SOLAR ENERGYResearch Brief

Sustainable Industry Classification System™ (SICS™) #RR0102

Research Briefing Prepared by the

Sustainability Accounting Standards Board®

December 2015

www.sasb.org© 2015 SASB™

I N D U S T R Y B R I E F | S O L A R E N E R G Y

SOLAR ENERGY

Research Brief SASB’s Industry Brief provides evidence for the disclosure topics in the Solar Energy industry. The brief

opens with a summary of the industry, including relevant legislative and regulatory trends and

sustainability risks and opportunities. Following this, evidence for each disclosure topic (in the categories

of Environment, Social Capital, Human Capital, Business Model and Innovation, and Leadership and

Governance) is presented. SASB’s Industry Brief can be used to understand the data underlying SASB

Sustainability Accounting Standards. For accounting metrics and disclosure guidance, please see SASB’s

Sustainability Accounting Standards. For information about the legal basis for SASB and SASB’s

standards development process, please see the Conceptual Framework.

SASB identifies the minimum set of disclosure topics likely to constitute material information for

companies within a given industry. However, the final determination of materiality is the onus of the

company.

Related Documents

• Solar Energy Sustainability Accounting Standards

• Industry Working Group Participants

• SASB Conceptual Framework

INDUSTRY LEAD

Henrik R. Cotran

CONTRIBUTORS

Andrew Collins

Bryan Esterly

Anton Gorodniuk

Jerome Lavigne-Delville

Nashat Moin

Himani Phadke

Arturo Rodriguez

Jean Rogers

Quinn Underriner

Gabriella Vozza

SASB, Sustainability Accounting Standards Board, the SASB logo, SICS, Sustainable Industry

Classification System, Accounting for a Sustainable Future, and Materiality Map are trademarks and

service marks of the Sustainability Accounting Standards Board.

Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Industry Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Legislative and Regulatory Trends in the Solar Energy Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Sustainability-Related Risks and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Energy Management in Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Water Management in Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Hazardous Materials Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Community & Ecological Impacts of Project Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Business Model and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Management of Energy Infrastructure Integration & Related Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Product Lifecycle Environmental Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Leadership and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Materials Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

SASB Industry Watch List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Appendix

Representative Companies : Appendix I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Evidence for Sustainability Disclosure Topics : Appendix IIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Evidence of Financial Impact for Sustainability Disclosure : Appendix IIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Sustainability Accounting Metrics : Appendix III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Analysis of SEC Disclosures : Appendix IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

References

I N D U S T R Y B R I E F | S O L A R E N E R G Y

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 1

INTRODUCTION

Though the Solar Energy industry is experiencing

rapid growth, it is still a nascent industry in the

worldwide energy sector. The intermittent nature

of solar energy means that until storage

technology evolves significantly solar energy

systems will have to exist in conjunction with

other energy sources.

This industry, like all industries in the energy

generation sector, has received significant

government support for years. While solar energy

has historically been more expensive than fossil

fuel energy, there are regions of the world where

solar energy is cost competitive, thanks to

technological innovations, cost reductions, and

the limitations of conventional energy sources.

However, the industry will need to continue its

rapid pace of innovation and cost reductions,

while minimizing environmental and social

concerns, to continue to maintain its

governmental and societal license to operate to

become a leading source of energy.

The public is increasingly concerned about the

environmental, health, and community impacts of

energy generation. Solar energy’s major

advantage over other conventional energy sources

(e.g., coal) is that it does not produce greenhouse

gases (GHGs) or air pollutants during operation.

But there are still competing renewable sources of

energy generation, and the industry needs to

address societal concerns to maintain its license to

operate (e.g., effluents created during

manufacturing, and the environmental and social

impacts of sourcing materials such as

neodymium).

Management (or mismanagement) of certain

sustainability issues, therefore, has the potential

to affect company valuation through impacts on

profits, assets, liabilities, and cost of capital.

Investors would obtain a more holistic and

comparable view of performance with solar

energy companies reporting metrics on the

material sustainability risks and opportunities that

could affect value in the near and long term in

their regulatory filings. This would include both

positive and negative externalities, and the non-

financial forms of capital that the industry relies

on for value creation.

Specifically, performance on the following

sustainability issues will drive competitiveness

within the Solar Energy industry:

• Managing energy consumption in the

manufacturing process;

• Ensuring water efficiency and efficient

wastewater disposal at the manufacturing

stage;

SUSTAINABILITY DISCLOSURE TOPICS

ENVIRONMENT

• Energy Management in Manufacturing

• Water Management in Manufacturing

• Hazardous Materials Management

• Community & Ecological Impacts of Project Development

BUSINESS MODEL AND INNOVATION

• Management of Energy Infrastructure Integration & Related Regulations

• Product Lifecycle Environmental Impacts

LEADERSHIP AND GOVERNANCE

• Materials Sourcing

WATCH LIST

• Energy Access Products & Services

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 2

• Managing hazardous materials used

during manufacturing and ensuring safe

handling of hazardous waste;

• Working with stakeholders to minimize

delays in the project permitting process by

addressing community and regulatory

concerns about ecological impacts;

• Driving large-scale adoption and cost-

effective GHG mitigation through

developing new technology and engaging

with policymakers to lower the barriers to

grid integration, as well as investing in

innovations to lower installation and

financing costs;

• Planning for solar panel end-of-life

procedures to ensure a cost-effective and

safe recycling or disposal solution; and

• Managing the sourcing of key inputs to

minimize the cost, supply volatility, and

reputational risk that can come from

manufacturing products that contain

sensitive minerals whose extraction is

associated with negative environmental or

social impacts.

INDUSTRY SUMMARY

The Solar Energy industry comprises companies

that manufacture solar energy equipment, which

includes solar photovoltaic modules, polysilicon

feedstock, solar thermal electricity generation

equipment, solar inverters, and other related

components. The industry also includes

companies that develop, build, and manage solar

energy projects. Some companies are purely

manufacturers, while others are more vertically

integrated into project construction and

I Industry composition is based on the mapping of the Sustainable Industry Classification System (SICSTM) to the Bloomberg Industry Classification System (BICS). A list of representative companies appears in Appendix I. II Solar PV technology is based on solar cells, placed where they will receive a large amount of sunlight, transforming light energy into electricity. CSP, also commonly called concentrated solar

management. Companies may also offer financing

or maintenance services. I

Technology & Market Segments:

At the end of 2014, installed solar power in the

U.S. was 91 percent Solar Photovoltaic (PV) and 9

percent Concentrated Solar Power (CSP).1, II

However, the long lead time in the completion of

solar projects means that the current technology

mix of projects does not match present economic

realities. Polysilicon prices have been volatile over

the course of the past decade, but declined in the

latter half, dropping from a high of $459/kg in Q1

2008 to $15.9/kilogram (kg) in Q3 2015.2 As

silicon is the main component of many types of

solar PV panels, this drop has made the panels

much more cost-competitive than they had been

previously. As a result, CSP is not likely to expand

in the U.S. when projects currently under

construction are fully completed.3, III

Within the industry there are three main markets

for solar panels: residential, commercial and

industrial (also referred to as non-residential), and

utility-scale projects. Residential solar panels are

typically installed on the roof of an individual

property owner or a group of property owners.

Commercial and industrial scale projects are very

similar, except that they are often larger, as they

are providing some or all of the electrical power

for a commercial space or even a factory. For

example, Walmart had 142 megawatts (MW) of

installed solar PV power across its stores in 2015.4

It also worth noting that a forth model,

community solar, is growing in popularity.

Community solar gives homeowners who have

neither the money for a system nor a viable space

thermal, uses mirrors to concentrate and direct sunlight to heat water and create steam, which spins a turbine and generates electricity. III As it seems unlikely that this will change in the short- to medium-term, if at all, the discussion of solar energy in this brief will be focused mainly on solar PV.

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 3

for solar panels a means to lease or purchase a

portion of an offsite solar array. As of November

2015, this model only represented 0.7 percent of

current solar capacity, but it has the potential to

grow significantly.5

Utility-scale projects are meant to provide

electricity to the power grid for a large number of

customers. The countries with the largest utility-

scale solar are, in descending order, China,

Germany, the U.S., Italy, and Spain.6

Smaller commercial and residential systems are

generally more expensive to develop per MW than

utility-scale projects, as they do not have the same

economies of scale. However, these projects are

competing with the retail price of electricity from

the grid, which is much higher than the wholesale

price that utility-scale projects are competing

with. Historically, this has meant that commercial

and residential systems reach price parity with

traditional power generation sources in certain

areas sooner than utility-scale projects. However,

recent decreases in costs and increases in

efficiencies have resulted in price parity for some

utility-scale projects as well.7

Within solar PV there are two main technologies:

crystalline silicon-based solar, and “thin film”

solar. There are two major types of thin film

panels that are currently produced commercially

—copper indium gallium selenide (CIGS) and

cadmium telluride (CdTe). Thin film technologies

represent about seven percent of the global

market, an amount expected to remain steady

through 2019.8 In December 2014, silicon-based

panels had an average conversion ratio of around

16 percent, meaning that 16 percent of the sun’s

energy is converted into electricity. Thin-film

technologies, while generally cheaper, had

average conversion ratios between 12 and 15

percent.9

In December 2014, researchers at University of

New South Wales (UNSW) in Australia set a new

record for the highest solar cell conversion ratio

when they reached 40 percent. However, it is

important to note that this was mostly due to a

new way of focusing sunlight onto existing

commercial solar panels, not a radically different

type of panel.10 Systems with this level of

efficiency are not yet commercially viable, but the

achievement illustrates the as-yet-untapped

potential of solar energy in the coming decades.

Economics:

Solar energy firms had global annual revenues

totaling about $66.2 billion as of September 24,

2015 for the fiscal years reported.11 Of this figure,

73.7 percent came from manufacturing, and the

remaining 26.3 percent came from project

development, based on reported segment

revenues.12 The five biggest firms by revenue that

are publicly traded on U.S. exchanges are, in

order by revenue: First Solar, Canadian Solar,

Trina Solar, Yingli Green Energy, and SunPower

Corporation.

Globally, solar (in particular, solar PV) has been

expanding rapidly, partly due to the cost

reductions mentioned above. In 2009, there were

23 gigawatts (GW) of installed solar PV. By 2014,

this figure rose to 177 GW, with 40 GW installed

over the course of the year. Of this, China

installed 10.6 GW, and Europe as a whole

installed about 88.6 GW.13 In 2014, there was 4.4

GW of installed CSP globally.14

As of Q4 2014, the U.S. had about 18.3 GW of

PV generating capacity and 1.7 GW of CSP

capacity.15 Five years ago, the U.S. had only 1.2

GW of installed PV and 0.4 GW of installed CSP.

While solar energy still represents a small fraction

of total U.S. electrical energy installed capacity—

which was 1,064 GW in 2013—it does account

for a significant portion of new energy projects

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 4

coming online.16 During Q1 and Q2 of 2015, 722

MW of new solar was installed In the U.S. This

figure represented 40 percent of all new

electricity generating capacity in that time

period.17

While some solar panels are manufactured in the

U.S., the majority of manufacturing takes place in

China, with other major manufacturing locations

in the Philippines, Malaysia, and Taiwan.18

Globally, there has been a massive industry

restructuring over the past decade, mostly due to

increased competition from China. Because of its

lower labor costs and massive government

subsidies, the Chinese over saturated the global

solar market with low-cost panels. Allegations

that Chinese and Taiwanese companies were

selling these panels significantly below cost led

the U.S. Department of Commerce to implement

steep tariffs in December 2014. The tariffs on

solar panels manufactured in China range from

26.7 percent to 78.4 percent, while the tariffs on

Taiwanese panels range from 11.4 percent to

27.5 percent. On top of these costs, there is an

anti-subsidy duty for Chinese solar modules.19 The

wide ranges in these rates are due to past pricing

practices of certain companies, like U.S.-listed

Trina Solar, which was subsequently penalized

with higher tariffs.20

Purchases make up for the largest cost segment

of the manufacturing section of this industry,

accounting for 46 percent of revenue for U.S.

companies. Depending on the type of panel being

manufactured, purchases mainly include silicon,

CdTe, and CIGS. Given the previously mentioned

massive drop in silicon prices, purchases as a

percent of total revenue have declined in the past

five years. In the U.S., wages account for the

second highest cost in the manufacturing

segment, at 29.8 percent of company revenue.

Due to the highly skilled nature of the work that

goes into producing these panels, this figure is

nearly three times the average wage for a

manufacturing firm.21

The total cost of an installed solar energy system

includes not just the cost of the panel itself, but

also project development expenses and ‘soft

costs’ (discussed further in the disclosure topics

“Community & Ecological Impacts of Project

Development” and “Management of Energy

Infrastructure Integration & Related Regulations”).

In 2008, an American customer who wanted a

top-of-the-line system would have paid around $7

per watt for installation. That cost dropped to

$3.50 per watt in 2013.22 Researchers at

McKinsey predict that as soft costs decline, those

prices could fall to $1.60 by 2020.23 These trends

mean that firms in this industry will be able to

gain access to a much wider consumer base.

Barriers to entry are high for manufacturers in this

industry—the manufacturing facilities and the

skilled labor needed to operate them require large

upfront costs.24 The industry is moderately

concentrated, with the top three panel-selling

firms in the U.S. making up nearly 77 percent of

the North American market by 2014 revenue. The

top three firms in the Asian market hold roughly

50 percent of that market.25

The industry is experiencing aggressive vertical

integration. For example, in 2014, SolarCity, a

residential and commercial installation company,

purchased the panel manufacturer Silevo.

Through these types of mergers, companies are

trying to offer panels more cheaply on a per

kilowatt-hour basis and streamline the often

complicated solar purchasing process. There is no

generic type of solar company, but in general,

there is an industry-wide move towards a single

firm handling the entire solar manufacturing,

financing, permitting, and installation process, as

well as offering post-sale maintenance services.26

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In 2014, the five representative companies

mentioned earlier (and listed in Appendix I) had

net incomes ranging from 10.05 percent to 11.7

percent. The median net income margin for the

industry, however, is -14.68 percent.27 Although

the industry has seen steady growth over the past

few years, industry-wide margins show that solar

companies are not yet profitable on average. Low

profitability could be due in part to high operating

costs and high capital expenditures on continued

research and development (R&D). Increased

efficiencies in energy and input materials use,

which are discussed later in this brief, are key for

solar companies to remain competitive.28

Downstream demand is affected by the costs of

competing energy sources, the cost and

availability of financing, and the amount of

governmental regulation (the latter two issues are

covered in the following section, Legislative and

Regulatory Trends in the Solar Energy Industry).29

Levelized Costs & Adoption:

The rise of hydraulic fracturing in the U.S. has

driven down domestic prices of natural gas

significantly. The average cost in the U.S. between

2005-2010 was 44 percent higher than the

average cost between 2011 and October 6,

2015.30 This trend has made investment in the

building of natural gas power plants more

appealing to utilities firms, which subsequently

decreases demand for utility-scale solar energy

projects. Globally, especially in emerging markets,

oil and diesel generate a large percentage of

electricity; that means when oil prices are high,

solar is an especially attractive option for

electricity generation. But if the price of oil stays

low, it could damage solar’s expansion in these

areas.31

Total demand for electricity also affects demand

for solar energy components and projects. As it

is highly dependent on population growth,

electricity demand has grown slowly in the U.S. It

is projected to grow with a 0.3 percent

compound average annual growth rate between

2013 and 2030.32 Globally, however, experts

expect high long-term growth in total electricity

demand. The U.S. Energy Information

Administration predicts that world energy

consumption will increase by 56 percent by

2040.33 This represents a significant opportunity

for solar energy firms.

Part of solar’s expansion, particularly in residential

markets, can be attributed to clever financing

systems. These systems opened up the market

beyond the wealthiest consumers who could pay

the entire system’s cost—which is often in the

tens of thousands of dollars—up front. There are

many variations in models, but popular systems of

third-party financing include power purchase

agreements (PPA) and solar leases. In a PPA

model, either the installer or the developer keeps

ownership of the solar module and sells the

electricity to the customer at a pre-determined,

fixed rate. In a solar lease, the customer pays for

system leasing over time, often directly on their

utility bill. Ultimately, both of these systems allow

the customer to avoid the high initial costs that

used to be a large barrier to adoption in this

industry.34

A Deutsche Bank study found that even if the

pivotal Solar Investment Tax Credit currently

benefiting the industry (discussed further in the

following section, Legislative and Regulatory

Trends in the Solar Energy Industry) is reduced

from 30 percent to 10 percent of project

expenditures, rooftop solar will still reach price

parity with conventional energy sources in 36

states by 2016.35

The intermittency of solar is a big barrier to

widespread adoption. Unfortunately for solar

advocates, the sun is not always shining. There

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are many solutions to this problem, but they often

mean that gas-powered generators need to be on

standby to fill gaps in energy needs, a costly

measure. Battery storage systems, as well as wind

energy, are both able to help smooth out the

differences between consumers’ needs and the

sun’s presence, although currently both of these

options are also expensive. Increasing storage

capability and the lifespan of battery technology

will play a crucial role in solar reaching price party

in more parts of the world.36

Levelized cost of energy (LCOE), a commonly used

metric to compare the viability of building utility-

scale energy projects from different sources of

energy, is the per megawatt hour (MWh) total

cost of building and operating a generating plant

over its expected life. This measure captures

everything from cost of materials used to capital

costs to tax breaks.37 Using a calculation from the

Bloomberg terminal, as of Q4 2014 (the latest

period for which data is available), the high-cost

case LCOE for PV c-Si (crystalline silicon) was

$334/MWh, which the low-cost scenario was

$77.8/MWh. For thin film, the high-cost case was

$227.1/MWh and the low-cost scenario was

$80.9/MWh. For reference, at the same time, the

high-cost LCOE for coal was $143.0/MWh and the

low-cost scenario was $31.2/MWh. For nuclear

energy, the high-cost scenario was $257.7/MWh

and the low-cost scenario was $45.6/MWh.38

These figures show that there are certain

scenarios in the future where solar PV could

potentially be the most economical option for

power generation.

Valuation:

This industry is relatively new and has competing,

complex technologies, regulatory uncertainty, and

projects that often have long payback timelines.

IV This section does not purport to contain a comprehensive review of all regulations related to this industry, but is intended to

These factors make the industry particularly tricky

for analysts to value. Traditional metrics like

earnings per share (EPS) or price to earnings ratio

(P/E) are not always helpful in valuing a solar

energy company. Instead, analysts typically

examine the potential earnings before interest,

taxes, depreciation, and amortization (EBITDA) in

a firm's project pipeline, taking into account a

firm's level of indebtedness.39

LEGISLATIVE AND REGULATORY TRENDS IN THE SOLAR ENERGY INDUSTRY

Regulations in the U.S. and abroad represent the

formal boundaries of companies’ operations, and

are often designed to address the social and

environmental externalities that businesses can

create. Beyond formal regulation, industry

practices and self-regulatory efforts act as quasi-

regulation and also form part of the social

contract between business and society. In this

section, SASB provides a brief summary of key

regulations and legislative efforts related to this

industry, focusing on social and environmental

factors. SASB also describes self-regulatory efforts

on the part of the industry, which could serve to

pre-empt further regulation.IV

The Solar Energy industry receives various forms

of direct and indirect governmental subsidies, and

also must adhere to various environmental and

social regulations (e.g., proper disposal of

hazardous waste). The main subsidy fueling the

rapid U.S. expansion of solar energy is the federal

Solar Investment Tax Credit (ITC), which was first

granted in 2006 and since has been extended

through 2016. It provides a 30 percent tax credit

on the value of a residential or a commercial solar

system.40 It is important to note that this credit

highlight some ways in which regulatory trends are impacting the industry.

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 7

goes to the financier in the form of tax equity.

This means that the financier must have a large

federal tax liability to get the benefit of the

federal tax write-off. This has traditionally limited

the types of investors operating in the solar

energy space. After December 31, 2016, this tax

credit is scheduled to shift from 30 percent to 10

percent for commercial solar and third-party

owned residential solar and to zero percent for

residential solar.41 This scheduled drop will likely

cause a spike in demand in 2016, as developers

try to take advantage of the higher credit before

it expires. It is also likely that leading up to this

policy shift, the industry will see a large number

of mergers as companies jockey to remain

competitive.42

In addition to the ITC, other state and federal

polices in the U.S. also support the development

of solar energy. As of October 2015, there were

38 states that offered property tax exemptions,

meaning that a property owner can exclude the

value of a rooftop solar unit from their property

tax evaluation. This lower tax liability makes solar

even more appealing to commercial and

residential users. Twenty-nine states also offer a

sales tax exemption on the purchase of solar

energy systems, further driving down the cost of

adoption.43

Companies in this industry also benefited from

the Advanced Energy Project Credit,V created by

the American Recovery and Reinvestment Act of

2009. It provided a 30 percent tax break for

(among other things) creating solar panel

manufacturing plants, significantly cutting down

building costs.44 The expiration of this credit at

the end of 2013 caused some revenue contraction

for the industry.45

V It is worth noting here, that many of the regulations in this section deal with the renewable energy industry as a whole,

The U.S. federal government also has purchasing

requirements for renewable energy. The Energy

Policy Act of 2005 stated that by 2013, the total

amount of renewable energy purchased by federal

agencies could not be less than 7.5 percent of the

total electricity purchased. This act was updated

by a December 5, 2013 presidential memorandum

that raised the mandate to 10 percent in fiscal

year (FY) 2015, 15 percent in FYs 2016 and 2017,

17.5 percent in FYs 2018 and 2019, and 20

percent in FY 2020 and beyond.46 With $5.8

billion in annual energy costs, the federal

government is the largest utilities customer in the

U.S., making these requirements a significant

driver of national demand for renewable energy.47

Forty states plus the District of Columbia (D.C.)

have Renewables Portfolio Standards (RPS)

requirements, which give all sellers of electricity a

specified percentage of that energy from a

renewable source. Thresholds vary between

states. For example, New York has a quota of 30

percent electricity generated from renewable

sources by 2015, and California has a goal of 33

percent by 2020. In many states, utilities can meet

these requirements by buying a credit that has

been unbundled from the underlying energy,

further facilitating growth in this industry and

generating demand for manufacturing, project

development, and maintenance services.48

Other countries also provide policy support for

renewable energy, and some countries have set

targets for solar installations specifically. In 2007,

the E.U. leadership agreed to obtain 20 percent of

its energy from renewable sources by 2020.49 To

meet these goals, nations make binding yearly

commitments based on their size and wealth.50 It

seems unlikely that the same policy will be

renewed in 2020; instead countries will likely

agree to certain GHG reduction targets, which

meaning they also include other types of energy technologies, like wind, hydroelectric, or geothermal.

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they will be able to meet through actions they

judge to be best for the country. While it is

premature to speculate, this may mean a lower

E.U. demand for renewable energy sources like

solar energy projects, depending upon the

technological advances in the industry at that

time.51

In 2014, China set the ambitious goal of installing

14 GW of solar PV by year’s end, although the

country reportedly fell short by 4 GW. At the start

of 2015, the Chinese National Energy

Administration set a goal of installing 15 GW of

solar in 2015.52 China’s Prime Minister Li Keqiang

also announced the Combating Air Pollution

Action Plan to reduce China’s reliance on coal,

providing a major opportunity for even greater

expansion of China’s renewable energy sectors.53

The aggressiveness of this expansion has been

fueled by the political unpopularity of the

pollution caused by China’s rapid industrialization.

China has placed a policy emphasis on distributed

solar (solar projects not tied to the grid) in rural

parts of the country, offering a subsidy of 0.42

yuan (roughly $0.07) per kWh to help it reach its

goal of 8 GW of distributed solar installed in

2014. However, the country only installed 2.3 GW

that year.54

India launched the Jawaharlal Nehru National

Solar Mission in 2010, which outlined myriad

governmental support policies for the long-term

goal of deploying 20 GW of grid-connected solar

power by 2022. The goal was recently updated to

include 100 GW of solar by 2022.55 This support

comes in the form of government-funded

research and subsidies. For example, in 2014,

India’s Ministry of New and Renewable Energy

(MNRE) provided a 30 percent subsidy for 25 MW

of rooftop solar on governmental buildings,

totaling $26.8 million. In 2014, the department

had a budget of $72 million. However, some of

India’s solar incentive programs have had delayed

payments, which are hindering its growth. For

example, in January 2015 the limited availably of

funds caused the MNRE to lower its rooftop

subsidy from 30 to 15 percent.56

Currently, master limited partnerships (MLPs), a

funding structure that is taxed like a partnership,

but can be publicly traded on U.S. markets, are

only available to non-renewable energy sources

like oil and coal. If the currently stalled MLP Parity

Act eventually passes, solar energy project

developers could gain access to cheaper—and

significantly more—capital by participating in MLP

structures, which will in turn drive down the cost

of solar energy systems.57 Taking advantage of

the previously mentioned ITC requires an investor

to have a significant tax liability, substantially

limiting the benefits of the tax credit to pension

funds and retail investors. Allowing these major

sources of capital to more easily invest in solar

energy projects through structures such as MLPs

could therefore prove to be a boon for the

industry.58

Because they lack this form of financing, both

wind and solar firms have begun to use the

yieldco model. In this structure, a parent company

can create a publicly-traded subsidiary with its

long-term contracted assets, thus divorcing the

steady payments of, for example, a solar project

from a company’s riskier operations, helping it

attract more and cheaper capital. Yieldco models

mimic many of the benefits of the MLP, as they

are structured so that the depreciation on the

assets and costs void all or most of the tax burden

that the generated income would have created.

Then, the earnings are passed on to investors

untaxed (or mostly untaxed), instead of having full

double taxation, with profits taxed at the

corporate and investor level, as is the case in a

traditional corporate structure.59

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Forty-four states and D.C. have some variation of

net-metering laws, which allow commercial and

residential customers to sell their excess electricity

back to the grid. The specifications of these laws

vary widely between states, but in general, they

determine how many excess kilowatts of power

each state will allow to be sold back to the grid.60

Utilities companies oppose these laws, which, in

some places, could be rolled back or eliminated.

Many utilities firms see net metering as a threat to

their revenue streams and as encouraging free-

ridership on the transmission lines they maintain.

To combat this latter problem, some utilities firms

have also suggested a mandatory base rate for all

utilities customers, so that all consumers would

have to pay for the grid’s maintenance.61

As energy typically accounts for a significant

proportion of a low-income household’s

expenditures, some U.S. states have their own

low-income solar energy programs that aim to

bring down energy costs. For example, California

started a program in 2009 called the California

Solar Initiative Single-Family Affordable Solar

Housing (SASH) program. It has a budget of

$108.3 million, which is meant to subsidize the

cost of rooftop solar for those who meet the

program’s income requirements.62

There is some governmental interest in dealing

with potential harm to the environment from

solar equipment, particularly outside the U.S.

Under the E.U. Waste Electrical and Electronic

Equipment (WEEE) directive, PV module recycling

became mandatory for all E.U. members starting

in Q1 2014. Under these rules, the producer (the

definition of which is up to each member country

but often means manufacturer) is financially

responsible for the end-of-life recycling of solar

panels.63

In 2014, China passed the first major update to its

environmental protection laws since 1989. The

update was largely in response to significant

public unrest at the widespread pollution that has

accompanied China’s rapid industrialization. The

new law, approved by China’s National People’s

Congress, went into effect January 1, 2015 and

significantly raised the penalties for pollution

violations. These penalties are company-level fines

that can compound daily until the problem is

dealt with. They also take the form of increased

accountability for managers and local officials,

who can face detention if they are found

responsible for violations.64 Globally, increasingly

stringent environmental laws can have financial

implications for solar panel producers or their

suppliers because of hazardous materials used in

products or their inputs.

Other laws affecting input materials include the

Dodd-Frank Wall Street Reform and Consumer

Protection Act of 2010 and subsequent rules

adopted by the U.S. Securities and Exchange

Commission (SEC). These rules require companies

to publicly disclose any use of “conflict minerals”

if they are “necessary to the functionality or

production of a product” that the company

manufactures, or contracts to have manufactured.

These minerals include tantalum, tin, gold, or

tungsten (3TG) originating in the Democratic

Republic of Congo (DRC) or adjoining countries.

Specifically, the provision requires SEC-registered

companies to determine if they have exposure to

DRC-sourced 3TG; of the four minerals, tin is

most often used in solar panels. Companies that

use these minerals must subsequently report on

the specific source they acquired them from.65

Despite a legal challenge from trade associations,

the U.S. District Court for the District of Columbia

upheld these rules, which required companies to

submit their first filings by June 2, 2014.66

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SUSTAINABILITY-RELATED RISKS AND OPPORTUNITIES

Industry drivers and recent regulations suggest

that traditional value drivers will continue to

impact financial performance. However,

intangible assets such as social, human, and

environmental capitals, company leadership and

governance, and the company’s ability to innovate

to address these issues are likely to increasingly

contribute to financial and business value.

Broad industry trends and characteristics are

driving the importance of sustainability

performance in the Solar Energy industry:

Broad industry trends and characteristics are

driving the importance of sustainability

performance in the Solar Energy industry:

• Regulatory support and “clean”

reputation: The Solar Energy industry

currently benefits from an extensive social

license to operate. The industry also

receives significant governmental

assistance, generally with the

understanding that solar technologies will

lower GHG emissions. It is also

understood that they are less damaging

to human health and the environment

than traditional sources of energy.

However, the industry also has the

potential to create negative social and

environmental externalities. For example,

if solar energy companies do not

adequately manage the waste generated

during the manufacturing or the sourcing

of their inputs to minimize negative

environmental and social impacts, public

sentiment could turn against this industry.

As a result, the industry could lose vital

subsidies, or companies could face

difficulties with obtaining permits and

winning new consumers.

• Expectations of GHG mitigation: Solar

Energy has the potential to significantly

reduce the negative environmental

externalities associated with traditional

sources of electricity generation. While

the costs of solar have come down in the

past few years, solar energy remains a

relatively expensive means of reducing

GHG emissions globally. Continued

innovation in the Solar Energy industry,

especially related to new business models,

new forms of financing, more efficient

manufacturing and installation, and the

integration of new technologies like

electricity storage, is therefore necessary

to continue to drive down the cost of

solar. Furthermore, the industry needs to

work with regulators and utilities to

manage the difficulties of grid integration

as the technology grows.

As described above, the regulatory and legislative

environment surrounding the Solar Energy

industry emphasizes the importance of

sustainability management and performance.

Specifically, recent trends suggest a regulatory

emphasis on environmental protection, which will

serve to align the interests of society with those

of investors.

The following section provides a brief description

of each sustainability issue that is likely to have

material financial implications for companies in

the Solar Energy industry. This includes an

explanation of how the issue could impact

valuation and evidence of actual financial impact.

Further information on the nature of the value

impact, based on SASB’s research and analysis, is

provided in Appendix IIA and IIB.

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Appendix IIA also provides a summary of the

evidence of investor interest in the issues. This is

based on a systematic analysis of companies’ 10-K

and 20-F filings, shareholder resolutions, and

other public documents, which highlights the

frequency with which each topic is discussed in

these documents. The evidence of interest is also

based on the results of consultation with experts

participating in an industry working group (IWG)

convened by SASB. The IWG results represent the

perspective of a balanced group of stakeholders,

including corporations, investors or market

participants, and public interest intermediaries.

The industry-specific sustainability disclosure

topics and metrics identified in this brief are the

result of a year-long standards development

process, which takes into account the

aforementioned evidence of interest, evidence of

financial impact discussed in detail in this brief,

inputs from a 90-day public comment period, and

additional inputs from conversations with industry

or issue experts.

A summary of the recommended disclosure

framework and accounting metrics appears in

Appendix III. The complete SASB standards for the

industry, including technical protocols, can be

downloaded from www.sasb.org. Finally,

Appendix IV provides an analysis of the quality of

current disclosure on these issues in SEC filings by

the leading companies in the industry.

ENVIRONMENT

The environmental dimension of sustainability

includes corporate impacts on the environment.

This could be through the use of natural resources

as inputs to the factors of production (e.g., water,

minerals, ecosystems, and biodiversity) or

environmental externalities and harmful releases

in the environment, such as air and water

pollution, waste disposal, and GHG emissions.

The Solar Energy industry uses large amounts of

energy inputs to create its products and has

significant water requirements at the

manufacturing stage. Decreasing energy usage in

manufacturing will not only raise companies’

margins, but also bolster the industry’s reputation

for lower environmental impact. Solar energy

firms must be careful to properly dispose of the

hazardous waste byproducts of the manufacturing

process to maintain positive public relations,

minimize abatement cost impacts, and keep

governmental subsidies intact. For companies

involved in project development, it is important to

a have a robust stakeholder engagement and

project siting process to minimize ecological and

social damages and to avoid costly delays.

Energy Management in Manufacturing

Many elements of the solar panels manufacturing

process are highly energy intensive. These

elements include unlaminated plastic film and

sheet manufacturing, which require significant

electricity, which is typically purchased from the

grid.

Fossil fuel-based energy production and

consumption contribute to significant

environmental impacts, including climate change

and pollution. Sustainability factors (such as GHG

emissions pricing, incentives for energy efficiency,

and renewable energy) and risks associated with

nuclear energy and its increasingly limited license

to operate, are leading to a rise in the cost of

conventional energy sources. At the same time,

these factors are making alternative sources cost-

competitive. Therefore, it is becoming even more

important for companies in energy-intensive

industries to manage overall energy efficiency,

reliance on different types of energy, and

associated risks.

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Purchased electricity consumption, although

unlikely to create direct regulatory risks for solar

energy companies from Scope 2 GHG emissions

could have a significant impact on company value

through increases in production costs. Firms that

can minimize their energy costs through effective

energy management can gain a significant

competitive advantage, thanks to the low margins

of solar energy companies, as well as the intense

price competition the industry is currently facing.

For solar energy companies, there is the additional

reputational benefit of lowering energy payback

time, i.e., the amount of time it takes a panel to

produce the energy it took to manufacture it.

The most energy-intensive part of the

manufacturing process involves purifying and

crystallizing silicon, cutting silicon into wafers,

and the general overhead energy use of the

factory. Thin film technology has lower energy

requirements, as it does not require the energy-

intensive silicon purifying process. It is one of the

main factors that contributes to thin film’s relative

cheapness.67 Company performance in this area

can be analyzed in a cost-beneficial way through

the following direct or indirect performance

metrics (see Appendix III for metrics with their full

detail):

• Total energy consumed, percentage grid

electricity, percentage renewable.

Evidence

Energy represents a significant proportion of cost

in this industry. In semiconductor manufacturing,

an integral component of making solar panels,

4.18 percent of the total cost of materials comes

from purchased electricity.68 In the flat glass-

manufacturing segment of this industry, 8.49

percent of the total cost comes from purchased

electricity. For nonlaminated plastics film and

sheet manufacturing, another major segment of

panel manufacturing, 3.54 percent of the total

cost comes from purchased electricity.69 Energy

efficiency can therefore contribute significantly to

cost savings.

In its FY 2014 Form 20-F, Jinko Solar discloses the

business risk that electricity cost fluctuations can

have: “We consume a significant amount of

electricity in our operations. Electricity prices in

China have increased in the past few years and

are expected to continue to increase in the

future.” (…) “We cannot assure you that there

will not be disruptions or shortages in our

electricity supply or that there will be sufficient

electricity available to us to meet our future

requirements. Increases in electricity costs,

shortages or disruptions in electricity supply may

significantly disrupt our normal operations, cause

us to incur additional costs and adversely affect

our profitability.”70 Similarly, in its FY 2014 Form

10-K, Yingli Green disclosed that “Even if we had

access to reliable electricity sources, since our

manufacturing processes consume substantial

amounts of electricity, any significant increase in

the price we pay for electricity could adversely

affect our profitability. If electricity and other

energy costs were to increase, our business,

financial condition, results of operations or

liquidity position could be materially and adversely

affected.“71

Recognizing these risks and opportunities for cost

savings, solar energy companies are implementing

energy efficiency projects. Between 2008 and

2013, SunPower invested $253,470 in energy-

saving, emissions-reducing projects. The company

predicts that efficiency increases through these

projects, such as not running its chiller unit during

cold weather and replacing water filters more

often to make process water cooling more

efficient, will save the company roughly $2.17

million annually moving forward.72 This figure

represents roughly one percent of SunPower’s

2013 net income before extraordinary items.73

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Between 2009 and 2013, First Solar saw a 15

percent decrease in energy intensity in its

manufacturing process, dropping from 0.34 kWh

per watt produced to 0.29 kWh per watt

produced, saving the company money.74

There is a significant amount of variability in

energy intensity between the main solar

technology types. In general, thin film

technologies tend to be much less energy

intensive than silicon-based technologies. For

example, a 2014 study using data from 2011

found that in sunny southern Italy silicon

technologies have an energy payback period of

between a little over a year to a year and three-

quarters; thin-film technologies have a payback

range under a year. In Germany, which generally

is more overcast and has fewer solar resources,

these payback periods rise to between two and

nearly three-and-a-half years for silicon-based

technologies. For thin-film technologies, the

period rises to slightly over one year up to roughly

a year and three-quarters.75 This lower energy

intensity is a significant factor in thin film’s

cheapness as a technology. Companies like First

Solar use this short energy payback period as a

selling point for environmentally conscious

consumers.76

Country-level energy and environmental standards

are also an important factor in determining

energy payback time. A 2014 study by

Northwestern University and the Argonne

National Laboratory compared silicon solar panel

payback time between panels manufactured in

Europe and panels made in China. They found

that Chinese panels had a 20 to 30 percent longer

energy payback period. This discrepancy is due to

China’s less stringent and less-enforced

environmental and efficiency standards, as well as

China’s greater reliance on coal and other less

efficient sources of electricity. However, this gap

is likely to narrow over time as Chinese regulation

gets stricter.77

Value Impact

Effective energy management can have ongoing

impacts on company value and operating costs

through continuing reductions in energy use. In

the face of rising energy costs, manufacturers that

develop more energy efficient methods of

production can benefit from significant cost

reductions and gain competitive advantage. There

could be one-time effects on cash flows through

capital expenditures for energy-related projects.

Companies can also reduce the operational risks

that stem from fluctuations in fossil fuel-based

and grid-related electricity prices, particularly if

they implement on-site energy production from

their own solar panels or other alternative sources

of energy.

The reduction of energy consumption will also

strengthen the solar industry’s claim that it

produces a more sustainable source of energy.

This joint benefit of cost reduction and enhanced

reputation will allow successful firms to gain

market share.

The probability and magnitude of impacts from

this issue are likely to increase over time as energy

costs continue to rise.

Disclosure on total energy consumed provides

analysts with the ability to assess improvements in

company performance over time and, when

normalized, can provide a comparative measure

of energy efficiency. The percentage of a

company’s energy coming from grid electricity

indicates its exposure to electricity price increases,

as utilities internalize the costs of carbon pollution

(for example, through new GHG mitigation

regulations). In developing economies that may

not have stable grid infrastructure it can also

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 14

indicate risks related to grid outages. Disclosure

on the percentage of renewable energy used

indicates how well a company is positioned to

capture possible cost savings and ensure stable

energy prices from the use of renewables.

(Renewable energy can be obtained through long-

term power purchase agreements that allow for

stability in prices paid for electricity).

Water Management in Manufacturing

Solar PV panel manufacturing can be water-

intensive. Ultra-pure water is a critical input in

some processes to prevent trace molecules from

affecting product quality. The manufacturing

process can also generate high volumes of

contaminated wastewater, which must be treated

before disposal or reuse. Wastewater treatment

and disposal can result in high operating costs

and additional capital expenditures. The

contamination of local water resources is a risk in

some regions, especially where environmental

regulation is less strict. Contamination can

generate tension with local water users,

potentially disrupting manufacturing operations,

and impacting brand value.

In addition to water contamination, solar

manufacturing facilities may, depending on their

location, be exposed to the risk of reduced water

availability and related cost increases or

operational disruption, as water is becoming a

scarce resource around the world. This scarcity is

due to increasing consumption from population

growth and rapid urbanization, and reduced

supplies resulting from the effects of climate

change. Furthermore, water pollution in

developing countries makes available water

supplies unusable or expensive to treat.

Based on recent trends, experts estimate that by

2025, important river basins in the U.S., Mexico,

Western Europe, China, India, and Africa will face

severe water problems as demand overtakes

renewable supplies. Many important river basins

are already considered “stressed.”73 Water

scarcity can result in higher supply costs, supply

disruptions, and social tensions.

As a result, solar energy companies’ management

of water and waste—in terms of efficiency,

reducing or replacing the use of hazardous

materials in the manufacturing process,

investments in treatment, reuse, and recycling

systems, and the water-related risks of specific

manufacturing locations—is likely to impact

profitability directly. In the context of evolving

environmental regulations in the U.S. and abroad,

companies would benefit from managing water

and related waste actively, not only for U.S.

operations, but also for global operations under

their control.

Companies can adopt various strategies to

address water supply and treatment issues, such

as recycling process water, improving production

techniques to lower water intensity, and installing

water treatment systems to preempt more

stringent water effluent regulation. Company

performance in this area can be analyzed in a

cost-beneficial way through the following direct

or indirect performance metrics (see Appendix III

for metrics with their full detail):

• Total water withdrawn and total water

consumed, percentage of each in regions

with High or Extremely High Baseline

Water Stress; and

• Discussion of water management risks

and description of strategies and practices

to mitigate those risks.

Evidence

Companies that focus on water efficiency will

lower their risk profile against future price and

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availability fluctuations. In its FY 2014 Form 20-F,

JA Solar disclosed that, “We consume a

significant amount of electrical power and water

in our production of solar power products.”78

Companies that focus on water efficiency will

lower their risk profile and protect themselves

against future price and availability fluctuations.

Silicon-based PV uses significantly more water

than thin-film solar, as silicon requires large

amounts of high purity cooling water. Silicon-

based PV manufacturing requires 502

gallons/MWh, while thin-film-based PV requires

only 211 gallons/MWh.79 Roughly 90 percent of

the water is used in the manufacturing of the

panels; the rest is used for cleaning.80

In its FY 2014 Form 10-K, SunPower discloses the

risk climate change could pose to its operations,

particularly related to water cost and availability.

“The potential physical impacts of climate change

on our operations may include changes in

weather patterns (including floods, tsunamis,

drought and rainfall levels), water availability,

storm patterns and intensities, and temperature

levels. These potential physical effects may

adversely affect the cost, production, sales and

financial performance of our operations.”81

Similarly, in its FY2014 10-K, First Solar, disclosed

that the availability of water is a pivotal part of a

project’s success. “Successful completion of a

particular project may be adversely affected,

delayed and/or rendered infeasible by numerous

factors, including: […] water shortages.”82

Through measures including the renovation of a

plant sewage station, Canadian Solar, nearly

doubled the percentage of water reused and

recycled at its Chinese factories, from 31 percent

in 2012 to 59 percent in 2014.83 Through

increased investment in wastewater treatment

and recycling infrastructure, along with an

increased focus on minimizing water usage, Trina

Solar reduced its water consumption 43.7 percent

between 2010 and 2014, from 3,529 tons/MW to

1,987 tons/MW.84

SunPower also made significant reductions in its

2014 water use; it installed an efficient reverse

osmosis system that will save the company 450

million gallons of fresh water per year. The

company will save another 114,000 gallons

annually through the reclamation of water during

its final panel rising process to reprocess into

deionized water.85

Value Impact

Managing water consumption and discharge can

influence the operational risks companies face.

Higher water prices or shortages can directly

affect the solar energy companies’ operating

costs. Limits on water consumption could force

companies to curb or cease production, which

would impact market share and revenue growth.

Companies’ capital costs may increase as they

invest in new, more water efficient, systems.

Water intensity, particularly in regions with water

scarcity, could lead to community pushback,

affecting a company’s license to operate. This

impact can increase a company’s risk profile and

ultimately its cost of capital.

Over time, water costs are gradually expected to

rise. These increases are the result of human

consumption rising with higher standards of

living, existing sources becoming unfit for use due

to pollution, and variations in precipitation

patterns due to climate change. Therefore, the

probability and magnitude of the impact of water

management on financial results in this industry

are likely to increase in the near term.

To understand the relative operational risks

companies face, investors can compare data on

the percentage of water consumed in water-

stressed regions. Companies that strategically

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invest to lower their water usage and ensure

proper investment for treatment of wastewater

are less exposed to the related risks than

companies who do not address these issues.

Hazardous Materials Management

The manufacturing of solar panels involves the

use of hazardous chemicals, which can cause

human health and environmental damage if they

are not properly managed. Most of these

chemicals are used in the cleaning of the

semiconductor surface. This entails the use of the

chemicals hydrochloric acid, sulfuric acid, nitric,

hydrogen fluoride, 1,1,1-trichloroethane, and

acetone.86 Thin-film technology uses toxic

substances such as cadmium, gallium arsenide,

and CIGS, which require careful handling during

the manufacturing process.87 Fugitive dust

particles of these metals can become airborne and

are harmful if inhaled, potentially causing lung

diseases such as silicosis.88

With the industry scaling as quickly as it has over

the past five years, handling hazardous materials

will be increasingly important to maintaining its

reputation as a method of producing clean

energy. Failure to recycle, reduce the use of, or

safely store and dispose of hazardous materials,

could result in fines and/or loss of customers at

the company level. These failures could also result

in protests from affected local communities,

disrupting operations or impairing assets.

Company performance in this area can be

analyzed in a cost-beneficial way through the

following direct or indirect performance metrics

(see Appendix III for metrics with their full detail):

• Amount of hazardous waste, percentage

recycled; and

• Number and aggregate quantity of

reportable spills, quantity recovered.

Evidence

California state records show that the waste

output of just 17 of the 44 solar manufacturers

with facilities in the state included 46.5 million

pounds of sludge and contaminated water

between 2007 and Q2 2011.89 This figure gives a

sense of the scale of the waste companies need to

handle and dispose of.

Major companies acknowledge the significant

waste generated by the industry, as well as the

fact that they need to handle hazardous materials

effectively in order to minimize regulatory risks

and materials management costs. In its FY 2014

Form 20-F, Canadian Solar discloses that it

“generate[s] material levels of […] wastewater,

gaseous wastes and other industrial waste” in its

business operations.90 Similarly, in its FY 2014

Form 10-K, First Solar discloses regulatory risks

related to the use, handling, generation,

processing, storage, transportation, and disposal

of hazardous materials. “Our environmental

compliance burden will continue to increase both

in terms of magnitude and complexity. We have

incurred and will continue to incur significant

costs and capital expenditures in complying with

these laws and regulations.”91 Trina Solar, in its

FY 2014 Form 20-F, specifically notes the risks

associated with working with “the highly volatile

and highly toxic substance silicon-tetrachloride.”92

Illegal waste disposal can result in governmental

fines. In 2012, the Taiwanese Environmental

Protection Agency fined Taiwan-based solar

module manufacturing firm Neo Solar Power

roughly $115,000 for the illegal disposal of

hazardous chemical byproducts that were used to

clean silicon wafers.93 This type of fine could also

hurt the company’s chances of renewing

contracts with customers that want to distance

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themselves from the damaging reputational

effect.

The way in which companies handle waste

disposal is also intricately linked to their license to

operate in a community. Jinko Solar has been

accused of dumping toxic chemicals into a river in

the Zhejiang province of China. After a significant

number of dead fish were discovered in a nearby

river, 500 villagers staged a protest, breaking into

one of the company’s factories and destroying

property. Community outrage has brought about

the closure of the plant.94 In the five days

following the closure, Jinko Solar’s stock price

dropped roughly 40 percent, or $100 million in

lost shareholder value.95 With the newly

strengthened antipollution laws in China (noted in

the Legislative and Regulatory Trends section), as

well as increasing community pushback against

polluting factories, the potential financial

consequences of these violations are high.96

Companies with strong management of

hazardous materials can lower their operational

costs and in turn generate higher margins.

Between 2009 and 2013, First Solar reduced the

amount of hazardous waste that it produced by

30 percent. While some of this reduction is due to

the closing of a German manufacturing facility,

the company attributes part of the decline to an

increased emphasis on internal waste

minimization projects.97

In its 2014 CSR report, Canadian Solar discussed

several of its efforts to reduce the use of

hazardous chemicals in its manufacturing process.

For example, in 2014 it totally removed chromium

trioxide, a toxic chemical, from its production

process.98

Value Impact

Hazardous materials management can influence

the operational efficiency and cost structure of

solar energy companies. Companies that fail to

reduce or properly manage hazardous materials

are likely to face higher costs associated with

regulatory compliance and with the handling or

disposal of hazardous materials (operating and/or

capital expenditures) compared to their peers.

Additionally, solar companies that manage the

issue poorly may face reputational damage and/or

hurt their brand value if their products do not live

up to their environmentally beneficial reputation.

This kind of damage impacts intangible assets and

jeopardizes future governmental policy support,

potentially affecting long-term growth. In the

short-term, community protests that disrupt

production or result in asset impairments due to

plant shut downs could have acute impacts. Such

disruptions could increase a company’s cost of

capital due to a higher risk premium.

As environmental regulation becomes more

stringent globally, especially in China, the

probability and magnitude of the impact of

hazardous materials management on company

value will likely increase.

The quantity of hazardous waste generated and

the percentage recycled, as well as the number

and aggregate quantity of reportable spill and the

quantity recovered, gives insight into a company’s

likelihood of regulatory fines and remedial action,

as well as ongoing operational costs and capital

expenditures related to waste abatement.

Community & Ecological Impacts of Project Development

Many large, publicly-listed solar energy companies

are involved in project development, including the

evaluation and acquisition of land rights, site

permitting, and engagement with stakeholders.

Successful development is contingent upon

securing the approval of environmental permits as

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well as permission from local governments and

communities. Siting of medium or large solar

installations in ecologically sensitive areas,

including endangered species habitats, can render

environmental permitting more difficult and

costly. Project development may also be affected

by local land-use laws and community opposition

to projects due to their environmental and

community impacts, like noise and threatened

property values. These factors can slow or disrupt

the project development process, potentially

resulting in higher costs, lost revenues, or

impaired project assets. It is worth noting that

most residential and commercial solar PV are on

rooftops, and therefore face relatively little land-

use related opposition.

Companies with robust strategies for

environmental impact assessment and mitigation

and community engagement can reduce the risk

of project delays, increasing the likelihood of

successful project completion. Company

performance in this area can be analyzed in a

cost-beneficial way through the following direct

or indirect performance metrics (see Appendix III

for metrics with their full detail):

• Project development asset impairments

associated with community or ecological

impacts; and

• Description of efforts in solar energy

system project development to address

community and ecological impacts.

Evidence

Utility-scale solar projects have land use

requirements between 3.5 and 10 acres per

megawatt.99 If improperly sited, the scale of these

projects means that they can disturb local wildlife.

Companies can minimize their impacts on local

land if they build their facilities in areas of lower

quality for other types of uses, such as

brownfields,100 old mining land, or land already

being used for electricity transmission.101 Solar

energy companies in the project development

space must balance the technical siting needs of

the panels, like solar resources and proximity to

transmission lines, with the potential impacts on

the environment and the surrounding

communities. Companies that fail to do so can

face costly setbacks.

The environmental review process for a proposed

utility-scale solar project located on public land—

which contains a significant amount of U.S. solar

resources—can take three to five years. As part of

that process, the U.S. Bureau of Land

Management (BLM), along with state and local

authorities, organizes public hearings, and

completes a comprehensive Environmental Impact

Statement.102 After companies choose a location,

they need to counter local concerns by effectively

conveying the benefits of the plant to the local

economy and environment.

In its Form FY 2014 20-F, JA Solar discloses the

difficultly and risk that stem from environmental

and community concerns associated with solar

project development: “Developing and

completing a particular project face various risks

and uncertainties, including without limitation to

the following: Failure to secure and receive

required governmental permits, licenses and

approvals, such as land use rights, construction

permits and approvals and satisfactory

environmental assessments; potential challenges

from local residents, environmental organizations,

and others who may not support the project

[emphasis added].”103 Similarly, in its FY 2014

Form 10-K, First Solar notes that “… regulatory

agencies, local communities, labor unions or other

third parties may delay, prevent, or increase the

cost of construction and operation of the PV

plants we intend to build.”104 In response to this,

SunPower wrote that “The Company examines a

number of factors to determine if the project will

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be profitable, including whether there are any

environmental, ecological, permitting, or

regulatory conditions that have changed for the

project since the start of development.”105 It

further stated that “if we are unable to complete

the development of a solar power project, we

may write-down or write-off some or all of these

capitalized investments, which would have an

adverse impact on our net income in the period in

which the loss is recognized.”106

The Soda Mountain Project, initially proposed by

the privately held Bechtel Corporation as a 2,557

acre, 358 MW PV plant near the Mojave National

Preserve in southern California, has faced

considerable pushback from environmental

groups, including the National Parks Conservation

Association. Many groups argued that the project

was likely to harm desert wildlife (e.g., the

project’s placement would block the migration

route of bighorn sheep).107 Three years after the

project was proposed, the BLM submitted its

official environmental impact statement,

recommending that the plant be shrunk by

roughly a quarter to 1,923 acres and 264 MW.108

In a further blow to the project, the city of Los

Angeles, which Bechtel had hoped would buy the

majority of the power it generated, decided not

sign a power purchase agreement. The city was

concerned about the project’s effect on local

wildlife.109 Aside from its close proximity to the

Mojave National Preserve, this location would

have made economic sense: it is in a very sunny,

flat area near a major transmission line with a

service area that includes 3.9 million people.110

On a smaller scale, a two acre solar array in

Hartford, Connecticut faced significant

community opposition due to concerns over harm

to the local wildlife and the effect the

construction might have on property values. The

legal delays brought on by the community’s

concerns caused a subcontractor to demand a

$13,222 reimbursement. Furthermore, these

community concerns could have significantly

raised project costs, as it is difficult to project the

length of a delay of this nature, and the project

developer in this case contractually faced a

$1,672 fine for each day the project remained

incomplete.111

Value Impact

Failure to adequately engage with communities

can result in delays that can cause unexpected

increases in capital costs and/or increases in

project-related operating expenses. Uncertainty

about the approval of land-use or environmental

permits can raise the risk profile of a project and,

subsequently, its capital costs. If a company faces

significant regulatory pushback or loses any

permits it could have to write down assets for

impairment. A reputation for handling these

issues well is important on both the company and

industry level for solar energy to maintain its

social license to operate and is a significant

intangible asset. Successful firms can increase

their market share in the long-term through a

proven track record of project approval.

Utility scale solar is projected to grow rapidly in

the coming decades, bringing with it significant

land use requirements. These requirements

increase the probability of impacts from the issue

over the medium- to long-term.

Analysts can examine a company’s history of asset

impairment and its strategies related to

addressing community and ecological impacts to

be able to better assign a probability that a solar

project will receive all the permits necessary for

completion.

BUSINESS MODEL AND INNOVATION

This dimension of sustainability is concerned with

the impact of environmental and social factors on

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innovation and business models. It addresses the

integration of environmental and social factors in

the value-creation process of companies,

including resource efficiency and other innovation

in the production process. It also includes product

innovation and efficiency and responsibility in the

design, use-phase, and disposal of products. It

includes management of environmental and social

impacts on tangible and financial assets—either a

company’s own or those it manages as the

fiduciary for others.

Solar energy expansion is one of the ways to

mitigate global GHGs. Other methods include

increased investment in energy efficiency,

reduction of slash-and-burn agriculture

conversion, and the use of biofuels and other

energy sources such as wind and nuclear. As

carbon prices emerge in various regions, or if a

global carbon price or GHG reduction target is

agreed upon, companies, individuals, and

governments will seek the most cost-effective

means of reducing the largest quantities of GHG

emissions. The success of the Solar Energy

industry—its ability to scale up and contribute

significantly and cost-effectively to GHG

mitigation—depends innovation that yields cost

reductions, as well as the technical ability to

better integrate with the grid. Solar energy

companies must successfully manage relationships

with public utility commissions (PUCs) and utilities

to play a potentially larger role in a low-carbon

future while ensuring a smoother integration with

the existing energy infrastructure.

Another element of maintaining this societal

goodwill and license to operate (and the

subsequent regulatory favor and subsidies), is

planning for solar panels’ end-of-life. Solar panels

contain both economically valuable materials that

could be reused or recycled, as well as toxic waste

that needs to be disposed of properly. This issue

will become more significant as an increasing

number of panels reach their end-of-life.

Management of Energy Infrastructure Integration & Related Regulations

The Solar Energy industry continues to benefit

from accommodative government renewable

energy policies worldwide (e.g., the EPA’s Clean

Power Plan), fostered in large part by many

countries’ desire to transition to a low-carbon

energy economy. However, if the industry wants

to ensure continued policy support and greater

adoption of solar for GHG mitigation and energy

security, it must work to prevent systemic

disruptions to the existing energy infrastructure

and access to essential energy services.

Companies are innovating to improve the cost

effectiveness of solar and overcome the technical

challenges of increasing solar energy on the grid.

They are also engaging with regulatory agencies

and policymakers to reduce regulatory barriers to

the adoption of solar energy, many of which are

emerging due to the concern around increasing

overall grid electricity costs and grid disruptions.

Solar energy companies must be able to deploy

one or more of these strategies successfully to

ensure business survival and business scale-up

over the long term.

Cost effectiveness, realized through a lower

LCOE, is important for the success of solar energy.

Despite recent cost reductions, solar energy

remains a relatively expensive means of energy

production and GHG reduction, and as a result, it

is still a small portion of global electricity

generation.

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Furthermore, the expected increase in the amount

of solar energy that reaches the electrical grid

presents challenges for existing physical and

regulatory infrastructure. There are concerns that

this could affect the flexibility, cost structure, and

reliability of the grid, in addition to other social

costs of distributed solar energy generation. These

outcomes could adversely affect existing utility

ratepayers, especially, some argue,

disproportionally low-income ratepayers who lack

the capital to install their own solar panels. Such

concerns could undermine policy support for solar

energy and increase integration barriers for solar

customers.

The industry’s interaction with electric utilities and

energy regulators is a critical channel through

which it influences regulations that can play an

important role in the pace and scale of solar

adoption. As energy is an essential service,

engagement and lobbying with policymakers,

electric utilities and their regulators should be

aligned with reduced disruptions to existing

electricity infrastructure or smoother transitions to

new energy systems. Addressing these long-term

societal interests could serve to reduce business

uncertainty and the potential for regulatory

hurdles in the future.

At the same time, in order to reduce grid

disruptions and make solar cost competitive

without extensive, ongoing government support,

companies are innovating to reduce hardware and

installation costs, investing in R&D and

partnerships to develop energy storage or other

technologies, and working toward business model

innovations to reduce the cost of capital and

facilitate the purchase of solar energy systems.

Solar energy companies can achieve significant

savings through decreases in “soft costs,” which

currently comprise a major portion of a solar

project’s installed cost. Soft costs include

customer acquisition, financing, and installations.

Innovations that streamline customer acquisition

and installations and enhance financing options

could lead to a lower price point and enable

companies to gain access to a wider consumer

base. Companies are also working to bring down

their own capital costs through the use of

innovative financial models, such as yieldcos,

which in turn would lower solar project costs for

both large and small scale projects.

Company performance in this area can be

analyzed in a cost-beneficial way through the

following direct or indirect performance metrics

(see Appendix III for metrics with their full detail):

• Average price of solar energy PV modules

and completed utility-scale systems;

• Discussion of strategy to integrate solar

energy into existing energy infrastructure;

and

• Discussion of risks and opportunities

associated with energy policy and its

impact on the integration of solar energy

into existing energy infrastructure.

Evidence

A 2015 National Renewable Energy Laboratory

(NREL) study found that it’s possible that 80

percent of U.S. energy could come from

renewable sources by 2050. Solar energy’s

contribution to that figure is dependent on its

ability to integrate with the grid and decrease

costs.112

A 2010 McKinsey study found that solar PV, on a

cost-per-ton of GHG reduction basis, was less cost

effective than many other energy sources,

including geothermal and small hydro, as well as

energy reduction tactics like switching light bulbs

from incandescent to LED. In fact, unlike solar,

some of these technologies result in negative

abatement costs, or net cost savings.113 As noted

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above, the cost structure of solar energy has

significantly improved over the last five years.

However, a 2014 IRENA study found that the

LCOE of solar PV was higher on average than the

LCOE of both hydro and wind energy across all

three markets it examined: OECD countries, non-

OECD countries, and China and India.114 This cost

variation is currently reflected in the U.S. energy

mix. In the U.S., total energy production from all

renewable sources (excluding hydro) represented

only 6.8 percent of the 4.09 billion MWh

produced in 2014. Of this, utility-scale solar only

generated about 0.4 percent, while wind

generated roughly 4.4 percent.115

The 2010 McKinsey study also shows that the

maximum GHG abatement potential of solar PV in

terms of gigatons of carbon dioxide equivalent

reductions (GtCO2e) is substantial compared to

some other GHG mitigation measures, such as

switching to LEDs. This indicates that solar energy

has the potential to contribute significantly to

global GHG reductions, but needs to be available

at a lower cost.

As mentioned above, there are multiple ways in

which solar energy companies can address these

issues and ultimately grow their share of the

burgeoning renewables market and lower their

LCOE. Unhindered grid-integration, product

innovation, and the lowering of soft-costs (i.e.,

financing, installation costs) are major drivers in

this effort.

Hawaii provides a useful case study for the

benefits of companies directly addressing

potential obstacles with grid integration through

innovation. Due to the vast solar resources of the

state, Hawaii has the highest rooftop solar

penetration rate in the U.S.—10 percent as of

2014.116 This level of solar penetration gave the

state utility, Hawaiian Electric, significant pause;

how exactly should it adapt the grid to deal with

such a large amount of distributed generation?

There have been days where areas of Hawaii were

producing more electricity from distributed solar

generation than was needed for all the utility’s

consumers.117

To combat the technical problems this presented,

the utility decreased the number of residential PV

permits by 42 percent in the first five months of

2014, compared to that same time period the

year before. As a result, solar panel demand fell,

solar companies’ revenues declined, and

companies were forced to lay off installers.118 To

address these problems, SolarCity worked with

and helped fund research by the NREL and

Hawaiian Electric to create an inverter that could

mitigate some of these concerns.119 The research

showed that the grid could handle more rooftop

solar than the utility had previously thought. After

this development effort was completed, the PUC

told the utility to overturn its previous permit

freeze unless it had a good reason not to.120

Hawaiian Electric more than doubled the hosting

capacity for rooftop solar, increasing circuit

thresholds from the previous level of 120 percent

of the daytime minimum load (DML) to 250

percent DML.121 In March 2015, Hawaiian Electric

approved a backlog of more than 3,000 solar

installations.122

In its February 2015 Form 8-K filing, SolarCity

discussed the need to innovate and work with

utilities to ensure that solar has the social license

to continue its rapid expansion. “Over the past

year we have also built out a strong competency

in technology for the electrical distribution

system. Our view has always been that rooftop

solar, especially when bundled with smart

inverters and storage, is a substantial benefit to

grid operations, and we are engaged in several

pilots with utilities and other organizations to

precisely quantify these benefits. As a result of

this work many utilities are transitioning their

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 23

thinking about distributed generation solar from

being a problem that they are forced to deal with

into a solution that they can utilize to enhance

their services. Many complicated issues remain

before utilities may fully embrace distributed

energy resources and we recently published a

blog post that provided an overview of the

problem and presented a possible solution.”123

In its FY 2014 Form 10-K, SolarCity notes the

potential problems that will arise if this issue isn’t

sufficiently addressed. “Some utilities claim that

within several years, solar generation resources

may reach a level capable of causing an over-

generation situation that could require some solar

generation resources to be curtailed to maintain

operation of the grid. The adverse effects of such

curtailment without compensation could adversely

impact our business, results of operations and

future growth.”124

Some utilities, concerned by solar’s rapid

expansion, are pushing either for the removal of

net metering laws, or for a monthly fee

consumers pay to be connected to the grid. Many

utilities are afraid of the “death spiral:” As more

customers leave the grid for distributed

generation, electricity prices will have to rise to

cover grid maintenance. This will prompt more

people to leave, until only the poorest remain on

the grid.125 While the feasibility of this scenario is

up for debate,126 the solar energy industry will

have to continue to make its case to the public

and to regulators that the proliferation of its

technology will not have a negative effect on

economically vulnerable members of society;

otherwise it could lose some of its favorable

regulatory treatment.

For example, in Q3 2015, 27 states were either

evaluating or actively attempting to change their

net metering policies.127 In the Salt River Project

(SRP) region of central Arizona, the public utility

voted to charge residential solar users an average

of $50 a month. SolarCity is currently suing to

have the charge repealed. This case is still

pending, but in November 2015 a federal court

judge threw out the Arizona utility’s request for

dismissal.128 If solar energy companies do not

address uncertainties about grid upkeep funding,

they will risk losing customers who may be

unwilling to invest in a product whose benefits

could diminish over time. Indeed, SolarCity claims

that in the period following the announcement of

the new charge, they had a 96 percent drop in

solar applications in the SRP region of Arizona.129

Solar companies are attempting to address

uncertainty related to grid connectivity (and

surrounding regulations) by providing new deals

for customers. For example, SolarCity is offering

solar panels with a battery system for customers

who want to completely remove themselves from

the grid, in case of future regulatory impediments

(among other things).130

Because module costs have declined significantly

in the last few years, soft costs have now become

an important component of the total costs of

installed solar in the different solar market

segments. As noted above, the utility-scale solar

market has seen tremendous growth in the past

few years in the U.S. and has accounted for the

majority of installed capacity in 2013. For utility-

scale solar, the U.S. Department of Energy

estimates that soft costs, including the costs of

permitting, inspection, and installation, accounted

for about 41 percent of total installed costs in

2013. While module costs declined from 11

cents/kWh in 2010 to 3.7 cents/kWh in 2013, soft

costs declined by only 2.2 cents/kWh over the

same period.131 Soft costs are currently the largest

barrier to solar having a more competitive LCOE

with other energy sources like coal and natural

gas.

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When it evaluated the GHG mitigation potential

of utility-scale solar PV, the EPA found that an 80

percent PV price decline would cut GHG

mitigation costs in half (by $270 billion). The EPA

is using evaluations such as these to support the

implementation of GHG reduction strategies.132

Cost reductions could also influence the extent to

which the government is willing to continue to

support the industry via favorable policy

environments.

Reducing soft costs is also crucial for the future of

residential solar. A 2013 study by the NREL found

that in 2012, soft costs accounted for 64 percent

of the total cost of residential solar energy

systems.133 In a separate study, researchers at

McKinsey, predicted that as soft costs decline, the

total cost of a top-of-the-line residential solar

system could drop from $4/W in 2013 to $1.60/W

by 2020.134 These cost savings can be realized by

efficiency gains in customer acquisition, customer-

financing costs, panel installation costs, and

through reductions in corporate capital costs.

GTM Research, a major renewable energy

research firm, estimated that in 2013, acquiring a

residential solar customer costs the average

company $0.49/W. Over time, the company

estimates, these prices will fall to $0.35/W

between 2014 and 2017, saving the industry a

total of $619 million.135 New companies have

emerged specifically to target solar customer

acquisition channels, and they have quickly

become the target of a slew of acquisitions. When

Sunrun looked to vertically integrate to bring

down prices, it acquired REC Solar.136

The financing models mentioned earlier, including

PPAs and solar leases that allow for third-party

ownership (TPO) of solar units, have given the

industry access to customers who otherwise

would be unwilling or unable to buy a solar

system outright. This model has grown quickly. In

2011, it accounted for 42 percent of the

residential solar market; by 2013, it accounted for

66. In some markets, including Colorado and

Arizona, TPOs now represent more than 80

percent of all new residential installations.137 To

meet this level of demand, TPO providers will

need to raise more than $26 billion between 2014

and 2018.138 Companies that are successful at

structuring these financing packages to offer low

leasing prices and favorable terms will stand to

gain access to a wider customer base.

According to disclosure, many companies are

investing in and profiting from lower solar panel

installation costs. A 2013 study by Georgia Tech

and the Rocky Mountain Institute found that

average PV installation costs in the U.S. were

$0.49/W, compared to $0.18/W in Germany.

These figures illustrate the need for serious

efficiency gains in the U.S. market.139 For

residential and commercial solar, racking devices

can help drive down installation costs. These

devices, which decrease installation time, expand

the roof types viable for PV installation.140 In June

of 2015, SunPower acquired the microinverter

company SolarBridge Technologies, which makes

a product that can cut interconnection costs by

20 percent and reduce installation times by 50

percent.141 These types of innovations are crucial

for the solar adoption. It is worth noting as well

that these non-regulatory solutions will also help

open up new markets and new applications for

solar energy companies, including in emerging

countries.

In its Q3 2014 10-Q filing, First Solar disclosed

that it “[has] and intend[s] to continue to dedicate

significant capital and human resources to

reduc[ing] the total installed cost of solar PV

generation, [and] to optimize the design and

logistics around our solar PV generation solutions,

and to ensure that our solutions integrate well

into the overall electricity ecosystem of each

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 25

specific market.”142 In the first nine months of FY

2014, SunPower saw a net income increase of

$31.8 million. In its third quarter 2014 10-Q, the

company attributed a portion of this success to

“an overall decrease in … installation costs.”143

In addition to the soft costs mentioned above,

lower capital costs, through the new yieldco

model or through green bonds, are integral to

reducing solar project costs. The yieldco model

allows firms to separate their risky operations

from their low-risk project holdings with steady

cash flows, so that they can offers firms access to

cheaper capital.

Yieldcos have so far been paying dividends of 3.5

to 4.5 percent. Previously, the cost of capital for

larger solar projects has been closer to eight to 10

percent. If yieldcos continue to prove successful,

they may be able to lower the overall project cost

of capital to six to seven percent.144 Companies

that can successfully and continuously place a

large group of their projects into a yieldco can

potentially gain a significant advantage in

expanding into more projects.

Yieldcos are the newest financing model that

some companies are implementing to expand

their investor base and lower the cost of capital.

Other financing techniques include debt-based

financing. In October 2014, SolarCity offered

retail investors $200 million in green bonds in

increments of $1,000, with yields of between two

and four percent, depending on the maturation

date. Earlier that year, it also offered roughly

$270 million in green bonds with rates between

4.03 and 4.59 percent. According to researchers

at Mercatus, for every one percent decrease in

capital costs, there is a roughly $0.20/W to

$0.30/W decrease in project costs. These types of

innovative financing schemes are vital to lower

overall costs.145

Value Impact

Companies that are able to successfully reduce

grid integration barriers and soft costs through

innovations in their products and business models

will be able to pass on cost savings to their

customers and facilitate a smoother integration of

solar energy with the existing energy

infrastructure. These gains will allow solar

companies to expand their consumer base,

increase their revenue growth prospects, and

reduce curtailment and other costs, thereby

improving profit margins. Innovations and related

CAPEX and R&D expenditures could help

companies improve their intangible assets,

contributing to their long-term growth.

Successful lobbying efforts could result in positive

short-term gains; however, these benefits could

subsequently be reversed to reflect the balance of

corporate and public interest in these issues,

leading to a more burdensome regulatory

environment. Lobbying can therefore create

regulatory uncertainty, increasing the risk profile

of companies and their cost of capital.

Solar energy companies that successfully use

innovative financing structures to separate the

high and low risk parts of the solar manufacturing

and project development market will realize lower

capital costs, allowing them to expand into more

markets and gain the cost advantages of

economies of scale.

The success of solar energy companies in cost-

effectively reducing GHG emissions could create

externalities that have implications for returns

from other sectors in investor portfolios.

The probability and magnitude of impacts from

this issue are likely to increase as global efforts to

mitigate the effects of climate change heighten.

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Analysts can compare the average price of PV

modules to PV systems to gain a better

understanding of how effectively companies are

addressing soft cost reduction. Understanding

how companies are addressing the issues related

to grid integration and the regulatory

environment can help analysts better assign risk

to a project.

Product Lifecycle Environmental Impacts

Solar panels contain hazardous substances as well

as reusable materials of high economic value.

Materials recovery and recycling are important in

order to lower environmental impacts from waste

streams at the end of life of panels and from the

extraction of virgin materials to make new ones.

Due to the rapid expansion of solar energy in

recent years, increasing volumes of panels are

expected to reach the end of their useful life in

the medium-term. In some regions, manufacturers

are required by law to take financial responsibility

for their products at the end-of-life stage,

including collection and recycling. Bans on

hazardous substances used in solar panels, such

as brominated flame retardants, could pose

additional regulatory challenges in some regions.

Any revenue contraction from additional end-user

costs for hazardous waste disposal could have a

significant effect on profits. The issue also has the

potential to cause the industry reputational

damage in the medium- to long-term.

Management of these risks could involve

improving the recyclability of panels and their

components. Furthermore, as more modules reach

the end of life and this issue receives more

legislative attention, the ability to offer take-back

and recycling services in a cost-effective way

could become an important differentiator

between companies. This differentiator can

increase the revenue of companies with a robust

system in place to handle end-of-life recycling.

Companies could also benefit from lower costs by

reusing recovered materials in their manufacturing

processes. Company performance in this area can

be analyzed in a cost-beneficial way through the

following direct or indirect performance metrics

(see Appendix III for metrics with their full detail):

• Percentage of products sold that are

recyclable or reusable;

• Weight of end-of-life material recovered,

percentage of recovered materials that

are recycled; and

• Discussion of approach to manage use,

reclamation, and disposal of hazardous

materials.

Evidence

The lifespan of a solar panel is roughly 20 to 30

years. Because the industry has recently expanded

rapidly, the majority of solar panels has not yet

reached end of life. Globally, 3.7 GW of solar PV

were installed in 2003; in 2014, 177 GW were

installed.146 According to the Solar Energy Industry

Association (SEIA), until 2017, the annual PV

waste in the U.S. will be no more than 100,000

tons.147 Currently, there are few regulations

regarding solar panel end-of-life management in

the U.S., as most panels do not qualify as

hazardous waste under the Federal Resource

Conservation and Recovery Act.148

However, there is a belief in the industry that this

will not always be the status quo. Industry groups

such as SEIA and the Silicon Valley Toxics

Coalition (SVTC), an industry watchdog group, are

calling for a way to effectively recycle these

products. These groups believe that if the industry

does not deal with this problem itself, regulators

will do it for them in a less cost-effective manner.

Solar panels contain hazardous chemicals that are

likely to gain regulators’ attention in the medium

term. Silicon-based panels are often made with

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 27

lead and brominated flame retardants, and thin-

film technologies contain carcinogenic cadmium-

telluride or selenide, which can seep into the soil

if panels aren’t disposed of properly.149

Outside of the U.S., regulators are already taking

action. In 2012, the E.U. WEEE Directive made PV

recycling mandatory. PV Cycle, a European

organization, helps its participants comply with

this legislation; the organization is aiming to

reach recycling rates of 80 percent by the end of

2015, and 85 percent by 2020.150 These efforts

coincide well with the projected increase in waste

volume in the EU, which is expected to hit more

than two million tonnes by 2027.151 After a

Japanese study found that there would be an

estimated 800,000 tons of PV modules already in

landfills by 2040, the country announced that it

would begin to implement PV recycling rules. This

legislation was of particular concern to the

industry because previous laws only held

manufacturers responsible for damaged or used

panels. Even then, they only had to account for

roughly five percent of the panel’s waste by

weight.152 It’s likely only a matter of time before

this type of legislation spreads to the U.S.

In its 2Q 2015 Form 10-Q, Vivint Solar discusses

the risks of future regulation in this area. “It is

difficult to predict how future environmental

regulations may affect the costs associated with

the removal, disposal or recycling of our solar

energy systems. If the residual value of the

systems is less than we expect at the end of the

customer contract, after giving effect to any

associated removal and redeployment costs, we

may be required to accelerate all or some of the

remaining unamortized costs. This could

materially impair our future operating results and

estimated retained value.”153

Recycling silicon-based and thin film panels

requires distinct processes. Silicon panels contain

up to 80 percent glass (nearly all of which can be

shredded and used for glass fiber, insulation, or

glass containers), as well as some metals and

plastics that can be returned to their raw form

and salvaged. In total, eighty-five percent (by

input weight) of most silicon-based panels can be

successfully recycled.154 In its 2014 CSR report,

Canadian Solar reports a 1.52 percent increase in

its use of recycled inputs as a percent of total

materials, from 2.71 percent to 4.23 percent,155

Thin film panels are often separated into their

components with a chemical bath, and then

further processed at glass and semiconductor

recycling facilities. Up to 95 percent of the panels,

by input weight, can be used in the creation of

new modules.156 PV module recycling is already

financially viable in many cases, especially in

utility-scale operations.157

Solar panel waste streams are, in 2015, relatively

small, for a service that would require companies

to make significant capital expenditures on

specialized technology, but a research group

estimates that the crystalline modules recycling

industry will be a $12.9 billion business by

2035.158 Over time, recycling costs will likely only

decline, so companies that have an efficient

takeback process in place will have a competitive

advantage. Recovered silicon is already a

significant product offering for some companies.

In its FY 2014 Form 20-F, Jinko Solar notes that in

2012, 2013, and 2014 “recoverable silicon

materials accounted for approximately 6.2

percent, 21.5 percent and 13.6 percent,

respectively, of our total silicon raw material

purchases by value.”159

Disposal of materials can also be expensive,

especially at utility-scale. For example, disposing

of cadmium telluride in an environmentally

responsible manner costs the U.S. Department of

Energy roughly $0.20/watt, or $200,000/MW (it

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 28

involves encasing the modules in concrete).160

Large scale customers may begin to consider

these costs in their purchasing decisions, which

could lower future sales projections.

As of October 2015, there are no PV modules in

the U.S. that come with prefunded recycling. Of

the 37 companies that the SVTC evaluated for its

annual scorecard, only First Solar told all of its

customers (i.e., not just those in the E.U.) how to

properly recycle its panels; just 23 companies

included some discussion of PV recycling on their

websites. Furthermore, SVTC found that 11 of the

companies would be in favor of a law requiring

manufacturers to take back panels at the end of

their useful life.161

Value Impact

Companies that do not adequately address end-

of-life management increase their risk profile in

the face of potentially costly legislation. If

customers feel that end-of-life costs will

significantly affect the economics of their

projects, this issue can also affect sales volume. If

recycling or disposal costs for solar panels are

higher than company projections, the discrepancy

could lower the company’s retained value

calculation for a solar project. If the industry

doesn’t come up with a comprehensive solution

for growing waste volume, it may incur negative

reputational effects.

The probability and magnitude of the impact of

this issue is very likely to increase in the medium-

and long-term due to the substantial rise in

amounts of waste.

Analysts can compare company risk related to

end-of-life disposal costs by understanding how

much of their products are recyclable or reusable

and subsequently the actual amount that is

recycled. Companies that already have robust

end-of-life plans in place may have a lower risk

profile than those that do not.

LEADERSHIP AND GOVERNANCE

As applied to sustainability, governance involves

the management of issues that are inherent to the

business model or common practice in the

industry and are in potential conflict with the

interest of broader stakeholder groups

(government, community, customers, and

employees). They therefore create a potential

liability, or worse, a limitation or removal of

license to operate. This includes regulatory

compliance, lobbying, and political contributions.

It also includes risk management, safety

management, supply chain and resource

management.

Solar energy manufacturing involves sensitive

materials whose production has been linked to

violence, disease, and environmental damage.

Companies can gain a competitive advantage by

being transparent about their sourcing risks,

actively working to source materials from reliable

suppliers or regions that have minimal

environmental or social risks associated with

them, and supporting R&D for alternative inputs.

Materials Sourcing

Materials used in solar panels like tin and

polysilicon can have negative environmental and

social impacts in solar energy company’s supply

chains, which could affect company’s financial

value directly or indirectly.

The purification of polysilicon, the main input in

roughly 90 percent of solar panels, has a harmful

byproduct called silicon-tetrachloride. Many

polysilicon refiners recycle this byproduct because

it is cheaper to extract silicon from silicon-

tetrachloride than it is to obtain it from raw silica.

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 29

However, the necessary equipment is expensive,

with prices in the tens of millions of dollars, so

not all manufacturers are able to do it.162 The

improper disposal of this waste can kill fish and

wildlife and destroy farmland, and has been

linked to higher cancer rates in affected areas, as

it can seep into groundwater.163 Such impacts

could affect their reputation, potentially hurting

revenue growth prospects.

Solar energy companies also face pressure from

legislation, nongovernmental organizations

(NGOs), and peers to track and eliminate the use

of minerals responsible for conflict in the

Democratic Republic of Congo (DRC). Some solar

panels contain all four of the 3TG “conflict

minerals,” although many contain only tin.

Besides the reputational and regulatory risk of

sourcing tin from conflict-torn areas, solar energy

companies face competition from increasing

global demand for tin from other sectors,

including Transportation, Hardware, and

Infrastructure. Along with supply constraints, this

competition can result in significant price

increases and supply chain risks.

Solar energy companies with strong supply chain

standards and the ability to adapt to increasing

resource scarcity will be better positioned to

protect shareholder value. Additionally,

innovations to reduce dependence on some of

these sensitive materials at the design phase can

help lower risk.

Some companies are able to limit their use of

sensitive materials, as well as procure the

materials they do use from suppliers with strong

environmental and social standards. These

companies not only minimize the environmental

and social externalities related to extraction and

production, but also protect themselves from

supply disruptions, volatile input prices, and

reputational risks. Therefore, solar energy

manufacturers need to ensure that their supply

chain is “conflict-free.”

Company performance in this area can be

analyzed in a cost-beneficial way through the

following direct or indirect performance metrics

(see Appendix III for metrics with their full detail):

• Percentage of tungsten, tin, tantalum,

and gold smelters within the supply chain

that are verified conflict-free;

• Discussion of the management of risks

associated with the use of conflict

minerals; and

• Discussion of the management of

environmental risks associated with the

polysilicon supply chain.

Evidence

Each ton of silicon manufactured for use in solar

panels results in four tons of toxic liquid waste

containing silicon-tetrachloride, creating a difficult

disposal issue.164 In 2008 The Washington Post

ran an investigation of a firm in China that was

producing polysilicon for solar panels and

improperly disposing of silicon-tetrachloride

wastewater, destroying land, and causing a

potentially severe health hazard for those who

lived near the dumping sites. Following this story,

many solar stocks plunged as investors feared that

the reputational effect would hurt demand for

solar panels. When trading opened the following

Monday, Yingli Green Energy’s stock price

dropped 11.1 percent, First Solar’s dropped 10.3

percent, and Canadian Solar’s dropped 15

percent.165

In 2011, following this investor response and

rising community pushback, China decreed that

companies must recycle a minimum of 98.5

percent of their silicon tetrachloride waste.166 If

companies do not put processes into place to

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ensure compliance, they could face supply

disruptions and public backlash in the future.

In its FY 2014 Form 20-F, Trina Solar, disclosed

potential reputational and input supply risks from

sourcing polysilicon: “If any of our suppliers fails

to comply with environmental regulations for the

production of polysilicon and the discharge of the

highly toxic waste products, we may face negative

publicity which may have a material adverse effect

on our business and results of operations.

Furthermore, if any of our suppliers are forced to

suspend or shut down production due to

violations of environmental regulations, we may

not be able to secure enough polysilicon for our

production needs on commercially reasonable

terms, or at all.”167

The use of conflict minerals also poses a risk for

the industry. In the DRC, artisanal and small-scale

mining is responsible for much of the current

global output of 3TGs. While such mining is an

important source of livelihood to the local

population, it is also helping to finance armed

conflict in the region and has significant

ecological impacts. Globally, several legislative

and project-based efforts are underway to

improve due diligence and traceability of the

supply of minerals from the DRC. These efforts

have the potential to affect solar energy

companies, their customers, and their suppliers.

This includes providing incentives and resources

for leadership in supply chain management, such

as the International Development’s (USAID)

Responsible Minerals Trade Program, which

includes the creation of a pilot conflict-free supply

chain.168 Companies that do not engage in this

type of supply chain management open

themselves up to reputational risks.

The risk is especially acute for a renewable source

of energy such as solar. Its historical reliance on

governmental subsidies in many parts of the

world means it is in the industry’s best interest to

continue to be perceived as a positive alternative

to conventional energy production technologies.

The SEC estimates the Conflict Minerals provision

of the Dodd-Frank Act will come with compliance

costs of $3 to $4 billion in the first year and at

least $200 million each year afterward for all

affected U.S. industries. Other estimates suggest

that compliance costs may be as high as $16

billion.169 However, the SEC expects that non-

reporting companies that are part of reporting

companies’ supply chains will bear much of the

cost of the final rule.170 The new disclosure rule

affects approximately 6,000 issuers and 275,000

suppliers.171

The SVTC, which scores solar companies on many

social and environmental issues, including conflict

mineral disclosure, released its fifth annual solar

scorecard in 2014. The organization found that

only 12 of the 37 major companies it examined

had engaged with or started the due diligence

process with their suppliers around conflict

minerals. Not one could provide documentation

showing that their supply chains do not contain

these inputs. This public scorecard means that

companies that fail to investigate their supply

chain face greater reputational risk.172

In its FY 2014 Form 10-K, SunEdison discusses the

potential expense and reputational effect of

examining its supply chain for conflict minerals.

“Compliance with this new disclosure rule may be

very time consuming for management and our

supply chain personnel (as well as time consuming

for our suppliers) and could involve the

expenditure of significant amounts of money by

us and them. Disclosures by us mandated by the

new rules, which are perceived by the market to

be ‘negative,’ may cause customers to refuse to

purchase our products. There can be no assurance

that the cost of compliance with the rule will not

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 31

have an adverse effect on our business, financial

condition or results of operations.”173

Furthermore, in its FY 2014 Form 10-K, SunPower

discloses the potential for supply risk. “There may

only be a limited pool of suppliers who provide

conflict free minerals, and we cannot be certain

that we will be able to obtain products in

sufficient quantities or at competitive prices.”174

Global input prices of 3TG have at times been

extremely volatile, sometimes because of conflict

in the DRC. In 2008, a 31 percent increase in tin

prices coincided with a rebel offensive against the

DRC’s primary tin trading center.175 If another

price shock like this were to happen again, it

could reduce the already slim margins of solar

panel manufacturers, and create long-term

impacts for those players not investing in

alternatives.

Value Impact

Failure to effectively manage the sourcing of

sensitive materials can affect company cost

structure over time through higher input costs.

Companies may also face regulatory compliance

costs associated with the sourcing of conflict

minerals.

If companies fail to investigate their supply chain

or avoid the use of conflict minerals altogether

through R&D, they may face significant

reputational risk that could result in lower sales.

Reputational risk could also arise from sourcing

polysilicon from certain suppliers that are unable

or unwilling to recycle or safely dispose of harmful

byproducts. Reputational impacts could affect

companies’ intangible assets, and therefore, their

long-term growth potential.

The increasing scarcity, unavailability, or price

volatility of certain key materials can increase

solar companies’ risk profiles if they are unable to

source them effectively. As a result, such

companies can face a higher cost of capital. They

could also lose revenues due to production

disruptions.

These risks will likely increase in probability and

magnitude as the industry scales up, and as it

competes with other sectors for “conflict-free”

materials.

The percentage of verified conflict-free tungsten,

tin, tantalum, and gold smelters within the supply

chain indicates the extent of a company’s

exposure to conflict minerals, in terms of both

supply and regulatory risk. A company with a

well-articulated and managed strategy related to

polysilicon sourcing can indicate its exposure to

the risk of supply disruption and price volatility.

SASB INDUSTRY WATCH LIST

The following section provides a brief description

of sustainability disclosure topics that are not

likely to constitute material information at present

but could do so in the future.

Energy Access Products & Services: More than

1.2 billion people worldwide do not have access

to electricity; another billion only have

intermittent access.176 Nearly three billion people

use solid fuels such as coal or wood for heating

and cooking.177 The demand for solar energy is

growing in these developing markets, and world

electricity demand, eighty percent of which is

projected to come from non-OECD countries, is

expected to grow at a rate of 2.2 percent

annually.178 The electrification of these regions

would have a great social benefit for the local

populations. While there have been some limited

successes in these regions, entering these markets

can be difficult, as they often have poor

infrastructure and lack a trained workforce.179

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Expanding into new markets will be integral to

gaining access to a larger customer base and

raising revenues in the long-term. Furthermore,

this growth opportunity will give the industry the

potential to unlock a greater economies-of-scale

advantage over other electricity-generating

technologies.

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APPENDIX I FIVE REPRESENTATIVE SOLAR ENERGY COMPANIESVI

VI This list includes five companies representative of the Solar Energy industry and its activities. This includes only companies for which the Solar Energy industry is the primary industry, companies that are U.S.-listed but are not primarily traded over the counter, and for which at least 20 percent of revenue is generated by activities in this industry, according to the latest information available on Bloomberg Professional Services. Retrieved on November 14, 2015.

COMPANY NAME (TICKER SYMBOL)

First Solar (FSLR)

Canadian Solar (CSIQ)

Trina Solar (TSL)

Yingli Green Energy (YGE

SunPower Corporation (SPWR)

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APPENDIX IIA: Evidence for Sustainability Disclosure Topics

Sustainability Disclosure Topics

EVIDENCE OF INTERESTEVIDENCE OF

FINANCIAL IMPACTFORWARD-LOOKING IMPACT

HM (1-100)

IWGsEI

Revenue & Cost

Asset & Liabilities

Cost of Capital

EFIProbability & Magnitude

Exter- nalities

FLI% Priority

Energy Management in Manufacturing

75* 92 1t High • Medium • Yes

Water Management in Manufacturing

50* - - High • • Medium • Yes

Hazardous Materials Management

38 100 1t High • • • Medium • Yes

Community & Ecological Impacts of Project Development

29 - - Medium • • • High • Yes

Management of Energy Infrastructure Integration & Related Regulations

63* 77 2 High • • • High • • Yes

Product Lifecycle Environmental Impacts

44 - - Medium • • • Medium • Yes

Materials Sourcing 25 77 3 Medium • • • Medium • Yes

HM: Heat Map, a score out of 100 indicating the relative importance of the topic among SASB’s initial list of 43 generic sustainability issues. Asterisks indicate “top issues.” The score is based on the frequency of relevant keywords in documents (i.e., 10-Ks, 20-Fs, shareholder resolutions, legal news, news articles, and corporate sustainability reports) that are available on the Bloomberg terminal for the industry’s publicly listed companies. Issues for which keyword frequency is in the top quartile are “top issues.”

IWGs: SASB Industry Working Groups

%: The percentage of IWG participants that found the disclosure topic likely to constitute material information for companies in the industry. (-) denotes that the issue was added after the IWG was convened.

Priority: Average ranking of the issue in terms of importance. 1 denotes the most important issue. (-) denotes that the issue was added after the IWG was convened.

EI: Evidence of Interest, a subjective assessment based on quantitative and qualitative findings.

EFI: Evidence of Financial Impact, a subjective assessment based on quantitative and qualitative findings.

FLI: Forward Looking Impact, a subjective assessment on the presence of a material forward-looking impact.

35I N D U S T RY B R I E F | S O L A R E N E R G Y

APPENDIX IIB: Evidence of Financial Impact for Sustainability Disclosure Topics

Evidence of

Financial Impact

REVENUE & EXPENSES ASSETS & LIABILITIES RISK PROFILE

Revenue Operating Expenses Non-operating Expenses Assets Liabilities

Cost of Capital

Industry Divestment

RiskMarket Share New Markets Pricing Power

Cost of Revenue

R&D CapExExtra-

ordinary Expenses

Tangible Assets

Intangible Assets

Contingent Liabilities & Provisions

Pension & Other

Liabilities

Energy Management in Manufacturing

• • •

Water Management in Manufacturing

• • • •

Hazardous Materials Management

• • • • • •

Community & Ecological Impacts of Project Development

• • • • •

Management of Energy Infrastructure Integration & Related Regulations

• • • • • • •

Product Lifecycle Environmental Impacts

• • • •

Materials Sourcing • • • • •

H IGH IMPACTMEDIUM IMPACT

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APPENDIX III SUSTAINABILITY ACCOUNTING METRICS – SOLAR ENERGY

TOPIC ACCOUNTING METRIC CATEGORY UNIT OF

MEASURE CODE

Energy Management in Manufacturing

Total energy consumed, percentage grid electricity, percentage renewable Quantitative

Gigajoules (GJ), Percentage (%) RR0102-01

Water Management in Manufacturing

(1) Total water withdrawn and (2) total water consumed, percentage of each in regions with High or Extremely High Baseline Water Stress

Quantitative Cubic meters (m3), Percentage (%)

RR0102-02

Discussion of water management risks and description of strategies and practices to mitigate those risks

Discussion and Analysis

n/a RR0102-03

Hazardous Materials Management

Amount of hazardous waste, percentage recycled Quantitative Metric tons (t), Percentage (%) RR0102-04

Number and aggregate quantity of reportable spills, quantity recovered* Quantitative

Number, Kilograms (kg) RR0102-05

Community & Ecological Impacts of Project Development

Project development asset impairments associated with community or ecological impacts

Quantitative U.S. Dollars ($) RR0102-06

Description of efforts in solar energy system project development to address community and ecological impacts

Discussion and Analysis

n/a RR0102-07

Management of Energy Infrastructure Integration & Related Regulations

Average price of solar energy (1) photovoltaic (PV) modules and (2) completed utility-scale systems Quantitative

U.S. Dollars per watt ($/W) RR0102-08

Description of risks associated with integration of solar energy into existing energy infrastructure and discussion of efforts to manage those risks

Discussion and Analysis

n/a RR0102-09

Discussion of risks and opportunities associated with energy policy and its impact on the integration of solar energy into existing energy infrastructure

Discussion and Analysis

n/a RR0102-10

* Note to RR0102-05—The registrant shall discuss its long-term activities to remediate spills that occurred in years prior to the reporting period but for which remediation activities are ongoing.

I N D U S T R Y B R I E F | S O L A R E N E R G Y | 37

APPENDIX III SUSTAINABILITY ACCOUNTING METRICS – SOLAR ENERGY (CONTINUED)

TOPIC ACCOUNTING METRIC CATEGORY UNIT OF

MEASURE CODE

Product Lifecycle Environmental Impacts

Percentage of products sold that are recyclable or reusable Quantitative Percentage (%) RR0102-11

Weight of end-of-life material recovered, percentage of recovered materials that are recycled

Quantitative Metric tons (t), Percentage (%)

RR0102-12

Discussion of approach to manage use, reclamation, and disposal of hazardous materials

Discussion and Analysis

n/a RR0102-13

Materials Sourcing

Percentage of tungsten, tin, tantalum, and gold smelters within the supply chain that are verified conflict-free

Quantitative Percentage (%) RR0102-14

Discussion of the management of risks associated with the use of conflict minerals

Discussion and Analysis

n/a RR0102-15

Discussion of the management of environmental risks associated with the polysilicon supply chain

Discussion and Analysis

n/a RR0102-16

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APPENDIX IV: Analysis of SEC Disclosures | Solar Energy

The following graph demonstrates an aggregate assessment of how representative U.S.-listed Solar Energy companies are currently reporting on sustainability topics in their SEC annual filings.

Solar Energy

Energy Management in Manufacturing

Water Management in Manufacturing

Hazardous Materials Management

Community & Ecological Impacts of Project Development

Management of Energy Infrastructure Integration & Related Regulations

Product Lifecycle Environmental Impacts

Materials Sourcing

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TYPE OF DISCLOSURE ON SUSTAINABILITY TOPICS

NO DISCLOSURE BOILERPLATE INDUSTRY-SPECIF IC METRICS

92%

-**

100%

-**

77%

-**

77%

IWG Feedback*

* Percentage of IWG participants that agreed topic was likely to constitute material information for companies in the industry.

** The “Water Management in Manufacturing“, “Community & Ecological Impacts of Project Development” and “Product Lifecycle Management” disclosure topics were introduced after SASB convened IWGs and per stakeholder feedback.

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REFERENCES

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25 Author’s calculation from data from Bloomberg Professional service accessed on October 15, 2015, using the BI SOLRG <GO> command 26 Russell Gold, “SolarCity Buys Silevo, a module Maker,” The Wall Street Journal, June 17, 2014, accessed January 21, 2015, http://www.wsj.com/articles/solarcity-to-acquire-solar-module-maker-silevo-1403017005; Robert McIntosh, and James Mandel, “5 reasons solar installers are vertically integrating,” GreenBiz, July 15, 2014, accessed January 15, 2015, http://www.greenbiz.com/blog/2014/07/15/five-reasons-us-solar-installers-are-vertically-integrating. 27 Author’s calculation from data from Bloomberg Professional service accessed on October 15, 2015, using the ICS <GO> command 28 Max Oston, “IBISWorld Industry Report 33441c Solar Panel Manufacturing in the U.S.,” IBISWorld, September 2015, pp. 22-23, accessed October 30, 2015. 29 Ibid. 30 Here the U.S. natural gas price is represented by the Henry Hub spot price. Author’s calculation from data from Bloomberg Professional service accessed on October 6, 2015, using the NGUSHHUB <GO> command. 31 “Oil Price Plunge and Clean Energy – The Real Impact,” Bloomberg New Energy Finance, December 22, 2014, accessed January 25, 2015, http://about.bnef.com/press-releases/oil-price-plunge-clean-energy-real-impact/. 32 Darryle Ulama, “IBISWorld Industry Report 22111e Solar Power in the U.S.,” p. 5. ; “Energy and Climate Change,” International Energy Agency, 2015, p. 155, accessed November 9, 2015, http://www.iea.org/publications/freepublications/publication/weo-2015-special-report-energy-climate-change.html. 33 “EIA projects world energy consumption will increase 56% by 2040,”United States Energy Information Administration, July 25, 2013, accessed January 30, 2015, http://www.eia.gov/todayinenergy/detail.cfm?id=12251. 34 “Third Party Solar Financing.” Solar Energy Industries Association,” accessed January 25, 2014, http://www.seia.org/policy/finance-tax/third-party-financing. 35 “Rooftop solar cost competitive with the grid in much of the U.S.,” Scientific American, December 1, 2014, accessed January 1, 2015, http://www.scientificamerican.com/article/rooftop-solar-cost-competitive-with-the-grid-in-much-of-the-u-s/; Tom Randall, “While you were getting worked up over oil prices, this happened to solar,” Bloomberg Business, October 29, 2014, accessed January 2, 2014, http://www.bloomberg.com/news/2014-10-29/while-you-were-getting-worked-up-over-oil-prices-this-just-happened-to-solar.html. 36 “Gridscale storage: Smooth operators,” The Economist, December 6, 2014, accessed January 30, 2015, http://www.economist.com/news/technology-quarterly/21635331-matching-output-demand-hard-wind-and-solar-power-answer-store. 37 “Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2014,” U.S. Energy Information Administration, May 7, 2014, accessed January 22, 2015, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm. 38 Data from Bloomberg Professional service, accessed on October 15, 2015, using the LCOE <GO> command 39 SASB would like to especially thank the Bloomberg New Energy Finance (BNEF) team for their help in the research process. 40 Solar Investment Tax Credit,” Solar Energy Industries Association, accessed January 30, 2015, http://www.seia.org/policy/finance-tax/solar-investment-tax-credit. 41 Shayle Kann, et. al, “Solar Market Insight Report 2015 Q2,” Solar Energy Industries Association, 2015, accessed November 10, 2015, http://www.seia.org/research-resources/solar-market-insight-report-2015-q2. 42 Christopher Martin, “Solar Consolidation Expected as Tax Credit Drives Deals,” Bloomberg, October 20, 2014, accessed January 8, 2015, http://www.bloomberg.com/news/2014-10-21/solar-consolidation-expected-as-tax-credit-drives-deals.html; “10 predictions for rooftop solar in 2015,” Greentech Solar, December 31, 2014, accessed December 31, 2014, http://www.greentechmedia.com/articles/read/10-predictions-for-rooftop-solar-in-2015. 43 “Solar Tax Exemption,” Solar Energy Industries Association, accessed January 30, 2015, http://www.seia.org/policy/finance-tax/solar-tax-exemptions. 44 “Qualifying Advanced Energy Project Credit,” December 2013, accessed January 22, 2015, http://www.irs.gov/Businesses/Qualifying-Advanced-Energy-Project-Credit-section-48C; “Advance Energy Manufacturing Tax Credit,” Ernst & Young, 2012, p. 1. 45 Darryle Ulama, “IBISWorld Industry Report 22111e Solar Power in the U.S.,” p. 4. 46 “U.S. Federal Government – Green Power Purchasing Goal,” Database of State Incentives for Renewables & Efficiency, March 24, 2014, accessed December 22, 2014, http://dsireusa.org/incentives/incentive.cfm?Incentive_Code=US01R&re=1&ee=1. 47 “Federal Clean Energy Contracting,” Solar Energy Industry Association, accessed January 1, 2015, http://www.seia.org/policy/renewable-energy-deployment/federal-clean-energy-contracting.

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48 “Retail Renewable Portfolio Standard,” New York State Public Service Commission, accessed January 30, 2015, http://www3.dps.ny.gov/W/PSCWeb.nsf/All/1008ED2F934294AE85257687006F38BD; “Renewables Portfolio Standard,” California Energy Commission. 2015, accessed January 22, 2015, http://www.energy.ca.gov/portfolio/index.html; “Rules, Regulations & Policies for Renewable Energy,” Database of State Incentives for Renewables & Efficiency, accessed January 15, 2015, http://dsireusa.org/summarytables/rrpre.cfm. 49 “Renewable Energy,” European Commission, accessed January 24, 2015, http://ec.europa.eu/energy/renewables/index_en.htm. 50 “National Action Plan,” European Commission,” accessed January 16, 2015, http://ec.europa.eu/energy/renewables/action_plan_en.htm. 51 Bruno Waterfield, “European Commission to ditch legally-binding renewable energy targets,” The Telegraph, January 22, 2014, accessed January 22, 2015, http://www.telegraph.co.uk/finance/newsbysector/energy/10588121/European-Commission-to-ditch-legally-binding-renewable-energy-targets.html. 52 Vincent Shaw, and Max Hall, “China Unveils 15 GW solar target,” PV Magazine, January 30, 2015, accessed January 30, 2015, http://www.pv-magazine.com/news/details/beitrag/china-unveils-15-gw-solar-target_100018005/#axzz3QLw3EkLc. 53 “Global Wind Report. Annual Market Update 2013,” Global Wind Energy Council, 2014, p. 44. 54 Feifei Shen, Justin Doom, and Steven Yang, “China Solar Makers Gain on Policies to Spur Installations,” Bloomberg Business, August 6, 2014, accessed January 22, 2015, http://www.bloomberg.com/news/2014-08-05/china-said-to-consider-policies-to-increase-solar-installations.html. 55 “Major Govt. Initiatives,” Solar Energy Corporation of India, accessed January 28, 2015, http://seci.gov.in/content/govt_initiatives.php. 56 Lucy Woods, “India rooftop solar subsidy finally released, but industry says better off without,” August 19, 2014, accessed January 28, 2015, http://www.pvtech.org/news/mnre_finally_releases_delayed_rooftop_solar_subsidy_but_industry_says_bette; Anand Upadhyay, “Major Subsidy Revisions for Rooftop Solar in India,” Clean Technica, January 4, 2014, accessed January 28, 2015, http://cleantechnica.com/2015/01/04/major-subsidy-revisions-rooftop-solar-india/. 57 Bill Ritter, “Let’s Even the Playing Field for Renewable Energy,” The Wall Street Journal, September 30, 2014, accessed January 22, 2015, http://blogs.wsj.com/experts/2014/09/30/lets-even-the-playing-field-for-renewable-energy/. 58 “S. 795 (113th): Master Limited Partnerships Parity Act.” Govtrack, Accessed December 14, 2015, https://www.govtrack.us/congress/bills/113/hr1696; Felix Mormann, Dan Reicher, and Mark Muro, “Clean Energy Scores a Success with the Master Limited Partnership Parity Act,” Brookings, December 19, 2013, accessed December 19, 2014,

http://www.brookings.edu/research/opinions/2013/12/19-clean-energy-mormann-reicher-muro; Chris Coon, “The Master Limited Partnerships Parity Act,” U.S. Senate, http://www.coons.senate.gov/issues/master-limited-partnerships-parity-act; Felix Mormann, and Dan Reicher, “How to Make Renewable Energy Competitive,” The New York Times, June 1, 2012, accessed January 2, 2015, http://www.nytimes.com/2012/06/02/opinion/how-to-make-renewable-energy-competitive.html?pagewanted=1. 59 Mary Urdanick, “A Deeper Look into Yieldco Structuring,” National Renewable Energy Laboratory, August 3, 2014, accessed December 17, 2015, https://financere.nrel.gov/finance/content/deeper-look-yieldco-structuring. 60 “Rules, Regulations & Polies for Renewable Energy,” Database of Incentives for Renewable Energy,” accessed January 22, 2015, http://dsireusa.org/summarytables/rrpre.cfm; “Net Metering,” Solar Energy Industries Association, accessed January 20, 2015, http://www.seia.org/policy/distributed-solar/net-metering. 61 Lauren Sommer, “California Utilities and Solar Companies Battle over Electricity Prices,” KQED, November 24, 2014, accessed January 22, 2015, http://blogs.kqed.org/science/audio/california-utilities-and-solar-companies-battle-over-electricity-prices/. 62 “California Solar Initiatives – Single-Family Affordable Solar Housing (SASH) Housing,” Database of Incentives for Renewable Energy, accessed January 22, 2015, http://dsireusa.org/incentives/incentive.cfm?Incentive_Code=CA205F&re=0&ee=0. 63 “PV module Recycling Mandatory for all EU members by Q1 2014,” PV Magazine, September 10, 2012, accessed January 22, 2015, http://www.pv-magazine.com/news/details/beitrag/pv-module-recycling-mandatory-for-all-eu-members-by-q1-2014_100008396/#axzz3Nz0Raw6C. 64 Christin Larson, “China Gives Teeth, Finally, to Beijing’s New ‘War on Pollution,’” Bloomberg Business, April 28, 2014, http://www.bloomberg.com/bw/articles/2014-04-28/china-gives-teeth-finally-to-beijing-s-new-war-on-pollution. 65 “SEC Adopts Rule for Disclosing Use of Conflict Minerals,” U.S. Securities and Exchange Commission, 2012, accessed April 8, 2014, http://www.sec.gov/news/press/2012/2012-163.htm. 66 “Recommendations for companies pending appellate review of the SEC conflict minerals rules,” Hunton & Williams LLP, February 5, 2014, http://www.lexology.com/library/detail.aspx?g=e8dd78f8-6105-4ce0-8782-615fab7490d4.

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67 “What is the energy payback for PV?” U.S. Department of Energy, January 2004, accessed October 10, 2014, http://www.nrel.gov/docs/fy04osti/35489.pdf. 68 Author’s calculation from U.S. Census Bureau 2011 Annual Survey of Manufactures REFRESH, released December 17, 2013. 69 Ibid. 70 Jinko Solar, FY2013 Form 20-F for the period ending December 31, 2013 (filed April 30, 2013), p. 13. 71 Yingli Green Energy Holding Company, FY2014 Form 20-F for the period ending December 31, 2014 (filed May 15, 2015 2014), p. 19. 72 “CDP 2014 Investor Information Request – SunPower,” Carbon Disclosure Project, 2014, pp. 18-22, accessed December 20, 2014, https://www.cdp.net/en-US/Results/Pages/responses.aspx. 73 Author’s calculation from data from Bloomberg Professional service accessed on January 20, 2015, using the SPWR US Equity FA <GO> command. 74 “Sustainably Metrics,” First Solar, accessed January 20, 2015, http://www.firstsolar.com/en/about-us/corporate-responsibility/sustainability-metrics. 75 “Photovoltaics Report,” Fraunhofer Institute, October 24, 2014, p. 31-32, accessed January 21, 2015, http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCUQFjAA&url=http%3A%2F%2Fwww.ise.fraunhofer.de%2Fde%2Fdownloads%2Fpdf-files%2Faktuelles%2Fphotovoltaics-report-in-englischer-sprache.pdf&ei=NyLAVMSyCI67ogS20oGQBg&usg=AFQjCNHQaEsq01F_U1cbJ6pzufQ9B3BhZA&sig2=zNT8efCzfDzjKT8KqXm5mw&bvm=bv.83829542,d.cGU&cad=rja. 76 “Greatest Efficiency Potential,” First Solar, accessed January 20, 2015, http://www.firstsolar.com/en/technologies%20and%20capabilities/pv-modules/first-solar-series-3-black-module/cdte-technology. 77 Louise Lerner, “Solar Panel Manufacturing is Greener in Europe that China, Study Says,” Argonne National Laboratory, May 29, 2014, accessed January 28, 2015, http://www.anl.gov/articles/solar-panel-manufacturing-greener-europe-china-study-says. 78 JA Solar Holding Company Ltd., FY2014 Form 20-F for the period ending December 31, 2014 (filed April 27, 2015), p. 46. 79 The Water-Energy Nexus in the American West , Editors: Douglas S. Kenney, Robert Wilkinson, Publisher: Edward Elgar Publishing, 2011, p. 233, https://books.google.com/books?id=CDe9ndOLu3AC&lpg=PA238&ots=XeQ3J6qwYH&dq=life%20cycle%20water%20solar%20pv&pg=PA234#v=onepage&q=life%20cycle%20water%20solar%20pv&f=false. 80 Ibid. 81 SunPower Corporation, FY2014 Form 10-K for the period ending December 28, 2014 (filed February 24, 2015), p. 37. 82 First Solar Inc., FY2014 Form 10-K for the period ending December 31, 2014 (filed February 25, 2015) pp. 33-34. 83 “Sustainability Report 2014,” Canadian Solar, July 24, 2015, pp. 78-79, accessed November 5, 2015, http://investors.canadiansolar.com/phoenix.zhtml?c=196781&p=irol-newsArticle&ID=2090074. 84 “Sustainability,” Trina Solar, accessed October 20, 2015, http://www.trinasolar.com/us/about-us/Sustainability.html. 85 “SunPower,” Green Builder Media, July 2, 2015, p. 12, accessed November 1, 2015, http://www.greenbuildermedia.com/2015-eco-leaders/sunpowerp. 86 “Environmental Impacts of Solar Power,” Union of Concerned Scientists, March 5, 2013, accessed January 29, 2015, http://www.ucsusa.org/clean_energy/our-energy-choices/renewable-energy/environmental-impacts-solar-power.html#.VKsXOXsTGwg. 87 Ibid. 88 Thomas Neff, “The Social Cost of Solar Energy: A study of Photovoltaic Energy Systems,” Elsevier, October 22, 2013, p. 48. ; Dustin Mulvaney, “Solar Energy Isn’t Always as Green as You Think.” 89 “Solar Power boom fuels increase in hazardous waste sent to dumps,” Associated Press, February 11, 2013, accessed January 3, 2015, http://www.toledoblade.com/Energy/2013/02/11/Solar-power-boom-fuels-increase-in-hazardous-waste-sent-to-dumps.html#SCWQRdJmlVEUJIJh.99. 90 Canadian Solar, FY2014 Form 20-F for the period ending December 31, 2014 (filed April 23, 2015), p. 52. 91 First Solar, FY2013 Form 10-K for the period ending December 31, 2014, (filed February 25, 2015), p. 25. 92 Trina Solar, FY2014 Form 20-F for the period ending December 31, 2014 (filed April 24, 2015), p. 16. 93 “Solar firm fined for ilegal waste disposal,” The China Post, April 28, 2012, accessed January 29, 2015, http://www.chinapost.com.tw/taiwan/national/national-news/2012/04/28/339366/Solar-firm.htm.

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94 “China Solar Panel Factory Shut after Protests,” BBC News, September 19, 2011, accessed January 8, 2015, http://www.bbc.co.uk/news/world-asia-pacific-14968605. 95 Dustin Mulvaney, “Solar Energy Isn’t Always as Green as You Think.” 96 Brian Spegele, “Chinese Villagers Protest Pollution,” The Wall Street Journal, September 19, 2011, accessed January 8, 2015, http://www.wsj.com/news/articles/SB10001424053111904106704576578442998803296; Christin Larson, “China Gives Teeth, Finally, to Beijing’s New ‘War on Pollution,’” Bloomberg Business, April 28, 2014, http://www.bloomberg.com/bw/articles/2014-04-28/china-gives-teeth-finally-to-beijing-s-new-war-on-pollution. 97 “Sustainably Metrics,” First Solar, accessed January 20, 2015, http://www.firstsolar.com/en/about-us/corporate-responsibility/sustainability-metrics. 98 “Sustainability report 2014,” Canadian solar, 2014, accessed p. 9, accessed October 25, 2015, http://www.canadiansolar.com/making-the-difference/foundations-for-a-sustainable-future.html CSR report. 99 “Environmental Impacts of Solar Power,” Union of Concerned Scientists, last updated March 5, 2013, accessed October 20, 2015, http://www.ucsusa.org/clean_energy/our-energy-choices/renewable-energy/environmental-impacts-solar-power.html#bf-toc-0. 100 “Brownfields,” United States Environmental Protection Agency, last updated November 23, 2015, accessed November 23, 2015, http://www2.epa.gov/brownfields. 101 “Environmental Impacts of Solar Power,” Union of Concerned Scientists, last updated March 5, 2013, accessed October 20, 2015, http://www.ucsusa.org/clean_energy/our-energy-choices/renewable-energy/environmental-impacts-solar-power.html#bf-toc-0. 102 “Responsible Land Use,” Solar Energy Industries Association, accessed October 20, 2015, http://www.seia.org/policy/power-plant-development/utility-scale-solar-power/responsible-land-use. 103 JA Solar Holding Company LTD., FYK2013 Form 20-F for the period ending December 31, 2014 (filed April 27, 2015), p. 13. 104 First Solar, FY2014 Form 10-K for the period ending December 31, 2014 (filed February 25, 2015), p. 32. 105 SunPower Corp, FY2014 Form 10-K for the period ending December 28, 2014 (filed February 24, 2015), p. 86. 106 Ibid., p. 27. 107 “Soda Mountain Solar,” United States Bureau of Land Management, last updated June 5, 2015, accessed October 25, 2015, http://www.blm.gov/ca/st/en/fo/barstow/renewableenergy/soda_mountain.html. 108 “BLM proposes reduced size for Soda Mountain Solar Project,” Daily Press, June 8, 2015, accessed November 10, 2015, http://www.vvdailypress.com/article/20150608/NEWS/150609786. 109 Louis Sahagun, “L.A. won't buy power from Mojave Desert solar plant, after all,” Los Angeles Times, June 11, 2015, accessed November 10, 2015, http://www.latimes.com/local/california/la-me-solar-20150612-story.html. 110 Ibid. 111 Bill Leukhardt, “Court Case Still Stopping Hatton Meadow Solar Project,” Hartford Courant, August 11, 2015, accessed October 20, 2015, http://www.courant.com/community/southington/hc-southington-hatton-solar-0812-20150811-story.html; “Neighbors fight for Southington field slated for solar panel project,” Fox 61, June 22, 2015, accessed November 20, 2015,

http://foxct.com/2015/06/22/neighbors-fight-for-field-slated-for-solar-panel-project/. 112 “80% Renewables by 2050 In US, Says NREL,” Clean Technica, April 13, 2015, accessed October 10, 2015, http://cleantechnica.com/2015/04/13/80-renewables-by-2050-in-us-says-nrel/. 113 Per-Anders Enkvist, Jens Dinkel, and Charles Lin, “Impact of the Financial Crises on Carbon Economics,” 2010, McKinsey and Company, p. 8. 114 Michael Taylor, Kathleen Daniel, Andrei Ilas, and Eun Young So, “Renewable Power Generation Costs in 2014,” International Renewable Energy Agency, January 2015, p. 35. 115 Author’s calculation from data from Bloomberg Professional service accessed on October 20, 2015, using the BI EGENN <GO> command. 116 Eric Wesoff, “Hawaii’s Utility Is Approving a Backlog of More Than 3,000 Solar Installations,” Greentech Media, April 1, 2015, accessed November 25, 2015, http://www.greentechmedia.com/articles/read/Hawaiis-Utility-is-Approving-a-Backlog-of-More-Than-3000-Solar-Installati. 117 Eric Wesoff, “Hawaii’s Utility Is Approving a Backlog of More Than 3,000 Solar Installations.”; Eric Wesoff, “A Solar Permit Slowdown Is Chilling Oahu’s Installer Market,” Greentech Media, June 12, 2014, accessed October 12, 2015, http://www.greentechmedia.com/articles/read/A-Solar-Permit-Slowdown-is-Chilling-Oahus-Installer-Market. 118 Eric Wesoff, “A Solar Permit Slowdown Is Chilling Oahu’s Installer Market.”

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