The Rise of Solar Industry in India August 27, 2011 ITC Sonar, Kolkata

1. The Rise of Solar Industry in India August 27, 2011 ITC Sonar, Kolkata

2. What we believe is possible by 2022…. Solar energy can meet 7% of our power requirement It can save 72 MTPA of coal imports (30%) or USD 5.5 bn of import bill annually from that year It can mitigate 2.6% of India’s carbon emissions which is one-tenth of our voluntary target of 20-25%

3. A PIPE DREAM? We don’t think so. This can be done!

4. Here’s why… • 55 x 55 km² of installed solar capacity is all we need to meet India’s energy needs today • Even if 16%* of our middle class households install solar rooftops - It would generate enough power to meet the total power requirements of the country today Note: Number of Middle Class Households – 80 million; Avg. rooftop area – 250 sq.m, Avg. Solar Insolation – 5 kwh per sq.m per day; Conversion Efficiency – 15%

5. “But the cost is too high!”. Not for long! (1/2)

6. “But the cost is too high!”. Not for long! (2/2)

7. This is our forecast of the market Requires subsidy support

8. “But what will all this cost us?” Total financial impact over the next 6 years to meet Solar RPO obligations is USD 6 billion

9. Is USD 6 billion a lot? 9 GW of Solar RPO Obligations Cumulative subsidy in the next 6 years • USD 1 per barrel rise of oil price • Cumulative cost impact on economy over 6 years • 5% shortage of domestic coal needing imported coal • Cumulative cost over 6 years = =

10. Decentralized Stand-alone Applications can contribute 65% of the total demand during 2017-22

11. Solar water heating systems - Around 70 million sqm of collector area could be deployed in India within the next decade Annual Solar Water Heating System Market Size – Million Sqm China with relatively lower insolation has 125 million square meters of SWH collector capacity • India only has an estimated 3.5 million square meters of solar water heating collectors • About 11 million tonnes of imported coal can be substituted by 2022

12. Solar powered agricultural pumpsets can potentially replace conventional powered pumpsets post grid parity Power subsidy to electricity sector is likely to increase from USD 17 Bn to USD 50 Bn by 2022 Today, diesel powered pumpsets can be economically replaced by solar powered pumpsets… Diesel generated pumpsets Solar power is well suited as an alternate solution! Solar powered pumpsets Conventional power pumpsets Note: Full cost comparison that includes pumpset cost and delivered power costs

13. Centralized Grid-Connected Power Demand 20,000 MW by 2022 • CSP provides the benefit of storage. • Meet peak requirements and reduce intermittency • Steam augmentation & hybridization

14. Why we should give a thrust to distributed generation… • Solar power is already competitive for decentralized stand-alone applications • For example: • Pay back period for residential solar water heating system is between 2.5 to 4 years • Solar lanterns replacing subsidised kerosene • Pay back period is between 1 to 2 years. • Potential annual savings, if 50% of un-electrified households switch to solar lanterns ~ USD 1.2 Billion* • Lower network losses • Reduce network burden • Savings in fuel consumption * Note: - Number of un-electrified households – 78 million, Kerosene consumption per household per year – 50 liters; Price of oil ~ USD 100 per bbl

15. What should we do to achieve this potential? (1/2) Government - Support creation of the ecosystem • Provide a steady stimulus for market creation – “Market Certainty” is the keyword for investors! • Support state power utilities financially; create a source for funding! • Provide sufficient thrust to decentralized generation • Support the banks in the first phase!

16. What should we do to achieve this potential? (2/2) • Banks – invest in understanding this sector well: Bridge the “knowledge” gap – This is a big funding opportunity in the next 10 years! • State Utilities & Regulators – Provide supporting infrastructure – grid connections, net-metering, Renewable Purchase Obligation enforcement • Industry – • Innovate – develop suitable solutions for the Indian market e.g. solarising agriculture pumps • Vendor development & Value engineering to reduce costs – the large players need to invest in this area

17. What mankind achieved in 10-year timeframes… Examples: • “Man on the moon by end of this decade”: JFK, 1961 • Desktop computers in 1980s: From 1 to 9.5 (Million) • Internet penetration in 1990s: 2.8 to 360 (Million) • India’s teledensity in 2000s: 4% to 64%

18. Thank You

19. Contact Us Santosh Kamath Partner KPMG Advisory Services Pvt. Ltd. Tel: +91 2230902527 Mo: +91 9967016369 E-Mail: skamath@kpmg.com Anupam Ray Associate Director KPMG Advisory Services Pvt. Ltd. Tel: +91 3344034022 Mo: +91 9903032879 E-Mail: aray@kpmg.com Website: www.in.kpmg.com The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

20. A small piece of land in Rajasthan can meet the power requirement of India!

21. Cost Reduction potential – What aspects of solar power lead to cost reduction possibilities? 1. Technology innovation 2. Localization Cost Reduction Levers 3. Govt Incentives 5. Other Enablers 4. Competitive Intensity • Banker education/ incentivization for fair cost financing • Sustained momentum – accelerates Indian industry; aligns international markets to Indian landscape • Ongoing R&D – cost reduction/ efficiency improvement • India suited technology - leveraging of India advantages • Tariff competition - percolation to suppliers leading to margin reductions on key high value imports • Cost reduction of EPC ‘wraps’ through innovative contracting models • Aggregation initiatives (Solar Parks) for scale economies • Reduction of location sensitive charges – wheeling/ Tx to encourage Sun based siting • Localization of multiple components possible • Indigenous manpower for engineering design We believe multiple levers for cost reduction exist – the pace of cost reduction would largely depend on the pace of capacity addition 20

22. Solar PV Cost Reduction Potential – Manufacturing Innovations • Polysilicon • $ 0.30 per Wp • 27% • Ingots/Wafers • $ 0.25 per Wp • 23% • Cell • $ 0.22 per Wp • 21% • Modules • $ 0.30 per Wp • 29% Module Costs: $1.1-1.2 per Wp Cost Structure Reduction in polysilicon feedstock prices - Deployment of Fluidized Bed Reactor (FBR) process Technology improvements - Usage of innovations like: Diamond wire wafering, Ultra thin kerfless wafers etc. Improvement of cell efficiency - Increasing light absorption layers, Usage of better absorption material etc Drivers for cost reduction Potential for cost reduction • Costs of Si-FBR processes are around $ 20 per Kg • Cost reduction potential by 35-40% • Polysilicon usage is expected to come down from ~ 7-6.5g/W to ~ 3g/W within the next decade • Cost reduction potential by 45-50% • Cell efficiencies expected to increase from 16-17% to 18-19% and then later on towards 22-23% • Cost reduction potential per kWh by 15-20% Source – DOE – USA Estimates, Other Analyst Reports, KPMG Analysis

23. Solar PVCost Reduction Potential – Non module BOS Costs Installation and Commissioning Civil & General Works IDC and Financing Charges Inverters Transformers, switch gears and cables Balance of System (~45- 50% of total solar system cost) • Majority of inverters are imported currently • Players are looking at assembly of inverters in India which could contribute towards cost reduction • Market and technology already established • Driven by prices of commodities like Copper and CRGP coil • Driven by localized site conditions and low labour costs • Availability of manpower for design engineering • Local sourcing of materials • Driven by low cost innovative financing options • Exim route • Tax free solar bonds Key Considerations Potential for cost reduction LOW LOW HIGH HIGH HIGH Balance of System costs are likely to come down due to local sourcing and lower labor costs

24. Solar CSP Localization Potential – Key high value CSP components lend themselves to high localization potential Parabolic Trough Mirrors Molten Salt Storage Components Trough Structures & Associated Works Engineering Design/ Execution Power Block • Requires fabrication of pipes, tanks • Manufacturers with required competence present in India • Pumps may still be imported • Turbines are specialized but global suppliers have Indian presence – can localize • Heat exchangers – Local designs available • Limited capabilities with Indian vendors however, required CAD/ CAM facilities available • Local manpower available • Most fabrication requirements – welding, casting etc available • Localization possible with design transfer and hand-holding • Most raw materials available locally • Manufacturers with required competence present in India 11-15% 9-12% 5-7% 12-15% 7-9% • Most components can be localized readily or with limited assistance – pace would depend on industry willingness based on market size visibility • Certain complex items (e.g. Absorber tubes, Heat transfer fluid, C&I components, Specialized pumps) may take time due to limited suppliers and concentration of technology