SunEdison s Comments on NERSA REFIT 2011 Consultation Paper

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1 8.2 MW Alamosa Solar Energy Facility (First utility scale PV plant in the USA) 1 72 MW Plant in Italy, the largest Solar PV Power Plant in Europe SunEdison s Comments on NERSA REFIT 2011 Consultation Paper

2 MEMC Overview 1 st commercial manufacturer of silicon wafer 50+ years of innovation in technology Sold over 1,000 MW of Wafers in 2010 and double that in 2011 ~5500 employees worldwide 12 manufacturing sites worldwide 150+ customers worldwide like Intel, Samsung, Suntech, Qcells, Texas Instruments, TSMC MEMC trades as WFR in NYSE and is a constituent of S&P500 Strong & Established Company Competing in an Immature Market 2

3 SunEdison Energy Services Overview We develop, build, finance, own and operate solar power plants in order to deliver solar services / sell commercial retail electricity at competitive prices One of the largest solar energy service providers in North America Over 400 solar plants, financed and under O&M Operational plants in 6 countries and development in 10 other countries Built first utility scale plant in the U.S and Canada Tracking 4 GW in project development Delivered more than 400,000 MWh of Solar Energy Built world s largest PV Power Plant of 72 MW in 2010 in 7 months Built over 300 MW s of solar PV plants in 2010 Core competencies and key advantages Internal R&D to optimizes system design and production Leading monitoring technology maximizes uptime and production, thereby lower cost of electricity Financing capabilities enable project growth, +$1 Bn in projects done Global presence to support deployment of solar in all key markets Leading Solar Energy Services Player 3

4 SunEdison s Global Presence We develop, build, finance, own and operate solar power plants in order to deliver solar services / sell commercial retail electricity at competitive prices SunEdison has established a strong credence in multiple markets: 1. North America : One of the largest solar power plant developers in US and Canada 2. Europe a leading developer in Spain, Germany and Italy 3. South Asia one of the 30 companies shortlisted under the solar program administered by the Government of India, and the Government of Gujarat. Technology partner for over 45 MW s and developer in over 30 MW s in 2010 in India 4. South East Asia very active in Thailand, and Malaysia. Broken ground for 2 large MW-scale plants in Thailand this month 5. Korea and Japan one of the largest installers in Korea and Japan, with tracker technology to increase yield and lower perunit cost Leading Solar Energy Services Player 4

5 NERSA Tariff - Financial Assumptions Cost of Debt: The costs of debt assumptions are on lower side for an IPP power project using typical project finance methodology. Non-recourse financing may be difficult to obtain at such cost for renewable energy projects The actual cost may be in the range 11-13% given the risk perceptions involved Return on Equity: the assumed return on equity is 17%. Given the fact that the sector is at its infancy in South Africa, the risks involved warrants a higher ROE. Investors may shy-away from renewable energy sector, as higher return opportunities are easily available in other sectors. Most of the emerging economies provision for a higher ROE in solar sector (e.g. 19% ROE in India and Thailand). Tariff Indexation: Tariff indexation is on lower side. Only allows inflation increase on O&M and fuel portion of levelised cost. RETs are primarily capital costs intensive and considerable borrowing is required to build projects. Project income needs to be spread over long debt term and repayments. Therefore if projects earn less and less every year compared to inflation and the time value of money, they will no longer be profitable let alone reach the target return of 17% real. The indexation should be in some-way connected to the CPI in part or full. 5

6 Qualifying Principles Track Record: Qualifying principles should specify that only those SPV technologies would be allowed which has successfully been operational anywhere in the world for at least 2 years. Project developer or in case of a consortium one of the partners must have experience of developing SPV projects of similar size in the past, anywhere in the world. Standard PPA: PPA should ensure strong payment security mechanism which are acceptable to financial Institutes and developers. PPA should also ensure off-take guarantee in some form to incentivize deployment of high-end technology that could generate more electricity from the same installed capacity 6

7 General Comments Levelised Capex: Considering international key equipment prices and local Balance of system prices & construction cost the assumption of levelised Capex is very low. Capex should to consider Equipment cost, land & land development cost, EIA cost, construction cost, overhead cost and developers margin. EPC costs also need to be considered, as there are very few EPC players with experience in developing large scale plants in the emerging markets in general, and South Africa in particular Tariff Calculation: NERSA should provide the exact calculations or spreadsheet to show how it can be done. The proposed tariff for some of the technologies such as wind, small hydro and solar PV poses challenge for investors to achieve cost of equity returns at 17% real return. 7

8 Comparative Index of Solar Policies in Some Large Emerging Markets Market Market size Tariff benefits Payment/ Off-take guarantees Tax benefits for industry/ benefits for market development Typical financing cost India National Solar Mission: ~ 20 GW over 12 years Gujarat and other state programs: ~ 5-6 GW's (anticipated) ~ 4 GW in the first phase; second phase likely to open after the elections ~ $0.3/ unit, levelized tariff, over 25 years; capital subsidy available at lower tariff ~$0.27/ unit additional payment for 12 years, over and above CPI indexed power tariff Power bundled with unallocated coal power, no government subsidies perse; Soveriegn fund mooted to provide guarantee (through tax on coal) Off-take guarantee available for all power producers; local electricity authorities have good credit rating Import duty waived on solar products; high-end technology waiver; no domestic content requirement in Gujarat; sale-lease back financial models allowed; Accelerated depreciation of upto 80% allowed No corporate tax for 8 years, 50% of the tax for next 5; No dividend distribution tax for similar period; No domestic content requirement Thailand Opening the first phase of the program around 30 MW's, scaling (Probable) 10 year tax holiday, 2 % Similar policies as applicable for Malaysia to 120 MW's per year by 2015 $ $0.39/ unit, over 21 years debt rebate semiconductor industry possible China 20 GW by 2020; 2 GW for rural $2.93/ W for BIPV subsidy Under discussion for FiT regime Under discussion for FiT regime ~10-11 % for over 12 years; construction financing available from top EPC players ~6-7 % for over 15 years; international financing community very comfortable with power sector 7-9% (probable) A combination of factors go into creating a market for an infant stage industry like solar PV, and attracting sufficient investment to grow the market Not all of the factors would be under NERSA s purview In the absence of other subsidy/ tax support from the governments, tariff is the only knob available Request for NERSA to strongly consider upward revision so as to bring the market on-par with the other emerging markets 8

9 May 2011 Driving Rapid Transformation to Sustainable Energy 9