Presentation of Amaury Korniloff, Founder of Solaire Direct. Sustainability & Business Club of INSEAD Alumni Association France (Paris, Cercle de l'Union Interalliée, june 20th 2012)

1. Introduction Paris, june 20th, 2012
Marie-Ange Verdickt
Research Manager and SRI, Financière de l’Echiquier
Alastair GIFFIN,
President club Energy Insead
Jean-Christophe PRUVOST,
V-President club Sustainable & Business Insead
Are pleased to welcome Amaury KORNILOFF,
Founder of Solaire Direct
About : does the photovoltaic technolology still have a future ?
Confidential

2. Confidential
Solar power generation: beyond feed in tariffs
INSEAD Alumni association Conference
June 20th, 2012

4. Solairedirect at a glance
N°1 solar power operator in France with ~120 MW of installed capacity (2011)
°
Created in 2006 / now 300 employees worldwide
Key figures Revenues of € 213 m in 2011
€500m raised in financing since 2007 (including €200m in 2011)
Solairedirect’s principal activity is to develop, finance, build and operate solar parks and
rooftops through SPVs in which it ultimately retains a minority stake (usually less than
Activities 20%) showing Solairedirect’s long term commitment
Solairedirect’s objective in the long-term is to sell solar electricity
Utility-scale installations: ground-mounted solar parks
Markets
Energy positive building: professional and residential rooftop installations
Become the first solar engineering company / power generator to develop competitive solar
Strategy power through market-priced Power Purchase Agreements (PPA) and integrate widely
solar power in local energy mix.
Confidential 4

5. Solairedirect’s shareholding structure
Shareholding structure Shareholding structure
Several rounds of capital raising completed in the past:
1st round: €6m raised in March 2007 Avenir Sol (OFI
2nd round: €20m raised in November 2008 Group)
Vernier Participations 1.2%
(Macif, UMR and AGPM)
Founders
6.3%
18.9%
A range of investor profiles with different investment
strategies demonstrating Solairedirect’s attractivity:
Aster Capital
VCs, mutual insurance companies, industrials
(Schneider Electric
Ventures)
17.3%
Demeter
24.5%
Techfund*
24.3%
___________________________
Notes: *o/w FIP Expansion I, II & III: 9.7%
**o/w Smart Energy: 2.95%
Shareholders’ involvement enabling access to industrial
partners (Schneider Electric), local authorities (CDC) and
clients (mutual insurance companies)
Confidential 5

6. Solairedirect a worldwide company operating on 4 continents
Confidential 6

7. An integrated business model geared for grid parity transition
Vertical integration allowing cost optimization and returns along the value chain: products, designs,
installs and operates PV structures
Solar energy value chain
Upstream Downstream
Polysilicon
Wafer Modules Project
Financing EPC O&M
Sale of
& Cells &Systems Development energy
Grid parity environment and PPA model means a change in the final client
Feed in-tariff Grid parity (PPA)
Sale of Power utilities
energy State Industries
Municipalities
Confidential 7

8. Solairedirect: a differentiating business model based on key
competitive advantages
Best-in-class
Lower EPC cost systems cost
competitiveness
Integrated
business model
Optimal reliability and
bankability Low-cost financing
(low WACC)
Reduced risk
Non-recourse
financing model
Service-oriented More value
approach for the kWh
Confidential 8

9. Solairedirect a Worldwide proven model
Solairedirect launched the first solar PPA in Europe at market-based prices
FRANCE
Ester is a pioneering scheme, the first market-based solar PPA in Europe,
featuring an extremely competitive pricing mechanism, bringing together a local
government and industry players.
Solairedirect leads the National Solar Mission bidding process in India and
shows the way to grid parity
INDIA
Solairedirect was selected on December 2nd by the Government of India as the best
bidder in the second round of bidding for the National Solar Mission with a rate of
7.49 Rs/kWh (109 €/MWh) for a 5 MW project in Rajasthan
Solairedirect and mining industry
INDIA
Solairedirect signed the first spot market based Purchase Agreement’s
(PPA) towards to the Mining Industry.
Solairedirect won preferred bidder status for two South African solar
SOUTHERN
projects for a total of 18 MW
AFRICA
Solairedirect SA was successful in the bids to develop solar photovoltaic
projects at Aurora and Vredendal with a contracted output of 9.0 MW and 8.8
MW respectively. This bid is part of he second phase of government’s
Renewable Energy Independent Power Producer Programme (REIPPP)
Confidential 9

10. A track record of 6 years of operating & industrial excellence
Confidential 10

11. Why solar power changes it all – in 6 points
1. A ressource that is bigger than any else 2. The only energy that exists in large 3. The only electronical energy (non
(1 day = 100% of all worldwide oil quantities everywhere in the world, mechanical) , with open technologies and
reserves), more than 38 000 billion tonnes without significant advantage for any a Moore law with increasing efficiency
of silicium… specific country. since 1970.
Module average price (in $/W, source: Worldwide annual installations (in MW, Energy source Generation costs
Goldman Sachs) source: EPIA) (new generation only,
18 30 000
best-in class players)
16 Solar PV (Solairedirect) 100/120 €/MWh (2012)
25 000
14 65/80 €/MWh (2014)
12 20 000 CSP 140/250 €/MWh
10 Onshore wind 55/90 €/MWh
15 000
8 Offshore wind 120/200 €/MWh
10 000 Mini hydro 80/120 €/MWh
6
Biomass 100/150 €/MWh
4
5 000 Fuel (DG) 120/200 €/MWh
2
Coal (imported) 70/90 €/MWh
- -
Nuclear (EPR) 70/90 €/MWh
1981 1985 1990 1995 2000 2005 2010 1981 1985 1990 1995 2000 2005 2010
Gas (exc. shale) 70/90 €/MWh
4. A logarithmic decrease of costs (-10% per 5. An exponantial volume increase (+43%
year since 1980), despite of cycles and an per year since 1980, with no decreasing 6. One of the cheapest power in the
ultra-commoditized industry. year) thanks to an endless race for new world…from 2014, with competitivity
and cheaper investments. advantage wich will keep on growing till
2025 at least
Confidential 11

12. Confidential

13. Confidential

14. The new distributed utility paradigm: introducing Ester
1
• Long term power purchase agreement for the sale
of solar power at market prices to the regional Public local
authority
energy companies
Controls Shareholders:
2 Ester
Public (Region
etc.) and
• Financing is contributed by both public and Capital Private
private sources (Solairedirect
etc.)
ESTER (SEML)
2 Other investors in equity
(market operators;
Investment politic in
• Creation of a SEML (public-private company) with institutional etc…
capital
the aim of empowering the community, carrying
out the regional ambitions in solar power and Subscribers , 1
CDC, institutional
investing in SPVs investors
etc. 3
Equity or Bonds
Project financing
Modules
Regional
Banks
3 SPV 1 SPV 2 SPV 3 … industrial
project
• Smart grid and demand response services to PPA
(upstream)
accommodate large quantities of solar into the Off taker
grid (Market operators, Off taker …
• Establishment of manufacturing facilities to suppliers etc.)
supply the solar projects (local content
approach)
Confidential 14

15. The commodity trap, a dead end for most existing solar players
The commodity trap in PV mirrors that of other commoditized electronic products, such as
DRM and flat panel displays (Darwinian selection process out of which just a handful of
companies survive)
The “smile curve” offers an accurate description of the commodity trap. No differentiation –
and sustainable margins – can be expected except in the very upstream part of the value
chain (polysilicon) and in the very downstream – power generation
Commodity trap
Power
generation
Confidential 15

16. Assessing the capacity of existing solar players to mutate into
the world of competitive solar
The crystalline cell/module manufacturers are being severely threatened: the new entrant
premium keeps putting pressure on prices. The weakest players (with higher costs, excess
debt or insufficient financial backing) are going out of business,. Over time this part of the
value chain only promises meagre margins to the very best players
The thin film module manufacturers are seeing their competitive advantage vanish while
efficiencies remain significantly lower than crystalline silicon. Most of them are unlikely to
survive
The downstream value chain (distributors, developers, EPC contractors and installers) is
destabilized by the much lower feed-in tariffs (pressures on the margins, inventory write-
offs). The advent of the post feed-in tariff, PPA-driven model is bound to eliminate most small-
size players, as two key factors will emerge: (i) the ability to inspire trust to off-takers as part
of long term contracts and (ii) the capacity to raise project debt and equity in an increasingly
strained financial environment
Confidential 16

17. The 4 key drivers in the business of competitive solar power
2. Privileged
relationships with local
public and private
stakeholders, and access to
prime locations (land and
rooftop) and grid connections.
local content a privileged tool
3. Best-in-class EPC costings,
1. Ability to contract PPAs with a permanent view to minimize
generating the highest value through
module, BOS, development and other
value-added (smart) grid services and
costs, preferably through some form
financial engineering, and helping the
of vertical integration with one or
off-takers reap all the advantage of
several of the most competitive
competitive solar power
upstream players
4. Access to abundant,
lowest cost capital thanks
to risk control that equates
solar projects with bond-like
annuities
Confidential 17

18. A likely new solar Business model
The two solar paradoxes: (i) most solar companies go out of business at the very same time
solar is becoming competitive, and (ii) the resulting concentration seems at odds with the
distributed nature of solar power generation (cf. Jeremy Rifkin’s “peer-to-peer” vision of the
so-called energy democracy)
The ongoing paradigm change is indeed likely to usher the age of new solar Business model:
1. Who can underwrite GWs of PPAs for maturities of up to 30 years and beyond?
2. Who can inspire the trust of governments and key local stakeholders to establish long term
public/private partnerships, and develop the sufficient clout with governments to influence
planning, construction, infrastructure and energy regulation?
3. Who can develop GWs of projects on the ground and on rooftops over the long term?
4. Who can integrate the manufacturing value chain and sustain cost leadership?
5. Who can inspire trust to pension funds and the like to raise billions of euros with the lowest
IRRs?
6. Who can develop the mass marketing of solar-based power?
7. Who can develop the smart grid platforms and aggregate millions of intermittent sources of
energy?
Confidential 18

19. Confidential