Solar Energy: Path to Grid Parity April 11, 2012

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 2 Contents Why Solar? Why Solar in India? What is Stopping Solar? Our Point of View: Grid Parity Policy Focus – State and Center

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 3 A small piece of land in Rajasthan can meet the power requirement of India! ParticularsUnitsValue Area Required ( 55 KM * 55 KM)Sq. KM3,025 Area Required ( 55 KM * 55 KM)Sq.Meters3,025,000,000 Average Insolation in Rajasthan kwh per sqm per year2000 Conversion Efficiency%15% Total Power Generation PotentialMU 907,500 Indian Power Requirement in (EPS Estimate)MU 891,163

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Infinite Source 4

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Three things will drive solar power in India 1.Large Incremental Power Demand 2.Well endowed solar radiation – among the best in the world 3.Emerging grid parity 5 India needs to add: 80 GW (conventional power equivalent) in next five (5) years 200 GW (conventional power equivalent) in next ten (10) years

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Three things will drive solar power in India 6 1.Large Incremental Power Demand 2.Well endowed solar radiation – among the best in the world 3.Emerging grid parity India’s solar insolation ~ kwh/m2/year Operating hours KWh/KW p India South Africa Chile Egypt Brazil Average Irradiation Sunbelt China Australia Indonesia 1,800 1, ,000 Italy China Spain SouthKorea Japan USA France Czech Rep. Belgium Germany Top 10 PV Markets Selected countries in Sunbelt

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Three things will drive solar power in India 7 1.Large Incremental Power Demand 2.Well endowed solar radiation – among the best in the world 3.Emerging grid parity With our analysis of grid parity suggesting 2017 to 2019 timeframe, we expect solar power to start making significant contributions to incremental demand by 2015

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 8 Contents Why Solar? Why Solar in India? What is Stopping Solar? Our Point of View Policy Focus – State and Center

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Polysilicon Prices 9

10 © 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 Contents Why Solar? Why Solar in India? What is Stopping Solar? Our Point of View Policy Focus – State and Center

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Other Enablers in Short to Medium Term Enablers Emerging regulatory regime India aims to establish itself as a global leader in solar energy by creating policy conditions for its diffusion across the country Solar Power Purchase Obligation Mandates utilities to source upto 3% of their total power demand from solar power resources by 2022 Tariff Government supported lucrative Feed-In-Tariff (FIT) programs and high peak prices in the merchant market make solar an attractive proposition Resources Availability of sunshine for longer hours with greater intensity and abundance of large tracts of barren land suitable for solar Cost leadership Upcoming state-of-the-art manufacturing capacities at competitive costs will position India as a hub for Solar Energy Geopolitical Solar power will occupy a central place in India’s quest for energy and environmental security – depleting fossil fuel reserves and their black content endow solar an inherent advantage 11

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Proactive Government Support for Solar Market…. 12 Renewable Energy Certificate (REC) Market State level solar programs Jawaharlal Nehru National Solar Mission (JNNSM) IIIIII Power Purchase Agreement (PPA) – Subsidy Driven Market Driven Grid Connected: Phase – 1: 1000 MW by 2013 (500 MW of Solar thermal) 20,000 MW by 2022 Rooftop & Small Scale Solar Power Generation 100 MW already allotted Off-grid & Decentralized Solar Applications Market size of 200 MW by 2013 Several states have come out with solar power policies to encourage deployment of solar power. Gujarat: Signed PPA's for about 965 MW of solar power. Rajasthan: Phase-1 (up to 2013) Maximum Capacity to be developed 200 MW Phase-2 ( ) Maximum Capacity to be developed 400 MW (Additional) Developers can trade REC with utilities that are short of the mandated quota of renewable energy for each state in the power exchange REC market started trading in India

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Gujarat PPAs totaling 965 MWs signed Executing First Solar Park (~350 MW) in India that will be operational in 2011 –Pre feasibility study for Second Solar Park being undertaken Rajasthan MOU with Clinton Climate Initiative (CCI) for developing MW in Solar Parks –Feasibility study being done State Solar Policy (2011): –Targets 600 MW of generation capacity by 2017 West Bengal India’s first grid integrated 1 MW solar power plant at Asansol. Targets more than 100 MW by India – Radiation Map (kWh/m 2 /Day) Andhra Pradesh Emerging as a key Solar Manufacturing hub with players like Solar semiconductor, Surana, Suryachakra, Xl Telecom and Titan energy systems. Land banks for solar projects have been identified in 12 districts. Source: TERI 6.6 – – – – – – – – – – – State Policies Certain States are active in the Solar space…. …several states have signed MOUs and PPAs with developers for setting up solar power plants

14 © 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Renewable energy at preferential tariff Environmental Attributes Environmental Attributes Electricity REC Mechanism Option to sell renewable energy in REC market has been a major incentive for RE generators RE Generator Option 1 Option 2 At least 250kW grid connected renewable energy projects Small Hydro Wind Solar Biomass Urban or municipal waste All other sources recognized or approved by MNRE Obligated entities REC Mechanism Solar Non- Solar Power Exchange Discoms Captive power consumers Open access consumers Other obligated entities Host distribution utility Third party sale Captive power plant Power exchange Price not exceeding pooled cost of power Mutually agreed price Market determined price through power exchange RE C Commodity Sell the ‘electricity generation’ to one entity and the ‘environmental attributes associated with renewable energy generation in the form of RECs’ separately through the market based mechanism like REC to any Obligated Entities Sell the ‘renewable energy’ at preferential tariff fixed by the concerned Electricity Regulatory Commission to an entity

15 © 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. ■REC values the renewable energy attribute of electricity generated from renewable energy based projects ■Price of REC is discovered in the power exchange based on the demand and supply of the RECs in the market, subject to a forbearance price (ceiling price) and floor price determined by CERC ■No solar RECs have been traded so far. Currently, non-solar RECs are being actively traded on both the exchanges (IEX and PXIL) and trading of Solar RECs are also expected to commence soon. REC Mechanism Floor and forbearance price for Solar RECs has been fixed till FY15 at INR 9,880/MWh and INR 13,690/MWh respectively Source:CERC, NLDC, REC Registry of India Forbearance price Ceiling price within which certificates can be dealt Floor price Minimum price above which certificates can be dealt ►Solar ►INR 13,690/MWh ►Non- Solar ►INR 3,480/MWh ►Solar ►INR 9,880/MWh ►Non- Solar ►INR 1,400/MWh Basic minimum requirements for ensuring the viability of RE projects set up to meet the RE targets cover loan repayment & interest charges, O&M expenses and fuel expenses in case of Biomass and Cogeneration Applicable from 1 st April 2012 Highest difference between cost of generation of RE technologies / RE tariff and the average power purchase cost of for the respective states Pricing of RECs as per REC framework

16 © 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16 Contents Why Solar? Why Solar in India? What is Stopping Solar? Our Point of View Policy Focus – State and Center

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Solar Power in India Market Potential is Significantly Large 17 We expect the Solar Market to be about 68 GW by 2022 unlike JNNSM target of 20 GW We forecast 36% of the 56 GW market (from ) to come from utility-scale solar potential Solar rooftops and solar-powered agriculture pump-sets may require government interventions to encourage solar adoption However, utility-scale solar installations would be driven by cost economics of solar power Solar PotentialIn GW ~ ~57.3

18 © 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Solar Grid Parity – When? The point at which grid parity occurs is a function of the rate of increase in conventional power prices and the rate of decrease in solar prices We expect landed cost of conventional energy to consumers to increase over the next decade at the rate of 4% p.a. in base case and 5.5% p.a. in an aggressive case This factors in increasing proportion of raw material imports, cost of greenfield generation and network assets and improvements in operational efficiencies of the utilities We expect solar prices to decline at the rate of 5-7% p.a over the next decade This factors in increasing economies of scale in equipment manufacturing and advancements in product technology thereby improving solar-to-electricity conversion efficiency Note: We expect to reach grid parity in about the same time in the case of CSP too

© 2012 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Solar Grid Parity – Rooftop Market The difference between the landed cost of power and the solar power price at consumer end is on the decline CategorySmall Capacity (<5 kW) Medium Capacity (~50 kW) Large Capacity (>50 kW) ProfileDomestic Households Small Commercial Establishments Large Commercial Establishments / Industries Indicative Solar Rooftop Power Cost (INR/kWh) Prevailing Levelised Tariffs in Gujarat (INR/kWh) LT - Domestic 6.64 LT – Industrial 6.24 HT – Commercial 7.40 Applicability of Accelerated Depreciation Benefit – (INR/kWh) NAApplicable Applicable GAP (INR /kWh) ILLUSTRATION  For large scale commercial and industrial establishments the gap between solar power and tariffs is already very low

© 2012 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Solar Grid Parity – Decentralized Applications Solar power is already economical when compared to diesel powered applications market Today, Solar power price is competitive with the effective price of diesel based power for applications like telecom towers, agricultural pumpsets  India has about 17 mn grid powered pumps and close to 7 mn diesel powered pumps* - Only 7,500 solar pumping systems have been installed for agricultural use Market Potential *Source: Energy Alternative India (EAI) ILLUSTRATION

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Solar Water Heaters 70 million sqm of collector area by 2022 Solar Powered Telecom Towers 3,500 MW by 2022 Solar rooftops 19,000 MW by 2022 Solar Powered Agricultural Pumpsets 16,000 MW by Solar Power in India Decentralized Stand-alone Applications can contribute 65% of the total demand during

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative USB Bn Small Scale Solar Market (Rooftops, Agriculture Pumpsets, Telecom, Solar Lighting) 564 Utility-scale Solar Farms (CSP & PV)1528 Cumulative Investments in 5 year periods USB Bn Solar PV Segment Inverter Market Solar CSP Segment Parabolic Troughs Mirrors Subtotal13 Total USB Bn Solar PV Segment EPC Services Market Solar CSP Segment EPC Service Market Civil Works Subtotal Total Supporting IndustriesSolar Specific Vendor Market Solar Investments in India (Source: KPMG’s Solar Market Size Model) Solar Power in India Indian solar sector offers significant investment opportunities

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. According to a KPMG study, these three drivers could mean the following… 1.Solar power can potentially meet 7% of India’s power requirement in next ten years 2.It can mitigate 2.6% of India’s carbon emissions 3.It can enhance India’s energy security by reducing dependence on energy imports Oil imports stand at around 75% Coal imports expected to increase from 15% to 30% in next 5 years Solar energy can offset 20% of India’s coal imports and save 5% of India’s diesel consumption annually within 10 years, which can result in cumulative savings of USD 25 billion over the next 10 years 23

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