December 5, 2008 ndash; Analyst Comments ndash; Cowen amp; Companyrsquo;s Robert Stone issued an Industry Outlook this morning on solar, concluding that continued growth depends on a stabilization between the euro and dollar, strengthening in project credit, new sources of tax equity and continued government support. He cited a channel check amongst dealers noting that dealers generally expect installation growth to accelerate and interestingly, that dealers donrsquo;t expect module oversupply. He reiterated that government support will be a critical component for growth.

Our take on Stonersquo;s comments is that we completely agree that the factors for growth in solar that he cited will be critical to continued growth. The good news, we think, is that there is strong visibility on each of these fronts:

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Stabilization between the euro and the dollar ndash; many solar companies have taken a hit on the erosion of the euro relative to the dollar, in light of the fact that so much of the solar markets have been in Europe. We see the erosion of the euro against the dollar as a relatively short-term event, and that sooner than later, the dollar is going to soften due to further erosion in the U.S. economy which continues to cause the Treasury to print more money and Washington to issue more debt;nbsp;nbsp;

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Strengthening in project credit ndash; the outlook for project credit it a lot less clear, given the fact that businesses are reigning in budgets and protecting cash positions. That being said, the environment for project credit in the form of subsidies and declining prices (polysilicon prices and module prices) has never been better. In addition, we continue to see improvements in cell efficiencies which will further continue to improve the internal rate of return on solar projects.nbsp;nbsp;

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; New sources of tax equity and continued government support ndash; the legislative environment supporting solar has never been better, and continues to improve, both in the U.S. and abroad. We have seen France recently increase its support commitments and targets for solarrsquo;s contribution to its overall energy production/consumption. Japanrsquo;s subsidies for 2009 are set to kick in. In the U.S. states adopting renewable portfolio standards continue to increase, and states leading in the renewable energy push are increasing their goals, such as California. We expect to see a national RPS in the first year of the Obama administration. And the full benefits of Congressrsquo; extension of the ITC will kick in this January.

CASE IN POINT: This morning, San Diego begins rolling out a plan that will allow residents to pay for solar panels through their property tax bills over 20 years. The privately financed loans will carry a fixed interest rate which can be transferred when a property is sold. With these kinds of programs kicking up throughout California, which is already one of the largest solar markets in the world, and spreading throughout the U.S., this will be a considerable driver for solar growth in the U.S. which becomes even more compelling when consumers can amortize installation costs over years and offset higher energy prices today.

So we think that the key underlying factors whichare critical to driving continued solar growth are well in place. Moreover, solar stocks have been battered so badly that it seems to us that the markets are focused much more on the risks inherent in these factors than scenarios that we have laid out above, which point to stronger growth ahead. If we are right, that the conditions for growth are still very much in tact and in certain cases (legislative) have never been better, then this is a pretty unique window of time to buy growth in solar where only the risk has been priced in.
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