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Cap and Trade is Back Again…

• New regulations require a 25% cut in CO2 emissions by 2020 and 30% by 2030 from 2005 levels.

• Emissions down 16% from 2005 to 2012

EPA Opened the door for cap and trade.

Source: Wikimedia user Edbrown05.

Cap & Trade and Solar

• Solar companies who own power plants could sell renewable energy credits.

• SunPower, SunEdison, SolarCity, and First Solar would be beneficiaries because project economics would improve.

• But there’s a problem…

Don’t Count on Cap & Trade Impacting Solar

• Coal plants are being shut down by the hundreds.

• Industry is more likely to reduce emissions through efficiency.

• Project economics will drive more solar, leading to lower emissions.

• By 2020, emissions will likely be down over 25%.

CO2 Regulations may not matter.

Source: SunPower.

Solar Trade War Continues

• Tariff of 35.21% for Suntech Power, 18.56% for Trina Solar, and 26.89% for everyone else.

• Closes loophole opened by narrow scope of previous tariffs.

US Levied Preliminary Tariffs on Chinese Solar Products

Yingli Panda solar panel. Source: Yingli Green Energy.

Europe Chimes In

• Reportedly, JinkoSolar, LDK, and others have violated minimum price of Chinese panels exported to EU.

• Violates a negotiated agreement that avoided solar tariffs.

• If EU finds this to be valid the price floor could be nullified and tariffs put back in place.

SolarWorld presents evidence that companies have violated minimum price agreement

Impact on Chinese Solar

• Yingli and LDK are highly leveraged and will be most affected.

• Trina Solar sold 31.9% of panels to the U.S. in Q1 2014.

• All Chinese manufacturers will see lower demand as installers transition to other suppliers.

Impact on Installers in U.S.

• Installers like SolarCity, NRG, RGS Energy will move to non-Chinese suppliers.

• SolarCity signed a 100 MW supply agreement with REC Group this week. Option to increase to 240 MW.

SolarCity must adjust to new normal

SolarCity will have to make the biggest adjustment to new tariffs. Source: SolarCity.

Who Wins in Solar Trade War?

• SunPower and First Solar will benefit from higher cost of Chinese panels.

• Look for biggest impact in utility market, where panel cost is larger percentage of installation cost.

• SunPower’s costs improve in residential solar compared to SolarCity, who was a large Chinese module buyer.

U.S. manufacturers come out ahead.

SunPower’s residential business will get a small boost from Chinese solar tariffs. Source: SunPower.

Priming For Growth

• Trina Solar is selling $150 million in convertible debt and 8.8 million shares.

• SunEdison is selling $500 million in convertible notes with a 0.25% interest rate due in 2020 and convertible into 37.2148 shares ($26.87 per share, 30% premium).

• SunPower is selling $400 million in convertible notes with a 0.875% interest rate due in 2021 and convertible into 20.5071 shares ($48.76 per share, 42.5% premium).

Companies turned to the market for new debt this week.

New debt will be used to build project like California Valley Solar Ranch. Source: SunPower.

Adding Value to Shareholders

• SunPower and SunEdison will use new funds to build projects on the balance sheet.

• Selling projects after their completed generates more value than pre-construction sales.

• Projects could also be pushed down to a YieldCo, a strategy both are pursuing.

New solar strategy

Source: SunPower.

News and Notes

• 100 MW project (seen here) in Chile is the largest in the region.

• Built in 6 months.• Energy sold to CAP

Group, largest iron ore and pellet producer in American Pacific coast.

SunEdison complete Latin America’s largest solar project.

Source: SunEdison.

SFR