Sunny

July 23, 2009

Industry Report

Think Greentech Takeaways From Call With John Stanton, Solar Energy Industries Association

Reason for Report: Industry Update Colin Rusch 212-468-7015, [email protected]

THINK SUMMARY: Below are our takeaways from our conference call with John Stanton, Solar Energy Industries Association (SIEA). Conclusion: We believe policy clarification in the U.S. will be an ongoing process. We believe Mr. Stanton's commentary on stimulus fund flow were not as bullish as Treasury comments from our call last week and present a realistic scenario for federal policy impact on the solar market. We believe his comments indicate a projected slow ramp in the U.S. solar market in 2H09, with accelerating growth throughout 2010. Mr. Stanton's comments on the climate bill were incrementally positive to our expectations and we believe stronger language supporting transmission authority and Renewable Portfolio Standard (RPS) in a climate bill would benefit solar. Despite the positive comments, we remain cautious on the speed and impact of U.S. federal programs and still would like to see the program in action before coming to a conclusion on its effectiveness. In our coverage universe, we believe that FSLR, SPWRA/B, ENER, and RSOL are most levered to U.S. solar installation growth. KEY POINTS: • Senate appears likely to make major changes to Climate bill, including a strengthened RPS and more support for federal authority to site interstate transmission. • SEIA expecting grant in-lieu of investment tax credit (ITC) to be by November 1 as Treasury improves is capacity to approve projects. • Stanton expects the solar industry to attempt to extend the deadline for qualifying for the grant in-lieu of the ITC. • We expect the Department of Energy loan guarantees to continue to move at an extremely slow pace. Full takeaways continue on page 2.

Please see analyst certification (Reg. AC) and other important disclosures on pages 4-7 of this report.

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Industry Report

• Expect Senate Action on Waxman-Markey to Heat Up in September • Expect Committee Action to Conclude by mid-September: Mr. Stanton noted that September 18 has been set as the deadline for five Senate committees to report out their components of the Senate version of Waxman-Markey. The Environment and Public Works Committee, which has primary jurisdiction over the climate title, is beginning to hold hearings and will move to markup in August or September. Mr. Stanton expressed his belief that EPW would try to pass out a climate title as quickly as possible, and that the climate title would then be referred to Senate Energy Committee Chairman Bingaman for edits. • Expect Senate Leadership to Make Significant Changes to Break Filibuster; White House Support Crucial: Mr. Stanton estimated the current reliable total for "Ayes" on the bill at 53 votes, 7 short of the 60 needed to break a filibuster. • He predicted that Senate leadership, under Majority Leader Reid, would do rewrites of the bill as necessary to ensure 60 votes. Mr. Stanton expects a flurry of leadership activity in September, October, and possibly November to complete the bill, and predicted that a House-Senate conference agreement before Copenhagen would be possible if the Senate can pass its version in September. • Mr. Stanton expressed his belief that a climate bill is unlikely to pass without strong White House leadership. He said that the U.S. needs to pass a conference agreement in order to have necessary credibility at Copenhagen, and that leadership both at the White House and the State Department understand this. • Mr. Stanton also noted that the Administration is working toward a bilateral agreement with China that could be a good predictor both of legislative passage and of a deal getting done at Copenhagen. He expects much of this agreement to reflect recent announcements by China, such as a $10 billion commitment to deploy solar and new efficiency standards for autos and industrial processes. • Solar Provisions in the Senate: Positive on Transmission and PPAs, Potential to Strengthen RPS • The Senate Energy Committee has already passed out an energy title, and Mr. Stanton highlighted several provisions in the title, including federal government PPA terms and stronger federal transmission siting authority, as being highly favorable to solar. He expressed a belief that the transmission provisions would eventually be included in a compromise agreement between the Senate and the House, as transmission access for renewables is a high priority for Senators Reid and Bingaman but less so for House leadership. • On the RPS, Mr. Stanton noted that the low non-compliance penalties (~$0.02/kWh) might not move solar markets, although utilities would likely get pushback from regulators and shareholders if they opted simply to pay penalties rather than develop renewable energy. He predicted that a number of Senators, including Dorgan, Udall (NM), and Udall (CO), would introduce strengthening provisions as amendments that would include the RPS target to 20% by 2025 and could potentially increase the ACP. • On the provisions to set up a Clean Energy Deployment Administration (CEDA), Mr. Stanton noted that there is debate over whether the agency should fund mature or only innovative technologies. The solar industry is pushing for broadly inclusive project authority and would like to see the funding cap raised. • Stimulus Funding: Industry Seeks to Extend Program • Mr. Stanton predicted that the Treasury online application program would be available by August 15 and anticipated first funding flow by November 1. He noted that Treasury has no history with grant programs and predicted that the process would become more efficient with time. • Under the timeline above, the industry would lose 11 out of 24 months in which to claim the grant. Therefore, the solar industry will be seeking a one-year extension of the grant program as part of the Senate Finance title in the climate bill. Mr. Stanton predicted that Senate Finance would take up the climate bill in September, but not until it completes consideration of the health care bill. • Section 1705 Loan Guarantee Program: Interagency Bottlenecks Holding Up Implementation • According to Mr. Stanton, the Office of Management and Budget has been the major roadblock to implementation of the Section 1703 loan guarantee (part of EPACT 2005), and appears reluctant to commit government authority to loan risk. DOE had sent OMB proposed guidance for loan applicants early in 2009, but OMB persuaded DOE to withdraw the rulemaking proposal. It now appears that applications will be reviewed on a case-by-case basis without preceding guidance to applicants. • Furthermore, Mr. Stanton noted that in order to participate in Section 1705 (part of the American Reinvestment and Recovery Act of 2009), applications have to go through National Environmental Policy Review (NEPA) review overseen by the Council on Environmental Quality, which takes 12-18 months. Indications are that NEPA review will not commence until the application is perfected and has initial acceptance. The deadline for projects to commence construction under the loan program is September 30, 2011. Thus, Mr. Stanton predicted that few, if any, projects would be able to take advantage of the loan guarantee program due to the elongated environmental review process. Solar Energy Industries Association (SEIA) will lobby Congress to extend the deadline to commence construction. • In addition, while there is strong support at the Department of the Interior (DOI) for renewable deployment on public lands, the agency is still understaffed. • Mr. Stanton anticipated that the first solicitation would go out in early fall and would likely be for a transmission project. Page 2

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Industry Report

He said that DOE is envisioning a bifurcated application process wherein larger projects will be vetted and cleared by private banking partners with experience in issuing loans for power projects. DOE is working with these banks to get in position for applications. On smaller projects, DOE is hiring 10 senior personnel, primarily legal experts, to review and get the projects approved quickly. However, the interagency bottlenecks at OMB, Council on Environmental Quality (CEQ), and DOI must be addressed. Valuation And Risks To Price Targets For Companies Under Coverage And Mentioned In This Report First Solar (FSLR): We rate the shares Buy with a $180 price target, based on 20x our 2010 EPS estimate of $8.99. Risks: global macro risk, financing risk, customer concentration risk, subsidy risk, technology risk, and increased competition. Energy Conversion Devices (ENER): We rate the shares Source of Funds with a $16 price target, based on 1x Book Value. Risks: Global macro risk, financing risk, customer concentration risk, subsidy risk, technology risk, and increased competition. Real Goods Solar (RSOL): We rate the shares Accumulate with a $3 price target, based on .8x our EV/2010 revenue forecast. Risks: Global macro risk, financing risk, corporate governance risk, credit risk, supply risk, customer risk, subsidy risk, and increased competition. SunPower (SPWRA, SPWRB): We rate the shares Source of Funds with a $21 price target, based on 18x our 2010 EPS estimate of $1.15. Risks: Global macro risk, financing risk, customer concentration risk, subsidy risk, technology risk, and increased competition. RISKS: See above.

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Industry Report

COMPANIES MENTIONED IN THIS REPORT: Company

Exchange

Symbol

Price

Rating

Price Target

Energy Conversion Devices, Inc.

NASDAQ

ENER

$12.98

SoF

$16.00 $180.00

First Solar, Inc.

NASDAQ

FSLR

$151.36

Buy

Real Goods Solar, Inc.

NASDAQ

RSOL

$2.21

Acc

$3.00

SunPower Corporation

NASDAQ

SPWRA

$24.03

SoF

$21.00

SunPower Corporation

NASDAQ

SPWRB

$21.19

SoF

$21.00

Important Research Disclosures Analyst Certification I, Colin Rusch, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's total revenues, a portion of which is generated by investment banking activities. ThinkEquity LLC makes a market in Real Goods Solar, Inc., First Solar, Inc., SunPower Corporation, SunPower Corporation, and Energy Conversion Devices, Inc. securities; and/or associated persons may sell to or buy from customers on a principal basis.

Rating and Price Target History for: Real Goods Solar, Inc. (RSOL) as of 07-22-2009 06/18/08 I:B:$10.00

11/05/08 B:$7.50

05/29/09 A:$3.00

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Rating and Price Target History for: First Solar, Inc. (FSLR) as of 07-22-2009 12/27/06 I:B:$35.00

02/05/07 B:$38.00

02/14/07 B:$50.00

04/02/07 B:$68.00

05/04/07 B:$80.00

07/03/07 B:$115.00

07/17/07 B:$145.00

11/09/07 B:$310.00

05/01/08 A:$340.00

07/31/08 B:$350.00

10/30/08 B:$175.00

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2007 12/12/08 SoF:$105.00

02/25/09 S:$60.00

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07/08/09 B:$180.00

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Rating and Price Target History for: SunPower Corporation (SPWRA) as of 07-22-2009 04/02/07 B:$60.00

04/27/07 B:$70.00

07/18/07 B:$85.00

10/19/07 B:$120.00

11/12/07 B:$155.00

09/16/08 B:$89.00

01/28/09 A:$35.00

05/29/09 SoF:$24.00

07/08/09 SoF:$21.00

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Industry Report

Rating and Price Target History for: SunPower Corporation (SPWRB) as of 07-22-2009 01/30/09 I:B:$35.00

05/29/09 SoF:$24.00

07/08/09 SoF:$21.00

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Rating and Price Target History for: Energy Conversion Devices, Inc. (ENER) as of 07-22-2009 05/29/09 I:SoF:$16.00

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Rating Definitions The ThinkEquity LLC rating system is based on a stock's expected total return over a 12-month investment horizon. Ratings on coverage are defined as follows: Buy: Appreciation potential of 20% or more over the next 12 months. Analyst has a high level of conviction that the company's business fundamentals are intact and that the company will meet or exceed earnings projections. Valuation is considered reasonable considering the company's potential. Accumulate: Appreciation potential greater than 0% and less than 20% over the next 12 months. Typically good companies, with fundamentals and earnings visibility intact, but current valuation limits upside potential.

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Source of Funds: Stock is expected to decline as much as 20% over the next 12 months, due to a single or combination of factors including excessive valuation, negative sector sentiment, and/ or reduced earnings expectations. Sell: Stock expected to decline 20% or more over the next 12 months. Company fundamentals are deteriorating, leading to material downward revisions in earnings projections and valuation. Distribution of Ratings, Firmwide ThinkEquity LLC IB Serv./Past 12 Mos. Rating

BUY [B] HOLD [Acc] SELL [S/SoF]

Count

Percent

Count

Percent

105 70 25

52.50 35.00 12.50

14 5 0

13.33 7.14 0.00

This report does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. The opinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. This research report was originally prepared and distributed to institutional clients of ThinkEquity LLC. Recipients who are not market professionals or institutional clients of ThinkEquity LLC should seek the advice of their personal financial advisors before making any investment decisions based on this report. Additional information on the securities referenced is available upon request. In the event that this is a compendium report (covers more than six ThinkEquity LLC-covered subject companies), ThinkEquity LLC may choose to provide specific disclosures for the subject companies by reference. For more information regarding these disclosures, please send a request to: Director of Research, ThinkEquity LLC, 600 Montgomery Street, San Francisco, California, 94111. Stocks mentioned in this report are not covered by ThinkEquity LLC unless otherwise mentioned. Member of the FINRA and SIPC. Copyright 2009 ThinkEquity LLC, A Panmure Gordon Company

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