC shares have not been registered under the U.S. Securities Act of 1933, as amended (the "Act"), and may not beoffered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Act.2 © 2012 REC All rights reserved.
    3. 3. About REC Founded in Norway in 1996, REC is a leading vertically integrated solar energy company and employs more than 3,100 people worldwide REC produces polysilicon, wafers, cells and modules for the solar industry, and silicon materials for the electronics industry REC is also engaged in project development activities in selected PV segments REC had revenues close to USD 2.4 billion (EUR 1.7 billion) in 2011 REC is listed on the Oslo Stock Exchange under the ticker: REC Over 200 patents pending or granted3 © 2012 REC All rights reserved.
    4. 4. Agenda  Maximizing The Income Stream  Reducing Capital Expenditure  Risk Mitigation For The Revenue Stream4 © 2012 REC All rights reserved.
    5. 5. Major contributing factors to PV project returns REDUCE COSTS - Reduce capital expenditure MAXIMISE REVENUE STREAM of equipment - High yielding equipment - Maximise performance ratio - Optimised design via equipment and design - Ongoing maintenance IRR - Efficient systems to limit - Minimising degradation rates operating expenditure - Incentives and subsidies MITIGATION OF RISK COST OF FINANCE - Securing PPA - Interest rate - Technology selection - Term of loan - System durability - Loan guarantor - Service & support - Timing of repayments5 © 2012 REC All rights reserved.
    6. 6. Major contributing factors to PV project returns REDUCE COSTS - Reduce capital expenditure MAXIMISE REVENUE STREAM of equipment - High yielding equipment - Maximise performance ratio - Optimised design via equipment and design - Ongoing maintenance IRR - Efficient systems to limit - Minimising degradation rates operating expenditure - Incentives and subsidies MITIGATION OF RISK COST OF FINANCE - Securing PPA - Interest rate - Technology selection - Term of loan - System durability - Loan guarantor - Service & support - Timing of repayments6 © 2012 REC All rights reserved.
    7. 7. Maximizing The Income StreamRIGHT HERE IN GERMANY Commercial rooftop with REC AE modules7 © 2012 REC All rights reserved.
    8. 8. How yield impacts project return  Increases in yield can accelerate the project IRR in a non-linear fashion  PV modules are not a commodity! Project developers are prepared to pay a premium for higher yielding modules  There are inherent technical features of REC modules that enable higher yield generation throughout the modules life 15% Δ IRR 11% 10% 8% 5% 5% ↑8% →6% 0% 0% -10% -5% 0% 5% 10% -3% -5% Δ Yield -7% -10% -10% Change In Yield Al-BSF + Al Linear Reference -15% Assumptions: Site location in Perth, Australia with a Base yield of 1650kWh/m2/yr, Debt:Equity ratio of 70/30, WACC of 11%, FiT of US$0.11/kWh and a CAPEX of US$2.70/W8 © 2012 REC All rights reserved.
    9. 9. Why watts don’t equate to yield  Watts are a measure of power (W), which is an instantaneous measure of performance  Developers and investors are interested in energy (Wh), which is the unit electricity is sold and the indicator which ultimately determines a projects value Standard Test Parameter Relevance Conditions Close to maximum possible irradiance; not Sunlight 1000W/m2 representative of average expected sunlight Irradiance levels Normally modules sit around 25 degrees Module 25OC above ambient, far greater temperatures than Temperature 25OC The light spectrum cannot be fixed as it Light Spectrum Air Mass1.5 changes from time of day/year and many localised effects For non-tracking systems the sun is not at Angle of Normal normal incidences to the array for most of the Measurement Incidence energy production hours9 © 2012 REC All rights reserved.
    10. 10. Module part load efficiency is extremely important  Every module will have a different efficiency curve  REC maintains high performance through all levels of irradiance Relative Efficiency (%) REC Tier 1 -Si Poor Si 102% 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% Al-BSF + Al 80% 0 100 200 300 400 500 600 700 800 900 1000 Irradiance (W/m2) Source: REC efficiencies generated from TUV Rheinland test reports, Tier-1 and Poor-Si irradiation numbers have been recreated form electrical data using the one-diode model10 © 2012 REC All rights reserved.
    11. 11. Average irradiance levels highlight the STC deficiency  The STC nominal power rating is not the best indicator of expected performance  To make an appropriate assessment of a product special attention must be given to the efficiency level at the prevailing irradiance levels. Bangkok irradiance distribution shows the importance of the curve <600W/m2 Relative Irradiation Frequency REC Hours/ Efficiency (%) Year Tier 1 -Si Poor Si 102% 800 100% 700 98% 96% 600 94% 500 92% 400 90% 88% 300 86% 200 84% Al-BSF + Al 100 82% 80% 0 0 100 200 300 400 500 600 700 800 900 1000 1100 Irradiance (W/m2) Source: Global Horizontal Irradiance of Bangkok. Meteonorm file extracted from Pvsyst v5.5511 © 2012 REC All rights reserved.
    12. 12. Average irradiance levels in Europe and APAC The majority of Asia and Europe have average irradiance levels under 600W/m2 between sunrise and sunset If you are not sure of London the low-light efficiency 220 W/m2 levels of a module, ask Munich 264 W/m2 the manufacturer Madrid Napoli 399 W/m2 Beijing 320 W/m2 383 W/m2 Tokyo 320 W/m2 A performance Delhi 500 W/m2 simulation used to underpin project Bangkok Manila 346 W/m2 finance should take 403 W/m2 this factor into account Jakarta 370 W/m2 Sydney 408 W/m2 12 © 2012 REC All rights reserved.
    13. 13. The excess energy gain from anti-reflection coatings  Under STC conditions module power is measured at normal incidence, but…  The energy yield advantages of the anti-reflection coating are measured at 30+ degrees Light Transmission REC Reflection Profile Module Without AR Glass 99% 97% 95% 93% 91% 89% 87% 85% 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 Angle of Incidence Source: REC reflection characteristics as measured by Solar Energy Research Institute of Singapore. Standard glass reflection profile as generated by Pvsyst using the ASHRAE model using a b0 value of 0.0513 © 2012 REC All rights reserved.
    14. 14. Sunlight falls from all different angles  The angle of light is rarely normal to the surface of the module  In Bangkok the energy captured at 0-10 degrees represents only 4% of annual total Energy Energy/Year Light (kWh/kWp/yr) Transmission REC Reflection Profile 350 Module Without AR Glass 99% 300 97% 250 95% 1.2% more 200 energy 93% 150 captured 91% 100 89% 50 87% 0 85% 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 Angle of Incidence Source: Bangkok angle of incidences generated using vector analysis for sun positioning based on the Meteonorm climate file for Bangkok extracted from Pvsyst v5.55. Assumes an array facing due South tilted at 10 degrees14 © 2012 REC All rights reserved.
    15. 15. Changes in light spectrum affect real-world performance  The universal spectrum used to classify module power at Standard Test Conditions is called the Air Mass 1.5 spectrum  Modules efficiency will vary depending on the consistency of the light spectrum they are exposed to.  What is the spectrum most appropriate to the project site? Depends on altitude, cloud cover, humidity, pollution and more REC’s New Peak Energy Plus Module CONVENTIONAL CELL CELL WITH BACKSIDE PASSIVATION Light is absorbed Reflected light will generate additional currentThe blue line is the Air Mass 1.5 standard spectrum. The red line A cell with backside passivation will generate more current due to reflection ofindicates the wavelengths of light that can contribute to electricity light at the backside of the cell. Backside passivation increases the sensitivity ofgeneration in a silicon solar cell the cell to red light in the wavelength range between 1000 to1180 nmSource: Entropy Production 15 © 2012 REC All rights reserved.
    16. 16. Spectrums change from location to location  Equatorial regions, such as most of Asia, generally have lower Air Mass levels due to higher sun altitudes  However, differences in atmospheric particulates and humidity make the spectrums between locations highly variable Energy (kWh/kWp/yr) 350 300 250 200 Bangkok, Thailand 150 Munich, Germany 100 50 - Air Mass16 © 2012 REC All rights reserved.
    17. 17. REC ranks as number 1 in yield Photon test 2011: most recognized test comparing module brands under real life conditions, over several years Generated more electricity than all its 45 competitors, 6% more than test average Average irradiance in this region is approx 230W/m217 © 2012 REC All rights reserved.
    18. 18. Increasing yield performance reduces CAPEX REC is known for its high performing yield throughout the world As simulated in PVsyst, in Asia Pacific the advantage still exists, which translates to real value REC 1,191 Sanyo HIT 1,191 Yingli 1,154 SunTech 1,154 JA Solar 1,143 Trina 1,124 Kyocera 1,124 Sharp 1,120 1,080 1,100 1,120 1,140 1,160 1,180 1,200 Annual Yield (kWh/kWp) Assumptions: Yield numbers generated in Pvsyst v5.51. Site location in Tokyo with a tilt of 28 degrees oriented due South. Sunny Tripower 10000TL inverters and module specific values for NOCT, mismatch and module quality loss.18 © 2012 REC All rights reserved.
    19. 19. REC can command a $/W premium based on yield alone Translating the yield numbers into a project IRR calculation the premium REC can justify against the major competitors is evident This premium will change depending on climatic and financial factors, however the clear pattern is that REC maintains a yield advantage that has translated to higher ASPs Warranty, bankability and quality advantages will further extend the premium Sanyo HIT $0.05 REC $0.00 -$0.07 Yingli -$0.07 SunTech -$0.09 JA Solar -$0.11 Trina -$0.11 Kyocera -$0.11 Sharp -$0.12 -$0.10 -$0.08 -$0.06 -$0.04 -$0.02 $0.00 $0.02 $0.04 $0.06 Assumptions: Debt:Equity ratio of 70/30, Cost of Debt 2%, cost of equity 9%, FiT of JPY38/kWh and a project lifetime of 25 years. System specific capital costs based on module efficiency and equivalent BoS costs19 © 2012 REC All rights reserved.
    20. 20. Reducing Capital Expenditure RIGHT HERE IN ITALY Powerplant with REC Peak Energy modules20 © 2012 REC All rights reserved.
    21. 21. How a module can reduce capital expenditure  Reducing system cost is more involved than simply reducing the cost price of the module ($/W)  Modules can influence the developed cost in the following ways: – Increasing efficiency reduces land and mounting structure costs – Increased reverse current rating reduces the amount of fusing – A high maximum system voltage that minimises the amount of strings and protection devices – Cable length that minimises additional string cables – Innovative frame design that allows for rapid installation rates – Equipment accessories that streamline the installation process – Packaging that reduces waste or simplifies transportation – By-pass diodes used to minimise yield loss from shading – Antireflection coatings to maximise sunlight transmission – Availability to finance via ECA21 © 2012 REC All rights reserved.
    22. 22. REC is reducing module cost at a high rate Singapore module cash cost Eurocents/watt Q1 2012 costs;  March run rate at 90 Eurocents/Watt -39% 2012 cost reductions; 127  Increased average cell efficiency  Improved sourcing of materials -27% 78  Improved operational performance, debottlenecking and 57 higher equipment availability  Reduced fixed costs and economies of scale in support functions Q3’10 Q1’12 Q4’12 target Costs include SG&A, amortization, R&D, silicon at market price, cash production costs and excludes depreciation22 © 2012 REC All rights reserved.
    23. 23. Risk Mitigation for theRevenue Stream RIGHT HERE AT REC REC production plant, Tuas, Singapore 23 © 2012 REC All rights reserved.
    24. 24. Durability tests to ensure long-term performance Most PV modules are warranted for a period of 25 years but few have been in the field for that time. Those that have are a vastly constitution than they were. How REC guarantees the lifetime of its module: – Highly automated production facility – Complete quality control (machine, man, method & material) – ISO 9001, ISO14001 & OHSAS18001 Certified in Singapore – Optional loading up to 5400Pa under IEC61215 (551kg/m2) – TUV Salt Mist Corrosion - Severity 6 – TUV Ammonia Corrosion – Extended qualification beyond IEC (DHT, TC, HF) – Combined cycle testing TCT 200 cycles 400 cycles DHT 1000 hrs 2000 hrs HF 10 cycles 40 cycles Combined cycle - (DH, TC, HF) X224 © 2012 REC All rights reserved.
    25. 25. Extended Qualification Testing: 2X IEC Standards Even at 2x IEC test REC modules are still performing within the standards REC Extended Qualification Test Results TC400 DH2000 HF40 2X more than required % Power loss REC module test laboratory IEC Pass Criteria25 © 2012 REC All rights reserved.
    26. 26. Industry leading linear warranty for REC modules  Module bankability is key criteria for solar  REC holds a strong reputation with banks in our active markets  25 year linear performance warranty  10 year product warranty  Maximum degradation rate of 0.7%26 © 2012 REC All rights reserved.
    27. 27. Low customer claims provide evidence of quality  Reduced module power or plant downtime will adversely affect the financial performance of a PV plant  Faults can occur at periodic times throughout the life of a plant. Remoteness and lack of access to adequately trained personnel can cause systems to have downtimes of weeks or months.  One bad module can affect the performance of an entire string of sub-array 250 PPM Claim PPM Acc PPM 2011 Target 200 150 110 98 97 100 90 79 79 72 57 49 50 35 33 34 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec27 © 2012 REC All rights reserved.
    28. 28. REC has a strong track record of proven performance Pandit Deendayal Petroleum University in Gujarat, India (7.61% Above Expectations)28 © 2012 REC All rights reserved.
    29. 29. REC has a strong track record of proven performance 100kW REC Factory Rooftop, Tuas, Singapore Energy Yield Compared to PVsyst Prediction Section 1 4.7% Section 2 4.3% Section 3 7.3% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Predicted29 © 2012 REC All rights reserved.
    30. 30. REC has a strong track record of proven performance REC Systems’ Performance Ratio* Examples (%) 91,8 85,7 84,0 81,9 83,7 80,5 Yield report Actual France Italy Freiburg 5MW 5.7MW 582kW * The performance ratio (PR) describes the relationship between the actual and theoretical energy outputs of the PV plant. Low conversion losses (glass reflection, temperature losses, transformer losses ...) are leading to a high PR.30 © 2012 REC All rights reserved.
    31. 31. REC has a strong track record of proven performance LUXEL Project with 9 different locations in France (Jan-Dec 2011) (9% Above Expectations) MWh % 1,000 120 900 100 800 700 80 600 500 60 400 40 300 200 20 100 0 0 Barats Peyrohitto Les Clottes Puginier St Paulet La Pomarède Fontanelles Larnier Pouzols 269 kWp 572 kWp 572 kWp 572 kWp 572 kWp 572 kWp 602 kWp 572 kWp 572 kWp % of Expected Yield Actual Solar Production Expected Solar Production31 © 2012 REC All rights reserved.
    32. 32. The 5 Unique Selling Points of REC Modules More energy per ft² Provides more energy per square feet Robust and durable design Ensures long lasting quality Easy to install Reduces installation time Optimized for all sunlight conditions Provides reliable power output and high performance Energy payback time of one year Made with an industry leading carbon footprint and EPBT32 © 2012 REC All rights reserved.
    33. 33. RENEWABLE ENERGY CORPORATION THANK YOUREC is the exclusive owner or licensee of the content, material, and information in this presentation. Any reproduction, publication or reprint, in whole or in part, is strictly prohibited. The information in thispresentation may not be accurate, complete or up to date, and is provided without warranties or representations of any kind, either express or implied. REC, as well as its directors, officers and employees, shall notbe responsible for and disclaims any liability for any loss or damages, including without limitation, direct, indirect, incidental, consequential and special damages, alleged to have been caused by or in connection withusing and/or relying on the information contained in this presentation. 33 © 2012 REC All rights reserved.

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