Credit Suisse Equity Research

Americas/United States

Alternative Energy & YieldCos

Primer
April 2018
S:/IMAGE LIBRARY/2015-03-04 CS Equity Research Template.pptx

Research Analysts

Mike Weinstein Maheep Mandloi

+1 212-325-0897 +1 212-325-2345
w.weinstein@credit-suisse.com maheep.mandloi@credit-suisse.com

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decision.
 Solar penetartion, as % of TWh

0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Italy 8.9%
Greece 7.0%
Germany 5.9%
Spain 5.0%
Belgium 4.5%
Romania 3.0%
Japan 3.0%
Bulgaria 2.9%
Basics of Solar

Czech Republic 2.7%

Australia 2.4%
United Kingdom 2.2%
Chile 1.8%
Israel 1.7%
Switzerland 1.6%
Austria 1.5%
Thailand 1.4%
France 1.3%
Pakistan 1.1%
Am ple resource available globally

World Average 1.1%

US 0.9%
South Africa 0.8% Low penetration of global energy generation
South Korea 0.7%
China 0.7%
Other S. & Cent. America 0.6%
India 0.5%
Canada 0.4%
Resource and Technology Characteristics

$0.00
$4.00

$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.50

Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
~$200/MWh

Mar-09
US utility PPA -

Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Silicon $/W

Mar-11
Jun-11
Sep-11
PPA

Dec-11
~$100/MWh

Mar-12
Jun-12
Non-Si cost $/W

Source: Government data, EIA, BP Statistical, IHS, GTM/SEIA, Company data, Credit Suisse estimates

Sep-12
Dec-12
Mar-13
Jun-13
Margin $/W

Sep-13
Dec-13
Mar-14
Jun-14
PPA

Sep-14
~$60/MWh

Dec-14
Mar-15
Jun-15
Peak dem and coincident resource

Sep-15
Dec-15
Mar-16
Dram atic im provem ent in hardware cost

Jun-16
PPA

Sep-16
Dec-16
~$40/MWh

2
Basics of Solar
Ideal distributed generation source
Most forms of energy generation (renewable or not) use turbine technology to generate
energy – i.e. what Edison used in 19th century
 Fossil fuels burn to produce steam to rotate turbines
 Nuclear heats water to produce steam to rotate turbines
 Wind turbines
 Geothermal uses naturally available hot steam to rotate turbines

Solar is the only technology which involves no moving parts (or minimal if using a tracker)
& modular scaling units from 2 watts (1 cell) to 500,000,000 watts (0.5 GW solar plants)
 This makes solar ideal for distributed generation – generation that occurs close to the point of consumption
(i.e., rooftops)
 Ongoing maintenance is simple and inexpensive – no feedstock cost risk
 Solar is not limited by location (as sunshine is widely available) although solar irradiance levels dramatically
impact utilization rates
 No carbon emissions
 Hardware and capital costs, insolation levels , and regional retail (for distributed solar generation on rooftops)
or wholesale (for utility-scale projects) electricity rates drive economics

Source: Government data, EIA, BP Statistical, IHS, GTM/SEIA, Company data, Credit Suisse estimates 3
Basics of Wind
Resource and Technology Characteristics
Regional Powerhouse Low penetration of global energy generation

49.7%
60%

Wind penetartion, as % of TWh

50%
40%

22.9%
22.3%
17.7%
30%

13.6%
12.0%
10.7%
9.8%
9.2%
20%

8.0%
7.9%
6.8%
6.6%
5.2%
4.5%
4.4%
4.2%
3.9%
3.7%
3.5%
3.5%
3.2%
3.2%
3.1%
2.6%
0.5%
10%
0%

Austria
Portugal

Germany
United Kingdom

Netherlands

Italy

Turkey

Brazil

Mexico
Japan
Ireland

Greece
Belgium

Poland

France
Canada

India
Other S. & Cent. America
Spain

Romania
Sweden

US

Australia

World Average
Denmark

China
Bigger turbines m eans larger nam eplate capacity And significant increases in capacity utiliz ation

Source: Government data, EIA, BP Statistical, NREL IHS, GTM/SEIA, Company data, Credit Suisse estimates 4
Basics of Wind
Renewable feedstock for traditional method
A wind turbine converts kinetic energy from the wind into mechanical energy for the grid
 No fuel cost and thus no energy commodity price risk
 Ongoing maintenance is relatively inexpensive, although more complicated than solar
 Improvements in hub height and blade length have dramatically increased capacity utilization to the point
where subsidized wind is among the lowest cost electricity resource in high wind regions
 No carbon emissions
 Hardware and capital costs, wind resource, and regional wholesale electricity rates drive economics
 Land availability and proximity to transmission are important considerations

5
 Wind and Solar in the Global Picture
2015 share of global electricity generation Share of global electricity generation through time
100%
90%
Nuclear 80%
10.7% Hydro 70%
16.4%
60%
50%
40%
Wind
3.5% 30%

Fossil Fuels 20%

Solar
66.2% 10%
1.1%
0%
Other renewables 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
2.2% Nuclear Fossil Fuels Hydro Other renewables Solar Wind

% of new generating capacity from renewables 2020 share of global electricity generation
2007

2008
Nuclear
8.6%
2009
Hydro
2010 16.2%

2011

2012 Wind
5.2%
2013 Fossil Fuels
63.9% Solar
2014 3.5%
2015 Other renewables
2.7%
2016

0% 10% 20% 30% 40% 50% 60%

Source: Government data, EIA, BP Statistical, IHS, GTM/SEIA, Company data, UN Environment Programme Credit Suisse estimates 6
Wind and Solar Demand
Policy driven demand to demand driven policy
We estimate solar demand to grow at a CAGR of 6% through this decade while wind demand steadies.
Near-term growth is fueled by favorable policies and incentives in the US, China, India and other countries.
More and more countries and regions are transitioning to renewables and solar in particular without subsidies.

Annual solar demand, CS est Annual wind demand, CS est

120 116 70
63
103
98 60 58 57
100 55 56 55
92
51
50
80 75 45
Other
40 40
Demand (GWs)

Other

Demand (GWs)
Europe 40 37
35
60 Europe
53 Japan
45 India
India 30 26
US US
40 36
20 China
27 29 China 20
21 15
20 12
8 8
6 8
10 7 7
3
0 0 1 1 1 2
0
-
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
2020E

2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
2020E
Credit Suisse Estimates, I/B/E/S Estimate for all consensus numbers, Thomson, SNL, company reports 7
Wind and Solar Economics
Attractive economics increasingly drive demand
Contracted prices for solar (top) and wind (bottom) power Renewable power is cost competitive on both a
have fallen dramatically in the US subsidized and unsubsidized basis
$300

US residential tariffs $ 88 $ 300

$250
Levelized PPA - $/MWh

$200
Solar residential w/ subsidy $ 80 $ 126

$150 Solar residential no subsidy $ 131 $ 197

$100

$50 Solar utility w/ subsidy $ 38 $ 69

$0 Solar utility no subsidy $ 61 $ 100

Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13 Dec-14 May-16 Sep-17
Operating Planned Wind w/ subsidy $ 27 $ 59

$80 Wind no subsidy $ 50 $ 82

$70

$60
Gas peaking $ 98 $ 176
Wind Levelized PPA - $/MWh

$50
Diesel generator $ 145 $ 190
$40
Nuclear $ 48 $ 89
$30
Coal $ 54 $ 133
$20

$10 CCGT $ 33 $ 57

$0 $0 $50 $100 $150 $200 $250 $300 $350

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LCOE - $/kWh

Source: IEA, EIA, Eurostat, Company data, Credit Suisse Research 8

Solar Supply Chain
Value in downstream, upstream manufacturing is highly commoditized

Source: Credit Suisse Research 9

 Solar Value Chain
Segment drivers
Upstream Ancillary Downstream
Rooftop
C-Si Poly C-Si Thin film Utility scale Operators &
C-Si Wafer C-Si Cells Inverters BOS solar
Silicon Modules panels solar YieldCos
(mostly US)

Market Stage Mature Mature Mature Mature Mature Mature Mature Mature Growing Nascent

High Medium Medium Medium Medium-High

High Medium
Barriers to Entry (size, capital (capital Low Low Low (capital (capital (need reliable
(IP) (IP)
intensive) intensive) intensive) intensive) sponsor)

Reliance on Direct
No No No No No No No Yes Yes No
Subsidies

Capex
$0.20-0.60 $0.12-0.15 $0.10-0.13 ~$0.03 $0.30/W
$/watt

$0.50-0.75/W
Production cost $12-15/kg or Processing Processing Processing $0.35- $0.10- $0.75- $2.50-
incl inverter &
$/watt ~$0.06/W $0.06/W $0.08/W $0.11/W 0.40/W 0.15/W $1.25/W $3.00/W
installation
>high teens in last two years, but now under pressure due to
Gross Margin Yields: 5%-
oversupply. 10%-15%
$/watt (or %) 10%
2012 cycle saw gross margins at break-even levels

CSIQ,
OCI, GCL, HQCL, SEDG,
GCL, Longi, Module AZRE, CSIQ, TSLA, RUN, NEP, PEGI,
Major Companies Hemlock, JKS, JASO, FSLR ENPH,
Tongwei vendors FSLR, SPWR VSLR TERP, AY
Wacker SPWR, PWER, SMA
Longi

Source: Company data, Credit Suisse estimates 10

Wind Supply Chain
Value in downstream, upstream manufacturing margin constrained

Source: Credit Suisse Research 11

Wind Value Chain
Segment drivers

Downstream
Integrated
Blades Bearings Gearboxes Generators Towers Developers/ YieldCos
Players
Utilities

Market Concentration Concentrated Concentrated Concentrated Fragmented Fragmented Concentrated Fragmented Concentrated

LM Glasfiber
SKF ABB, Trinity Vestas,
Euros Winergy Acciona,
NTN Winergy, TowerTech Gamesa, NEP, PEGI, AY,
Main Companies NOI Hansen Iberdrola, Dong,
Timken GE DMI Nordex, TERP
Abeking & Moventas EDF
Kaydon Elin Coiper Suzlon
Rasmussen

Source: Company data, Credit Suisse estimates 12

YieldCo 101

Heavily contracted dividend growth vehicles taxed as 1099 C-corps

– Long-term, low-risk cash flows generated by portfolios of contracted energy infrastructure assets
– Share attributes with, but are not structured as Master Limited Partnerships (MLPs)
Formed for investors seeking stable and growing dividend income from a diversified portfolio of cash
flowing assets to take advantage of trends in power generation through a lower cost of capital than
that of traditional developers and Independent Power Producers
Dividend growth is paramount and financially engineered
– Dividend accretion through acquisition is the name of the game in the short-term
– Advantaged cost of capital drives longer term value creation
– Temporary tax protection through depreciation benefits (MACRs)
The right investors: long-term investment horizon, real asset/cash flow/yield oriented, looking for
income and capital appreciation. Traditionally a lot of cross over with utilities, power, MLPs, REITs
Primary sector opportunities: large and growing TAM in a sector ripe for consolidation with a long
history of capital indiscipline, predictable cash flows, limited energy commodity price exposure, visible
growth opportunities, and limited political risk to tax benefits
Primary sector risks: limited organic growth, interest rates and capital availability, stock price
sensitivity to MLP valuation and energy commodity prices, financial health/viability of sponsor,
leverage, corporate governance, conflicts of interest, renewable energy policy and disclosure
Differentiating factors: corporate structure and incentive fees, asset types and geographies, sponsor
entities, disclosure, growth visibility, and dividend growth targets

Source: Credit Suisse Research

13
YieldCo: Large, fragmented, and underpenetrated TAM
Large Underpenetrated Market for Yieldcos,
Compared with MLPs

Solar and wind ownership is particularly fragmented

Credit Suisse Estimates, I/B/E/S Estimate for all consensus numbers, Thomson, SNL, company reports 14
YieldCos a sound structure to own these assets

Capital costs all upfront, which public markets should efficiently supply
Contracted, high credit, and long duration cash flows that market should efficiently value
Unlevered IRRs 6-8% through contract period
~10% of acquisition NPV derived from assumptions regarding post contract period
Cash available for distribution (CAFD) = EBITDA less total debt service and maintenance capex

Credit Suisse Estimates, I/B/E/S Estimate for all consensus numbers, Thomson, SNL, company reports 15
YieldCo: Mutually beneficial and value-enhancing
relationship
YieldCo’s benefit from sponsor Sponsor’s benefit from YieldCos

Development Asset sale

pipeline proceeds
LP and GP
Dropdowns
distributions

O&M, Cost of
balance capital and
sheet,
tax
downside
protection attributes

Dividend growth and visibility drives income and Recycled capital for increased development
capital gains for shareholders enhances YieldCo growth visibility

Credit Suisse Estimates, I/B/E/S Estimate for all consensus numbers, Thomson, SNL, company reports 16
Accretion through acquisition means growth is financially
engineered, but sustainable in this market given size
16.0%

14.0%

12.0%
Cash on cash return

10.0%

8.0%

6.0%

4.0%
22-Nov-13 10-Jun-14 27-Dec-14 15-Jul-15 31-Jan-16 18-Aug-16 6-Mar-17 22-Sep-17
Announcement date

Dropdowns 3rd Party M&A

Credit Suisse Estimates, I/B/E/S Estimate for all consensus numbers, Thomson, SNL, company reports 17
Solar deep dive
 Solar Economics
And more markets are at grid parity today
Low cost solar systems have helped achieve the “holy-grail” in solar – Grid parity
More m arkets are at parity today, without subsides, But parity with CCGT and coal would require further cost
when com pared to new Natural Gas peakers reductions or higher fuel costs
47% 36% 35%

Utility solar savings over CCGT, %

73% 69% 66%
Utility solar savings over Peaker, %

55% 54% 51% Solar is competiive 8% 7% 1%

44% 42% 41% with Peaker plants
38% 38% 36%
33% today
27% 26% 26% 24%
19% 19% 15% -7% -10%
15% -21% -22%
1% CCGT cost-parity requires -39% -40% -43% -45% -45% -45%
further solar cost reductions -60% -62% -62%
-67% -69%
(or higher natural gas prices)

-26% -107%

Japan

Indonesia
China - western

Germany

Russia
Mexico

Brazil

Turkey

France
India

Singapore
Taiwan
Chile

S Korea

Malaysia

Canada
Australia

US
Thailand

UK
China - eastern

South Africa
Middle East
Japan
China - western

Brazil

Indonesia

Germany

Russia
Mexico

Taiwan

Turkey

France
India

Singapore
Chile

S Korea

Malaysia

Canada
Australia

US

Thailand

UK
China - eastern

South Africa
Middle East

55%
29% 27%
16% 14% 12%
5%

Utility solar savings over coal power,

-4%
-15%
-23%
Unsubsidized utility-scale solar is -36% -36% -42% -43% -47%
-49%
economic vs. coal power in select -57% -59% -64%
%

regions.... but it's not too far off in many -74% -78%
markets at today's cost structure -97%
-106%

China - western

Russia

Germany

Indonesia
Brazil

Japan

Turkey
Mexico
France

India

Taiwan

Singapore
Malaysia
S Korea

Chile

Canada
US
Australia

Thailand

UK
China - eastern
Middle East

South Africa
Note: Interactive model available upon request.
Note: Solar assumptions: region specific sunhours, system cost of ~$1.50/w for developed nations and ~$1-$1.2/w for emerging countries, assumes no subsidy.
For fixed mount systems, assumes no trackers. Natural gas assumptions: capex of $1/W, natural gas delivered cost of ~$3/MMBtu in US, ~$5 in Europe, and ~$7
in Asia. Capacity factor of 85% for CCGT, and 20% for peaker. Coal plant assumptions: Capex of $5/w in US and $3/w in most markets. 80% utilization, and
$2.5/mmBTU fuel cost. Cost of capital varies by region – 5%-6% for developed markets, and ~10%-12% for emerging markets.

Source: Credit Suisse Renewables & Alternative Energy Equity Research, IEA, EIA, Eurostat, OpenEI. 19
 Solar Supply
Raw material costs continue to decline with oversupply to remain in horizon
110%

100%
Capacity additions in the near term will keep

Global capacity utilization

90%
the market oversupplied. However some
80%
local markets might see supply squeeze due
to region specific adverse import duties 70%

Costs have declined ~84% across 60%

poly/module supply chain 50%

Return to peak pricing is unlikely as new 40%

2011 2012 2013 2014 2015 2016 2017 2018 2019
capacity builds have a cash cost of ~$8/kg
Cell Wafer poly

$30

$25.0 % of Tier-1
$25 Major Poly Producers 2018 Capacity, MT supply Location
GCL Silicon 115,000 24.2% China
US,
$20
Poly cash cost $/kg

$17.0 Wacker Polysilicon 80,000 16.8% Germany

OCI 52,000 10.9% S. Korea
$15 US,
REC Silicon 40,000 8.4% China JV
Hemlock Semiconductor 32,000 6.7% US
$10
East Hope 30,000 6.3% China
Tokuyama 28,200 5.9% Japan
$5
LONGi + Tongwei 25,000 5.3% China
TBEA 18,000 3.8% China
$0 Hanwha Chemicals 15,000 3.2% S. Korea
2018 Poly Capacity
Other major China 18,000 3.8% China

Source: Company data, Credit Suisse estimates 20

Solar Efficiency Improvements

Source: NREL
21
Solar Manufacturing
Oversupply through 2018/19 due to technology upgrades
Cell and wafer remain oversupplied in 2018/19
120 120

100 100

80 80
GW

GW
60 60

40 33 35 29 40 34
27 30 24 29 31
20 21 23 23 22 22
20 14 20 12 15
7 8

- -
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Cell overcapacity Wafer overcapacity
Demand (ex thin film) Demand (ex thin film)
Total cell capacity (ex thin film) Total wafer capacity (ex thin film)

Assumes no new capacity additions, demand pickup in US, and continued growth in India and emerging markets

We believe that Tier I producers (~83 GW of cell capacity) with latest technology upgrades can fare moderately well given
improved factory utilization, brand strength, low cost structure, and ability to acquire distressed assets.

We believe Tier II/III producers will likely continue to suffer as capacity becomes obsolete, are unable to fund capacity
improvements or to grow scale, and forced to sell modules at a discount (or cash costs) to compensate for lower bankability and
brand recognition.

We see opportunities for consolidation if down cycle persists for a long time.

Source: PV Energy Trend, GTM/SEIA, Company Data, Credit Suisse estimates

22
Solar Manufacturing
Technology upgrade cycles

Manufacturers are upgrading to mono wafers ..and to PERC cells

Upgrade cycles are driving higher capacity additions at same or lower capex, and lower production cost at higher module level
efficiencies

Source: ITRPV Ninth Edition 2018

23
US Utility Scale Solar
In 2017, solar represented 20% of new generation capacity build in the US,
wind 28%, nat gas 49%, and coal 0%
Visibility to 87 GWs Incremental Solar Capacity Required
US utility-scale solar demand driven by renewable in US to Meet Current Renewable Portfolio Standards (RPS)
portfolio standard (RPS) Incremental Solar Capacity Required in US to Meet Current RPS
– 29 states and DC have RPS in place 87 by... 2020 by... 2030
0% 0.0 GWs 0.0 GWs
– We expect 87 GW of solar demand for these states 10% 8.3 GWs 17.4 GWs
by 2030, assuming 50% of demand is met from 20% 16.5 GWs 34.7 GWs
solar 30% 24.8 GWs 52.1 GWs
Solar share of 40% 33.1 GWs 69.4 GWs
The 30% Investment Tax Credit (ITC) was extended to incremental renewable 50% 41.4 GWs 86.8 GWs
2021 (vs step down to 10% on Jan 1, 2017) capacity additions 60% 49.6 GWs 104.2 GWs
Commercial demand and PURPA drives demand in 70% 57.9 GWs 121.5 GWs
80% 66.2 GWs 138.9 GWs
non-RPS states 90% 74.5 GWs 156.3 GWs
100% 82.7 GWs 173.6 GWs
Note: Assumes solar capacity factor of 22.0%, wind capacity factor of 45.0%
Utility demand driven by RPS…. ... and declining installed cost… …results in lower solar PPAs
$300
$ 4.00

$ 3.50 $250

Levelized PPA - $/MWh

$ 3.00
Installed Cost ($/W)

$200
$ 2.50
$150
$ 2.00

$ 1.50 $100

$ 1.00 $50
$ 0.50
1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 $0
Oct-06 Jul-09 Apr-12 Dec-14 Sep-17
Utility solar system cost Operating Planned

Source: Credit Suisse Renewables & Alternative Energy Equity Research, Company Data, DSIRE, Berkeley Lab, GTM 24
Distributed Generation (DG) Solar US DG dem and growth
Still in the Early Innings of Adoption
7.0 6.3
11% CAGR
6.0
DG solar is economic in 43 states today 5.2

Residential DG penetration is still scratching the surface with 5.0

4.2
4.4 4.4

~2% penetration across available rooftops in the country. 4.0

GW
3.1
– Penetrations are notably higher in California (>5% of peak 3.0 2.2
demand, breaching NEM 1.0 cap), and Hawaii (>20% of 2.0 1.6
1.9
1.1
peak demand) 1.0 0.6
We calculate solar TAM of 33m households (53% of total
0.0
rooftops) today – taking credit rating, system economics, and 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
physical restrictions (like shading) into account Residential Commercial

32.8
62 million rooftops Solar is today installed on
# of solar
rooftops in 28.2
in the US ~1.7 million rooftops
millions

2.7%

7.3
US
residential 1.7
solar TAM -
33m rooftops
Current Installed 2018 cost 2018 cost, no ITC 2022 cost, 10%
capacity ITC
TAM
Note: Assumes $2.8/w cost today, $2.40/w in 2018+. Subsidies include 30%
ITC + state subsidies

Source: Company data, Credit Suisse, GTM/SEIA, Census, EIA

25
Distributed Generation (DG) Solar Cost to Install Residential Solar System Has
Declined >52% Since 1Q11
Growth Driven by Declining Costs $7.0
$ 6.30

$6.0
Residential solar system cost has declined >54% since 1Q11

US solar Installed Cost ($/W)

$5.0
– Meaningful economies of scale pushed industry towards
consolidation till 2015 $4.0

– Market leaders lost market share in 2016/17 due to $3.0

proliferation of loan products (for TSLA), a failed acquisition $2.0

$ 2.88

(VSLR), and focus on cash generation (for TSLA and VSLR)

$1.0
We estimate demand to grow at a CAGR of 15% through the end
of this decade due to declining costs $0.0

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17
Residential Utility

U.S. Residential Solar Market to Grow at a 15%

Top 3 Continue to Hold >40% Market
CAGR Reaching ~5.2% Penetration Rate by 2020
-trailing 12month market share-
20 6% 70%
18 5.0%
60%
5%
16 4.2%
50%
Cumulative GW installed

14
3.5% 4%

Penetration as %
12 40%
2.9%
10 3% 30%
2.3% 18.6
8 15.5 20%
1.6% 12.8 2%
6
1.0% 10.5 10%
4 0.7% 8.2
0.4% 1%
0.3% 5.6 0%
2 0.2% 3.5
1.4 2.2
0 0.6 0.9 0%
2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
Cumulative Residential Solar (GW) Residential Penetration as % of Available Rooftops RUN TSLA/SolarCity VSLR

Source: Credit Suisse Renewables & Alternative Energy Equity Research, Company Data, GTM/SEIA
26
Distributed Generation (DG) Solar
Net Metering Policy (risk to rooftop solar)
Displacing Incumbent Utilities = Regulatory Risk for Distributed Generation:
– Net metering rules in 45 US states allow solar owners to receive a utility credit at retail rates for their excess
electricity production during the day, and consume those credits at night, enabling “free storage” and distorted
cost allocation of distribution infrastructure investments
– Utilities or regulators in California, Nevada, Arizona, Texas, Hawaii, Utah, Kansas, Idaho, Indiana, Illinois, New
Hampshire, South Carolina and Florida have asked for changes to net metering rules
– Do not expect any intervention from the federal government on NEM, as intra state electricity sales are regulated
by state utility commissions.

Source: DSIRE, Company data

27
Distributed Generation (DG) Solar
Utility Rate Reform Proposals Net Metering Exam ple—Average Daily
Electricity Consum ption and Solar
Generation for a House in LA
Utilities may implement regulatory rate changes to counter solar net
metering by: solar
electricity
– Imposing minimum fixed fee or surcharge generation
– Reducing net metering rates curve

CA NEM 2.0 was very positive for solar surplus

load curve
NV – initially reduced NEM tariffs and removed grandfathering in 2015, solar
with solar
but both reinstated by legislators in 2017
load curve
AZ – regulators established NEM replacement at $0.129/kWh, much load curve
with
higher than the utility's demand of $0.03/kWh (wholesale rates) storage

1 3 5 7 9 11 13 15 17 19 21 23
Hrs

Potential im pact on value/ custom er if fixed NEM

Salt River Project – variable vs. fixed and how cost
charges are im posed
allocation is approached
How Costs are Incurred How Revenues are Collected

Fixed,
12%
Variable,
27%

Fixed,
73%
Variable,
88%

Key assumptions: charge borne by leasing company, total cost of $2.75/watt, pricing of $0.13/kwhr with 2.2%
escalator, ITC of 30%, no SRECs

Source: Credit Suisse Renewables & Alternative Energy Equity Research, SRP, NREL, Openei.org, Company Data
28
Solar + Storage Economics Not There Yet, but Close
Solar is not dispatchable
– This is problematic at higher levels of penetration as it cannot be depended upon during peak periods
(if cloudy, etc.) and traditional power plants must still be on “standby”.

Adding storage makes solar dispatchable

– Solar+storage is economical than residential solar in Hawaii and California today, and vs gas peaker plants
in South West US
– The combined Solar + Storage resource could also replace conventional base load power generation
sources…., but costs need to fall >50% for economics to be viable (likely by mid 2020s)

Li-ion battery costs ~$273/kWh in 2016, Battery adder cost $/MWh is declining for projects
forecasted to reach $73/kWh by 2030 (spread between solar+storage and solar PPAs)

Note, assumes 4hr battery storage product

Source: NextEra Energy, BNEF, Company data, Credit Suisse

29
Disclosures
Companies Mentioned (Price as of 09-Apr-2018) Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
8Point3 Energy Partners (CAFD.OQ, $12.05) *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
ABB (ABB.N, $22.63)
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Atlantica Yield (AY.OQ, $19.88)
Azure Power Global Limited (AZRE.N, $14.82)
Canadian Solar (CSIQ.OQ, $16.02) Global Ratings Distribution
Dow Chemical Company (DOW.N)
Electricite de France (EDF.PA, €11.325) Rating Versus universe (%) Of which banking clients (%)
Enphase Energy (ENPH.OQ, $4.15)
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