January 2015

THE COST LANDSCAPE OF SOLAR AND WIND Americas Insight

Nicholas Culver

AGENDA

PREFACE: RENEWABLES IN CONTEXT

SOLAR

WIND

ROUND UP

1

US CLEAN ENERGY INVESTMENT – TOTAL NEW INVESTMENT, ALL ASSET CLASSES ($BN)

70

$65.2

60 $52.4 $48.0

50 $41.3 40

$34.6

$51.8 $48.1

$43.8 $35.4

30 $16.7

20 $10.3 10 0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

● ●

Clean energy investment in the US since 2007 has been $386bn Investment in 2014 rebounded by 7% from 2013 levels, and is 5x higher than a decade ago

Source: Bloomberg New Energy Finance Notes: Shows total clean energy investment in the US across all asset classes (asset finance, public markets, venture capital / private equity) as well as corporate and government R&D, and small distributed capacity (rooftop PV). The definition of ‘clean energy’ used here is: renewable energy, energy smart technologies (digital energy, energy storage, electrified transportation), and other low-carbon technologies and activities (carbon markets value chain, companies providing services to the clean energy industry). Values in both charts include estimates for undisclosed deals and are adjusted to account for re-invested equity. Values are in nominal dollars.

2

US POWER OVERVIEW: RENEWABLE ENERGY CAPACITY BUILD BY TECHNOLOGY (GW) 20

18.1

18 16

3.3

Hydro

14

12.2

11.6

12 10

10.0

0.4

5.8

6

2

9.0

0.3

8

4

Geothermal

9.2

10.5

2.0

6.5

7.2

14.0

Biomass, biogas, waste Solar

0.9 6.6

4.5

4.9

Wind 4.7

0.5

2008 2009 2010 2011 2012 2013 2014

● ●

●

●

Wind and solar both saw increased levels of build in 2014, relative to 2013 levels, but for different reasons: Solar build increased by 40%. The utility-scale side of the industry brought online projects that have been driven by state renewable energy mandates and by the long-standing federal Investment Tax Credit (ITC). (The ITC is due to drop in value at the end of 2016.) The small-scale side capitalized on economics that increasingly make solar an attractive alternative to retail rates in much of the US Wind build bounced back due to policy swings. The Production Tax Credit expired at the end of 2012, dampening build in 2013. The incentive was renewed at the beginning of 2013, and it took the industry a year to reconstruct pipelines and bring projects to completion, hence the uptick in 2014. The pipelines show strong years in 2015-16. Other sectors – biomass, biogas, waste-to-energy, geothermal, hydro – are languishing without long-term policy certainty

Source: Bloomberg New Energy Finance, EIA Notes: Numbers include utility-scale (>1MW) projects of all types, rooftop solar, and small- and medium-sized wind.

3

US POWER OVERVIEW: CUMULATIVE RENEWABLE ENERGY CAPACITY BY TECHNOLOGY US cumulative renewable capacity by technology (including hydropower) (GW) 186

200

150

141 41

153 53

160 59

193

120

205

103

168

67

US cumulative non-hydropower renewable capacity by technology (GW)

100

85

91

103 Other renewables

101

101

101

101

101

101

67

41

40

3.1 11.1 1.2

20

2008 2009 2010 2011 2012 2013 2014

59

3.3

3.3

12.0

11.8 11.5 2.8 1.9

4.9

53

60

Hydropower

100

3.4

80

100

50

91 85

3.2

36.1 40.7

3.5 13.0

12.3 8.1

3.5 13.0 20.3

13.0

Geothermal

Biomass, biogas, waste Solar

61.2 61.7 66.4

47.2

Wind

25.8

2008 2009 2010 2011 2012 2013 2014

● ●

Power-generating capacity of non-hydropower renewables surpassed hydropower capacity for the first time US non-hydropower renewable capacity has increased by 2.5x since 2008, mostly due to new wind and solar

Source: Bloomberg New Energy Finance, EIA Notes: Hydropower capacity includes pumped hydropower storage facilities.

4

US POWER OVERVIEW: ELECTRICITY GENERATION MIX US electricity generation by fuel type (%)

22% 22% 24% 24%

25%

31% 28% 27%

19.4%19.6% 20.2%19.6% 19.3% 19.0%19.4%19.4%

Renewables (including hydro)

4,000

Natural gas

3,000

Nuclear

2,000 Nuclear

Oil

Coal

2014

2013

2012

0

2011

2014

2013

2012

2011

2010

2009

Oil

500

37% 39% 39%

Coal

2008

1,000

2010

49% 48% 44% 45% 42%

2007

●

Renewables (including hydro) Natural gas

1,500

0%

●

3,500 2,500

40% 20%

CHP

2009

60%

9% 10% 10% 12% 12% 13% 13%

2008

80%

4,500 8%

2007

100%

US electricity generation by fuel type (TWh)

The US electricity mix in 2014 was nearly identical to 2013 levels. Natural gas’s contribution is off of the record high achieved in 2012, when the fuel’s prices sank to historic lows. This up-and-down in natural gas’s market share is a cyclical effect Longer term, though, larger structural trends are afoot: the US power sector is gradually decarbonizing. Coal plants are being retired, and natural gas and renewables are gaining ground: from 2007 to 2014, natural gas increased from 22% to 27% of the mix, and renewables climbed from 8% to 13%

Source: EIA Notes: Values for 2014 are projected, accounting for seasonality, based on latest monthly values from EIA (data available through September 2013). In chart at left, contribution from ‘Other’ is not shown; the amount is minimal and consists of miscellaneous technologies including hydrogen and non-renewable waste. In chart at right, contribution from CHP is indicated by a shaded bar in each of the columns. The hydropower portion of ‘Renewables’ includes negative generation from pumped storage.

5

POLICY: US COAL POWER PLANT RETIREMENTS COMPLETED AND ANNOUNCED BY YEAR (GW) 13

14 12

11

10

8 6

5

4

3

3 2

2

2 1

1

1970 1993 1994 1995 1996 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0

Retired ●

● ●

Announced

US Environmental Protection Agency (EPA) regulations covering sulfur, nitrogen, and mercury emissions from power plants will require coal units to install costly retrofit technologies. With low gas prices cutting at the margins of coal generators, many units are being forced to retire rather than install emissions controls The majority of announced retirements are for 2015, when the Mercury and Air Toxics Standard (MATS), which limits the emissions of mercury and acid gases from power generators, takes effect Many of the boilers retiring represent the oldest and least efficient coal units in the power stack

Source: Bloomberg New Energy Finance

6

ECONOMICS: COST OF GENERATING ELECTRICITY IN THE US FROM NATURAL GAS VS COAL ($/MWH) 50 Gas (CCGT)

40

30 Coal 20

10

0 Apr 2010

● ● ●

Apr 2011

Apr 2012

Apr 2013

Apr 2014

Power has served as the swing demand source for natural gas: when prices fall too low, gas burn rises until the differential (in $/MWh) between the two fuels closes. In 2014, the cold winter drove gas prices to regional highs, giving coal a comparative advantage across the US The differential was particularly high in the northeast, where pipeline constraints resulted in especially high winter prices

Source: Bloomberg New Energy Finance Notes: Assumes heat rates of 7,410Btu/kWh for CCGT and 10,360Btu/kWh for coal (both are fleet-wide generation-weighted medians); variable O&M of $3.15/MWh for CCGT and $4.25/MWh for coal.

7

HENRY HUB PRICE FORECAST ($/MMBTU NOMINAL)

12 Back to Black ($90 oil, high LNG exports) 10

8

6 Lean Times ($70 oil, lower LNG exports) 4

2

0 2011

●

Actual

2013

2015

2017

2019

2021

2023

2025

2027

2029

Natural gas prices are historically cheap and there appears to be about a decade of cheap gas available. Gas prices fluctuated between $6 and $14 per Mmbtu during 2004-2008. Source: Bloomberg New Energy Finance 8

ECONOMICS: LCOE COMPARISON FOR US NATURAL GAS VS. COAL ($/MWH) AS A FUNCTION OF FUEL PRICE ($/MMBTU) LCOE ($/MWh)

70 60 50

Eastern coal LCOE

Western coal LCOE

Gas LCOE

40 $1.15/MMBtu = $20/ton PRB (delivered)

30 20

$2.40/MMBtu = $60/ton Appalachian

10 0 1

2

3

4

5

6

7 Fuel price ($/MMBtu)

● ●

● ●

With gas prices below $4.50/MMBtu, new natural gas plants have a lower levelised cost of electricity than new coal power plants anywhere in the country The EPA’s New Source Performance Standards for carbon indicates that no new coal units could be built without carbon capture and sequestration (CCS); that technology would push coal LCOEs even higher At 2014 prices, economics favored new natural gas plants new coal plants (even without accounting for CCS) With futures prices suggesting gas may rise above $5/MMBtu, LCOEs for natural gas and non-CCS coal will be close in value

Source: Bloomberg New Energy Finance Notes: Assumes heat rates of 7,410Btu/kWh for CCGT and 10,360Btu/kWh for coal (both are fleet-wide generation-weighted medians); variable O&M of $3.15/MWh for CCGT and $4.25/MWh for coal.

9

AGENDA

PREFACE: RENEWABLES IN CONTEXT

SOLAR

WIND

ROUND UP

10

DEPLOYMENT: GLOBAL PV SUPPLY AND DEMAND Global PV module production by country (GW) 45

60

38.7

40 35

29.7

30 3.3

25

18.1

20

2.7

30.1

3.3

10

7.7

2.3

5

1.8

9.9

19.1

7.0

Other US Norway

2.2

Germany

2.3

15

2.7

21.3

26.9

2009 2010 2011 2012 2013

●

40 30

20 10

China

48.7

50

Japan

3.1

●

Global PV demand by country (GW)

28.3

30.7

40.3 9.7 5.0 3.3 5.4 5.4 6.3 4.7 11.1 7.1

4.4 18.2 7.9 3.6 7.6 7.5 7.7 5.8 7.2 5.1 3.3 12.9 13.5 3.8 3.6 2009 2010 2011 2012 2013 2014

Rest of world Italy

Germany Rest of EU US

Japan China

Bolstered by strong uptake in China and Japan, PV demand rose strongly, as the global market again reduced its reliance on European demand centers Trade disputes raged on, as the US took steps to applying tariffs on Chinese and Taiwanese solar products (which still account for much of the market). The US tariff regime to date has increased modules prices by roughly ~$0.15, but so far lowcost Chinese producers have largely held onto market share in the US by accepting slimmer margins

Source: Bloomberg New Energy Finance Notes: In chart at right, 2014 values represent an average of optimistic and conservative analyst estimates.

11

ECONOMICS: PRICE OF SOLAR MODULES AND EXPERIENCE CURVE ($/W AS FUNCTION OF GLOBAL CUMULATIVE CAPACITY) Cost ($/W) 100 (in 2013 dollars)

1976

1985 10 2003 2006 1

2012

2013

Q4 2013

2012

10,000

100,000

0.1 1

10

100

1,000

Experience curve (c-Si) Module prices (Maycock) Module prices (Chinese c-Si) (BNEF) Experience curve (thin-film) Module prices (thin-film) (First Solar)

● ●

1,000,000 Cumulative capacity (MW)

Module pricing has broadly followed the experience curve for costs for the past few decades. Prices dropped in 2012 due to manufacturing overcapacity, but then ticked back up in 2013 as oversupply began to ease Module prices are down by more than 80% relative to 2007 levels

Source: Bloomberg New Energy Finance, Paul Maycock, company filings Notes: Prices in 2013 USD.

12

RESIDENTIAL PV COST, ESTIMATED, (5KW ROOFTOP) ($/W)

Equipment

Engineering, Procurement, Construction (EPC)

Development

4.5

4.5

4.5

4.0

4.0

4.0

3.5

3.5

3.5

3.0

3.0

3.0

2.5

2.5

2.5

2.0

2.0

2.0

1.5

1.5

1.5

1.0

1.0

1.0

0.5

0.5

0.5

0.0

0.0

0.0

No.CA So.CA HI BOS Inverter

MA NJ Racking Modules

NC

No.CA So.CA EPC margin EPC permitting Labor

HI

MA

NJ

NC

General conditions Design

No.CA So.CA Developer fee Interconnection SG&A

HI

MA

NJ

NC

Developer permitting Acquisition costs

Source: Bloomberg New Energy Finance,

13

RESIDENTIAL PV COST – SO. CALIFORNIA, ESTIMATED HISTORICAL AND FORECAST ($/W)

7 6

Development

5 4 Engineering, Procurement, Construction

3 2 1

Equipment

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

0

Source: Bloomberg New Energy Finance,

14

CALIFORNIA RESIDENTIAL PV: SUBSIDISED VERSUS UNSUBSIDISED

100% 80%

60% 40% 20%

0% 2011

2012

No state subsidy

2013

2014

CSI-funded

Source: Bloomberg New Energy Finance,

15

UTILITY-SCALE PV COST, ESTIMATED, (10MW GROUND-MOUNT) ($/W)

Equipment

Engineering, Procurement, Construction (EPC)

Development

4.5

4.5

4.5

4.0

4.0

4.0

3.5

3.5

3.5

3.0

3.0

3.0

2.5

2.5

2.5

2.0

2.0

2.0

1.5

1.5

1.5

1.0

1.0

1.0

0.5

0.5

0.5

0.0

No.CA So.CA HI BOS Inverter

MA NJ Racking Modules

NC

0.0 No.CA So.CA EPC margin EPC permitting Labor

HI

MA

NJ

NC

General conditions Design

0.0 No.CA So.CA Developer fee Interconnection

HI

MA

NJ

NC

Developer permitting SG&A

Source: Bloomberg New Energy Finance,

16

UTILITY-SCALE PV COST – NORTH CAROLINA, ESTIMATED HISTORICAL AND FORECAST ($/W)

7 6

Development

5 4 Engineering, Procurement, Construction

3 2 1

Equipment

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

0

Source: Bloomberg New Energy Finance,

17

UNITED STATES SOLAR PV FORECAST, 2010-17 (GW)

Annual

Cumulative

14

50

12 8.4

8

6.3

6.3

6

4.9

4.6 3.3

4 0

38

40

10

2

43

10.8

1.9

3.8 2.7

2.0

5.8 1.1 2.0

1.6 1.7 1.2 1.0 2.6 2.5 1.0 1.9 1.3 0.9 0.5 2010 2011 2012 2013 2014 2015 2016 2017

0.9

Residential

Nonresidential

Utility

27

30 18

20 12 10

2

4

7

0 2010 2011 2012 2013 2014 2015 2016 2017 Residential Nonresidential Utility

Source: Bloomberg New Energy Finance,

18

TOP US STATES, SOLAR PV GENERATION FORECAST, 2013-17 (% OF TOTAL ELECTRICITY USE)

14% Hawaii 12%

California

10%

Nevada Arizona

8%

New Mexico

6%

Vermont New Jersey

4%

Colorado Massachusetts

2%

Utah 0% 2013

2014

2015

2016

2017

Source: Bloomberg New Energy Finance,

19

ESTIMATED COST OF SOLAR PV IN NORTH CAROLINA, 2012-30

Capex ($/W)

Levelised cost of electricity ($/MWh)

4.00

300

3.50

250

3.00

200

Residential

2.50 2.00

150

1.50

100

1.00 0.50

Utility

Nonresidential

50

0.00

2030

2028

2026

2024

2022

2020

2018

2016

2014

2012

2030

2028

2026

2024

2022

2020

2018

2016

2014

2012

0

Source: Bloomberg New Energy Finance,

20

AGENDA

PREFACE: RENEWABLES IN CONTEXT

SOLAR

WIND

ROUND UP

21

DEPLOYMENT: US LARGE-SCALE WIND BUILD (GW) Incremental

Cumulative

15

75

13.8 Cumulative capacity

12

60

10.4 8.5

9

45 6.6

6

4.8

4.7

4.5

2.7

3

1.7

0.3

30 15

0.8

0

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

● ●

●

New build in 2014 rebounded six-fold from 2013 levels, from 0.8GW to 4.7GW The increase was driven by the one-year extension of the Production Tax Credit (PTC) in 2013, the key federal incentive for wind in the US. The PTC expired at the end of December 2012, was renewed January 2013, expired December 2013 (but wind projects qualified for the incentive by starting construction in 2013), was ‘retroactively’ renewed in December 2014 and expired again two weeks later, at the end of 2014. The current pipeline suggests healthy build for 2015-16 A majority of the build is occurring in Texas. The state recently completed a $7bn transmission build-out to connect windy regions in the Panhandle and West Texas to demand centers. Wind in Texas is among the cheapest in the country, with an unsubsidized levelized cost of electricity of around $50/MWh, due to high capacity factors (>50%) and low cost to build

Source: Bloomberg New Energy Finance

22

Hawaii Alaska Vermont Massachusetts West Virginia Nebraska Maine Utah Michigan New York Missouri Wisconsin Grand Total Puerto Rico California Illinois Montana Pennsylvania Washington Minnesota Oregon Texas New Hampshire Maryland Idaho Arizona Oklahoma Indiana New Mexico Colorado South Dakota Ohio Iowa North Dakota Wyoming Kansas

COST OF WIND, SELECTED US STATES, ($/W)

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Source: Bloomberg New Energy Finance

23

Alabama Arkansas Georgia Kentucky Louisiana Mississippi South Carolina Tennessee Arizona Nevada New Mexico Florida Connecticut Massachusetts New Hampshire Rhode Island Vermont New York Maine Washington Delaware Maryland New Jersey North Carolina Ohio Pennsylvania Virginia Utah Indiana Oregon Illinois Colorado Idaho Montana Michigan Wisconsin Missouri Wyoming California Iowa Kansas Minnesota Nebraska North Dakota Oklahoma South Dakota Texas

LEVELISED COST OF ENERGY (LCOE) OF WIND SELECTED US STATES ($/MWH) 120

100

80

60

40

20

0

Subsidised Unsubsidised

Source: Bloomberg New Energy Finance

24

US NEW BUILD WIND FORECAST WITH 2014 PTC EXTENSION VS PRIOR EXPECTATIONS, 2008-2020 (GW) 13.6 Previous forecast

10.4

9.4

5.3

0.7 0.7

2.3

2013

2014

2012

2011

2010

2009

4.5

Total Announced / planning begun Financing secured / under construction

4.6

6.2 1.0

4.2

4.3 3.6

3.3

4.3

3.7

3.3

2.5

2017

4.0 1.6

5.0

2016

4.5 6.6

2008

2.3

2020

13.6

2015

9.1

10.4

2.5

9.1

2019

6.6

9.7

2018

9.1

Yet to be announced Permitted

Note: Grey numbers represent our previous forecast, available here. Specifically, they correspond to a forecast based on a scenario that assumes no PTC extension.

Source: Bloomberg New Energy Finance 25

AGENDA

PREFACE: RENEWABLES IN CONTEXT

SOLAR

WIND

ROUND UP

26

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27

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