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November 6, 2008‐
SPIE Conference, San Francisco, Ca.
Investing in Innovation and Technology
2
Overview
Who is Hudson?
The PV technology maturation cycle from concept through high volume commercial production
Description of sources of capital and requirements for each stage of maturation
Current composition of the industry in terms of companies’ and technologies’ position in this cycle
Innovation approaches employed by various types of organizations
“Solar successes” that have matured from technology development to commercial production
3
Hudson Fund Overview
Fund῀$1 billion fund to capitalize on dynamic growth in global clean energy
TeamFounders of U.S. alternative energy investment business at Goldman
Specialized knowledge in clean energy sectors and assets
Partners have long history of working together
Track RecordOver $1.5 billion invested in leading clean energy franchises and assets at Goldman Sachs
Investment StrategyCapture and build franchise value by investing in growth capital, buyouts and real assets
4
Hudson Investment Approach
F AAsset Value
• Limiting downside exposure through hard assets
• Wind farms, solar installations, manufacturing equipment
Enhancements to Value
• Strategic equity sponsor• Business model innovation, tax
optimization, structured finance, credit derivatives, cap rate compression
Constraints to Growth
• Lifting impediments and creating barriers to entry
• Wind turbine availability, silicon supply shortfall, value chain bottlenecks
Franchise Value
• Capturing upside through low-cost optionality
• Brand, development pipeline, EBITDA growth multiple
Asset Value
• Limiting downside exposure through hard assets
• Wind farms, solar installations, manufacturing equipment
Enhancements to Value
• Strategic equity sponsor• Business model innovation, tax
optimization, structured finance, credit derivatives, cap rate compression
Constraints to Growth
• Lifting impediments and creating barriers to entry
• Wind turbine availability, silicon supply shortfall, value chain bottlenecks
Franchise Value
• Capturing upside through low-cost optionality
• Brand, development pipeline, EBITDA growth multiple
5
New Devices and ProcessesThese research and
development activities address
the development of novel
photovoltaic devices or
processes with potentially
significant performance or cost
advantages.
Prototype Design and Pilot ProductionThese R&D activities emphasize
development of PV prototype
components or systems produced
at pilot‐scale
with demonstrated
cost, reliability, or performance
advantages.
Systems Development and
ManufacturingThese R&D activities focus on
components and systems that are
ready for mass production and
capable of delivering energy at
target costs.
PV Technology Maturation Cycle
Source: DOE SETP website
Company
Stage
Technology
DevelopmentDemo Plant
Business
Strategy
First
Commercial
Plant
Portfolio
Project
Finance
Company
ExpansionPilot Plant
6
Investment Spectrum through Technology Maturation
Hudson invests in high‐growth industries that bridge the gap between venture capital and infrastructure
investment styles
7
Who Is Investing in Clean Energy ?
(1)
Equity portion of Infrastructure was estimated by taking Asset Finance 2007 total of $84.5B and applying a 30% equity‐to‐total‐financing ratio
Source: New Energy Finance
# Funds
2007
Capital
Invested
Investment
Style D Round/ EXIT IPOB Round/C RoundAngel/A Round
BUYOUT/
PIPESInfrastructure
Equity
Private Equity/HedgeVenture Capital
Company
Stage
Technology
DevelopmentDemo Plant
Business
Strategy
First
Commercial
Plant
Portfolio
Project
Finance
Company
ExpansionPilot Plant
$4.1B$25.4B(1)$6.3B$2.5B$1.0B
7418648946
2007: VC: $3.5B
PE/Hedge/Other: $35.8B
Total Funds Operating in Sector: 795
VC Funds: 535 PE/Hedge: 260
8
Investment Trends in Solar
Source: New Energy Finance
Over the last 4 years, the solar industry has seen a remarkable increase in investments
Global Investment in Solar
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2001 2002 2003 2004 2005 2006 2007 2008
U.S Investment in Solar
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2001 2002 2003 2004 2005 2006 2007 2008
9
Investments in Solar by Region‐
Cumulative 2004‐2008
Source: New Energy Finance, (2004‐2008)
10
HOW HAVE PAST INVESTMENT TRENDS LAID A FOUNDATION FOR GROWTH‐STAGE PRIVATE EQUITY INVESTING IN SOLAR?
Source: NEF, NREL, FACC, DOE
0
10
20
30
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007
Num
ber o
f Rou
nds
Year
Private Financings in U.S. Solar Value Chain, 2000 ‐ 2007
Seed / Angel Series A / First round Series B / Second round Series C / Third roundSeries D / Fourth round Tech or early spin‐off Bridge/Interim ConvertibleVenture debt/leasing Further / Pre‐IPO round
11
0
10
20
30
40
50
60
70
80
90
$0
$200
$400
$600
$800
$1,000
$1,200
2000
2001
2002
2003
2004
2005
2006
2007
2000
2001
2002
2003
2004
2005
2006
2007
2000
2001
2002
2003
2004
2005
2006
2007
Asia EU* US**
Num
ber of Transactions
($ in
millions)
Region / Year
Global Venture Capital and Private Equity Investments by Solar Technology
Thin Film PVSolar Heating & CoolingProject DeveloperPolysiliconOtherNext Generation PVMultijunctionManufacturing EquipmentInvertersCSPCrystalline Silicon PVCPVNumber of Transactions
Source: NEF, NREL, FACC, DOE*EU includes Israel, Morocco, & South Africa **U.S. includes Australia and Canada
WHAT TECHNOLOGIES HAVE BEEN PREPARED FOR GROWTH‐STAGE PRIVATE EQUITY INVESTING IN SOLAR?
12
WHAT ARE THE DIFFERENT TYPES OF PV SYSTEMS AND HOW DO THEY COMPETE IN THE MARKET?
System Type Flat Plate:Crystalline Silicon
Flat Plate:Thin Film
Flexible:Thin Film
High Concentration
PV (HCPV)
Advantages •
Higher efficiency lower BOS costs & high kWh/M2
•
Enjoy economies of scale
from mass production•
Longer demonstrated
performance in field
•
Lower manufacturing
costs higher margins and/or pricing power•
Further room to improve
performance/cost
•
Lower total system costs
by eliminating BOS
equipment, install steps•
Higher kWh/M2
for
utility‐scale systems due to
no need for “spacing”
•
MAYBE lower $/kWh for
utility‐scale systems in high
solar resource areas•
Leverage lower costs of
non‐cell components to
reduce CAPEX costs
Disadvantages •
Higher manufacturing
costs across supply chain•
Limited differentiation commodity price risk
•
Lower efficiency higher BOS costs & low kWh/M2
•
Reliability concerns due
to shorter demonstrated
field performance
•
Lower kWh/M2
for C&I
rooftop customers•Reliability concerns due to
shorter demonstrated field
performance
•
N/A beyond markets with
high solar resource w/o
major cost reduction•
Limited history questions on energy yield
Electricity Cost (2007) ~$.14‐21/kWh ~$.11‐18/kWh ~$.14‐21/kWh * Limited commercial data
Best End‐Use Markets • Residential, C&I Rooftop•
Utility‐scale in high solar
resource areas
•
Utility‐scale in lower solar
resource areas• C&I Rooftop• Utility‐scale in all areas
•
Utility‐scale in high solar
resource areas
Market Share (All‐2007) 89.7% (Est.) 8.2% (Est.) ~2% (Est.) ~0.1% (Est.)
13
CUMULATIVE INSTALLED SOLAR GENERATION CAPACITY
Source: US DOE, Renewable Energy Data Book (September 2008)
0
2,000
4,000
6,000
8,000
10,000
12,000
2000 2001 2002 2003 2004 2005 2006
Global Nameplate Capacity (MW)
CSP PV
CAGR: CS
P –0.0
%; PV – 3
3.2%
0
200
400
600
800
1,000
1,200
1,400
2000 2001 2002 2003 2004 2005 2006 2007
U.S. Nameplate Capacity (MW)
CSP PV
CAGR
: CSP –
2.44%
; PV – 3
0.04%
14
Positive Trends for Overall SectorClear path to grid parity: Improving technologies and decreasing costs bringing PV into parity with retail and wholesale prices, especially as fuel/plant costs increase conventional prices.
Scaling of production creating economies of scale: Manufacturers will exploit equipment/material price declines and pass on savings todownstream customers as buyer power increases with supply.
Quick source of new generating capacity: Because PV plants can be built in 6‐12 months, can address new demand quickly.
Stabilization of U.S. policy environment:With extension of federal solar tax credits for 8 years, business planning is more certain.
Dislocations Creating Investing OpportunityProject finance shortage is creating dislocations: Downstream companies without access will have to sell franchises/projects.
Capital shortfalls for supply chain expansion:M&A opportunities will emerge in supply chain as growth plans can’t be met alone.
Varying margin contraction in supply chain: Different companies will experience liquidity/margin contraction due to specific contractual situations – yielding buying or M&A opportunities.
Pricing power is shifting downstream: Project developers will be able to purchase equipment at lower prices as supply “catches up” with subsidies and distribution channels.
Market segmentation emerging: Companies with technology solutions that show best “fit” with end‐use applications or geographies will grow faster as buyer discrimination improves.
New markets emerging: As subsidy‐driven markets in Europe reach saturation, U.S. and non‐EU markets will become “clearing” markets for PV – yielding opportunity to position downstream companies to lead.
WHAT ARE THE KEY MARKET TRENDS THAT WILL IMPACT INVESTMENTS IN THE PV SECTOR DURING 2008‐2012?
Sources: DOE Solar Energy Technologies Program, EIA
15
New Devices and ProcessesGeorgia Institute of Technology
University of DelawareNorth Carolina State University
MITCalTech
Arizona StateUniversity of ToledoUniversity of FloridaPennsylvania State
National Labs
Prototype Design and Pilot Production
AdventSolfocusSolariaSuniva
CalisolarBlue SquareSolopowerNanosolarSolyndraMiasole
Global SolarPrimeStarKonarka
InnovalightStion
Systems Development and Manufacturing
First SolarSunPowerBP Solar
SolarWorldBoeing (Spectrolab)
UnisolarEvergreen
GE
U.S. Participants in PV Technology Maturation Cycle*
*Partial List
Company
Stage
Technology
DevelopmentDemo Plant
Business
Strategy
First
Commercial
Plant
Portfolio
Project
Finance
Company
ExpansionPilot Plant
16
Market Scale for PV/Clean Tech
•
The largest renewable energy companies still have substantial room to grow before challenging
the incumbent energy players
Source: 8 October, 2008, Bloomberg
$1.1B
$106B
$4.6B
$109B
$6.1B
$119B
$10.2B
$150B
$12.5B
$305B
$12.6B
$400B
$0B
$50B
$100B
$150B
$200B
$250B
$300B
$350B
$400B
$450B
Clean Energy Traditional Energy
Market Cap
17
The cycle of innovation of PV Technology is one that follows atraditional path from concept to prototype to pilot production to manufacturing
The current interest in Solar Technology has an investment cycle which infuses capital in several segments, the scale depending on the maturity of the innovation
Solar market growth continues at an aggressive pace, as does the capital invested
Investment success stories have emerged in the last five years
Summary and Conclusions
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