The document discusses the long-term bullish outlook for the solar sector based on factors such as room for double-digit growth for decades, falling costs, and grid parity being reached in more markets. It notes that solar could become the world's largest electricity source by 2050 according to the IEA. The solar industry has seen high growth of 44% annually over the last 5 years, led by China, Japan, and the US. The document also provides an overview of solar developments and pricing trends in key markets like China, Japan, Europe and the US.

1. The Investment Case for Solar
Tracking index for Guggenheim Solar ETF (NYSE ARCA: TAN)
www.MACsolarindex.com

2. Long-Term Bullish Factors for Solar Sector
• Room for double-digit growth for decades; world needs $4 trillion of new
electricity generation through 2030; solar is only 0.3% of U.S. electricity
generation now.
• Industry has matured after shake-out; survivors are established with best
technology and scale; margins are recovering; supply now better matched to
demand.
• Solar panel demand has persistently surprised to the upside
• Solar costs are falling due to improved technology and lower
system/installation costs; grid parity is being reached in a progressively
larger number of markets. Lower solar cost means increased demand,
bigger target market, more unit sales, more profit.

3. Solar – Long-term Solution for Sustainable Electricity
Advantages
• Clean & safe electricity solution; unlike nuclear, coal, natural gas
• Distributed Generation – avoid grid and utility price increases
• Scalable – small or large; residential, commercial buildings, utility.
Disadvantages
• Day-Use Only – but matches peak electricity usage times; add battery backup
• Variable solar intensity – but still economical in northern climes
• Cost – Falling fast; grid parity in growing number of areas

4. Solar PV and Thermal could together become the world’s
largest electricity source by 2050 (IEA)
Solar PV and Solar Thermal Energy (STE) could together grow from current level of less than 1% to 26%
of global energy share by 2050, thus becoming the world’s largest source of electricity.
Source: International Energy Agency Technology Roadmaps for Solar Electricity (2014 Edition).

5. High Growth Industry: 44% Annual Growth Last 5 Years

6. Leaders: China, Japan, U.S. Take Over From Europe

7. Solar Installs are Diversifying Geographically

8. China Solar
Developments:
•Strong Chinese government support for solar
to promote environment and to support top Chinese
solar companies and jobs
•Government 2014 target is 13 GW
•Chinese installs driven by 14-16¢/kWh feed-in
tariff (FIT) for utility solar and FIT for distributed
generation.
•Government has solar company rationalization
program to weed out weak players.

9. Japan Solar
Developments:
•Fukushima nuclear disaster (Mar-2011)
prompted aggressive government push
for solar
•Highest feed-in tariff in the world at
35-40 ¢/kWh
•Japan on track for 10-12 GW of new solar
installs in 2014 although some bottlenecks have
recently emerged

10. Europe Solar
Developments:
•Germany still has world’s largest amount of
installed solar
•European solar installs have declined due to
reduced subsidy support

11. U.S. Solar
Developments:
•Top PV states: CA, AZ, NJ, NV, CO
•Residential – gold rush for customers due to
zero-down and favorable economics.
•Solar Securitization: SolarCity sold $54 million
solar-lease-backed notes in Nov 13 at 4.8% with
investment grade of BBB+.
•Easier financing and reduced capital costs (ABS,
Yieldcos) reduces solar financing costs. Yieldcos:
TerraForm Power (TERP), Abengoa Yield (ABY).
•Federal ITC falls to 10% in 2017 from current 30%,
leading to 2014-16 install rush to capture 5 cent
LCOE advantage; but Deutsche Bank still expects
36 states at grid parity in 2017 with 10% ITC.

12. Solar Pricing – Polysilicon Has Stabilized Above $20/kg

13. Solar Pricing – Modules Have Stabilized Near 70¢/watt

14. Solar Cell Costs Have Dropped 99% Since 1970s

15. Steady Percentage Solar Cell Price Decline Due
to Technology Advances and Scale Manufacturing

16. Solar Scientific Research Continues at Rapid Pace
to Reduce Solar Costs and Increase Efficiency

17. Solar Pricing Dropped by Half in Past 3 Years to 12-14¢/kWh
Source: “Cost of Energy Technologies,”
by World Energy Council & Bloomberg Energy Finance
Cost reductions shifting to balance of system costs, e.g., inverters,
hardware, install, customer acquisition and financing costs.

18. Many PV Markets Now Below Grid Parity Without Subsidies
Source: “2014 Outlook: Let the Second Gold Rush Begin,” Deutsche Bank Solar Industry Update, 6-Jan-2014
Plus 10 U.S. states at grid parity (with subsidies) at 11-15 ¢/kWh: AZ, CA, CT, HI, NV, NH, NJ, NM, NY, VT.

19. Solar Shakeout Is Ending – Profit Margin Recovery

20. Solar Performance – Recovering After Shakeout

21. MAC Solar Index - Methodology
• Global solar energy index of qualified solar stocks listed on
exchanges in developed countries.
• Passive index of qualified solar stocks – no stock picking.
• Modified market cap weighting.
• Liquidity minimums to add a stock: $150 million market cap and $2
million in average daily trading value.
• Exposure Factor 1.0 for pure-play solar stocks (solar revenue above
2/3); Exposure factor of 0.5 for medium-play stocks (1/3 to 2/3 solar
revenue) (AEIS, Abengoa Yield, China Singyes, 5N Plus).
• Quarterly index review on third Friday of March, June, Sep, Dec.

22. Advantages of Index/ETF Over Individual Solar Stocks
• Own the global solar sector in one trade – reduced transaction costs
• Long track record – 6+ year history (launched in April 2008)
• Dynamic Portfolio – add solar growth stocks and drop losers
• Diversification – across geography, technology, value chain

23. Diversification Across Value Chain
Manufacturer/Project
Developer
First Solar
SunEdison
Canadian Solar
Yingli Green Energy
Trina Solar
Sunpower
Hanergy Solar Group
JinkoSolar
JA Solar Holdings
Shunfeng Photovoltaic
China Singyes Solar
Renesola
Hanwha SolarOne
Comtec Solar Systems
Installer/Project Developer
Solarcity
Vivent Solar
Polysilicon
GCL-Poly Energy Holdings
REC Silicon
Daqo New Energy
Thin Film Materials
5N Plus
Capital Equipment
Meyer Burger Technology
Solar Panel Components
Xinyi Solar Holdings
Inverters
SMA Solar Technology
Advanced Energy Industries
Enphase Energy
YieldCos
TerraForm Power
Abengoa Yield

24. Diversification Across Geography
By Company Headquarters:
• China: 14 companies
• North America: 8 companies
• Europe: 5 companies
By Stock Listing:
•North America: 17 companies
•Hong Kong: 6 companies
•Europe: 4 companies

25. For More Information
• Solar Sector Research at:
www.macsolarindex.com
• List of solar information sources at:
www.macsolarindex.com/resources