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