CASE CHALLENGE 2007 Power Generation of the Future Team: Aukin EADA Business School 3rd of February, 2007.

Outline SWOT Industry Forces Value Chain Bottlenecks Silicon Supply Shortage Value Chain Efficiency Price Competitiveness Production R&D Focus Integration Location Action Plan

SWOT internal side Strengths High growth rate (161%). Profitability rate (15%). Strong equity base due to IPO. Top-notch production lines. International customer base. Location in the PV “Hotspot”. Untapped cost savings potential. Wafer breakage. Highly diversified R&D. New people integration challenge. Weaknesses

SWOT external side Opportunities Climate change. Risks of non-renewable sources of energy. Strong growth of PV market. Government support (OECD). Abundance of raw silicon. Technological advances. Possible cluster integration. PV still minor player in future energy mix (0.3%). Shortage of purified silicon. Price competition. Dependence on governmental incentives. Competition with multinationals. Threats

Industry Forces Cell Producer Suppliers Strong bargaining power of silicon suppliers determines pace of PV industry. OLIGOPOLY PV Systems Buyers FRAGMENTED

Value Chain bottlenecks Silicon Silicon Supply Shortage Value Chain Efficiency Price Competitiveness Ingots Wafer Industry growth requires an optimized value chain. as-is Cells Modules Systems Silicon Ingots Wafer Cells Modules Systems to-be

Silicon Supply shortages secure reduce avoid SolarWorld / Degussa benchmark best practice Sharp Kyocera Shell Solar application Joint Ventures Supply Contracts Silicon Reduction Desinvest  CIGS Source: Company Web Sites

Plastics Industry benchmark best practice application DuPont Rising oil price makes production expensive. Developing fibers out of corn (Sorona®). Oil-based back-up to fight Shell’s Corterra. Source alternative raw materials. Keep existing process in the short run. Shift to new technology secretly. Source: Silicon Supply shortages

benchmark best practice application STMicroelectronics Cross-functional process development teams. Learning curves of 68% to 73% in wafer processing. Use cross-functional teams (production & technology transfer). Exploit learning potential of current production lines. Source: Applied Economics Semiconductor Industry Value Chain efficiency

benchmark best practice application Input of various industry clusters. Many small and specialised businesses. Higher level of energy research. Energy-related education programs. Use your competition to develop competitive advantage. Work towards proximity of all key production factors. Source: Denver Cluster Value Chain efficiency

Silicon Supply Value Chain Efficiency Contracts. Silicon Reduction. Alternative Sourcing. Learning Curve. Technology Transfer. Communication.

Overview 100% Limited Hong Kong Sales Asia Brilliant 234 Tech: thin film Si Location: Thalheim Calixo GmbH Tech: thin film non-Si Location: Thalheim 22%33% 67% Solibro GmbH Tech: thin film CIGS Location: Thalheim 15% Flexcell (SUI) Flex., thin film mod. 12% Solaria (USA) Tech: solar accesory CSG SolarTech: crystalline Si on glass Location: Thalheim Ever Q Tech: string RibbonTM wafer Location: Thalheim REC solar electric designs and installations This is how we perceive the company’s current situation.

Production core product Source: QCells third quarter 2006 Report Identify the source of profit: Q6L. Sales 2006 Sales 2005

Production capacity 38% 21% 43% 36% Production between 50% to 70% of total capacity Cost reduction by increasing capacity Source: QCells third quarter 2006 Report

Reference Silicon dependency can be avoided. Technology Comparison R&D technology Nuclear Energy  1,5 … 2,5 ct/kWh Wind Energy  3,0 … 7,0 ct/kWh CIGS a-Si CdTe Si tf Si Low Production Cost Potential for Production Cost of <€1.00/kWh Potential for High Cell Efficiency ≥17% TARGET TECHNOLOGY CIGS Nuclear Energy  30 … 40% Wind Energy  30% No Silicon needed Efficiency close to 20% Layer on Glass Source:International Solar Electric Technology, Inc.; Q-Cells AG, Driving The Pv Industry Towards Competitiveness Bundesministerium für Umwelt (BMU)

Production Focus R&D Focus Decrease Failure. Increase Production CellThickness, Efficiency, Format. Reduction of Fixed Cost. Core Product. Learning Curve. Focus on CIGS.

Integration value chain Silicon Ingots Wafer Modules Systems Potential to reduce cost. Inbound Potential to reduce dependency. High entry barries for silicon industry. Outbound Fragmented international market. Development away from core competencies. Cost savings potential.

Silicon Ingots Wafer Modules Systems CIGS Modules Systems Silicon STANDARDISATION Economies of scale Increased power over suppliers Increased power over customers Incorporating Si Thin Film String ribbon wafer Develop CIGS Integration value chain

Political Renewable Energy Sources Act (EEG) Subsidies Cooperative Local Government Environmental Industrialised Nation Limited Natural Resources Social High Public Awareness HR Availability Technological Know-how Hub 1 GW installed Location PEST – Germany

17% 83% Bundesrat 69 Representatives FEDERAL LEGISLATION Location renewable energy cluster Renewable Energy Lobbying

Location renewable energy cluster Production Factors Labour Management Schools. Technical Schools. Research Institutions. INNOVATION STANDARDISATION SPECIALISATION Competition Productivity Success FactorsStakeholdersCompetitive Advantage Institutions Tax Incentives. Infrastructure. Promotion. Companies Suppliers. Customers.

Distance to market Logistics cost Long communication channels Reduced competitiveness Short term: Export Medium term: Warehousing Long term: Production ASIA NORTH AMERICA Location international expansion

Integration Location Technology Integration. Downstream Standardisation. Political Risk. Short-term Exports. Renewable Energy Cluster

Action Plan R&D Focus on CIGS. Technology Incorporation. Operations Sales Management Core Products. Learning Curve. Capacity Management. Grow Exports. Foster Standardisation. Lobbying. Cross-department Teams.

Team Aukin (Ah Kin: God of the Sun)